Life insurance M&A will pick-up in Asia

Investment income pressure and stricter solvency requirements will drive consolidation and an increase in portfolio transfers

Next year will likely see an increase in insurance consolidation, particularly among life insurers, in the Asia region. A combination of difficult investment conditions and an increased regulatory focus on insurer solvency, notably in Hong Kong, will drive interest in M&A next year and beyond.

In Hong Kong, for example, the life insurance market is made up of large global players and a number of regional, local companies. Many of those smaller, regional companies are likely to become potential merger and acquisition targets as economic conditions, particularly rising interest rates, make asset investment returns more challenging. On top of that, the upcoming risk-based capital (RBC) regulatory regime that is anticipated to come into force for insurers in Hong Kong in 2024 is prompting many life insurers to examine their solvency requirements.

The three-pillared RBC rules are being developed in accordance with the International Association of Insurance Supervisors’ principles and will be similar to other global standards such as Solvency II in Europe and the IAIS’ Insurance Capital Standards.

The RBC regime will certainly be a catalyst for companies to re-examine their strategies and solvency positions. And as well as an increase in M&A, the RBC rules will probably prompt some life insurers to consider restructuring their legacy books of business either through loss portfolio transfer reinsurance solutions or portfolio transfers.

To date, loss portfolio transfers have not been that commonly used in Asia, but as companies ready themselves for new solvency requirements and grapple with increasingly testing investment conditions, we can expect to see an increase in interest in these types of transactions as we head into 2023 and beyond.

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