Cornell Capital’s acquisition of Talcott Resolution continues a string of deals in the insurance space by private equity players.
A private investment group led by Cornell Capital LLC has completed its acquisition of Connecticut-based Talcott Resolution, the runoff life and annuity arm of The Hartford. The Hartford Financial Group, which will keep a 9.7% ownership stake in Talcott but no longer has a direct affiliation with the company, put the value of the deal at $2.05 billion.
The Hartford reigned as a major player in the life and annuity business until the economic meltdown in 2008. Soon after, the insurer decided to concentrate on property and casualty insurance, group coverage, and mutual funds. Talcott Resolution was established as a runoff vehicle that would collect payments and service contracts but not pursue new annuity or life product sales. As of the end of September, Talcott’s account value totaled $149 billion, with about $40.7 billion in variable annuity contracts.
Private Equity Deepens Presence in Life Insurance, Annuities
The Talcott deal mirrors similar acquisitions of life and annuity businesses by private equity firms. Last year, private equity giant Blackstone led an investor group in a $1.84 billion buy of fixed annuity provider Fidelity & Guaranty Life. Apollo Global Management, LLC affiliate Athene Holdings, Ltd. acquired another fixed annuity provider, Aviva USA, in 2013. More recently, Apollo took over Voya Financial, Inc.’s closed book of variable, individual fixed, and fixed indexed annuities.
Private equity’s interest is unlikely to wane anytime soon. In fact, Blackstone and Apollo have made it know they want to expand their footprint in insurance. Private equity players view the industry as an investment that offers a steady, long-term income stream through premium payments that match up with sector’s longer investment horizons. Insurance products like annuities, however, can be a risky play if interest rates drop. When that happens, insurers’ investment revenue may fall below their contractual obligations.
Some major insurers have already seen that happen, and are backing away from life insurance and annuities altogether. Last year, MetLife, Inc. shifted those product lines into a separate independent company, Brighthouse Financial.
Private equity outfits, meanwhile, appear willing to take their place. One of the investment partners in the Talcott acquisition, life and annuity reinsurance firm Global Atlantic Financial Group, entered into an agreement soon after the deal was announced to provide $9 billion in reinsurance for Talcott’s fixed deferred annuities.
Talbott’s first order of business will be to untangle itself from Hartford Financial Services. Longer term, Talcott will pursue similar opportunities to pick up runoff businesses from other insurers, complete reinsurance deals, and potentially act as a service provider to the life and annuity industry, said Richard Carbone, Chairman and Independent Director of Talcott Resolution.
In a letter to Connecticut insurance regulators, a representative for Talbott further detailed the company’s long-term commitment to its core business. The company intends to use its expertise to oversee other closed blocks of annuity and life insurance lines, according to the letter.
As part of the deal, Talcott will vacate the offices of Hartford Financial in Hartford, Connecticut, but will still operate out of Windsor, Connecticut, and Woodbury, Minnesota. Talcott will eventually fill jobs now being performed by Hartford Financial employees, which the company projects will swell its employee base from 375 to 409 by year’s end.