We provide actuarial analysis of and advice on insurance M&A transactions, reinsurance transfers, capital relief and restructuring (reinsurance and capital markets), rehabilitation, and post-merger integration. This includes M&A due diligence, appraisal analysis, PGAAP, and opening balance sheet scrubs; analysis of securitizations, captive solutions, and collateral reduction strategies; and analysis of longevity and pension risk transfer transactions.
Both corporate and private equity players are thinking about insurance-related transactions to expand market share, diversify revenue streams, and fuel their long-term strategic plans. Successful deal making requires a focus on the relationship between risk and return. However, some potential "blind spots" can threaten your probability of realizing expected value from an insurance acquisition. Understanding the nuances of the complex, highly regulated insurance marketplace and its products, risks, and accounting requirements are paramount to ensuring the successful execution of an insurance acquisition.
Capital restructuring can make a business more capital efficient as such a financial management tactic typically decreases expenses, improves operational effectiveness, raises earnings per share, and provides a foundation for better overall operational results. As such, insurers are continuously looking to alter their capital structure in response to changing business, economic, or regulatory conditions, or as a means to fund growth plans. Finding the right balance between sources of capital, regulatory compliance, financial structuring, and optimal shareholder return is a complex objective that presents significant challenges.
Biometric longevity risk exposures have increased significantly as new structured products and hedge indices carve out the longevity risk. In addition, while the risk exposure at the retirement and old ages continues to increase significantly, the original assumptions set at those ages were often flawed and based on limited experience.
As new regulations and structured products emerge, it continues to be important for managers to assess the longevity risk exposure and determine where there are strengths and weaknesses in those assumptions. Managers need to assess both reinsurance and capital market products when managing longevity risks as well as assess and mitigate longevity arbitrage risks created via the capital markets.
With people living longer and time spent in retirement increasing, insurers are grappling with unprecedented economic pressure to meet their pension obligations and manage risk. Pension risk management has traditionally focused on managing plan design, asset, and ALM risks. However, the mitigation of these risks has also amplified the exposure to liability risks, chiefly the risks of longevity and demographic shifts.
Insurers’ growing awareness of investor concern over funding status and a company’s economic health has led them to evaluate their pension risk in light of funding costs and options, increasing Board interest in pension risk management, and regulatory change.
Companies are now executing holistic and unbundled approaches with insurance solution providers. These solutions can dramatically mitigate not just liability risks but also interest rate, inflation, and equity risks.
Intercompany transactions across borders are growing rapidly and are becoming much more complex. Compliance with the differing requirements of multiple overlapping tax jurisdictions is a complicated and time-consuming task, especially as it relates to today’s transfer pricing rules. Multinational organizations are navigating operations in an ever-expanding globalized world, and the increasing, diverse transfer pricing requirements they face are daunting. At the same time, tax authorities from each country are imposing stricter penalties, establishing new documentation requirements and more stringent information exchange requirements, and are increasing audit/inspection activity.
This intense scrutiny imposes significant risks, particularly in a complex field such as transfer pricing, where each transaction must be analyzed under its own unique facts and circumstances. Insurance businesses can be particularly challenging given the expertise required to properly evaluate the risks and potential pitfalls of risk transfer.