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: smutalik@allmerica.com E-mail: mibuckley@allmerica.com
1-508-855-3457 1-508-855-3099
SOURCE Allmerica Financial Corporation
-0- 08/22/2005
/CONTACT: Sujata Mutalik, +1-508-855-3457, smutalik@allmerica.com, or
Michael F. Buckley, +1-508-855-3099, mibuckley@allmerica.com both of Allmerica
Financial Corporation/
/Web site: http://www.allmerica.com/
(AFC)
CO: Allmerica Financial Corporation
ST: Massachusetts
IN: FIN INS
SU: CCA
EO-NJ
-- NEM036 --
6389 08/22/200516:06 EDThttp://www.prnewswire.com