With Asia emerging as one of the fastest growing regions for insurance, many firms are going down the mergers and acquisitions (M&A) route to rapidly expand their holdings in the largely lucrative region.
Insurance Business discussed recent trends about insurance M&A with Ian Stewart (pictured), partner at international law firm Clyde & Co’s Singapore branch, in order to find out what reasons are behind, and what to expect in the future with regard to, the M&A wave.
What is your most significant observation from the uptick in Asian insurance M&A in the first half of the year?
The most important take away from the increased activity in the Asian insurance M&A market over the [first half] is that buyers and sellers remain confident that there are deals to be done. In Southeast Asia, buyers remain convinced that there are insurance assets that can provide the necessary platform from which to deliver strong growth as the region matures and insurance penetration rates begin to catch up to other major markets. From the sell side, despite a recent perception that insurance assets in the region have been overpriced, there is confidence that the right target can still generate strong multiples and positive returns.
How do regulators’ efforts to drive consolidation (by raising capital requirements) impact the industry?
Regulators in a number of Southeast Asian markets have, in recent years, taken steps to increase the capital obligations imposed on insurers and in some of the emerging regional markets, this has been undertaken as part of a package of reforms aimed at consolidation. Most recently, we have seen this occurring in the Philippines, where the number of licensed non-life insurers has been reduced by approximately 15% as a result of licenses being withdrawn or suspended due to a failure by local companies to meet revised capital targets. In the short term, such regulatory action will understandably place pressure on insurers and may force some to either restructure or bring on board additional investors. But in the longer term, such changes should lead to a more robust local market that inspires greater consumer confidence, which is critical to the growth of the industry going forward.
How does Singapore figure in the region’s M&A landscape? Is it less active, more active - likely to surge?
Singapore has been a very active market for M&A during the past 12 months, with deals in the real estate, financial services and technology sectors attracting considerable attention. Specifically in the insurance sector, Singapore has seen some very large transactions complete over the past year with Singapore Life and Mitsui Sumitomo each acquiring significant local assets. Due to the fact that the Singapore insurance market remains open to new entrants and benefits from a strong local talent pool, we would expect that most Singapore insurance M&A activity will continue to occur at the top end of the market, for acquirers looking to purchase large books of business and extensive pre-existing distribution networks. However, as technology continues to change the way insurers do business, it can be expected that there may be a rise in smaller deals in the insurtech space, with acquirers being drawn to Singapore’s rapidly developing reputation as a regional insurtech hub.
What do you expect to see in the M&A market in the region in the coming years? Can we expect high M&A activity to continue or level off soon?
It is difficult to make longer term predictions for Southeast Asia in respect of insurance M&A activity, as local opportunities will continue to be shaped by market conditions in other major regional insurance hubs – at a time when those markets are going through a sustained period of uncertainty and change. However, while countries in South East Asia continue to prosper economically and if the ASEAN Economic Community (AEC) can unlock broader regional opportunities, then there is a real basis for optimism that M&A activity will continue to remain strong over the coming years.
