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Capital Management 42nd Annual Insurance Tax Conference Capital Management Peter Manley, JP Morgan Lee Christie, Sidley Austin Christine Watson, PwC, Moderator Tax Issues • CFC Rules Make Offshore Reinsurance Subs Unavailable to US Parents • Tax Disincentives to Outbound Restructuring of US Business (“Inversion”) • Offshore Tax-Advantaged Structure • Tax Reform 42nd Annual Insurance Tax Conference NewCo CFC 42nd Annual Insurance Tax Conference Inversion 42nd Annual Insurance Tax Conference Offshore Advantage 42nd Annual Insurance Tax Conference Offshore Reinsurance Considerations • FET / Income Tax Tradeoff • Reserve Credit / Collateral • 953(d) Option 42nd Annual Insurance Tax Conference Transaction Value Creation 42nd Annual Insurance Tax Conference Transaction Value Creation In $Millions Price to: Equity value / deal U.S. GAAP Announcement Target Acquiror Run-off Non-strategic Annuity value equity Statutory C&S May-17 Fidelity & Guaranty Life CF Corporation ✓ ✓ $1,835.0 0.96x N/A May-17 AEGON Transamerica life subsidiaries Wilton Re ✓ ✓ N/A N/A N/A Oct-16 Genworth Financial, Inc. Oceanwide Group Co. Ltd. ✓ 2,706.0 0.27x N/A Sep-15 Assurant (Employee benefits business) Sun Life Financial 940.0 NA 2.22x 1 Aug-15 Symetra Financial Corp. Sumitomo Life Insurance 3,726.9 1.19x 1.84x Jul-15 Stancorp Financial Group Meiji Yasuda 5,000.0 2.17x 4.05x Oct-14 Aegon (Canadian life business) Wilton Re2 532.0 0.47x N/A 3 Sep-14 Standard Life (Canadian business) Manulife 3,680.0 1.94x NA Jun-14 Protective Life Corp. Dai-ichi Life Insurance Co. 5,708.0 1.29x 1.86x May-14 XL Life Reinsurance (SAC) GreyCastle ✓ ✓ ✓ 570.0 0.97x NA Apr-14 Nuveen Investments TIAA 6,250.0 NA NA Mar-14 Wilton Re Holdings Ltd. Canada Pension Plan 1,800.0 1.29x NA 4 Mar-14 Conseco Life Insurance Company Wilton Re ✓ ✓ 237.0 0.45x 1.50x 5 Feb-14 Continental Assurance Company Wilton Re ✓ ✓ 615.0 NA 1.03x 6 Sep-13 Forethought Financial Group Global Atlantic Financial Group ✓ NA NA NA 7 Jul-13 Lincoln Benefit Life Resolution Group ✓ ✓ ✓ 600.0 NA 1.83x Jun-13 Generali US life reinsurance business SCOR 750.0 NA 2.06x Apr-13 MONY Life Insurance Co. Protective ✓ 1,056.0 NA 1.70x 8 Dec-12 Aviva USA Athene ✓ ✓ 1,550.0 0.31x 0.60x 9 Dec-12 Sun Life U.S. annuity & certain life insurance businesses Guggenheim ✓ ✓ ✓ 1,350.0 0.65x 1.18x 10 Sep-12 Hartford's individual life insurance business Prudential Financial ✓ 1,315.0 NA 1.88x 11 Jul-12 Presidential Life Athene ✓ ✓ 414.3 0.50x 1.28x 12 Jul-12 John Hancock fixed deferred annuities block RGA ✓ ✓ 350.0 NA NA May-12 SRLC America Jackson National (Prudential plc) 663.0 NA 1.16x 13 Oct-11 EquiTrust Guggenheim ✓ ✓ 471.4 0.83x 0.95x 14 Jul-11 Investors Insurance Athene ✓ 55.0 1.58x 1.65x 15 Oct-10 Liberty Life Athene / Protective ✓ ✓ 628.0 0.86x 2.34x Sep-10 United Investors Life / Torchmark Protective 363.3 NA 2.18x 16 Aug-10 Old Mutual Harbinger ✓ ✓ 350.0 0.28x 0.39x Apr-10 American-Amicable Industrial Alliance ✓ 145.3 NA 1.88x 17 Feb-10 Security Benefit Corporation Guggenheim ✓ ✓ 400.0 NA NA Median $663.0 0.85x 1.70x Mean 1,511.2 0.88x 1.66x Source: Company filings, FactSet, SNL Financial; 1 Includes special dividend of $0.50; 2 Converted to USD using 10/16/14 exchange rate of 0.89x; based on OSFI capital of $1,280.6mm; 3 Converted to USD using 9/3/14 exchange rate of 0.92x; Price of GBP2,219 based on 1.80:1x conversion rate from CAD to GBP; Based off of IFRS of GBP1,146 as of 6/30/14; 4 Based on 3/3/14 CNO press release, net assets sold of $527mm; 5 Net proceeds of $615mm, a portion of which will be received in the form of a dividend from CAC immediately prior to closing; 6 Forethought Financial Group's C&S of $509mm as of 6/30/13; 7 Lincoln Benefit C&S of $328mm as of 6/30/2013; per 7/17/13 release, Allstate would record a GAAP loss on the sale of LBL in the range of $475-525mm; 8 Based on 12/21/12 Aviva press release, transaction values Aviva USA at 0.6x 6/30/12; converted to USD using 0.9728 USD/CAD rate on 9/30/12; 9 Based on 12/17/12 Sun Life Financial presentation; net IFRS book value of business sold of C$2.15bn as of 9/30/12; converted to USD using 0.9728 USD/CAD rate on 9/30/12; Per 12/17/12 Sun Life investor presentation, multiple calculated as $1.35bn purchase price divided by $1.14bn 9/30/12 net U.S. statutory book value (defined as statutory capital plus IFRS book value of two legal entities being sold); 10 Equity value calculated as cash payment ($615mm) plus publicly indicated release of statutory capital by the company ($700mm)Excludes value associated with the recapture of business previously retroceded to AG; 11 Presidential Life’s 6/30/12 book value of $836mm and C&S of $325mm as reported in Company filings; 12 Statutory Represents $350mm RGA investment in return for $5.4 billion in invested assets; 13 EquiTrust C&S of $463mm as of 6/30/11; GAAP book value of $531mm including AOCI per 11/10/11 FBL investor presentation; 14 Represents a transaction multiple of IFRS equity; per SCOR’s 6/30/11 interim report, IFRS book value of $35mm; C&S of $33mm as of 2010 per STAT annual statement; 15 Canadian GAAP book value calculated per Note 11 of 12/2/10 RBC 40-F as $5.4bn in total assets less $4.6bn in total liabilities for implied equity value of $728mm as of 10/31/10; C&S of $268mm as of 6/30/10; 16 Per 4/6/11 Harbinger press release, C&S of $902mm as of 12/31/10; IFRS book value of £1.0bn ($1.2bn) as of 6/30/10 per Old Mutual 2010 interim report; exchange rate of 0.8105 GBP/USD; 17 $400mm purchase price includes capital injections by investor group of $175mm on 2/26/10 and $165mm on 7/30/10 42nd Annual Insurance Tax Conference Arch Capital UGC from AIG for $3.4bn United Guaranty Overview Transaction Overview UGC is the leading private mortgage insurance On August 15, 2016, American International Group, Inc. (“AIG”) (NYSE:AIG), a leading global company in the United States with $186.4 billion of insurance organization serving customers in more than 100 countries and jurisdictions, first-lien primary mortgage insurance in force as of announced it had entered into a definitive agreement to sell its 100% interest in United June 30, 2016 Guaranty Corp. (“UGC”) to Arch Capital Group Ltd. (“Arch”) (NASDAQ:ACGL) The Company has active relationships with over The total consideration for the transaction is $3.4 billion consisting of $2.2 billion of cash, $250 1,800 customers and approximately 1,050 million of newly issued Arch perpetual preferred stock, and $975 million of newly issued Arch employees including a national sales force of convertible non-voting common-equivalent preferred stock approximately 100 professionals AIG will retain all mortgage insurance business ceded under UGC’s existing 50% quota share agreement with various AIG subsidiaries, for business originated from 2014 through 2016 The convertible non-voting common-equivalent preferred stock would convert into approximately 9% of the Arch common stock AIG has agreed to enter into an investor rights agreement with Arch which will include customary registration rights following a lock-up period Closing of the transaction is subject to required regulatory approvals The transaction maximizes value from UGC, while further streamlining AIG’s organization, and allows AIG to continue delivering on its promise to return $25 billion to its shareholders by the end of 2017 42nd Annual Insurance Tax Conference CF Corp announced the acquisition of Fidelity & Guaranty Life for $1.835 bn Fidelity & Guaranty Life Overview Transaction Overview Fidelity & Guaranty is a provider of primarily: fixed Acquisition of CF Corp. to acquire 100% of the common shares of F&G for total consideration of $1.835bn indexed annuity products (71% of FY ’16 sales), multi- Fidelity & ($31.10 per share) year guaranty annuity products (27% of FY ’16 sales), and Guaranty Life Acquisition implied P/BV (ex. AOCI) of 1.1x indexed universal life products (2% of FY ’16 sales) CF Corp. will acquire certain reinsurance companies from HRG Group with this transaction Reinsurance F&G has grown sales by approximately 10% annually F&G will reinsure a significant share of its existing and new business to a newly-created Transactions from 2012-2016 amounting to $2.6bn in sales during FY affiliate company ‘16 The transaction will be financed with $1.2bn from CF Corp’s IPO and more than $700mm in Transaction equity Headquartered in Des Moines, Iowa, F&G has ~700,000 Financing policies in force Funds advised by Blackstone and FNF have provided a full backstop funding commitment to ensure funding CF Corp intends to retain F&G’s strong management team and Chinh Chu and William Foley F&G is a top 5 player in the IMO distribution channel and Management will become Co-Chairmen sells through a network of ~100 IMOs and 30,000+ and Board The board will be comprised of independent directors contracted agents Investment F&G will enter into an investment management agreement with affiliates of Blackstone F&G generates income by matching stable, long-term Management F&G’s current focus on high quality investment grade assets will be maintained under the liabilities against a high-quality investment portfolio to Agreement current team earn a net spread 42nd Annual Insurance Tax Conference CF Corp announced the acquisition of Fidelity & Guaranty Life for $1.835 bn Seller BDA Op Co Reinsurance Dividend IA Op Co 42nd Annual Insurance Tax Conference Tax Reform • Lower Corporate Income Tax Rate • Life Insurance Provisions • Impact on Pricing • Provisions Affecting Deductibility of Outbound Reinsurance Premiums ➢ Neal Bill 42nd Annual Insurance Tax Conference Tax Reform – Impact on RBC Morgan Stanley 10/11/17 Study of US Life-Annuity Insurers • Average RBC @35% Tax Rate 492% • Average RBC @20% Tax Rate 396% • Components of 96 bps Difference ➢ DTAs 15 ➢ Asset Risk 20 ➢ Other 61 42nd Annual Insurance Tax Conference.
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