The $2 billion price StanCorp Financial Group Inc. agreed to pay The Allstate Corp. for its employer voluntary benefits business suggests a relative valuation well in excess of the prices paid in similar acquisitions in recent years.
Deal target American Heritage Life Insurance Co. ended the second quarter with statutory capital and surplus of $384.6 million, but that included the company's investment in auto warranty writer First Colonial Insurance Co. After American Heritage Life divested First Colonial, which had $129.9 million in surplus as of June 30, to Allstate Insurance Holdings LLC on July 1, the company would have been left with statutory equity of $254.7 million.
That implies The Standard will pay a 7.85x multiple to American Heritage Life's remaining statutory surplus, well in excess of the 3.14x statutory surplus that S&P Global Market Intelligence assigned to New York Life Insurance Co.'s December 2019 agreement to purchase The Cigna Group's group life and disability business. The 7.41x multiple to required statutory capital and surplus at closing, or 6.27x the sum of required surplus and the target's June 30 asset valuation reserve, also compares favorably to previous transactions of the sort. Note that American Heritage Service Co., an affiliate of American Heritage Life, will also be sold to The Standard, but it does not factor in the insurer's reported surplus as a direct subsidiary of the insurer's parent, which in turn causes the statutory multiples to be inflated by an unknown amount.
Allstate bought the former publicly traded parent of American Heritage Life in 1999 in pursuit of what the company described at the time as an "unprecedented growth opportunity" to build out a national presence for the target's southeastern US-focused worksite distributor of life, disability and health products. That transaction, which included American Heritage Life, First Colonial and AHL Select HMO Inc., had an aggregate value at announcement of $1.09 billion, or just over $2 billion on an inflation-adjusted basis. The implied multiple relative to American Heritage Life's year-end 1999 statutory surplus was 7.09x.
Merrill Lynch, in a fairness opinion conducted on the seller's behalf, put the announced deal value at multiples of 2.83x adjusted fully diluted March 31, 1999, GAAP book value and 23.9x the analyst consensus for full-year 1999 earnings per share. S&P Global Ratings at the time described the valuation relative to book as "aggressive." Assets and liabilities statistics disclosed by Allstate on Aug. 14 imply equity for the combination of American Heritage Life and the affiliated service company of roughly $800 million, which would suggest a price-to-book multiple in the companies' divestiture of approximately 2.50x.
Following the first several years of Allstate's ownership, which included losses associated with an acquisition, the assumption of business from AHL Select and a short-lived annuity product, American Heritage Life has been consistently profitable. Generating growth has been increasingly challenging in a competitive group benefits marketplace in recent years. The company's total net premiums declined by 10.3% in 2022 and 3.3% in 2023 before rebounding by 3.5% in the first half of 2024.
Allstate indicated that the alignment of business focus between The Standard and American Heritage Life would better position the deal target to realize its full growth potential.
The structures of two other comparable transactions with price tags north of $1 billion, The Hartford Financial Services Group Inc.'s October 2017 agreement to acquire the US group life and disability business of Aetna Inc. through indemnity reinsurance and Lincoln National Corp.'s January 2018 agreement to essentially carve out Liberty Mutual Holding Co. Inc.'s group benefits business written through what became Lincoln Life Assurance Co. of Boston, do not necessarily allow for apples-to-apples analysis of prices paid to statutory equity.
But The Standard's purchase price appears to be considerably higher than those paid by The Hartford and Lincoln National relative to premium volume at 1.99x American Heritage Life's full-year 2023 net production and 1.95x trailing-12-months net premiums through June 30. We calculated price to net premiums multiples of 0.73x and 0.85x, respectively, in the sales of the Aetna and Liberty Mutual businesses. The $1.45 billion Aetna consideration largely consisted of a ceding commission paid by Hartford Life & Accident Insurance Co.; Lincoln indicated that its portion of the Liberty Mutual deal involved a net investment of nearly $1.45 billion, consisting of a $1.02 billion purchase price and a required capital commitment. New York Life agreed to pay 1.52x the combined 2019 net premiums for Life Insurance Co. of North America and what has since been renamed as New York Life Group Insurance Company of NY.
An analysis of 2023 statutory financials across the property and casualty, life and managed care segments finds that The Standard would have ranked No. 9 among writers of both group life and group accident and health products, net of comprehensive major medical and various privately underwritten government-sponsored health insurance business including Medicare supplement policies, when combining its direct production with that of American Heritage Life in the applicable lines.
Based on that criteria, which excludes $146.9 million in individual accident and health premiums that American Heritage Life wrote in 2023, The Standard's $3.99 billion in group life and non-governmental accident and health business would have trailed only the following groups: MetLife Inc., Prudential Financial Inc., New York Life, UnitedHealth Group Inc., Unum Group, The Hartford, Lincoln and the group led by The Guardian Life Insurance Company of America. Compiling a ranking of worksite benefits insurers is complicated by the disparate nature of the lines traditionally involved in that business.
Pursuit of a multi-channel, multi-product, multi-brand strategy led Allstate to engage in a series of acquisitions in the late 1990s across business lines. More recently, a focus on core auto, homeowners and protection services business has led to several divestitures and product withdrawals. With the remaining individual and group health pieces of Allstate's health and benefits segment still on the selling block, there is likely more to come.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.