Tag Archives: Voya Financial

U.S. Insurance Deals: Insights on 2H 2017

Executive Summary

The U.S. insurance sector announced deal value reached $9 billion in the second half of 2017, down from $24.2 billion in the second half of 2016.

Activity remains robust in the brokerage sector, with 232 announced deals, which was 3% higher than in the same period in 2016.

Among insurers, megadeals have been limited by uncertainty in terms of the direction of tax and regulatory reforms. Nevertheless, the passing of tax reform at the end of 2017 and postponement of the implementation of the Department of Labor’s fiduciary rule until 2019 will likely improve clarity for deal making in 2018.

Insurers are expected to continue to divest capital-intensive or underperforming businesses. Private equity will no doubt continue to pursue U.S. insurance sector assets, which are now more attractive due to a lower corporate tax rate.

Trends and highlights

  • 271 insurance deals were announced for a disclosed $9 billion deal value in 2H 2017 (of which 248 deals had undisclosed deal values)
  • Insurance broker deals remained the most active, composing 86% of deal volume
  • For insurance underwriter deals, the life and property/casualty sectors each contributed more than $4 billion in disclosed deal value while property/casualty led in deal volume

Highlights of 2017 deal activity

Robust deal activity in 2H 2017

There were four announced deals valued in excess of $1 billion, for a total of $6.1 billion, in the second half of 2017.

See also: U.S. Insurance Deals: Insights on First Half  

Key transactions and themes

The Hartford agreed to two major deals in the last quarter of 2017, including an acquisition and divestiture:

  • Hartford Financial Services Group unit Hartford Life and Accident Insurance agreed to acquire Aetna’s U.S. group life and disability business for $1.45 billion.
  • An investor group, including Pine Brook Partners, TRB Advisors, Atlas Merchant Capital, Cornell Capital, Basel, J. Safra Sarasin Holding and Hamilton, Global Atlantic Financial Group and Hopmeadow Holdings GP, agreed to acquire Talcott Resolution, a run-off life and annuity business, from Hartford Financial Services Group for $1.6 billion.

Private equity consortiums are exhibiting interest in runoff variable annuity platforms as insurers focus on new risks:

  • In December, an investor group, including Apollo Global Management, Reverence Capital Partners Crestview Advisors and Athene Holding, agreed to acquire the closed block variable annuity and fixed annuities businesses from Voya Financial for $1.1 billion.

The other notable deal announced in 2H 2017 of more than $1 billion in deal value was:

  • Assurant’s November agreement to acquire Warranty Group from TPG Capital Management for $1.9 billion. Warranty Group provides underwriting, claims administration and marketing expertise to manufacturers, distributors and retailers of consumer goods including automobiles, homes, consumer appliances, electronics and furniture, as well as specialty insurance products and services for financial institutions.

Top 10 US Insurance and Bermuda Deals Announced in 2017 (by value)

Source: S&P Global Market Intelligence

Sub-sector highlights and outlook

  • Life and Annuity — This sector has been suffering through the persistent low-interest-rate environment that has weighed on insurers’ investment portfolios. Nevertheless, the U.S. Federal Reserve raised the fed funds rate three times in 2017, and there are expectations of additional increases in 2018. Opportunities remain for insurers to exit capital-intensive or non-core businesses, with investor interest in closed blocks and narrow concentrations. In a recent deal, an Apollo-led investor group purchased the closed block variable annuity and fixed annuity businesses of Voya Financial for $1.1 billion. Also, The Hartford agreed to sell its runoff life and annuity business, Talcott Resolution, for $1.6 billion to an investor group.
  • Property/Casualty — Deal activity increased in the sector during the second half of 2017. In addition to traditional M&A, the P&C sector has seen mega insurance legacy transfer transactions, headlined by AIG’s $9.8 billion reinsurance, excluding interest, with National Indemnity to take on long-term risks from legacy commercial policies announced in January 2017.
  • Insurance Brokers — The segment continued to be the most active in terms of deal volume in 2H 2017. The most activity came from several serial acquirers buying regional brokers, further consolidating the market. The five most active acquirers were Acrisure, Hub International, National Senior Insurance, Alera Group and NFP.

See also: Insurance 2025: Smart Contracts  

Conclusion and outlook

Deals in the second half of 2017 ended on a strong note and activity should see further acceleration in 2018 as insurers continue to focus on cutting costs, achieving scale, and enhancing and streamlining or consolidating dated technologies.

  • Macroeconomic environment: The economic environment improved in the second half of 2017, although persistently low interest rates and geopolitical uncertainty continue to constrain insurers’ revenues and profitability. Life insurers have used both divestitures and acquisitions to manage the low-return environment and transform business models.
  • Regulatory environment: Increased oversight and uncertainty have heavily influenced insurers’ business models and strategies, forcing many to exit businesses, often through divestiture. The current presidential administration favors easing regulation, and the U.S. Department of Labor Fiduciary Rule enforcement has been delayed until July 2019, which may mitigate near-term implications for insurers that use exclusive agents.
  • Tax Reform: The passage of the Tax Cuts and Jobs Act is expected to be a mixed bag for insurers. Changes to the corporate tax rate, special insurance company provisions and the switch to a territorial system with anti-base erosion provisions significantly affect insurance companies (including reinsurers), both U.S.-based and companies based elsewhere that do business in the U.S. For some companies, life insurance products and taxation of international transactions changes are costly and outweigh the benefit of reduced tax rates. For other companies (e.g., issuers of short-tail products), changes in the computation of taxable income are more modest. In addition, companies that were chronically subject to AMT under current law may now look forward to an eventual refund of minimum tax credits. The companies that stand to gain the most from reduced tax rates would be U.S.-based multinational companies. See Tax reform insurance alert and Tax reform impact on private equity for additional discussion on the impacts from the Tax Cuts and Jobs Act.
  • Technology: Insurers have been slower than many other industries to adopt new technologies, but they are increasing investment in technology and innovative platforms. According to CB Insights and Willis Towers Watson, insurtech funding volume increased 38% year over year in 3Q 2017. In a headline-grabbing deal, Lemonade raised a $120 million Series C funding round led by SoftBank.
  • Canada interest: Closer to home, there is evidence of an increasing appetite from Canadian buyers. In the second half of 2017, there were three announced deals in which the acquiring company was Canada-based. The largest deal was Quebec-based Industrial Alliance Insurance agreeing to acquire Columbus, Ohio-based Dealers Assurance and Albuquerque, N.M.-based Southwest Reinsurance for $135 million. Also, Toronto-based Intact Financial completed its acquisition of Bermuda-based OneBeacon Insurance Group from Hanover, NH-based White Mountains Insurance Group for $1.7 billion.
  • Public offerings: Several major global insurers have responded to the low-growth environment in the U.S. with significant divestitures or restructuring. MetLife successfully completed the spinoff its U.S. retail business, Brighthouse Financial, in August. AXA also filed preliminary documents for an IPO of its U.S. operations this past November. It seems likely that other large insurance companies will have similar divestiture or restructuring plans.
  • Asian inbound interest: The past several years have seen Asian firms expand their global footprint in the U.S. insurance market. While Asian investors maintain a global appetite, regulatory and shareholder skepticism remains a hurdle. A bid by Anbang to acquire Fidelity and Guaranty fell through in April. China Oceanwide’s acquisition of Genworth has yet to close and is still under CFIUS review.

You can find the full report here.

trends

13 Emerging Trends for Insurance in 2016

Where does the time go?  It seems as if we were just ringing in 2015, and now we’re well into 2016. As time goes by, life changes, and the insurance industry—sometimes at a glacial pace—does, indeed, change, as well. Here’s my outlook for 2016 on various insurance topics:

  1. Increased insurance literacy: Through initiatives like The Insurance Consumer Bill of Rights and increased resources, consumers and agents are both able to know their rights when it comes to insurance and can better manage their insurance portfolios.
  2. Interest rates: The federal funds target rate increase that was announced recently will have a yet-to-be determined impact on long-term interest rates. According to Fitch Ratings, further rate increases’ impact on credit fundamentals and the longer end of the yield curve has yet to be determined. Insurance companies are hoping for higher long-term rates as investment strategies are liability-driven. (Read more on the FitchRatings website here). Here is what this means: There will not necessarily be a positive impact for insurance policy-holders (at least in the near future). Insurance companies have, for a long period, been subsidizing guarantees on certain products or trying to minimize the impact of low interest rates on policy performance. In the interim, many insurance companies have changed their asset allocation strategies by mostly diversifying their portfolios beyond their traditional holdings—cash and investment-grade corporate bonds—by investing in illiquid assets to increase returns. The long-term impact on product pricing and features is unknown, and will depend on further increases in both short- and long-term interest rates and whether they continue to rise in predictable fashion or take an unexpected turn for which insurers are ill-prepared.
  3. Increased cost of insurance (COI) on universal life insurance policies: Several companies—including Voya Financial (formerly ING), AXA and Transamerica—are raising mortality costs on in-force universal life insurance policies. Some of the increases are substantial, but, so far, there has been an impact on a relatively small number of policyholders. That may change if we stay in a relatively low-interest-rate environment and more life insurance companies follow suit. Here is what this means: As companies have been subsidizing guaranteed interest rates (and dividend scales) that are higher than what the companies are currently (and have been) earning over the last few years, it is likely that this trend will continue.
  4. Increasing number of unexpected life insurance policy lapses and premium increases: For the most part, life insurance companies do not readily provide the impact of the two prior factors I listed when it regards cash value life insurance policies (whole life, universal life, indexed life, variable life, etc). In fact, this information is often hidden. And this information will soon be harder to get; Transamerica is moving to only provide in-force illustrations based on guarantees, rather than current projections. Here is what this means: It will become more challenging to see how a policy is performing in a current or projected environment. At some point, regulators or legislators will need to step in, but it may be too late. Monitor your policy, and download a free life insurance annual review guide from the Insurance Literacy Institute (here).
  5. Increased complexity: Insurance policies will continue to become more complex and will continue their movement away from being risk protection/leverage products to being complex financial products with a multitude of variables. This complexity is arising with products that combine long-term care insurance and life insurance (or annuities), with multiple riders on all lines of insurance coverage and with harder-to-define risks — even adding an indexed rider to a whole life policy (Guardian Life). Here is what this means: The more variables that are added to the mix, the greater the chance that there will be unexpected results and that these policies will be even more challenging to analyze.
  6. Pricing incentives: Life insurance and health insurance companies are offering discounts for employees who participate in wellness programs and for individuals who commit to tracking their activity through technology such as Fitbit. In auto insurance, there can be an increase in discounts for safe driving, low mileage, etc. Here is what this means: Insurance companies will continue to implement different technologies to provide more flexible pricing; the challenge will be in comparing policies. The best thing an insurance consumer can do is to increase her insurance literacy. Visit the resources section on our site to learn more.
  7. Health insurance and PPACA/Obamacare: The enrollment of individuals who were uninsured before the passage of Obamacare has been substantial and has resulted in significant changes, especially because everyone has the opportunity to get insurance—whether or not they have current health issues. And who, at some point, has not experienced a health issue? Here is what this means: Overall, PPACA is working, though it is clearly experiencing implementation issues, including the well-publicized technology snafus with enrollment through the federal exchange and the striking number of state insurance exchanges. And there will be continued challenges or efforts to overturn it in the House and the Senate. (The 62nd attempt to overturn PPACA was just rejected by President Obama.) The next election cycle may very well determine the permanency of PPACA. The efforts to overturn it are shameful and are a waste of time and money.
  8. Long-term care insurance: Rates for in-force policies have increased and will almost certainly face future increases—older policies are still priced lower than what a current policy would cost. This is because of many factors, including the prolonged low-interest-rate environment, lower-than-expected lapse ratios, higher-than-expected claims ratios and incredibly poor initial product designs (such as unlimited benefits on a product where there was minimal if any claims history). These are the “visible” rate increases. If you have a long-term care insurance policy with a mutual insurance company where the premium is subsidized by dividends, you may not have noticed or been informed of reduced dividends (a hidden rate increase). Here is what this means: Insurance companies, like any other business, need to be profitable to stay in business and to pay claims. In most states, increases in long-term care insurance premiums have to be approved by that state’s insurance commissioner. When faced with a rate increase, policyholders will need to consider if their benefit mix makes sense and fits within their budget. And, when faced with such a rate increase, there is the option to reduce the benefit period, reduce the benefit and oftentimes change the inflation rider or increase the waiting period. More companies are offering hybrid insurance policies, which I strongly recommend staying away from. If carriers cannot price the stand-alone product correctly, what leads us to believe they can price a combined product better?
  9. Sharing economy and services: These two are going to continue to pose challenges in the homeowners insurance and auto insurance marketplaces for the insurance companies and for policy owners. There is a question of when is there actually coverage in place and which policy it is under. There are some model regulations coming out from a few state insurance companies, however, they’re just getting started. Here is what this means: If you are using Uber, Lyft, Airbnb or a similar service on either side of the transaction, be sure to check your insurance policy to see when you are covered and what you are covered for. There are significant gaps in most current policies. Insurance companies have not caught up to the sharing economy, and it will take them some time to do so.
  10. Loyalty tax: Regulators are looking at banning auto and homeowners insurance companies from raising premiums for clients who maintain coverage with them for long periods. Here is what this means: Depending on your current auto and homeowners policies, you may see a reduction in premiums. It is recommended that, in any circumstance, you should review your coverage to ensure that it is competitive and meets your needs.
  11. Insurance fraud: This will continue, which increases premiums for the rest of us. The Coalition Against Insurance Fraud released its 2015 Hall of Shame (here). Insurance departments, multiple agencies and non-profits are investigating and taking action against those who commit elder financial abuse. Here is what this means: The more knowledgeable that consumers, professional agents and advisers become, the more we can protect our families and ourselves.
  12. Uncertain economic and regulatory conditions: Insurance companies are operating in an environment fraught with potential changes, such as in interest rates (discussed above); proposed tax code revisions; international regulators who are moving ahead with further development of Solvency II; and IFRS, NAIC and state insurance departments that are adjusting risk-based capital charges and will react to the first year of ORSA implementation. And then there is the Department of Labor’s evaluation of fiduciary responsibility rules that are expected to take effect this year. Here is what this means: There will be a myriad of potential outcomes, so be sure to continue to monitor your insurance policy portfolio and stay in touch with the Insurance Literacy Institute. Part of the DOL ruling would result in changes to the definition of “conflict of interest” and possibly compensation disclosure.
  13. Death master settlements: Multiple life insurance companies have reached settlements on this issue. Created by the Social Security Administration, the Death Master File database provides insurers with the names of deceased people with Social Security numbers. It is a useful tool for insurers to identify policyholders whose beneficiaries have not filed claims—most frequently because they were unaware the deceased had a policy naming them as a beneficiary. Until recently, most insurers only used the database to identify deceased annuity holders so they could stop making annuity payments, not to identify deceased policyholders so they can pay life insurance benefits. Life insurers that represent more than 73% of the market have agreed to reform their practices and search for deceased policyholders so they can pay benefits to their beneficiaries. A national investigation by state insurance commissioners led to life insurers returning more than $1 billion to beneficiaries nationwide. The National Association of Insurance Commissioners is currently drafting a model law  that would require all life insurers to use the Death Master File database to facilitate payment of benefits to their beneficiaries. To learn more, visit our resources section here. Here is what this means: Insurance companies will not be able to have their cake and eat it too.

What Can You Do?

The Insurance Consumer Bill of Rights directly addresses the issues discussed in this article.

Increase your insurance literacy by supporting the Insurance Literacy Institute and signing the Insurance Consumer Bill of Rights Petition. An updated and expanded version will be released shortly  that is designed to assist insurance policyholders, agents and third party advisers.

Sign the Insurance Consumer Bill of Rights Petition 

What’s on your mind for 2016? Let me know. And, if you have a tip to add to the coming Top 100 Insurance Tips, please share it with me.

4 Ways Insurance Is Disrupting Itself

Coming from the Insurance Executive Conference earlier this month in New York, I am extremely excited by what I heard regarding where the industry is heading.

I attended both the life insurance and P&C tracks, picking up the following insights about how the industry is disrupting itself before others can:

  1. Insurance carriers are embracing change.
    Anwar Haneef, partner at IBM Watson, said, “We have not seen much disruption in the insurance industry in the last 100 to 200 years” and acknowledged that new technologies have the potential of changing that. Jeffrey Killian, vice president of in-force service and operations at New York Life, stated, “We could become Blockbuster (Video) if we don’t go through the change.”
  1. Insurance carriers are focusing on their customers in a new way. For example, Gerald Patterson, senior vice president of retirement and investor services at Principal Financial group, spoke of Principal’s move away from thinking about customer service to focus instead on the customer experience. Principal tries to provide value to the customer and understand that young consumers expect the same technology from insurance carriers that they experience with other service providers. He also stressed the importance of embedding experimentation in your customer experience on a regular basis.
  1. Insurance carriers are embracing technology and planning for a different future.
    At the highest level, for example, Jane Chwick, former partner in charge of global technology at Goldman Sachs, provides technology expertise as a board member of the relatively young company Voya Financial. Patterson mentioned that he has recently spent time visiting Silicon Valley and attending Fintech conferences.

Killian acknowledged that realizing a company’s vision of customer experience requires investment and pointed out that Principal is committed to making the right investments to accomplish this. He remarked “We have invested a lot in Lean Six Sigma. It’s amazing how much energy you can unlock through these processes.”

Joe Beneducci, chairman, president and CEO of Prosight Specialty Insurance, said, “Technology is a catalyst that affords us options.” Life insurance executives discussed their expectation that the analytics movement will affect carriers’ entire value chain. They also saw predictive analytics enable insurance carriers to be learning organizations.

West Hunt, vice president and chief data officer at Nationwide, discussed the capability of scaling human expertise through cognitive computing. At the same time, the rise of robo-advisers and their potential threat to the business was mentioned. Finally, the recent trend toward digital and what it means to the industry was raised. Technology was discussed all over the conference.

  1. Further opportunities to leverage technology were identified. Colleen Risk, senior analyst at Celent, mentioned the opportunity insurance carriers have of enhancing their websites to provide transaction capabilities for consumers, such as changing beneficiaries. Recent research by Celent showed that less than 25% of life insurance carriers are doing e-delivery of contracts. Other opportunities include: making data available throughout the company, producing strategies to sustain customer loyalty, developing a compelling message for life insurance and educating Millennial consumers.

I was happy to participate in the conference and felt energized by the discussion of new topics that position the industry to continue to thrive into the future.

What do you think? Post your comments below!