The Hartford Financial Services Group has announced it has entered into a definitive agreement with ORIX Life Insurance Corporation, a subsidiary of ORIX Corporation, to sell 100 percent of the outstanding shares of Hartford Life Insurance K.K. (HLIKK), Hartford’s wholly-owned Japanese annuity subsidiary.
“Today’s announcement is a significant accomplishment in our efforts to transform Hartford and create value for shareholders,” said Hartford’s Chairman, President and CEO Liam E. McGee. “This transaction materially reduces Hartford’s risk profile by permanently eliminating the company’s Japan variable annuity risk. We are pleased with the economics of the transaction, both in terms of purchase price and expected capital benefit. In addition, ORIX Life Insurance Corporation is a financially strong, well-respected, diversified Japanese financial services company that will continue to provide high-quality service to our Japanese customers.”
Concurrent with closing, all reinsurance agreements between HLIKK and The Hartford’s U.S. life insurance subsidiaries will terminate, with the exception of an agreement covering about $1.1 billion of fixed payout annuity reserves. The transaction is expected to be approved by the Japanese Financial Services Agency and, subject to other customary closing conditions, to close in July 2014.
Hartford estimates that the March 31, 2014, pro forma effect of the transaction is a U.S. GAAP loss of approximately $675 million and a U.S. life statutory surplus loss of approximately $275 million. The company estimates a March 31, 2014, pro forma capital benefit from this transaction of approximately $1.4 billion. The estimated capital benefit includes the net sales proceeds of approximately $860 million, after-tax, and an estimated reduction in capital required in the company’s U.S. life insurance subsidiaries of approximately $540 million due to the termination of certain reinsurance agreements.
“This transaction is another step in The Hartford’s transformation which increases the company’s financial flexibility, and meaningfully decreases our market risk and net income volatility,” said The Hartford’s Chief Financial Officer Christopher J. Swift. “We will continue to execute our current 2014-2015 capital management plan. After closing, we will provide an update on incremental capital management actions that we will take as a result of this transaction.”
The final purchase price and associated financial impacts and capital benefit are subject to adjustment based primarily on the effect of changes in equity, fixed income and foreign currency market indices on the fair value of liabilities until date of close, and could differ materially from the estimates. Accordingly, The Hartford will continue to hedge its Japan variable annuity risks until closing.
The expected loss on sale and the results of operations of HLIKK prior to closing of the transaction will be reported as discontinued operations beginning in the second quarter of 2014. As discontinued operations, the results of operations of HLIKK will be excluded from income from continuing operations and from core earnings, a non-GAAP financial measure, for all periods presented in the financial statements.
HLIKK wrote annuity contracts for the Japan market from 2000 through 2009, when The Hartford placed its Japan annuity business into runoff. As of Dec. 31, 2013, Japan account values were $23 billion for 375,000 contracts. On close of the deal, all 150 HLIKK employees in Japan will remain employees of HLIKK.
Deutsche Bank served as financial advisor and Sidley Austin LLP served as legal advisor to The Hartford Financial Services Group.
With more than 200 years of expertise, The Hartford Financial Services Group is a leader in property and casualty insurance, group benefits and mutual funds.