Multiline model abandoned as P&C, life insurers double down on core competencies

Analysts view a multiyear trend that has seen life and property and casualty insurers become more specialized as mostly positive, but noted that the shift still holds a degree of short-term risk.

A variety of factors led to the recent flurry of deal activity from life insurers selling their property and casualty businesses and property and casualty insurers separating from their life businesses. But it is not the first time that insurers have shifted to abandon the multiline model. A number of large insurers made the move away from the multiline approach several decades ago as well.

"Historically, there has been a mindset among insurers that the multiline model was a good way to do business because you had different risk profiles," CFRA analyst Cathy Seifert said in an interview. "The model, or the justification for that model, has kind of eroded."

Some insurers, however, have chosen to stick with the multiline model. Kemper Corp., for example, has continued to defend both its property and casualty and life presence. But during a February earnings call, CEO Joseph Lacher Jr. eschewed the multiline design, opting instead to call it "a portfolio of specialized businesses."

Life insurers focus on core business

Life insurers have been moving away from holding a property and casualty business over the course of the past 25 years or so, Piper Sandler analyst John Barnidge said in an interview.

"I do think the industry is largely becoming a lot more specialized especially from the perspective of the larger companies," Barnidge said. "I don't think the METs and the PRUs of the world have felt that they're getting the valuation that they believe they deserve."

Over the past several months there have been several substantial deals that reflect life insurers' push away from the multiline model.

MetLife Inc. revealed intentions to sell its auto and home business, Metropolitan Property & Casualty Insurance Co., and some wholly owned subsidiaries to Zurich Insurance Group AG subsidiary Farmers Group Inc. for $3.94 billion in cash.

In late 2019, Ameriprise Financial Inc. also off-loaded its property and casualty business when it completed the sale of its De Pere, Wis.-based unit Ameriprise Auto & Home to American Family Insurance Mutual Holding Co.

P&C dumps life business

CreditSights analyst Josh Esterov pointed out that the insurance industry, like other industries, has become "increasingly sophisticated" over time.

"I think what they've discovered over time is that at the end of the day there's not altogether that many synergies between the life insurance side of the business and the P&C side of the business," CreditSights analyst Josh Esterov said.

For example, it would be unusual in the present day to find an agent who would sell a home insurance policy and an annuity, Esterov said, adding that the places one might go to shop for those policies are likely to be different anyway.

In late January, American Financial Group Inc. agreed to sell its annuity business to Massachusetts Mutual Life Insurance Co. for $3.5 billion in cash. The transaction is expected to close in the second quarter.

American International Group Inc. announced late in October 2020 that it would be separating its life and retirement business from its property and casualty business, a restructuring step that had been suggested for years.

Since then, AIG executives have signaled that it may be interested in a potential sale of a minority stake of the life and retirement unit or an IPO of up to 19.9%. During the insurer's fourth-quarter 2020 earnings call, management noted that it has received several high-quality inquiries from potential buyers.

More recently, Allstate Corp. announced that it has agreed to sell Allstate Life Insurance Co. and certain of its subsidiaries to entities managed by Blackstone Group Inc. for $2.8 billion. The transaction would result in a financial book loss of about $3.1 billion in the first quarter given the lower returns on equity for the annuity businesses.

During the deal call, Allstate CEO Tom Wilson noted that the transaction is "economically attractive" when compared to issuing life insurance and running off its closed block of annuities.

Wilson cited the Financial Accounting Standards Board's upcoming implementation of guidance pertaining to long-duration insurance contracts as one of the reasons and noted that a "larger loss" would have been recorded in 2022 from its adoption had they held on to the business.

Seifert said the standard essentially will require several insurers to boost reserves for some of their long-term obligations during the low interest rate environment, pointing out that the standard has also been a driving factor that contributed to the overall trend.

"Over the longer term, it's a positive trend if more businesses are focusing on core competency," Esterov said.

Over the short term, however, there could be some "hiccups" Esterov said, pointing to AIG as an example as the decision to separate its life and retirement business has carried short-term negative ratings implications. Additionally, Seifert noted that strategic shifts of this nature also inject execution risk into the company's overall strategy.