A trio comprising some of Japan’s biggest insurance companies is in negotiations towards a three-way merger that would create a nearly unrivalled giant in the sector, say sources close to the deal.

The transaction, which is expected to be announced formally within the next few days and would unravel some of the deadlock that has stymied industry consolidation, would mean that the country’s second-largest player, Mitsui Sumitomo Insurance Group Holdings will link up with Aioi Insurance and Nissay Dowa General Insurance, the fourth and sixth biggest respectively.

The deal comes as Japan’s non-life insurance sector is being bombarded with bad news from all quarters. A rapidly aging population and an unexpectedly savage decline in car sales leaves the non-life side of the industry in desperate search of decent growth streams.

With the three groups bolted together as they stand, the combined company would have a domestic market share of about 33 per cent, handing the new titan a clear lead over Tokio Marine, with 27 per cent.

Suggestions that the three were in talks were denied by the companies in terms which analysts said “clearly does not rule out the possibility of such a megamerger”. The speculation also provided a much-needed fillip to Japanese stocks.

With Japanese shares only limply resisting a deluge of terrible economic data, market rumours surrounding the negotiations reversed an otherwise bleak day for Tokyo stocks. Investors have long expected a spate of consolidation within Japan’s fragmented non-life insurance industry, and believe that there is plenty of room for more to come.

David Threadgold, a financials analyst at Fox, Pitt-Kelton in Tokyo, said in a note to clients that the deal, should it be completed as reports suggest, would be good: the industry would shift to being even more of an oligarchy and therefore help prevent undesirable price competition, he said.

The consolidated non-life insurance premium revenues in the most recent financial year amounted to Y2.73 trillion. Sources close to two of the companies involved told Times Online that there had still been no clear decision on how the merger — and the eventual integration of operations — would be structured. In keeping with the clearly defensive nature of the deal, though, there will be a heavy emphasis on cost-cutting and the establishment of a decent centralised information system.

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