The number of mergers and acquisitions in the life and health insurance sector dropped nearly 40 percent in 2013, according to Deloitte LLP.
The slowdown may be a source of relief to insurance agents and advisors who have been concerned that too many deals in a year could harm industry stability or disrupt existing products and processes.
However, the annuity specialists among those producers will likely remain vigilant. That is because of another Deloitte finding — namely, that most of the deals in 2013 were focused on the annuity business. Since new company ownership has the potential to alter access to annuity markets and bring change to product design, annuity specialists who represent carriers involved in deals in 2013 will be perusing their contracts and products carefully.
Their vigilance will be sharpened by lessons learned from the carrier de-risking period of 2010 through 2012, during which the annuity business underwent major changes. Those earlier changes included not only new company alliances and deals but sometimes substantial product and market curtailments and changes to agency contracts as well.
To say that annuity professionals are hoping for a cool-down period where market and product changes are concerned is an understatement. Deloitte’s mergers-and-acquisitions discussion provides some insight into what might be possible.
Overall, the life and health insurance business saw just 17 deals in 2013, according to the firm’s 2014 Insurance M&A Outlook.
That’s down from 27 deals in 2012 and also from the 11-year high of 28 deals in 2010 and 2005.
Drawing from data supplied by SNL Financial, the Deloitte analysts assessed transaction activity by year announced. The transactions involve buyers in the United States and Bermuda who made acquisitions on a global basis.
With a few exceptions, the deals in 2013 focused on “expanding distribution into emerging markets and acquiring smaller, bolt-on capabilities,” the researchers said, noting this was not a period of “large transformative deals.”
In fact, the average transaction size showed “a significant decrease” from 2012. It was $133 million —down 57 percent from the 2012 average of $311 million per deal. (This average is, however, an eye-popping 269 percent above the 11-year low of $36 million in 2009, a time when most deal-makers pulled in their horns to wait out the Great Recession.)
Since most of last year’s deals entailed annuities, the smaller size of those deals suggests that the overall impact on the annuity business may not turn out to be as great as it may have been if the transactions were of the “large, transformational” variety. This might be welcome news to annuity producers who have grown weary of big transformational events in their business.
Looking to 2014
Year 2014 could be different, however. Momentum is building for increased insurance company mergers and acquisitions, the Deloitte analysts said. They pointed to global economy improvements, the presence of “fairly well capitalized” insurers and others with available funds, and a moderation in rate increases in certain lines (which could limit organic growth and spur interest in inorganic growth opportunities).
Key players in this world of potentially more deals could be private equity firms — buyers which accounted for approximately 40 percent of agent-broker deals in 2013, according to Deloitte.
“Historically, private equity buyers have tended to prefer acquiring insurance brokers over insurance underwriters,” the analysts wrote. That’s because brokerage is not asset-intensive and does not tie up capital for long periods. According to several other studies, brokerages that do a lot of employee benefits business or have other forms of recurring revenue streams also have become especially enticing targets for deals.