New Life Insurance Company today announced plans to pay $6.3 billion, in cash, for Cigna Corp.’s group life and disability businesses.
New York Life would get Cigna’s Life Insurance Company of North America and CIGNA Life Insurance Company of New York’s subsidiaries, according to a deal analysis from analysts at Fitch Ratings.
New York Life and Cigna hope to close on the deal by Sept. 30, 2020.
New York Life is a policyholder-owned mutual insurer that has focused mainly on the individual life and annuity markets.
Cigna is a publicly traded insurer based in Bloomfield, Connecticut. Cigna has talked for years about the value of integrating its large group health operations with its group disability plans, but the company recently took on debt to pay for the $54 billion acquisition of Express Scripts, a large pharmacy benefits manager.
Cigna ended the third quarter with about $34 billion in long-term debt.
Dean Ungar, a vice president at Moody’s Investors Service, said in a comment that Cigna’s group business is a solid business with high profit margins, but that the unit accounts for less than 10% of the company’s earnings, and that, in the wake of the Express Scripts deal, one of Cigna’s top priorities has been reducing its ratio of debt to operating income.
“This deal enhances Cigna’s ability to repay debt,” Ungar said.
The Fitch analysts said the deal could also help New York Life.
New York Life is a market leader, with a “loyal and productive career agency distribution channel,” and especially strong sales of whole life and guaranteed income annuities, the Fitch analysts said.
New York Life’s product mix already provides some protection against mortality, longevity and interest rate risk, and the Cigna group life and disability deal will help New York Life increase sales of “shorter-tail, non-interest sensitive protection products,” the Fitch analysts said.
Low rates have hit many life and annuity issuers hard over the past 10 years.
Rates had been starting to creep up from rock-bottom levels, but, earlier this year, the Federal Reserve Board began using the benchmark rates it controls to push rates lower.
Group life and group disability issuers do use investments in bonds and real estate to support benefits obligations, but group benefits lines are seen as somewhat less sensitive to interest rates than retail products, because group benefits issuers can adjust product premiums every year or two.
— Read 5 New Questions About Life and Annuity Deals in 2019, on ThinkAdvisor.