UPDATE: Tokio Marine To Buy Delphi Financial Group For $2.66 Billion

Tokio Marine Holdings Inc. (8766.TO) said Wednesday that it has agreed to buy Delphi Financial Group Inc. (DFG) for $2.66 billion, or Y205 billion, in the latest sign of how the yen's strength is providing Japanese firms with ammunition to hook up with companies outside Japan to offset the dim outlook at home.

Japan's largest nonlife insurer by market value said the transaction for the Delphi shares is expected to be completed in the April-June quarter of 2012. Tokio Marine said it will include earnings from the Wilmington, Del.-based company in its group results from the fiscal year beginning April 2012.

The move is the latest illustration of how the nation's insurance sector has been actively looking for a bigger slice of market share and growth opportunities outside of its home market through M&A activities, in the face of headwinds in Japan, with its shrinking population and sluggish economy. The yen's strength is also giving Japanese companies a catalyst to press ahead with the buying spree.

The company said the U.S. life insurance and casualty insurance market is the biggest in the world with a market size valued at Y89 trillion and still has potential for future growth. The deal, it said, will help further strengthen Tokio Marine's business base in the U.S.

The nonlife insurer said the deal will boost its profit sources from overseas business activities, estimating that 46% of its profits will come from activities outside Japan after the deal, compared with the current ratio of 37%.

"The acquisition of Delphi is an important step in this development, serving to further diversify our business mix in the United States," said Shuzo Sumi, President of Tokio Marine. "Delphi is an outstanding insurance group with a strong focus on niche business lines in the employee benefits market," he said.

Delphi is a financial services company focused on specialty insurance and insurance-related businesses. It racked up core premium and fee income worth $1.42 billion in the year ended December 2010.

Tokio Marine has already made significant overseas acquisitions, buying U.K. insurer Kiln for about Y95 billion and U.S. Philadelphia Consolidated Holding Co. for $4.7 billion in 2008.

In August, the company said it would acquire the remaining shares it doesn't already own in First Insurance Company of Hawaii Ltd. for about $165 million (Y12.9 billion).

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