The Allstate Corporation ALL is in talks with FGL Holdings FG to sell-off its annuity business, per Reuters. Notably, the company has been looking for options to get rid of this business due to disappointing returns.
Allstate’s annuities segment accounted for about 2.4% of total revenues and 0.2% of total policies in force in 2018. The segment consists of deferred fixed annuities and immediate fixed annuities.
The segment is in run-off and focused on increasing lifetime economic value. Both the deferred fixed annuities and immediate fixed annuities have been adversely affected by the historically low interest rate environment.
The company’s immediate annuity business has also been affected by medical advancements that have resulted in annuitants living longer than anticipated when many of these contracts were signed.
Given the declining returns, the company exited the sale of annuities over an eight year period from 2006-2014. In 2006, it disposed the variable annuity business through reinsurance agreements.
Allstate remains focused on shifting its business mix by reducing the level of capital allocated to its more capital-intensive business lines.
Other insurers have also reduced their exposure to fixed annuity business by either selling them completely or entering into reinsurance transaction.
Last month, Ameriprise Financial, Inc. AMP entered into an agreement with Commonwealth Annuity and Life Insurance Company, a subsidiary of Global Atlantic Financial Group, to reinsure approximately $1.7 billion of fixed annuity policies, which is approximately 20% of the company’s in force fixed annuity account balance.
Last year, another insurer Voya Financial, Inc. VOYA got its $19 billion of fixed and fixed indexed annuity liabilities through Athene Holding Ltd. (ATH).
This deal, if closed, will be a net positive for Allstate, allowing the company to utilize the capital for higher return generating business.
The company is focused on growing its Personal Property-Liability market share and Protection businesses.
Year to date, the stock has gained a good 16.3% compared with the industry’s growth of 1.8%. Given the tailwinds, this Zacks Ranked #3 (Hold) stock should continue its rally. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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