Exclusive-Principal Financial nears insurance units sale to Talcott Resolution - sources

(Reuters) - Insurer Principal Financial Group Inc is in advanced talks to sell two of its units, with capital reserves totaling $25 billion, to peer Talcott Resolution Life Insurance Co, according to people familiar with the matter.

The deal would be the culmination of a strategic review that Principal launched last year after coming under pressure from activist investment firm Elliott Management Corp to shed its low-growth and capital-intensive businesses. Principal has said it will use part of the proceeds to fund an increase in its share buyback program.

An agreement for Talcott to acquire Principal’s U.S. retail fixed annuity business and its unit for universal life insurance with secondary guarantees (ULSG), could be announced as early as this week, the sources said.

It is possible that negotiations will fail at the last minute, added the sources, requesting anonymity because the matter is confidential.

Talcott Resolution is owned by investment firm Sixth Street, which declined to comment. Principal Financial also declined to comment.

The price Talcott would pay could not be learned, but the transaction is expected to generate significant benefits for Principal through a combination of sale proceeds, released capital and other financial enhancements.

By comparison, when Sixth Street agreed last year to acquire a fixed-index annuities business from Allianz with $35 billion of reserves against it, the German insurer said the deal unlocked $4.1 billion of total value.

Principal said in June it would divest the fixed annuity and ULSG units in order to focus on its higher-growth retirement, global asset management and U.S. benefits and protection businesses. It also added, as part of its agreement with Elliott, two independent directors to its board last year.

The annuity book had $18 billion of cash reserves set against it as of the end of March 2021, while the ULSG business had $7 billion of reserves, according to a company presentation to investors in June.

The presentation outlined plans to return between $1.5 billion and $1.7 billion of cash to shareholders in 2022 through dividends and stock buybacks, although those numbers would be higher following the divestment to Talcott, the sources said.

Buyout firms have been enthusiastic acquirers of such life insurance and annuity assets here because they offer a major pool of long-term capital for their credit investments. Some, like Apollo Global Management Inc and Blackstone Inc, have dedicated insurance arms.

Reporting by David French in New York; editing by Jonathan Oatis