HARTFORD — The Phoenix Companies. Inc. is being sold to Nassau Reinsurance Group Holdings L.P. for $217.2 million, the companies announced early Tuesday.
That's a huge premium for shareholders, whose stocks were worth $13.03 at closing Monday, and who will be offered $37.50 a share. The stock was trading at about $32.75 after the announcement.
The stock had plunged from $56.07 on March 30 to $17.85 on May 14, the day of its annual meeting. Bad news on financial restatements, losses in quarterly reports, and the cost of a $48.5 million settlement to a class-action lawsuit on life insurance rate increases drove down the stock.
The sale is expected to close in early 2016. The agreement would take Phoenix private and would keep its corporate headquarters in Hartford and a service center in East Greenbush, N.Y., the companies said.
"This transaction marks Nassau's first life insurance acquisition, which will become our U.S. life and annuity platform for future growth," Phillip J. Gass, Nassau's chairman and CEO, said in a prepared statement.
"Taking Phoenix private, in conjunction with the additional $100 million in new equity capital, will accelerate the company's turnaround, bolster its financial strength and ratings, and benefit policyholders and distribution partners," Gass said.
Nassau Reinsurance was launched five months ago with $750 million from private equity firm Golden Gate Capital. It was founded to invest in life, annuity and long-term care insurance — all forms of insurance that need higher investment income ratios to premiums because of the gap between when the premiums are paid and the claims are made.
Institutional Investor, writing about the broader trend of private equity buying companies in the life and annuities sector, said the relatively recent development caused quite a bit of confusion, since private equity firms have generally bought companies they could turn around in five or so years and reap larger profits than fixed annuities provide.
But, the authors said, the private equity sector is flush with cash seeking higher returns at the same time that these sorts of insurance companies need to inject more capital to avoid credit downgrades. That's because sustained low interest rates are squeezing their profits on annuities.
That's definitely true of The Phoenix, which said it lost $213 million in 2014, partly from "the impact of prolonged low and declining interest rates."
In 2014, 99 percent of Phoenix product sales were annuities, almost entirely fixed annuities. Financial problems in 2009 led to it virtually ending sales of life insurance policies.
The Phoenix Cos. have been hampered by high financial reporting expenses after years of troubles with their financial records. They spent $102.6 million on restatement work and audits, as well as $19.2 million in the first quarter of this year and $13.4 million in the second quarter.
By going private, the company would no longer have these expenses, because it would not have to file reports with the Securities and Exchange Commission on its assets, expenses and profits or losses.
Gass, 37, worked in private equity from 2008 until the founding of Nassau, and served on the board of Fidelity Guarantee & Life, one of his firm's acquisitions. Before going into private equity, Gass structured and underwrote investments at GE Capital, in utilities, oil and gas companies and power generation companies.
The Phoenix owns the Boat Building downtown, a 52-year-old landmark in the city's skyline.
As of Dec. 31, the Phoenix workforce was 640, including those in New York.