New York Life swoops in with $6.3B Cigna unit deal

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Bloomberg—Ted Mathas says he took the market by surprise.

Never before had the chief executive officer of New York Life Insurance struck a deal as big as the one announced Wednesday: a $6.3 billion acquisition of a Cigna unit that sells life and disability insurance. Large mergers and acquisitions are a rarity for New York Life, which operates as a mutual insurance company owned by its policyholders.

“We are not a big M&A shop, and because this is not something others saw coming we were able to remain in the process,” Mathas said. “We kind of snuck up and were able to pay a very fair price.”

After almost a decade of low interest rates that put pressure on investment income, some life insurers have been revamping their strategies. New York Life is the latest to make a bet on a business that sells policies through employers. Lincoln National bought a group-benefits business from Liberty Mutual Holding for $3.3 billion last year, and Hartford Financial Services Group acquired an Aetna life and disability operation in 2017.

“This is an attractive market segment,” Mathas said. The deal “is a great way to add value to policyholders because they get the returns that are much higher than capital-market returns.”

About two years ago, MetLife separated Brighthouse Financial, a business that had $220 billion of assets at the time, in a bid to focus more on operations that sold insurance through employers rather than straight to individuals. MetLife, the largest U.S. life insurer, has said it’s open to expanding its U.S. group business after recent acquisitions.

Rival Voya Financial also took a step Wednesday to further simplify its operations. The company struck a deal with Resolution Life Group Holdings to sell its individual life operations and some old annuity operations for $1.25 billion. That helps the company narrow its focus to an asset-management operation and selling employee benefits and retirement products.

Mathas took the helm as CEO in 2008 during the onset of the financial crisis, and has steered New York Life through the recovery. As the firm approaches its 175th anniversary next year, he hopes the deal will build on the company’s gains.

“With the financial strength we have today, we’re able to go into the marketplace and find a high-quality business to bring into this portfolio,” he said. “I feel terrific about that.”

For Cigna, the cash deal will generate about $5.3 billion in net after-tax proceeds, which it will use for share repurchases and debt repayment.

Cigna, based in Bloomfield, Conn., is concentrating on its core businesses selling health benefits to large employers. The divestiture comes a year after the firm completed its acquisition of pharmacy benefits manager Express Scripts in a $54 billion deal. Selling off the group disability and life business will generate cash to pay down debt from that transaction.

Cigna said it expects the deal to be neutral to earnings per share in 2020 and “modestly accretive” the following year. The business that Cigna is selling accounted for 13 percent of pretax income before the Express Scripts takeover, but only accounted for 7 percent after the acquisition, according to Cantor Fitzgerald.

The unit wasn’t core to Cigna’s business and was “probably an overall drag on the company’s growth,” Steven Halper and Kyle Mikson, analysts at Cantor, said Wednesday in a note to clients. “We view the divestiture positively given the likely improvements in Cigna’s capital structure and modest accretion in 2021.”

New York Life said it plans to retain the management team and employees from Cigna, and it expects the deal to be completed in the third quarter of 2020.

Bloomberg News