Item 1.01 Entry Into a Material Definitive Agreement
On August 16, 2022, a subsidiary of Equitable Holdings, Inc., a Delaware corporation (the “Company”), Equitable Financial Life Insurance Company, a New York-domiciled insurance company (the “EFLIC”), entered into a Master Transaction Agreement (the “Agreement”) with First Allmerica Financial Life Insurance Company, a Massachusetts-domiciled insurance company (“Reinsurer”), pursuant to which, among other things, at the closing of the transactions contemplated thereby, Reinsurer and EFLIC will enter into a coinsurance and modified coinsurance agreement (the “Reinsurance Agreement”) pursuant to which EFLIC will cede to the Reinsurer, on a combined coinsurance and modified coinsurance basis, a 50% quota share of legacy Group EQUI-VEST® deferred variable annuity contracts issued by EFLIC between 1980 and 2008, which predominantly include EFLIC’s policies with the highest guaranteed general account crediting rates of 3%, supported by general account assets of approximately $4 billion and $6 billion of separate account value (the “Reinsured Contracts”).
Reinsurer will deposit assets supporting the general account liabilities relating to the Reinsured Contracts into a trust account for the benefit of the Company, which assets will secure its obligations to EFLIC under the Reinsurance Agreement. EFLIC will reinsure the separate accounts relating to the Reinsured Contracts on a modified coinsurance basis. Commonwealth Annuity and Life Insurance Company, an insurance company domiciled in the Commonwealth of Massachusetts and affiliate of Reinsurer, will provide a guarantee of Reinsurer’s payment obligation to EFLIC under the Reinsurance Agreement. In addition, the investment of assets in the trust account will be subject to investment guidelines and certain capital adequacy related triggers will require enhanced funding. The Reinsurance Agreement also contains additional counterparty risk management and mitigation provisions.
Based on estimates as of June 30, 2022, as consideration for the transaction, the Company, through EFLIC, expects to receive from Reinsurer a positive ceding commission of approximately $1.1 billion. The reinsurance transaction also mitigates EFLIC’s remaining Regulation 213 redundant reserves, securing future cash flows. The reinsurance transaction results in a limited impact to Group Retirement operating earnings of $10-15 million earnings per annum.
Under the terms of the Agreement, at closing of the transactions, AllianceBernstein L.P., an affiliate of the Company (“AB”), will enter into an investment advisory agreement with Reinsurer, with specific terms to be agreed between the date hereof and the closing of the transactions, pursuant to which AB will be the preferred investment manager for approximately half of the general account assets to be transferred to the trust account as of June 30, 2022 for, subject to certain provisions, a minimum of five years. EFLIC will continue to administer the Reinsured Contracts.
The Agreement contains customary representations and warranties as well as covenants by each of the parties. The representations and warranties in the Agreement are the product of negotiation among the parties to the Agreement and are for the sole benefit of such parties. Any inaccuracies of such representations and warranties are subject to waiver by such parties in accordance with the Agreement without notice or liability to any other person. In some instances, the representations and warranties in the Agreement may represent an allocation among the parties of risk associated with particular matters, and the assertions embodied in those representations and warranties are qualified by information disclosed by one party to the other in connection with the execution of the Agreement. Consequently, persons other than the parties to the Agreement may not rely upon the representations and warranties in the Agreement as characterizations of actual facts or circumstances as of the date of the Agreement or as of any other date. Each of EFLIC and Reinsurer has agreed to indemnify the other party and their respective affiliates with respect to certain losses arising out of or resulting from breaches of its representations, warranties and covenants, as well as for certain other matters.
The transaction is expected to close in the second half of 2022. The consummation of the closing under the Agreement is subject to the satisfaction or waiver of customary closing conditions specified in the Agreement, including, among other things, (i) the receipt of required regulatory approvals, without imposing a burdensome condition, and (ii) absence of a material adverse effect on Reinsurer (in the case of EFLIC) or the Reinsured Contracts (in the case of Reinsurer), subject to certain exceptions and qualifications.
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