Aetna to Sell Property-Casualty Unit to Travelers for $4 Billion
HARTFORD, Conn. (AP) _ Aetna Life & Casualty Co. will sell its property-casualty business to Travelers Group in a $4 billion deal that creates the nation’s fourth-largest insurer of buildings, autos and businesses.
The move will allow Aetna, a huge multi-line insurance company, to concentrate on health care and financial services, while Travelers’ will strengthen its hold on the property-casualty end of the business.
The deal, announced Wednesday, is one of the largest mergers in the insurance business and continues a trend of consolidation in the industry.
Competition, which has driven down premiums, and high-priced pollution claims have soured the business in recent years, forcing some insurers to abandon property-casualty lines. Companies that used to be all-purpose insurers, providing both health and property coverage, are seeking to specialize in just one of the two businesses.
Earlier this year, CNA Financial Corp. said it would acquire Continental Cos. in a $1.1 billion deal, and Kemper Corp. agreed to be acquired by Switzerland’s Zurich Insurance Group for $2 billion.
``Insurers have had to take a hard look at the underlying costs of being in this business,″ said Steven Dryer, an insurance analyst at Standard & Poors, a New York-based ratings agency.
Travelers will form a new holding company, based in Hartford, to operate the combined operations.
Up to 3,300 jobs at the new entity will be eliminated, with half the cuts in Hartford, Travelers said. The consolidation is expected to save about $300 million over two years.
The new Travelers entity will have premiums of $10 billion and will rank fourth in overall domestic property-casualty lines. The top three companies are State Farm, Allstate and CNA/Continental. The new company will be No. three in business insurance behind AIG and CNA/Continental.
The divestment will leave Aetna with three core businesses: Aetna Health Plans, Aetna Retirement Services and Aetna International, which sells insurance and financial planning services in 10 countries.
Aetna’s board approved the buyout in a meeting late Tuesday night. The deal is expected to close by March 1996.
Aetna’s shares fell $3.87 1/2 to $72 Wednesday on the New York Stock Exchange. Travelers rose $3.75 to $58.87 1/2.
Analysts have been predicting that Aetna will use money from the sale to buy a health maintenance organization, a deal that could be completed shortly.
Aetna had been seeking a buyer for its property-casualty lines for about six months, said James Auden, assistant vice president of the Duff & Phelps Credit Rating Company. He said Travelers was the logical buyer.
``Travelers is an acquisition-oriented company, and their property-casualty operations are in Hartford, so I think there are benefits geographically,″ Auden said. ``Where their operations are in Connecticut, I think it will help make the integration a little easier.″
Aetna’s property-casualty business, which includes personal and commercial insurance, accounted for $5.3 billion of Aetna’s total revenues of $17.5 billion in 1994. But it accounted for only $60 million of Aetna’s $510 million in operating earnings.
About 11,800 of Aetna’s 41,000 workers are employed in its property-casualty operations, including 3,000 in Connecticut. Travelers Insurance has 10,400 property-casualty employees nationally, including 2,100 in Connecticut.
To finance the deal, the new company expects to raise $900 million through the sale of preferred stock and $1.5 billion from the sale of bonds.
In addition, the company also expects to raise $1.3 billion privately. Aetna itself will invest some $200 million in the new venture, and the company will also offer common stock to the public in 1996.
Travelers beat out leveraged buyout specialists Kohlberg Kravis Roberts & Co. and Chicago-based CNA Financial Corp. for the Aetna unit. KKR and Travelers made similar dollar offers, but Aetna preferred Travelers’ cash bid, The Wall Street Journal reported Wednesday.