American Financial Group, Inc. Announces Agreement to Sell Run-off Long-Term Care Business
April 14 2015 - 9:00AM
Business Wire
- Completes AFG’s exit from the
long-term care insurance market
- Estimated after-tax proceeds of
between $105 and $115 million, inclusive of tax benefit
- Estimated after-tax non-core GAAP
loss of between $105 and $115 million to be recorded in first
quarter 2015 results
American Financial Group, Inc. (NYSE/Nasdaq: AFG) today
announced that it has reached a definitive agreement to sell the
legal entities containing all of its run-off long-term care
insurance business to HC2 Holdings, Inc. (“HC2”) (NYSE MKT: HCHC)
for an initial payment of $7 million in cash and HC2 securities,
subject to adjustment based on certain items, including operating
results through the closing date. In addition, AFG may also receive
up to $13 million of additional proceeds from HC2 in the future
based on the release of certain statutory liabilities of the legal
entities sold by AFG.
The legal entities involved in the transaction, United Teacher
Associates Insurance Company and Continental General Insurance
Company, contain all of AFG’s $800 million in net GAAP long-term
care insurance reserves, as well as nearly $300 million of net GAAP
annuity and life insurance reserves. The transaction is expected to
close in the third quarter of 2015, subject to customary
conditions, including receipt of required regulatory approvals. In
accordance with generally accepted accounting principles, AFG will
record an estimated after-tax non-core loss on the sale in the
first quarter of 2015. Excluding the impact of potential future
proceeds, this loss is currently estimated to be between $105 and
$115 million, and may be adjusted based on final proceeds received
and final net assets disposed.
Due to a significant tax benefit from the sale, AFG expects to
receive after-tax proceeds of between $105 and $115 million from
the transaction (before any potential future proceeds). Similar to
above, the actual amount will be based on final proceeds received
and final net assets disposed. While the sale does not result in a
change to AFG’s 2015 core net operating earnings guidance,
management does expect the sale to be accretive to AFG’s earnings
and returns on equity over time as the proceeds are utilized.
The sale will have no financial or other impact on AFG’s primary
annuity subsidiaries, Great American Life Insurance Company and
Annuity Investors Life Insurance Company.
Craig Lindner, AFG’s Co-Chief Executive Officer and President of
AFG’s Annuity and Run-off Segments, stated: “This sale finalizes
AFG’s exit from supplemental medical insurance lines of business,
following the 2012 sale of AFG’s Medicare supplement and critical
illness businesses, where AFG recognized an after-tax gain of $114
million. The exit allows us to provide continued focus on our
annuity business, where we are a leading provider of fixed and
fixed-indexed annuities in the financial institutions and retail
markets. Furthermore, the sale is expected to create between $80
and $90 million of excess capital for AFG, in addition to the $810
million of excess capital reported at year end 2014. We are
confident that the sale will enable us to redeploy capital,
increase earnings and returns, and create long-term value for our
shareholders. We appreciate the hard work and dedication of the
individuals who have successfully managed our long-term care
insurance business.”
About American Financial Group,
Inc.
American Financial Group is an insurance holding company, based
in Cincinnati, Ohio with assets of over $45 billion. Through the
operations of Great American Insurance Group, AFG is engaged
primarily in property and casualty insurance, focusing on
specialized commercial products for businesses, and in the sale of
fixed and fixed-indexed annuities in the retail, financial
institutions and education markets. Great American Insurance
Group’s roots go back to 1872 with the founding of its flagship
company, Great American Insurance Company.
Forward Looking
Statements
This press release contains certain statements that may be
deemed to be “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements in this press
release not dealing with historical results are forward-looking and
are based on estimates, assumptions and projections. Examples of
such forward-looking statements include statements relating to: the
Company’s expectations concerning market and other conditions and
their effect on future premiums, revenues, earnings and investment
activities; recoverability of asset values; expected losses and the
adequacy of reserves for long-term care, asbestos, environmental
pollution and mass tort claims; rate changes; and improved loss
experience.
Actual results and/or financial condition could differ
materially from those contained in or implied by such
forward-looking statements for a variety of reasons including but
not limited to: changes in financial, political and economic
conditions, including changes in interest and inflation rates,
currency fluctuations and extended economic recessions or
expansions in the U.S. and/or abroad; performance of securities
markets; AFG’s ability to estimate accurately the likelihood,
magnitude and timing of any losses in connection with investments
in the non-agency residential mortgage market; new legislation or
declines in credit quality or credit ratings that could have a
material impact on the valuation of securities in AFG’s investment
portfolio; the availability of capital; regulatory actions
(including changes in statutory accounting rules); changes in the
legal environment affecting AFG or its customers; tax law and
accounting changes; levels of natural catastrophes and severe
weather, terrorist activities (including any nuclear, biological,
chemical or radiological events), incidents of war or losses
resulting from civil unrest and other major losses; development of
insurance loss reserves and establishment of other reserves,
particularly with respect to amounts associated with asbestos and
environmental claims and AFG’s run-off long-term care business;
availability of reinsurance and ability of reinsurers to pay their
obligations; the unpredictability of possible future litigation if
certain settlements of current litigation do not become effective;
trends in persistency, mortality and morbidity; competitive
pressures, including those in the annuity distribution channels,
the ability to obtain adequate rates and policy terms; changes in
AFG’s credit ratings or the financial strength ratings assigned by
major ratings agencies to our operating subsidiaries; and other
factors identified in our filings with the Securities and Exchange
Commission.
The forward-looking statements herein are made only as of the
date of this press release. The Company assumes no obligation to
publicly update any forward-looking statements.
American Financial Group, Inc.Diane P. Weidner, Asst. Vice
President – Investor Relations, 513-369-5713Websites:www.AFGinc.comwww.GreatAmericanInsuranceGroup.com
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