Northwestern Mutual’s $2.7B Sale of Russell Investments Helps Avoid Enhanced Regulation, Equity Analyst Says
June 27, 2014 by Fran Matso Lysiak
MILWAUKEE – Northwestern Mutual Life Insurance Co. has agreed to sell Russell Investments, its global asset-management subsidiary, to the London Stock Exchange Group plc for $2.7 billion. The move will help the mutual avoid potential enhanced regulation and more restrictive capital rules, according to an equity analyst.
The Seattle-based Russell oversees nearly $260 billion in assets, primarily for large, institutional investors such as pension funds. The firm also maintains stock indices, such as the Russell 2000. Its mutual funds also are available to retail investors.
Russell “has generated strong profits toward Northwestern Mutual’s financial results over the years and has been experiencing dramatic growth and development,” said Jean Towell, a spokesperson for the Milwaukee-based Northwestern Mutual, in emailed comments. “As a result, we believe the time is right to secure attractive returns for our millions of policyowners.”
Based on 2013 admitted assets of $217.2 billion, Northwestern Mutual Group is the seventh-largest U.S. life insurer, according to A.M. Best Co.
Colin Devine, a New York-based life insurance industry analyst, said Northwestern Mutual’s primary business is whole life insurance. It was “never clear” what the strategic fit was with Russell Investments with its primary business, Devine said, adding Northwestern Mutual had paid $1 billion for Russell so it will be “a nice profit.” Northwestern Mutual isn’t the first insurance company that has begun to rationalize its business lines and focus on what its core strengths are, Devine said.
With the sale of Russell, “that greatly diminishes the possibility that Northwestern Mutual would be designated as one of those” insurers that could face enhanced regulation or more restrictive capital rules, Devine said.
The Dodd-Frank financial services reform law charged the Federal Reserve with overseeing institutions that could pose a threat to the U.S. financial system — designated SIFIs. On the international level, the G-2o’s Financial Stability Board is designating globally systemically important insurers, which would face a proposed global capital standard. And the International Association of Insurance Supervisors is proposing global capital standards for internationally active insurance groups.
If insurance companies “get swept up in that” there is a concern that regulators ultimately won’t discriminate among SIFIs, G-SIIs and internationally active insurance groups, and any company designated as one of those “will face enhanced regulation and more restrictive capital rules,” Devine said.
American International Group Inc. (NYSE: AIG) and Prudential Financial (NYSE: PRU) are the two insurance companies that have received SIFI designations. Metropolitan Life Insurance Co. (NYSE: MET) has confirmed it has reached Stage 3 of the Financial Stability Oversight Council’s evaluation process for determining whether it should receive such a designation.
Northwestern Mutual says it manages more than $184 billion in invested assets as part of its general account investment portfolio, which backs its insurance and annuities.
“The proceeds from the sale will cap off what has proven to be a good investment for Northwestern Mutual,” said John Schlifske, chairman and chief executive officer of Northwestern Mutual, in a statement. Before becoming CEO of Northwestern Mutual in 2010, Schlifske served as president and CEO at Russell from 2008 to 2009 (Best’s News Service, July 2, 2010).
Russell Investments says it’s one of a few firms that offers actively managed multi-asset portfolios and services that include advice, investments and implementation. The firm works with more than 2,500 institutional clients, independent distribution partners and individual investors globally.
The sale will be finalized later this year, pending regulatory approval, approval by shareholders of the London Stock Exchange Group and other closing conditions.
Goldman, Sachs & Co. and J.P. Morgan Securities acted as financial advisers to Northwestern Mutual on this transaction.
Northwestern Mutual Life Insurance Co. and Northwestern Long Term Care Insurance Co. each currently has a Best’s Financial Strength Rating of A++ (Superior).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
