U.S. primary insurance carrier, The Allstate Corporation, has reached an agreement to sell Allstate Life Insurance Company (ALIC) and certain subsidiaries to entities managed by private equity investment giant, Blackstone, for $2.8 billion.
Currently, ALIC holds around 80%, or $23 billion of Allstate’s life and annuity reserves and in 2019, generated net income of $467 million; and a loss of $23 million for the first nine months of 2020.
The $2.8 billion transaction includes the acquisition of ALIC and certain subsidiaries, excluding Allstate Life Insurance Company of New York (ALNY), and also includes a pre-closing dividend from ALIC of up to $400 million.
Allstate says that it will retain ownership of ALNY, which has $5 billion of GAAP reserves and explains that it’s pursuing alternatives to sell or otherwise transfer risk to a third party.
Tom Wilson, Chair, President, and Chief Executive Officer (CEO) of Allstate, commented: “Allstate is deploying capital out of lower growth and return businesses while continuing to execute our strategy to grow market share in personal property-liability and expand protection solutions for customers.
“Customers will be protected using non-proprietary life insurance products, as is currently done for annuities. Deployable capital will increase, and the transaction also provides increased transparency to the industry-leading returns of our core protection businesses.”
Gilles Dellaert, Global Head of Blackstone Insurance Solutions, added: “We’re pleased to enter into this transaction as Blackstone continues growing its insurance business. We believe our team’s extensive experience in the insurance sector and world-class asset origination capabilities will deliver significant benefits to policyholders and investors over the long term.”
All statutory earnings from March 31st, 2020, to closing, will be retained by Allstate. It’s expected that the deal, which remains subject to regulatory approval and is expected to close in H2 2021, will lower Allstate’s GAAP reserves by $23 billion. Furthermore, Blackstone is to enter into an asset management agreement for ALIC’s $28 billion of investments.
Mario Rizzo, Allstate’s Chief Financial Officer (CFO), said: “Allstate has been surgically deploying capital out of spread-based products with life and annuity liabilities declining to $5 billion after the closing of this transaction.
“The investment portfolio will decline by approximately $28 billion to $63 billion. A financial book loss of approximately $3.1 billion will be recorded in the first quarter of 2021 given the lower returns on equity for the annuity businesses. Adjusted Net Income Return on Equity will increase by approximately 1 percentage point.”
Menes Chee, a Senior Managing Director at Blackstone, commented: “We’re excited to have raised long-term capital to invest in the business. Allstate’s team has created a strong book of business and we look forward to helping continue to provide exceptional service to policyholders moving forward.”
J.P. Morgan Securities LLC, Ardea Partners LP, and Lazard acted as financial advisers and Willkie Farr & Gallagher LLP was the legal adviser to Allstate.
Morgan Stanley & Co. LLC and Credit Suisse Securities LLC acted as financial advisers, and Debevoise & Plimpton LLP was legal adviser to Blackstone.
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