Chinese M&A activity to continue despite challenges, says Best
Merger and acquisition (M&A) activity among insurance companies in China will continue in 2017 but could be hampered by government policies and an uncertain economic outlook in China, according to AM Best.
A Best special report – Chinese Mergers & Acquisitions Activity Continues Amid Evolving Regulatory and Policy Environment – notes that M&A activity among insurance companies in China has been increasing in recent years, with a higher proportion of M&A deals taking place overseas, as Chinese buyers have sought to diversify their assets and expand their businesses internationally. This has been driven by the increasingly competitive domestic market.
However, the report states that the economic outlook, combined with government policies that are still evolving in the country and overseas, could put a dampener on M&A activity in 2017. “With the expectation of further yuan depreciation, insurers have sought overseas assets, particularly real estate in mature markets while their purchasing power lasts. However, the CRC recently has imposed stricter controls on insurers’ investments, including the acquisition of overseas assets,” states Best.
The report notes that China’s foreign currency reserve plunged significantly in the past ten months, and this combined with depreciation pressure on the yuan, could lead to tightening regulatory approval on insurers’ overseas acquisitions.
Nevertheless, Best says it expects M&A activity in China to continue as a long-term trend and vital part of China’s economic development, despite the various challenges. It points out that the regulator has said the current market-oriented reforms will continue, “but it will impose a more rigidly structured regulatory system as it aims for greater transparency and prudent supervision of the industry’s rapid growth”.
