Burden, opportunity or both?
That regulation is having a dramatic impact on the insurance sector is undeniable. Reports and articles abound on the cost and complexity that new regulation will unleash on the insurance industry. But while many continue to decry the regulatory burden, others are quietly taking stock of the new environment and considering how they might take advantage of the disruption to improve their market position and diversify operations.
Looking down the regulatory pipeline, it is easy to see how upcoming or proposed regulatory requirements in various parts of the world will create waves of related transactions. The Asset Quality Review of Eurozone banks which are now underway, for example, may result in some banks selling off non-core lines of business; those with enduring bank assurance businesses, could put some of these assets up for sale in order to shore up their books against new capital requirements.
An emerging and rising tide
Those seeking to diversify their holdings into High Growth Markets (HGMs) will find that evolving regulation, particularly relating to ownership requirements, risk based capital requirements and global harmonization, is also creating a strong environment for foreign investment.
India is considering reducing the limitations on foreign direct ownership within the insurance market which (if it moves ahead) would potentially allow foreign players to take something very close to a majority stake in domestic operations.
In addition, China has recently changed the ownership requirements for the insurance sector, thereby allowing consolidation and rationalization within the fast-growing national insurance market.
More broadly, we continue to see many HGMs begin to move towards the adoption of international standards of practice driven by the IAIS and the Insurance Common Principles. And while this may not create any immediate deal-making opportunities for foreign players, the increasing levels of harmonization and consistency with international practices will likely make these markets much more attractive for foreign participants.
A winning formula
The bottom line is that – going forward – insurance leaders will need to carefully consider their regulatory profile and future requirements and, based on this information, make some hard decisions on where they need to invest, under what types of regulatory regimes and how their investments will impact on their existing regulatory requirements.
We believe that the winners of the future will be those that are able to develop a holistic view of their regulatory requirements and to identify optimum approaches for the business, allowing them to make the right deals at the right time for the right reasons, rather than purely chasing market share.