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New York Life aims to diversify with $6.3bn Cigna deal

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Via Financial Times

New York Life Insurance said on Wednesday it had clinched a $6.3bn deal to acquire a Cigna unit that sells employers non-medical insurance products, broadening the company’s offerings beyond the core life insurance and annuities businesses for which it is known.

The Cigna group life and disability insurance business provides companies, non-profit organisations and other groups with accident, disability and life insurance plans that they can offer to their employees. 

The sale will provide a significant cash injection to Cigna, which was laden with debt after its $67bn takeover of pharmacy-benefit manager Express Scripts last year. The deal was expected to be completed in 2020, the two companies said. Cigna added that it would use the proceeds from the all-cash transaction to pay down debts and buy back shares.

The takeover, which the Financial Times first reported had been agreed earlier this week, is the latest move by New York Life chief executive Ted Mathas to diversify the insurance company. Mr Mathas has presided over a string of acquisitions since he took over as chief in 2008. In 2013, the company purchased Dexia’s asset management arm for more than $500m to bolster its investment unit, and over the past several years it has bought small stakes in a number of financial technology companies.

“This transaction increases the value we can deliver to our policy owners, strengthens our well-defined business model, and adds millions of customers to the New York Life family,” said Mr Mathas.

New York Life, founded in 1845, is one of the largest insurers in the US. It is a mutual company owned by its policyholders and does not trade publicly. The group is known for its life insurance policies and thousands of insurance agents. It claims to be the largest seller of direct-to-consumer life insurance plans through its partnership with AARP, a US non-profit organisation that advocates for older people.

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The purchase of the Cigna unit, which attracted several other interested buyers including MetLife and SunLife Financial, will catapult New York Life into one of the largest providers of non-medical insurance for group benefit programmes.

It also could help expand New York Life’s offerings at a time when the biggest companies in the industry are trying to cope with sliding interest rates and fend off stiff competition from venture-backed start-ups pushing into more traditional insurance offerings.

Analysts at Citigroup said last week that a sale of the unit would give Cigna the “financial flexibility” to pay down some of its roughly $39bn of debt and could save the health insurer more than $200m a year in interest expenses.

The unit being sold to New York Life is part of one of Cigna’s smaller business lines, which generated $5.1bn of adjusted revenue last year — just over 10 per cent of the company’s $49bn of sales in 2018.

Cigna shares were unchanged in pre-market trading on Wednesday, valuing the health insurer at $72bn.

New York Life was advised by Credit Suisse, while Cigna received financial advice from Bank of America Merrill Lynch.

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