Many Asian insurance companies—battered by losses in their real estate, stock, and bond portfolios— have come to realize that they need Western investment. Most of them also understand that they need Western know-how. Yet the total transaction value of the mergers and acquisitions consummated in Hong Kong, South Korea, Taiwan, and Thailand came to only about $200 million in 1998 and to $700 million in 1999, just a fraction of the $2.3 billion and $5.6 billion value of the bank mergers consummated in those years.

Nonetheless, pressure is building rapidly because many Asian insurance regulators—urged on by Western governments and sobered by overall portfolio losses ranging from about 11 percent in Taiwan to nearly 21 percent in Korea—are relaxing restrictions on foreign ownership. As a result, we estimate, an additional $42 billion in life premiums is now available to foreign insurers (Exhibit 1).

Yet lax regulation of Asian insurance companies and their poor accounting practices make it difficult to assess their financial condition, and therefore their true value, and this has deterred potential investors and acquirers. Moreover, the Asian insurance players who are leaders in their markets have no interest in selling, although they are about to heat up...