(Des Moines Register) - Principal Financial Group has found a suitor for some of its retirement and life insurance businesses, allowing the company to shift how it operates.
The Des Moines-based financial services firm announced Monday that it will offload its fixed retail annuity and commercial life insurance businesses to a division of the investment firm Sixth Street Partners.
Principal had been looking for a buyer for the company's annuity and life insurance lines since last summer. Outside investors soured on those divisions because money managers struggle to turn big profits from those products amid low interest rates — at least, without taking on risky investments.
“We saw this as the best path forward for long-term shareholders,” CEO Dan Houston said on an investors’ call Monday.
Principal executives project the deal will net the company $800 million in deployable proceeds. In turn, the company will increase payments to investors.
Between 2021 and this year, Principal is projecting that it will pay $4.1 billion to $4.6 billion to shareholders, up from the $3 billion it projected last summer. Houston said he expects regulators to approve the deal with Sixth Street Partners this spring.
The transaction follows more than a decade of similar deals across the life insurance industry, as private equity firms have become major players. The firms typically make riskier investments with customers’ premiums than traditional insurers like Principal do, betting their decisions will turn bigger profits.
The Federal Reserve has kept interest rates low for several years, giving more conservative traditional insurers less opportunity to earn profits off the spread between premiums and investment revenue.Last year, activist investor group Elliott Management Corp., which held Principal stock, called on the company to conduct a strategic review of all of its operations. Principal executives complied, prompting the announcement that some of its businesses were for sale. Principal will now focus more of its attention on investment management, a more consistent business in which the company profits on fees from customers.
Talcott Resolution, a division of Sixth Street Partners, will manage about $21 billion worth of retail fixed annuities and commercial life insurance as a result of Monday’s deal. Principal will continue to provide customer service for those products.
Principal Chief Financial Officer Deanna Strable told analysts Monday that offloading the businesses will cost the company $125 million to $150 million in operating earnings this year, including some revenue that the Principal Global Investors division would have earned.
“We’ll work quickly to refine our expenses in PGI to match that lost revenue,” she said.
The company already laid off some Des Moines employees after announcing the businesses were for sale last year, informing state officials that it would cut 25 positions in September and another 30 in October. Principal employs about 6,500 workers in Des Moines, making it one of central Iowa’s most prominent companies.
Pressed by some analysts on the call about whether Principal is looking to sell other lines of business, Houston declined to comment. Instead, he remined them that executives reviewed the company’s entire portfolio last year before announcing that it would unload the annuities and life insurance lines.
But, Houston added, “We’ve got a long track record of evolving our portfolio to meet our customers and market needs. We’ll continue to take the right steps and align our business model to drive growth.”
Founded by former Goldman Sachs bankers after the 2008 financial crisis, Sixth Street Partners is a miniscule company compared to Principal. The firm managed $50 billion as of June, about 7% the size of Principal's portfolio.
Sixth Street Partners has a diverse range of investments, however. The company's holdings include AirBNB, Spotify, the San Antonio Spurs NBA franchise and Caris Life Sciences, a biotech company that suggests cancer treatments based on a patient’s genes.
Sixth Street Partners entered the retirement and life insurance business when it bought Talcott Resolution from Hartford Financial in January 2021.
By Tyler Jett
Feb. 1, 2022
