A.M. Best Briefing: Regulatory Shifts, Low Interest Rates Temper Merger and Acquisition Activity in U.S. Life/Annuity Industry

OLDWICK, N.J.--(BUSINESS WIRE)-- The pace of merger & acquisition (M&A) activity in the life/annuity (L/A) industry continued to moderate in 2016, as headwinds from low interest rates and the regulatory environment have furthered conservatism among insurers, according to a new A.M. Best briefing.

The Best’s Briefing, titled, “Mergers and Acquisitions in the Life/Annuity Marketplace,” states that while the Department of Labor (DOL) fiduciary standard was a catalyst for distribution-centered M&A, it also reduced block transactions or whole company acquisitions as the industry continued to grapple with DOL readiness and implementation. The DOL was a significant distraction and consumed management resources for annuity companies throughout 2016.

In addition to Japanese companies entering the U.S. marketplace is to increase their diversification, China-based enterprises now are beginning to make sizeable investments into financial services and real estate. A.M. Best views some of these newer entrants as likely facing high regulatory barriers, particularly if M&A shifts toward China state-owned enterprises as potential buyers.

Due to prolonged low interest rates, mega-sized pension risk transfer (PRT) deals were modest in 2016, with the exception of MetLife and MassMutual’s partnership to execute a joint $1.6 billion PRT transaction and Prudential Financial’s $2.5 billion PRT transaction with WestRock Company. However, the overall pace of PRT activity through September 2016 was comparable to the prior year. The MetLife-MassMutual transaction represents the first sizable joint M&A transaction in the U.S. market for PRT, and A.M. Best believes it is an important step in capital markets risk transfer, which will likely be necessary for the PRT marketplace to mature in the U.S. market over time.

A.M. Best expects that the prospect of disruption from financial technology, or fintech, companies in the industry likely will drive strategically focused M&A activity. A.M. Best has observed varied approaches as companies take several paths, including partnering with affiliated distribution channels, incubating fintech insurance startups through seed investments in their own organizations or acquiring fintech insurance-focused companies. The industry is still in the early stages of addressing the need to modernize marketing and distribution systems in an increasingly sophisticated technological economy. A.M. Best expects that strategic M&A with a focus on distribution and technology will be an important and recurring theme over the next several years.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=257636.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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Source: A.M. Best Rating Services, Inc.