The number of mergers and acquisitions (M&A) in the Asia-Pacific region has held steadier than expected since the global financial crisis, according to AM Best.

In mature markets such as Australia and Japan companies face difficulty growing, which has led to consolidation, the ratings agency says in a report.

“Increasing economies of scale and distribution capacity are drivers for M&A, particularly for insurers operating within the same market or region such as Australia and New Zealand.”

Consolidation targets improved efficiency in operations, distribution and capitalisation, as was the case when IAG launched a new operating model in July to enhance customer service and establish a foundation for its acquisitions of the Wesfarmers insurance underwriting business and AMI, New Zealand’s second-largest residential insurer.

“These acquisitions have enhanced the group’s economies of scale and strengthened its position for purchasing reinsurance,” the AM Best report says.

M&A activity in Asia-Pacific is continuing to gather momentum, reflecting changes in local, regional and international underlying market fundamentals since the financial crisis.

New distribution capacity such as bancassurance and access to new customer bases drives M&A activity in countries that require significant investment in distribution. QBE’s acquisition of Hang Seng General Insurance in 2012 built a foundation to expand its bancassurance business from Hong Kong to other Asian markets.

Another M&A trend involves reinsurers buying stakes in primary insurers. This year Munich Re agreed to acquire Calliden insurance operations in partnership with Steadfast Group.

The deal enhances Munich Re’s commercial insurance business in Australia and will strengthen its distribution.

“More reinsurers have been buying stakes in direct insurers, as recent M&A deals saw reinsurance companies move into the primary insurance sector to enhance access to markets and distribution,” the report says.

“Issuance of new reinsurance licences is increasingly restricted in many markets, while mature global reinsurers are interested in other insurance business.”

The Asia-Pacific insurance market is buoyant, and expansion has led to some high-value deals internationally in the past year, the report says.

“Regulation is a common trigger for M&A activity as a direct or indirect result of an underlying need to restructure the industry or market.”

Increased capital requirements have led to consolidation in southeast Asia, as regulators there look to enhance market efficiency and competition.