Cigna would get
cash. New York Life would get a buffer against low interest rates.
By Allison Bell | December 18, 2019 at
12:33 PM | The original version of this story was
published on ThinkAdvisor
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.
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