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Investment income pressure and stricter solvency requirements will drive consolidation

2023 will likely see an increase in insurance consolidation, particularly among life insurers, in the Asia region, according to a commentary by Ms. Joyce Chan, a partner at the global legal firm Clyde & Co in Hong Kong.

A combination of difficult investment conditions and an increased regulatory focus on insurer solvency, notably in Hong Kong, will drive interest in M&A this year and beyond, says Ms. Chan in a blog that is part of Clyde & Co’s “Insurance 2023 – the year ahead” series of market insights.

In Hong Kong, for example, the life insurance market is made up of large global players and a number of regional, local companies. Many of those smaller, regional companies are likely to become potential merger and acquisition targets as economic conditions, particularly rising interest rates, make asset investment returns more challenging.

On top of that, the upcoming risk-based capital (RBC) regulatory regime that is anticipated to come into force for insurers in Hong Kong in 2024 is prompting many life insurers to examine their solvency requirements.

The three-pillared RBC rules are being developed in accordance with the International Association of Insurance Supervisors’ principles and will be similar to other global standards such as Solvency II in Europe and the IAIS’ Insurance Capital Standards.

The RBC regime will certainly be a catalyst for companies to re-examine their strategies and solvency positions. And as well as an increase in M&A, the RBC rules will probably prompt 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, an increase in interest in these types of transactions is expected in 2023 and beyond.



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