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I. Review of M&A Activity in 2015
We see several reasons for this lack of activity in 2015. Life insurance companies continue to be affected by slow organic growth in the mature North American market. This, along with weak growth in the general economy, the persistent low-interest-rate environment which has affected investment yields, and other factors, have combined to create a situation in which fewer industry participants seek growth through acquisitions in North America. While these factors have existed for a number of years, M&A activity in the sector in the recent past was sometimes caused by regulatory factors or broader changes in the economy, and that was generally not the case in 2015.4 It appears that this trend is beginning to change.
Regulatory factors appear poised to propel activity in life insurance M&A in 2016 and future periods. In 2013 and 2014, three insurers (AIG, Prudential and MetLife) were designated non-bank “systemically important financial institutions” (“SIFIs”). This designation has the potential to result in higher levels of capital being required to be held by such insurers. Because SIFI designation is largely affected by the overall size of a company, this designation could lead to structural changes being implemented by the three affected entities, or by other entities seeking to avoid such designation in the future. Such structural changes could include divestment of non-core assets that could be adversely affected by SIFI designation. Notably, in late 2015 activist investor Carl Icahn commenced an attempt to push AIG in the direction of structural changes (see Section II.A below for a discussion of the AIG situation), and on January 12, 2016, MetLife announced a plan to pursue the separation of a substantial portion of its U.S. Retail segment.
b. Group and Voluntary Benefits
The managed care insurance sector experienced a sea change in 2015, as changes to the industry resulting from the implementation of the Patient Protection and Affordable Care Act of 2014 and related legislation
4 While not a negotiated M&A transaction, a notable exception to this in 2015 was the final disposition to the public markets of ING’s remaining shares in Voya Financial. This completed a spin-off of Voya Financial from ING that began in 2013 to generate funds for ING to repay the Dutch government for a loan it provided during the financial crisis.
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
(collectively, the “Affordable Care Act”) created a flurry of aggressive consolidation in the sector and caused some participants to exit the managed care insurance sector completely. The most notable transactions in the sector were Anthem’s $48 billion acquisition of Cigna, Aetna’s $35.5 billion acquisition of Humana and Centene’s $6.3 billion acquisition of Health Net. At the time of this writing, it remains unclear whether these transactions will obtain antitrust clearance and other regulatory approvals and ultimately be completed.
Significantly for the life and health insurance sector, the market realities resulting from the implementation of the Affordable Care Act also caused some industry participants to increase their focus on employee group and voluntary benefits businesses, which provide voluntary benefit products to insurable groups and other policyholders. Several large insurance groups have announced plans to focus more attention on this market in the U.S. For example, early in 2015, AXA, S.A. announced that it was entering the United States employee group benefits market for the first time. In making the announcement, AXA said that it had identified certain market opportunities in the United States that were created in part by the “transformation [of the market] following the implementation of the Affordable Care Act.”
This increased focus on group and voluntary benefits businesses led to some M&A activity in the life and health insurance sector in 2015. The largest of these transactions was the acquisition by Sun Life of Assurant’s employee benefits business for $940 million. Other significant transactions in this space were the acquisition by Guardian Life Insurance Company of America of Avesis Incorporated and the acquisition by Centerbridge Partners of Superior Vision Corp. We expect that the regulatory and market dynamics relating to the managed care sector in the United States will continue to create opportunities in group benefits businesses, and that could drive additional M&A activity in the sector.
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