Considering mergers and acquisitions (M&A) in life and annuities appear to be entering calmer waters, where is the market heading?
On Monday, A.M. Best released its report outlining how low interest rates and a Department of Labor ruling held the reins tight on industry consolidation while demand for pension risk transfer prevented 2016 being deemed a “slowdown”.
Goal-oriented buyouts of, or integration with, technology companies is the new trend for an insurance industry grappling with modernization.
“M&A activity can lead to innovation, we believe going forward we’re more likely to see targeted M&A that’s not necessarily insurance-focused,” Rosemarie Mirabella Assistant Vice President of A.M. Best said. “It can be around technology, distribution, data-analytics, I think we’ll see more M&A activity in that particular area.”
Interest rates have already started to climb again - and that’s expected to continue to the liking of insurers.
“I think there’s a presumption economic activity will be increasing,” Mirabella said “At some point we want to see interest rates normalize, because we’ve had these very low rates for a very long time and it’s created a lot of pressure for the industry.”
So the future looks friendly for big insurers, though Mirabella said “it’s too early to tell what the substance is” from the incoming Trump administration’s direction.
“But most people feel the west is going to become more regulatory friendly and that would likely spur interest to invest more in the United States,” Mirabella said.
Companies from Japan and China operating in the US have seen more M&A activity, she states.
“That’s more about the desire to diversify, and not necessarily for regulatory reasons,” Mirabella said. “In the past, we thought potentially European cross border deals might be a headwind… but now that the US regulatory regime is viewed as equivalent it’s not as much of a headwind.”
Global accounting standards are still in flux, Mirabella said, and that could have a knock on affect in the US.
Interestingly, Mirabella mentioned that M&As do surprise the buyer every so often.
“Sometimes we see companies acquiring other companies and it having unintended consequences where you do raise the bar, because you acquire technological systems capabilities or even just human capital beyond what you thought you were getting when you did the deal,” she explained.
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