Impact of Consolidation in the Life Insurance Industry. A Reinsurance Perspective. by Lloyd Steinke

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Impact of Consolidation in the Life Insurance Industry A Reinsurance Perspective by Lloyd Steinke

A Decade of Consolidation Started in Jamaica after the melt-down in financial services industry Next Barbados, Bahamas, some in Trinidad and elsewhere Little in past few years mostly done Still some potential acquisition targets, especially in Trinidad but not interested in selling, price too high or of little value to others Insurance industry has been transformed in a short period of time stronger and more healthy now 2

Role of Reinsurers Assist in financing acquisitions through reinsurance Reinsure business of acquired company or acquiring company to free up capital Use the capital of the reinsurer to do a leveraged buyout Works best when there are mandated capital requirements (MCCSR, RBC) Maximum relief on Individual Life portfolios vs. Group 3

Role of Reinsurers Reinsurance is preferred method of financing faster, lower cost, flexible, less public Structure the reinsurance transaction to fit the needs of the insurer e.g., early recapture provisions Chinese walls needed if supporting more than 1 potential bidder Reinsurers also help in introducing companies, due diligence, etc. 4

Impact of Consolidation on Acquirers Assimilation challenging often on different islands, different regulatory frameworks, and different cultures. Sometimes hard to take the required tough decisions on people and processes As larger companies, higher profile with the public, regulators, rating agencies Critical mass achieved improve ROE and/or pricing Rationalize staffing, product portfolios More focus on financial management and more opportunities for intra-company tax and capital planning 5

Impact on Smaller Insurers who are not Involved in M & A Activity Lack economy of scale to compete with the giants Harder to keep staff agents and head office Profitability a challenge unless in a niche market Increasing pressure to sell or become an acquirer 6

Impact of Consolidation on Reinsurers Smaller client base, but financially stronger Retention levels may be increased Fewer opportunities for financial reinsurance to support acquisitions Opportunities to expand with clients in new directions Capital management of increasing concern and reinsurers can bring solutions 7

Impact of Consolidation on Reinsurers Relationships disrupted new people in charge Uncertainty over who the new reinsurance decision makers will be Political minefield use caution Loss of key personnel (underwriting, claims, pricing, admin) requires more vigilance by the reinsurer 8

Impact of Consolidation on Reinsurers Claims and underwriting guidelines may suddenly change Administration often gets messed up delays, errors Win or lose proposition on existing treaties Everything slows down due to integration, especially product development 9

Will there be Another Wave of Consolidation? Maybe, if: Capital requirements are strictly imposed in all jurisdictions Loss of market share to bigger, stronger companies Foreign competition (e.g., US) ramps up Poor results lead to owners losing patience But: Unlikely to be a new wave, but continued ripples due to opportunistic acquisitions 10

Similar Experience in Canada Wave of acquisitions lasting about 10 years, accelerated by demutualizations Reinsurers were involved in almost all acquisitions Virtually no acquisition activity now committed owners, large companies or niche players Focus is on international expansion and on core business improvements 11

How Companies will Expand in the Future To become a bigger player, have to grow outside Caribbean and diversify Geographic (South America, Central America, Mexico, US, international) High net worth markets Become a reinsurer as well as a direct writer access new markets Product line expansion (e.g., CI, Group) 12

How Companies will Expand in the Future Partnerships, alliances that bring value to both parties New distribution channels Buy staff if not the company Back to basics improve core business, e.g., capital and tax management, risk management, efficiencies of operation, build/acquire distribution 13

Conclusion M & A activity has resulted in a stronger Caribbean insurance marketplace In the future, companies must focus on basics while keeping their options open for acquisitions or other means of expansion 14

Thank You