Hartford to Buy Unit From Aetna -- WSJ

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)