Life Insurer Acquisitions ‘Ripe for Acceleration’

Life insurers may pursue more acquisitions worldwide to add business as capital builds while low bond yields and sluggish economic growth weigh on results.

“There seems to be a rising appetite” for deals this year, Sam Friedman, insurance research leader at Deloitte Services LP’s Center for Financial Services, said in an interview. “They’re well-capitalized and there’s some impatience in terms of trying to meet expectations for what their return on equity will be.”

Firms led by New York-based MetLife Inc. (MET) and Prudential Financial Inc. (PRU) have pursued deals in the U.S. and emerging nations as they seek to increase shareholder returns. Faster economic growth and expanding middle classes in emerging countries such as India and in Latin America can offer greater opportunities to insurers than developed markets in the U.S. and Europe, Friedman said.

“The overall M&A environment seems ripe for an acceleration of deals in 2013,” Deloitte analysts said in their 2013 life insurer outlook, scheduled for release today. “Merger or acquisition deals may spring from carrier interest in entering or growing within emerging markets to pursue growth potential that seems more elusive in mature regions.”

Economic growth in Latin America is projected to quicken to 3.6 percent in 2013, compared with 2 percent in the U.S. and contraction in the region that shares the euro, according to economists’ forecasts compiled by Bloomberg. China’s economy, the largest after the U.S., may grow 8.1 percent, and India’s is estimated to expand by 5.5 percent, the forecasts show.
Emerging Markets

“If there’s growth to be found, a lot of it is in the emerging markets,” Friedman said yesterday in a phone interview. “You see companies going into South America, you may see some additional companies going into Asia.”

MetLife, the largest U.S. life insurer, expanded beyond the U.S. with the purchase of American Life Insurance Co. from American International Group Inc. (AIG) in 2010. Alico had operations in more than 50 countries at the time.

Prudential acquired an individual life business from Hartford Financial Services Group Inc. (HIG) Principal Financial Group Inc. (PFG), the seller of life insurance and retirement products, agreed in October to buy Chilean pension provider AFP Cuprum (CUPRUM) SA for about $1.5 billion.