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principal-financial-hong-kong.jpg By I, DaviSements, CC BY-SA 3.0

Principal Eyes Insurance Block Sale With $18 Billion Reserve

Principal will continue selling variable annuities and invest in growth areas such as global asset management and retirement businesses in the U.S. and select emerging markets.

(Bloomberg) -- Principal Financial Group Inc. said it will stop selling U.S. retail fixed annuities and consumer life-insurance products and pursue sales of blocks of those businesses already in force.

The operations tagged for divestiture and other alternatives have policy reserves of about $18 billion, the company said Monday in a statement. Principal will continue selling variable annuities.

“The outcome will result in a more focused portfolio and stronger capital management strategy that we believe positions Principal for strengthened leadership in higher growth markets and greater capital efficiency, leading to higher expected shareholder returns,” Chief Executive Officer Dan Houston said in the statement.

Insurers have been reshaping their businesses, benefiting from private equity firms taking a greater interest in the industry. MetLife Inc. in 2017 spun off Brighthouse Financial Inc., a unit that sold annuities and life insurance to individuals in the U.S., while American International Group Inc. is eyeing ways to separate its life and retirement business. KKR & Co., Blackstone Group Inc., and Sixth Street Partners have all recently purchased or agreed to buy businesses that would expand their reach in the sector. They aim to profit by generating higher investment returns on the reserves backing policies.

Principal said in February it planned a strategic review and appointed two new independent directors as part of a settlement agreement with activist investor Elliott Investment Management. The hedge fund had been pushing the company to explore selling or spinning off its more capital-intensive life-insurance business to focus on its more profitable wealth-management operations.

“We applaud today’s announcements, which represent a significant step on a path towards higher growth, higher returns and greater capital efficiency,” Mark Cicirelli, Elliott’s U.S. head of insurance, said in the statement.

As part of the new strategy, Principal will also invest in growth areas such as global asset management and retirement businesses in the U.S. and select emerging markets, according to the statement.

The company also announced a $1.2 billion share-repurchase authorization, it said. Principal, which has gained 28% this year, fell 1.6% to $63.36 at 10:14 a.m. in New York.

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