Japanese insurance companies are preparing to follow up on recent regulatory changes in China’s financial sector by pursuing a spree of new mergers and acquisitions (M&A) deals in the country, according to sources at Reuters.
With $53 billion spent on M&A deals since 2014, Japanese insurers are currently one of the world’s largest buyer’s of insurance assets, second only to the U.S.
Companies have focused on overseas expansion in recent years due to the fast-maturing domestic market in Japan, but have avoided potential targets in China due to foreign ownership limits and uneasy diplomatic relations.
However, China is now set to allow foreign companies to own majority stakes in its domestic insurance joint ventures, and both China and Japan are hoping to form closer business ties with the U.S, banking sources told Reuters.
“Now finally with the easing of foreign shareholding, they would jump in,” said Linda Sun-Mattison, an Asian insurance analyst at Bernstein. “China is probably the biggest opportunity in the life insurance sector.”
China is in the process of allowing overseas firms to own 51% of its life insurance join ventures, and has pledged to remove the foreign ownership limit completely within three years.
“While you will see a few big deals happening in the U.S., the number of transactions will definitely be more in Asia … where the Japanese insurers need to consolidate their position,” a Hong Kong-based financials head at an investment bank told Reuters.
Meanwhile, spokespeople for Dau-ichi Life and Sompo Holdings said that, while the they have no current plans to focus on expansion in China, they will continue to look for opportunities in the market.
With life insurance market penetration of just 3% of GDP and a growing middle class, China represents a fertile market for foreign insurers seeking geographical diversification.
This is particularly true of Japanese insurers, who will be looking to offset costs following a heavy year of catastrophe losses.
