Over the past two years, Novarica has noted several emerging M&A trends in the insurance industry that suggest that some lines of business require notable economies of scale to compete. In other instances, insurers have concluded that the capital and managerial resources necessary to support businesses that no longer fit into emergent strategic priorities are better when directed to activities they deem more profitable in achieving broader enterprise goals.
It can be challenging to keep track of the activity without a scorecard. Still, the MetLife transactions to sell its US P/C operations to Zurich and acquire Versant Health illustrate the refinement of strategic direction and capital focus. Zurich also had multiple transactions during the year, selling its group benefits business to Aflac before the P/C acquisition. For Aflac, the Zurich transaction complements last year’s purchase of dental and vision care company Argus Holdings.
There is no reason to expect a slowdown of this activity in 2021. Low-interest rates, margin pressures on businesses (especially where increased operational transparency is an emergent demand in the market), and the continued march of significant demographic shifts in the US economy will drive activities as we enter the pandemic’s second year.
Just before the end of 2020, MassMutual announced the acquisition of the RIA cash manager Flourish. This transaction came on the heels of MassMutual’s sale of its defined contribution retirement plan business to Empower. This acquisition shares some attributes of the others, including refining strategic focus, but it also allows MassMutual to offer services to third parties that compete with MassMutual’s retail distribution businesses. The financial planning segment supported by Registered Investment Advisors has become crucial, given various market and demographic forces.
Insurers attempting to sell services like these have some parallels with financial services, e.g., clearing services offered to competitors by companies like Fidelity Investments and BoNY. They may also face notable headwinds; other insurers have been reluctant to do business with “frenemies” in the past. Time will tell how this plays out as a transaction type.
Considering the role that acquisition transactions may play (sooner rather than later) can be a critical success factor for insurer IT organizations entering a new and somewhat uncertain future. These types of transactions carry the potential of great reward for successful organizations; they also come with considerable financial, operational, and professional risk—especially at organizations that have not routinely executed on efforts in the recent past. Doing up-front planning, considering various scenarios for delivering on the promise of deals, and having a well-documented playbook can pay big dividends in the future. These are not the types of efforts that work well when relegated to “on the job training” ventures.
During the last financial crisis, I had the opportunity to be the CIO for a bank that made nine acquisitions in 18 months. The playbook and checklists we used proved to be living documents that rapidly evolved as we refined our transactional approaches. The key to success, however, was having a solid foundation for successful execution.
If you would like to discuss how Novarica can help with strategic planning for acquisition or divestiture transactions, please let me know. In the meantime, I expect that this subject will be on the agenda of our Special Interest Group meeting series this year. We kick off with a life insurance-focused event on January 28, 2021. No time like the present to get ready for the future.
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