Allstate Corp. has agreed to sell its employer voluntary benefits business to StanCorp Financial Group Inc. for $2 billion, with plans also underway to divest its individual and group health sectors. This move is part of a broader strategy to focus more intensely on its core personal liability and protection services.
Tom Wilson, the chairman, president and chief executive officer of Allstate, explained that the separation into distinct transactions for the three segments—employer voluntary benefits, individual health, and group health—aims to align these businesses with firms that can better utilize their growth potential. Originally, Allstate sought a single buyer but shifted strategy after market evaluation suggested more beneficial separate sales.
The transaction will see over 3.8 million customers of Allstate’s employer voluntary benefits continuing their services under Standard, which is StanCorp Financial’s brand. Moreover, Allstate agents will start offering a wider range of options to their clients through a five-year exclusive distribution deal with Standard.
This deal is set to provide a financial uplift for Allstate, projecting a book gain of about $600 million. Additionally, around $1.6 billion in incremental capital will be redirected to enhance market share in the personal property and liability sector.
Dan McMillan, the president and CEO of The Standard, highlighted that this deal will broaden their portfolio by integrating Allstate's recognised supplemental and voluntary life products with its expertise in workplace benefits.
According to Jess Merten, the chief financial officer at Allstate, approximately $270 million in statutory capital will transfer with the business at closing. The deal awaits regulatory approvals in Florida and Oregon.
For a five-year term, Standard's products will be offered through Allstate's exclusive agents, enhancing the range of options available to Allstate’s clientele.
Financial performance reports for the first half of 2024 show these businesses earned revenue of $535 million, with an adjusted net income of $45 million, and held statutory capital and surplus of $255 million. The health and benefits segment accounts for 4% of Allstate’s total revenue, bringing in $243 million in adjusted net income over the past year.
However, the adjusted net income return on equity is anticipated to drop by about 100 basis points post-sale, expected to finalise in the first half of 2025. Merten noted in Allstate's second-quarter earnings call that attempts to sell the entire health segment were initially delayed due to negotiations breaking down with a potential single buyer.
Despite these challenges, Allstate reported a significant recovery in its second-quarter performance, achieving a net income of $310 million compared to a $1.39 billion net loss in the previous year, as underwriting losses decreased.
In terms of financial strength, Allstate's underwriting entities hold ratings ranging from 'A+' to 'B', while StanCorp's parent company, Meiji Yasuda Life Insurance Co., boasts ratings of 'A+' and 'A'.
Allstate shares saw a notable increase, trading at $180.17 on the morning of August 14, marking a 4.75% rise from the previous close.
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