About 65% of the insurers and insurance asset managers polled by Clearwater Analytics are expecting to see more mergers and acquisitions (M&A) in 2024 in Singapore and Hong Kong. More specifically, the more positive sentiment was felt by larger organisations with companies reported assets under management (AUM) of over US$100 billion ($134.11 billion) while the small organisations – with AUM of just under US$1 billion – coming in at a more modest 58%.
In Singapore itself, 63% of the insurers and insurance asset managers polled expect to see M&As in the city-state rise in 2024 amid a flatter market compared to the rest of Asia in 2023.
The findings were derived from the Clearwater Analytics insurance outlook report 2024 which surveyed decision makers across 59 insurers and 23 insurance asset managers in Hong Kong and Singapore, who provided their views on a range of topics, including M&A activity, regulatory developments, solvency rules and investing strategies and associated operational complexities. The survey took place between Oct 27 to Nov 9.
“If it is the bigger fish that generally drive acquisition activity, this would suggest strong prospects for activity in the new year,” says Clearwater Analytics in its report.
“Private equity firms have taken an increasingly positive view on the acquisition potential of insurers in Hong Kong and Singapore. Insurer’s investment strategies are long-term, which makes their portfolios attractive to private equity firms, who often feel they can generate stronger returns through diversification into alternatives. However, having an operational ‘clean bill of health’ is essential when it comes to desirability to potential acquirers – onboarding a firm’s assets can be incredibly labourious if their systems are stuck in the dark ages,” it adds.
On making sure insurers in both Singapore and Hong Kong do not pose a wider market risk through insolvencies, 27% of the respondents polled felt increased regulatory requirements would do the trick, with 50% of the smaller firms (with AUMs of under US$1 billion) strongly in favour of such a move.
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Most of the decision-makers who were part of the C-suite and are generally less involved in the day-to-day operations of their business felt that firms should minimise risk through the demonstration of lower investment risk appetites in portfolio allocations (at 54%).
On key risk reduction methods, about 20% of the respondents polled identified heightened levels of automation within insurers to improve efficiency and accuracy of operational processes as the main method while about 36% of the largest insurers prefer stricter capital control measures.
While increased regulatory methods were seen as the key method to reduce risk, 30% of insurers and insurance asset managers say that adapting to regulatory changes is their biggest challenge. Another 28% felt that meeting internal and external reporting demands and timelines were going to be a major challenge in 2024 while 23% of insurers and insurance asset managers deem the meeting of varying requirements in the different regimes that they are operating in as the biggest challenge in meeting regulatory requirements next year.
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Exchange-traded funds (ETFs), real estate and infrastructure were the top three assets insurers and insurance asset managers expect to have their organisations to have allocations to in 2024 at 63%, 51% and 45% respectively.
According to the report, ETFs could be a way for insurers to gain a less risky exposure to public equity markets through the use of a passive tracker fund, which outperform actively managed funds on average.
Conversely, private debt, commodities and money market funds were the bottom three at 28%, 31% and 39% respectively.
When it comes to investing in alternative or non-traditional asset classes, most of the respondents – 22% - say that increased scrutiny on investment strategies from a regulatory perspective is their biggest challenge. This is followed by respondents seeing increased complications from a compliance/legal perspective at 20%.
However, concerningly, 37% of those surveyed feel that they struggle to determine fair value for these assets, something that is bound to worry regulators around the world who are increasingly turning their attention to private market assets, liquidity risk, and the methodologies that investors are using to produce valuations.
Tech spending
In 2024, most of the respondents – 86% - are expecting to see more spending in technology. In particular, about 90% of firms with multiple international offices are expecting their expenditure to increase in the coming year.
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In contrast, only 14% of firms do not anticipate their tech spending to rise, while 0% of firms do not expect their tech spending to fall.
The respondents also indicated that the expansion or implementation of cloud technology – at 24% - was their main tech priority for 2024 while the integration of artificial intelligence (AI)/machine learning (ML) technology was the least priority for most of the insurers and insurance asset managers (at 11%).
However, C-suite respondents reported a strong preference to prioritise the integration of AI/ML solutions in the new year at 38%, with implementation/expansion of cloud tech coming a solid second (23%).
The rest of the top three priorities were focused on improving customer experiences (23%) and the increased usage of data analytics (16%).
