Newport Beach-based Pacific Life Insurance Co.’s second acquisition under Chief Executive James Morris adds significant market share to a business unit he expanded three years ago.
Pacific Life is set to buy the life retrocession—or reinsurance—business from Toronto-based Manulife Financial Corp., Canada’s largest insurance company.
The sale will result in an after-tax gain of about $287 million for Manulife, according to the company.
Insurance companies purchase reinsurance to diversify and manage their risks.
Retrocession is a $250 billion segment of the insurance market. It is dominated by Manulife, billionaire Warren Buffett’s Omaha, Neb.-based Berkshire Hathaway Life Insurance Co. and AXA Equitable Life Insurance Co. of New York.
Market Leader
Manulife’s portfolio of about $106 billion of individual life reinsurance stands to make Pacific Life the leading individual life retrocessionaire in North Amer-ica, according to the company.
Pacific Life, the second-largest privately held company here, has been in the life retrocession business since 2002.
A 2008 acquisition under Morris paved the way for the latest buy.
In June of that year, only weeks after he succeeded chairman Thomas C. Sutton—who held the post for 18 years and was Morris’ predecessor as chief executive—Pacific Life bought a unit of Scottish Re Group Ltd. for $71.2 million.
Scottish Re Buy
The Bermuda-based reinsurance company had come under pressure as the subprime loan market imploded.
The unit was renamed Pacific Life Re and provided reinsurance in Britain, Ireland and select markets in Asia.
Pacific Life’s latest buy builds on business and plays into the company’s longstanding growth strategy of building newer operations, growing them slowly, and learning the intricacies of the market before expanding.
“This is very symbolic of the way we like to grow,” Morris said. “We’re an opportunistic buyer.”
Manulife is the largest retrocessionaire in North America, with about 80% of its business in the U.S. and the remainder in Canada, according to Morris.
The segment generally is considered a slow-growth business that doesn’t see too many spikes in either direction. Growth tends to mimic that of the insurance industry itself, Morris said.
Standard & Poor’s and Fitch Ratings Inc. viewed the deal favorably, affirming Pacific Life’s credit ratings.
Standard & Poor’s viewed the transaction as “positive” and reaffirmed the company’s A+ rating.
Fitch reaffirmed its “stable” outlook on Pacific Life, which expects to finance the acquisition on its own without “material effect” on financing and commitments.
• THE NEWS: Pacific Life’s buy of Manulife Financial’s retrocession business set to make it leader in the market for reinsurance in North America
• BACKGROUND: Got into retrocession business with buy of Scottish Re Group unit in 2008, paved the way for latest deal
• WHAT’S AHEAD: Plans to keep Manulife employees, operate from Toronto and Boston
The deal, subject to standard closing conditions and regulatory approvals, is expected to close in the current quarter.
Nearly all of the 83 employees in Manulife’s retrocession unit have been offered jobs with Pacific Life, Morris said.
The operational centers for the business will remain in Toronto and Boston.
David Howell, chief executive of Pacific Life Re, will oversee the new operations from London.
Pacific Life and its sister companies offer life insurance policies, investments and jet leases.
The company generates more than $5 billion annually in revenue, mostly from life insurance premiums and annuities.
Local Rank
Earlier this year, Fountain Valley-based Kingston Technology Co., a maker of memory products for computers and consumer electronics, surpassed Pacific Life to become the largest privately held company in the county, according to Business Journal research (see related story, page 1).
Kingston saw 2010 revenue of $6.5 billion, up 59% from a year earlier after a slump in prices for memory chips gave way to a surge that boosted sales at the company.
Pacific Life posted $5.6 billion in revenue in 2010 and a profit of $530 million, up 26% from a year earlier as the company benefited from strong investment returns and uptick in revenue from policies.
Pacific Life has been offering life insurance since 1868, when it got its start in Sacramento. Former California governor, senator and Stan-ford University founder Leland Stanford was the company’s first president.
The insurer moved to Southern California in 1906 after the San Francisco earthquake demolished its headquarters.
In the 1970s, Pacific Life created Pacific Investment Management Co., which now manages more than $1 trillion in bond funds and other investments.
Pimco split off from Pacific Life in 1994.
