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of Ironshore Inc. Tokio Marine’s acquisition represents its third significant transaction in the United States in recent years. It acquired Delphi Financial Group in 2012 and Philadelphia Consolidated Holding Corp. in 2008. It also acquired Kiln Ltd., a Lloyd’s of London insurer, in 2008.
Japanese firms initially focused on the North American insurance market as a result of pressure on rates and profitability and demographic challenges in the domestic Japanese market, as well as a desire to deploy their significant capital base and diversify geographically. These factors continue to exist, so we expect that Japanese buyers and their U.S. platforms will continue to be active participants in the United States insurance M&A market in the near term. The prospect of continued participation of Chinese firms in the North American insurance M&A market is a little more uncertain. It remains to be seen whether recent turmoil in the domestic Chinese economy and an aggressive anti-corruption campaign by the Chinese government, which has implicated executives of some Chinese financial services companies, will have an effect on the appetite of such firms to continue to seek acquisition opportunities in the United States and other foreign markets. On the other hand, given macroeconomic trends regarding the continuing growth and development of China, the potential certainly exists for Chinese firms to become even larger players in the North American insurance market. Furthermore, the companies that have already been acquired by these Asian firms, as U.S. platforms of the insurance operations of their Asian parent companies, likely will continue to be active players in the insurance M&A market in North America.
3. The Life and Health Insurance Sector a. Life Insurance Carriers
Other than the four significant transactions noted above that involved Asian firms or their subsidiaries, the life and health insurance sector in North America saw very few significant M&A transactions involving life insurance carriers in 2015. Three noteworthy exceptions deserve mention.
The first is the merger of Pan-American Life Mutual Holding Company and Mutual Trust Holding Company. This transaction represents the most significant merger of mutual holding companies in years. The merger brought together two companies with complementary businesses. Mutual Trust’s business is primarily focused on operations in the United States while Pan-American’s business focuses largely on Latin American and Caribbean markets in addition to certain U.S. markets.
The second is Nassau Reinsurance Group’s $217 million announced acquisition of Phoenix Companies, Inc. Nassau is backed by the private equity firm Golden Gate Capital. The transaction concludes a long period of uncertainty for Phoenix, which had struggled since the financial crisis and in recent years suffered through ratings downgrades and the need to restate financial statements.
The third is the acquisition by Magic Johnson Enterprises, Inc., the eponymous firm founded by the former basketball star, of a controlling interest in EquiTrust Life Insurance Company from Guggenheim Partners. EquiTrust characterized the investment as the largest purchase of a United States financial services company by an individual African-American entrepreneur or group of African-American entrepreneurs.
Aside from these exceptions and the acquisitions by Asian buyers, there appears to have been a relative lack of significant North American M&A activity by life insurance companies over the last few years, both among direct writers of life insurance and among life reinsurers. Established direct writers appear generally to be seeking growth through other means and in other markets, such as Latin America and Southeast Asia.2 M&A activity has also been low among life reinsurers, at least on a direct basis,3 although several life reinsurers have been active in seeking to acquire run-off blocks of life insurance business through reinsurance transactions.
2 Notably, the Indian government in 2015 revised its law to loosen regulatory oversight over Indian insurance companies and increase the cap on foreign direct investment in such entities from 26% to 49%. These changes might lead to further investment by international insurance groups in India in the near term.
3 Reinsurers often participate in M&A transactions on an indirect basis as facilitators that provide support to transaction participants through the reinsurance of existing blocks of business.
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
I. Review of M&A Activity in 2015