For insurers, expansion into Asia Pacific and becoming a
regional player in the region poses particular challenges. These
challenges include the fragmented and often rapidly changing
regulatory environment and the increased acquisition and
integration risk associated with cross-border M&A transactions.
A number of major deals announced since late 2009, including
Prudential's acquisition of AIA, AXA SA's bid for the Asian
operations of AXA Asia Pacific and AMP's partnership with China
Life Insurance, have emphasised the importance of the Asia Pacific
region as a growth opportunity for insurers. With Western economies
expected to show only slow growth over the next three to five
years, and maturing insurance markets in many Asian countries, the
Asia Pacific region offers the dual attraction of higher economic
growth and an expanding market for insurance products. Accordingly,
we expect that these transactions mark only the start of a period
of substantial investment by insurers and other financial
institutions in the region over the next decade. This is also
consistent with the results from our recent survey entitled
"Financial institutions in the future: Global financial
recovery" which found, among other things, that 68 per cent of
respondents expected there to be a permanent shift in the economic
power from West to East following the GFC.
The fragmented and developing regulatory environment in the
Asian region is and will continue to be a substantial cost burden
for any regional player and one that any aspiring regional player
needs to take into account. Each country has its own regulations
and regulator (or regulators) and, accordingly, the region needs to
be approached on a country-by-country basis. Our "Financial
institutions in the future" survey highlighted both the
desirability of increased consistency in regulatory standards on a
global basis and the improbability that this will occur with 81 per
cent of respondents indicating that a global regulatory standard
was desirable but only 39 per cent of respondents believing that a
global regulatory standard was workable. Consistent with the survey
results but at a regional level, we see no real prospect of
increased regulatory consistency in Asia in the foreseeable future.
Further, regulators in many AP
countries, including China and India, are still working to develop
their regulatory frameworks to match those of developed countries
with mature insurance markets. Ongoing changes to regulations
– including potential changes to capital adequacy
requirements – are a feature of these markets.
Accordingly, any aspiring regional player needs to be well-informed
and up to date on the differing regulatory regimes across the
region and the methods that might be available to smooth the
regulatory differences between jurisdictions. In forthcoming issues
of the IFS
Bulletin, we will examine particular aspects of the regulatory
regimes and how they differ between the countries and provide some
insight into how regional players deal with the different
regulatory regimes. We will also keep you up to date with any key
regulatory developments in the region.
Any M&A transaction is risky but an acquisition in a new
jurisdiction is one that carries with it an extra level of
complexity and risk. This means that there needs to be an even
greater focus on the fundamentals – ensuring there is a
sound rationale for the transaction, undertaking thorough due
diligence, including regulatory, political and cultural due
diligence, and planning and executing the integration carefully.
The additional complexity of cross-border transactions also creates
additional work and, accordingly, it pays to assess your internal
resources and capabilities to ensure that you have the right people
in the right numbers to complete the transaction and the
integration. Research indicates that acquirers typically
underestimate the amount of managers' time that will be
absorbed by an M&A transaction and we think that this is
particularly so in cross-border transactions. In coming issues of
the IFS Bulletin, we will examine the foreign investment
restrictions and approval processes in countries throughout the
region, discuss structuring variations and update you on any
M&A trends we see developing for M&A players in the region.
We will also update you on any regulatory changes that impact on
the insurance M&A market.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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