A big circle eating small circles, and looking at a big circle. (Image: Allison Bell/TA)

The flow of mergers and acquisitions was slow in the life and annuity sector in the first half of 2018.

Life and annuity issuers announced deals with a total value of $3.7 billion in the first half, according to Deloitte’s 2019 industry outlook report. The total value was 79% higher than in the first half of 2017.

But the number of life and annuity deals fell to 15, from 16.

(Related: Sun Life to Expand Real Estate Unit)

The Deloitte analysts predict that life and annuity M&A flow will grow next year.

“The confluence of unrelenting market pressure to achieve sustainable growth, a lingering abundance of capital and capacity, improving global economies, and an upturn in interest rates may indicate that insurers should be prepared for a potential uptick in M&A in 2019,” the analysts write.

Here are five questions we expect to shape our life and annuity issuer M&A coverage in the coming year.

1. Should the insurer really be making that acquisition?

Plentiful capital and near-zero interest rates have simplified efforts to arrange for deal financing in recent years.

This year, however, “rising interest rates could be a double-edged sword, because it makes debt more expensive,” the Deloitte analysts note.

In other words: Some buyers who who always knew they could whip out their “revolving credit facilities” (enterprise-level credit cards) may find they have no access to affordable deal financing.

Companies pay for M&A deals with shares of their own stock. If an insurer’s stock craters, the insurer will have a hard time using its stock to pay for deals.

2. What will market volatility do to the private equity-backed players’ appetite for financing new life and annuity deals?

Volatility could create new buying opportunities. Private equity firms have big pools of cash they can use to make deals. But, if investment markets are too wild, that could somehow disrupt the private equity players’ resources.

3. Did the players really have a choice about that deal?

Extreme volatility could lead state insurance regulators and guaranty associations to push insurers into shotgun weddings.

4. Are there any real estate investment advisory firms left to buy?

For life insurers, real estate is a relatively staid, respectable alternative to investing in the corporate and government agency bonds that life insurers usually buy.

Interest rates on corporate bonds and government agency bonds are rising but still low.

Life insurers have responded this year by buying up real estate investment advisory firms as if everyone contained a wonderful toy inside.

5. How will that deal play in California?

In January, Rep. Maxine Waters, D-Calif., will be taking over as the House Financial Services chairman.

Ricardo Lara — who is so liberal that he introduced a Medicare for all bill that could have banned the sale of major medical insurance in California — will take over as the California insurance commissioner.

The incoming House speaker, Rep. Nancy Pelosi, is a Democrat from San Francisco.

One logical conclusion is that California could end up playing a more active role in deciding which deals can proceed.

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