Voya Financial Inc. is divesting its individual life and other legacy non-retirement annuities businesses to Resolution Life Group Holdings Ltd. in a transaction expected to provide $1.7 billion of deployable capital to the seller.
The blocks of business being divested include those that Voya had previously closed to new sales and include substantially all of the company's individual life insurance business; fixed and variable annuities not included in Voya's 2018 sale of its annuities business; pension risk transfer liabilities; and other similar blocks. Resolution Life will pay total consideration of $1.25 billion, comprising $902 million in cash, retained surplus notes of $123 million, and the acquisition of a $225 million interest in Resolution Life by Voya.
A new holding company, Resolution Life US, will acquire Voya subsidiaries Security Life of Denver Insurance Co. and Security Life of Denver International Ltd. Voya will reinsure the life insurance, pension risk transfer and non-retirement annuities business issued by ReliaStar Life Insurance Co., Voya Retirement Insurance and Annuity Co. and ReliaStar Life Insurance Co. of New York to Security Life of Denver Insurance. Voya will retain ownership of the three reinsurance beneficiaries.
Resolution noted that the transaction includes Midwestern United Life Insurance Co.
Based on Sept. 30 balances, the general account assets associated with the products included in the transaction were $24 billion. Voya Investment Management LLC will be appointed investment manager over approximately $20 billion of the assets, which include core fixed income and specialty asset classes.
Following the close of the transaction, Voya will have a general account of approximately $38 billion.
Use of capital
The deployable capital consists of approximately $1.5 billion of net proceeds from Resolution Life and $200 million of net proceeds from the reserve financing transaction completed in the fourth quarter. About $123 million of these net proceeds are subject to a continuing interest in the future financial results of Resolution Life US over the five years after closing.
Voya CEO Rodney Martin Jr. said $600 million to $800 million will be used to retire existing debt, while $900 million to $1.1 billion could largely be allocated for share repurchases. He added that company anticipates repurchasing at least $1 billion of common shares in 2020.
Voya expects normalized adjusted operating EPS to reach a quarterly run rate of $1.80 to $1.90 by the end of 2021. After completing the transaction, Voya expects operating return on equity of between 14% and 16% by the end of 2021, versus its 2018 investor day guidance of between 13% and 15%.
Voya expects a cumulative after-tax reduction to shareholders equity, excluding accumulated other comprehensive income, of approximately $900 million at closing. The company will recognize an estimated loss on sale of the legal entities included in the transaction of between $1.1 billion and $1.4 billion, after tax, in the fourth quarter. Upon transaction closing, Voya expects to recognize a gain related to the reinsurance transactions that will partially offset the loss.
On a pro forma basis as of Sept. 30, the company's book value per share would be $41.12 after giving effect to the transaction.
Resolution Life Executive Chairman said the Voya business will serve as a platform for growth in the U.S.
The transaction, which has been unanimously approved by Voya's board of directors, is expected to close by Sept. 30, 2020, subject to customary closing conditions, including regulatory approvals.
Goldman Sachs & Co. LLC is serving as financial adviser to Voya, and Willkie Farr & Gallagher LLP and Eversheds Sutherland US are serving as legal counsel.
Wells Fargo Securities served as exclusive financial adviser, structuring adviser and placement agent to Resolution Life on the transaction. Debevoise & Plimpton LLP served as the legal adviser.