* Orix to book one-time gain of Y30 bln as negative goodwill
* 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 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
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
($1 = 102.0350 Japanese Yen)
(Editing by Dominic Lau and Christopher Cushing)