Cowdery’s Resolution Buys Allstate Life Business in U.S.

July 22, 2013 by Noah Buhayar

Clive Cowdery, who earned a fortune cutting deals that consolidated the U.K. life-insurance industry, is making a foray into the U.S. by buying a business from Allstate Corp. for $600 million (394 million pounds).

Resolution Life Holdings Inc., a company founded by Cowdery’s London-based Resolution Group, agreed to buy Lincoln Benefit Life Co. from Allstate, according to a statement yesterday from the Northbrook, Illinois-based company. The buyer’s strategy is to acquire other U.S. life businesses that are in runoff, or are no longer selling new policies.

Allstate is among insurers that have sought to sell life and annuities assets as low interest rates pressure returns. Axa SA (CS) agreed in April to divest a U.S. life unit to Protective Life Corp. (PL) as part of a $1.06 billion transaction. Canada’s Sun Life Financial Inc. (SLF) struck a deal last year to sell a U.S. annuity business for $1.35 billion to a firm owned by Guggenheim Partners LLC shareholders.

“This is an interesting departure,” Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in a phone interview about Cowdery’s latest deal. “There’s been a fair amount of runoff acquisition of life companies in the United Kingdom, and you haven’t seen a lot of those folks come over to the United States.”

Cowdery, 50, generated a personal fortune by buying runoff pools of life-insurance policies at discounts to their embedded value, from 2003 to 2008. He released capital by merging them, cut costs and captured cash flow from expiring coverage. He sold the firm, also named Resolution, to Pearl Group Ltd. at the market’s top for 5 billion pounds in 2008.

Missed Targets

A more-recent attempt in the U.K. hasn’t been as successful. Resolution Ltd. (RSL), which is separate from Resolution Life Holdings, has missed targeted returns to shareholders and wound down a plan to buy ailing life insurers. In May, the company said that first-quarter sales dropped 17 percent to 242 million pounds as clients delayed enrolling in pension plans.

Allstate Chief Executive Officer Thomas Wilson, 55, has sought to limit risk and boost returns at Allstate Financial, his company’s life-insurance business. Selling Lincoln Benefit will reduce the amount of capital the unit will have to hold by about $1 billion, according to yesterday’s statement.

Normal after-tax returns had averaged about 1 percent of transaction reserves at Lincoln Benefit, Allstate said in the statement. The unit had $341 million of premiums and contract charges, or 15 percent of Allstate Financial’s 2012 total.

Allstate’s Exit

Allstate, the largest publicly traded U.S. auto and home insurer, also said yesterday that it would stop issuing fixed annuities at the end of the year and sell the products from other companies instead. Wilson sold a variable-annuities business to Prudential Financial Inc. in 2006 and said in 2011 that “we don’t get attractive returns” on some of the remaining annuity deposits at Allstate.

Wilson’s company gained 2.4 percent to $52.25 at 9:50 a.m. in New York, the biggest increase in the 22-company Standard & Poor’s 500 Insurance Index. Allstate has jumped 30 percent this year, matching the rise in the index.

Resolution will begin servicing existing Lincoln Benefit customers after a 12- to 18-month transition, according to the statement.

Resolution Group “has a consistent track record of establishing businesses in the United Kingdom for the management of in-force life-insurance policies,” Allstate said in the statement. “Resolution Life has a long-term view of the market and is committed to retaining in-force customers and providing excellent customer experiences and support.”

Shareholder Equity

The deal is expected to be completed by the end of the year and will result in a loss of $475 million to $525 million for Allstate, according to the statement. Shareholder equity will fall by $575 million to $675 million, including unrealized capital gains and losses, the insurer said.

The return on equity of Lincoln Benefit is “well below Allstate’s consolidated ROE, making this sale welcome news despite the book-value hit,” Keefe, Bruyette & Woods analysts led by Meyer Shields wrote in a note to clients yesterday. “We think it will be received favorably by investors.”

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

Originally Posted at Bloomberg on July 18, 2013 by Noah Buhayar.