Blackstone and Allstate Strike Life Insurance Deal

Blackstone to Acquire Allstate’s Life Insurance Arm in $2.8 Billion Deal

Blackstone (BX), the private equity powerhouse, will acquire Allstate Life Insurance Co. (ALL) from Allstate in a $2.8 billion deal. The deal will transfer 80% of Allstate’s total life and annuity reserves to Blackstone. Those reserves amount to $23 billion. The companies aim to close the deal before the end of 2021.

The deal between Blackstone and Allstate is the latest in a series of transactions between financial firms and life insurance businesses. Earlier in January, Sixth Street Partners announced it would acquire Talcott Resolution for $2 billion.

How Private Equity is Shaping Insurance

After the financial crisis in 2008, insurers started narrowing their focus and divesting product lines. Their profits were hampered by ultralow interest rates, so asset-management firms and other types of financial institutions swept in to buy blocks of life insurance policies, annuities, and operating units.

For the financial institutions involved in these transactions, the goal is typically to profit from investment-management fees while also making wise investment choices with the premiums customers pay on their policies.

Meanwhile, insurance companies like Allstate are looking to shed products that are hurting their profit margins. In the first nine months of 2020, as coronavirus raged through the United States, Allstate said its life insurance unit lost $23 million.

PE Firms Bet on Insurance

Investments in insurance companies can significantly boost private equity firms’ assets under management. In a 2020 report, data from PitchBook noted that “insurance companies have the potential to meaningfully add to a general partner’s permanent capital, drive AUM growth, and make solid investments if their float is invested well—just as Berkshire Hathaway has done with many of its insurance holdings.” PitchBook predicts that based on these factors, equity firms will keep rushing toward insurance assets for the next few years.

Even before the Allstate deal, Blackstone had $62 billion in insurance assets under management. That was announced during the company’s earnings call for its second quarter. PitchBook suspects Blackstone “likely sees a healthy runway in growing its insurance solutions business.”

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