The insurance industry may see further consolidation this year, law firm Clyde & Co says.

“In line with the global trend of regulation driving [merger and acquisition] activity, shareholders in Australia are increasing pressure on (re)insurers to focus more on core activities,” Sydney-based partner Avryl Lattin said.

“This has driven deals throughout southeast Asia as companies move to divest regional assets. We expect more to come.”

Major insurers have recently quit underperforming markets and sold businesses that are no longer aligned to core operations.

QBE sold its troubled Latin American operations, IAG divested its Thai unit under a review of its Asian portfolio and Suncorp offloaded its life arm to TAL Dai-ichi Life.

Mergers and acquisitions (M&A) are still the favoured tool for under-pressure insurers in search of new growth drivers, but it does not always produce the desired results, as the experience of Australian insurers has shown.

“For many, accessing new customers continues to mean taking a stake in an overseas business… this trend is set to continue,” Clyde & Co says in its annual Insurance Growth Report.

“Meanwhile, in a reversal of this pattern, an increasing number of companies that had entered emerging markets as far apart as Latin America, the Middle East and southeast Asia have been reviewing their positions and are opting to withdraw.

“In these cases, almost universally, returns have failed to deliver on expectations and, with pressure on core operations to deploy capital more efficiently, exiting the market is the most viable solution.”

Australia had seven M&A deals last year, the third-highest number in the Asia-Pacific region after Japan and China, with 29 and 14 transactions respectively.