Rising interest rates will make life insurers increasingly attractive targets for M&A

Higher investment yields and profitability levels will lead to greater interest from potential buyers

Against a backdrop of rising global economic challenges and geopolitical uncertainty, the past year has seen interest rates rise globally from 2020 lows.

On one hand, rising inflation and interest rates may cause the rate of M&A generally to slow due to increasing financing costs for buyers and increasing liability claims directed at target companies.

However, for life insurers, higher interest rates could mean increased profitability through increased yields on investments, while helping them rebalance portfolios. Rising rates may also make interest-sensitive life insurance products more attractive to policyholders, further driving profitability levels.

This year, life insurers have already seen significant interest from global private equity investors and asset managers looking to enter the insurance market and grow their portfolios under management. For example, in mid-October, global asset manager Blackstone announced its strategic partnership with Resolution Life which included a USD$500 million investment and a plan to raise USD$3 billion of new equity capital.

We expect that acquisitions will increase in 2023, as life insurers generate greater earnings due to rising interest rates. We also anticipate that private equity investors will continue to drive the acquisition of legacy life insurance book acquisitions, both through traditional M&A, book acquisitions and similar mechanisms, as well as reinsurance structured acquisitions such as loss portfolio transfers.

Accordingly, while there is likely to be increased interest from potential buyers, life insurers may wish to consider whether M&A will assist with their business strategy, such as through strategic divestments.

View all our Insurance 2023 Predictions here