Philip Salem (Photo: Allison Bell/ALM) Philip Salem (Photo: Allison Bell/ALM)

U.S. life insurance and annuity players could make more complicated deals in the next year or so, and many of those deals could be structured as reinsurance arrangements.

Philip Salem, co-head of the Americas insurance sector in the investment banking division at the Goldman Sachs Group Inc., made that case today in New York, during a session on insurance deal activity, at the S&P Global Ratings 2019 Insurance Conference.

(Related: New York Life’s CEO Still Likes the Retail Annuity Market)

The two-day conference is bringing top life insurance company executives together with investment bankers and money managers.

S&P Global Ratings’ own ratings influence what deals can be made, and at what cost.

The deals that are completed may affect how many career agents life insurers need, and the range of life and annuity products that brokerage general agencies and other distributors can offer.

Today, Salem said, the value of U.S. life and annuity deals is averaging about $8.9 billion, down from about $12 billion before the Great Recession struck.

The buyers have initiated about 80% of the deals, even when the deals have been friendly.

Salem said he believes that concerns about life insurance company reserves for products such as long-term care insurance, variable annuities with minimum benefits guarantees, and life insurance policies with certain types of benefits guarantees have made traditional deals involving one large life insurance company acquiring another big life insurance company rare.

In recent years, he said, the buyers have been trying to use deals to cope with the difficulty of increasing size through organic growth, and to cope with advances in technology and other changes.

In many cases, Salem said, the sellers have been making deals to dispose of subsidiaries or blocks of business that are no longer core to their operations.

Life insurers have probably already made most of the deals that involve attractive, non-core units and blocks of business that are easy to separate from the parent companies, Salem said.

The deals in the pipeline now are more complicated, Salem said.

Another speaker, Chad Stogel, a vice president at Spectrum Asset Management Inc., said during a separate life sector session that efforts to transfer long-term care insurance risk could be especially challenging.

The ceding commissions for selling a whole block of long-term care insurance are “through the roof,” Stogel said.

Stogel said he could picture reinsurers doing LTCI deals that would involve just a limited slice of LTCI risk, such as reinsurance for a block’s interest rate risk.

— Read Investors Helping Life Insurers Shift to Pension Transfer Market: Analyst, on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on LinkedIn and Twitter.