The deal to sell Safeco Corp.’s life insurance unit to a group of investors led by Berkshire Hathaway and White Mountains Insurance Group would bring a new player into the bank-annuity marketplace but probably does not foreshadow major changes.

Seattle-based Safeco said in September that it would sell its life and investments business and focus on its property/casualty operations.

On Monday, Safeco said it would sell the life insurance, group insurance, annuity, and mutual fund businesses to the investors, including Omaha-based Berkshire Hathaway and White Mountains of Hamilton, Bermuda, for an estimated $1.35 billion. The company also said it would sell its broker/dealer unit, Talbot Financial Corp. in Albuquerque, for $90 million. The buyer is to be a group of investors led by the unit’s senior management with financial support from Hub International Ltd.

"We believe that the earnings opportunity for our life and investment operations was considerably beneath that of our property/casualty operations," said Michael McGavick, Safeco’s chief executive officer, in a conference call with analysts. The life and investment unit has not performed as well as its competitors, he said, and "we could see that the focus was diverted by being in both businesses."

Peter Patrino, a life insurance industry analyst at Fitch Inc. in Chicago, said that for now it appears the life and annuities business will operate as usual, despite the prospective change of ownership. "The message we’re hearing from the company is that they’ll continue to build on what they’ve done up until now," he said. "The message to us is ‘status quo’."

Berkshire Hathaway has a reputation for acting more as an investor than a manager when it buys companies, choosing targets based on their managements and then letting the businesses run separately, he said.

The purchase could also be viewed as a vote of confidence because Berkshire Hathaway — and especially its famous chief executive officer, Warren Buffett — have a reputation for choosing good investments. "The investment group is one that has a good track record with what they’ve put their money in," Patrino said.

The next two years will be crucial for Safeco Life and Annuities on its own, Patrino said. Whether management or Berkshire Hathaway changes strategy will depend on the business’ success in the next 24 months.

"The company has some strengths," he said, with a solid balance sheet, good earnings track record, and strong market share in business lines such as group excess health.

Unlike other recent life insurer deals, this one does not build scale in a consolidating industry. But Patrino said scale is not that important if Safeco is strong in its key products. "You don’t always need to be bigger. It all depends on your market and your niche and how you are able to price your product."

The sale could have made waves in the bank-annuity marketplace if Safeco had been bought by another top seller in the bank channel, but that did not happen.

Kenneth Kehrer, the president of the Kenneth Kehrer Associates consulting firm in Princeton, N.J., said a verdict is uncertain on whether this deal would have implications for bank distribution. He did say that Talbot handled some of Safeco’s annuity distribution and the separation of the two businesses might change this.

However, overall, he said, Berkshire Hathaway’s strong reputation bodes well for Safeco Life and Annuity at least in terms of how it is perceived in the marketplace.

Safeco is the 16th-largest seller of annuities through banks, with volume of $884 million last year, down 15%.

 

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