Hartford to Buy Unit From Aetna -- WSJ
October 24 2017 - 3:02AM
Dow Jones News
By Leslie Scism
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 24, 2017).
Hartford Financial Services Group Inc. has agreed to pay $1.45
billion to health insurer Aetna Inc. for a unit that provides
life-, disability-income and other insurance products to employers'
benefits programs in the U.S.
The acquisition will nearly double the Connecticut company's
business of selling benefits to employers, one of its main
operations outside of property-casualty insurance.
Hartford Chairman and Chief Executive Christopher Swift said in
an interview that the acquisition "will make us one of the top-two
players" in sales of the group-benefits products. Hartford's annual
premium in the business will expand to about $5 billion from $3.15
billion in 2016, and there will be more than 20 million people
insured by the combined operation.
Property-casualty insurance will remain Hartford's dominant
business with more than $10.5 billion in annual premium. Hartford
also has a mutual-funds operation.
Hartford's rivals in group insurance include Lincoln National
Corp., MetLife Inc., Prudential Financial Inc. and Unum Group.
The deal marks another sign of Hartford's turnaround from
struggles during the 2008-09 global markets meltdown. It was among
the hardest-hit insurers, when a long market-leading position in
sales of a stock-market-linked retirement-income product proved
riskier than anticipated. It took $3.4 billion in U.S. government
aid, since repaid.
In a news release, Aetna President Karen S. Lynch said the
divestiture allows "a stronger focus on our strategy of creating a
personalized approach to improving member health." Aetna said
options for deploying sales proceeds include internal investments,
share repurchases and debt repayment.
Hartford doesn't intend to issue debt or equity to fund the
purchase. It said it would use some money allocated for share
buybacks and said the transaction would add to its 2018
earnings.
Hartford President Doug Elliot said the acquisition comes with
important digital technology. Hartford will use Aetna's claims data
in its advanced analytics to try to find ways to speed up
recoveries of people drawing on disability-income and workers'
compensation policies. Workers' compensation is one of Hartford's
major property-casualty product lines.
The deal includes a multiyear arrangement in which Aetna's sales
team will offer Hartford's group-insurance products to clients.
At Hartford during the financial crisis, then-newly installed
Chief Executive Liam McGee faced pressure from hedge-fund manager
John Paulson to focus on its property-casualty business, possibly
by spinning it off. Mr. McGee divested some operations to narrow
Hartford's focus.
Hartford continues to wind down the precrisis book of variable
annuities, which it quit selling after the crisis. In the
interview, Mr. Swift said: "We've told our investors we're not the
natural long-term owner [of the runoff unit], but we're happy
running it off... It produces decent earnings." In 2014, Mr. Swift
succeeded Mr. McGee, who died of cancer the following year.
Hartford has shown up on some Wall Street analysts' lists as
both a buyer and seller in potential merger-and-acquisition
activity. It is viewed as attractive as a target partly because it
is a leading seller of property-casualty insurance to small and
midsize companies, and this is an area many large insurers consider
ripe for increased use of algorithms in sizing up risk.
But at about $21 billion in market capitalization, Hartford is a
size where there are a limited number of potential acquirers.
"We are in attractive aspects of the
market--property-and-casualty and benefits -- with good execution,
innovation. ...I feel like we can control our destiny," Mr. Swift
said.
Many insurance deals over the past couple of years have had
Chinese, Japanese and Canadian investment firms and insurers as
buyers. In contrast, the 207-year-old Hartford is a longtime
neighbor in Connecticut's capital to Aetna, which was founded in
1853.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
October 24, 2017 02:47 ET (06:47 GMT)
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