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Life insurer's $203M deal accentuates new emphasis on US biz

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Life insurer's $203M deal accentuates new emphasis on US biz

A company that has historically emphasized writing life insurance business in select markets outside of the U.S. will boost a recent decision to refocus domestically with a sizable acquisition.

National Western Life Group Inc. announced Oct. 4 that it agreed to acquire Ozark National Life Insurance Co. (MO) and its affiliated broker/dealer for $203 million in cash in a transaction that stands to triple its relatively modest amount of U.S. life insurance in force. Annuity products have traditionally constituted the majority of its domestic business.

Though the acquirer, which operates through Austin, Texas-based National Western Life Insurance Co., ended 2017 with $19.68 billion in life insurance in force and generated $274.5 million in net life premiums during the full year, much of that business came from South America and the Pacific Rim. The company had retreated from what had been its largest international market, Brazil, in the fourth quarter of 2015 amid a regulatory dispute in that country. It discontinued accepting applications for international products from all foreign residents effective in May 2018.

Months earlier, the insurer stopped accepting policy applications from residents in troubled Venezuela, which emerged as National Western Life's largest international market for new sales following its Brazil exit, as a result of "the unsettled political, economic, civil, and social climate existing in that country."

All but $3.8 million of National Western Life's 2017 annuity considerations of $606.3 million came from the U.S. and its territories, however. National Western Life was one of eight life groups or stand-alone companies for which U.S.-domiciled entities generated more than 10% of their 2017 direct premiums and considerations internationally, joining Aflac Inc. (mostly from Japan in a corporate structure that has since been reorganized), Assurant Inc. (Canada), Best Meridian Insurance Co. (Latin America), Chubb Ltd. (Canada), Citizens Inc. (South America, Latin America and Taiwan), Pan-American Life Mutual Holding Co. (Latin America) and the life units of AmFirst Insurance Co. (Latin America and the Caribbean).

National Western Life said in its most recent 10-Q that it backed out of its remaining international markets as a result of the combination of reduced sales activity, the incremental expenses associated with underwriting products and the lower anticipated incremental contribution to profits from new sales.

The company plans to continue to service and maintain its block of in-force international business. It had approximately 59,300 international life insurance policies in force representing approximately $16.2 billion in face amount of coverage as of June 30, according to the 10-Q. By contrast, its domestic life operation had 49,600 policies in force, representing $3.2 billion in face amount of coverage. National Western Life's domestic business has traditionally been more heavily weighted to sales of products such as single- and flexible-premium deferred annuities, single premium immediate annuities, and fixed indexed annuities.

Kansas City, Mo.-based Ozark National ended 2017 with nearly $6.60 billion of life in force, according to its annual statutory statement, and virtually all of its $82.4 million in net life premiums for the year came from the U.S.

As part of National Western Life's renewed domestic life emphasis, the company hired a new chief marketing officer in late 2017 to help broaden its distribution beyond independent marketing organizations to include general agents, banks, broker/dealers and wirehouses. It also has sought to expand sales and distribution efforts into non-English speaking sectors of the United States as it redeployed bilingual personnel in its home office who had previously been assigned to the international markets to aid in that effort.

National Western Life reported domestic life sales of $13.2 million in the first six months of 2018, from $8.9 million in the year-earlier period. Equity-index life policies, most of which are single-premium products that appeal as wealth-transfer products for the segment of the population that is approaching retirement, accounted for the vast majority of that production.

Ozark National offers what it markets as the Balanced Program Plan, a modified whole life policy with a decreasing death benefit where the policyholder makes periodic investments in a mutual fund beginning one year after the policy is issued. Whole life and endowment policies accounted for $4.72 billion of the company's life in force at year-end 2017.

The announced deal value amounts to 12.9x Ozark National's 2017 net income of less than $15.8 million and 11.5x its internally projected 2018 net income of $17.7 million. Relative to June 30 capital and surplus, the consideration represents a multiple of 1.42x.

Those results, however, do not include N.I.S. Financial Services Inc., the affiliated broker/dealer, given that it and Ozark National are subsidiaries of a common parent without a direct ownership relationship. The multiples decline to 11.2x 2017 earnings and 1.32x the combination of statutory surplus and GAAP shareholders' equity when incorporating results from the broker/dealer's annual audited report.