Allmerica Financial Corporation Announces the Sale of its Run-Off Variable Life Insurance and Variable Annuity Business
22 Agosto 2005 - 11:06PM
PR Newswire (US)
Transaction Focuses Company Resources on its Property and Casualty
Business WORCESTER, Mass., Aug. 22 /PRNewswire-FirstCall/ --
Allmerica Financial Corporation (NYSE:AFC) announced today that it
has entered into a definitive agreement to sell its run-off
variable life insurance and variable annuity business to The
Goldman Sachs Group, Inc. In conjunction with this sale, AFC is
seeking approval from the Massachusetts Division of Insurance for a
dividend of $40 million from its remaining life business. Total
cash proceeds from the sale and the dividend are projected to be
approximately $385 million, approximately $70 million of which is
expected to be deferred and paid over a three year period. The
actual purchase price will be determined at closing, and is subject
to changes in equity market levels, implied equity market
volatility, interest rates and surrender activity. Additionally,
the actual purchase price will be adjusted based on the actual
surplus level of Allmerica Financial Life Insurance and Annuity
Company (AFLIAC), the life insurance affiliate being sold, at
closing. Allmerica expects to implement a hedge program that is
intended to substantially protect the purchase price from movements
in interest rates, equity market levels and implied equity market
volatility through closing. Up to $200 million of the proceeds are
expected to be used to fund a share repurchase program commencing
after the closing of the transaction. The remaining proceeds will
be retained to meet certain corporate obligations and provide
additional financial flexibility at the holding company. "This
transaction delivers on our strategy to monetize the value of our
life business that has been in run-off since 2002, and enables us
to apply even greater focus on the continued growth of our property
and casualty business," said Frederick H. Eppinger, president and
chief executive officer of Allmerica Financial Corporation. "The
sale will accelerate the release of capital from the Life
Companies, and provide us with the financial flexibility to
implement a share repurchase program. It will deliver immediate
value to our shareholders, and will position us to continue to do
so going forward." The transaction will include the sale of
Allmerica's primary life insurance company, AFLIAC, to Goldman
Sachs. AFLIAC holds 94% of Allmerica's variable insurance and
annuity business. In a related transaction, AFLIAC will reinsure
the remaining 6% of Allmerica's variable business, held by an
affiliate company, First Allmerica Financial Life Insurance Company
(FAFLIC), in effect transferring the residual variable business to
Goldman Sachs. In connection with these transactions, Allmerica
Investment Trust (AIT) has entered into a reorganization agreement
pursuant to which it will transfer the assets and liabilities of
each of its funds to certain Goldman Sachs managed funds. Lastly,
Goldman Sachs will purchase from Allmerica the AIT funds' current
investment advisory company. The transaction is expected to result
in a net after tax loss on the sale that is projected to be
approximately $400 million, primarily as the result of the
write-down of non-cash deferred acquisition cost assets. The sale
of the variable insurance business to Goldman Sachs will not change
the terms and conditions of policyholder contracts. AFLIAC will
continue to be well capitalized and will benefit from a strong
parent company in Goldman Sachs. The operations of AFLIAC will be
outsourced to Security Benefit Life Insurance Company, a
state-of-the-art insurance and financial services provider. After
the sale, Allmerica will no longer have exposure to variable
annuity business with guaranteed minimum death benefit risk. It
will continue to own FAFLIC, which holds various blocks of
traditional life insurance businesses that are in run-off. FAFLIC
will provide transition services to Goldman Sachs until the
operations of AFLIAC can be transferred to Security Benefit. At the
end of the transition period, which is expected to be in the fourth
quarter of 2006, FAFLIC is projected to have statutory total
adjusted capital of $175 million and certain tax benefits which are
expected to be utilized over time to generate dividendable surplus
to the holding company. Allmerica expects the transactions to close
on or after November 30, 2005. Closings of the transactions are
subject to satisfaction of various conditions, including regulatory
approvals from the Massachusetts Division of Insurance and the New
York Department of Insurance, expiration of the Hart- Scott-Rodino
waiting period, filings with the Securities and Exchange Commission
with respect to the reorganization of the AIT funds, the accuracy
of various representations and warranties and compliance with
covenants and agreements, and to other provisions customary for
transactions of this kind. In addition, Allmerica will indemnify
Goldman Sachs for litigation, regulatory matters and other
liabilities relating to the pre-closing activities of the business
being transferred. The AIT fund reorganization requires fund
shareholder approval. Conference Call Allmerica Financial
Corporation will host a conference call to discuss this
announcement on Tuesday, August 23rd at 10:00 a.m. Eastern time. A
power point slide presentation will accompany our prepared remarks
and has been posted on our website. Interested investors and others
can listen to the call and access the presentation through
Allmerica's web site, located at http://www.allmerica.com/.
Web-cast participants should go to the web site at least 15 minutes
early to register, and install any necessary audio software. A
re-broadcast of the conference call will be available on this web
site two hours after the call. Forward-Looking Statements All
statements in this release and in the above referenced conference
call and power point slide presentation, other than statements of
historical fact, are forward-looking statements, as that term is
defined in the Private Securities Litigation Reform Act of 1995. In
addition to the risks and uncertainties noted in this release or in
such conference call, there are certain factors that could cause
actual results to differ materially from those anticipated by the
press release, slide presentation and statements made. These
include: (1) the successful consummation of the transactions with
Goldman Sachs in a timely manner; (2) the various conditions to the
consummation of such transactions being satisfied or waived without
the imposition of material burdens or expenses; (3) the required
regulatory approvals of the transactions being obtained in a timely
manner without the imposition of any material restrictions or
burdens, and regulatory approval for future dividend requests from
FAFLIC; (4) the uncertainties as to the gross or net proceeds to be
received by AFC, including the uncertainty as to the effects of the
various purchase price adjustments and expenses incurred by AFC;
(5) the shareholder approval of the AIT Fund reorganization; (6)
the successful and timely execution of the anticipated repurchase
program; (7) the ability to realize post-closing earnings for the
property-casualty segment that are taxable and make FAFLIC's tax
attributes valuable; (8) the ability to timely achieve overhead and
other expense savings; (9) the ability of AFC and FAFLIC to perform
the transitional services in connection with the transactions
without incurring unexpected expenses and the completion of the
transitional services within the projected time so that the company
can realize projected cost savings; (10) the uncertainties of the
purchase price hedge to effectively hedge the purchase price as
currently estimated and at a cost consistent with expectations;
(11) the impact of policyholder surrenders on the purchase price
adjustment, which are not hedged, and the impact that this
announcement or any financial strength rating actions triggered by
this announcement could have on surrenders between the date hereof
and the closing; (12) the impact of contingent liabilities,
including litigation and regulatory matters, assumed by the holding
company in connection with the transaction; (13) the ability to
outsource the administration of the retained FAFLIC businesses at
projected rates; (14) the statutory results of operations of the
Life Companies segment until close, which will impact the statutory
surplus of AFLIAC and consequently the ultimate purchase price; and
(15) the future statutory operating results of FAFLIC, which will
affect projected statutory adjusted capital. Forward-looking
statements are not guarantees of future performance, and actual
results could well differ materially. Investors should consider
these and other risks and uncertainties in our business that may
affect future performance (including Life Companies operations) and
that are discussed in readily available documents, including
Allmerica's Annual Report on Form 10-K, quarterly reports on Form
8-K and other documents filed by Allmerica with the Securities and
Exchange Commission and which are also available at
http://www.allmerica.com/ under "Investor Relations." Allmerica
Financial Corporation is the holding company for a group of
insurance companies headquartered in Worcester, Massachusetts.
Contact Information Investors: Media: Sujata Mutalik Michael F.
Buckley E-mail: E-mail: 1-508-855-3457 1-508-855-3099 DATASOURCE:
Allmerica Financial Corporation CONTACT: Sujata Mutalik,
+1-508-855-3457, , or Michael F. Buckley, +1-508-855-3099, both of
Allmerica Financial Corporation Web site: http://www.allmerica.com/
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