Insurers banking on mergers and acquisitions (M&A) for growth are looking at Asia, particularly Hong Kong, a new study has revealed.
Advisory and broking firm Willis Towers Watson surveyed 200 global insurance executives, finding that 5% of insurers generate the majority of their profits outside their home markets.
But that number is expected to triple within the next three years.
Growing numbers of insurers are looking overseas for acquisition opportunities, and Hong Kong is one of the markets that foreign insurers find most attractive, the study found.
Though Mainland China is heading the pack in the race for viable Hong Kong insurance firm purchases – with nine of the 21 proposed takeovers of Hong Kong-based insurers in the three years led by mainland Chinese companies, according to data from Thomson Reuters – others are following suit.
“Hong Kong’s emergence as a hub to capture a flow of savings out of mainland China comes against a backdrop of Beijing’s elevated scrutiny on capital outflows to strengthen the yuan,” said Kevin Angelini, head of strategy for Willis Towers Watson’s insurance consulting and technology business in Asia-Pacific.
Interest in Hong Kong from buyers in other markets has also increased, demonstrating the city’s appeal as a well-regulated free market with good profitability, mature insurance customers, abundant cash flow, robust solvency ability, strong management experience, and access to international capital markets.
The report also found that many non-insurance companies were entering the insurance sector in Hong Kong, and these companies may have different goals.
“The expansion of the insurance business can offer a long-term and low-cost channel to gain access to capital so that buyers can reinvest the premiums to feed their other business — such as real estate — which could yield higher investment returns. That said, a future challenge will be effective Asset-Liability Management (ALM) of the insurance portfolio and potentially also Capital Management,” said Angelini.
Unlike traditional insurer-to-insurer acquisitions, where the transaction is made in order to gain access to more customers, mainland Chinese non-insurance buyers have a reverse approach.
“They already have the customers, but they need the financial mechanism to serve them,” Angelini said. “Buying an existing insurance company will immediately provide the relevant licences, business infrastructure, and qualified management staff.”
And the acquisitions so far have been large.
In 2015, private equity firm JD Capital spent HKD10.7 billion to acquire the Hong Kong life insurer Ageas, which was rebranded as FTLife. While in 2016, mainland Chinese real estate company Fujian Thai Hot Investment paid HK$10.6 billion for the life insurance operations of Dah Sing Financial Holdings.
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