The number of insurance mergers and acquisitions (M&A) fell to a 10-year low of 346 last year, down 23% from a year earlier, Clyde & Co’s Insurance Growth Report says. 

Completed deals were down across the world as companies reacted cautiously to geopolitical and economic uncertainty. In the second half, the number of deals in the Asia-Pacific region fell 21% to 23. 

The law firm says the cost of borrowing to fund M&A is likely to restrict activity for at least the first half of this year. 

"Private equity backing for deals may be harder to find while interest rates remain high,” it said. “Macroeconomic factors will continue to play a significant role in the insurance sector’s ability to achieve growth in 2024. 

“With financial markets potentially looking more volatile this year, growth in carriers’ investment portfolios is by no means certain, despite higher interest rates.” 

The report predicts deal activity will start to increase this year. 

“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,” Partner Peter Hodgins said. 

Clyde & Co says lines including cyber, trade credit and political risk, warranty and indemnity, and health insurance are all expected to have significant growth this year. 

It says the industry in Australia has adapted to a new regulatory framework for embedded insurance product design and the market is now seeing an uptick. 

Climate change regulations continue to create challenges for insurers with portfolios that include carbon-intensive industries.  

“In Australia, climate change litigation is expected to expand in 2024, with companies likely to be more exposed to accusations of greenwashing. As well as impacting insurers’ appetite for fossil fuel exposures, there may be a growing impact on professional liability covers from climate litigation.” 

A “revolution” in digital assets and the use of cryptocurrencies presents a significant opportunity for insurers, with a range of coverages already being written for the risks of trading in digital assets. This presents a growth opportunity for insurers in Australia. 

Brisbane-based Partner Liam Hennessy says digital assets are on a “very fast trajectory” globally, and insurers are adopting blockchain technology in their own businesses in areas such as loyalty programs, information storage and parametric smart contracts. 

“We’re seeing great demand for them, and the underlying technology. On the commercial side it presents a massive opportunity,” he said.   

The law firm’s Australian partners have noted modest growth in the managing general agencies sector in the past year, and Sydney-based Partner Avryl Lattin says after much regulatory change, companies are looking at new distribution arrangements. 

“Some Lloyd’s syndicates are establishing operations in Australia, and in areas such as professional indemnity and directors’ and officers’, where companies had completely pulled out, we’re seeing new and different players,” she said.