Japanese insurance companies are expected to step up their hunt in new markets, with Asia, mainly China, at the top of their wish list, banking and insurance sector sources told Reuters.

The Japanese insurers have already spent $54bn on acquisitions since 2014 to become the world's second largest buyer of insurance assets, and the deals spree won't be slowing down any time soon. They struck M&A deals worth $6.1 billion last year, up 66% from 2017.

Japanese insurance firms have been busy scooping up assets in countries, from Australia to the US, in the last few years, as they sought to cushion the impact of negative interest rates and a fast-maturing market at home.

The overseas push, however, largely excluded China, the world's No.3 insurance market after the US and Japan, due to foreign ownership curbs and fragile diplomatic relations between the two Asian economies.

That will change with China set to allow foreigners to own majority stakes in domestic insurance joint ventures, and Beijing and Tokyo looking to forge closer business ties amid rising trade tensions with Washington, the bankers said.

"Now finally with the easing of foreign shareholding, they would jump in," said Ms Linda Sun-Mattison, an Asian insurance analyst at Bernstein, referring to Japanese insurers. "China is probably the biggest opportunity in the life insurance sector."

China is in the process of easing foreign ownership curbs for life insurance joint ventures that will allow overseas firms to own 51% in those units compared to the current 50%. Foreign firms have already been allowed to operate wholly-owned non-life units in the country. Beijing has pledged to remove the foreign ownership limit in life insurance ventures completely in three years.

In a sign of the growing interest in China, Mitsui Sumitomo Insurance, a unit of Japan's MS&AD Insurance Group Holdings agreed in May to buy Commonwealth Bank of Australia's 37.5% stake in mid-sized BoComm Life for $477m.

Bankers who work with Japan insurers said firms including Dai-ichi Life Holdings and Sompo Holdings  were expected to step up their search for Chinese targets in the years ahead.

"While you will see a few big deals happening in the U.S., the number of transactions will definitely be more in Asia ... where the Japanese insurers need to consolidate their position," said a Hong Kong-based financials head at an investment bank.

Nippon Life and other Japan insurers including Tokio Marine that have operations in China have not been able to scale up there in competition with dominant local players and global rivals including Prudential.

Tokyo-based Goldman Sachs managing director Teppei Takanabe, who specialises in the financial sector, said, "China has not been an easy market for Japanese insurers, but it is a huge market still despite slower growth prospects."

With a low life insurance market penetration of 3% of gross domestic product and a growing middle class, the easing of ownership curbs is set to make China the next battleground for insurers seeking growth outside their home markets.

Fitch said in a December report that Japanese insurers' M&A in the mature insurance markets of the United States, Britain and Australia would provide "only moderate growth", forcing some of them to divest "unneeded" foreign units.

For P&C insurers including Tokio Marine, Sompo and MS&AD, China's opening up comes as they themselves are looking to diversify geographically. They are seeking income from new markets that can help offset the impact of enhanced payouts due to a series of natural disasters hitting Japan.

As a result of the easing of foreign ownership rules in China, "we will not rule out the possibility of M&A deals by Japanese insurers, if they are looking for earnings growth and diversification in the longer term," said Akane Nishizaki, associate director for insurance ratings at Fitch.