Insurers and insurance asset managers are expecting a wave of merger and acquisition (M&A) activity to hit Singapore and Hong Kong in 2024, as the region echoes the wider global industry trend towards consolidation, Clearwater Analytics said Tuesday.

With 65 percent of respondents reporting an expectation that M&A activity in their domestic market would rise in 2024, there is clearly reason for dealmakers operating in the region to be optimistic ahead of the new year, Clearwater Analytics said in a report.

According to the report, the positive sentiment was felt more strongly by larger organizations, with those reporting an asset under management (AUM) of over $100 billion averaging 68 percent, whereas the smallest organizations surveyed, with under $1 billion, at a more modest 58 percent.

“If it is the bigger fish that generally drive acquisition activity, this would suggest strong prospects for activity in the new year,” Clearwater Analytics said.

It is well noted Singapore’s insurance broker M&A market has been flatter than other areas of Asia in 2023.

However, 63 percent of those insurers and insurance asset managers based in the city-state expect the rate of domestic activity to rise next year, suggesting a bottleneck of deals could be pushed through.

The report also highlighted that private equity firms have taken an increasingly positive view on the acquisition potential of insurers in Hong Kong and Singapore.

It said 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, it said 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 laborious if their systems are stuck in the dark ages.

Meanwhile, off the back of the Monetary Authority of Singapore (MAS) recently deeming four major insurers ‘too big to fail’ and imposing a higher level of regulatory scrutiny on them as a result, 27 percent of insurers believe that increased regulatory requirements is the most effective way to prevent insurers posing wider market risk.

However, insurers also recognized the challenge that incoming regulatory changes pose for them operationally in the new year, with 30 percent seeing it as the key regulatory challenge their business faces.

Meanwhile, expenditure is expected to rise, with established technology the priority for insurers despite the spectre of AI looming large across the world, according to the report.

When it comes to setting budgets ahead of the new year, a whopping 86 percent expect their technology spending to rise in 2024.

This was most strongly felt by the goliaths, with every firm boasting an AUM of over 50 billion believing it would rise.

The report also saw marginally stronger sentiment from those firms with multiple international offices, with 90 percent expecting expenditure to go up next year.

This perhaps makes sense as when dealing with offices across multiple jurisdictions, operational complexity can increase.

This would certainly have a greater impact if technology solutions supporting core processes aren’t up to scratch.

It is also noted that only 14 percent of firms do not anticipate their tech spending to rise, and not a single respondent reported that they expect it to fall in the new year.

When it comes to the priorities that insurers plan to focus on in this area, there was a clear bias towards existing, tried and tested technology.

Almost a quarter of respondents (24 percent) selected the expansion or implementation of cloud technology as their main tech priority, which was the top answer.

By contrast, integration of AI/machine learning (ML) technology was only selected by 11 percent, coming out bottom.

“This is a fascinating insight into how Hong Kong and Singapore insurers broadly see these technologies fitting into their business in the short-term, with their heads in the cloud, rather than the emerging world of AI,” said Clearwater Analytics.

However, in the boardrooms, there was a very different view, as C-suite respondents reported a strong preference to prioritize the integration of AI/ML solutions in the new year at 38 percent, with implementation/expansion of cloud tech coming a solid second (23 percent).

“Perhaps this is reflective of the role of the C-suite to look to the future from a strategic perspective, with mindfulness of the potential benefits that generative AI will be able to deliver to firms,” said Clearwater Analytics.

While the smallest firms are primarily looking to increase their usage of data analytics (33 percent), those with an AUM of $50–$100 billion are planning to put most of their eggs in the cloud basket (43 percent).

Those with offices abroad echoed the positive sentiment on cloud technology (26 percent).

“This can perhaps be linked to the difficulty that firms can experience in tracking and effectively utilizing data across teams and jurisdictions when it is locally held, rather than accessible throughout the business via the cloud,” said Clearwater Analytics.

Other priorities that are currently trumping the integration of AI technology in the short-term include improving portfolio management systems (14 percent), and automation
of reporting (12 percent), demonstrating that insurers and insurance asset managers are identifying a range of areas they want to prioritize from a technology perspective in
2024 and are looking to those that are tried and tested, rather than in development.

“When it comes to technology spend, the priority for decision makers is directing resources towards solutions that are going to make a difference to them now, not in five years’ time,” said Clearwater Analytics.

It said that technology solutions based on cloud, the capability to more effectively utilize advanced data analytics, and improving client experiences or regulatory relationships through accurate, efficient reporting are available now and being lined up for the new year.

“There are AI solutions in development that promise incredible potential, and it will be interesting to see when these begin to be rolled out to clients,” Clearwater Analytics said.

When asked respondents to assess how they felt their organizations compared to their competitors on the digital transformation journey, only 38 percent of C-suite executives believe that they are ahead of the competition, which may explain the strong expectations that technology spend will increase in 2024.

“Overall, many areas for improvement were identified, with various priorities listed for next year. Clearly, with technology budgets set to rise, 2024 is expected to be a big
year,” Clearwater Analytics added.

The survey, conducted in October and November 2023, engaged over 80 insurers and insurance asset managers in Hong Kong and Singapore, representing over $2.5 trillion in assets under management.

The survey included questions on M&A activity, regulatory developments, solvency rules, investing strategies and associated operational complexities, technology expenditure, and technology priorities for the new year.

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