65% expect surge in insurance M&A in HK and S’pore for 2024: Survey

Diversified investments, consolidation, new tech, and emerging regulations drove this sentiment upward.

About 65% of respondents – decision-makers in insurers and insurance asset management – foresee an increase in mergers and acquisitions (M&A) activity in Hong Kong and Singapore markets for 2024.

Data from the Clearwater Analytics survey “2024 Hong Kong & Singapore Insurance Industry Outlook”, was conducted in October and November 2023, and involved over 80 insurers and insurance asset managers in Hong Kong and Singapore, representing over $2.5t in assets under management.

"Insurers and insurance asset managers in Hong Kong and Singapore are optimistic about 2024, given diversified investing strategies, industry consolidation trends, the introduction of new technologies, and emerging regulatory directives. Despite challenges brought about by inevitable change, the industry appears poised to embrace modern yet trusted technology to navigate the complexities ahead," commented Tom Marlatt, Director of Insurance, Asia Pacific.

The survey covered various aspects, including M&A activity, regulatory changes, solvency rules, investment strategies, operational complexities, technology spending, and priorities for the upcoming year.

On the regulatory front, 27% of insurers believe that heightened regulatory requirements are the most effective means to prevent insurers from posing broader market risks. This sentiment has grown, especially after the Monetary Authority of Singapore (MAS) designated four major insurers as 'too big to fail,' subjecting them to increased regulatory scrutiny.

Regarding investment strategies, 99% of insurers in Hong Kong and Singapore currently include private market or alternative assets in their portfolios, deviating from the traditional focus on listed equities and high-grade fixed income. 

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“As alternative assets become a normal part of the portfolio construction process for insurers in Hong Kong and Singapore, the associated operational challenges are mounting. Insurers need to be able to rely on back, middle, and front-office solutions that can process these asset types alongside more vanilla investments, and they need to be able to produce effective risk assessments across their portfolios. All of this rests on having the ability to access and extract insights from high-quality data to run the business.” the report said.

However, 37% of surveyed entities express difficulty determining fair value for these assets, raising concerns for local regulators scrutinising private market assets, liquidity risk, and valuation methodologies.

Anticipating the coming year, technology budgets are expected to increase, with 86% of respondents foreseeing a rise in technology spending in 2024. 

Larger firms, with assets under management exceeding $50b, expressed the strongest belief in this trend. Notably, 24% of respondents identified the expansion or implementation of cloud technology as their primary tech priority, while only 11% selected the integration of AI/ML technology, ranking it the lowest.

Outlook

High expectations surround the insurance industry in Hong Kong and Singapore for 2024. 

There is a potential surge in M&A activity in both markets, coupled with concerns about upcoming regulatory changes, presenting a spectrum of challenges. The evolution of contemporary insurance portfolios, incorporating various alternative and private market assets, has introduced operational complexities that decision-makers aim to resolve.

Amidst these transformations, there is a strong anticipation of increased technology spending, prompting insurers and insurance asset managers to seek support from their technology partners. 

With a diverse array of challenges and no singular issue dominating decision-makers' concerns, firms are in need of solutions capable of addressing multiple issues simultaneously.