Emerging risks | Growth Opportunities | APAC Insurance
Emerging risks | Growth opportunities | APAC insurance
Private equity
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In 2022, there was a sudden surge in private equity (PE) deals around the world as firms rushed to spend more than $2 trillion of surplus capital that they had been unable to spend during the Covid-19 pandemic, according to Preqin.
Some of this money found its way into the insurance markets. However, many PE funds prefer to hunt for investments that offer quicker returns.
“Most private equity firms are in and out within five years. It’s extremely difficult to turn an insurance business around and capture meaningful value within that time horizon,” says John Spence, managing director of Asian Capital Advisors.
Nonetheless, some PE funds are sensing growing opportunity for M&A deals, and are positioning themselves accordingly. Brookfield Corporation recently announced that it plans to significantly grow its investment in P&C insurance, saying that this aligns well with the firm’s investment capabilities.
“Where private markets are becoming increasingly involved in the region, it is as a catalyst for consolidation, a catalyst to build distribution channels, and a catalyst to build a regional platform,” says Guy Carpenter’s Ward.
In June, KKR launched a new insurance distribution platform in Singapore, More recently the PE firm and Australian counterpart Quadrant Capital announced they would acquire a minority stake in Hong Kong-based reinsurer Peak Re. The investor has also been on a shopping spree for small advisory companies that it can roll up into the platform.
Ricard from Oliver Wyman sees further opportunity.
“Many smaller players in APAC have the expertise and client relationships, but they do not have the scale. A PE player can come in, acquire several companies, invest in technology and make a big play to disrupt the market,” says Ricard.
Keeping an eye on what the private markets are doing should be an important part of strategy for any insurer that wants to grow its footprint through M&A.
“It is interesting to see how the private equity landscape intersects with the insurance world. We have seen private equity companies take minority stakes in insurers, then work with them to develop some asset management capabilities. This is where synergies could lie,” says Chan from Generali. “Some private equity players are also more interested in the distribution side of the insurance sector, taking exposure in brokerage/agency related companies.”
To some extent, PE funds are competing with insurers for the same transactions. However, Morinaga says that their involvement in the market is also leading to fresh opportunities, since the two types of investor have very different outlooks.
“PE funds want to maximise profits and so when they exit a company they will try to sell their stake at a high price. Japanese companies, on the other hand, are looking for high-quality assets that align with their long-term goals. Sometimes these two objectives line up,” says Morinaga.
What might look like a high valuation from a PE standpoint could be a valuable acquisition for an insurance company, he adds.
“Japanese insurers are seeking high-quality opportunities in Asia, but there are not that many in the market. Often a PE fund will have a stake in a company that an insurer wants to get hold of, and that is when interests align,” says Morinaga.
