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UPDATE 2-Canada's Great-West Lifeco's unit buys Prudential's retirement business for $3.5 bln

·2 min read

(Adds context, details of the deal)

By Nichola Saminather and Sohini Podder

July 21 (Reuters) - Canadian insurer Great-West Lifeco Inc (Lifeco) said on Wednesday its U.S. unit would buy Prudential Financial Inc's full-service retirement business for about C$4.45 billion ($3.51 billion) in one of its biggest deals yet, accelerating its expansion in the world's biggest economy.

The acquisition by Empower Retirement, the U.S's second-largest retirement plan provider, expands the subsidiary's contribution to earnings to 30% by the end of 2023, from 10% in 2020, according to Lifeco. It will contribute about $325 million in after-tax earnings by the end of 2023, Lifeco said.

Winnipeg, Manitoba-based Lifeco has spent billions of dollars on a raft of U.S. acquisitions in recent years, including the retirement plan business of MassMutual, which closed in January, and financial technology company Personal Capital, which it completed in mid-2020.

The Prudential deal underscores continued interest among Canadian insurers in expanding overseas as rising premiums and high levels of capital drive them to seek options to deploy them. Canadian insurers overseas acquisitions reached a 20-year high last year, according to Refinitiv data.

While rivals Manulife Financial Corp and Sun Life Financial have been expanding more in Asia, Great-West is focused on growing in the U.S., amid expectations that the population of Americans aged 65 and over will more than double in the next 40 years.

The deal will expand Empower's customer base to more than 16.6 million participants, from over 12 million in 2020, Lifeco said in a statement and boost assets under administration to $1.4 trillion, from $1 trillion in January.

The deal value includes about $2.1 billion of capital, and the purchase will be financed with a combination of debt and existing resources, it said.

The deal, which is expected to close in the first quarter of 2022, will include a share repurchase and a reinsurance transaction.

Prudential's full-service retirement business covers about 4 million participants, 4,300 workplace savings plans and has $314 billion in assets under administration.

Shares of Prudential were up about less than 1% in premarket trading.

($1 = 1.2682 Canadian dollars) (Reporting by Nichola Saminather and Sohini Podder; Editing by Sriraj Kalluvila, Aditya Soni and Bernadette Baum)