Insurers on prowl for deals

Jul 17, 2006 @ 12:01 am

By David Hoffman

PHILADELPHIA - The race for baby boomers' retirement assets soon may ignite a pickup in deal making between insurance companies and asset managers.

The Mutual of Omaha Cos. is on the prowl for an asset management company, possibly one that runs mutual funds, according to industry sources. Fueling that speculation, the insurance company last month issued $300 million in debt - suggesting that it might use the money to fund a deal.

"I do believe they are looking for ways to strategically enhance their business model," Rosemarie Mirabella, a senior financial analyst with A.M. Best Co. in Oldwick, N.J., said of the Nebraska-based insurer. "I have no doubt they are looking at a number of possible acquisitions."

Mutual of Omaha declined to comment.

"This is from our perspective just a rumor, and we don't comment on rumors," said Jim Nolan, a spokesman for the mutual insurance company.

In 1993, the company sold its fund group, Mutual of Omaha Fund Management Co., to The Pioneer Group Inc. of Boston.

Mutual of Omaha wouldn't be the first insurance company looking to get into the asset management business recently.

In May, the Guardian Life Insurance Company of America in New York bought a 65% interest in RS Investments of San Francisco, and New York Life Investment Management LLC in Parsippany, N.J., a subsidiary of the New York Life Insurance Co., acquired Institutional Capital Corp. of Chicago.

And last year, Sentinel Asset Management Inc. of Montpelier, Vt., the mutual fund subsidiary of National Life Insurance Co. - which like Mutual of Omaha is a mutual insurance company - bought Bramwell Capital Management Inc., a New York-based growth shop.

Sentinel isn't through acquiring money managers.

"We have been very clear about our intention to grow by non-organic means," Christian W. Thwaites, Sentinel's president and chief executive, was quoted as saying in the July 10 issue of InvestmentNews. "That means more acquisitions and transformational acquisitions of a size which could double or triple our mutual fund assets."

The push by some insurance companies to break into - or bolster - their presence in the asset management business comes as the first wave of the nation's 76 million baby boomers is turning 60 years old.

As boomers begin to retire, insurance products are going to play a bigger role as they look to annuitize their investments, said Don Phillips, a managing director with Morningstar Inc. of Chicago.

To do that, many will turn to "hybrid products" that are tied to insurance, he said. That, Mr. Phillips said, may lure insurance companies into the asset management business - even those that already have failed in the effort.

"I think they view this as a jump ball," he said. "It's a chance for them to get back in the game."

Indeed, more insurance companies are showing interest in the asset management business, said Jonathan Stern, a managing director with Berkshire Capital Securities LLC of New York, an investment banking boutique and specialist in merger-and-acquisition advisory services for the financial services sector.

"I think they have been more active," Mr. Stern said.

That interest may be especially piqued among mutual companies such as Mutual of Omaha.

"To some extent, insurance companies, especially the ones that are mutual companies, have a little more capital and freedom to bid on these things," Mr. Stern said.

That's because unlike public insurance companies such as Prudential Financial Inc. of Newark, N.J., or MetLife Inc. of New York - both of which recently sold asset managers - mutual insurance companies are owned by policyholders and do not have to explain their actions to outside shareholders.

Although insurance companies are showing up at the deal-making table, there's little evidence - so far, at least - to suggest they are pulling out their wallets.

So far this year, insurance companies have been involved in only 6% of mergers and acquisitions involving asset managers, according to Ben Phillips, a managing director with Putnam Lovell NBF Securities Inc. in New York.

Indeed, there is little evidence to suggest that many insurance companies are interested in running mutual funds, said Burton Greenwald, a mutual fund consultant in Philadelphia. In fact, a number of fund groups owned by insurance companies likely will be sold off in the years ahead as it becomes tougher to sell proprietary funds, he said.

Perception of inferiority

Mutual funds run by insurance companies also must contend with the perception that they are not as good as those run by pure asset managers.

Funds owned by insurers "haven't been that competitive largely because I think they viewed [the groups] as just another product to help them sell insurance," said Morningstar's Mr. Phillips.

Maybe so. But there's no denying that more insurance companies at least are considering acquisitions involving money managers, said Barry Barbash, a partner in the Washington office of New York law firm Willkie Farr & Gallagher LLP.

"I'm not sure I see it as a trend, but I have seen insurance companies looking for money managers," he said.

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