In yet another move to rid itself of its variable annuity business, The Hartford has agreed to sell its U.K. subsidiary to Columbia Insurance Co., a Berkshire Hathaway company, for $285 million in cash.
At closing, Hartford Life International Limited will hold one asset, Dublin-based Hartford Life Limited (HLL), which sold variable annuities in the U.K. from 2005 to 2009. As of March 31, the U.K. annuity business had $1.75 billion in assets under management.
Last year, Hartford jettisoned its U.S. variable annuity (VA) business, selling the line to Forethought. With hedge fund manager John Paulson leading the push, the company decided to withdraw from the life business in favor of property and casualty insurance, group benefits and mutual funds.
For Berkshire Hathaway, this marks the second time a Warren Buffett-helmed company has taken over a variable annuity business in recent months. In February, Berkshire Hathaway Life Insurance Co. acquired Cigna’ run-off variable annuity line.
Since last year, there’s been a flurry of mergers and acquisitions in the annuity sphere, mostly in the fixed annuity segment. However, there have been a few in the variable annuity space as insurers with legacy VA books have tried to deal with a low interest rate environment that has made paying for generous guarantees problematic. A sell-off is one solution, but other tactics have been to lower the benefits, raise fees and offer contract buyouts, something Hartford has done.
According to a statement from Hartford, the purchase price is roughly equal to HLL’s statutory surplus as calculated under Irish accounting standards as of March 31. The deal is expected to reduce U.S. statutory surplus by some $150 million in the second quarter and result in a net loss of approximately $110 million, after tax, as estimated under U.S. GAAP, also in Q2. The transaction is expected to close by the end of this year. Deutsche Bank provided financial advice to Hartford while Sidley Austin LLP served as legal advisor.
The Hartford deal was not the only U.K. annuity trade of late. Yesterday, Legal & General agreed to acquire Lucida PLC, a closed annuity buyout company with a portfolio of £1.4 billion of annuity assets, from LCM Holdings Limited, for £151 million.
Founded in 2006, Lucida specialized in the bulk purchase annuity market, with arrangements sealed with the Merchant Navy Officers Pension Fund, New Ireland Assurance and the U.K. pension plans of Morgan Crucible and Newell Rubbermaid. In November of 2012, it closed to new business and currently oversees more than 31,000 pensions in payment.
Legal & General, an insurance, savings and investment management firm based in the U.K., stated in a release announcing the deal that it intends to grow through the retirement solutions market. It provides annuities to more than 700,000 current pensioners and over 150,000 deferred pensioners. In the first quarter, Legal & General booked record individual annuity premiums, rising 51 percent to £406 million and £357 million of bulk annuity premiums. Subject to approvals, the deal is expected to close in the third quarter.