Life insurer M&A activity to heat up: Fitch

Canadian lifecos face rising credit risks: DBRS James Langton Despite pandemic responses, insurers will struggle Fitch Ratings says it expects merger and acquisition activity in the life insurance sector to accelerate this year, as the industry continues to undergo strategic restructuring. The rating agency notes that there have been a series of transactions in the life insurance business lately, which reflects what it sees as an ongoing trend in the industry for firms to refocus operations, and discontinue or divest businesses that have underperformed and/or no longer provide a strategic fit. Keywords Life insurance industry Some of this rationalization is being driven by persistently low interest rates, which has lowered the relative profitability of some traditional products, while also lowering the cost of borrowing if debt is used to finance the acquisition of these businesses, it notes. And, likely regulatory changes may be having an impact on these sorts of strategic decisions too, it suggests. In particular, Fitch says that it expects Canadian and European insurers to further rationalize their participation in the U.S. life insurance market due to ongoing underperformance, and concerns over pending capital regime changes in their local markets, which could lead to an increase in required capital associated with having U.S. life insurance operations. “We expect this rationalization process will continue to create opportunities for both traditional players looking to strengthen existing core business, reinsurers with an expertise in block acquisitions, and nontraditional players (e.g. private equity), which are expected to play an increasing role in the life industry and have completed a number of transactions to date largely involving fixed annuity business,” it says. “As a result, we expect merger and acquisition activity, which has lagged company-specific restructuring initiatives to date, to accelerate in 2013,” it says, adding that increased M&A activity could lead to negative rating actions based on integration and financing concerns. Canadian lifecos stable in the face of headwinds: DBRS Share this article and your comments with peers on social media Related news Facebook LinkedIn Twitter

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