41
declined as rates have declined. That said, while
there was a decrease in the number of deals,
there was an increase in deal values in 2018, as
shown in Figure 3.3n.
Low interest rates have forced insurers to
reassess their core business and capital
allocation strategies and consider selling non-
core businesses. Selling non-core business,
like annuities, can free up capital for investment
in core and more profitable business lines,
thereby improving earnings. The sales of non-
core businesses announced by Ameriprise
Financial, Wells Fargo and
AmTrust Financial Services
realised these benefits.
While the sellers freed up
capital, the buyers (American
Family Insurance, Principal
Financial Group and Liberty
Mutual) realised underwriting
economies of scale, generated
additional distribution channels
and leveraged existing lines of
business.
Insurers are discussing
possible deals focused on
blocks of legacy annuity
business, and such activity
could pick up in the fourth quarter of 2019.
Private equity firms continue to provide an option
for insurers to sell legacy annuities that may
require more capital or are outside their core lines
of business. Publicly traded insurers with legacy
annuities may face growing pressure to divest
these blocks of business.
3.3.3 Private Equity
In the US, private equity firms have become
some of the most active participants in mergers
and acquisitions in the insurance sector since
2012, buying insurers or blocks of their business.
Although primarily a US trend, this activity may
also be observed elsewhere as opportunities
within the country diminish. Private equity firms
are attracted to insurers for some of the same
reasons asset managers are drawn to this
industry. Private equity companies invest in life
and annuities businesses because the returns
are predictable and steady, and they can boost
their assets under management and generate fee
income from investment management expertise.
According to Optis Partners, an investment
banking and financial services firm, there were
359 mergers and acquisitions involving US and
Canadian insurers in 2014, which increased to
456 in 2015 and 449 in 2016. Elliott Management
and Apollo Global Management were the most
named private equity firms involved (with 12
each, out of a total of 47 reported private equity
owners). The Carlyle Group and the Blackstone
Group are among the competitive buyers that
have been expanding their insurance industry
investments and acquisitions.
One of the largest deals involved Athene Holding
and Apollo Global Management. Through a
string of acquisitions, Athene has amassed a
$130 billion portfolio of assets that is managed
by Apollo, making it the
private equity firm’s biggest
and most lucrative client. In
2018, Athene paid Apollo
more than $400 million
in fees. In 2019, private-
equity-backed firms such as
Acrisure, AssuredPartners,
HUB International and the
Hilb Group were most actively
involved in transactions,
with each averaging nine
announced deals during the
second quarter.
The trend with private equity
firms acquiring US insurers
is due in part to the continued low interest rate
environment, with both sides seeking benefits:
private equity firms take on an additional, steady
source of premium income from insurers, and
insurers’ investment portfolios potentially achieve
higher investment returns and improved access
to capital and asset sourcing through the firms’
capital markets networks, according to a Fitch
Ratings report. Competitive buyers may continue
to pursue insurance acquisitions, particularly in
the reinsurance sector, which has a mix of level
income and relative stability.
Fitch Ratings research indicates that “investment
in the insurance industry by alternative investment
managers is expected to continue into 2019”.
85
In particular, private equity firms, also known as
alternative investment managers, are expected
to seek exposure to life insurers through equity
investments. Such investments will help grow
assets under management and improve the
stability of investment management fees.
Insurers benefit, gaining access to broader deal
originations, and they can access capital through
the alternative investment manager rather than
issuing stock in a public offering, which involves
more regulatory requirements. Being private-
IN THE US,
PRIVATE EQUITY
FIRMS HAVE
BECOME
SOME OF THE
MOST ACTIVE
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