Insurance stocks tracked closely with the broader market during a week that saw two life giants sign substantial deals, including one that stands to further alter the seller's business mix.
The S&P 500 declined 0.57% to 4,432.99 for the week ending Sept. 17, while the S&P 500 Insurance Index dipped 0.59% to 521.19.
Prudential Financial Inc. continued its capital allocation strategy as it announced Sept. 15 that it will sell Prudential Annuities Life Assurance Corporation - Prudential Fixed Annuity Fund. and its block of legacy variable annuities, valued at $31 billion, to Fortitude Reinsurance Co. Ltd., a subsidiary of Fortitude Group Holdings LLC, in a transaction valued at $2.2 billion.
The deal represents 17% of Prudential's annuity block and reduces its exposure to traditional variable annuities with guaranteed living benefits, Wells Fargo analyst Elyse Greenspan said in a note. The block is centered around guaranteed living benefits that were issued prior to 2011.
Terms of the deal also include fixed and fixed-indexed annuities, as well as FlexGuard-branded buffered annuity contracts to be reinsured back to Prudential.
Piper Sandler analyst John Barnidge said the transaction, expected to close in the first half of 2022, demonstrates that there are buyers for large-scale, in-force legacy variable annuities. With this deal, Prudential has achieved $6.4 billion in capital reallocation from its businesses, close to the midpoint of the $5 billion-to-$10 billion range the company targeted during its first-quarter earnings call, he noted.
Prudential's stock was not affected much by the deal's announcement, and it finished the week down 0.59%.
Barnidge said the lack of movement in Prudential's share price indicated that investors want the company to "do more," such as figuring out a plan for its remaining variable annuities, worth approximately $150 billion.
"They've talked about variable annuities and blocks of individual life insurance, so those are probably the areas in which you would see further de-risking," Barnidge said in an interview.
Lincoln rises after signing reinsurance agreement
Lincoln National Corp.'s share price climbed Friday after it announced a $9.4 billion reinsurance agreement with Resolution Life Services (US) Inc. subsidiary Security Life of Denver Insurance Co.
The transaction will provide reinsurance for Lincoln National's executive benefit and universal life reserves. The company said it expects proceeds of $1.2 billion from the deal, with $900 million of that total earmarked for share repurchases to be completed by the end of the first quarter of 2022.
Lincoln National's share price finished up 3.20% for the week.
The Hartford Financial Services Group Inc. this week completed an agreement with the Boy Scouts of America that increases compensation the insurer will issue to childhood sexual abuse victims.
The Hartford on Sept. 14 said it will pay $787 million, before tax, to resolve claims arising under insurance policies issued decades ago. The insurer had previously agreed to pay $650 million to victims, in exchange for a release of any further obligations.
The deal, which could help the Boy Scouts ultimately emerge from bankruptcy, still must be approved by a bankruptcy court judge. The Hartford said the new agreement includes the local councils and representatives for a majority of abuse claimants, which was not included in the previous deal.
The Hartford finished up 0.80% for the week.