The global insurance sector witnessed a decline in mergers and acquisitions (M&A) activity in 2023, with 346 completed deals compared to 449 in the previous year, according to Clyde & Co’s latest Insurance Growth Report.
This downturn was observed globally, with reductions ranging from 37.5% in the Middle East and Africa to 13.3% in the Asia Pacific region.
Despite the global slowdown, the Americas continued to lead in M&A activity, though Europe is closing the gap. The latter part of 2023 saw a reversal of the downward trend, with Europe experiencing a 22.9% increase in deals, contrasting with declines in the Asia Pacific and the Middle East and Africa regions.
Peter Hodgins, a partner at Clyde & Co in Dubai, attributed this decline to the challenging economic conditions marked by high inflation, which has made funding for transactions difficult to secure.
“Meanwhile, with over half of the global population expected to be called to the polls in 2024, as well as a number of escalating regional conflicts, heightened geopolitical risks have become a persistent concern,” Hodgins said. “In the face of this market uncertainty, deal-makers have remained in wait-and-see mode, with a negative impact on overall transaction volume in 2023.”
Looking ahead, there is optimism for a rebound in European insurance M&A in 2024, bolstered by the expectation of interest rate cuts by central banks. Clyde & Co explained that this potential shift is attracting international carriers and MGAs back to the market, particularly in the personal lines space, where there is a search for reliable cash flows.
Geopolitical risks, however, remain a dominant theme for 2023, influencing insurance businesses' expansion plans and coverage needs, especially in conflict-impacted regions. Insurers are seen as playing a crucial role in supporting businesses through these challenges, particularly in the Middle East, where political risks and trade credit insurance demand have surged.
Additionally, Clyde & Co noted that the insurance industry is exploring growth avenues beyond traditional M&A, notably in the digital assets space. The adoption of cryptocurrencies and blockchain technology is creating new opportunities for coverage and operational improvements within the sector.
With all of these considerations in mind, the firm expressed cautious optimism for the M&A landscape in 2024, anticipating a recovery led by Europe and an increase in cross-border transactions.
“Continuing high interest rates will also impact the cost of debt funding for acquisitions and contribute to increased claims costs and higher operational costs,” Hodgins said. “However, in the face of macroeconomic and geopolitical uncertainty 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.”
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