But by applying the latest in alternative risk transfer (ART) underwriting to guarantee asset values, profit levels and isolate liabilities from future earnings, reinsurers say they can increase the incentives for potential purchasers to do deals.

"We find ways to smooth out volatility," Clarence Yeung, head of corporate development, Asia at Swiss Reinsurance (Swiss Re), the world's second largest reinsurer, told Reuters.

"If we need to take away volatility outright by effectively writing floors and caps, to use banking terms, or take on risk on the balance sheet, we can do it," said the former investment banker, brought in to bolster the firm's Asian ART business.

Financial market convergence is bringing the capital bases of reinsurers - worth hundreds of billions of dollars traditionally insuring insurance companies - into the corporate finance arena.

"In M&A-type transactions, we will be complementing what investment banks do, or addressing the acquirer or acquiree's concerns about the transaction," Hong Kong-based Yeung said.Although reinsurers may be willing to take on the risks of Asian M&A, analysts say business owners are unwilling to sell and regulators are wary of cutting edge financial engineering.

Instead the focus has been on New Economy M&A. M&A focused on new economyRegional M&A volume more than doubled to $87 billion in the first half of 2000, boosted by New Economy telecoms transactions.

Telecom tie-ups were 40.8 percent of all Asian M&A in the year to August 15, compared with only 6.9 percent of total deals in 1997, according to Thomson Financial Securities Data.

The deals expected as a result of Asia's crippling economic crisis of 1997 have failed to materialise. Asian corporations have limped along on the crutch of a recovery in share prices and the cushion of balance sheets stuffed with massively overvalued assets. Regulatory changes forcing assets to be marked to present market value is removing that cushion, but leaving gaping holes in balance sheets that sends potential partners running. Even deals that do go through can deliver nasty aftershocks, with cross-corporate guarantees and over inflated assets particular problems.

"Unfortunately, due diligence doesn't always work that well and buyers can find a whole lot of things there after the event. But we can still help tidy them up," Bruce Ford, Sydney-based senior vice president and general manager at St Paul Re (Australia), said.

US-based St Paul is one of the world's biggest ART, or non-traditional, reinsurers. About 27 percent of the firm's $1 billion in net premiums came from non-traditional risks in 1999. Ford has worked on deals including an acquisition, a demutualisation and a capital raising scheme so far this year. One plan involved structuring a multi-year liability guarantee for an Asian automaker in talks with a foreign buyer to solve a potential deal-killing problem. "Those things are very easy for us to put a ring around and say to clients, `give us what you've got on the balance sheet at the moment and we'll guarantee it doesn't get to say, more than double that' and that gives certainty to investors," Ford said.

Sophistication key to art But the path to certainty is complex, often too sophisticated for the chief financial officers and the regulators involved. For ART to work, capital employed by reinsurers has to be seen as an insurance cost to client companies rather than as a taxable increase on balance sheet value. Outside of Japan, Australia and perhaps Singapore, which is reviewing its rules on financial reinsurance, the accounting regimes in place are not conducive to structuring ART deals.

"The level of understanding with a company is also important. Some CFOs are very sophisticated, some are not. There has to be recognition, understanding and willingness to look at alternative ways of dealing with problems," Swiss Re's Yeung said.

"The problem is that banks are throwing money at clients - whether it is their own or the capital markets' - to alleviate problems clients might have. We're saying perhaps there might be another way," he added.At a practical level though, there are few willing sellers.

"What you can't say is that even if you get a large bunch of ART experts in Asia to start structuring multi-year adjustment mechanisms, you would suddenly get a bunch of really enlightened sellers who want to divest their businesses," said Nicolas Leung, a partner in the Asian corporate finance and strategy group at consultants, McKinsey & Company in Hong Kong.

"We haven't structured any ART mechanisms ourselves, though in some cases we do ask our clients to ask for insurance quotations to use as a benchmark for valuations," he said.

Leung says ART could be a credible tool for cross-border M&A in Asia, but deals are impeded by a combination of factors including emotional attachment and a trend toward joint ventures.

Most owners are too close to their businesses to realise they could derive more value from selling, rather than clinging to a dying family firm.Potential investors meanwhile, have preferred to cherrypick portfolios or certain segments of businesses, while strategic alliances effectively enable investors to acquire option value in businesses at a discount to buying entire operations, which come with legacy asset and liability problems to resolve.

A more rational approach to ownership is only likely to emerge once foreign entrants start to exert greater competitive pressures in markets and tougher bank lending regulations ensure more effective use of capital. "The key question is how bad do things need to get for these firms before more M&A happens," said Leung.