A new report by Moody’s Investors Service has shown that legacy blocks of annuity, life, and employee benefits business are set to be further divested by life insurers in the U.S. with a desire to focus on value optimisation amid modestly favourable economic and market fundamentals.
Moody’s Vice President Laura Bazer commented, “We estimate that close to $270 billion in life, annuity, and group benefits business changed hands in 2017, a trend that has continued this year. Harder-to-sell legacy variable annuity (VA) blocks dominated the transaction roster for the first time, thanks to a strong equity market and higher interest rates, which lessened the cost of in-the-money benefit guarantees.”
Significant alternative capital and re/insurance capacity were also drivers in these sales, Moody’s said.
Private equity investors companies joined with specialty block acquirers, like Apollo Global Management LLC/Athene (Apollo; not rated) and its consortium of investors, as well as runoff block reinsurers like and Protective Life Corporation (PLC), to participate in complex transactions; 2018 is set to host additional transactions, Moody’s indicates.
These kinds of exits from legacy businesses were seen throughout 2017, with companies opting for straight sales of blocks and entire companies, re/insurance, and often a combination of the two.
An alternative exit strategy includes initial public offerings (IPOs) and spin-offs, since the equity market has been in record territory in recent quarters.
Over $420 billion of VA, annuity/life and long-term care (LTC), and other legacy blocks of business was held by life insurers by the end of 2017. The larger of these owners include MetLife (MET; senior debt A3 stable), Brighthouse Financial (BHF; senior debt Baa3 stable), and Manulife Financial Corporation (MFC; A1 stable).
“We evaluate each transaction on a case-by-case basis for the seller. The transaction may be credit positive, negative, or neutral, depending on their materiality, whether or not capital is released, and if so, how it is redeployed. We also evaluate the counter party and reputation risks of the sale for the seller, when a business is sold to an unknown buyer/group of buyers with a weaker credit profile or rating than the seller,” added Bazer.
