Recently, Prudential Financial Inc. (PRU) has announced that it will acquire Individual Life Insurance business of The Hartford Financial Services Group, Inc. (HIG) through a reinsurance transaction. Per the agreement, Prudential will pay $615 million and will get $7 billion of general account investment assets and corresponding reserves of the latter. It will also receive the rights and obligations with respect to approximately $5 billion in separate account assets and corresponding liabilities, based on statutory balance sheet values as of June 30, 2012.
The cash consideration primarily consists of a ceding commission paid by Prudential to offer reinsurance for around 700,000 Hartford life insurance policies with face value in force of $135 billion approximately. The transaction is expected to close in early 2013, subject to regulatory approvals and customary closing conditions and will be funded through existing cash at the holding company.
Despite the acquisition, the benefits and other clauses under The Hartford's in-force life insurance contracts will remain the same. Also, Hartford's issuing companies will continue to be the named insurers. The role of Prudential will be to receive premiums and pay claims along with providing customer service and administration.
The acquisition will also lead to some reshuffling of management at the higher level. The chief executive officer of Prudential's Individual Life Insurance business Jim Avery will retire upon the closing of the transaction. He will be succeeded by Kent Sluyter, vice president and chief actuary of the business.
Upon acquisition, the two units will jointly create an organization with greater scale, superior product offerings and expanded distribution expertise, thereby reaching out to a greater number of population.
The acquisition chalks out a long-term strategic growth path for Prudential. It will help Prudential to acquire a place among the top five largest individual life insurance companies in the U.S. in terms of new recurring premium sales, according to Prudential and The Hartford's Individual Life Insurance businesses' data reflected in the most recent LIMRA rankings. Prudential will have leadership positions in universal, term and variable life insurance.
Peer Metlife Inc. (MET), Sun Life Financial Inc. (SLF) also offers Individual Life Insurance policies.
Prudential's stock retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our Neutral recommendation on the company.