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December 13, 2021 at 10:45 AM
U.S. life, health annuity issuers are taking a sober approach to dealmaking this year.
The 10 biggest 2021 acquisitions in the sector announced through Dec. 7 have a total value of about $40 billion. More deals could be coming between now and New Year’s Eve, but these will create the benchmarks used to assess those.
Four of the 10 biggest deals on our list involve insurance company buyers looking to add capabilities or diversify operations. The other six deals involve investor buyers.
At least seven of the sellers are companies responding, in one way or another, to the effects of low interest rates and tough new financial reporting standards on life and annuity companies.
The new “mark to market” reporting standards could force many life and annuity issuers with large books of long-duration business to put ups and downs in the estimated value of benefits obligations in current earnings.
In other words: Those insurers may have to explain to investors every three months why net income has increased or decreased by about $1 billion or more, even though the companies’ performance and overall finances have stayed about the same.
The idea of having to explain huge ups and downs in earnings every quarter has pushed publicly traded life insurers to put life and annuity operations in the hands of policyholder-owned mutual insurers, investment companies, companies based in Bermuda, and other owners that will not face the same quarterly earnings explanation nightmares.
Life insurers have also responded to that concern by making deals to have other companies reinsure, or take responsibility for, large blocks of life and annuity business.
These same pressures are causing some insurers to back away from the sale of new, attractively priced products that offer your clients guaranteed protection against interest rate and investment market fluctuations, or to continue to offer those kinds of guarantees but to put responsibility for meeting the guarantees in the hands of companies not on the quarterly mark-to-market reporting roller coaster.
For a look at the 10 biggest announced deals that involve company acquisitions, not just reinsurance arrangements, see the gallery above.
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