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$1.25B Voya deal a starting point for acquirer's US legacy life plans

A transaction announced Dec. 18 underlines a renewed U.S. market focus of an entity with a long history of consolidating legacy books of life insurance business.

A U.S. holding company to be formed by Resolution Life Group Holdings LP agreed to acquire Voya Financial Inc.'s in-force, noncore individual life business and certain annuity blocks in a deal that founder and Executive Chairman Clive Cowdery predicted would provide a base for further expansion in the U.S. market by a fund that has secured more than $3 billion of capital commitments since 2018.

Terms of the deal call for the new Resolution entity to acquire Security Life of Denver Insurance Co., Midwestern United Life Insurance Co., a broker/dealer and three domestic captives for $902 million in cash and the retention of $123 million in surplus notes. It also contemplates the reinsurance to Security Life of Denver of the life, pension risk transfer and nonretirement annuities business issued by three insurance entities that Voya will continue to own.

The deal "dramatically improves our risk profile with reduced interest rate risk, credit risk and mortality exposure," said Voya Chairman and CEO Rodney Martin during a conference call. The company will also take a $225 million interest in Resolution Life Group in a demonstration of its confidence in the current Voya employees that will initially constitute nearly all of the staff of the new U.S. vehicle.

"We expect continued growth in the U.S., with the acquired business as a platform," Cowdery said in a press release.

The deal may represent the current Resolution fund's first acquisition of U.S.-domiciled insurance entities but not its market entry.

Bermuda-domiciled Resolution Re Ltd. in September 2018 announced a reinsurance agreement with Symetra Life Insurance Co., which had the effect of transferring financial responsibility for the cedant's $5.7 billion in in-force income annuities, including its closed block of structured settlement contracts. Symetra said the transaction reduced its exposure to long-term interest rate risk arising from the long-tailed nature of the business it ceded.

The announcement of that transaction stated that Resolution entities had committed $13.6 billion of equity since 2003 to the acquisition, reinsurance, consolidation and management of 27 life insurance companies. Among them was Lincoln Benefit Life Co., which a previous Resolution vehicle acquired in April 2014. Previous owner Allstate Corp. used the company to manufacture and distribute individual life and annuity products through the independent agency channel, a business that it decided to discontinue. The earlier Resolution entity is in the process of selling Lincoln Benefit Life to Kuvare US Holdings Inc. in a deal expected to close by year-end.

Upon announcing the initial acquisition, the Resolution entity said that it planned to manage Lincoln Benefit Life's business to a company action level risk-based capital ratio of 350%. It transferred XXX and AXXX reserves associated with Lincoln Benefit Life's term and universal life policies through a reinsurance agreement with a captive affiliate.

The 2014 formation of Resolution Life Holdings Inc. had a purpose similar to the one to be assigned to the new U.S. vehicle: to pursue the acquisition and management of in-force life insurance policies. In a speech given months after the Lincoln Benefit Life acquisition closed, Cowdery presented his case that consolidators, as part of a broader industry restructuring, would make better owners of run-off books of life insurance business than existing owners who may be more focused on go-to-market strategies for the generation of new business.

This was an argument the current Resolution vehicle reiterated in announcing the Voya transaction. The fund pitched itself as a "safe and reliable partner" that concentrated on existing customers rather than new sales.

Cowdery said major life insurance groups are continuing to reduce their exposure to legacy in-force business as they seek to "release trapped capital and resources."

But Resolution is not the only entity seeking to take advantage of the associated opportunity. Life reinsurers like Reinsurance Group of America Inc., Hannover Re and Wilton Re Ltd., private equity-associated life groups, including the recent emergence of the Carlyle Group LP-backed Fortitude Reinsurance Company Ltd. and the ever-acquisitive Protective Life Corp. have also been among the active participants in that broader outsourcing push.