Roger Crandall (Photo: Christopher Goodney/Bloomberg)
Massachusetts Mutual Life Insurance Company has agreed to pay $3.5 billion in cash to acquire Great American Life Insurance Company, and several Great American affiliates, from American Financial Group Inc., the companies announced Wednesday.
MassMutual has agreed to hire about 600 American Financial Group employees associated with the Great American business and keep them in American Financial Group's headquarters city, Cincinnati.
Resources
- MassMutual's Great-American deal announcement
- Great American's Parent Talks About Annuity Sales: Earnings
The companies said they hope to close on the deal by June 30.
The announcement came out just a day after entities affiliated with The Blackstone Group Inc. said they had agreed to acquire Allstate Life Insurance Company from The Allstate Corp. for $2.8 billion.
The Companies
MassMutual is a policyholder-owned, Springfield, Massachusetts-based mutual insurer that is a major provider of life insurance, annuities and disability insurance. It's known for its network of career agents.
MassMutual files quarterly financial reports with insurance regulators, and it posts those reports on its website. But, because it sells no stock to the public, its quarterly financial reports get little attention from general interest publications or general financial publications.
American Financial Group is a publicly traded Cincinnati-based multi-line insurer that was founded in 1872. It reported $897 million in net income for 2019 on $8.2 billion in revenue.
Because it's a publicly traded company, it publishes quarterly earnings reports that get intense scrutiny from securities analysts, money managers, ordinary retail investors and the financial press.
Great American Life is an American Financial Group subsidiary that generated about $362 million in earnings before income taxes in 2019 on $1.9 billion in revenue.
Great American Life and affiliated companies generated about $5 billion in annuity considerations in 2019 and ranked 20th in the National Association of Insurance Commissioners' annuity issuer market share rankings.
The company generated about $2.8 billion of its 2019 premiums from annuities sold through banks and other financial institutions, and about $2.2 billion from annuities sold through insurance marketing organizations, independent broker-dealers and registered investment advisors.
Variable annuities accounted for only 0.4% of 2019 statutory annuity premiums. Indexed annuities filed as non-variable products accounted for about $3.1 billion of the statutory premiums.
Great American Life's five biggest financial institution relationships were with Wells Fargo & Company, The PNC Financial Services Group Inc., Regions Financial Companies, BB&T Corp. and LPL Financial.
The History
Low interest rates have hurt annuity issuers' ability to earn sold returns by investing in highly rated bonds.
New accounting rules are pushing annuity issuers to put many changes in estimated values, such as the estimated value of the derivatives used to insure blocks of annuity business against big swings in interest rates, in net income every quarter.
Because of the low rates and the accounting changes, many publicly traded insurers have been moving to sell annuity units to companies, such as mutual insurers, or offshore insurers owned by investment companies, that are not publicly traded in the United States and that do not have to answer securities analyst questions about annuity unit earnings every quarter.
In November 2019, company executives said they were responding to falling interest rates by cutting annuity crediting rates to maintain appropriate returns, and accepting the fact that the cuts might cause sales to fall by 9% to 10%.
