Fintech to drive U.S. merger and acquisition activity

By Andrea Lubeck | January 20 2017 01:30PM

Ratings agency A.M. Best has released its forecast for merger and acquisition activity involving life/annuity insurance companies in the United States. Fintech companies will be at the heart of transactions in the coming years, says the firm.

“A.M. Best expects that the prospect of disruption from fintech companies in the industry will likely drive strategically focused M&A activity,” wrote the company’s analysts in a recent Best’s Briefing report. “Strategic M&A with a focus on distribution and technology, will be an important and recurring theme over the next several years.”

Partnerships with affiliated distribution channels

A.M. Best anticipates that companies will take various paths, such as establishing partnerships with affiliated distribution channels, acquiring insurance-focused fintech companies, or by incubating fintech insurance startups within their own organizations. “The industry is still in the early stages of addressing the need to modernize marketing and distribution systems in an increasingly sophisticated technological economy,” says the report.

A.M Best notes that in 2016 the acquisition pace in the life/annuity industry “continued to moderate, a trend consistent with 2015.” This trend can be explained by the conservative approach taken by life/annuity insurance companies due to the low interest rate environment.

A majority of modest size transactions

Furthermore, though the U.S. Department of Labor’s (DOL) new fiduciary standard served as a catalyst for distribution-centred merger and acquisition activity, it also was “a headwind” with respect to block transactions and whole company acquisitions, while the industry continued to be challenged by DOL readiness and implementation, says A.M. Best.

The ratings agency states that the majority of transactions were of modest size, except for the $2.7 billion acquisition of Genworth Financial by China Oceanwide Holdings Group last October. The similar-sized acquisition of EverBank Financial by Teachers Insurance and Annuity Association totalled $2.5 billion.

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