* Hartford will be No. 2 U.S. group life benefits insurer
* Eyes increased mid-market presence, better tech offering
* Hartford suspends share buyback in 2017, 2018, shares fall (Adds Hartford president comments, presentation details, context)
By Diptendu Lahiri and David French
Oct 23 (Reuters) - Hartford Financial Services Group Inc said on Monday it would buy health insurer Aetna Inc's U.S. group life and disability business for $1.45 billion cash in a move that will expand its insurance portfolio and spur its digital technology plans.
Shares of The Hartford fell more than 5 percent to $53.63 after the insurer said it would suspend its existing buyback to fund part of the deal and would not repurchase stock next year.
It will use the outstanding $273 million from its 2017 equity buyback program to fund the purchase, as well as dividends from its insurance units and holding company resources. It will not issue debt or equity for the purchase.
"Hartford is financing the deal by dividends and clearly mentioned that it will not authorize an equity repurchase plan for 2018, driving the shares down," Atlantic Equities analyst John Heagerty said.
The transaction will make The Hartford the second-largest provider of group life and disability insurance in America with more than 20 million customers, and will strengthen the firm's business among mid-sized companies.
It will also give The Hartford access to Aetna's digital assets to improve its workers' compensation and disability claims processes. The assets include an integrated absence management platform.
Insurance companies are increasingly focused on improving their technology, regarded as more antiquated than other parts of financial services, to help customer service and take advantage of data to influence policy writing.
"We knew we would have needed to update our systems (for group benefits) in the next couple of years, so this gives us a significant advantage," The Hartford President Doug Elliot told Reuters.
Elliot also noted the acquisition's potential cross-sale opportunities for the company, including signing a multi-year deal with Aetna to offer The Hartford's group life and disability products through its medical sales team.
Aetna's group life and disability insurance unit had premiums of about $2 billion in 2016, which would boost The Hartford's total as of the end of last year on a pro forma basis to $5.1 billion, according to an investor presentation.
Aetna, whose shares were 0.9 percent higher at $162.31, will use the sale proceeds for share repurchases and to repay debt.
The Hartford also reported third-quarter core earnings fell 46 percent year on year to $222 million, weighed by higher losses caused by recent hurricanes and wildfires.
The acquisition, which is expected to close in early November, would add to The Hartford's earnings in 2018. (Reporting by Diptendu Lahiri in Bengaluru and David French in New York; Editing by Martina D'Couto and Susan Thomas)