JPMorgan Chase & Co., New York, has agreed to sell Chase Insurance Group, its life insurance and annuity underwriting business, to Protective Life Corporation, Birmingham, Ala., for about $1.2 billion.
Protective Life says it expects to close the sale in third quarter 2006.
Chase is selling most of its insurance and annuity underwriting operations after deciding it could make more money offering straight banking services, said Charles W. Scharf, chief executive of Chase’s Retail Financial Services, which includes Chase Insurance.
“We will continue to meet our customers’ insurance and annuity needs without underwriting the products,” Scharf said in a statement.
A similar rationale was offered by Citigroup Inc. last year when it sold its Travelers life insurance operations to MetLife Inc., New York.
“Hardly any banks underwrite insurance,” notes Kenneth Kehrer, a consultant in Princeton, N.J.
Chase has had an extensive annuities business since 2002 but, except for credit insurance, had not underwritten life insurance until 2004, when it bought Bank One, Chicago. Bank One had purchased its life insurance business from Zurich Life a year earlier. Those products were sold primarily through direct-response marketing, notes Kehrer.
Chase says it will keep its debt-protection insurance business and continue to sell life and annuity products through its branch network.
Chase’s credit insurance operations tallied $132 million in sales in the six months ending June 30, 2005, reports Michael D. White, a consultant in Radnor, Pa.
“One wonders the degree to which Chase was committed to the insurance business, since it only bought Bank One in September 2003,” adds White.
He notes that Chase recently unloaded other Bank One heritage businesses that didn’t meet its return-on-equity criteria, including the online securities firm, BrownCo, sold to E-Trade late last year.
Chase Insurance Group consists of Chase Life & Annuity Company, Chase Life & Annuity Company of New York, Chase Insurance Life & Annuity Company, Chase Insurance Life Company of New York and Chase Insurance Life Company.
With more than 800 employees in Elgin, Ill., the group had 1.2 million policies in force as of Dec. 31, according to a report from Protective Life. The Chase companies reported sales last year of $718 million in fixed annuities, $190 million in variable annuities, $61 million in term life, $34 million in single-premium whole life and $5 million in universal life.
Protective Life plans to cede all but $466 million of the cost of the acquisitions through reinsurance. It says it will cede much of the annuities to Goldman Sachs, New York, and about 50% of the remaining business to Wilton Re, Hamilton, Bermuda.
From Protective Life’s point of view, analysts responded favorably to the acquisition.
“We think the deal is positive as it boosts earnings per share and return on equity, and because investors were anxious to see Protective Life deploy excess capital,” commented Andrew Kligerman, a life insurance analyst with UBS Securities, New York.
Protective Life has 886,000 term policies in force, along with 121,000 UL policies, 96,000 fixed annuities, 110,000 VAs and 4,700 VUL policies.
Moody’s Investors Service, New York, upheld Protective Life’s “Aa3″ financial strength rating following the announcement of the agreement.
“Chase Insurance Group’s focus on individual life insurance and fixed annuities is a good fit for Protective Life,” Moody’s stated. “Protective Life’s acquisition division also has a proven track record in successfully acquiring and integrating other companies.”
Standard & Poor’s also upheld its AA rating for Protective.
“The company has made 43 acquisitions since 1970, with 16 since 1989, through which it has developed a strong internal capacity to process acquired blocks efficiently,” S&P commented.
Among other recent Protective acquisitions are West Coast Life Insurance Company, the Lyndon Companies in St. Louis, Mo., and Matrix Direct, a direct marketer of term life insurance products in San Diego, Calif.