MassMutual Agrees to Pay $3.5 Billion for Great American

Massachusetts Mutual Life Insurance Company has agreed to pay $3.5 billion in cash to acquire Great American Life Insurance Company, and several Great American affiliates, from American Financial Group Inc., the companies announced Wednesday.

MassMutual has agreed to hire about 600 American Financial Group employees associated with the Great American business and keep them in American Financial Group’s headquarters city, Cincinnati.

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The companies said they hope to close on the deal by June 30.

The announcement came out just a day after entities affiliated with The Blackstone Group Inc. said they had agreed to acquire Allstate Life Insurance Company from The Allstate Corp. for $2.8 billion.

The Companies

MassMutual is a policyholder-owned, Springfield, Massachusetts-based mutual insurer that is a major provider of life insurance, annuities and disability insurance. It’s known for its network of career agents.

MassMutual files quarterly financial reports with insurance regulators, and it posts those reports on its website. But, because it sells no stock to the public, its quarterly financial reports get little attention from general interest publications or general financial publications.

American Financial Group is a publicly traded Cincinnati-based multi-line insurer that was founded in 1872. It reported $897 million in net income for 2019 on $8.2 billion in revenue.

Because it’s a publicly traded company, it publishes quarterly earnings reports that get intense scrutiny from securities analysts, money managers, ordinary retail investors and the financial press.

Great American Life is an American Financial Group subsidiary that generated about $362 million in earnings before income taxes in 2019 on $1.9 billion in revenue.

Great American Life and affiliated companies generated about $5 billion in annuity considerations in 2019 and ranked 20th in the National Association of Insurance Commissioners’ annuity issuer market share rankings.

The company generated about $2.8 billion of its 2019 premiums from annuities sold through banks and other financial institutions, and about $2.2 billion from annuities sold through insurance marketing organizations, independent broker-dealers and registered investment advisors.

Variable annuities accounted for only 0.4% of 2019 statutory annuity premiums. Indexed annuities filed as non-variable products accounted for about $3.1 billion of the statutory premiums.

Great American Life’s five biggest financial institution relationships were with Wells Fargo & Company, The PNC Financial Services Group Inc., Regions Financial Companies, BB&T Corp. and LPL Financial.

The History

Low interest rates have hurt annuity issuers’ ability to earn sold returns by investing in highly rated bonds.

New accounting rules are pushing annuity issuers to put many changes in estimated values, such as the estimated value of the derivatives used to insure blocks of annuity business against big swings in interest rates, in net income every quarter.

Because of the low rates and the accounting changes, many publicly traded insurers have been moving to sell annuity units to companies, such as mutual insurers, or offshore insurers owned by investment companies, that are not publicly traded in the United States and that do not have to answer securities analyst questions about annuity unit earnings every quarter.

In November 2019, company executives said they were responding to falling interest rates by cutting annuity crediting rates to maintain appropriate returns, and accepting the fact that the cuts might cause sales to fall by 9% to 10%.

MassMutual’s interest in making a big annuity issuer deal became public knowledge in September 2020, when regulatory filings revealed a joint effort by MassMutual and Athene Holding Ltd. to acquire American Equity Investment Life Holding Company for $3 billion in cash.

The Deal

MassMutual is planning to acquire Annuity Investors Life Insurance Company, Manhattan National Holding Corp., Manhattan National Life Insurance Company, Great American Advisors and AAG Insurance Agency Inc. from American Financial Group as well as Great American Life, according to a commentary on the deal put out by the credit rating analysts at AM Best.

American Financial Group said it expects to record an after-tax gain on the sale of about $620 million to $690 million.

Before American Financial Group completes the deal, it intends to buy about $500 million in real estate-related partnerships and directly owned real estate from Great American Life.

The Future

MassMutual said it plans to have Great American Life operate as an independent subsidiary, with Mark Muething, the current president, continuing to be the president.

S. Craig Lindner, American Financial Group’s co-chief executive officer, said in a comment about the deal that he believes MassMutual’s high financial strength ratings will make Great American Life even more attractive to distributors and policyholders.

“MassMutual’s commitment to establish a subsidiary in Cincinnati ensures that the agreement will have no impact on GALIC’s [Great American Life's] relationships with and commitments to its annuity policyholders and distribution partners,” Lindner said. “Importantly, we are very pleased that this transaction will provide compelling career opportunities for our annuity associates, and bring the operations of a well-respected insurer to the Greater Cincinnati business community.”

MassMutual said it likes Great American Life’s distribution relationships with banks, independent agents, and independent broker-dealers.

The deal will broaden and diversify MassMutual’s product and distribution capabilities, MassMutual said.

Roger Crandall, MassMutual’s chief executive officer, said the deal will help MassMutual build a “true lifetime income franchise.”

MassMutual’s investment capabilities and technology will help Great American Life and MassMutual “help even more people secure their future and protect the ones they love,” Crandall said.

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AM Best said the Great American Life deal will help MassMutual improve its share in the fixed annuity market and give it a chance to cross-sell life insurance products and other products through the newly acquired Great American Life channels.

“The transaction will be accretive to earnings, and while it is increasing MassMutual’s interest rate risk, it is expected to be manageable, as the block has reasonable minimum interest rate guarantees with the potential to lower crediting rates to meet targeted spreads if needed,” AM Best said.

Larry Rybka, CEO of Valmark Financial Group, a financial services distributor based in Akron, Ohio, said in a written comment that today’s low interest rates create huge headwinds for all issuers of fixed-rate life and annuity products.

“For those companies that wish to continue to offer attractive life products to the consumer, we see variable products as the only from of cash-value life insurance offering the best alignment of policyholder and company interest for the foreseeable future,” Rybka said.