It’s that time of year when consulting firms release their forecasts for the year ahead. In the case of Deloitte’s “2014 Life Insurance and Annuity Industry Outlook: Transforming for growth, getting back on track,” one prediction for an active merger and acquisition market is definitely on track. This same week the report was released, Athene Holding Ltd., an active buyer of fixed annuity lines last year, announced its plan to raise approximately $500 in private placement equity. The move is seen as a precursor to acquisitions.
The Athene move bolsters Deloitte’s forecast of a “dynamic” M&A market in 2014. More books of business will become available as valuations rise and insurers take the opportunity to sell off noncore businesses. Further, financing deals remains attractive despite a slight uptick in interest rates, the Deloitte report notes. However, momentum could be slowed if private equity players, like Apollo affiliate Athene, balk at making more acquisitions due to the heightened capital reserve requirements regulators have slapped on them.
Yet the regulatory environment should be a concern for all insurers, the Deloitte report asserts. Issues swirling around principal-based reserving (PBR) standards, the use of insurer-owned captives and the recently released FIO report on insurance modernization will persist in the new year. Though there isn’t much insurers can do regarding PBR, Deloitte warns that life insurers should address regulators’ concerns about captives to ensure they are not being used simply to avoid statutory accounting requirements and are instead a “real risk transfer.”
Zeroing in on the marketplace, Deloitte recommends reaching out to Gen X and middle-market consumers with simpler products available in nontraditional distribution channels. The firm points to MetLife’s deal to sell simplified life policies in Wal-Mart stores as one example of using a broader distribution platform to reach consumers.
Another area insurers are making inroads into is the group annuity market via takeovers of pension liabilities from private corporations. “This could significantly increase the pool of assets insurers manage, and generate a much-needed infusion of revenue,” Deloitte researchers state.
And as their financial footing continues to improve, insurers must upgrade their technological and digital capabilities. This would not only meet the demands of consumers, but also permit insurers to embark on more targeted marketing campaigns, enable better risk pricing and improve their data analysis functions, Deloitte stresses.