Insurers mull M&A-driven growth in Hong Kong

Against a backdrop of low growth and lower interest rates in the US and European economies, insurers are looking overseas to Asia and in particular Hong Kong at M&A strategies to grow revenues and tap new technologies.

This is according to a research by Willis Towers Watson, produced in conjunction with Mergermarket, which surveyed 200 senior executives in the insurance industry, split equally across the Americas, Asia and EMEA regions.

The report found that while only 5 percent of respondents currently generate more than half of their profits outside their home region, 15 percent expect to do so three years from now.

A lot of the interest in Hong Kong is largely driven by mainland China. Of the 21 proposed takeovers of Hong Kong insurers in the past three years, nine were led by mainland Chinese companies, according to Thomson Reuters data.

“Hong Kong’s emergence as a hub to capture a flow of savings out of mainland China comes against a backdrop of Beijing’s elevated scrutiny on capital outflows to strengthen the yuan,” said Kevin Angelini, head of strategy for the insurance consulting and technology business in Asia Pacific at Willis Towers Watson.

Angelini added that interest from mainland China also makes Hong Kong attractive to other overseas buyers.

“Not only are mainland Chinese companies acquiring insurers in Hong Kong. In recent years, mainland Chinese individuals are also increasingly buying insurance policies in Hong Kong to gain access to more product options, including the option of buying policies denominated in US dollar or Hong Kong dollar, which provide a hedge against fluctuations in the yuan,” he said. “This has pushed up the total sales of insurance products in the city, thereby making the city an attractive target for many new investors.”

Some of Hong Kong's appeal stems from its well-regulated free market, with good profitability, mature insurance customers, abundant cash flow, robust solvency ability, strong management experience, and access to international capital markets.

One of the trends in terms of M&A is acquisitions of insurers by big tech giants. In January 2017, Aviva agreed to sell two-thirds of its Hong Kong life business to Tencent and Hillhouse Capital with the aim of setting up a new digital insurer.
In August 2017, Alibaba-backed Yunfeng Financial bought the Asia unit of MassMutual for $1.7 billion, with the goal of integrating robo-advisory technology and advanced data analytics into the insurance industry.

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