The Allstate Corp.
) announced the sale of one of its consumer life insurance units
- Lincoln Benefit Life Co. (LBL) - to Resolution Life Holdings
Inc. for $600 million. This follows the company's attempt to
reduce its risk in its life insurance unit at Allstate Financial,
which was operated via independent agencies.
Post regulatory approvals, the deal is scheduled to culminate
by the end of 2013. Founded in 1938 and acquired in 1984 by
Allstate, LBL holds a prominent position in most of the US
Incremental Value and Risk Minimization
Overall, the transaction should earn about $785 million to
Allstate after including tax benefits. Moreover, the disposal of
LBL is expected to generate statutory earnings of $350-400
million, while reducing reserves in Allstate life and annuity
business by $13 billion. Additionally deployable capital is
likely to expand by about $1.0 billion.
Nevertheless, management also projects post-tax GAAP loss of
$475-525 million, which includes approximately $575-675 million
of unrealized capital gains and losses. The deal is also expected
to diminish the company's equity capital, on a GAAP basis.
Following the sale, Allstate will terminate the sale of new
life or retirement products via independent life insurance and
annuity agencies. Furthermore, management decided to cease the
issue of fixed annuities by the end of this year, in order to
control the losses from such annuities. A wide array of life,
retirement, savings, long-term care and disability products will
remain in the product basket of Allstate Financial and its
This is also consistent with Allstate's strategy of shifting
its focus to underwritten products from spread-based products,
which are marred by the low interest rate environment and
volatile equity markets. Based on this, contractholder funds were
reduced by $512 billion from 2012-end to $34.2 billion at Mar
However, Allstate is not the first insurer that is striving to
reduce exposure to market risks by vending of its annuity-related
products. In Dec 2012,
Sun Life Financial Inc.
) disposed of its variable annuity business to Delaware Life
Holdings for $1.35 billion, among others.
On the other hand, the deal complements the long-term growth
strategy of Resolution Life, which concentrates on growing its
life insurance business inorganically through acquisitions than
attempting to make a fresh market presence.
Overall, we believe that the aggressive measures to mitigate
market risks will likely generate incremental earnings and free
up capital, which should further shore up investor confidence in
the stock. Nevertheless, the extent of gain from these efforts
can only be assessed in the long run. Allstate carries a Zacks
Rank #3 (Hold).
HCI Group Inc.
AmTrust Financial Services Inc.
) appear impressive. All these stocks carry a Zacks Rank #1
AMTRUST FIN SVC (AFSI): Free Stock Analysis
ALLSTATE CORP (ALL): Free Stock Analysis
HCI GROUP INC (HCI): Free Stock Analysis
PROASSURANCE CP (PRA): Free Stock Analysis
SUN LIFE FINL (SLF): Free Stock Analysis
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