Talcott/Sixth Street inks $25bn reinsurance deal with Principal

Global investment firm  Sixth Street and its insurance platform  Talcott Resolution will reinsure some $25 billion in annuity and life insurance books for Principal Financial Group (PFG) as the Des Moines-based financial group looks to go capital-light and put stronger focus on higher growth businesses.

In the deal, an affiliate of Sixth Street and Talcott will reinsure a $16 billion US in-force retail fixed annuity book and $9 billion in universal life insurance with secondary guarantee (ULSG) from PFG.

Annuity and guaranteed life books were proving "difficult to manage" given low interest rates, which had both undermined investment returns and exacerbated volatility in customer premium behavior, an official from PFG told an investor call following the announcement. Books proved "capital intensive, volatile and generating unacceptably low return on capital"

Principal has said it sees better growth where capital commitments are lighter and has cited retirement products in the US and "select" emerging markets, global asset management, and U.S. benefits and protection.

Principal expects roughly $800 million in deployable capital from the deal "and through additional transactions designed to improve the capital efficiency of its in-force individual life insurance business," the firm said in its press release.

Funds will line shareholder pockets. Management added $1.6 to the current share repurchase program and will now hand out $4.6 billion buybacks and dividends 2021-2022, above the $3 billion announced in June 2021.

Principal will retain administration and servicing of the underlying contracts.

As part of the deal, Talcott will hire Principal to manage approximately $4 billion of commercial mortgage loans and private credit assets for a minimum of five years.

The transaction is expected to close in Q2 2022.

Sixth Street/ Talcott is no newcomer to such deals. In early December, Allianz said it would free itself of a $35 billion indexed annuity portfolio in the US via a massive reinsurance deal with Sixth Street affiliates in a similar strategic drive towards life products with lower capital requirements.

PFG is slated to discuss Q4 results in a conference call February 8 and will discuss outlook March 2 call, officials reminded.

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