The rediscovery of America: many European life insurers established a presence in the United States in the 1980s through the early 2000s by buying American companies. Today, they're reaping the rewards.Key Points * European life insurers accelerated their acquisitions of American business in the past 10 years. * Given the size of the U.S. market and lower penetration rate, the Europeans felt compelled to build their presence. * While some have achieved good organic growth, most will need to expand in the future by focusing on acquisition. * While the U.S. market remains fragmented, mergers and acquisitions may remain slow under current conditions. Most industry observers have grown accustomed to their names: Axa, ING, Allianz, Aegon. These and other big European life insurers weren't exactly household words Household Words was a weekly magazine edited by Charles Dickens which took its name from the line from Shakespeare "Familiar in his mouth as household words" — Henry V. It was published between 1850 and 1859. before and around the turn of this century, when the3" bought brand-name companies in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . And Prudential? Isn't that the name of a big company headquartered in New Jersey? Yes, but there's another, bigger Prudential based in London that is the parent of a large U.S. company. Welcome to the U.S.-European chapter in the story of globalization globalization Process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world. Factors that have contributed to globalization include increasingly sophisticated communications and transportation in the life industry. For some insurers, it began more than 20 years ago. Just as American companies methodically engaged in recent years in expanding their reach into other countries, so did many of the large European insurers find fertile ground in the United States. Among significant purchases: France's Axa bought the venerable Equitable Life Equitable Life may refer to:
The process of changing corporate structure from a mutual fund company to some other form, such as a limited liability or corporation. Notes: This means mutual/life insurance companies convert from policyholder companies to stock companies. in 1992; the Netherlands' ING bought ReliaStar Financial Corp. and two Aetna businesses in 2000; Germany's Allianz bought shares it did not already own of LifeUSA Holding Inc. in 1999; and the Netherlands' Aegon bought Transamerica in 1999. Prudential plc This article is about the British company. For the American company, see Prudential Financial. For places named after the company, see Prudential. Prudential plc (LSE: PRU, NYSE: PUK) is a United Kingdom-based financial services company. bought Jackson National Life Jackson National Life Insurance is a U.S. life assurance company that is a subsidiary of the UK based insurer, Prudential Plc. Founded in 1961, Jackson is headquartered in Lansing, Michigan, and has over a thousand employees in the region. in 1986. This year, U.K.-based Aviva plans to close on the $2.9 billion purchase of AmerUs Life. Meanwhile, Old Mutual, based in South Africa South Africa, Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa. with a presence in Europe, bought Fidelity and Guaranty in 2001. Swiss Re Swiss Re is the world’s largest reinsurer, now that it has acquired GE Insurance Solutions (Ligi 2006). Founded in 1863, Swiss Re now operates in more than 30 countries. General Electric owns 8.9% of the firm. has also been an active acquirer, including Lincoln Re in 2001 for $2 billion. The tact that nearly all of the trans-Atlantic acquisitions were by European life insurers was no coincidence. Many of these European companies It may never be fully completed or, depending on its its nature, it may be that it can never be completed. However, new and revised entries in the list are always welcome. This is a list of companies from the countries in the European Union. were and continue to be Goliath companies not just within the insurance industry, but compared with those of any industry. In September, ING, Axa, Allianz and Belgium-based Fortis ranked 13th through 18th in the Fortune Global 500 by revenues, behind mostly oil companies, car manufacturers and General Electric. Aviva ranked 28th and Prudential 52nd. By comparison, MetLife was 112th and Prudential Financial 182nd. These companies saw great opportunity in the U.S. market, and they still do. The United States is more attractive than Europe due to the sheer size of the American baby-boomer market, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Mark Tucker Mark Tucker may be:
Generally, these acquisitions have worked out well, but they probably have not recognized the expected synergies as quickly as the Europeans thought they would, said Michael Ryan There are many notable people with the name Michael Ryan:
KPMG Kaiser Permanente Medical Group KPMG Keiner Prüft Mehr Genau (German) KPMG Kommen Prüfen Meckern Gehen and author of a recent report on mergers and acquisitions in the global insurance industry. "Your view on that would probably change depending on when you looked at these companies," he said. "If you looked in early 2000 and in 2001, you may have a different view than today. The broader market was down, and a lot of those acquisitions took the acquirers a while to digest." But Ryan said the outcomes have been that their acquisitions gave them the scale to be in a different place than they were. John Nigh nigh adv. nigh·er, nigh·est 1. Near in time, place, or relationship: Evening draws nigh. 2. Nearly; almost: talked for nigh onto two hours. , a managing principal at the Tillinghast business of Towers Perrin Towers Perrin is a global professional services firm. It was established 1 March 1934 as Towers, Perrin, Forster & Crosby. The umbrella name of Towers Perrin was adopted in 1987. , said that over the long haul Long distance. Long haul implies traversing a state or a country. Contrast with short haul. , the acquisitions have been successful, but there were blips. One reason is that Europeans generally paid a relatively high price, given that valuations of U.S. companies in the 1990s were at historic highs. And the economy didn't cooperate, either, when the ensuing bear market took its toll on stock values. But the '90s were also a time of favorable interest rates and extraordinary optimism, and many U.S. life insurers were converting from mutuals to public companies. The Drive to Acquire Despite the sellers' market in the United States, Europeans had special incentives to be acquirers in the '90s. Donald J. Shepard, chairman of the executive board of the Netherlands-based Aegon, said valuations of European companies were even higher relative to U.S. companies, and the Dutch gilder gild 1 tr.v. gild·ed or gilt , gild·ing, gilds 1. To cover with or as if with a thin layer of gold. 2. To give an often deceptively attractive or improved appearance to. 3. was very strong against the dollar. "So there were some good financial reasons for European companies to take positions in the U.S.," he said. Nigh, who is also mergers-and-acquisitions practice leader at Tillinghast, said that the state of the industry in Europe also encouraged life insurers there to turn to the United States. More so than today, Europe's insurance industry in the '90s was operating in a fragmented collection of countries with different regulations. Each national market is still not very large, whereas the United States has the largest economy in the world and is only eighth in terms of market penetration Noun 1. market penetration - the extent to which a product is recognized and bought by customers in a particular market penetration - the act of entering into or through something; "the penetration of upper management by women" , he said. "If you want to be a global player, you need to be in the U.S.," he said. "That's what's behind the thinking of the European insurers." European companies brought their new American subsidiaries advantages and assets. Certainly they brought capital and access to the broader markets, which resulted in scale that was able to support significant organic growth and growth through strategic acquisitions, said Nigh. And they also brought product innovation, according to Ryan. "Over the past 10 to 15 years, there has been a lot of development in retirement-type products," Ryan said, including living benefits on variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. and the introduction of equity-indexed annuities. "Absent the European presence, you would have seen that innovation eventually, but the exchange of ideas probably spurred it on." Europeans also brought with them a management philosophy "more attuned at·tune tr.v. at·tuned, at·tun·ing, at·tunes 1. To bring into a harmonious or responsive relationship: an industry that is not attuned to market demands. 2. to the insurance market," said Nigh. While American publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. deal with quarterly earnings targets, European insurers use an accounting system based on "embedded value Embedded Value A common valuation measure used outside North America particularly in the insurance industry. It is calculated by adding the adjusted net asset value and the present value of future profits of a firm. earnings" that better explain the present-value profits on an existing portfolio, including new business written in a current year, he said. The resulting philosophy provides both "insight and leeway" to U.S. operations "to operate in possibly a more successful manner." The U.S. acquisitions have changed the geographical makeup of most European companies, just as they had intended. In 1985, for example, 99% of Prudential plc's business was in the United Kingdom. Today; it is 70% to 75% international, led by ventures in Asia and the United States, said Tucker. Aegon and Transamerica Aegon was also an early buyer in the United States. In fact, a 1983 merger of two Dutch companies This is a list of companies from the Netherlands. See for lists of companies from other countries. Independent companies
Shepard said that with Transamerica, Aegon gained: * A high-end market. * Strength in the brokerage life insurance market of high-quality producers. * A "very recognizable" consumer brand along with the well-known Transamerica pyramid The Transamerica Pyramid is the tallest and most recognizable skyscraper in the San Francisco skyline [1]. Built on the location of the historic Montgomery Block, it has a structural height of 260 meters (853 feet) and contains 48 floors of retail and office space. building. * A life reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. business that is showing good growth today after some initial rough periods. * Greater size in its overall life and pension business. The acquisition also brought some excellent employees. "At Aegon, we've had a tendency at the higher levels to promote from within, and it's nice to get some new blood in with an acquisition from time to time to add to that," Shepard said. A part of the acquisition that caused some indigestion indigestion or dyspepsia, discomfort during or after eating caused by some interference with the normal digestive process. Symptoms include nausea, heartburn, abdominal pain, gas distress, and a feeling of abdominal distention. was Transamerica Finance Corp., a commercial lending business that was about a third of the Transamerica package. Shepard said that seven or eight interest-rate increases prior to the transaction's July 1999 closing hurt the business' valuation. "We were sitting on it longer than we would have liked because it didn't fit within our core business," he said. Aegon sold the business in 2003 to General Electric Co. Shepard said that although Transamerica was Aegon's best-known acquisition, other smaller ones earlier in the '90s were quite strategic. The acquisition of Western Reserve Life Assurance Co. of Ohio, for example, put Aegon into the variable-life insurance business, he said. Diversified Investment Advisors History Established as a division of the original MONY (Mutual of NY) and its predecessors, it spun off as a separate entity in the early 1990s. DIA has over 50 years of multi-product, retirement services only industry experience. , the pension company belonging to Mutual of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of , put Aegon into the larger-case 401(k) and pension businesses, now a strong growth area for the group of companies.And Providian of Louisville gave Aegon an institutional GIC GIC See: Guaranteed Investment Contract GIC See guaranteed investment contract (GIC). (guaranteed investment contract Guaranteed investment contract (GIC) A pure investment product in which a life company agrees, for a single premium, to pay at a maturity date the principal amount of a predetermined annual crediting (interest) rate over the life of the investment. ) business, which is one of its major businesses today. After the Transamerica transaction, Aegon acquired JC Penney Life, which helped make Aegon one of the largest, if not the largest, direct marketing companies in the United States and helped kick off its direct-marketing efforts internationally. Prudential and Jackson National Jackson National Life has worked out "tremendously well" for Prudential and become a valuable part of the group, said Tucker. He said Jackson has resulted in: * The creation of a balanced business model that is able to withstand all economic conditions. * Strong organic growth over 20 years. * A 10-fold increase in statutory premium, or about a 14% common annual growth rate. * Growth in statutory assets from $2.3 billion to $61.1 billion. * Excellent information-technology capability. * Strong product-manufacturing capability and product suite. * A "highly productive" distribution network. Jackson has expanded the Prudential Group's distribution to broker-dealers, financial institutions and managed-account providers, Tucker said. According to the 2006 annual report, Jackson's profits grew to 755 million [pounds sterling] (about $1.4 billion) last year from 368 million [pounds sterling] in 2004. Looking ahead, Tucker said Prudential is trying to build its businesses in the United States and in Asia through "bolt-on acquisitions," those that fit with existing businesses and are contiguous to them. It made a bolt-on last year when it bought Life of Georgia's book of life insurance and annuity contracts from ING. "We have today about $1 billion of excess capital in the U.S., and we'd like to put it to good use if we were to find the opportunity," he said. "We're looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. opportunity based on value" In 2001, Prudential made an unsuccessful bid to acquire American General Life Insurance Co., which American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. subsequently acquired in a $23 billion stock transaction. The intent to acquire American General is indicative of the sort of presence Prudential and other companies want to have, Nigh said. Tucker said bolt-ons "have been few and far between" for Jackson National. "Fundamentally, it's an organic growth stow, and a great organic growth story," he said. Over 20 years, Prudential has provided about a billion pounds of capital to Jackson, said Tucker, "but under any measure, Jackson is worth a considerable multiple of that today." The Need to Acquire Acquisitions likely will continue to be part of growth strategies for life insurers in the United States, according to Nigh. "If you look at growth of the U.S. insurance market, year in and year out it grows at maybe the rate of inflation," he said. "To get meaningful growth, you have to create additional market share, which is cutting into markets not fully penetrated, such as the middle-income market, or you have to make strategic or opportunistic acquisitions. Completely relying on organic growth will not be successful for most of the players." Nigh is among many who have predicted more mergers and acquisitions due to the fragmented nature of the U.S. market. Those predictions have been slow to materialize, and Nigh estimates the number of U.S. life insurance fleets still around 500. "There certainly is not room for or a need for 500, so as we continue to see more and more demand for high quality, in terms of balance sheet and size of the companies, we will see the smaller and medium-sized companies divest, and even larger companies that have noncore operations," he said. Companies that already have a U.S. presence are better positioned for this M&A activity, whether they are U.S.--or European-based. "You're not going to be successful doing this type of acquisition from afar because you really need a base from which to build," Nigh said. "If you have the back office to handle the business, you're relatively well positioned." Driving this activity are "the ever-increasing capital demands that rating agencies and regulators are expecting from companies," Nigh said. "So the company with a noncore operation that divests gets paid for its business and frees up capital." Couple these demands with what Nigh calls a "perfect calm" in the economic environment--strong stock values in the Dow Jones Industrial Average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. and a pause by the Federal Reserve Board after raising interest rates at 17 meetings in a row--and conditions are fertile for M&A activity. But a big difference from the late 1990s is that buyers will not pay today what they did then, during the sellers' market. So rather than heralding a new buyers' spree, Aviva's purchase of AmerUs and Old Mutual's purchase of FAG are continued evidence that those who want to be global players need a significant presence in the United States, Nigh said. Future Acquisitions At least 75% of North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. and European companies would like to grow through acquisitions over the next three years, according to a report on mergers and acquisitions in the global insurance industry authored by Ryan and released in May by KPMG. However, executives surveyed for the report cited a lack of attractive targets and excessive price expectations as negative factors. The report said buyers seek companies with local knowledge of regulations, distribution, product structure and the nature of the competition. They also seek to assess what potential returns are likely to be. Aegon's current intent is to concentrate on organic growth in countries in which it is already located, Shepard said. It would also be interested in identifying the right opportunities in Japan, South Korea, Germany and Italy, where it has little or no presence, he said. Both U.S. and European companies seem to have their sights set more on Asia than the United States, he said. Allianz Group Headquarters: Munich A.M. Best Company # 85014 Chairman of the board of management: Michael Diekmann Employees worldwide: 177,625 U.S. businesses: Allianz Life Insurance Co. of North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , Fireman's Fund, others Business in other countries: 70 countries; largest positions in France, Italy, Spain, Switzerland and United Kingdom Total 2005 operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. : 7.7 billion [euro] (about $9.6 billion) (includes property/casualty) Skinny: Allianz Life N.A. contributed 11.1 [euro] billion in life statutory premiums, or 23% of the group total, led by equity-indexed annuity business. Source: Allianz 2005 annual report Axa Group Headquarters: Paris A.M. Best Company # 85085 Chairman of the supervisory board Supervisory board The board of directors that represents stakeholders in the governance of the corporation. : Claude Bebear U.S. businesses: Axa Financial Inc., Mony Holdings Inc. Employees worldwide: 110,000, including distributors Business in other countries: Japan, United Kingdom, Germany, Belgium, Spain, Italy, Portugal, Canada, other Asian Total 2005 underlying earnings: 3.3 billion [euro] (about $4.2 billion) (includes property/casualty business) Skinny: U.S. business last year generated 31% of life and savings revenues, the largest country share. Source: Axa 2005 annual report Aegon N.V. Headquarters: The Hague, Netherlands A.M. Best Company # 85244 Chairman of the executive board: Donald J. Shepard Employees worldwide: 27,000 Employees in the Netherlands: 5,698, of whom 1,487 are agents U.S. businesses: Transamerica Group, Monumental Life, Western Reserve Life Assurance Co. of Ohio, others U.S. employees: 13,341, of whom 2,654 are agent-employees U.K, employees: 4,539, of whom 161 are agent-employees Business in other countries: Canada, China, Czech Republic Czech Republic, Czech Česká Republika (2005 est. pop. 10,241,000), republic, 29,677 sq mi (78,864 sq km), central Europe. It is bordered by Slovakia on the east, Austria on the south, Germany on the west, and Poland on the north. , Hungary, Poland, Slovakia, Spain, Taiwan Total 2005 operating profit before tax: 2.1 billion [euro] (about $2.6 billion) Aegon America's operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before : $2.4 billion Skinny: U.S. business reaches nearly every customer segment through diversified distribution network. Source: Aegon 2005 annual report ING Group ING Groep N.V. (NYSE: ING, Euronext: INGA) (known as ING Group) is a financial institution of Dutch origin offering banking, insurance and asset management services. ING once stood for Internationale Nederlanden Groep. Headquarters: Amsterdam A.M. Best Company # 85144 CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. and chairman: Michel Tilmant Michel Tilmant, (born July 21, 1952) is the current CEO of ING Group, a globally operating banking and insurance business based in The Netherlands. Biography Tilmant, a French speaking Belgian, graduated from the Université catholique de Louvain (Louvain School of Employees worldwide: 115,000 U.S. businesses: ING USA Life Group includes ReliaStar Life Insurance Co. and Security Life of Denver Business in other countries: Europe, Americas and Asia/Pacific Total 2005 underlying/operating: 8.5 billion [euro] (about $10.7 billion) U.S. 2005 underlying profit: 1.15 billion [euro] (about $1.4 billion), up 27.4% Skinny: Main businesses are about evenly split between insurance/annuities and banking. Source: ING 2005 annual report and A.M. Best Co. Prudential plc Headquarters: London A.M. Best Company # 85925 Group chief executive: Mark E. Tucker Employees: 10,000 U.S. business: Jackson National Life Insurance Co. Employees: 2,600 Employees worldwide: 23,000 Business in other countries: China, Hong Kong, India, Indonesia, Japan, Malaysia, The Philippines, Singapore, Taiwan, Thailand, Vietnam Total 2005 operating profit before tax: 1.71 [pounds sterling] billion (about $3.2 billion) Jackson's 2005 operating profit: 755 million [pounds sterling] (about $1.4 billion) Skinny: Jackson's strong cash generation helps support capital strain from growth in other countries. Source: Prudential plc 2005 annual report Learn More Prudential plc A.M. Best Company # 85925 Distribution: Independent agents, brokers and banks Aegon USA A.M. Best Company # 69707 Distribution: Career agents, financial planners, banks, brokers, direct marketing For ratings and other financial strength information about these companies, visit www.ambest.com. |
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