Insurers received a boost from hardening property-casualty rates in 2023, but the growth outlook for the insurance sector in the 2024 year appears to be a mixed bag. The effects of the on-going Russia-Ukraine conflict on global insurance business are still being felt – from greater complexity around war and cyber risk exposures, to increased costs of doing business from inflated energy and commodity prices.

According to Clyde & Co Report, continuing economic uncertainty has muted investor appetite for start-ups, particularly in the insurtech space, and has started to dampen enthusiasm for M&A transactions, impacting corporate business for investment banks and law firms (see Mergers & Acquisitions Activity).

MGA space remains buoyant, particularly in London and Europe. China is opening up for cross-border business.

Big-ticket M&A transactions are expected to pick up. And the liberalisation of certain regulations is attracting investment to markets across the EMEA region.

Insurance companies seek growth through mergers and acquisitions (M&A). These deals enable them to expand market reach, diversify product offerings, and enhance competitive advantage. By acquiring or merging with other firms, insurers can achieve economies of scale, reduce costs, and increase market share.

M&A activities also allow insurers to enter new geographical markets and tap into emerging opportunities. Effective integration of acquired assets and operations is crucial for realizing the full benefits of these deals.

Five growth drivers for Insurance Sector

Global Insurance Sector Outlook' 2023

1. The return of big deals

According to Insurance M&A Deals Outlook, while ‘mega-deals’ in the insurance M&A – those valued in excess of USD 1 billion – have struggled to get off the start line in the past 12 months, there is an expectation that this year could see the return of big M&A transactions.

M&A rose to a three-year peak in the first half of 2023, before becoming progressively quieter.

M&A lawyers are expecting a two-speed 2023. Small to medium-sized enterprises will continue to be wary of transactions as they wait for the current market uncertainty to subside.

Volume of M&A deals completed globaly

Volume of M&A deals completed globaly
Source: Clyde & Co

In contrast, large global insurance businesses seem undeterred by market conditions. Their focus is on consolidation in preference to limited organic growth options, so they are actively seeking merger and acquisition opportunities.

Transactions have been down on the peak of 2022/2023 but there is optimism that the economy will emerge from this difficult period as inflation stabilises. There remains plenty of capital to be deployed and likely no shortage of M&A targets.

Matt Ellis, Clyde & Co Partner, Melbourne

There will be growth opportunities over the coming years as investor sentiment improves.

Private equity funds have largely been absent from the insurance market over the past year but have maintained their focus on larger M&A targets in anticipation of potential opportunities.

2. Regulatory action is a mixed blessing

Heavy regulatory activity is proving burdensome for insurance carriers, impacting their capacity for organic growth. Consumer protection laws are making it harder to do the same volumes of business across multiple jurisdictions, with GDPR laws a common area of focus.

Globally, ESG is expected to be a major focus for regulators this year, with a particular emphasis on cracking down on ‘greenwashing’ and ‘social washing’ as organisations seek to market their ESG credentials.

However, regulatory action is also proving a spur to growth in some territories. In Asia, South Korea’s Financial Services Commission is looking at reforming regulations to drive digital transformation in the insurance space, potentially enabling established and start-up insurers to create digital-only platforms.

There has been a change of sentiment in China. The government appears keen to broaden out the private pensions market on the mainland, suggesting international insurers may have a future role to play in developing pensions products in the country.

In the GCC region, Saudi Arabia’s $1tn+ Vision 2030 National Investment Strategy for infrastructure and real estate hints at an enormous (re)insurance opportunity. The Saudi regulator SAMA is in the process of liberalising some insurance regulations to encourage inward investment in the sector.

3. MGA market remains buoyant, despite reinsurer caution

Volume of M&A deals completed globaly

The MGA model is still proving popular in the London and Lloyd’s market, especially where insurers want to penetrate further into markets where they lack the appropriate depth or breadth of underwriting expertise.

In the US, amid the uncertain economic climate, there is growing caution among reinsurers with respect to insurance clients’ partnerships with MGAs and MGUs.

Insurers are paying closer attention to oversight of those MGA/MGU relationships, for fear that reinsurance carriers might retrench from coverage of more complex risks such as cyber and war.

That said, new MGAs are still reported to be coming to market in the US with strong support, such as the BP Marsh/CBC UK backed Alchemy.

The MGA model is still proving popular in the London and Lloyd’s market and Australia, especially where insurers want to penetrate further into markets where they lack the appropriate depth or breadth of underwriting expertise.

Reinsurers are exercising heightened caution with respect to what’s being written under producer agreements between insurers and MGAs/MGUs. In particular, there’s a focus on exactly how the pen is being monitored for compliance with underwriting guidelines.

Marc Voses, Clyde & Co Partner, New York

In Europe, some MGAs appear to be entering a new growth stage, either through bringing original products to market, or, in the case of one well-established firm, having transitioned into becoming a full-stack risk carrier, with licensed insurer status. Other MGAs harbour similar ambitions.

4. Embedded insurance offers opportunity in sluggish insurtech sector

While technology plays a continuing role in enabling growth in the insurance sector – automating elements of underwriting and claims processes, driving parametric coverage, and opening up new distribution channels – investment in bigest insurtech companies has stagnated.

Embedded insurance is fast becoming a favorite buzzword among insurtech entrepreneurs and insurance innovators. But what does it mean, and why does it matter? Put simply, embedded insurance is a form of digital bundling, enabling partners from virtually any industry to offer insurance policies as an add-on or feature, generally as part of a digital sale.

Against this broadly slow growth background, embedded insurance offers a glimmer of hope.

Solutions tailored to online retail sales, travel-related bookings, and other online services are likely to increase discretionary insurance purchases (see How IoT, ML, AI and Blockchain Technology are Changing Insurance?).

While the insurance market is finding more applications for blockchain technology, particularly for parametric coverage, the cryptocurrency market that is underpinned by blockchain has yet to make much impact on insurers.

One of the issues with the cryptocurrency space is a lack of regulation. The reality is that it’s backed by a fairly secure blockchain platform, but until those underlying regulatory concerns are addressed, and the monetary value of the currency itself becomes more stable, it’s unlikely that insurers will press forward with accepting crypto payments.

While some jurisdictions are looking to align financial services sectors with cryptocurrencies, the space needs to be more closely regulated before insurers can commit to using these currencies to collect premiums and hold reserves.

5. War for insurance talent could heat up in drive for organic growth

War for insurance talent

In the insurance space, litigation around employment contracts has been more focused in recent years on the movement of individuals and teams to rival companies in so-called ‘poaching’ disputes.

As companies weigh up the pros and cons of organic growth versus M&A, against a backdrop of continued economic turmoil more movement of individual talent and teams seems likely, raising the prospect of contentious claims.

If 2023 does see a return to major M&A deals in the insurance market, there is likely to be a sharper focus by acquirors and merger partners on the best approach to combining differing company cultures (see InsurTech Sector Overview).

Businesses increasingly need to consider whether the culture of a combined entity is consistent with ESG strategies, DE&I frameworks, employee wellbeing and mental health considerations, and the need to modernise working practices.

They must also be aware of increased regulatory scrutiny of their complaints procedures, alongside a growing willingness among employees to pursue complaints.

Insurance M&A deals up across the globe

Insurance M&A deals up across the globe

While deal activity was up in all regions in 2022, underlying trends point to mixed investor sentiment. A combination of pent up demand, healthy levels of capital ready to deploy and a favourable investment environment has seen deal-makers in the Americas and Europe drive higher levels of M&A in the last couple of years than were evident at the beginning of the decade.

Investors in these regions are displaying a heightened sense of caution as they switch to wait-and-see mode in the face of market uncertainty, which will likely result in a lag in transaction volume.

In contrast, deal-makers in Asia Pacific were generally slower to regain confidence post-pandemic, but have put that reticence behind them with a consistent and increasing trend of rising deal numbers. The re-opening of China’s borders following lockdown restrictions will only serve to bolster confidence further.

Percentage of M&A deals by Region

Insurance M&A deals up across the globe
Source: Clyde & Co

While M&A volume in the Middle East has been irregular, regulatory developments suggest further consolidation in the market is likely.

The volume of mergers and acquisitions involving foreign targets was broadly flat in 2022. Cross-border deals accounted for 21% of the global total, compared to 22% the previous year.

M&A Insurance Activity by regions

Volume of M&A deals in Europe

Volume of M&A deals in Europe
Source: Clyde & Co

Volume of M&A deals in the Americas

Volume of M&A deals in the Americas
Source: Clyde & Co

Volume of M&A deals in APAC

Volume of M&A deals in APAC
Source: Clyde & Co

Volume of M&A deals in ME&A

Volume of M&A deals in ME&A
Source: Clyde & Co

Proportion of cross-border M&A deals holds steady

The volume of mergers and acquisitions involving foreign targets was broadly flat in 2021. Cross-border deals accounted for 21% of the global total, compared to 22% the previous year. Investors from the Americas pulled back from Europe, where they directed 26% of overseas spending, compared to 35% in 2021.

Interest from Europe into Asia increased from 2% to 24%. Asian deals involving acquirors from the Americas also went up, from 5% to 18%.

Target markets included Australia and India, each of which accounted for 25% of deals into Asia-Pacific, followed by Malaysia with 19%. A significant proportion of these deals involved market exits by multinational players and the purchase of their assets by competitors.

Meanwhile, interest in targets located in the Americas fell in 2022 – only 17% of deals into the region involved international buyers, compared to 35% in 2021.

Insurance M&A deals up across the globe
Source: Clyde & Co

Drop in mega deals coming to market

  • In 2022 there were 19 deals valued at over USD 1.0 billion versus 25 in 2021

International blend of larger acquirors

  • 8 acquiror nationalities among the top 20 largest deals by value
  • The Americas have 14 of the top 20 deals, Europe 5 and APAC 1
  • The US host biggest deal of 2022 – breaking the 10 billion barrier
  • Berkshire Hathaway Inc’s takeover of the Alleghany Corp for USD 11.6 billion was the largest deal of 2022 by over 2 billion

Insurance Sector outlook

Uncertainty – the enemy of deal-making – continues to provide barriers to growth for the insurance sector, with significant headwinds coming out of the events of the last year.

We can expect to see increased appetite for coverage and greater loss activity in these classes of business in the year ahead, so improved underwriting of these risks could significantly boost carriers’ organic growth.

On the plus side, insurers increasingly have access to better loss data on lines including cyber, D&O, management liability, and employment practices liability and are getting better at analysing that data.

While investment for M&A activity and start-ups may have dipped, there is evidence that both are still viable routes to growth, depending on territory. Market sentiment indicates that the worst of the economic downturn is past in most parts of the world and that deal-making will come back on the agenda. We expect M&A volume to drop from the highs of 2022, but start to rebound in the second half of 2024, with larger deals especially in focus.

The war in Ukraine continues to complicate global trade and drive up costs, while some eye-opening weather events in 2023 that exceeded all loss expectations have confounded the property catastrophe (re) insurance market.

(Re)insurers will also continue to pursue other routes to growth. For example, Saudi Arabia is a huge potential growth market for international (re)insurers, where on-going liberalisation of insurance regulations could see the first branch office licence issued to a foreign insurer later this year, and there is potential for foreign investors to take significant stakes in Saudi-run intermediaries.

Insurance Sector outlook for 2023

Increasing harmonisation of UAE and Saudi regulations will also boost the GCC region’s potential as the fastest growing insurance market.

The appeal of MGAs will continue undiminished as carriers look for alternative ways to deploy their capital and reach potential customers. One growth area will be parametric insurance.

Although this area of the market hasn’t grown as significantly as perhaps expected, the increasing quantity of publicly-available data makes this a promising growth opportunity, where smaller underwriting teams at MGAs can leverage technology to process exposure data.

Although we are going to see the failure of certain insurtech companies that are not
well prepared or mature enough to survive the current economic downturn, those with a proven track record and a compelling equity story will continue to attract investor attention.


AUTHORS: Eva-Maria Barbosa – Partner, Joyce Chan – Partner, Ivor Edwards – Partner, Matt Ellis – Partner, Peter Hodgins – Partner, Marc Voses – Partner Clyde & Co

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