John Hancock Financial is buying New York Life’s retirement planning division for an undisclosed amount in a deal that will allow the Boston company to expand its 401(k) business by 60 percent as it moves from traditional life insurance into wealth management.
New York Life handles pensions and retirement plans for labor unions and midsize to large companies, such as the office supply chain Staples Inc. Until now, John Hancock has provided retirement planning services primarily to startups and smaller business.
The acquisition will bring $135 billion in assets and 55,000 retirement plans under John Hancock’s administration. As part of the purchase, John Hancock expects to offer positions to all 450 New York Life employees in Westwood who handle the retirement segment, said Craig Bromley, John Hancock’s president.
“It’s accelerates our business plan dramatically,” said Bromley, who was celebrating the news with a glass of champagne on Tuesday afternoon.
John Hancock’s parent company, Manulife Financial Corp., of Toronto, is trying expand into the more profitable wealth and investment management business in Canada. Tuesday’s announcement is an effort to replicate that strategy in the United States.
The purchase is not expected to have a significant impact on Manulife’s profits, about $1 billion in the third quarter of this year. But it should free up some capital, because as part of the deal New York Life has agreed to take on 60 percent of John Hancock’s life insurance policies that were written before 2000, company officials said.
These life insurance policies were sold while John Hancock was a mutual company owned by its policyholders. As a result, many policies pay regular dividends, as well as death benefits, which tied up some of Hancock’s capital. New York Life is a mutual company, and these policies fit better into its business, Bromley said.
John Hancock will continue to handle the administration of these plans, and consumers will not see any changes in their contract terms or benefits, he said.
The company remains dedicated to the life insurance business, Bromley said, but it has been less profitable in recent years as the financial crisis and recession squeezed incomes and led many households to defer buying life insurance to save money.
Low interest rates have also shaved insurers’ investment profits. Retirement services are fee-based services and require consumers to take on more of the investment risk, making them an attractive alternative for insurance companies.
The amount of money consumers will have to purchase and invest in retirement products is expected to double by 2020 to $22 trillion, according to Limra, a life insurance trade group in Windsor, Conn.
Insurers are increasingly expanding into retirement products, and last year Limra launched a retirement research division, said Mark Morris, the trade organization’s spokesman.
John Hancock officials said the purchase, which is expected to close in the first half of 2015, will also position the compoany to take on rivals who are also expanding by buying other companies.