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  • Prudential to Buy Hartford's Individual Life Business for $615 Million

    October 2, 2012 by Meg Green

    Best’s News Service – September 28, 2012 10:34 AM

    HARTFORD, Conn. – Prudential Financial Inc. will pay $615 million in cash to acquire the individual life insurance business from Hartford Financial Services Inc., the companies said.

    It’s the last of the planned three sales of Hartford business units since the company announced in March that would exit some business to focus on property/casualty, group benefits and mutual funds.
    The individual life business sale is structured as a reinsurance transaction and is expected to close in early 2013. The segment reported net income of $105 million at the 12 months ended on June 30.

    Prudential said it will receive about $7 billion of general account investment assets and corresponding reserves, and rights and obligations with respect to about $5 billion in separate account assets and corresponding liabilities, based on statutory balance sheet values as of June 30.

    Prudential of America Group was the second-largest U.S. life/health writer ranked by 2011 admitted assets, according to BestLink, A.M. Best’s online financial system. Hartford Life Group ranked as the seventh-largest.

    The $615 million in cash consists primarily of a ceding commission to provide reinsurance for about 700,000 Hartford life insurance policies with face amount in force of about $135 billion, Prudential said.

    Hartford said it does not expect to record a material net income gain or loss on the closing of the transaction.

    After the transaction is completed, Prudential will rank among the top five largest individual life insurance companies in the United States in terms of new recurring premium sales, Prudential said. The company said it will have “leadership positions” in universal, term and variable life insurance.

    Jim Avery, chief executive officer of Prudential’s individual life Insurance business, will retire when the transaction closes. Kent Sluyter, vice president and chief actuary of the business, has been tapped to succeed him. Prudential said Avery wanted to retire earlier this year, but agreed to stay on to help with the transition.

    Earlier this month, Massachusetts Mutual Life Insurance Co. agreed to acquire Hartford’s retirement plans business for $400 million (Best’s News Service, Sept. 5, 2012). In August, American International Group Inc.’s life and retirement business, SunAmerica Financial Group Inc., agreed to acquire Hartford’s Woodbury Financial Services Inc. for an undisclosed amount (Best’s News Service, Aug. 1, 2012).

    In March, Hartford said it would sell off three units: its Woodbury Financial Services Inc., an independent broker-dealer; its retirement plans business; and its life insurance business. The move came as the Hartford announced plans to focus on businesses that take insurance risk — property/casualty, mortality and morbidity — and reduce its exposure to market risk.

    “Today’s announcement represents a significant milestone in the execution of the Hartford’s strategy to deliver greater value to shareholders,” Liam E. McGee, chairman, president and CEO of Hartford, said in a statement.

    Hartford said it expects the individual life transaction to benefit its net statutory capital by about $1.5 billion, including an increase in statutory surplus and a reduction in required risk-based capital.

    Altogether, the three transactions are expected to benefit Hartford’s net statutory capital by about $2.2 billion, including increasing statutory surplus by about $1.4 billion and reducing required risk-based capital by $800 million.

    Also, Hartford will continue to hold about $450 million of statutory capital to support the businesses reinsured to buyers as part of the transactions.

    Following the close of the transaction, Prudential will reinsure liabilities for the contracts covered by the agreement and assume investment assets with a statutory book value of about $7 billion in support of these liabilities. Hartford will continue to sell policies through a transitional period after the transaction closes.

    Hartford’s individual life employees will be offered positions with Prudential.

    Also, earlier this year, Hartford put its annuity business in runoff, and agreed to sell its individual annuity business platform to Forethought Financial Group, a privately held company based in Houston (Best’s News Service, April 26, 2012).

    Prudential Financial’s subsidiaries currently have Best’s Financial Strength Ratings of A+ (Excellent), which remain unchanged following the announced transaction (Best’s News Service, Sept. 27, 2012).

    Hartford’s underwriting subsidiaries’ Best’s Financial Strength Ratings of A (Excellent) remain under review with developing implications following the announcement (Best’s News Service, Sept. 27, 2012).

    On the morning of Sept., 28, shares of Hartford (NYSE: HIG) were trading at $19.69, up 2.02% from the previous close. Shares of Prudential (NYSE: PRU) were trading at $54.35, down 0.86%.
    (By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com) BN-NJ-09-28-2012 1033 ET #

    Originally Posted at Best's News Service on September 28, 2012 by Meg Green.

    Categories: Industry Articles
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