The Hanover Insurance Group, Inc., in Worcester, Mass., has signed an agreement to sell its remaining run-off life insurance business, First Allmerica Financial Life Insurance Co. (FAFLIC), to Commonwealth Annuity and Life Insurance Co., a Goldman Sachs company.
In conjunction with the closing of this transaction, The Hanover is seeking approval from the Massachusetts Division of Insurance for a pre-close dividend from FAFLIC of various assets valued at approximately $160 million. Total net proceeds from the sale, including the dividend, and after transactions costs and intercompany account settlements, are projected to be valued at approximately $220 million.
The actual dividend and purchase price will be determined at closing, and be adjusted based on the surplus level of FAFLIC, as well as for changes in the fair value of certain investments and various other items. The company said it expects to sell the majority of the dividended assets to its wholly-owned subsidiary, The Hanover Insurance Co., thus cash and investments at the holding company are expected to increase by approximately $220 million from the transaction.
In connection with the sale transaction, the parties expect The Hanover Insurance Co. to reinsure FAFLIC’s accident and health assumed reinsurance pool business, which has been reported as a discontinued operation since 1999 and represents approximately 10 percent of FAFLIC’s total net insurance liabilities.
The transaction is subject to regulatory approval from the Massachusetts Division of Insurance and the New Hampshire Insurance Department and other regulators. It is expected to be completed in the fourth quarter of 2008.
The transaction is expected to result in a net after-tax loss of approximately $66 million, which will be reflected in The Hanover’s second quarter results expected to be released after the market closes today.
“This transaction completes the divestiture of our life business, which has been in run-off since 2002, which we believe will give us greater financial flexibility,” said Frederick H. Eppinger, president and chief executive officer of The Hanover Insurance Group. “The sale accelerates the release of capital from our life company and enables us to deploy that capital more efficiently. Proceeds will be used to build our core property and casualty business, and also to further improve our return on equity, creating opportunities for strategic acquisitions and additional share repurchase programs. At the same time, the transaction provides an excellent outcome for the policyholders of FAFLIC.”
Source: Hanover Insurance