Analysts at AM Best have noted increased merger and acquisition (M&A) activity so far in 2021 in the US life/annuity mutual insurance market, which is expected to continue as the industry becomes more competitive and scale becomes more important.
The rating agency notes that balance sheets of most life/annuity mutual insurers have been resilient against the market volatility amid the COVID-19 pandemic.
However, the need for enhanced financial flexibility for many mutual companies, continuing regulatory requirements and an imperative to cut expenses have burdened the segment, which in addition to the low interest rate environment, could lead to additional consolidation and partnerships.
In 2020, life/annuity mutual companies accounted for 25% of the overall industry’s premiums, up from approximately 18% in 2011.
Net premium growth for US life/annuity mutuals as of year-end 2020 was relatively lower than in previous years and continued to decrease in first-quarter 2021 as some companies have had difficulties adapting to changing distribution models during the pandemic.
On the positive side, AM Best notes that the pandemic has generated renewed interest in life insurance, especially with targeted younger age groups, which should support additional growth for the mutuals.
“Mutual insurance companies show strength in their innovation programs compared with the overall life/annuity industry, as they benefit from well-established innovation programs that have been embedded into their strategic plans for many years,” AM Best stated.
“Mutual insurers also tend to be larger companies with greater resources to support more robust programs … Consolidation will allow insurers to compete at the highest levels by providing diversity and scale.”
AM Best also sees state-of-the-art technology and innovation as key elements in future M&A activity, with digital tools becoming essential in every step of the insurance process.
