Question
From: (REDACTED)
Sent: Thursday, July 24, 2008 6:01 PM
To: Verne, B. Michael
Cc: (REDACTED)
Subject: Follow-up Inquiry re 802.1 issue
Hello Mike:
I have afollow-up question concerning the hypothetical presented to you by (REDACTED) onJuly 15, 2008 (attached below).
The purchaser inthe transaction is primarily engaged in the purchase and reinsurance of inforceblocks of life insurance and annuities. Such acquisitions can be made by stock purchase,indemnity (bulk) reinsurance or assumption and novation. Regardless of thelegal structure, the purchaser acquires the economic risks and benefitsassociated with the particular block acquired. The business is typicallyadministered by independent service providers on behalf of the purchaser. Since2005, the purchaser has made several acquisitions of inforce blocks of lifeinsurance and annuities.
In the instanttransaction, the economic substance is essentially that of an assumptionreinsurance contract. Although the form of the transaction is a 100% stockpurchase, the transaction has been structured to minimize the contingentliabilities to the buyer associated with owning the equity of the target, whileexposing the buyer primarily to the insurance risk associated with the target'sin-force, retained business (which is the seller's and buyer's shared objective).This allocation of risks and benefits is similar to that which would resultif a reinsurance agreement, rather than a stock purchase agreement, had beenentered into.
Prior to theclosing, Company B will transfer its retained business and assets, other thanthe business that Buyer seeks to acquire, to its Parent As a result, Company Bwill transfer to its Parent virtually all of the assets of the business asidefrom insurance policies, related reinsurance agreements and other contracts andinvestment assets backing the policy liabilities and surplus. This transferwill include real estate, hardware, software, furniture, fixtures etc. In addition,although Parent will exit the life insurance business through this transaction,we are advised that it will remain in the insurance business, through one ofits controlled subsidiaries.
Under these facts,we believe that the acquisition will qualify as an exempt transactionunder Rule 802.1 as an acquisition of goods in the ordinary course of business.
Please let us knowif you agree with this analysis.
Thank you.
ORIGINAL E-MAILAND RESPONSE:
From: Verne, B.Michael [mailto:MVERNE@ftc.gov]
Sent: Tuesday, July 15, 2008 4: 12 PM
To: (REDACTED)
Subject: RE: 802.1 exemption
Yes-if parent will continue in the insurance business, the acquisition of the lifeinsurance portion could be in the ordinary course.