When the current global financial crisis and economic downturn are history, the U.S. life insurance industry will look vastly different. Companies will have exited lines of business that are just too risky or hard to price or be merged into or acquired by others, predicts the head of LIMRA International and LOMA.
The financial crisis is triggering a transformation of the industry, according to Robert Kerzner, president and chief executive officer of both life insurance and financial-services research organizations.
"We are really seeing the beginning of something that, when Armageddon is over and the dust settles, I think the industry in total is going to look quite different," said Kerzner during his groups' 2009 Life Insurance and Retirement Industry conferences in Orlando, Fla. The five-day event, which covers the two conferences, is being held at the Hilton at Walt Disney World and also is hosted by the American Council of Life Insurers and the Society of Actuaries.
Clearly, there will be fewer companies, Kerzner said, noting industry watchers are forecasting mergers and acquisitions on the horizon. But M&As probably won't happen as quickly as some are predicting, he said.
There’s a shortage of capital and “everybody wants to keep their powder dry," Kerzner said. Also, companies seeking to acquire are being cautious because of embedded risks at target companies "and they want to be sure they know what they are buying," he said. Finally, there’s a bit of "a game of chicken going on" to see how cheaply a company could be acquired and how the economy shakes out, Kerzner said.
In the meantime, companies are rethinking their entire strategy about what businesses they want to be in for the long term, Kerzner said. They’re asking themselves whether they have the risk versus the financial return figured out, he said, noting companies are taking a hard look at whether they're charging the right price for the total risk they’re taking on.
Some companies are beginning to point in a different direction, Kerzner said, and they may sell off parts of their business. So, a company that’s a strong player in annuities or long-term care could shift their focus and may decide “not to play there at all,” he said.
When M&A activity does ramp up, the U.S. industry could see international players coming onto the scene, he predicted. With the last economic downturn, companies like Axa, Aegon and Allianz, “all took major positions” in the United States, according to Kerzner. Asia-based companies also may buy an American one, he said.
Transformation of the industry is inevitable due to changes in regulation or legislation "which we also know is coming,” Kerzner said. He declined to comment on what LIMRA or LOMA favors in terms of regulation, saying “we’ll leave that to our company CEOs and the ACLI." However, “it’s nearly impossible to predict with any certainty exactly what’s going to happen because clearly, there’s not broad agreement," Kerzner said.
Last year, LIMRA and LOMA merged, with both groups coming under a new umbrella organization called LL Global Inc., of which Kerzner also serves as president and CEO (BestWire, Feb. 1, 2008).
Aside from the big changes looming on the horizon, Kerzner said there's some bright spots and positive news for the industry. Research suggested that consumers “still have more faith in life insurance companies than they did in other financial institutions and they have a lot more trust in some of their financial advisers -- their life insurance agents in particular -- than they did say, in some stock brokers and others,” he said.
At the same time, "we have lost some of our brilliance as well and I think we all, in every aspect of financial services, are going to have to work very hard to regain consumers’ confidence.”
[To listen to the entire interview with Kerzner in the near future go to www.bestdayaudio.com]
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
