American Enterprise, Homesteaders Life Decide Not to Merge

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March 26, 2009 Thursday 04:47 PM EST

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American Enterprise, Homesteaders Life Decide Not to Merge

Fran Lysiak

WEST DES MOINES, Iowa

American Enterprise Group Inc. and Homesteaders Life Co. said they decided not to go ahead with their previously announced plan to merge.

Under the proposed deal, announced in January, American Enterprise Mutual Holding Co., part of American Enterprise, was to acquire Homesteaders Life for an undisclosed amount. The combined organization would have had revenues of $883 million.

American Enterprise Mutual, through its affiliated companies, American Republic Insurance Co. and World Insurance Co., sells health insurance in the senior and individual markets. Homesteaders Life sells funeral insurance and said it is associated with more than 3,000 funeral homes and 8,000 agents in the United States.

In a joint statement, the companies said that while American Enterprise Chairman and Chief Executive Officer Michael E. Abbott and Homesteaders Chairman and President Graham J. Cook think combining their companies would offer some opportunities, "they concur it is in the best interest of the policyholders, agents, and employees of each company to focus their efforts and attention on their individual markets and businesses."

Earlier this week, A.M. Best Co. downgraded the issuer credit rating to bbb from bbb+ and affirmed the financial strength rating of B++ (Good) of Homesteaders Life. The rating actions followed the termination of the merger agreement between American Enterprise and Homesteaders that was announced in January (BestWire, March 23, 2009).

At that time, A.M. Best believed the merger would provide Homesteaders with access to capital to materially improve its risk-based capital position and serve to alleviate concerns regarding its significant investment exposure to commercial mortgages and offset the impact of potential future investment losses in its fixed income portfolio. Additional concerns surfaced in late January with regard to a reinsurance counterparty of Homesteaders, Scottish Re (U.S.) Inc., which was placed under a regulatory order of supervision by the Insurance Commissioner of Delaware, A.M. Best said. (BestWire, March 23, 2009).

Separately, American Enterprise said last month it was eliminating about 60 jobs as part of its overall business strategy. The business alignment strategy is intended to improve the company's operating efficiencies by streamlining processes and eliminating redundancies, said Mary Durand, an American Enterprise spokeswoman (BestWire, Feb, 9, 2009).

American Republic Insurance Co. and World Insurance Co., the American Enterprise Mutual subsidiaries, both have current Best's Financial Strength Ratings of A- (Excellent).

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])

March 27, 2009