Citigroup Inc., the U.S. bank seeking to shed assets, may sell its Primerica life insurance unit to J.C. Flowers & Co. and an Alabama insurer, people with knowledge of the talks said.
Flowers, the New York-based private-equity firm run by J. Christopher Flowers, may invest in Protective Life Corp., which would then buy Primerica, the people said. More funding would come from issuing securities backed by Primerica's policies.
Analysts value Primerica, which Citigroup has sought to sell for more than three months, at as much as $7.5 billion, more than double Protective's market capitalization.
Citigroup Chief Executive Officer Vikram Pandit, 51, put Primerica up for sale to help simplify the behemoth assembled by former CEO Sanford "Sandy" Weill. The largest life insurers, such as Prudential Financial Services Inc. and MetLife Inc., are focusing on selling variable annuities and other investing vehicles rather than the "term" life policies Primerica sells.
"Most of the growth in the individual life business for probably 10 years has been around investment-oriented products," said Donald Light, a San Francisco-based insurance analyst at Celent LLC. The biggest life companies "have their own term products, it's just not the thing at the front of their shelf."
It's unclear if the Primerica talks will lead to a transaction, said the people, who spoke on condition of anonymity because the discussions are private. Protective rose $1.20, or 3.9 percent, to $32.32 at 2:34 p.m. in New York Stock Exchange composite trading. Citigroup dropped 73 cents, or 3.7 percent, to $19.26.
Eva Robertson, a spokeswoman for Birmingham, Alabama-based Protective, declined to comment. Flowers did not return a phone message at his office.
"Primerica is a financially strong and fundamentally sound business," Citigroup spokeswoman Shannon Bell said. "Citigroup does not comment on market rumor or speculation."
Protective may finance the acquisition in part by selling so-called XXX notes, a form of security developed since 2000 to help life insurers meet U.S. rules for how much money they need to hold in reserve to back policies. Insurers such as Genworth Financial Inc., based in Richmond, Virginia, and Protective have issued the notes to free up capital. Primerica hasn't yet done a similar transaction.
Protective made it biggest acquisition in 2006, buying JPMorgan Chase & Co.'s insurance unit for about $1.2 billion.
Flowers, a former investment banker at Goldman Sachs Group Inc., last month won permission from the U.S. Office of the Comptroller of the Currency to acquire a Missouri savings bank, which he may use to buy failed institutions.
Primerica, based in Duluth, Georgia, was founded in 1977 by Arthur L. Williams, who assembled part-time salespeople to sell term life policies. Term insurance expires after a specified period and is less expensive than "whole" life insurance, which is partly an investing vehicle. The company made its sales pitch, "Buy term, and invest the difference."
In 1988, Weill's Commercial Credit Corp. bought Primerica and retained the name, using the firm as a platform from which to assemble a financial-services titan with subsequent acquisitions of Travelers Corp., Salomon Inc. and Citicorp.
The bank has recorded more than $55 billion of credit losses and writedowns since the subprime mortgage market collapsed last year, and it's raised almost $50 billion to replenish capital. Pandit has found buyers for the German consumer unit and the CitiStreet employee-benefits joint venture.
Primerica has 100,000 mostly part-time salespeople and 6 million customers, and it sells mutual funds, loans, and other investment products as well as life insurance.
Richard X. Bove, an analyst at Ladenburg Thalmann & Co., estimated in a Sept. 6 research note that the firm may fetch about $7.5 billion, estimating an annual profit of $500 million a year and a valuation of 15 times earnings.