Posted on the Globe & Mail's StreetWise blog by Andrew Willis:
Life insurance takeovers are on the horizon, as the rules are set on U.S. government support for the sector, and Canadian companies load up on capital.
For months, insurance experts have predicted the iconic U.S. insurers, weakened by the market meltdown, would be forced into mergers. BMO Nesbitt Burns analyst John Reucassel tried to explain the delays in a report on Wednesday, saying: “Given the turmoil in the U.S. industry over the last year, we have been surprised at the lack of consolidation.”
“The lack of transactions may partly reflect some anticipation among weaker U.S. lifecos that they may have access to government funding (TARP/TALF),” said Mr. Reucassel. “As it becomes clearer who does (and does not) qualify for government funding, transaction activity may accelerate.”
Funding is not a problem for Canadian life insurers, all of which have confessed to ambitions in the U.S. market. The large domestic insurers are all on the dance floor, looking for partners, after successfully raising money from domestic investors.
In March, the Canadian life insurers raised $1.65-billion in new capital, mainly subordinated and senior debt offerings, according to BMO Nesbitt Burns. This capital shores up balance sheets, but can also support acquisitions.
The series of financings “highlight that Canadian lifecos maintain access to non-government-related sources of capital, unlike most of their peers in the U.S.,” said Mr. Reucassel. Last month's financings came on the heels of large sale shares by domestic insurers in 2008.Manulife Financial pulled in more than $1-billion in March, while Sun Life Financial raised $500-million and Industrial Alliance sold $100-million of bonds. Mr. Reucassel said: “Investors should expect the lifecos to continue to “tap” these different capital sources through the course of 2009.”