UPDATE: Nippon Life To Buy Allianz Subordinated Bond For EUR500 Million

TOKYO (Dow Jones)--Major life insurer Nippon Life Insurance Co. said Tuesday it will invest about EUR500 million, or about Y60 billion, to buy a 1% to 2% stake in German insurer Allianz, the latest in a series of efforts by Japanese insurers to extend their global reach to offset the limited growth prospects of the domestic market.

The Tokyo life insurer said it will spend the amount on convertible subordinated bonds to be issued by a financial unit of Allianz. The transaction will be completed by July 7 and by exercising the conversion right, Nippon Life will be able to obtain Allianz common shares at any time within next 10 years.

A Nippon Life spokesman said that while the eventual holding depended on various factors, the company would end up with a stake between 1% and 2% of Allianz shares based on current share prices.

The move underscores how the nation's life insurance sector feels in dire need of finding global partners at a time when Japan's population is shrinking and its life-insurance industry is seen as saturated, dimming future growth prospects.

With this concern in mind, Nippon Life has already formed several business tie-ups with foreign financial institutions including U.S. Prudential Financial Inc. in 2009 and Northwestern Mutual Life Insurance in 2010. In March it also agreed to buy about a 26% stake in India's Reliance Life, a unit of Reliance ADA Group for Y60 billion.

Other major life insurers have also been looking to invest overseas.

Dai-ichi Life Insurance Co. (8750.TO) has been among the most active, buying Tower Australia Group Ltd. for about Y99.6 billion earlier this year to add to investments in Vietnam and Thailand over the past few years.

Japanese nonlife insurers have also been active in making acquisitions. Last year, MS&AD Insurance Group Holdings Inc. (8725.TO) bought a 30% stake in Hong Leong Assurance Bhd. in Malaysia for about Y27 billion and NKSJ Holdings (8630.TO) acquired a majority stake in Turkey's Fiba Sigorta Anonim Sirketi for Y27 billion.

As for the domestic life insurance sector, despite market saturation, consolidation of market players has been progressing at a relatively slow pace because most insurers including Nippon Life are still mutualized.

-By Hiroyuki Kachi and Atsuko Fukase, Dow Jones Newswires; 813-6269-2789; [e-mail]