Japan Insurers Sell $11 Billion Cross-held Shares Ahead of Plans

Japanese non-life insurers have announced plans to sell off a significant portion of their cross-held shares, totaling approximately JPY9 tn (USD67 billion), over the next few years. This move is driven by a combination of regulatory pressure and investor demands for improved capital efficiency. The first phase of this divestment, expected to occur in the fiscal year ending March 31, 2025, involves the sale of about JPY1.5 tn (USD11 billion) worth of shares.

The Financial Services Agency (FSA) has ordered four major non-life insurance companies to expedite the sale of their cross-held shares, following the discovery of rigged insurance premiums for corporate clients. This directive aims to improve competition and corporate governance in the industry. By complying with these orders, insurers can rebuild trust with investors and regulators, which is crucial for their long-term success.

The unwinding of cross-shareholdings is expected to have a significant impact on the stock prices of the companies involved. The large-scale selling could create a supply-demand imbalance, putting downward pressure on the stock prices of the companies being divested. To mitigate potential selling pressure, some companies are taking proactive measures, such as stock buybacks. MS&AD Insurance Group Holdings Inc. and Tokio Marine Holdings Inc. have announced plans to buy back JPY1.4 trillion (USD10.5 billion) and JPY200 billion (USD1.5 billion) worth of shares, respectively, this fiscal year.

However, not all companies may be able to effectively mitigate selling pressure through share buybacks. Seino Holdings (9076), for example, has not conducted a share buyback since major non-life insurers announced the sale of cross-sharing stocks. As a result, the company has been unable to eliminate selling pressure, leading to stagnant stock prices. Therefore, it is crucial for companies to have strong financial and historical share buyback data to identify those that can respond to selling pressure effectively.

In summary, Japanese non-life insurers' decision to sell $11 billion worth of cross-held shares is primarily driven by regulatory pressure and investor demands for improved capital efficiency. This move is expected to impact the stock prices of the companies involved, potentially putting downward pressure on their share prices. To mitigate this selling pressure, some companies are taking measures such as stock buybacks. However, the effectiveness of these measures may vary depending on the company's financial strength and ability to absorb the selling pressure.