OLDWICK, N.J.--(BUSINESS WIRE)--Although most U.S. life/annuity (L/A) insurers have shied away from executing on merger and acquisition (M&A) transactions, the re-emergence of private equity in the U.S. L/A segment has sparked some life back into the M&A market, according to a new A.M. Best report.
The Best’s Special Report, titled, “Domestic Life/Annuity M&A Fueled by Non-Traditional Players,” states that these L/A carriers see the main stumbling block to them getting involved in M&A transactions continues to be valuations from heightened competition. However, senior managers at a number of L/A carriers have told A.M. Best that the M&A pipeline is strong, and they have teams looking at a number of deals.
For most small- to medium-sized carriers, the goal is usually to expand scale to achieve growth, by acquiring liabilities or distributions that can either enhance an existing profile or provide a nice complement to that business. Equally important, the growing significance of enterprise risk management, innovation and cyber security is further pressuring smaller players due to the significant cost and the management expertise needed to just keep pace, let alone push forward in line with the larger market players.
Of the recent material private equity transactions, most have involved the acquisition of variable annuity or fixed annuity businesses. These blocks generally line up well for private equity investors interested in managing the assets of what are essentially run-off blocks of business. These run-off blocks also can become platforms for private equity firms to buy additional blocks to add to the run-off model and manage additional assets. A.M. Best expects to see continued interest from private equity funds in the L/A segment. Transactions such as Talcott Resolution and Voya Financial (completed in May and June of 2018, respectively), have piqued buyers’ interest in other legacy variable annuity books of business.
Overall, A.M. Best believes private equity ownership remains a positive trend for the L/A industry. Although these ownership structures are somewhat less conservative on investments than traditional insurers, there has not been a rise in impairments for portfolios acquired and rebalanced. In addition, product pricing for those firms with ongoing franchises has not been considered overly or more aggressive than for some non-private equity owned businesses.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=274371.
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