The $900 million acquisition of Westpac’s life insurance arm will strengthen Japan’s Dai-ichi Life Holdings position as the largest life insurer in Australia, according to Fitch Ratings.

As reported last week, Dai-ichi’s Australian subsidiary TAL entered into a binding share agreement to purchase the business.

The agreement comprises a cash consideration of $900 million plus adjusted net worth on completion, as well as a 20-year exclusive strategic distribution alliance for the provision of life products to the bank’s customers.

Completion of the transaction is subject to various regulatory approvals and is expected to occur in the second-half of the 2022 calendar year.

Fitch says TAL’s contribution has been rising to 5-10% of the group’s consolidated adjusted profit.

The ratings agency says TAL expects the 20-year exclusive strategic alliance to result in a more efficient cost structure due to economies of scale.

“The stronger market position, including the addition of sales channels, will make TAL more competitive.”

Fitch says the Australian market is one of the biggest developed life insurance markets in the Asia-Pacific region excluding Japan, with a sound infrastructure and regulatory regime.

However, it is highly competitive with weak returns, especially in individual disability income insurance, and has been subject to heavy regulatory scrutiny.

Still, there are benefits for Japanese insurers that are looking to Australia as an earnings growth source.

“We believe acquisitions would provide attractive geographical and business diversification for Japanese insurers’ business profiles,” Fitch says.

“Australia’s population is still growing steadily, unlike those of Japan or western Europe, thereby providing sustained growth opportunities in the medium-to-long term.”