UPDATE 1-Japan's Orix agrees to buy Hartford Japan unit for $895M

Mon Apr 28, 2014 4:22am EDT

* Orix to book one-time gain of Y30 bln as negative goodwill for 2014/15

* Hartford says pro forma effect of the deal is loss of $675 mln as of March 31

* Hartford says pro forma capital benefit is about $1.4 bln as of March 31 (Adds Orix, Hartford comments and background)

By Taiga Uranaka

TOKYO, April 28 (Reuters) - Japan's Orix Corp has agreed to buy Hartford Financial Services Group's Japanese unit for $895 million as part of efforts to expand its life insurance business in the world's third-largest economy.

Orix is one of the most acquisitive Japanese financial companies, saying last week it would buy a precious metal and jewellery recycler from Baring Private Equity Asia in a deal sources priced at around 21 billion yen ($204.7 million). Last year, it spent about $2.6 billion on Dutch asset manager Robeco.

The sale of the Japanese unit, Hartford Life Insurance K.K., would come as Connecticut-based Hartford Financial has been shifting its focus to the more stable and less risky business of property casualty from annuities.

In a statement on Monday, Orix said the deal is subject to authorities' approval but it aims to complete the acquisition by the end of July.

Orix said it is planning to merge Hartford's Japan unit with Orix Life Insurance Corp.

The merger would boost Orix Life's solvency margin, a closely watched gauge of insurers' financial health, to over 1,000 percent from 473.1 as of the end of December, the company said. The Hartford unit had the solvency margin of over 1,200 percent as of the end of December.

Orix said it would book a 30 billion yen gain for the current financial year ending in March 2015 as negative goodwill stemming from the deal, whose value is under the Hartford unit's net worth of about 120 billion yen.

Hartford said estimated pro forma effect of the transaction is a U.S. GAAP loss of about $675 million and pro forma capital benefit is about $1.4 billion as of the end of March.

"This transaction materially reduces Hartford's risk profile by permanently eliminating the company's Japan variable annuity risk," Hartford CEO Liam McGee said in a statement.

Hartford was one of several foreign insurers that actively wrote its Japanese variable annuity policies - which guarantee a minimum payout and then an additional payout based on investment returns - between 1999 and 2009 when consumers were suffering from years of ultra-low interest rates amid the country's prolonged deflation.

The guarantees attracted customers. But they became a heavy drag on insurance companies that had aggressively sold such policies following the market plunge in the wake of the collapse of Lehman Brothers.

Hartford and other insurers selling similar policies, such as ING Groep, Allianz SE and Prudential PLC subsidiary PCA Life, also suffered in the market turmoil and also stopped selling variable annuity policies in Japan.

Orix said it would hedge the Hartford unit's minimum payout guarantee risks through reinsurers.

JP Morgan was financial advisor for Orix and Deutsche Bank for Hartford, the companies said in their statements respectively.

($1 = 102.0350 Japanese Yen) (Editing by Dominic Lau and Christopher Cushing)

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