New Life for Annuity?

A major reinsurer to primary life insurers, Annuity & Life Re (Holdings) may need its own safety net. And a rescuer could soon emerge. Annuity's stock dived to 15 in mid-February, down from 37.25 a year ago. Lately, it has edged up to 17.76. The fall mostly reflects a $33 million charge Annuity took in the fourth quarter, notes Andrew Kligerman, an analyst at Bear Stearns. As a result, the company posted a $24.8 million fourth-quarter loss and a $38.7 million loss for 2001. The charge stemmed from a "large number of unexpected annuity-policy cancellations," says Kligerman. In recent months, Bermuda-based Annuity (ANR) has twice reduced its 2002 earnings guidance. So Kligerman cut his estimate from $1.78 a share to $1.42. On Jan. 16, 2002, Standard & Poor's put Annuity on CreditWatch.

Enter XL Capital, also of Bermuda, which owns more than 13% of Annuity. XL provides excess liability coverage to enterprises worldwide. "There's speculation that XL may want to acquire Annuity," says Kligerman--now that its stock is way down. True, XL has said it isn't interested in Annuity. "That's good strategy," he says, if XL wants to keep Annuity's price low. But it can't be denied that the two have a "good fit." XL has agreed to provide up to $10 million to help Annuity cover any future policy returns. Kligerman notes that XL's stock, trading near its high, at 93 a share, sports a "solid" price-earnings ratio of 14 and a market cap of $12.3 billion, vs. Annuity's p-e of 10 with a market value of $449.5 million. XL was buying Annuity shares in the open market late last year. Recent deals in the industry went for one to two times book value, notes Kligerman. Annuity's book is $15.78 a share. "It's conceivable," he figures, that Annuity could go for two times book. A call to Annuity wasn't returned.

By Gene G. Marcial

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