(Adds analyst comment, background)
By Jessica Toonkel
NEW YORK, March 26 U.S. insurer Protective Life Insurance is the leading candidate to buy some of AXA SA's U.S. life insurance assets in a deal that could be valued at around $1 billion, according to two people familiar with the situation.
French insurer AXA hired Morgan Stanley last year to help find a buyer for the assets, including remnants of the Mony Group Inc business that it acquired in 2004, the sources told Reuters this week. They asked not to be named because the matter is not public.
AXA, which bought New York-based life insurer Mony Group for $1.5 billion, has been expanding into emerging markets while scaling back its presence in North America after years of underperformance in the region.
Representatives for AXA and Morgan Stanley declined to comment. Birmingham, Alabama-based Protective Life did not immediately respond to requests for comment.
Protective Life rose more than 3 percent to close at $35.86 on the New York Stock Exchange on Tuesday, valuing the company at around $2.8 billion.
Buying AXA's life insurance assets would help expand Protective's life insurance business, but it would help the company diversify away from its variable annuity business, which is an increasingly difficult business to manage, said Steven Schwartz, an analyst at Raymond James.
"There are two positives here - one is that the company has been weighted heavily toward annuities and variable annuities and this would diversify its business," he said. "And the other positive is the company has been very good at making acquisitions that are very accretive to earnings."
AXA, Europe's second-largest insurer behind Germany's Allianz, like its peers has grappled with the uncertain euro zone investment market as well as low interest rates, which have hurt its asset management and savings products.
In 2011, the insurer announced a strategic plan targeting 1.5 billion euros in cost savings in "mature markets" by 2015, by which time it hoped to lift its adjusted return on equity to 15 percent.
The current sale comes after years of underperformance in AXA's U.S. business, most of it centered in the sale of variable annuities. Although AXA has lately narrowed those losses, the insurer has made it clear that its acquisition priorities lie in emerging markets such as Asia rather than mature ones.
AXA, whose other units include AllianceBernstein Holding, has already taken steps to cut back on its North American presence, selling its Canadian business in 2011 while it has expanded in Asia by acquiring HSBC's general insurance businesses there among other assets.
Protective Life has traditionally been very acquisitive but mostly has focused on relatively smaller deals. However, the insurer's CEO John Johns said at an industry conference in February that the firm was well positioned to make a "major acquisition."
Last month, the firm reported fourth-quarter net income of $66.8 million or 82 cents per share, down from $86 million or $1.02 per share in the year-ago quarter.
Total cash and investments stood at $37.3 billion as of Dec. 31, 2012, which included $600 million in cash and short-term investments. (Reporting By Jessica Toonkel; Editing by Soyoung Kim, Gerald E. McCormick, Bernard Orr)