2013 Insurance Industry Mergers & Acquisitions Down From 2012
October 18, 2013 by Fran Lysiak
Mergers and acquisition activity in the insurance industry for the first nine months of 2013 has been slower than this time last year, although the transactions are notably widespread and focused.
Such activity is down from 2012 by about 100 deals, said Dan Baransky, senior vice president at Merger & Acquisition Services. He noted transactions stood at about 193 so far this year, which included brokers.
Baransky describes M&A activity this year as not too wide-ranging but more “targeted and focused.” Companies want to buy lines of businesses or companies that are niche-focused or to expand in a specific geographic region, he said.
2012 was “a pretty strong year,” Baransky said. Although activity is slower this year, he doesn’t think it’s due to companies’ diminished appetite for M&A but possibly more about companies not finding as many targets. It’s more about an absence of quality supply/targets than an absence of demand, Baransky said.
There are several drivers for acquisitions now, such as a lack of top-line growth or minimal returns on invested assets, Baransky said. If a company is making 2% on a government bond or 3% on its overall portfolio, “just about anything” starts to look attractive within reason.
Jamie Inglis, managing director with Philo Smith, an investment banking firm that specializes in insurance, said every type of buyer — whether an insurance company, a reinsurance company, private equity or international buyer — “has entered into a transaction with almost every type of seller,” Inglis said, calling it a theme of “slow but very widespread.”
For example, Eastern Insurance Holdings is merging with a newly formed subsidiary of ProAssurance Corp. Proassurance is a medical professional liability insurer but getting a workers’ compensation company —Eastern Insurance, Inglis said. In this case, a company is entering a new line of business. Conversely, Allstate Corp. getting out of Lincoln Benefit means its exiting the independent agent life and annuity business, he said.
But many companies are “over-capitalized,” meaning the equity they have is more than sufficient to cover the premium volume they’re writing, Baransky said. As a result, they’re seeking a way to boost their earnings while expanding their operations because the market is somewhat soft and investment returns are low.
Workers’ comp is one one area that’s heating up, Baransky said, noting interest in run-off companies. The line is “fairly distressed right now,” he said.
There’s also strong interest for run-offs on the life insurance side, Baransky said, with about 10 players fairly active in shopping for such operations.
Closed blocks of life insurance business are candidates for run-off, Baranasky said. A run-off could be a company with an ongoing life operation but doesn’t want it, he said. A business doesn’t have to be a closed block in order to be a run-off, he said. A company could buy it and then decide it will non-renew “or make it a closed block after the fact.”
Annuity company results over the past few years haven’t been stellar, due to levels of return, Baransky said, noting there’s not much appetite for annuity transactions in general. However, it’s about companies looking to exit a line of business that has been underperforming and someone coming in and opportunistically buying it.
Inglis pointed to certain buyers of fixed annuity companies. The strategy is “managing the investments more effectively than they’ve been managed before to get additional yield,” he said. However, insurance departments are becoming “more awake” about these deals because some regulators don’t want an institutional investor to manage something for “maximum short-term return.”
Earlier this month, private equity-backed Athene Holding Ltd. completed its acquisition of Aviva USA Corp. for about $1.55 billion. Aviva USA is now known as Athene USA. The Bermuda-based Athene Holding is owned by several institutional investors, with its largest shareholder being AP Alternative Assets, which is managed by Apollo Global Management, a private equity firm. Athene now has about $60 billion in assets, making it one of the largest sellers of retail fixed annuities, which include indexed annuities, inthe United States (Best’s News Service,Oct. 4, 2013).
(This article was first available in the Oct. 14 edition of BestWeek Americas, at www.BestWeek.com.)
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
