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.
New York Life Chief Executive Ted Mathas said in an interview that the deal “is a great way to deploy excess capital” that otherwise would go into high-quality but relatively low-yielding bonds.
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.
Wall Street analysts said the deal makes sense for Cigna.
Scott Fidel, a managing director at Stephens Inc., said the Cigna unit’s revenue growth rate detracts from the company’s profile, and its divestiture reduces Cigna’s interest-rate exposure. JPMorgan said that the unit isn’t seen as core by investors.
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. The insurer said the acquisition would operate as a self-standing unit, with Cigna employees transferring to New York Life, because there is minimal overlap in its client base with New York Life’s existing group business.
The Cigna unit primarily sells to midsize and large employers, while New York Life focuses on associations and membership groups.
The additional premium from the Cigna purchase will propel New York Life into the top five of insurers 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 Mr. Mathas to diversify operations, including acquisitions to broaden the reach of its investment-management arm.
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.
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.