Foreign Insurers Look at Potential Acquisitions in a Weakened U.S. and E.U.

Asian Insurers May Buy in U.S., E.U.; Bermuda Beefs Up Regulators; Zurich Favored for Acquisition

Asian insurers may go on a buying spree. A number of companies, particularly China’s major players, are likely to seize the credit crunch as an opportunity to snap up assets in Europe and the United States, said a number of senior insurance figures according to a report from Reuters.

“Asian players are looking for expertise and to learn the business quickly,” Francois de Varennes, group chief operating officer of France’s SCOR Group, told a conference in Paris. “There could be opportunities over the next months and years for them to make big acquisitions in Europe, because that is the way to learn quickly and to get access quickly to a market. I expect some acquisitions to come from Asia in Europe or in the U.S., rather than the opposite.”

While financial services firms in the U.S. and Europe have been hit hard by write downs due to the credit crisis, Chinese insurers Ping An and China Life are becoming the new force in international insurance, said Keith Pogson, managing partner of Ernst & Young’s Far Eastern financial services practice.

With a combined market capitalization of around $300 billion at the end of 2007, “these are major elephants. They are doing a lot of strategic acquisitions themselves, both domestically and now internationally,” said Pogson.

Ping An agreed to pay more than $3.12 billion in March to buy 50 percent of Fortis’ asset management businesses, and there has also been speculation that it may be interested in taking stakes in Prudential and Aviva and possibly bidding for RBS’ insurance operations.

Pogson indicated that despite their financial might, their attentions have been spurned in the past. “For a Chinese insurer to buy in insurance around the world is sometimes difficult. If they want to walk out and buy an insurance company in the United States — and they have already tried — there are screams,” he explained.

Chinese insurers are looking for “friendly environments to invest,” and, he added, “they have the equity and the liquidity to make large purchases.”

Bermuda’s insurance regulator is increasing staffing by as much as 50 percent, as it sets its sights on eventually reaching a mutual recognition agreement with other domiciles, according to a Reuters report.

“The Bermuda Monetary Authority is working towards mutual recognition, and beefing up its human resources,” said Wilhelm Zeller, chief executive of Hannover Re, at a Standard & Poor’s insurance conference in New York.

Mutual recognition could be a boon for insurers and reinsurers because it could reduce the red tape that now exists, as companies have to comply with regulatory rules in the multiple jurisdictions where they operate.

Under such an agreement, an insurer could be considered acceptably regulated by the “home” regulator, and not necessarily subjected to additional regulation. The same principal is a basic component of the Solvency II regulations, which are now being negotiated, to change the way insurance is regulated in the European Union.

Zeller was in Bermuda meeting with other industry executives and regulators, including the BMA. He said it plans to add about 60 employees, bringing the number of staffers up to 180.

A BMA spokeswoman said it is adding staff, amid some major policy developments, chiefly mutual recognition. By year-end, the BMA expects its headcount to grow to 145, she added.

Bermuda-based insurers and reinsurers have combined capital exceeding $100 billion, and the island rates as the fourth-largest reinsurance market in the world, according to S&P.

Bermuda’s insurance regulator has been preparing for mutual recognition over the last several years so it can be ready when the International Association of Insurance Supervisors finalizes a blueprint for the change, including a standard capital adequacy model.

Royal Bank of Scotland has decided to sell its insurance operations, including Direct Line and Churchill — two of the UK’s largest auto (motor) writers. They’ve been on the block for a little over a month. RBS is aiming to raise additional cash from the sale, which is expected to generate between $12 billion to $15 billion.

RBS had originally set May 28 as the deadline to receive offers, but has since extended it into June. The leading candidate, according to most reports, is Zurich Financial Services. It has the resources and the desire to do so, but its CEO James Schiro is also known for being cautious. Germany’s Allianz, Allstate, Travelers and AIG in the U.S. and China’s Ping An have also been mentioned as possible bidders.

A few earlier favorites — notably Warren Buffett’s Berkshire Hathaway and Italy’s largest insurer Generali, were also considered strong contenders. But both companies have now announced that they will not be making an offer.

According to the latest reports Zurich, Allianz, Allstate and Travelers have elected to submit open — i.e. non-binding — bids.

Topics Mergers & Acquisitions Carriers USA Legislation Europe China