For insurers, expansion into Asia Pacific and becoming a regional player in the region poses particular challenges. These challenges include the fragmented and often rapidly changing regulatory environment and the increased acquisition and integration risk associated with cross-border M&A transactions.

A number of major deals announced since late 2009, including Prudential's acquisition of AIA, AXA SA's bid for the Asian operations of AXA Asia Pacific and AMP's partnership with China Life Insurance, have emphasised the importance of the Asia Pacific region as a growth opportunity for insurers. With Western economies expected to show only slow growth over the next three to five years, and maturing insurance markets in many Asian countries, the Asia Pacific region offers the dual attraction of higher economic growth and an expanding market for insurance products. Accordingly, we expect that these transactions mark only the start of a period of substantial investment by insurers and other financial institutions in the region over the next decade. This is also consistent with the results from our recent survey entitled "Financial institutions in the future: Global financial recovery" which found, among other things, that 68 per cent of respondents expected there to be a permanent shift in the economic power from West to East following the GFC.

The fragmented and developing regulatory environment in the Asian region is and will continue to be a substantial cost burden for any regional player and one that any aspiring regional player needs to take into account. Each country has its own regulations and regulator (or regulators) and, accordingly, the region needs to be approached on a country-by-country basis. Our "Financial institutions in the future" survey highlighted both the desirability of increased consistency in regulatory standards on a global basis and the improbability that this will occur with 81 per cent of respondents indicating that a global regulatory standard was desirable but only 39 per cent of respondents believing that a global regulatory standard was workable. Consistent with the survey results but at a regional level, we see no real prospect of increased regulatory consistency in Asia in the foreseeable future. Further, regulators in many AP countries, including China and India, are still working to develop their regulatory frameworks to match those of developed countries with mature insurance markets. Ongoing changes to regulations – including potential changes to capital adequacy requirements – are a feature of these markets. Accordingly, any aspiring regional player needs to be well-informed and up to date on the differing regulatory regimes across the region and the methods that might be available to smooth the regulatory differences between jurisdictions. In forthcoming issues of the IFS Bulletin, we will examine particular aspects of the regulatory regimes and how they differ between the countries and provide some insight into how regional players deal with the different regulatory regimes. We will also keep you up to date with any key regulatory developments in the region.

Any M&A transaction is risky but an acquisition in a new jurisdiction is one that carries with it an extra level of complexity and risk. This means that there needs to be an even greater focus on the fundamentals – ensuring there is a sound rationale for the transaction, undertaking thorough due diligence, including regulatory, political and cultural due diligence, and planning and executing the integration carefully. The additional complexity of cross-border transactions also creates additional work and, accordingly, it pays to assess your internal resources and capabilities to ensure that you have the right people in the right numbers to complete the transaction and the integration. Research indicates that acquirers typically underestimate the amount of managers' time that will be absorbed by an M&A transaction and we think that this is particularly so in cross-border transactions. In coming issues of the IFS Bulletin, we will examine the foreign investment restrictions and approval processes in countries throughout the region, discuss structuring variations and update you on any M&A trends we see developing for M&A players in the region. We will also update you on any regulatory changes that impact on the insurance M&A market.

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