New Rules Could Put Japanese Insurers on Equal M&A Footing

NU Online News Service, Dec. 5, 1:09 p.m. EST

Japanese insurers could soon be on an equal footing with global competitors with respect to mergers and acquisition activity outside of Japan if a new deregulation plan is approved, according to Moody's.

The plan, which is being proposed by Japan's Financial Services Agency regulator, would allow Japanese insurers to buy bigger stakes in foreign insurers.

According to Moody's Weekly Credit Outlook, “Japanese insurers are currently prohibited from holding more than 10 percent of their own total assets in an acquired entity's investment assets (shares).”

Moody's says this regulation is intended to prevent risk concentration and ensure financial soundness.

“In addition,” Moody's notes, “Japanese insurers' subsidiaries are not allowed to do business in areas not specified in Japan's insurance-business law, but their foreign competitors in the U.S., U.K., France or Germany are not subject to these rules.”

Essentially, says Moody's, the current rules put Japanese insurers at a disadvantage in M&A negotiations relative to their foreign peers.

At home, Japanese insurers are faced with a shrinking market due to continued economic woes and a shrinking population, notes Moody's, increasing the need of the country's insurers to look to overseas M&A.

“If the plan is approved,” Moody's says, “Japanese insurers will be on equal footing with global competitors, making it easier for Japanese insurers to take advantage of the strong yen and make acquisitions in Asia's growing markets and elsewhere.”

Japan's property and casualty insurers have been far more active than the country's life insurers in pursuing foreign acquisitions, notes Moody's, and the rating agency says it expects the P&C groups to accelerate M&A activity if the plan is approved.