Prudential Financial Inc. agreed to buy a life insurance business from Hartford Financial Services Group Inc., which is divesting operations to focus on property-casualty coverage.
Prudential, the second-largest U.S. life insurer, will make a $615 million cash payment as part of the agreement, which is structured as a reinsurance deal, the companies said today in statements. Hartford advanced 2.1 percent to $19.70 in extended trading at 4:48 p.m. in New York after saying it would get a net statutory capital benefit of about $1.5 billion from the deal, including the cash payment.
Hartford Chief Executive Officer Liam McGee, 58, is focusing on property-casualty coverage, such as commercial insurance and auto policies, after reaching deals this year to sell a broker-dealer, retirement-plans business and individual-annuities distribution unit. Hartford trades for less than in 2010 when it paid back a taxpayer rescue, as lower bond yields and stock-market fluctuations hurt results from life insurance and annuities in the U.S. and Japan.
“Our core competency is not managing interest-rate bets, equity-market bets, or foreign exchange,” McGee said in an interview today before the announcement. “Shareholders aren’t going to pay us for managing those risks.”
Hartford said it will turn over about $7 billion of general account assets to help cover obligations. The transaction is expected to be completed early next year, and will cover about 700,000 policies with a face amount of approximately $135 billion, Prudential said.
Prudential CEO John Strangfeld, 58, is targeting return on equity of at least 13 percent next year as he integrates Japan-based units that he purchased from American International Group Inc. in 2011. Strangfeld said in August that Prudential had about $4 billion in cash and short-term investments at the parent company and that most of the funds can be used to repay debt, be redeployed or support operations. The insurer’s return on equity was 11 percent to 11.5 percent last year.
Hartford said its employees at the individual life unit will be offered positions with Newark, New Jersey-based Prudential.
The life business had net income of $36 million in the second quarter, compared with $46 million a year earlier, according to a regulatory filing from Hartford, which is based in the Connecticut city of the same name. In addition to property-casualty insurance units, McGee will also retain a mutual funds operation and group-benefits, which provides life policies and disability coverage through employers.