American Financial (AFG) sells its annuities business to MassMutual
American Financial Group, Inc. AFG recently sold its annuities business to the Massachusetts Mutual Life Insurance Company (MassMutual). The company signed the divestiture agreement in the first quarter of 2021. The move will help American Financial streamline its business by focusing more on specialty P&C businesses.
Annuity businesses included the Great American Life Insurance Company (GALIC) and two of its insurance subsidiaries, Annuity Investors Life Insurance Company and Manhattan National Life Insurance Company. In addition, it consisted of an affiliate of brokers and brokers, Great American Advisors, Inc., as well as an insurance distributor, AAG Insurance Agency, Inc. The total after-tax cash proceeds of the disposal is about $ 3.5 billion.
Founded in 1851, MassMutual is a leading mutual life insurance company, which offers a variety of protection, accumulation, wealth management and retirement products and services. It is focused on creating long-term value.
The property and casualty insurer has witnessed poor performance in the annuities segment in recent quarters. In 2020, total revenues decreased 4% year over year. In addition, gross statutory premiums decreased by 18% in 2020 due to lower market interest rates. The company implemented several rate cuts to maintain appropriate returns on annuity sales which began to affect new sales. Annuity sales were lower across all channels due to home orders and other factors related to the COVID-19 pandemic. Thus, the exit from the annuity business was a strategic decision of the insurer.
American Financial’s annuity business results are presented as discontinued operations beginning in the first quarter of 2021.
Upon exiting the underperforming Annuities business, American Financial will be able to focus more on its Specialty P&C segment, which aims to achieve strong underwriting profitability and provide excellent service to its policyholders and agents. New business opportunities, growth in excess lines and excess liability activities, rate increases, increased technical profitability in the Real Estate and Transportation group and increased retentions in renewal activities are driving premium growth of this segment.
In addition, the sale of the annuities business to MassMutual is expected to significantly improve American Financial’s cash flow and excess capital.
In connection with the sale of its annuities business, a special and one-time cash dividend of $ 14.00 per share was declared, marking the 13th consecutive year of special dividends paid by the property and casualty insurer. Shareholders of record on June 8 will receive the special dividend on June 15. This property and casualty insurer estimates it is spending $ 1.2 billion on the special dividend, which is well supported by its strong financial position. Previously, the company paid a special cash dividend of $ 2.00 per share last year in December.
Recently, three other insurers, Radian Group Inc. RDN, RLI Corp. RLI and Chubb Limited CB has undertaken dividend increases. While Radian Group approved a 12% increase in its quarterly dividend, RLI Corp. approved a 4.1% increase. Chubb’s board of directors has approved a 2.6% increase in its quarterly dividend.
In each of the past 14 years, the company has been successful in increasing its dividends in addition to paying special dividends and repurchasing shares. Its dividend yield of 1.5% improves the industry average by 0.4%. Returning capital to shareholders in the form of regular and special cash dividends and through opportunistic share buybacks is an important and effective part of its capital management strategy.
Additionally, on May 19, 2021, the company authorized a share buyback program to return more value to investors. The latest authorization will allow the company to repurchase up to 5 million additional shares of its outstanding common stock through December 31, 2025. In the first quarter of 2021, the company repurchased shares for $ 192 million.
The shares of this third-ranked property and casualty insurer (P&C) of Zacks rose 120.6% in one year, outperforming industry43.3% increase. In addition, acquisitions, better pricing and improving industry fundamentals will enable the P&C insurer to achieve operational excellence in the days to come. You can see The full list of current Zacks # 1 Rank (Strong Buy) stocks here.
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