The Hartford has agreed to acquire Aetna’s U.S. group life and disability business for cash consideration of $1.45 billion.
This acquisition enhances The Hartford’s group benefits distribution capabilities and accelerates the company’s technology strategy, according to the announcement.
“The transaction provides a unique and accretive opportunity for The Hartford to become the second largest group life and disability insurer, an important business for The Hartford with a stable risk profile, attractive returns and strong long-term growth prospects,” said The Hartford Chairman and CEO Christopher Swift.
Swift said the the combination strengthens Hartford’s position in the large employer market and increases its presence among midsize employers, while creating opportunities to distribute additional products to the more than 20 million customers insured by the combined business.
“Our transaction with The Hartford will benefit both our shareholders and customers, allowing us to have a stronger focus on our strategy of creating a personalized approach to improving member health,” said Aetna President Karen S. Lynch.
Aetna wrote about $2 billion in group life and disability insurance premiums in 2016. At the end of the third quarter, Hartford had written about $800 million in group benefits business.
The firms said that the majority of the 1,800 Aetna employees across the country who support the acquired business will transfer to The Hartford.
The Hartford will pay Aetna cash consideration of $1.45 billion, primarily comprised of a ceding commission, to be paid by Hartford Life & Accident Insurance Co., the primary group benefits insurance operating subsidiary of The Hartford. Hartford Life & Accident will reinsure on an indemnity basis Aetna’s book of group life and disability insurance, which had premiums of approximately $2 billion in 2016.
Aetna has several options for use of the proceeds of the transaction, including internal investments, share repurchases and repayment of debt.
The acquisition is expected to close in early November 2017, subject to state regulatory approvals and other closing conditions.
Aetna projects the impact of the transaction to 2017 earnings per share to be immaterial given the timing of the transaction and slightly dilutive to 2018 earnings per share.
The acquisition will be accretive to The Hartford’s earnings in 2018 and will be funded by dividends from its insurance subsidiaries and holding company resources, including the $273 million remaining under the company’s 2017 equity repurchase plan. The Hartford said it does not intend to issue debt or equity in order to fund the cash consideration for the acquisition.
Through the acquisition, The Hartford also obtains digital assets and an integrated absence management platform. “Our claims organization continues to use data and advanced analytics across workers’ compensation and disability to drive better outcomes for customers in both business lines,” said Hartford President Doug Elliot. “As the nation’s second largest workers’ compensation insurer, and now, the second largest group disability insurer, this transaction increases our competitive differentiation and potential for future product offerings for absence management.”
In addition, the deal expands The Hartford’s distribution footprint and includes an exclusive, multi-year collaboration in which Aetna will be offering The Hartford’s group life and disability products through Aetna’s medical sales team.