American Financial to Sell Annuity Business to MassMutual for $3.5 Billion

American Financial Group Inc.

AFG 1.31%

on Wednesday said it agreed to sell its annuity business to Massachusetts Mutual Life Insurance Co. in a $3.5 billion cash deal.

The acquisition will deliver new ways for the giant Springfield, Mass., company, one of the nation’s oldest life insurers, to sell its products. MassMutual has long had one of the biggest fleets of career agents in the U.S., and the deal will add opportunities to sell through banks, independent broker dealers and independent agents, analysts said.

American Financial said the transaction will mark its exit from the market for fixed and indexed annuities, which are popular retirement products with conservative savers. It will focus more tightly on its property-and-casualty insurance operations.

The Cincinnati-based insurer is the latest U.S. insurer to divest annuity operations, as ultralow interest rates pressure companies’ abilities to earn healthy profits on the product line.

The transaction is the third life-insurance-industry transaction in a week and one of many over a decade of frenzied industrywide activity, as insurers have been narrowing their focus and divesting product lines, much of it motivated by the low interest-rate environment. Insurers invest customers’ premiums until needed to pay claims, so low rates make many products challenging to profitably sell.

The fixed and indexed annuities sold by American Financial are roughly akin to bank certificates of deposit. The pandemic has hurt sales at many companies, because annuities often are sold in an old-fashioned way: Insurance agents sit down with potential buyers in face-to-face conversations.

MassMutual is making a bet that annuities will continue to be popular with conservative clients. The company is owned by its policyholders and is non publicly traded, so it has more leeway than some publicly traded insurers to sell products that are out of favor with Wall Street investors and analysts.

This deal is different from many of the earlier ones industrywide because many of the buyers have been private-equity, asset-management and other types of financial firms scooping up blocks of life-insurance policies and annuities, and even entire operating units.

In many deals involving such financial buyers, the newcomers aim to profit from investment-management fees and by savvy investments of the premiums paid by customers. MassMutual is a rare so-called strategic buyer in this heady deal activity.

Analysts said MassMutual, one of the nation’s financially strongest insurers, has ample resources to fund the purchase.

The deal follows an unsuccessful effort in October by MassMutual to acquire

American Equity Investment Life Holding Co.

in a joint transaction with

Athene Holding Ltd.

Under that proposed deal, MassMutual would have acquired American Equity’s insurance subsidiaries and all of its employees, brands and distribution arrangements.

But American Equity nixed the deal.

Under the terms of the new pact, MassMutual will acquire Great American Life Insurance Co. and its two insurance subsidiaries, Annuity Investors Life Insurance Co. and Manhattan National Life Insurance Co., the companies said. Great American Life will operate as an independent subsidiary of MassMutual.

Prior to completion of the deal, American Financial will acquire about $500 million in real-estate-related partnerships and directly owned real estate from Great American Life Insurance, it said. American Financial said it “expects to recognize an after-tax gain on the sale of $620 million to $690 million” upon closing.

Write to Leslie Scism at [email protected]

Corrections & Amplifications
Massachusetts Mutual Life Insurance Co. is based in Springfield, Mass. An earlier version of this article incorrectly said it was based in Boston.

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Appeared in the January 28, 2021, print edition as ‘MassMutual Acquires Annuities Business.’

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