NU Online News Service, May 30, 3:17 p.m. – StanCorp Financial Group Inc. made an offer for the group insurance business of the Teachers Insurance and Annuity Association partly because it received an invitation.
TIAA, half of the Teachers Insurance and Annuity Association-College Retirement Equities Fund, New York, asked StanCorp to participate in a limited auction process, according to company spokeswoman Tiana Tozer.
Executives at StanCorp, Portland, Ore., the parent of Standard Insurance Company, also believe the deal is in keeping with the company’s philosophy of doing a few things well. Rather than being “all things to all people, we have areas of concentration,” Tozer says. “We’ve chosen to grow our business in niche markets where we have expertise, including group disability and group life.”
StanCorp announced plans Wednesday to acquire the TIAA group life and group disability units through a $75 million reinsurance arrangement.
The company also said it would pump in another $130 million to increase the TIAA group units’ capital levels.
TIAA started the group life and disability operations in the 1950s. The units now manage 1,800 group contracts that cover 650,000 insured lives and generate $180 million in annual premium revenue.
Completing the deal should increase StanCorp’s annual premium revenue about 15%, according to company figures.
The sale “is a difficult but important move for TIAA,” says Bertram Scott, TIAA’s executive vice president. “We believe we are doing what is best for both the company and our customers.”
StanCorp gets most of its own revenue from group life insurance and group long-term disability insurance, while TIAA-CREF is best known as a retirement plan for teachers and college professors.
Standard & Poor’s, New York, put out a commentary suggesting the TIAA group insurance deal should be good for both companies, because group life and disability products are so much more important to StanCorp than they have been to TIAA.
“Standard is much better positioned to manage the business more profitably, based on scale of operations and management skill,” S&P says. “Standard acquired a similar size block of individual disability business from Minnesota Life Insurance Company with favorable experience to date.”
The main risks will be the challenge of integrating the TIAA operations and the possibility that other, future acquisitions could cause problems, S&P says.
StanCorp currently holds no debt and has a very strong level of risk-based capital, but it will take on debt equal to 17% of total capital to finance the TIAA deal, S&P reports.
StanCorp is making the acquisition through a reinsurance transaction, but it’s using reinsurance mainly to keep Standard from having to re-write all the TIAA policies, Tozer says.