Geopolitics, Interest Rates, And Regulation: The Triple Threat To Insurance M&A

Global insurance mergers and acquisitions (M&A) plummeted to a 16-year low in 2024, marking a sharp decline in dealmaking across the sector. According to Clyde & Co’s annual report, only 202 completed transactions were recorded, down from 346 in the previous year. This represents the lowest level since the firm began tracking M&A activity in 2009.

The slowdown is not due to a lack of interest but rather a combination of economic and geopolitical headwinds that have made insurers more cautious. Three primary factors stand out: ongoing geopolitical instability, persistently high interest rates, and increasing regulatory scrutiny. Together, these elements have created an environment of uncertainty, causing insurers to scale back acquisitions and reassess their strategic priorities.

Geopolitical Instability and Its Impact on M&A

Geopolitical tensions have played a significant role in disrupting insurance M&A activity. Ongoing conflicts, such as the Russia-Ukraine war and instability in the Middle East, have introduced risks that make cross-border transactions less attractive.

For insurers, geopolitical uncertainty translates into a more complex risk landscape. Trade restrictions, economic sanctions, and diplomatic conflicts have made it more difficult to conduct due diligence and evaluate potential acquisitions in certain regions. Companies that once viewed international expansion as a growth strategy are now reconsidering their approach, opting instead to consolidate their existing operations.

Several insurance deals have reportedly been postponed or abandoned due to geopolitical concerns. The uncertainty surrounding U.S.-China relations has also influenced deal activity, with regulatory hurdles making it harder for insurers to pursue mergers across these markets. The result is a more cautious approach to international dealmaking, with firms prioritizing stability over expansion.

The Role of High Interest Rates in Dealmaking Decline

Another significant factor contributing to the M&A slowdown is the sustained high interest rate environment. In an effort to curb inflation, central banks worldwide—including the Federal Reserve, the European Central Bank, and the Bank of England—have maintained tight monetary policies. While these efforts have helped control inflation, they have also increased the cost of borrowing, making large-scale acquisitions far more expensive.

For insurers, higher interest rates present a double-edged sword. On the one hand, they benefit from improved investment yields on their reserves. On the other hand, financing acquisitions has become more expensive, leading many firms to reconsider major transactions.

As a result, instead of pursuing costly mergers, many insurers are redirecting capital toward organic growth initiatives and technological investments. The insurance sector has seen a notable shift in capital allocation, with firms opting to invest in operational efficiency and digital transformation rather than engage in high-stakes M&A activity.

Regulatory Pressures Stalling Transactions

Beyond economic and geopolitical challenges, insurers are also facing increased regulatory scrutiny, which has further stalled deal activity. Regulators across key markets, including the U.S., European Union, and Asia, have tightened compliance requirements for insurance transactions, making approvals more difficult and time-consuming.

Regulators have heightened their focus on consumer protection, data security, and financial stability, requiring insurers to demonstrate that proposed mergers will not harm policyholders or create systemic risks. Additionally, there is growing regulatory attention on environmental, social, and governance (ESG) factors, with deal approvals sometimes contingent on insurers meeting stricter sustainability criteria.

For cross-border transactions, the complexity increases further. Each jurisdiction has its own regulatory framework, and securing approval across multiple regions has proven to be a lengthy and uncertain process. Many insurers have opted to avoid this regulatory maze altogether, choosing smaller, less scrutinized investments instead of pursuing full-scale mergers.

The Shift Towards Alternative Investments

Despite the downturn in traditional M&A, insurers have not completely withdrawn from dealmaking. Instead, there has been a notable increase in investment in managing general agents (MGAs) and insurtech companies.

MGAs—specialized firms that underwrite policies on behalf of insurers—have gained traction as an attractive investment option. Insurers are allocating capital to this segment, particularly in the U.S., Europe, and the Middle East, as it allows them to expand their market presence without the complexities associated with full acquisitions.

Similarly, insurtech investments have remained strong. As digital transformation becomes a priority, insurers are looking to partner with or acquire technology-driven companies to enhance their capabilities in data analytics, artificial intelligence, and automation. This shift indicates that while traditional M&A may be struggling, insurers are still willing to invest in areas that promise long-term growth and innovation.

Conclusion

The insurance M&A landscape in 2024 has been reshaped by three dominant forces: geopolitical instability, high interest rates, and regulatory pressures. Each of these factors has contributed to a more cautious dealmaking environment, leading insurers to prioritize stability and alternative investments over large-scale mergers.

While traditional M&A activity has reached a historic low, the focus on MGAs and insurtech suggests that the industry is adapting rather than retreating. If economic conditions improve and regulatory barriers become more predictable, insurance M&A activity may rebound. Until then, insurers will likely continue seeking strategic investments that offer growth without the complexities and risks of full-scale acquisitions.

In this high-stakes environment, the ability to navigate uncertainty will determine which insurers emerge stronger in the years ahead.

Author: Ricardo Goulart