CFO Survey #22: Life Insurance CFOs Cite Major Barriers to M&A Activity and Raising Capital

Life insurance CFOs report that the one-two punch from the slumping economy and poor financial market conditions has brought about a sharp decline in mergers and acquisitions while hindering the industry’s ability to raise capital.

Moreover, many of the life insurance CFOs responding to a Web-based survey conducted in February and March by Towers Perrin expect to see a slow recovery, one extending over the next year or longer, in the industry’s ability to raise capital in the debt and equity markets. The survey marks the 22nd in an ongoing series aimed at exploring issues of interest to the North American life insurance industry and its CFOs.

More than three-quarters (77%) of the CFOs surveyed cited capital issues and cash constraints as impediments to undertaking an acquisition, up from only 13% in 2007. Half cited general economic conditions as a barrier to doing a deal, up from only 9% in 2007.

In a similar vein, three-quarters cited the economy as an impediment to undertaking a divestiture; in 2007, not a single executive surveyed saw the economy as a problem in terms of selling off parts of the business.   

Slow recovery expected in capital markets 

Many CFOs said it may take more than a year before markets for raising capital improve across the board:

• Only 42% expect the debt markets to improve within the next six months, while 79% expect conditions will improve beyond 12 months.
• Only 8% of respondents believe the market for securitizations will improve in the next six months; only 42% see improvement more than one year from now.
• Only 25% believe the environment for raising equity will improve in the next six months; 75% think it will take more than 12 months.

Low levels of satisfaction with M&A deals

The life insurance CFOs said the sour economy has also contributed to reduced levels of satisfaction with M&A transactions. Only 38% reported that all or most of their deals over the past three to five years had met or exceeded expectations. Nearly a quarter (23%) said that all or most of the deals fell below expectations, the lowest level of satisfaction in Towers Perrin’s three most recent M&A surveys of the industry.

For those transactions that did not meet expectations, the primary reason was general economic conditions or external events. This is in sharp contrast to our 2007 survey, when the primary reasons for dissatisfaction were related to incompatible cultures, management clashes and the inability to implement change.

The CFOs' outlook for first quarter 2009 results was fairly pessimistic. The majority said that they expected new life and annuity premiums, GAAP net revenue and GAAP net income to stay the same or decline compared to the same quarter last year.

For more information on Towers Perrin's Life Insurance CFO Survey in 2009, please contact us via e-mail or contact your local Towers Perrin office.