Recent transactions in the US life insurance space reflect Fitch Ratings' view that industry restructuring is accelerating. Increased opportunities for both traditional and non-traditional players in the insurance arena are seemingly on the rise.
Last week, MONY Life announced its planned sale to Protective Life. In its announcement of the agreement, AXA (parent to MONY Life) highlighted its desire to release resources it had tied up in closed, non-core portfolios and reinvest those resources in higher growth markets and businesses.
Transactions like these reflect an ongoing trend in the industry where many insurers are taking steps to refocus operations and discontinue or divest businesses that have underperformed and/or no longer provide a strategic fit. Some of this product rationalization has also been driven by persistently low market interest rates, which have lowered the relative profitability of some traditional products while also lowering the cost of borrowing if debt is used to finance the acquisition of these businesses.
Other examples underscoring what Fitch believe is a trend include: Hartford Financial Services' sale of its individual life business to Prudential Financial. and its retirement plans business to Massachusetts Mutual, Aviva's sale of its US annuity and life operations to Athene Holding; Genworth Financial's sale of its wealth management business to a partnership of Aquiline Capital Partners and Genstar Capital; and Sun Life Financial's sale of Sun Life Assurance Company of Canada(US) and Sun Life Insurance & Annuity Co. of New York to Delaware Life Holdings, a company owned by shareholders of Guggenheim Partners. Insurers most affected include those that were active in the annuity and long-term care businesses, where unfavorable results have led a number of major players to exit the market.
Canadian and European insurers are expected to further rationalize their participation in the US life insurance market in part due to ongoing underperformance and concerns over pending capital regime changes in their local markets (e.g. Solvency II), which could lead to an increase in required capital associated with having US life insurance operations.
The rating agency expects this rationalization process will continue to create opportunities for both traditional players looking to strengthen existing core business, reinsurers with an expertise in block acquisitions, and non-traditional players (e.g. private equity), which are expected to play an increasing role in the life industry and have completed a number of transactions to date largely involving fixed annuity business. As a result, Fitch expects merger and acquisition activity, which has lagged company-specific restructuring initiatives to date, to accelerate in 2013. Increased M&A activity could lead to negative rating actions based on integration and financing concerns.
|
