Protective Life‘s US$1.2 billion acquisition of Chase Insurance Group, the life insurance operation of investment bank JPMorgan Chase, underlines its position as a leader in the market for buying blocks of life business. But the deal has also allowed Wilton Re – a life reinsurer that will reinsure a large part of the Chase business – to increase its presence in the market.
Mark Finkelstein, analyst at investment bank Cochran Caronia Waller, says the deal is a good strategic fit for Protective. Chase Insurance has about 1.2 million life insurance and annuity policies in force and statutory reserves of about US$8.7 billion.
“It makes a lot of sense,” he says. “Acquisitions of blocks of life business have been a core competence of Protective for some time and it is a leader in that market along with Swiss Re. The deal also brings some potential distribution benefits.”
Finkelstein says Protective has enough capital to support the deal. AM Best affirmed the company’s A-plus financial strength rating with a stable outlook following the announcement. Standard & Poor’s affirmed its double-A rating with a stable outlook.
As well as being a boost for the long-established Protective, the deal also increases the presence of a relative newcomer. Wilton Re, which was set up at the end of 2004, will reinsure about a half of Chase Insurance’s life and annuity business. This excludes all of its variable annuity business, which will be reinsured by Allmerica Financial Life, a subsidiary of Goldman Sachs.
The deal follows Wilton Re’s acquisition of Annuity & Life Re‘s run-off business last year. “We are serving as a strategic reinsurance partner to Protective Life,” says Chris Stroup, CEO of Wilton Re. “It is a very sizeable transaction for Wilton Re. It will require capital investment and assumption of reserves, and will also produce a substantial amount of profit.”
AM Best affirmed Wilton Re’s A-minus rating following the deal’s announcement. The rating agency says the deal will improve Wilton Re’s scale, but notes that, along with Wilton Re’s other new business strategies, it will use up nearly all of the US$628 million in capital commitments with which the company was set up.
AM Best expects Wilton Re to raise capital to continue its plan of block acquisitions and writing traditional life reinsurance business. Stroup confirms this will happen. “It will be our intention in the near term to raise additional capital. And we will look to do that before the end of the second quarter,” he says.
Stroup says Wilton Re’s good relationship with Protective was crucial to its involvement on the deal. “Wilton Re initiated a relationship with Protective almost from the beginning. Our first piece of traditional business was an opportunity with Protective Life and I have had a personal relationship with John Johns [Protective’s chairman, president and CEO] and many at Protective for years.”
Johns said in a statement: “The transaction is entirely consistent with our strategy in the acquisitions line of business and should benefit our company in many ways, including the addition of even more scale to our life insurance operations and a solid source of earnings for many years to come.”
The deal is expected to close in the third quarter this year.