Tokio Marine Holdings Inc., Japan’s second-largest non-life insurer, is seeking to expand in Southeast Asia as Japan’s shrinking population erodes its domestic market.

The insurer plans to expand in life insurance, automobile coverage, reinsurance and asset management, President Tsuyoshi Nagano said. The Tokyo-based company will increase its presence both organically and through possible takeovers, he said, declining to elaborate.

Japanese insurers are being lured by the region’s growth potential as they grapple with an aging society and shrinking population at home. Tokio Marine is expecting premium income from casualty and life insurance businesses in Asia to increase 19 percent and 9.2 percent respectively this business year, according to its business plan released in May.

“Asia definitely has potential for growth, given the region’s economic outlook,” Nagano, 60, who became the president in June, said in an interview in Tokyo. “Asean nations will be the place we will be focusing.”

The 10-member Association of Southeast Asian Nations or Asean includes Indonesia, Thailand, Malaysia, Singapore, Brunei, the Philippines, Cambodia, Laos, Myanmar and Vietnam. Formed in 1967, it has a combined gross domestic product of more than $1 trillion. Asean nations are expected to expand 5.6 percent in 2013, compared with 0.6 percent shrinkage in the euro area, the International Monetary Fund forecast July 9.

Tokio Marine shares dropped 0.6 percent to 3,190 yen as of the 11:30 a.m. trading break in Tokyo, set for the lowest close in a month. The decline pared the gain this year to 34 percent, compared with the 32 percent advance by the benchmark Topix index.

Regional Attraction Companies around the world have announced acquisitions of about $7 billion of insurance assets in Southeast Asia over the past two years, data compiled by Bloomberg show.

Meiji Yasuda Life Insurance Co., Japan’s third-biggest life insurer, last week said it agreed to buy a 15 percent stake in closely held Thai Life Insurance Pcl to meet rising demand in the Southeast Asian nation. Dai-ichi Life Insurance Co. said in June it will acquire 40 percent of Indonesia’s PT Panin Financial Tbk for 3.3 trillion rupiah ($323 million).

“The benefits of expansion primarily revolve around growth potential and risk diversification,” said Makarim Salman, an analyst at Jefferies Group LLC in Tokyo. “The challenges are going to include making sure they don’t overpay, foreign exchange risks, political risks and also being able to exercise sufficient guidance even in the case of minority stakes.”

Stable Growth Salman rates Tokio Marine’s stock a buy with a target price of 4,825 yen, according to data compiled by Bloomberg.

In the life insurance business, Tokio Marine has started to record “stable profit growth” in Singapore and Malaysia, Nagano said, adding that the insurer aims to establish similar growth in Indonesia and India. For the casualty business, the company wants to expand the existing operation in countries including Hong Kong, Thailand and the Philippines, he said.

The challenge in Asia is to find “reasonable and good deals” with some countries having regulatory hurdles that force foreign companies to seek partnerships locally, Nagano said.

“Acquisitions will be a possible option as a means for expansion,” he said.

In December 2011, Tokio Marine announced the $2.7 billion acquisition of Delphi Financial Group Inc. after buying Philadelphia Consolidated Holding Corp. in 2008 for about $4.7 billion. The two purchases were the biggest by a Japanese insurer since 2001, according to data compiled by Bloomberg.

Tokio Marine in May forecast net income for the full year through March 2014 to rise 31 percent to 170 billion yen. It expects premium income from casualty insurance and life insurance businesses in Asia to rise to 95 billion yen and 56 billion yen this fiscal year.

“It’s important for a Japanese insurer like us to lay eggs in different parts of the world given the potential for natural disaster risks at home,” Nagano said.

–With assistance from Joyce Koh in Singapore. Editors: Linus Chua, Iain McDonald