CI Cigna Group

By Leslie Scism 

New York Life Insurance Co. agreed to pay $6.3 billion in cash for a Cigna Corp. unit that sells nonmedical insurance products to employers, the two firms said Wednesday.

The deal will catapult the New York insurer up the market-share rankings of businesses providing benefits like life insurance, disability-income insurance and accident insurance to employees of U.S. companies.

The sale is expected to help health giant Cigna focus on its core business.

New York Life is one of the nation's oldest and financially strongest life insurers. It is owned by its policyholders, making it 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.

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 repriced 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.

Cigna said it expects to use proceeds for share repurchases and repayment of debt in 2020. Cigna's board of directors increased the company's share repurchase authority by $3 billion to an aggregate amount of $4 billion.

The acquisition is expected to close in the third quarter.

The Wall Street Journal first reported the negotiations last week.

New York Life has a group-life-insurance business that is smaller than that of Cigna, and the combination will 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 agreement 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.

New York Life said the acquisition would reinforce its overall financial strength by generating capital that can contribute to its surplus, dividends, and earnings, which directly benefits the company's policy owners.

The Cigna Group Insurance employees, as well as the employees who primarily support the acquired business, will transfer to New York Life.

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.

Write to Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

December 18, 2019 10:24 ET (15:24 GMT)

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