Proposed Federal Life ownership structure (Image: Federal Life)
Some individuals try to make money by fixing up and selling undervalued houses.
Some investment groups try to do the same with insurance companies.
Insurance Capital Group LLC (ICG), a New York-based player in the insurer reboot market,Â says it wants to help Federal Life Insurance Company of Riverwood, Illinois, increase its sales, improve its earnings and return to the variable annuity market.
ICG â a company with ties to the team that rebooted Shenandoah Life Insurance Company of Roanoke, Virginia âÂ could get control of Federal Life through a stock offering with a total value of about $34 million to $45 million.
If ICG succeeds, and all goes according to plan, Federal Life could need help from independent agents with selling a new line of variable annuity products.
In some ways, the ICG/Federal Life deal resembles a number of other recent life insurer reboot efforts, such as the effortÂ by Aquarian Investors Heritage Holding LLC to reboot Investors Heritage Life Insurance Company.
Here are nine more things for agents to know about the ICG/Federal Life deal.
Federal Life is small: It reported a net loss of $1.9 million for the first half of this year on just $23 million in revenue, and $254 in assets.
The company ended 2017 with about 26,000 life insurance policyholders and group certificate holders, and about 2,000 annuity holders.
But the companyÂ is almost 120 years old.
It offers a wide range of products aimed at middle-market consumers, including term life, whole life, university life, single-pay permanent life, life insurance products aimed at the final expense market, fixed annuities and indexed annuities.
Jose Montemayor, a former Texas insurance commissioner, has been working with private investors at Black Diamond Capital Partners of Austin Texas, since 2005.
Black Diamond acquired Shenandoah Life, a failed life insurer, from receivers at the Virginia Bureau of Insurance in 2012.
Black Diamond used financing from Reservoir Capital Group to help Shenandoah Life recover from the effects of theÂ Great Recession of 2007-2009.
The new ownersÂ created a new holding company, Prosperity Life Insurance Group LLC of Roanoke. Prosperity Life is now the parent of SBLI USA Life Insurance Company and S.USA Life Insurance Company Inc. as well as of Shenandoah Life.
Shenandoah Life is still in business. It reported $57 million in premium revenue in 2017, according to the Texas Department of Insurance. Thatâs up from $45 million in 2015, according to an exam report posted by Virginia regulators.
Craig Huff, a founder and managing partner at ICG, is also a co-founder of Reservoir Capital, and he is still a co-chief executive officer at Reservoir Capital.
Matt Popoli, another ICG founder and managing partner, is a former Reservoir Capital partner and senior managing director.
The ICG director team also includes Montemayor and Anne Dowling.
Dowling was a top insurance regulator in Connecticut from 2011 through 2015, and the insurance director in Illinois from 2015 through 2017. She has served on the Prosperity Life boardÂ since May 2017.
Earlier in Dowlingâs career, she served as the chief investment officer at Connecticut Mutual Life Insurance Company, and as the head of strategy at MassMutualâs U.S. insurance group.
Investment companies are like baseball card collectors: Even if they would like to hold somethingÂ in their collection forever, they also like knowing they could get a high price if they ever chose to sell it.
In March, Reservoir Capital and Black Diamond arranged to sell Prosperity Life to a group that includes Paul Singerâs Elliott Management Corp. for a price that was not disclosed.
Federal Life reported Monday, in a notice filed with the U.S. Securities and Exchange Commission (SEC), that ICG could get financing from Bain Capital LP or Bain Capital affiliates.
Bain Capital may be best known for being the investment co-founded by Mitt Romney.
Romney, who is now a U.S. senator representing Utah, and has been a governor and presidential candidate, helped start Bain Capital in 1984. He left the company in 2002.
Federal Life said in the new SEC notice that it might enter into an investment advisory agreement with Bain or a Bain affiliate.
Before 2016, Federal Life was a policyholder-owned mutual.
In 2016, the company reorganized and adopted a mutual holding company structure. The formal name of the top-level company is Federal Life Mutual Holding Company.
The board of the mutual hold company adopted a demutualization plan in March, according to a Federal Life deal prospectus filed with the SEC Tuesday.
The plan calls for the mutual holding company to move to a stock company. After the conversion, Federal Life Mutual would become a wholly owned subsidiary of a stock company, Federal Life Group Inc.
Federal Life Group Inc. isÂ a Pennsylvania corporation that has no current operations of its own.
In connection with that transaction, Federal Life is offering up to 4.6 million shares of stock through two separate offerings.
The companyâs own life insurance policyholders and annuity holders had a chance to buy shares through a âsubscription offeringâ that ended Tuesday.
Federal Life is now making any of the 4.6 million shares left over through a âcommunity offering.â
Federal Life is expecting ICG to end up with enough of the stock to control Federal Life.
The company expects its own executives and directors to come up with only about 9% of the stock.
Federal Life notes in the prospectus that its stock will trade on the Nasdaq Capital Market under the stock symbol FLF.
But the company emphasizes in the prospectus, repeatedly, that it will probably avoid SEC quarterly and annual reporting obligations byÂ delisting its shares from the Nasdaq Stock Market listings.
Delisting could greatly reduce the market for Federal Life stock, the company says.
Federal Life also notes, repeatedly, that one challenge it faces is that it has not had a rating from A.M. Best since 1993.
Federal Life âdoes not intend to seek a rating immediately after completion of the offering, but may seek a rating from a nationally recognized statistical rating organization in futureÂ years,â the company says in the prospectus. âThe degree to which the lack of a rating has affected and will affect Federal Lifeâs sales and persistency is unknown.â
âWe intend to introduce a variable annuity product to our group of annuity product offerings upon completion of the offering,â the company says in its prospectus. âFederal Life was a pioneer in the variable annuity market and introduced one of the first variable annuity products in 1975. The additional capital from the offering will provide the capital needed to support our growing index annuity business and allow us to re-enter the variable annuity market.â
Federal Life says it now distributes life and annuity products through about 1,000 independent agents.
âWe intend to expand our distribution platform by entering into strategic partnerships with companies that can broaden our distribution channels,â the company says.
The company says that it also wants to expand direct sales to consumers, and that it seems the senior market, the retirement planning market and the Hispanic market as especially attractive target markets.
âFederal Life currently has a presence in the Hispanic market and maintains an entirely separate Spanish-language website that features content and themes unique to that target market,â the company says.
â ReadÂ United Prosperity Agrees to Acquire Shenandoah Life,Â on ThinkAdvisor.