Principal Financial Group has entered into an agreement with an affiliate of Sixth Street and its insurance platform, Talcott Resolution, to reinsure the company’s in-force U.S. retail fixed annuity and universal life insurance with secondary guarantee blocks of business.
Under the terms of the transaction, Talcott will reinsure approximately $25 billion of liabilities, this includes $16 billion and $9 billion of retail fixed annuity and secondary guarantee universal life insurance liabilities, respectively, from Principal.
As part of the transaction, Talcott will engage Principal to manage approximately $4 billion of commercial mortgage loans and private credit assets for a minimum of five years.
The company will continue to service and administer the policies of the reinsured blocks of business.
The company plans to return the proceeds to shareholders through share repurchases.
Dan Houston, chairman, president, and CEO of Principal commented: “We are focused on improving capital efficiency and strengthening Principal to win, grow, and create long-term shareholder value.
“We conducted a comprehensive process designed to optimise the value of these blocks, while improving our overall risk profile and reducing the capital requirements of our portfolio.
“At close, these transactions, along with strong operating performance, enables a significant increase to our share repurchase program, while supporting our ability to invest in growth, serve our customers, and lead in higher growth markets.”
A. Michael Muscolino, Co-Founder and Partner at Sixth Street added: “The Talcott team continues to affirm our original investment thesis: this platform, with its broad capabilities and deep expertise, can realise its significant growth potential as the premier strategic partner to the insurance industry.
“We were pleased to work with the Principal team to create this solution, and we look forward to Talcott continuing to successfully execute on its plans for growth and diversification.”
This is the fourth business development transaction for Talcott and its affiliates since Talcott’s acquisition by Sixth Street last year.
Principal’s Board of Directors has also approved a $1.6 billion increase to the $1.1 billion that remains available under the company’s existing share repurchase authorization as of December 31, 2021, resulting in an aggregate amount of $2.7 billion.
Additionally, the company has increased its share repurchase target for 2022 from $800 million-$1.0 billion to $2.0-$2.3 billion.
This $1.5 billion increase in capital return is driven by a combination of stronger operating performance, a favourable macroeconomic environment, and the estimated $800 million of deployable proceeds.
Principal now plans to return up to $4.6 billion to shareholders between 2021 and 2022 through share repurchases and common stock dividends, well above the $3 billion announced in June 2021.
