LONDON, Sep 23 (Reuters) - Europe's new Solvency II capital regime for insurers will trigger a round of takeovers as weaker players are exposed and snapped up by better-capitalized peers, according to a study by Morgan Stanley and Oliver Wyman.
"The pace of strategic change will dramatically increase - with M&A as a key tool to achieve this," Morgan Stanley and Oliver Wyman said on Thursday.
Solvency II, scheduled to come into force across the European Union in 2013, aims to make insurers more financially resilient by matching capital reserves more closely to risks.
Some smaller players may struggle to comply with the new rules, forcing them to sell themselves to larger competitors, according to Morgan Stanley and Oliver Wyman.
Solvency II, which allows insurers with diverse businesses to hold lower levels of capital, will also put some monoline players under pressure to enter new markets through acquisitions, while others seek to sell capital-hungry units.
M&A activity is likely to pick up next year as insurers start positioning themselves for the formal introduction of Solvency II on January 1, 2013, Morgan Stanley and Oliver Wyman said.
There have been high-profile M&A attempts in the European insurance sector this year, with Prudential launching an abortive bid for U.S. giant AIG's Asian unit in March, and RSA making a 5 billion pound ($7.8 billion) approach for Aviva's general insurance operations last month.
British insurance-focused acquisition vehicle Resolution bought most of French insurer Axa's local business in June, and Netherlands-based Aegon is in the process of selling its U.S. life reinsurance unit.
Overall, Solvency II will impose the toughest capital requirements on non-life insurers, Morgan Stanley and Oliver Wyman said, although reinsurers were likely to benefit from increased demand for reinsurance as a risk mitigation tool.
($1 = 0.6386 pound)
(Reporting by Myles Neligan; Editing by Dan Lalor)
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