US insurers are increasing sales of annuities and other capital-intensive assets as interest from private equity buyers spikes.
Companies like Sixth Street Partners and KKR & Co have spent billions of dollars over the last year to snap up insurance assets they can use as launching points for more acquisitions, according to a Reuters report. Meanwhile, Blackstone Group recently bought a business after restructuring its insurance operations.
Insurers made 441 deals worth $25 billion last year, according to data from Refinitiv. That’s up from 356 deals worth about $22 billion in 2019. The 2020 momentum carried into January, which was the most active month for insurance deal-making in two decades, according to PricewaterhouseCoopers.
Among January’s deals were State Street’s $2 billion purchase of Talcott Resolution and Blackstone’s $2.8 billion acquisition of Allstate’s life and annuity business, according to Reuters.
The rising demand is allowing insurers to release capital for share repurchases and investment in core businesses. Meanwhile, private equity buyers can increase assets under management and generate more revenue.
Low interest rates have lowered yields from the regulatory capital required to back life insurance and annuity policies, prompting insurers to look at selling inactive blocks and non-core business lines, Reuters reported. The Fed has said it expects interest rates to stay near zero until 2024.
Credit Suisse estimated that insurers have about $1.7 trillion in annuity assets that could be sold to private equity firms.
“They can divest blocks of annuities at pretty good multiples, in the 8-12 range, and often buy back stock at half those multiples,” Credit Suisse analyst Andrew Kligerman told Reuters.