The Hartford sells Talcott for $3bn
The Hartford has entered into a definitive agreement to sell its run-off life and annuity businesses Talcott Resolution to a group of investors for a total value of around $3 billion.
The buyer consortium is led by Cornell Capital, Atlas Merchant Capital, TRB Advisors, Global Atlantic Financial Group, Pine Brook and J. Safra Group.
The total payment to The Hartford includes $2.05 billion comprised of cash from the investor group, a pre-closing cash dividend, debt included as part of the sale, and a 9.7 percent ownership interest in the acquiring company.
The total consideration amount does not include $1.4 billion in dividends previously paid by Talcott Resolution in 2017. The sale is anticipated to close in the first half of 2018, subject to regulatory approval and other closing conditions.
“I am pleased to announce that we have reached an agreement to sell Talcott Resolution for total value to shareholders of approximately $3 billion, including the carrying value of retained tax benefits,” said The Hartford’s CEO Christopher Swift.
“After a thorough and robust process, we concluded that this transaction is the best path forward. It will complete our exit from the run-off life and annuity businesses and strengthen our focus on growing our market-leading Property and Casualty, Group Benefits and Mutual Funds businesses. In addition, we will receive an equity interest in the acquiring company which will enable us to participate in Talcott Resolution’s continued success. We also expect the sale will improve our future ROE (return on equity) and earnings growth profile and enhance the company’s financial flexibility.”
The investor group plans to form a new company that will purchase Hartford Life, Inc. (HLI), the holding company for the Talcott Resolution operating subsidiaries, for a net payment of $1.44 billion in cash. The Hartford will receive a 9.7 percent ownership interest, valued at $164 million, in the new company. Subject to regulatory approval, The Hartford also expects to receive $300 million in a pre-closing dividend from Talcott Resolution and will reduce its long-term debt by $143 million because debt issued by HLI will be included as part of the sale.
In addition, The Hartford will retain Talcott Resolution tax benefits with an estimated GAAP book value of $950 million, which will be available for realization subject to the level and timing of The Hartford’s taxable income. As a result of The Hartford’s election to retain certain tax benefits, the company will not recognize a tax capital loss on the sale. Based on the terms of the sale and the retention of the tax attributes, The Hartford estimates that the sale will result in a GAAP net loss of approximately $3.2 billion, after tax, which would be recorded in discontinued operations in fourth quarter 2017.
The Hartford’s chief financial officer Beth Bombara said: “We believe that this transaction provides an excellent outcome for shareholders, although it results in a GAAP loss. It accelerates the return of capital from Talcott Resolution compared with the gradual run-off of the business. We are evaluating opportunities to deploy proceeds from the sale and currently expect to use approximately $400 million for additional debt repayment, on top of the $500 million we previously announced we would repay in 2018.”
Prior to the closing of the transaction, the company’s Group Benefits and Mutual Funds subsidiaries, which are currently subsidiaries of HLI, will be transferred to another Hartford subsidiary and will not be part of the transaction. In addition, immediately after closing, Talcott Resolution will reinsure a portion of its fixed annuity, payout annuity and structured settlement businesses to a subsidiary of Global Atlantic Financial Group (Global Atlantic).
Following the sale, Hartford Investment Management Company (HIMCO), The Hartford’s investment management group, will continue to manage a significant majority of Talcott Resolution’s investment assets for an initial 5-year term. HIMCO also will be retained by Global Atlantic to manage certain assets associated with the post-closing reinsurance agreement. As part of the transaction, about 400 Hartford employees will become employees of the new company and will be located at offices currently owned or leased by The Hartford in Windsor, Connecticut, and Woodbury, Minnesota.
Swift commented: “We are proud of the reputation, operational capabilities and talented employees of Talcott Resolution, all of which provide the buyer with a great foundation on which to build its US life insurance and annuity presence, while providing continuity for Talcott Resolution’s policyholders, partners and employees.”
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