Archive for the ‘Insurance’ Category

Pandit Getting Ready to IPO Sandy Weill’s Primerica

Tuesday, March 30th, 2010

Years after Sandy Weill built Citigroup, Vikram Pandit has been working day and night to divest all ancillary businesses in order to raise capital and pay back the U.S. government for one of the largest bailouts in history.  To date, Citigroup has already sold its Japanese brokerage, its commodities trading unit, and credit card assets.  The most recent divestiture/IPO  for Citi is its  insurance division, Primerica, the insurance company that Sandy Weill used to build Citigroup into the powerhouse it was in 2005/2006.  The IPO reflects improvements in the market.  There are 4 IPOs planned for this week. Primerica will be selling for a sharp discount of 7x PE compared to other insurers, which trade at about 9x P/E.  Warburg Pincus will be purchasing about 30% of the IPO with warrants to purchase more shares in the future.  The division has 100,000 representatives selling financial services to households with $30,000 to $100,000 in annual income.  It earned $495 million in 2009, almost 3x as much in 2008.  Primerica will trade under the symbol “PRI.”

According to Michael Tsang & Craig Crudell of Bloomberg, “Primerica Inc., the insurance business that Sanford I. “Sandy” Weill used to build Citigroup Inc., is selling shares in an initial public offering at a discount to its competitors.

Primerica plans to raise $252 million tomorrow, a filing with the Securities and Exchange Commission and Bloomberg data showed. At the middle of its price range, the Duluth, Georgia- based distributor of consumer-finance products from term-life insurance to mutual funds would be valued at 6.74 times earnings after accounting for its planned reorganization. That’s 29 percent less than the median for U.S. life and health-insurance providers, data compiled by Bloomberg show.

Citigroup Chief Executive Officer Vikram Pandit is dismantling the company Weill built spending about $50 billion on Travelers Corp., Salomon Inc. and Citicorp during the 1990s to offer everything from insurance to stock broking and branch banking. The sale comes after the Standard & Poor’s 500 Index’s rally to an 18-month high spurred a rebound in the IPO market.

“The Primerica deal reflects a shift from the financial supermarket model, where instead of being good at a lot of things, a company like Citigroup ended up being mediocre at everything,” said James Dailey, who oversees $140 million as chief investment officer at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “Primerica could fetch a reasonable price. It’s been around a long time, its brand is established.”

Primerica is one of four U.S. companies scheduled to sell shares through initial offerings this week.

IPO Rebound

All five IPOs since March 15 have priced within or above their forecast range as the S&P 500 extended a rebound from its 2010 low on Feb. 8 to 11 percent. The previous 14 deals since the start of the year had been cut by 24 percent on average, data compiled by Bloomberg show.

Carlyle Group’s Windsor, Connecticut-based SS&C Technologies Holdings Inc., which sells trading and investment management software to the financial industry, and Meru Networks Inc. of Sunnyvale, California, which makes Wi-Fi networking equipment, are scheduled to price their IPOs today. Carlyle, the Washington-based buyout firm that oversees $89 billion, won’t sell SS&C shares in the $161 million offering.

Tengion Inc., the East Norriton, Pennsylvania-based company trying to grow replacement organs and tissues, is also set to hold its IPO this week, according to Bloomberg data.

Primerica, which has 100,000 representatives selling financial services to households with $30,000 to $100,000 in annual income, earned $495 million in 2009, an almost threefold increase from a year earlier.

Relative Value

Net income rebounded after declining 72 percent in 2008, when Primerica wrote down some of its goodwill, or the amount paid above the net asset value in an acquisition.

As part of its reorganization, Primerica will transfer 80 percent to 90 percent of the “risk and rewards” from the life insurance policies that it sold and distribute $622 million in assets to Citigroup before the IPO, according to the filing. That includes a $454 million one-time dividend to Citigroup.

At the middle of its $12 to $14 price range, the company is valued at 6.74 times its 2009 per-share income of $1.93, after taking into account a decrease in revenue and profit that would have taken place if the reorganization occurred on Jan. 1, 2009, according to its filing and data compiled by Bloomberg.

That’s less than the median 9.52 times price-earnings ratio for 23 publicly-traded U.S. life and health-insurance providers, Bloomberg data show.

Prudential, Ameriprise

Prudential Financial Inc. of Newark, New Jersey, the second-largest life insurer, and Ameriprise Financial Inc., the Minneapolis-based financial planning and services firm, command higher valuations, data compiled by Bloomberg show. Primerica lists the two companies among its biggest competitors.

Buyers of Primerica’s IPO will own 24 percent of the insurance firm after the offering.

They will also be investing alongside New York-based Warburg Pincus LLC, which oversees $30 billion. The private- equity firm agreed to buy 17.2 million shares, or a 23 percent stake, in a private sale at the IPO midpoint price, and warrants to purchase 4.3 million shares at a 20 percent premium. Warburg’s stake may increase to 33 percent if the firm exercises its right to buy additional shares from Citigroup.

“It’s a ‘fire sale’ by Citi,” Francis Gaskins, president of IPOdesktop.com in Marina del Rey, California, said in an e- mail. Also, “the IPO investor can get in on the same terms as Warburg. There appears little, if any, risk in this IPO at $13.”

Credit Markets

All proceeds will go to New York-based Citigroup, which is serving as the lead underwriter for the sale. Primerica is part of Citi Holdings, the collection of businesses that Citigroup’s Pandit said he would sell, wind down or restructure.

Pandit is dismantling Weill’s empire after loans and investments tied to the U.S. subprime mortgage market led to $47.6 billion in losses since the last quarter of 2007. Citigroup took a taxpayer-funded bailout after the credit markets froze, Lehman Brothers Holdings Inc. collapsed and Bear Stearns Cos. and Merrill Lynch & Co. were forced to sell themselves. All three companies were based in New York.

Weill used Primerica to build Citigroup through a series of acquisitions. In 1992, Primerica bought a 27 percent stake in Travelers, then took over the company a year later for $3.3 billion, keeping Travelers’ name and umbrella logo.

The company acquired Salomon in 1997 and in 1998 merged with Citicorp in a $37.4 billion deal to create Citigroup.

“This provides an important message that Citi is prepared to shed assets which clearly do not fit the current strategy, even if they have well-known brands,” said Richard Staite, a London-based analyst who covers financial institutions at Atlantic Equities LLP. “It’s a high-profile sale.””

According to Reuters, “Few other financial services companies cater to Primerica’s niche– lower-middle-class and middle-class families. And the offering’s valuation is relatively low compared to other life insurance companies.

Private equity firm Warburg Pincus will buy up to a third of the company, which is a vote of confidence in the business, analysts said.

“Warburg Pincus has put this thing together and they expect to make money. If people buy at the IPO price they’ll be buying right along with Warburg’s price,” said IPOdesktop.com President Francis Gaskins said on Friday.

There are definitely risks in buying Primerica shares. Primerica will not keep any of the proceeds from the offering, so the funds will not bolster the insurer.

Citi, which is leading the underwriters, is taking the IPO proceeds, and has taken substantial funds out of the business through dividends in recent years– nearly $1 billion since 2007. The bank will take another $622 million in dividends before the completion of the IPO, according to its prospectus. Those are funds that Primerica will not be able to invest in its growth.

“When there is a spinoff generally the parent extracts its pound of flesh, which is certainly the case here,” said Linda Killian, a portfolio manager with Connecticut-based Renaissance Capital.

But Primerica can still grow at a healthy clip, Killian said.

“The company is a very sales-oriented company that focuses on the really middle income America that doesn’t get a whole lot of financial services help from some of the larger companies that tend to focus on higher net worth individuals,” Killian said.

Most of the risk — and profit — from life insurance policies that Primerica has sold in recent years will be ceded to Citigroup, but Killian estimates that Primerica could replenish its book in as short a period as four to five years.

Primerica posted net income of about $495 million and revenue of $2.2 billion in 2009.

The group the firm serves is underinsured and needs to boost its investments, especially coming out of the financial crisis, said Clark Troy, a senior analyst at Aite Group.

The shock from the crisis has revealed to consumers that they might not be as well-prepared for retirement and other major milestones as they ought to be, Troy said. Middle class consumers may find Primerica’s pitch persuasive, he added.

“Its a financial product that can be priced attractively and give (the consumer) a lot of comfort,” Troy said.

After the IPO Citi will own 32 to 46 percent of the stock and private equity investor Warburg Pincus LLC [WP.UL] will own 23 to 33 percent of the stock.

In a separate, private deal Warburg Pincus has agreed to buy about 17.2 million shares, and warrants to buy another 4.3 million shares at 120 percent of the IPO price, assuming Citigroup meets certain conditions. Warburg also has the right to buy up to another $100 million worth of shares at the IPO price.

Citi, which accepted $45 billion worth of U.S. government bailout funds, has not made a secret about wanting to divest itself entirely of Primerica. But that is because Primerica is not part of its main banking business, and does not mean the unit is a bad business

If Primerica PRI.N prices at the midpoint of the expected range it will have a price to book value of 0.7. By comparison Ameriprise Financial Inc (AMP.N) and Prudential Financial Inc (PRU.N) are over 1, said IPOdesktop.com’s Gaskins.”

AIG Divests of Asian Life Insurance Unit, Making Sale to Prudential Plc for $35.5 Billion

Saturday, March 20th, 2010

AIG made headlines recently with its sale of its Asian Insurance business for over $35 billion to British insurance firm Prudential plc.  This allowed the failed insurer to raise enough to pay back the $20 billion immediately due to the government and slowly pay back its debt to taxpayers.  The company also is pressing to sell its Alico unit to bidders including Metlife.  The proceeds of this sale would also go the Fed.

According to the Washington Post, “American International Group agreed on Monday to offload its prized Asian life insurance business for $35.5 billion, the troubled firm’s largest asset sale since it was bailed out by the federal government during the height of the financial crisis.

The firm plans to use the proceeds from the sale to pay down nearly three-fourths of the $48 billion owed to the Federal Reserve. AIG separately received more than $47 billion from the Treasury Department’s Troubled Assets Relief Program.

The buyer, British insurer Prudential — not linked to the U.S. insurance firm Prudential Financial — agreed to pay $25 billion in cash and $10.5 billion in stock and other securities. Under the deal’s structure, the U.S. government will have an interest in Prudential’s fortunes through its massive stake in AIG.

The sale generated more for AIG than what some analysts had expected. AIG had been receiving weak bids for the division and was planning to spin it off in an initial public offering on the Hong Kong stock exchange. That process could have taken a long time and produced less money than the deal with Prudential, company and government officials said.

“We decided that a sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayers,” AIG chief executive Robert Benmosche said in a statement.

Shares of AIG soared nearly 10 percent at the opening bell before closing the day up 4 percent, at $25.78. The insurer’s stock hit a low of $7 during the financial panic.

Wall Street often views big deals as a vote of confidence in the global economy. And on Monday, the Dow Jones industrial average rose 78.53 points, or 0.8 percent, to 10,403.79, with much of the gain occurring right after the sale was announced. The Standard & Poor’s 500-stock index, a broader measure of the market, jumped 1 percent and moved into positive territory for the year.

The sale of the Asian unit, American International Assurance, would generate more money for AIG than the sum from nearly two dozen divisions it has agreed to divest from since fall 2008. AIG is pressing to get a multibillion-dollar deal for another major insurance unit known as American Life Insurance Co., or Alico. Proceeds from that sale would also go to the Fed.

The price AIG fetched for its Asian division affirms a decision by the Fed to give the company more time to sell its assets. Last year, AIG would have had to sell the unit during the recession to meet its debt obligations to the central bank. Instead of cash, the Fed accepted an equity stake in the Asian division as repayment.

The central bank’s bailout package to AIG came in two parts: a $23.4 billion line of credit and a $24.5 billion interest in American International Assurance and Alico.

Of the $35.5 billion from Prudential, AIG will use $16 billion to pay back the Fed’s interest in American International Assurance. Another $9 billion will be used to reimburse the Fed’s line of credit. AIG will eventually be able to sell its $10.5 billion in Prudential stock and securities, which will be used to further repay the Fed’s line of credit.

AIG’s health has improved steadily since the federal government’s bailout, though it is still losing money. Last week, it reported a $8.9 billion loss for the last three months of 2009, bringing its full-year results to a loss of $10.9 billion. In 2008, the firm recorded a $99.3 billion loss.

According to Kevin Crowley and Zach Miller of Bloomberg “American International Group Inc. agreed to sell an Asian life insurance unit with 20 million customers to Prudential Plc for $35.5 billion in the company’s biggest divestiture since it was bailed out by the U.S.

Prudential, Britain’s biggest insurer, will pay $25 billion in cash and $10.5 billion in stock and other securities for AIA Group Ltd., the London-based insurer said in a statement today. The insurer said it plans to raise $20 billion in a rights offering and sell about $5 billion of bonds to finance the cash part of its offer.

The sum raised in the sale would exceed the total of more than 20 other deals announced by AIG since its 2008 rescue. The firm had planned an initial public offering for the unit after an auction of the business previously failed to turn up bids that matched what AIG executives thought the company was worth. That included a bid from Prudential that valued AIA at about $15 billion, according to a person with knowledge of the matter.

The agreement is “very good news for AIG and a major step toward quickly repaying U.S. taxpayers at a time when, in our view, the company appeared resigned to carrying out a time- consuming IPO,” said Emmanuelle Cales, an analyst at Societe Generale SA.

AIG gained $2.45, or 9.9 percent, to $27.22 at 9:42 a.m. in New York Stock Exchange composite trading. Prudential fell 12 percent to 533 pence in London trading. Prudential had more than doubled in 12 months through Feb. 26, giving the insurer a market value of 15.3 billion pounds before the purchase was announced.

China, Australia

Prudential’s purchase is Chief Executive Officer Tidjane Thiam’s first since he took over five months ago, and is the biggest announced by any company worldwide this year, according to data compiled by Bloomberg. New York-based AIG will own about 11 percent of Prudential following the transaction, Thiam told reporters today.

Prudential is trying to boost sales in Asia as growth in the U.K declines. By acquiring AIA, Thiam gets a business with more than 90 years in Asia and more than $60 billion of assets in 13 markets spanning China to Australia. The price is about 50 percent greater than Prudential’s market value. Hong Kong-based AIA, founded in 1919, sells life, accident and health insurance policies, and private retirement planning and wealth management services, its Web site shows.

“It shows the company is very bullish on the Asia market,” said Luo Yi, a Shenzhen-based analyst at China Merchants Securities Co. “The Chinese market has vast potential.” McKinsey & Co. has estimated that 40 percent of global life insurance premium growth will be in Asia in the next five years.

‘Faster Track’

“A sale to Prudential enables AIG to realize value on a faster track to repay U.S. taxpayer,” AIG CEO Robert Benmosche said in a statement today.

“AIG gave a $9 billion stake in American Life Insurance Co., known as Alico, and $16 billion in AIA, its biggest non-U.S. life insurance units, to the Federal Reserve in December. AIG will redeem the Fed’s $16 billion interest in AIA with proceeds from the sale and repay about $9 billion more on its Fed credit line, the insurer said today.

The $10.5 billion in securities obtained from Prudential will be sold “over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods,” AIG said in a statement. Proceeds will be used to repay debt on the credit line, the company said.

Credit Line

AIG owed about $25 billion on the line as of last week. The insurer had drawn more than $40 billion before reducing the sum in December when it turned over stakes in the units.

The Federal Reserve Bank of New York agreed last year, as part of AIG’s fourth bailout, to allow the company to pay down its debt with an equity interest in the life units before completing a sale. The plan reduced pressure on AIG to sell in early 2009 when potential bidders were hobbled by losses and the inability to raise funds.

Prudential is paying about 1.69 times the embedded value of AIA in 2009. Chinese insurers are trading for about 2.9 times embedded value, and Axa Asia Pacific Holdings trades at about 1.7 times, according to Thiam. Embedded value estimates a company’s net worth excluding new business.

“Strategically it’s probably the right move” for Prudential, said Justin Urquhart Stewart, who oversees about $3.3 billion at 7 Investment Management in London, including Prudential shares. “It puts them into a different league.”

The insurer plans to list its shares on both the Hong Kong Stock Exchange and the London Stock Exchange following the transaction. It will keep its headquarters in London.

Rights Offering

Credit Suisse Group AG, JPMorgan Cazenove and HSBC Holdings Plc agreed to underwrite the $20 billion rights offer in full. The shares are likely to be sold for 40 percent less than today’s price, Thiam told reporters. Prudential will pay about $1 billion in fees and other costs related to the offer. Lazard Ltd. is also advising Prudential on the deal.

The offering would be the biggest since Lloyds Banking Group Plc’s 13.5 billion pounds ($20.4 billion) sale in December, still the U.K.’s largest.

“If you’ve got backing from a few banks and a few major shareholders, there will be a way to make this deal happen,” said Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a “sell” rating on the stock. “The question is the cost and the risk involved.” The insurer may be forced to sell assets in India and China to comply with local foreign-ownership regulations, he said.

India, China Talks

Thiam said Prudential is in talks with regulators in India and China. The insurer intends to keep its stake in a joint venture with China’s Citic Group, he said. In India, where both Prudential and AIG have separate joint ventures, regulators have told the company it can’t have two licenses, Thiam said.

MetLife Inc. has said it is in talks to buy AIG’s Alico, which operates in more than 50 countries outside the U.S. The insurers are discussing a price of about $15 billion, according to people with knowledge of the matter.

AIG’s bailout includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury Department and $52.5 billion to buy mortgage-linked assets owned or backed by the insurer.

AIG is getting advice on the AIA deal from Goldman Sachs Group Inc. and Citigroup Inc., and Blackstone Group LP is working with the AIG board on its overall restructuring plan. Morgan Stanley is counseling the New York Fed.

Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit.”

AIG Sells Alico to Metlife for $15.5 billion

Wednesday, March 10th, 2010

March 10, 2010

AIG has repaid about have of the $180+ billion it owes U.S. taxpayers to date.  The sale of the Alico Life Insurance division to MetLife is the company’s latest attempt to sell assets to repay TARP funds.  This deal will expand MetLife’s present in Asia, Europe, and Latin America.  Alico operates in over 50 countries, while MetLife currently only serves 17.  AIG recently also sold the Asian insurer AIA for $35.5 billion to Britain’s Prudential.

According to Mr. Bernard of the Associated Press, “American International Group Inc. said Monday that it will sell its American Life Insurance Co. division for $15.5 billion to MetLife Inc. The government-approved deal, AIG’s second big asset sale in two weeks, will give the insurer more cash to repay the billions of bailout dollars it still owes the government.

The purchase expands MetLife’s presence in Japan and high-growth markets in Europe, the Middle East and Latin America. American Life Insurance, known as Alico, operates in more than 50 countries. MetLife currently offers services in 17 countries.

It also moves AIG closer to repaying taxpayers. As of Dec. 31, the company owed the Treasury and the Federal Reserve Bank of New York nearly $130 billion. AIG’s bailout package was originally worth up to $182.5 billion.

On March 1, AIG agreed to sell Asia-based life insurer, AIA Group, to Britain’s Prudential PLC for $35.5 billion. The two units, while selling similar products, don’t operate in the same markets in Asia.

Investors were pleased with the Alico deal, and bid AIG’s shares up 3.6 percent, or $1.02, to $29.10. MetLife shares rose $1.98, or 5.1 percent, to $40.90.

MetLife will pay $6.8 billion in cash for Alico. The rest of the purchase price will be paid in stock and what are called equity units, which are eventually convertible to common stock and preferred securities

AIG will initially hold an 8 percent stake in MetLife. Its stake will reach 14 percent in early 2011 after some MetLife preferred shares are converted into common shares. The stake could reach up to 20 percent, after the insurer receives $3 billion in equity units.

“Rarely does one come across a deal that has such a strong strategic fit,” MetLife CEO Robert Henrikson said in an interview with The Associated Press.

Henrikson said MetLife has been in the market for various domestic and overseas acquisitions over the past five years. He said he began discussing a possible Alico deal with AIG in December 2008, three months after the government bailout.

AIG and MetLife are based in New York. Robert H. Benmosche, the former head of MetLife, became AIG’s CEO in August. Benmosche wasn’t involved in the deal discussions, Henrikson said. All talks were handled by a special committee within AIG, he said.

The Alico deal, while good for MetLife, carries some risk, said Aite Group senior analyst Clark Troy.

“Japan is an aging society and MetLife may face challenges growing revenue,” Troy said. “However, MetLife does have the ways and means and experience to make the deal work, as they will be building on one of their stronger franchises.”

MetLife currently has a successful variable annuity business in Japan.

MetLife’s international business grew significantly in 2005 when the company acquired most of Citigroup’s international insurance businesses, adding Japan, Australia and Britain to its portfolio. Before then, MetLife already had operations in South Korea, Chile and in Mexico, where it is the largest life insurer.

Henrikson said he didn’t consider a purchase of AIA Group because “it didn’t fit MetLife’s growth plans.”

As the largest recipient of taxpayer bailout dollars, AIG remains under the supervision of Treasury and the New York Fed. All negotiations around Alico and AIA were monitored actively by representatives from Treasury and the New York Fed, officials from both agencies said.

Each agency has participated in every key call and meeting between directors about the deals, and discussed the available options with AIG’s executives, according to officials familiar with the process. They spoke on condition of anonymity because they were not authorized to publicly discuss the negotiations.

With the latest sale, AIG will be able to slash its outstanding government debt of $129.3 billion by about $51 billion, or 39 percent, to about $78 billion. The cash portion of the Alico and AIA deals will be used immediately to pay down an investment in AIG by the Federal Reserve Bank of New York. The equity portion of the deals will be sold over time to help further repay that debt.

The government will also be selling shares it holds in AIG to recoup some of its investment.

However, it is not yet clear whether the government will be able to recover all of its investment. It’s too early to tell how much the proceeds from any of the stock sales will be.

Before it nearly collapsed during the 2008 financial crisis, AIG was the world’s largest insurer. It sold a variety of insurance products around the world and operated a lending and aircraft leasing businesses. It also had a financial products division that sold complex securities called credit default swaps. When the financial crisis sent billions of dollars of mortgages and bonds into default, credit default swaps undermined AIG and forced the government to rescue the company. In return, the government took a nearly 80 percent stake in AIG.

AIG has been working for the past year and a half to sell assets and streamline operations to repay its debt. Since receiving government bailout funds, AIG has 21 unit sales or asset transactions, including the Alico and AIA deals. AIG’s next key sale could be Nan Shan, a Taiwanese company, analysts have said.

AIG is also looking at funding needs and exploring options for restructuring its aircraft leasing unit, International Lease Finance Corp., and its consumer and commercial lending business, American General Finance Inc.

It is also conceivable that AIG might consider sales of its American General Life and American General Life and Accident units, Aite Group’s Troy said.

The company is expected to keep Chartis, its larger property and casualty insurance company; two additional Japanese life insurers, and a handful of smaller, U.S.-based companies. They are very unlikely to be sold, according to a Treasury official.

Alico has operations either directly or through subsidiaries in Europe, including Britain, Latin America, the Caribbean, the Middle East and Japan. AIA operates primarily in Asia, including China, Singapore, Malaysia, Thailand, Korea, Australia, New Zealand, Vietnam, Indonesia and India.

AIA dates back to 1919, when AIG founder Cornelius Vander Starr started his first insurance company, American Asiatic Underwriters in Shanghai. Two years later, he founded Asia Life Insurance Co., which later became Alico.”