The Hartford said Thursday that it has an agreement to sell a small sliver of its variable annuity business — the part in the United Kingdom — for $285 million to a subsidiary of Berkshire Hathaway.
This is part of a plan by The Hartford Financial Services Group to divest or discontinue businesses that have cost capital as it focuses on core property-casualty units, group benefits and mutual funds.
The Hartford will sell its subsidiary, Hartford Life International Ltd. of Dublin, Ireland, in a cash transaction to Columbia Insurance Co., a Berkshire Hathaway company. The sole asset of Hartford Life International Ltd. is a closed block of variable annuities sold to customers from 2005 to 2009.
Separately, and unrelated to this transaction, The Hartford has a closed block of variable annuities sold in the U.S. and Japan. "Closed block" means the company no longer sells the annuities, but it maintains existing accounts.
Collectively, The Hartford's variable annuity business has been named Talcott Resolution.
"The Hartford has made significant progress reducing the size and risk of Talcott Resolution's legacy variable annuity blocks and the business unit is now self-sufficient from a capital perspective," The Hartford's chief financial officer, Christopher J. Swift, said in a prepared statement. "Selling the U.K. business is another meaningful step forward. We are pleased with the outcome of the competitive bidding process, which reflects our criteria of executing transactions on terms that are attractive to The Hartford."
The selling price is about equal to Hartford Life International Ltd' statutory surplus as of March 31, and is expected to reduce the parent company's statutory surplus by about $150 million during the second quarter of this year. The transaction is expected to result in a statutory net loss of $150 million and a net loss by Generally Accepted Accounting Principles (GAAP) of about $110 million after taxes in the second quarter. The deal is expected to close by the end of this year, subject to closing conditions and regulatory approval.
The account value of the United Kingdom variable annuity business is about $1.8 billion, Sterne Agee analysts John Nadel and Alex Levine said in a research note Thursday morning.
"We continue to believe the likelihood of a sale of the U.S. or Japan VA [variable annuity] blocks is unlikely (primarily owing to their respective sizes), which frankly is fine by us so long as the pace of run-off of those blocks remains elevated," Nadel and Levine wrote in the note.
The Hartford's variable annuity business has been in runoff since March 2012, when the company stopped selling new policies in the U.S. The Hartford stopped selling annuities internationally in 2009.
The company has worked in recent years to reduce the size and risk of its annuity business, which is primarily in Japan and the U.S. At the end of the first quarter, the total value of variable annuity accounts was $94.2 billion, with 1.3 million contracts, of which 68 percent are in the U.S., 31 percent are in Japan, and 1 percent are in the United Kingdom.
The annuities were sold with either a 10- or 15-year accumulation period, to build wealth, followed by a payout period. The total number of contracts is expected to decline by 50 percent by the end of 2017, helped in part by people surrendering policies — cashing out sooner than the payout period.