Hong Kong and Singapore will see a surge in M&A and private market investments in the insurance industry in the coming year, a new report finds.

The report by software-as-a-service fintech company Clearwater Analytics was based on a survey conducted in October and November 2023. It involved over 80 insurers and insurance asset managers in the two markets, representing over US$2.5 trillion in assets under management.

Dealmakers in the region may have a good reason to be optimistic, with 65% of respondents expecting M&A activity in their domestic market to rise in 2024.

Currently, 99% of insurers in the two cities hold private market or alternative assets in their investment portfolios, in a stark departure from the traditional model of being heavily weighted towards listed equities and high-grade fixed income.

However, 37% of those surveyed feel that they struggle to determine fair value for these assets, something that is bound to worry local regulators who are increasingly turning their attention to private market assets, liquidity risks, and the methodologies that investors are using to produce valuations.

The Monetary Authority of Singapore (MAS) recently designated four major insurers as “too big to fail” and imposed a higher level of regulatory scrutiny on them. In line with this development, 27% of insurers believe that tighter regulation is the most effective way to prevent insurers posing wider market risk.

Technology budgets in the insurance industry will rise next year, according to 86% of respondents. This is most strongly felt by the biggest insurers, or those with AUM of over US$50 billion.

While almost a quarter of respondents (24%) choose expansion of cloud technology as their main priority, only about 11% say they will focus on integration of artificial intelligence technology.

“From the operational complexities of investing in alternative asset classes, to the knock-on effects of regulatory developments, we got the sense the industry is looking to modern, but trusted, technology to support them in their journeys as a new year looms,” says Atul Mehta, head of Asia-Pacific at Clearwater Analytics.

“With increasingly diversified investing strategies, industry-wide trends towards consolidation, the advent of new and exciting technologies, and emerging regulatory directives, insurers in Hong Kong and Singapore have much to be intrigued by in 2024.”