You may have noticed that the pace of mergers and acquisitions among life and health insurers has picked up noticeably in recent months.
Since June, Anthem has announced plans to merge with Cigna, a $54 billion deal that would create a colossus — the largest managed health care provider in the U.S.
In the life insurance space, several Japanese insurers, looking to expand their presence internationally to compensate for slow-growth at home, announced deals to purchase U.S. carriers. Among the mergers: Dai-ichi Life Insurance Co.’ gobbling up of Protective Life Corp. for $5 billion-plus; and Sumitomo Life’s buyout of Symetra Financial Corp. for $3.8 billion; a deal backed by billionaire investor Warren Buffet.
(Buffet’s company, Berkshire Hathaway, was among the lead investors in 2004 that acquired Symetra, formerly a life insurance business of Safeco Corp.)
More wheeling and dealing is expected. In a November 10 report, Moody’s Investors Service pegs the value at M&A activity through the third quarter of 2015 at a whopping $200 billion — the highest level in several years.
What’s fueling the transactions? A weak global economy and increased regulation are driving sellers to seek buyers, the report notes. For potential acquires, low interest rates and funding costs, plus the ability to achieve economies of scale and access new markets, are the main motivating factors. And these objectives can be secured more easily by combining with another insurer than by growing organically.
“We expect M&A to halt only if interest rates rise significantly, or equity markets fall dramatically — although even the latter reduces sales prices,” says Moody’s Global Insurance Group Managing Director Simon Harris. “We expect that interest rates will remain at historically low levels globally and that debt-funded M&A will remain attractive for some years,” he adds.
The report cautions, however, that rock-bottom interest rates could have harmful, long-term effects on product manufacturers — particularly life insurers — as the companies’ portfolio returns remain in large measure tied to interest rate yields.