“The volatility in the financial markets caused more stress in the system, particularly for those life insurance companies with guarantees on their variable annuities,” said Rebecca Amoroso, head of Deloitte’s U.S. insurance practice. “As a result, many life and P&C firms are experiencing significant losses of capital as well as downturns to their ratings. In this environment, raising capital, divesting non-performing or capital-consuming businesses or seeking protection from better capitalized firms emerges as a priority.”
Although there are currently more companies seeking to divest than there are to acquire, a number of potential foreign buyers might be interested in entering the picture, Deloitte believes. Specifically, some Chinese and Japanese companies with strong foreign currency positions, and Bermuda and European insurers that managed to avoid major investment losses, may be strong candidates to make acquisitions, according to Dave Simmons, Deloitte’s insurance mergers and acquisition leader.
“Sovereign wealth funds may also seek to invest in insurance companies as Middle Eastern and Asian governments strive to increase the sophistication of their financial sectors by gaining access to needed resources and skills,” Simmons said. “As financial and credit markets stabilize, we expect strategic buyers to re-enter the market, take advantage of the supply-demand imbalance and a new wave of consolidation to occur.”