Nassau Reinsurance Group To Buy Phoenix Cos., Take Insurer Private, Keep HQ In Hartford, Companies Say

Sept. 29--HARTFORD -- The Phoenix Companies. Inc. is being sold to Nassau Reinsurance Group Holdings L.P. for $217.2 million, the companies announced early Tuesday.

That's a huge premium for Phoenix shareholders, whose shares were worth $13.03 at closing Monday, and who will be offered $37.50 a share. The stock was trading at about $32.75 after the announcement.

The stock had plunged from $56.07 on March 30 to $17.85 on May 14, the day of its annual meeting. Bad news on financial restatements, losses in quarterly reports, and the cost of a $48.5 million settlement to a class-action lawsuit on life insurance rate increases drove down the stock.

A year ago, reports surfaced that financially troubled Phoenix was exploring a sale, struggling since the recession with a string of setbacks.

The sale is expected to close in early 2016. The agreement would take Phoenix private and would keep its corporate headquarters in Hartford and a service center in East Greenbush, N.Y., the companies said.

"This transaction marks Nassau's first life insurance acquisition, which will become our U.S. life and annuity platform for future growth," Phillip J. Gass, Nassau's chairman and CEO, said in a prepared statement.

"Taking Phoenix private, in conjunction with the additional $100 million in new equity capital, will accelerate the company's turnaround, bolster its financial strength and ratings, and benefit policyholders and distribution partners," Gass said.

The Phoenix owns the Boat Building downtown, a 52-year-old landmark in the city's skyline. As of Dec. 31, the Phoenix workforce was 640, including those in New York.

Nassau Reinsurance was launched five months ago with $750 million from private equity firm Golden Gate Capital. It was founded to invest in life, annuity and long-term care insurance -- all forms of insurance that need higher investment income ratios to premiums because of the gap between when the premiums are paid and the claims are made.

Gass, 37, worked in private equity from 2008 until the founding of Nassau, and was on the board of Iowa insurer Fidelity Guarantee & Life, one of his firm's acquisitions.

According to Bloomberg News, Fidelity lost money earlier this year because it made a $50 million loan to Radio Shack, which was owned by the same private equity firm that owned Fidelity.

Before going into private equity, Gass structured and underwrote investments at GE Capital, in utilities, oil and gas companies and power generation companies.

Institutional Investor, writing about the broader trend of private equity buying companies in the life and annuities sector, said the relatively recent development caused quite a bit of confusion, since private equity firms have generally bought companies they could turn around in five or so years and reap larger profits than fixed annuities provide.

But, the authors said, the private equity sector is flush with cash seeking higher returns at the same time that these sorts of insurance companies need to inject more capital to avoid credit downgrades. That's because sustained low interest rates are squeezing their profits on annuities.

That's definitely true of The Phoenix, which said it lost $213 million in 2014, partly from "the impact of prolonged low and declining interest rates."

In 2014, 99 percent of Phoenix product sales were annuities, almost entirely fixed annuities. Financial problems in 2009 led to it virtually ending sales of life insurance policies. That's when State Farm and National Life Group decided to stop selling their policies.

Problems with the company's financial statements surfaced in 2012, when PHL Variable announced that its audited statements for 2009, 2010 and 2011 needed to be restated because the filings had errors in accounting for an intercompany reinsurance treaty between PHL Variable and Phoenix Life Insurance Co.

Restatement of financial results continued to dog the company, right up through this year. In February, Phoenix told regulators it had made errors in its fourth-quarter and full-year results for 2013 and in its second-quarter 2014 filing.

The Phoenix Companies have been hampered by high financial reporting expenses after years of troubles with their financial records and fines from the Securities and Exchange Commission, The company spent $102.6 million on restatement work and audits, as well as $19.2 million in the first quarter of this year and $13.4 million in the second quarter.

By going private, the company would no longer have these expenses, because it would not have to file reports with the Securities and Exchange Commission on its assets, expenses and profits or losses.

In the 1990s, Phoenix was making acquisitions and diverse investments -- some international. Some worked well, but some eventually turned sour, and through layoffs and divestitures, the company reduced its workforce by more than 30 percent between 2001 and 2006.

For most of its 166-year history, Phoenix was a mutual insurer. The company was founded in Hartford by a group of business, religious and civic leaders as the American Temperance Life Insurance Co. It became Phoenix Mutual Life Insurance Co. in 1861.

Phoenix converted to a stock company in 2001 under former chief executive Robert Fiondella, a prime mover behind the Adriaen's Landing redevelopment. The initial public offering also gave Hartford a welcome new public company flag to fly, after decades of corporate takeovers that took headquarters out of Hartford, particularly in financial services.

The insurer embarked on an aggressive turnaround under Fiondella's successor, Dona D. Young, in 2003, the company declaring that effort complete three years later. But there were still those on Wall Street who were skeptical, and as early as 2006, some investors were pushing for the company to be sold.

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