Moody’s on overseas acquisitions by Japanese and Chinese insurers

The surge in overseas acquisitions by Japanese and Chinese insurers reflects the respective dynamics of these two markets, and is raising diverging credit risk, according to Moody’s Investors Service. The rating agency said that Japanese insurers seek growth abroad amid stagnant operating conditions and a lack of investment opportunities at home, with non-life insurers focusing on franchise expansion.

“Japanese insurers have predominantly been acquiring companies with strong ratings and leading positions in mature markets,” said Sally Yim, a Moody’s Senior Vice President. “The larger size of these Japanese transactions implies that the key credit challenges will come from the potential transformation in the acquirer’s franchise and a deterioration in its financial position, especially if the transaction is debt-funded.”

She went on: “Chinese insurers, with still ample growth opportunities at home, are primarily seeking diversification, and have predominantly been acquiring mid-tier players that provide long-term value creation and business growth opportunities.”
These acquisitions are often smaller in size, thus limiting the potential credit impact, but are also of a riskier nature due to the targets’ often unfamiliar markets and lines, says Moody’s.