Insurance M&A Activity Reaches Lowest Point in a Decade

Global mergers and acquisitions (M&A) in the insurance sector dropped to their lowest level in a decade in 2023, with 346 completed deals, down from 449 in 2022. This 22.9 percent decrease reflects declines across all regions, with the Middle East and Africa experiencing the sharpest fall at 37.5 percent and Asia Pacific seeing the smallest decline at 13.3 percent. These findings come from Clyde & Co's latest Insurance Growth Report.

The M&A slowdown can be attributed to a mix of geopolitical and macroeconomic uncertainties. "As the global economy continues to feel the impacts of high inflation, funding for transactions for many insurance businesses has been challenging to find," said Peter Hodgins, partner at Clyde & Co in Dubai. Geopolitical risks, including upcoming elections in key markets and regional conflicts, further dampened deal activity, with many businesses taking a cautious approach.

Despite the overall downward trend, the Americas remained the most active region for insurance M&A. However, the gap between the Americas and Europe narrowed in 2023, with Europe seeing a significant rebound in the second half of the year. Deal activity in Europe increased by 22.9 percent in H2 2023, compared to a modest 5.1 percent rise in the Americas. Meanwhile, Asia Pacific, the Middle East, and Africa saw further declines in the second half of the year, at 20.7 percent and 33.3 percent, respectively.

Looking ahead, Europe is expected to lead the recovery in 2024, driven by central bank interest rate cuts and renewed strategic acquisitions. "M&A activity is coming back to the European insurance market, as leading global carriers look to acquire specific business lines," said Eva-Maria Barbosa, partner at Clyde & Co in Munich. Insurers are increasingly targeting high volume, low premium contracts, particularly in the personal lines space, to offset declining margins in commercial business.

Beyond traditional M&A activity, insurers are exploring other avenues for growth, including digital assets and blockchain technology. "Digital assets are on a very fast trajectory globally," said Liam Hennessy, partner at Clyde & Co in Brisbane. Insurers are now underwriting directors and officers insurance and corporate crime risks for asset managers advising on digital currencies. Blockchain technology is also being adopted by insurers for loyalty programs, data storage, and parametric smart contracts for simplified claims processes.

In the Middle East, evolving regional conflicts such as the Israel-Hamas war are increasing demand for political risk and trade credit insurance. "There is an important role to be played by insurers as businesses get to grips with evolving geopolitical risks," said Mr. Hodgins, highlighting the rising need for coverage in conflict-impacted regions.

While uncertainties remain, experts believe the M&A market has bottomed out, with deal activity poised for a rebound. The United States is expected to see increased activity in the broking and managing general agent sectors, while cross-border transactions are also on the rise. Renewed international interest in the Gulf Cooperation Council region, particularly in the United Arab Emirates and Saudi Arabia, is another sign of cautious optimism for 2024.

"Insurers are increasingly viewing the current trading environment as 'the new normal,' and we expect them to become less cautious with regards to M&A over the coming 12 months," Mr. Hodgins said.