New York Life Makes Bid for Cigna Unit -- WSJ
December 11 2019 - 3:02AM
Dow Jones News
By Leslie Scism, Dana Cimilluca and Anna Wilde Mathews
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 11, 2019).
New York Life Insurance Co. is negotiating with Cigna Corp. to
acquire a unit that sells nonmedical insurance products to
employers, a deal that could be valued at as much as $6 billion,
according to people familiar with the matter.
Cigna in recent months has been seeking a buyer for a business
that sells life, accident and disability-income insurance to
employers for their workers, in a move that would help the health
giant focus on its core business, according to the people.
Potential buyers including MetLife Inc. and Sun Life Financial
Inc. have been circling the company too, but New York Life recently
emerged as the leading contender, the people said. The two sides
are aiming to reach a pact by year-end. There is no guarantee Cigna
and New York Life will manage to do so; and if they don't, Cigna
could turn again to one of the erstwhile bidders.
New York Life is one of the nation's oldest and financially
strongest life insurers. It is owned by its policyholders, one of
the last of a once-large number of so-called mutuals, and doesn't
trade publicly. Based in New York, the 174-year-old company is well
known for its fleet of career agents who sell traditional life
insurance to households across the U.S.
Like other U.S. life insurers, New York Life is looking for ways
to expand in a competitive marketplace as low interest rates make
life insurance and retirement-income annuities -- its core products
-- less attractive to some consumers.
The company has a group-life-insurance business that is smaller
than that of Cigna, and a combination would propel New York Life
into the top five of companies by market share selling nonmedical
insurance for employers' benefit programs.
New York Life is one of the best capitalized of any U.S. life
insurer, with "surplus" -- the insurance-industry equivalent of net
worth -- of $25 billion at the end of 2018. The company had
operating earnings in 2018 of $2.31 billion, a 12.5% increase over
2017, according to data from ratings firm A.M. Best Co. Its net
premiums written totaled $29.3 billion in 2018.
The bid for the Cigna unit follows other moves by New York Life
Chief Executive Ted Mathas to diversify operations, including
acquisitions to broaden the reach of its investment-management arm
and steps to build up other businesses related to the core retail
insurance operations.
Cigna has been digesting its $54 billion acquisition of
pharmacy-benefit manager Express Scripts Holding Co., which closed
about a year ago. It could use proceeds from any new deal to reduce
its debt, which stands at about $39 billion, while refining its
focus on its health-services business. Cigna's market
capitalization is about $71 billion.
In addition to its central business of employer health and drug
benefits, Cigna is working to build up its Medicare unit, and it
has long maintained a strong overseas presence.
U.S. insurers have been eager to enlarge their group-benefits
businesses. In contrast to many products sold by life insurers to
consumers, group policies can be re-priced when they are up for
renewal, generally every one to five years. That provides an
opportunity for insurers to react to the market and to changing
circumstances and protect themselves from inflation.
Group products also generally need less capital to back them up,
compared with life insurance and annuities sold to consumers that
carry lifetime income or other decadeslong guarantees.
In 2017, Aetna Inc., now part of CVS Health Corp., agreed to
sell a similar business unit. In that deal, Hartford Financial
Services Group Inc. nearly doubled its business of selling benefits
to employers, one of its main operations outside of
property-casualty insurance.
Earlier this month, MetLife agreed to purchase pet-insurance
company PetFirst Healthcare LLC, expanding into a growing industry
as it aims to widen offerings in its group-benefits business.
In an August note, analyst Matthew Borsch of BMO Capital Markets
suggested that Cigna's divestiture of the business would be viewed
positively, as it is "only marginally synergistic with the rest of
[the company], yet slower growing and recently more volatile."
--Vipal Monga contributed to this article.
Write to Leslie Scism at leslie.scism@wsj.com, Dana Cimilluca at
dana.cimilluca@wsj.com and Anna Wilde Mathews at
anna.mathews@wsj.com
(END) Dow Jones Newswires
December 11, 2019 02:47 ET (07:47 GMT)
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