Hartford Financial Services Group has reached an agreement to sell its wholly owned Japanese annuity subsidiary — Hartford Life Insurance K.K.—to ORIX Corp.'s ORIX Life Insurance Corp. subsidiary for $895 million, Hartford announced Monday.
“Today's announcement is a significant accomplishment in our efforts to transform The Hartford and create value for shareholders,” said Hartford Chairman, President and CEO Liam E. McGee in the statement. “This transaction materially reduces The Hartford's risk profile by permanently eliminating the company's Japan variable annuity risk. We are pleased with the economics of the transaction, both in terms of purchase price and expected capital benefit. In addition, ORIX Life Insurance Corporation is a financially strong, well-respected, diversified Japanese financial services company that will continue to provide high-quality service to our Japanese customers.”
Two years ago, Hartford announced that it would exit the individual life insurance and annuity business to focus on property/casualty lines.
Concurrent with closing, all reinsurance agreements between Hartford's Japanese and U.S. life insurance subsidiaries will terminate, with the exception of an agreement covering about $1.1 billion of fixed payout annuity reserves, said Hartford in a statement announcing the deal with Tokyo-based ORIX. The transaction is expected to be approved by the Japanese Financial Services Agency and, subject to other customary closing conditions, to close in July 2014.
Hartford estimates that the March 31, 2014, pro forma effect of the transaction is a U.S. GAAP loss of approximately $675 million and a U.S. life statutory surplus loss of approximately $275 million, said the company. Hartford estimates a March 31, 2014, pro forma capital benefit from this transaction of approximately $1.4 billion. The estimated capital benefit includes the net after-tax sales proceeds of approximately $860 million, after-tax, and an estimated reduction in capital required in the company's U.S. life insurance subsidiaries of approximately $540 million due to the termination of certain reinsurance agreements.
The final purchase price and associated financial impacts and capital benefit are subject to adjustment based primarily on the effect of changes in equity, fixed income and foreign currency market indices on the fair value of liabilities until date of close, and could differ materially from the estimates. Accordingly, The Hartford will continue to hedge its Japan variable annuity risks until closing.
Hartford's Japanese annuity subsidiary wrote annuity contracts for the Japan market from 2000 through 2009, when Hartford placed its Japan annuity business into runoff. As of Dec. 31, 2013, Japan account values were $23 billion for 375,000 contracts.