Empower Retirement shook up the retirement plan market today by agreeing to provide a total of $3.35 billion in ceding commissions and extra capital for the Massachusetts Mutual Life Insurance Company retirement plan business.
Empower — a Greenwood Village, Colorado-based arm of Great-West Lifeco of Winnipeg, Manitoba — is on track to acquire $167 billion in assets, 2.5 million plan participants, and about 2,000 employees.
MassMutual is on track to come away from the deal with about $2.35 billion in extra cash.
- Links to MassMutual deal resources, including a recording of a conference call, are available here.
- A news article about the deal is available here.
Roger Crandall, the chief executive officer of the Springfield, Massachusetts-based mutual life insurer, said in a comment about the deal that MassMutual is pleased to have found a strong, long-term home for the retirement business.
MassMutual believes “this transaction will greatly benefit our policyowners and customers as we invest in our future growth and accelerate progress on our strategy,” Crandall said.
Here are five possible implications of the deal, for financial professionals in the individual life and annuity markets.
1. In spite of low interest rates and investment market turmoil, some companies might still be OK with being in the individual annuity market.
Crandall, for example, said that MassMutual’s strategy “includes strengthening our leading position in the U.S. protection and accumulation industry by expanding our wealth management and distribution capabilities; investing in our global asset management, insurance and institutional businesses; and delivering a seamless digital experience.”
Those goals seem to be compatible with offering annuities and similar products.
On the other hand: Crandall didn’t actually use the word “annuity.”
2. Retirement plan provides might be OK with the idea of being in the individual annuity market.
Empower executives pointed out that the company recently paid $1 billion for Personal Capital, a company that offers automated investment advice services for individuals.
The MassMutual retirement plan business deal should help Empower use Personal Capital tools to grow the individual retirement account rollover business and “expand retail cross-sell capabilities,” according to Empower’s deal conference call slidedeck.
But, again: Empower didn’t actually use the word “annuity.”
3. Big midsize financial services businesses may be acquisition-prone.
The very biggest financial services companies are flush with cheap cash and hungry for reasonable things to do with large piles of cash.
Corporate boards, meanwhile, are nervous about the state of the economy and quick to convert anything that’s not nailed down into another pile of cash.
MassMutual, for example, is a life insurance giant, but it ranked only 11th in terms of defined contribution retirement plan participants, and 11th in terms of assets. That positioning as a big midsize player may have made the business attractive for Empower to buy and attractive for MassMutual to sell.
4. The deal itself could breed more deals.
Empower was already the second biggest player in the retirement plan market, but Principal Financial recently came close to it, in terms of the number of participants, by acquiring the Wells Fargo retirement plan business. Completing the MassMutual deal should help Empower pull further ahead of Principal, although it will still be much smaller than Fidelity.
Managers of seven other players with $3 billion to $7 billion players may look at the rankings themselves and decide, simply based on the look of the rankings, that this is a good to buy, or a good time to sell.
5. Even a smooth Empower-MassMutual retirement plan integration could leave some MassMutual retirement plan participants hungry for personal financial advice.
Empower says one reason to make the deal is that MassMutual now has three different recordkeeping systems for its retirement plan business.
“Empower has a proven proprietary and highly efficient recordkeeping platform that currently administers 9.7 million participants at a lower unit cost,” according to Empower. “Empower expects to migrate the MassMutual business to its platform over the following 18 months after close.”
That integration process could lead to a large wave of MassMutual retirement plan participants getting notices. In some cases, the notices could increase the participants’ level of interest in hearing from financial professionals of their own.
— Read A Midwestern Life and Annuity Issuer May Go Private, on ThinkAdvisor.