Life Insurance Mergers & Acquisition Activity May Heat Up Over the Next 12 Months, According to Towers Perrin Study

Findings Indicate Rebound After a Year Plagued by Severe Economic Conditions; “Protection” Business Seems the Likeliest of Candidates; CFOs Indicate Bleak First Quarter Outlook for Premium, Revenue and Net Income Growth

STAMFORD, CT, May 12, 2009 – The number of mergers and acquisitions (M&A) in the life insurance industry could dramatically increase over the next year, as improving economic conditions release pent-up demand for both acquisitions and capital raising, according to data from the latest Towers Perrin survey, “Mergers and Acquisitions, and Capital Raising.”

Seventy-one percent of life insurance chief financial officers (CFOs) said they are interested in acquiring a block of business, while half said they may be seeking to buy a company, the survey found. The forward-looking findings are in stark contrast to respondents’ activity over the past 12 months, as only 8% said they have acquired, or are in the process of acquiring, a block of business, and 30% indicated that they’ve purchased, or were taking steps toward purchasing, a company.

“If the economy stabilizes, we are optimistic that there will be a significant increase in M&A activity,” said John Nigh, Towers Perrin Managing Principal and Americas Practice Leader for Mergers, Acquisitions and Restructuring for the firm’s insurance consulting practice. “Capital constraints, depressed equity markets and expensive debt markets have significantly restricted M&A activity the past 12 months.”

“Future capital-raising activity will be dependent on how quickly the economy improves, with the equity and debt markets expected to recover significantly faster than the securitization market,” added Mr. Nigh.

Additionally, as the environment improves and M&A transactions start to occur, based on survey results, the industry may start experiencing mismatches in supply and demand. Many companies are looking to acquire “protection” business over the next 12 months; 79% of CFOs said acquisitions of individual life businesses were attractive, while 25% indicated group life businesses may be a target.

“This may be driven by a desire to balance their heavy concentration of spread-based business,” said Jack Gibson, Towers Perrin Managing Principal and Leader of the company’s Americas Life practice. “However, few companies are looking to divest individual and group life businesses. This mismatch in demand and supply will mean that sellers of individual life business should attract significant interest, and be able to command higher prices.”

Premiums, Revenue and Net Income Results to Lag in First Quarter

Life insurance CFOs were, however, pessimistic about first quarter results. The majority of respondents believe that new life and annuity premiums, generally accepted accounting principles (GAAP) net revenue and GAAP net income will stay the same or decline compared to the same quarter last year.

Forty-one percent of respondents predicted growth in new life and annuity premiums over the same quarter last year, while 27% predicted a decrease. Only 25% of respondents said they expect first quarter GAAP net revenue to increase over the same quarter last year, while 35% predicted a decline. Finally, a mere 15% said GAAP net income would increase compared to the same quarter last year, versus 35% who predicted a decrease.

Further, Towers Perrin’s growth indices (based on the weighted average of survey responses) summarizing respondents’ year-over-year growth outlook, have dropped in the first quarter of 2009, due largely to the current financial landscape. Values between 97 and 103 are taken to be basically flat growth. The premium index fell from 107 to 101; the GAAP net revenue index dropped from 103 to 97, and the GAAP net income index experienced the steepest decline, from 102 to 95 – the first time in the history of the survey that the year-over-year growth indices have dipped below 100.

“While it is not surprising that all three indices dropped in the first quarter of 2009, what is surprising is the magnitude of these declines — at least six points for each index,” said Hubert Mueller, Towers Perrin Principal and Survey Leader. “We are expecting further declines in new life insurance sales, and slow growth in revenues and net income from current levels, for the remainder of the year.”

Among other key survey findings:

  • One-third of respondents said they are looking to divest businesses.
  • Over the next 12 months, 50% of those surveyed said they plan to expand their presence in the U.S., and 20% are seeking to increase their footprint in Asia. Only 12% noted they will be looking for expansion opportunities in Europe.
  • 77% of CFOs said capital and cash restraints are impediments to an acquisition, while 75% said the economy is an impediment to a divestiture.
  • When it comes to obstacles to raising capital, 64% cited expensive debt markets, while 50% pointed to depressed equity markets.
  • Some CFOs expressed dissatisfaction with the success of recent deals: 23% said all or most of their M&A transactions over the past three to five years fell below expectations.

About the Survey

Twenty-four CFOs participated in the Web-based survey, which focused on key issues relating to mergers and acquisitions, as well as capital raising. It also explored CFOs’ expectations for first quarter 2009 results. The survey, conducted from February 17, 2009 through March 10, 2009, primarily included CFOs from large and midsize North American life insurance companies; 65% had assets of $5 billion or more, and 17% were multinationals.

About Towers Perrin

Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia, New Zealand and the Middle East. More information about Towers Perrin is available at