Phila. Financial CEO: Acquisition of Hartford Life Private Placement Is ‘Transformational’

Philadelphia Financial Group Inc.'s highest-ranking officer said acquiring all of the assets of Hartford Life Private Placement LLC, a subsidiary of the Hartford Financial Services Group Inc., will transform the company.

As part of the $117.5 million transaction, Philadelphia Financial, which specializes in the ultra-high net worth private placement insurance market, will enter into a long-term agreement with Hartford Financial so that Philadelphia Financial will service the $35 billion in private placement insurance business previously serviced by Hartford Life Private Placement. Those Hartford policies will remain on Hartford paper, and Philadelphia Financial will not be assuming any of the mortality risk associated with that book.

Historically, Philadelphia Financial has focused on ultra-high net worth individual clients in its private placement product line. With the acquisition of Hartford Life Private Placement, Philadelphia Financial will expand its offerings to the corporate market by offering both corporate and bank-owned life insurance.

"It's a transformational transaction for Philadelphia Financial," John K. Hillman, chief executive officer of Philadelphia Financial, said in an interview.

Philadelphia Financial has $3.8 billion of assets under management supporting its individual practice. With the acquisitions, the company will also be administering the $35 billion of assets on the Hartford paper, he said.

All 85 employees of Florham Park, N.J.-based Hartford Life Private Placement will be offered positions with Philadelphia Financial, and continue to operate out of their New Jersey facility. The combined company will have about 125 employees, Hillman said.

Hartford Life Private Placement provides insurance and wealth management services for consumers and businesses worldwide, administers corporate and bank-owned life insurance, institutionally owned group annuity contracts, and individual ultra-high net worth private placement life insurance products.

"It's transformational for Philadelphia Financial," Hillman said. "It evolves our footprint in the strategic insurance space. It's a win for Hartford. The transaction allows them to focus on their business. It's a win for the Hartford Life Private Placement employees, who've been in the business for many years and are now aligned with someone with a long-term vision."

The transaction is expected to close during the second quarter of 2012, subject to the required regulatory approvals, Philadelphia Financial said. The transaction is expected to be funded through a combination of cash from Philadelphia Financial and long-term debt financing to be provided by Reinsurance Group of America Inc.

"While A.M. Best believes the proposed transaction will be favorable to Philadelphia Financial's operating profile, there are no immediate rating implications at this time resulting from the announced deal," A.M. Best Co. said in a statement on Dec. 5.

Philadelphia Financial has no existing debt, and A.M. Best said it expects the acquisition debt to be serviced solely from the cash flow of the acquired business with no recourse to Philadelphia Financial or its existing subsidiaries. A.M. Best noted the potential increase in operational and reputational risks given the size of the transaction relative to the existing business profile at Philadelphia Financial.

In September, A.M. Best affirmed the Best's Financial Strength Rating of A- (Excellent) of Philadelphia Financial's two insurance operating subsidiaries, Philadelphia Financial Life Assurance Co. and Philadelphia Financial Life Assurance Company of New York (Best's News Service, Sept. 30, 2011). Hartford Insurance Group's subsidiaries currently have Best's Financial Strength Ratings of A (Excellent).

Shares of Hartford Financial (NYSE: HIG) were trading at $18.51 a share on the afternoon of Dec. 5, up 3.29% from the previous close.

(By Meg Green, senior associate editor, BestWeek: [email protected])