Great-West selling U.S. individual life insurance and annuity business for $1.6B

Great-West Life world headquarters is pictured in Winnipeg on February 19, 2013. Great-West Lifeco Inc. has signed a deal to sell its U.S. individual life insurance and annuity business to a subsidiary of Protective Life Corp. for $1.6 billion. THE CANADIAN PRESS/John Woods

Great-West Lifeco Inc. has signed a deal to sell its U.S. individual life insurance and annuity business to a subsidiary of Protective Life Corp. for $1.6 billion, which is below the unit's value on the Manitoba-based insurer's books.

The deal will allow the company to focus on the retirement and asset management markets in the United States, said Great-West's chief executive Paul Mahon.

“We continually evaluate capital deployment opportunities at Great-West Lifeco," he said in a statement on Thursday. "With the strengthened capital position resulting from this transaction, we will also consider other capital management activities, including potential share repurchases, to mitigate the earnings impact of the sale.”

The business that Protective Life, a wholly-owned subsidiary of Dai-ichi Life Holdings Inc., will acquire includes bank-owned and corporate-owned life insurance, single premium life insurance, individual annuities, and closed block life insurance and annuities. Great-West Life & Annuity will retain a block of participating policies, which will be administered by Protective, the companies said.

The business contributed about $120 million to its net earnings for the first three quarters of 2018, Great-West said. But the insurer expects to recognize a closing book value loss of about $93 million and transaction costs of $76 million.

Great-West's shares were down more than four per cent in midday trading on the Toronto Stock Exchange to $28.03.

The transaction is expected to close in the first half of this year, subject to regulatory and customary closing conditions.

"This business aligns well with our long-term plans for growth and scale," said Protective's chief executive Richard J. Bielen. "The life and annuity business has been a cornerstone of Protective throughout our history and will continue to be an area of future growth for the company."

The deal also raises questions about whether Great-West's next strategic move would involve Putnam Investments, its U.S. global asset manager and retirement plan provider, said National Bank of Canada Financial Markets analyst Gabriel Dechaine.

The transaction Great-West Life announced Thursday has strategic rationale, but Great-West isn't in dire need of a cash infusion, he said in a note to clients. The $1.6 billion of deployable cash from Great-West's sale of its U.S. individual life insurance and annuity business will be added to the insurer's existing excess capital of $3.6 billion, and a debt capacity of $3 billion and holding company cash of $900 million, Dechaine added.

"As such, we believe the sale of non-core U.S. assets will raise expectations that an M&A transaction involving Putnam is imminent."

Companies in this story: (TSX:GWO)


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