Life insurance M&A to pick up across Asia

Joyce Chan, Clyde & Co partner in Hong Kong, said the pick-up in portfolio transfers and M&A activity would likely be driven by investment income pressure and stricter solvency requirements in the region.

Chan zeroed in on the situation in Hong Kong and the upcoming Risk-Based Capital (RBC) regulatory regime as an example.

According to Chan, the life insurance market in Hong Kong is made up of large global players and a number of smaller regional companies. As rising interest rates and economic headwinds make asset investment returns “more challenging,” many of these smaller companies are expected to become “potential M&A targets.”

The implementation of the new RBC rules would make this even more likely, with the regime being developed in accordance with the principles of International Association of Insurance Supervisors, similar to other global standards such as Solvency II in Europe.

“The RBC regime will certainly be a catalyst for companies to re-examine their strategies and

solvency positions,” Chan said, in addition to prompting 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,” Chan said.

Other predictions featured in Clyde & Co’s insurance industry report include excessive policyholder coverage arguments becoming less impactful in a post-covid 2023 market and risk mitigation strategies falling to more scrutiny against a fast-evolving D&O claims landscape.