Lincoln to Buy Cigna Unit for $1.4 Billion

Lincoln National Corp. said Monday that it will buy Cigna Corp.’s individual life insurance and annuity businesses for $1.4 billion, a move that would make Lincoln the eighth-largest retirement savings and life insurance company in the United States.

The sale reflects Cigna’s plans to move away from retail insurance and into management of employee benefits and pensions.

Lincoln’s announcement comes at a time when life insurers are buying rivals to increase their market share and cut costs of combined businesses.

“It sends a signal out regarding what it’s going to take to compete, and that is obviously critical mass,” said Larry Mayewski, an analyst at A.M. Best Co.

The purchase would give Lincoln $37 billion of individual policies in force and more than 600 Cigna agents. Its assets would climb to about $56.45 billion from $49.95 billion, based on last year’s figures, according to A.M. Best.

Under terms of the deal, Cigna would keep $225 million from the sale of Cigna Individual Insurance. The sale, totaling more than $1.6 billion, would almost match the amount Cigna paid for health maintenance organization Healthsource Inc. last month.

“Virtually what we’ve done here is affected a swap,” said Michael J. Monroe, spokesman for Philadelphia-based Cigna.

The $225 million will come from backup capital that Cigna Individual Insurance was legally required to have before it could underwrite policies.

Although Cigna still sells some individual policies internationally, it has abandoned the individual market in the United States to pursue corporate customers, Monroe said.

Cigna would continue to sell group life insurance. “That’s where our expertise is,” he said.

Company executives said there is no pressing need to sell Hartford, Conn.-based Cigna Individual Insurance, which has grown steadily if slowly. “But [it] has limited strategic connection to our other businesses,” said Wilson H. Taylor, Cigna chief executive.

Lincoln’s repeated approaches to buy the business became too good to pass up, Monroe said. When the Fort Wayne, Ind.-based financial services giant made its latest offer, “we knew it was a go,” he said.

Cigna said it will probably use the money to buy stock. The deal is expected to close by the end of the year.

“This transaction . . . furthers our strategy to become a focused financial services company,” said Ian M. Rolland, Lincoln chairman and chief executive.

Cigna’s stock was up $6.19 to close at $197.19 a share, and Lincoln’s gained 43.5 cents to close at $67.86. Both trade on the NYSE.

Cigna’s operations and Lincoln’s own network of 1,700 agents and financial planners will complement each other, Rolland said. Combining the two will lead to more products, broader distribution and increased sales for both systems, he said.

Lincoln, which manages more than $115 billion in assets, said the acquisition is its largest.