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FBL Tells Investors How to Price a Life Insurer

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What You Need to Know

  • One measure of deal value is price divided by book value, with “accumulated other comprehensive income” excluded from book value.
  • FBL says typical ratios for recent annuity issuer deals have ranged from 1 to 1 to about 1.25 to 1.
  • The firm contends that prices for deals made before COVID-19 appeared are irrelevant.

FBL Financial Group Inc. says critics of its decision to accept a $528 million acquisition offer from its sister, Farm Bureau Property & Casualty Insurance Company, have no idea how to price a small, struggling annuity issuer in a pandemic.

Capital Returns Management LLC and law firms representing investors have attacked the $528 million deal price.

FBL talks about how it sees its value in a presentation filed with the U.S. Securities and Exchange Commission.

It says the critics are:

  • Comparing its deal to annuity issuer deals made several years ago, before the COVID-19 pandemic came along, when the economy was stronger and interest rates were somewhat higher.
  • Ignoring the fact that 75% of the annuities it has sold are sensitive to low interest rates.
  • Failing to acknowledge that it’s much smaller than MetLife, Aflac and other publicly traded life insurers included in value comparison charts.

FBL Financial says it believes a good measure of annuity issuer deal value is to look at the ratio of the deal price to book value, with “accumulated other comprehensive income,” or AOCI, excluded from book value, to get unrealized gains and losses out of the analysis.

The ratio of price to book value, excluding AOCI, is 1.26 to 1 for the Farm Bureau P&C-FBL Financial deal.

The ratio was 1.25 to 1 for an effort by MassMutual and Athene to acquire control of American Equity Investment Life Holding Co., and for MassMutual’s effort to acquire Great American from American Financial Group, according to FBL Financial.

The History

The Iowa Farm Bureau Federation formed Farm Bureau P&C in 1939 and FBL Financial in 1944. It owns about 60% of FBL Financial’s common stock. The federation and FBL sold some of the  the stock to members of the public through an initial public offering, in 1999.

FBL Financial began talking about the possibility of going private in September 2020, and Farm Bureau P&C announced around that time that it would pay $440 million for its sister. However, FBL Financial hired an outside firm to evaluate the offer, and Farm Bureau P&C then increased the price to $528 million.

The Parent Problem

One problem with the critics’ analysis is that it ignores the Iowa Farm Bureau’s role, says FBL Financial.

“FBL Financial Group has a shareholder with a ~60% stake that significantly limits the potential for sale to another acquirer,” the company says.

(Image: Diego M. Radzinschi/ALM)