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Diminished insurtech appetite lowers insurance M&A 

Diminishing appetite in some regions for insurtechs has been a factor in an overall drop in insurance industry mergers and acquisitions (M&A) activity in the first half of the year, Clyde & Co says. 

Finding capital for insurtechs is “proving difficult” in Europe due to inflation and rising interest rates, the law firm says, while the US has been impacted by a lack of “true insurtechs” coming to market, rather than traditional carriers seeking new distribution channels.  

Elsewhere, interest in insurtechs from private equity remains strong, including in Asia, particularly Indonesia, Vietnam, the Philippines and Thailand. 

Clyde & Co Hong Kong Partner Joyce Chan says private equity firms are looking at investing in Asia tech players at all stages of development, with prospective capital providers split between international firms and regional asset managers.  

"As the use of AI in insurance becomes better established, investment is likely to return to insurtech in other regions – as the sector best placed to leverage the emerging technology,” Ms Chan said. 

The report also says cyber offers both growth opportunities and M&A risks, and is therefore “a growth opportunity for carriers and a risk management concern”.  

“The potential impact of cyber exposures on M&A is a growing focus for deal-makers. Many acquirors have revealed that due diligence around cyber risks of target companies has risen from a top ten to a top five concern when considering potential acquisitions,” Clyde & Co says. 

Correctly worded warranties in relation to IT systems and cyber issues are a key concern, it says, as the broad wordings in existing agreements are less likely to pick up potential post-transaction issues. 

Clyde & Co London Partner Rosehana Amin says a “real risk of cyber incidents is the nature of interlinked systems – when there is a compromise and the related legal issue of who is the data controller”.  

“When a purchaser acquires the target company’s data, will the contract make it clear who retains responsibility? Is there an understanding of legacy data that it might be acquiring? If data is compromised, the relevant entity may be subject to scrutiny and liable for potential regulatory fines,” she said.   

Overall M&A in the global insurance industry dropped sharply in the first half, though Clyde & Co expects the volume of transactions to start to rise again towards the end of the year, with the broker segment “leading the way”. 

Clyde & Co’s Insurance Growth Report mid-year update shows there were 171 completed deals worldwide, down from 242 a year earlier, and 207 in second-half 2022. In the Asia Pacific, completed M&A numbered 29, led by Japan’s 14 deals. Australia, China, Hong Kong and South Korea all had three. 

“We anticipate that the volume of transactions will start to rise again towards the end of 2023,” the report said.