United States: Acquiring A Life Insurer — Things You Need To Know Now

With M&A activity for life insurers or blocks of in-force business poised for a possible spike, acquirers of life businesses should consider factors that are peculiar to, or disproportionately affect, the life and annuity sector relative to other types of insurers such as property-casualty (p&c).

Such features specific to life companies include the following, which require a dedicated focus on due diligence and may also require appropriate tailoring of representations and warranties or other provisions in the purchase contract:

  • A life insurer’s competitive space differs from that of a p&c counterpart. While a p&c carrier is largely competing against other insurers, a life insurer is potentially competing against not only peer insurers but also providers of investment products such as banks, broker-dealers, investment managers, financial advisers, mutual funds and private funds.

  • Life insurance products are by their nature more tax-sensitive than p&c products, requiring special focus on tax compliance of the carrier’s products.

  • Variable life insurance and variable annuities are regulated both as securities at the federal level and as insurance at the state level, making compliance issues more acute than for many other types of insurers.

In addition, regulatory developments in recent years affecting life insurers warrant thoughtful attention in all phases of the acquisition. Subjects of these developments include the following:

  • Captive reinsurers have been used by life carriers for nearly two decades, especially to finance the redundant reserves associated with certain types of life products (notably, variable annuities, term life and universal life with secondary guarantees (ULSG)). In recent years, the National Association of Insurance Commissioners (NAIC) and state insurance departments have enacted reforms intended to simplify the capital and reserving regimes associated with these products, and thus obviate (or at least reduce) the need for such captives. These reforms include:

    • Principle-based reserving. The three-year phase-in period ends on Jan. 1, 2020.

    • Actuarial Guideline 48, which was adopted by the NAIC as a model regulation in December 2016 and is pending adoption in the various states. The Guideline specifies the types and amounts of collateral that must be posted in order to secure reinsurance obligations associated with term and ULSG products.

    • The NAIC’s Variable Annuity Framework, finalized in 2018 and in the process of being implemented by the states. The Framework is designed to motivate carriers that historically wrote variable annuities and ceded those to captives to recapture that business and bring it back onto the carriers' balance sheets.
  • States have begun to consider and adopt “best interest” laws and regulations that impose heightened standards on sellers of life insurance products. These measures have been enacted largely in response to a perception that federal efforts to impose a fiduciary standard on sales of retirement products have slowed under the Trump administration and, similarly, in response to the Securities and Exchange Commission’s recent Regulation BI for broker-dealers. The state measures being adopted apply more squarely to life insurance products in general. Historically, carriers and producers were required to observe “suitability” requirements (that is, to take measures to ensure that a product offered to a consumer was suitable for that buyer). Under these new requirements, generally, an insurance agent would have to act in the consumer’s “best interest” — a more rigorous threshold. For example:

    • New York’s amended Regulation 187, which survived a judicial challenge in July and became effective Aug. 1, is a prime example of this new generation of producer regulations. New York’s version specifically requires a New York-licensed insurer to establish a system of supervision over its producers to achieve the insurer’s and the producer’s compliance with the fiduciary-type requirements.

    • Nevada and Maryland have also taken steps on similar measures.

It can be expected that compliance with these rules for new business will be a key focus of New York and other state insurance regulators going forward. Acquirers will want to make sure they understand the reach of any such new requirements and the resulting compliance implications for their target.

  • In another key New York development of recent years, the New York Department of Financial Services (DFS) now may require an acquirer of a New York-domiciled life insurer to post a collateral trust if the superintendent determines such a trust necessary for protection of policyholders or shareholders. The trust would have to conform to Regulation 114, New York’s detailed requirements for reinsurance collateral trusts. The provision is mainly aimed at acquirers that are private funds, and the Superintendent may take into account such status in determining whether a trust is required. Acquirers will want to consider this risk in crafting the “burdensome condition” provision of the purchase contract, among others.

  • An emerging issue for life carriers concerns the use of artificial intelligence (AI) in underwriting. Carriers writing business in New York are subject to the DFS’s January 2019 guidance on the use of external sources in underwriting life insurance products, the first significant effort by a state insurance department to impose restrictions on and guidelines for the use of AI by life insurers. (For a fuller discussion of the DFS guidance, see our article in the August 2019 Funds Talk, here.) In addition, the NAIC is actively studying a range of issues resulting from the use of AI in insurance generally, suggesting that future regulation across the states on the use of “big data” is possible.

An acquirer should consider all these developments carefully in the context of a particular insurance target, not only from a valuation standpoint but also for purposes of representations and warranties in the purchase agreement such as those relating to actuarial reserving, reinsurance, investments, capital adequacy and regulatory and other compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions