By Xuan Lei

Anbang Insurance Group Co. Ltd.'s failure to acquire Fidelity & Guaranty Life highlights growing regulatory pressures in China and the U.S., and could jeopardize the insurer's plans to acquire a U.S. financial services company in the future, according to industry observers in both countries.

Anbang's attempt to acquire listed U.S. insurer Fidelity & Guaranty eventually fell through on April 17 due to lack of approvals from U.S. state regulators, 17 months after the Beijing-based insurer announced the $1.58 billion deal in November 2015.

The deal was cleared by the Committee on Foreign Investment in the United States, which reviews the national security implications of foreign investments in U.S. firms, but Anbang failed to satisfy state regulators in Iowa, where Fidelity & Guaranty is headquartered, and New York, where the U.S. insurer is listed.

The Chinese insurance group did not resubmit its application to the New York State Department of Financial Services to acquire Fidelity & Guaranty since it withdrew the application on May 27, 2016.

Anbang also failed to file Form A before an April 17 deadline. Form A requires any company looking to acquire a U.S. insurance firm to spell out the relationship between the acquiring company and all of its affiliates, as well as provide a third-party background check on individuals associated with the acquiring firm.

"It just simply boiled down to a question of transparency, and can [U.S. regulators] really understand who is behind this company," said Sam Radwan, partner and co-founder of Enhance International, a Chicago-based consultancy helping Chinese insurance companies investing in the U.S.

Anbang's shareholding structure has been under scrutiny in the past. Many of the insurer's shareholding entities are owned by "a welter of shell companies," and Chairman Wu Xiaohui and former Anbang directors are known to have political connections with the Chinese government, The New York Times reported last year. In 2015, Chinese media Caixin also questioned the rationale of Anbang's high-profile investments at home and abroad, its "mystery" shareholding structure and the company's relations with regulators.

This "degree of opaqueness" possibly prompted state regulators in the U.S. to ask for more information, Radwan said in an interview. He added that Anbang was not able to provide such information.

The Fidelity & Guaranty deal was Anbang's first attempt to acquire a financial institution in the U.S. In the past, the company had successfully bought insurer FIDEA NV and Bank Nagelmackers NV in Belgium, Dutch insurer VIVAT NV, and TONGYANG Life Insurance Co. Ltd. and Allianz SE's units in South Korea.

Despite Anbang's success in Europe and South Korea, people within the insurance industry believe the failed Fidelity & Guaranty deal will make it harder for Anbang to acquire a financial company in the U.S.

"I believe it is going to be very tough for Anbang to pass the regulators' tests," Radwan said. "I will be surprised if it will pursue a financial services acquisition anytime in the near future in the U.S."

But Anbang could focus on real estate deals, which require less regulatory scrutiny, if the insurer is keen on investing in the U.S., Radwan added. Anbang has been involved in several real estate deals in the U.S., including buying Waldorf Astoria New York for $1.95 billion in 2014.

However, in March 2016, Anbang abruptly walked away from a roughly $14 billion bid for Starwood Hotels & Resorts Worldwide Inc., citing market considerations, according to a Starwood press release. At the time, the move triggered speculation that the deal, if successful, would push Anbang's overseas assets above 15% of its total assets, a limit imposed by the China Insurance Regulatory Commission.

"With the two failed deals in history, overseas sellers will cast a doubt on Anbang's ability to secure regulators' approval," Leslie Zhang, a Beijing-based expert in cross-border mergers and acquisitions, told S&P Global Market Intelligence. "Anbang may have to accept more stringent transaction terms in the future."

It is unclear if local Chinese regulations played a role in discouraging Anbang from acquiring Fidelity & Guaranty. Chinese insurers' outbound deals require regulatory approvals from the CIRC and China's State Administration of Foreign Exchange.

The Chinese insurance regulator itself is at the heart of a scandal after the regulator's former chairman, Xiang Junbo, came under investigation for suspected "serious disciplinary violations."

"Under such circumstances, who [in the CIRC] dares to approve the deal?," a Hong Kong-based senior manager at a Chinese insurance company told S&P Global Market Intelligence. He declined to be named because of the sensitivity of the issue.

In addition, China's recent capital controls have made it increasingly harder for Chinese firms to buy overseas companies. In a recent interview with the Financial Times, Chinese tycoon Wang Jianlin said he pulled back a planned $1 billion purchase of U.S. TV production company Dick Clark Productions in March because of China's tightened controls on outbound investments.

However, insurance professionals say Anbang will continue overseas acquisitions.

"I don't think Anbang will stop [investing abroad]," said a Shanghai-based senior manager at an international insurance firm, who is in charge of his company's investment strategies and also preferred not to be named. "An investment manager's behavior won't change dramatically because of any single event. And Anbang has been benefiting from its current investment strategies."

A representative for Anbang in Hong Kong declined to comment on the deal, except to say statements from Fidelity & Guaranty are "pretty clear about what the situation is."