The Hartford Financial Services Group Inc. has agreed to sell its run-off life and annuity businesses, Talcott Resolution Inc., to a group of investors led by Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group Ltd., Pine Brook and J. Safra Group.
Reuters reported in late July that Atlas Merchant was in talks to buy The Hartford unit.
The total consideration to The Hartford in the announced sale is $2.05 billion, comprised of cash from the investor group, a preclosing cash dividend, debt included as part of the sale, and a 9.7% ownership interest in the acquiring company. The total consideration does not include $1.4 billion in dividends previously paid by Talcott Resolution in 2017.
Per the terms of the sale agreement and subject to regulatory approval, the investor group will form a new company that will purchase Hartford Life Inc., the holding company for the Talcott Resolution operating subsidiaries, for a net payment of $1.44 billion in cash. The Hartford will also receive a 9.7% ownership interest, valued at $164 million, in the new company.
Additionally, The Hartford expects to receive $300 million in a preclosing dividend from Talcott Resolution and will reduce its long-term debt by $143 million because debt issued by Hartford Life will be included as part of the sale. The Hartford will also 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 retaining certain tax benefits, The Hartford 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 the sale to result in a GAAP net loss of approximately $3.2 billion, after tax, which would be recorded in discontinued operations in the fourth quarter.
Prior to the closing of the transaction, The Hartford's group benefits and mutual funds subsidiaries, currently subsidiaries of Hartford Life, will be transferred to another subsidiary of The Hartford 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. Hartford Life Insurance Co. and its indirect unit, Hartford Life & Annuity Insurance Co., will cede to Commonwealth Annuity & Life Insurance Co., effective as of Dec. 31, 2016, an 85% quota share of certain blocks of fixed deferred annuity contracts, payout annuity contracts, variable payout separate account contracts and period certain structured settlement contracts, and a 75% quota share of standard lives contingent structured settlement contracts. The aggregate GAAP reserves to be ceded to Commonwealth as of Dec. 31, 2016, were approximately $9.3 billion.
Following the sale, The Hartford's investment management group, Hartford Investment Management Co., will continue to manage a significant majority of Talcott Resolution's investment assets for an initial five-year term. Hartford Investment also will be retained by Global Atlantic to manage certain assets associated with the post-closing reinsurance agreement.
As part of the deal, about 400 employees of The Hartford will become employees of the new company and will be located at offices in Windsor, Conn., and Woodbury, Minn.
The transaction is subject to regulatory approvals and other closing conditions, and is expected to close in the first half of 2018.
The sale will complete The Hartford's exit from the run-off life and annuity businesses and strengthen its focus on growing its P&C, group benefits and mutual funds businesses, The Hartford's Chairman and CEO, Christopher Swift, said in a statement. It is also expected to improve The Hartford's future return on equity and earnings growth profile and improved the company's financial flexibility, Swift said.
The Hartford is evaluating opportunities to deploy proceeds from the sale and currently expects to use approximately $400 million for additional debt repayment, on top of the $500 million it earlier announced to repay in 2018, CFO Beth Bombara said.
J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC are serving as The Hartford's financial advisers for the transaction, and Sidley Austin LLP is acting as its legal adviser. Bank of America Merrill Lynch is the financial adviser for the investor group.