American Financial Group announced that it is selling its annuity business to Massachusetts Mutual Life Insurance Company in a $3.5 billion cash deal that primes the seller for growth in its specialty property/casualty businesses.

Craig Lindner, AFG’s co-chief executive officer, gave rationale for the deal in media statement on Wednesday, noting that he and co-CEO Carl Lindner view capital management as one of their most important priorities. AFG’s capital and liquidity will be significantly enhanced as a result of the transaction, he said.

“With a strong balance sheet and substantial excess capital, we will continue to evaluate opportunities for deploying AFG’s excess capital, including the potential for healthy, profitable organic growth, expansion of our specialty property and casualty niche businesses through acquisitions and startups that meet our target return thresholds, as well as share repurchases and special dividends,” he said.

Under the terms of the agreement, which is expected to close in the second quarter of 2021, MassMutual will acquire Great American Life Insurance Company (GALIC) and its two insurance subsidiaries, Annuity Investors Life Insurance Company and Manhattan National Life Insurance Company.

At Dec. 31, 2020, GALIC and its subsidiaries had roughly $40 billion of traditional fixed and indexed annuity reserves.

AFG said it expects to recognize an after-tax gain on the sale of $620-$690 million ($7.10 to $7.90 per AFG share) upon closing.

Prior to completion of the transaction, AFG will acquire approximately $500 million in real estate-related partnerships and directly owned real estate from GALIC.

Upon the close of the transaction, Great American Life will operate as an independent subsidiary of MassMutual, the mutual life insurer said in a separate announcement, which also said that Great American Life complements Mass Mutual’s existing annuity business by broadening and diversifying its product and distribution capabilities. Great American Life will provide MassMutual with another diversified source of earnings, helping to deliver additional value to its policyowners and position the company for long-term growth, MassMutual said.

Craig Lindner added, “This transaction presents an excellent opportunity for GALIC and MassMutual to be one of the leading providers of traditional fixed and indexed annuities in major distribution channels and markets. In fact, MassMutual has among the highest insurance financial strength ratings, which we believe will result in enhanced distributor recruitment and policyholder retention.”

Lindner also highlighted MassMutual’s commitment to establish a subsidiary in Cincinnati, ensuring that the sales agreement will have no impact on GALIC’s relationships with and commitments to its annuity policyholders and distribution partners.

“Importantly, we are very pleased that this transaction will provide compelling career opportunities for our annuity associates, and bring the operations of a well-respected insurer to the Greater Cincinnati business community,” he said.

Great American Life will continue to be led by its current president, Mark Muething, and its more than 600 employees will remain headquartered in Cincinnati as part of the transaction.

Skadden, Arps, Slate, Meagher & Flom LLP and Keating Muething & Klekamp PLL served as legal counsel to AFG.

Debevoise & Plimpton LLP served as legal counsel to MassMutual.

Earlier this week, personal lines insurer Allstate announced that it is selling most of its life insurance business for $2.8 billion in a deal that allows Allstate to deploy its capital in its P/C and protection businesses.