Protective Life Corp PL.N agreed to buy a portfolio of old policies from French insurer AXA SA's (AXAF.PA) U.S. business for $1.1 billion, with the aim of squeezing more value out of them.
Birmingham, Alabama-based Protective Life said the deal with Axa's Mony Life Insurance Company should produce a steady income stream and increase earnings per share. Most of the policies are life insurance written before 2004.
AXA, which bought Mony in 2004 for $1.5 billion, will take a capital loss of below 100 million euros ($131 million), in part attributable to the difference between what it paid for the business initially and what it is being sold for now.
Last month, people familiar with the situation said Protective Life was the leading candidate to buy U.S. life insurance assets from Axa, which has been expanding into emerging markets while scaling back its presence in North America after years of underperformance in that region.
AXA said on Thursday it would continue to use Mony Life to write new business in the United States.
"This transaction allows us to further grow our US business where we have been achieving good momentum while freeing up capital invested in closed portfolios to improve our financial flexibility and enable additional investment in high-growth markets and businesses," AXA Chief Executive Henri de Castries said in a statement.
AXA shares were up 1.2 percent at 3.38 a.m ET, outperforming the European insurance sector .SXIP, which was up 0.4 percent.
The transaction values the portfolio at 0.7 times its book value, a premium to AXA's own book value, a Paris-based analyst said. AXA trades at 0.6 times book, according to Thomson Reuters data.
"All in all I would expect a small positive reaction because the market has concerns about (AXA's) leverage," the analyst said, noting that the French insurer borrows at higher yields than larger German rival Allianz (ALVG.DE).
Including a capital surplus of $303 million, the total investment by Protective Life is about $1.09 billion, the company said.
It expects the deal to add between $0.10 and $0.15 to its earnings per share in 2013 and between $0.55 and $0.65 per share in 2014.
Protective Life shares closed up 2 percent at $35.59 on the New York Stock Exchange on Wednesday, prior to the announcement.
Willkie Farr & Gallagher LLP and Barclays PLC were financial advisers to Protective Life.
($1 = 0.7642 euros)
(Reporting by Tej Sapru in Bangalore and Christian Plumb in Paris; Editing by Erica Billingham)