Top financial executives at large life insurance companies think mergers and acquisitions in the industry will grow significantly over the next 12 months.
In an informal survey of chief financial officers by the Tillinghast unit of Towers Perrin Inc., Stamford, Conn., 57% said it is possible or highly likely their company will acquire another company in the next 12 months, and 77% said it is possible or highly likely their companies will acquire a block of business from another company.
Life insurance companies are eyeing acquisitions primarily as a way to achieve profitable growth and to make more effective use of available capital, Tillinghast found.
CFOs were generally satisfied with recent M&A experiences, with 72% stating that all or most of their M&A transactions over the past 3 to 5 years met or exceeded their expectations. This is up from 43% who felt the same way in its 2003 CFO survey, Tillinghast says.
CFOs who thought their earlier M&A transactions did not meet expectations pointed to several issues, including incompatible cultures, clash of management styles and inability to implement change.
While most expect to acquire another company or block of business, 83% said their companies are not planning to divest any part of their business over the next 12 months. Only 9% said their companies would consider divesting their companies’ individual life business.
Surveyed CFOs indicated that the purchase of domestic or offshore and foreign reinsurance businesses would be the most appealing alternative M&A transaction. Tillinghast found 70% of large life insurers currently buy reinsurance directly from a reinsurer, and nearly half purchase through intermediaries or other outside consultants in addition to going direct.
As for the financial outlook, 58% predicted new life and annuity premium growth of 4% or higher for the first quarter, down from 69% in the first quarter of 2006. About 60% percent of respondents said they expect first quarter GAAP net revenue to increase by 4% or more, down from 68%.