Hartford Financial Services, the nations top seller of annuities through banks, is aiming not just to build scale but also to penetrate the emerging-wealthy market with its $1.12 billion deal to buy Fortis Inc.s U.S. variable life, annuity, and mutual fund business.
The deal was announced Thursday and is slated to close next quarter. It would unite The Hartford, which has $183 billion of assets under management, and Woodbury, Minn.-based Fortis Financial Group, which has $11 billion.
John Giamalis, senior vice president and controller of The Hartford, said buying Fortis Financial will give his company more access to the emerging-affluent market. It especially wants more business from middle- and upper-middle-income individuals, and Mr. Giamalis said Fortis network of 3,000 financial planners will help it do that.
Fortis does a lot of business through the financial planner channel, one that the Connecticut company has not exploited much, Mr. Giamalis said.
Adding Fortis will build scale for us, he said. Scale, in any business, helps clearly from a cost perspective.
At least initially, though, the deal would not boost The Hartfords sales through banks, for a simple reason Fortis does not distribute through banks in the United States.
Hartford Life, The Hartfords life/annuity subsidiary, may not need the help it led the insurer pack in bank annuity distribution in the latest study by Kenneth Kehrer Associates, Princeton, N.J. It sold $970 million through banks in the third quarter, the study found.
Mr. Giamalis said that because branding and distribution details still have to be worked out, he could not say whether Hartford will distribute Fortis-labeled products to the banks in its distribution system. But Michael G. Paisan, an analyst at Keefe, Bruyette & Woods Inc. in New York, said it would make sense to do so.
The emerging-affluent market is well served by banks, so adding the Fortis products to that channel could only benefit them, Mr. Paisan said.
The Fortis deal includes the Fortis Advisors Inc. subsidiary, which advises for the 38 Fortis mutual funds in the United States. Fortis Financial Groups assets under management include $4 billion of mutual fund assets, against The Hartfords $11.4 billion.
In addition to moving up in mutual funds, Hartford Life would jump two notches and become the No. 3 producer of variable life insurance by purchasing Fortis Financial, Mr. Giamalis said.
Fortis has been pulling out of the U.S. market gradually the past few years; in the summer it sold its long-term-care business to John Hancock. Bill Greiter, Fortis Inc.s senior vice president for mergers and acquisitions, said his company is focusing on a few niches in the United States and getting out of businesses in which it is not a market leader.
We were very early builders in the variable universal life business, and over time weve seen good growth, he said. However, over time, as we look at the world, variable universal life has gone from being a specialty, or niche business, to a mainstream business.
Right now Fortis is focusing on the sale of pre-need funeral products, individual and short-term health insurance, credit insurance, and group disability, group life, and group dental, Mr. Greiter said.
The Fortis deal will be financed with a combination of debt and equity and is expected to accrete to 2002 earnings.
Keefe Bruyettes Mr. Paisan said the price The Hartford intends to pay is reasonable.
I think its a good deal, he said. It makes a lot of sense strategically as a way to continue to add assets under management and to build scale efficiencies.