North America and Bermuda
The number of announced life insurance M&A transactions involving U.S.- or Bermuda-based targets was on the rise in 2015 after falling in each of the prior two years. According to SNL Financial, the overall deal value similarly increased, from an estimated $8 billion in 2014 to $13 billion in 2015, with three life insurance acquisitions by Asia-based acquirers each valued in excess of $1.5 billion.
The dominant trend in U.S. life M&A in 2015 was continued acquisitions by Japan- and China-based acquirers. Life reinsurance M&A was less active than in 2014, although several major in-force life block sales were announced. Private-equity backed life and annuity acquirers were again relatively quiet in 2015 compared to previous years, although one new entrant announced two U.S. deals in 2015. The year started off with Genworth launching the intended sale of its U.S. life and annuity business, but that deal ended up being pulled later in the year. We start 2016 with a major announcement in January by MetLife of its plans to pursue the separation of a substantial portion of its U.S. retail life business in an IPO, spin-off or sale.
Major Acquisitions by Japanese and Chinese Acquirers
As was the case in the property and casualty sector, 2015 saw major activity in the life sector from Japan- and China-based buyers. Tokyo-based Meiji Yasuda Life Insurance Company announced its agreement in July to acquire StanCorp Financial Group Inc. for $5 billion. Meiji Yasuda, the oldest and third largest life insurance company in Japan, also holds the largest share of group insurance in the Japanese market. Meiji Yasuda's acquisition marked the second major U.S. life acquisition by a Japanese life insurer following on the heels of Dai-ichi Life's acquisition of Protective Life announced in 2014 and completed in February 2015.
One month after Meiji Yasuda's announcement, Sumitomo Life Insurance Company, an Osaka-based company, announced its agreement to acquire Symetra Financial Corporation from a seller group that included Berkshire Hathaway Inc. and White Mountains. The deal, valued at $3.8 billion, serves as a means for Sumitomo Life to expand the size of its overseas revenues as it, like other Japanese life insurers, faces stagnant life sales in Japan.
In November 2015, Beijing-based Anbang Insurance Group Co., Ltd. announced that one of its subsidiaries would be acquiring Fidelity & Guaranty Life from HRG Group, Inc. The transaction, valued at $1.6 billion, will make Anbang one of the largest insurers by market share in fixed annuity products in the U.S. In the cash deal, Anbang agreed to pay a 29% premium over the F&G stock price prior to the deal announcement. This is the first time a Chinese enterprise has acquired a U.S. life insurance company.
Acquisition of Closed Blocks
The life reinsurance market was fairly active in 2015 with acquisitions of in-force blocks of life insurance, particularly as life reinsurers searched for growth opportunities to replace the declining rate of cessions of traditional life reinsurance resulting from declining life insurance sales. RGA was again an active acquirer with two announced deals. RGA announced the acquisition of a $90 billion block of in-force life insurance from Voya Financial with approximately 155,000 policies as well as an agreement to reinsure approximately $22 billion of U.S. term life insurance in-force on approximately 290,000 policies from XL Group. Protective Life agreed to acquire certain blocks of Genworth's life and annuity business with an announced deal value of $661 million, as Genworth pulled back from selling its entire U.S. life and annuity business.
Private Equity-backed Acquirers
Although private-equity backed life and annuity acquirers were relatively quiet in 2015 compared to a few years ago, one new entrant arrived on the scene in 2015 and announced two U.S. deals. Nassau Reinsurance Group Holdings announced its agreement to acquire Phoenix Companies in September for $217 million and its plan to infuse an additional $100 million in capital, take the Phoenix Companies private and turn it into Nassau's U.S. platform. Nassau also announced its acquisition of the traditional insurance business of Universal American Corp. for $67 million in October.
MetLife to Divest Its U.S. Retail Life Business
In January 2016, MetLife announced its plans to divest the majority of its U.S. retail life and annuity business indicating that it is "evaluating structural alternatives for such a separation, including a public offering of shares in an independent, publicly traded company, a spin-off, or a sale." The divestment would include MetLife's individual life, annuity and personal lines property and casualty business and comprise over $240 billion in total assets. Among the reasons for the potential divestment indicated by MetLife was the current regulatory environment and its designation by the federal government as a non-bank Systemically Important Financial Institution (SIFI). MetLife's CEO noted in the announcement of the divestiture that "currently, U.S. Retail is part of a SIFI and risks higher capital requirements that could put it at a significant competitive disadvantage. Even though we are appealing our SIFI designation in court and do not believe any part of MetLife is systemic, this risk of increased capital requirements contributed to our decision to pursue the separation of the business." The announcement also keeps MetLife a step ahead of any activist investors like those who have been openly pressuring AIG to break up its core businesses into more focused units. It remains to be seen whether other large publicly-traded and diversified life insurers consider similar restructurings.
Health Insurance Mergers
Mid-summer 2015 brought two historic merger announcements in the health insurance market. In early July, Aetna announced its agreement to acquire Humana in a cash and stock deal worth $37 billion. When announced it was the largest health industry merger in history combining the number three and number four companies in terms of revenue. Market dynamics resulting from the Affordable Care Act and the need to achieve further economies of scale were cited as motivating factors. The companies anticipate over $1.2 billion in annual "synergies." Three weeks later, Anthem made history by announcing its agreement to acquire Cigna in a cash and stock deal worth $54 billion, laying claim to the largest insurance deal. Both transactions are expected to close later this year and face federal antitrust and state insurance regulatory scrutiny, as the top five health insurance companies will now be reduced to three.
Low investment returns continued to be a key challenge to the European-based (re)insurance industry, particularly the life sector. The low, or in some cases negative, interest rate...