By Arthur D. Postal
WASHINGTON – Allstate has completed the divestiture of Lincoln Benefit Life, which included Allstate’s entire deferred fixed annuity and long-term care insurance businesses.
Lincoln Benefit Life was the unit of Allstate’s life insurance business that generated sales through independent agencies.
Allstate sold the business in July 2013 to Resolution Life Holdings for $600 million, and the sale was completed April 1, 2014, after approval was received from the Nebraska Department of Insurance. Resolution Life is based in Stamford, Conn.
The estimated gross sale price is $796 million, representing $587 million of cash and the retention of tax benefits, Allstate said.
Allstate and Resolution said in a statement that the insurance policies and contracts sold by Lincoln Benefit Life through Allstate agencies will be retained by Allstate through a reinsurance arrangement. Resolution officials added that, in 2006, the variable annuity contracts sold by LBL were reinsured by Prudential and Prudential will continue to support those contracts.
Thomas J. Wilson, Allstate chairman, president and CEO, said the divestiture “is another strategic step for Allstate to serve distinct consumer segments with differentiated offerings."
Wilson said Allstate “will now focus on providing proprietary life and non-proprietary retirement products to the customer segment served by local Allstate agencies. This sale also supports our risk and return objectives of reducing exposure to interest rates and spread-based businesses."
Allstate made the decision to divest itself of the deferred fixed annuity and LTCi businesses in an attempt to reduce earnings volatility and as part of a derisking initiative. However, that decision “creates its own risks,” according to a Moody’s Investors Service investment note, adding that Allstate will have to execute well on several initiatives in order to manage them.
In addition, Moody’s said, “Given the low interest rate environment, the company will have to offset diminished portfolio returns and heightened risk from annuity concentrations in order to strengthen profitability.”
The sale will reduce Allstate's life and annuity reserves and investment portfolio by approximately $12.7 billion and $11.9 billion, respectively, the company said.
In its investment note, Moody’s cautioned that Allstate’s decision in 2013 to drop non-proprietary distribution gives it more control over sales.
But, Moody’s said, to compensate for non-proprietary sales lost, however, cross-selling of life products among Allstate agents who sell mainly property/casualty insurance needs to improve. “Thus far, Allstate has been unable to materially improve cross-selling,” Moody’s said.
Moreover, in re-risking its asset portfolio, Allstate must weigh the potential for higher returns against future volatility under stress conditions, Moody’s said.
Moody’s said Allstate has added investment risk over the past two years by adding more equities and below investment grade bonds.
“Although equity and credit markets have performed well, the more aggressive risk posture could have negative consequences should those markets suffer setbacks,” Moody’s said.
The note explained that in the current low rate environment, interest rate risk is heightened owing to an annuity concentration that represents 67 percent of reserves.
“Although the recent sale of Lincoln Benefit Life shaved $7.5 billion of annuity exposure, interest margin squeeze remains a significant risk,” Moody’s said. It added that Allstate “has a material amount of long-term annuities at guaranteed minimums, and options are limited.”
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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