Companies involved in the life insurance market are accelerating the process of refocusing their operations and selling underperforming aspects of their business, according to Fitch.
In a note published yesterday, the ratings agency said recent transactions in the life insurance sector showed that this 'restructuring' was 'accelerating'.
It highlighted a long list of sales and business deals which it said backed up this assertion. Most recently, MONY Life Insurance announced its planned sale last week to Protective Life. MONY's parent company AXA said the sale reflected its desire to release resources it had tied up in 'non-core' portfolios and reinvest them in higher growth markets and businesses.
'Transactions like these reflect an ongoing trend in the industry where many insurers are taking steps to refocus operations and discontinue or divest businesses that have underperformed and/or no longer provide a strategic fit,' Fitch said.
'Some of this product rationalisation has also been driven by persistently low market interest rates, which have lowered the relative profitability of some traditional products while also lowering the cost of borrowing if debt is used to finance the acquisition of these businesses.'
Fitch also expects Canadian and European insurers to reduce their participation in the US life insurance market due to both 'ongoing underperformance'. They also have concerns over how the new capital regime being introduced as part of Solvency II could impact on the capital requirements of their US operations.
'We expect this rationalisation process will continue to create opportunities for both traditional players looking to strengthen existing core business, reinsurers with an expertise in block acquisitions, and non-traditional players (e.g. private equity),' Fitch said.
The agency expects 'non-traditional' businesses to play an increasing role in the life insurance industry, and notes that they had already completed a number of transactions to date, largely related to fixed annuities.
'As a result, we expect merger and acquisition activity, which has lagged company-specific restructuring initiatives to date, to accelerate in 2013,' it added.
