Allstate Corp. has agreed to sell its Lincoln Benefit Life Co. to Resolution Life Holdings Inc., for $600 million, yet another in a string of recent deals that have seen large insurers sell off their annuity businesses.
Once the deal is finalized, which should happen by the end of the year, Allstate will essentially abandon the consumer segment served by independent life insurance and annuity agencies. By doing so, the firm estimates it will reduce required capital in Allstate Financial by approximately $1 billion.
The company further announced that it will stop issuing fixed annuities by the end of this year and instead use third-party annuity companies to offer retirement products.
Although it will no longer sell new life or retirement products via independent agencies, Allstate will continue to service in-force Lincoln Benefit business for the next 12 to 18 months. After that time, those contracts will be managed by Resolution, which was founded by U.K.-based Resolution Group.
“This divestiture is one of many actions we have taken to strategically focus Allstate Financial and deploy capital to earn attractive risk-adjusted returns. This action also advances Allstate’s key priorities, including reducing exposure to spread-based business and interest rates,” said Thomas J. Wilson, chairman, president and chief executive officer of Allstate Corp., in a written statement.
Allstate is not alone in selling off a business line – annuities – that have become a drag on corporate balance sheets as interest rates continue to linger at historic lows. Since last year, Aviva PLC sold off Aviva USA to Athene (in a still pending deal), while Sun Life unloaded its annuity business to Guggenheim Partners. That list doesn’t include the Hartford, which exited the variable annuity business altogether last year.
Since many of the acquiring companies are of the private equity variety, the deals have attracted the eye and, in some cases, ire of regulators and competing companies who question whether a private equity investment strategy is the best fit for a long-term business like insurance. Both the New York State Department of Financial Services and the NAIC are investigating the matter.
For its part, Allstate expects to generate cash proceeds, inclusive of tax benefits, of approximately $785 million. It estimates that the sale will result in a GAAP loss of between $475 million and $525 million, after-tax, and a reduction in GAAP equity, including the impact to unrealized capital gains and losses, in the range of $575 million to $675 million. This deal will result in a statutory gain of $350 million to $400 million, increase Allstate’s deployable capital by approximately $1 billion and reduce Allstate life and annuity reserves by $13 billion.
The business being sold had $341 million of premiums and contract charges, representing 15 percent of Allstate Financial’s 2012 total. Normal after-tax returns have averaged approximately 1 percent of transaction reserves.
Share of Allstate Corp. rose 93 cents, nearly 2 percent, to $51.96 in afternoon trading.
Additional reporting from the Associated Press.