Athene To Become Big In Indexed Annuities

December 21, 2012

Athene To Become Big In Indexed Annuities

By Linda Koco

Finally, the speculation about who will buy Aviva USA is over. Athene Holding Ltd., a Pembroke, Bermuda insurance holding company, says it has agreed to buy the big fixed indexed annuity carrier, Aviva USA.

The deal, which is expected to close in 2013, will make Athene the second largest seller of fixed indexed annuities in the U.S. That would put the insurance operation just one step away from its stated goal, which to become the leading U.S. fixed annuity company.

The purchase price is $1.55 billion. That’s substantially below Aviva USA’s book value last June, which was $3.8 billion, according to a November from Bloomberg which cited company officials. But it is above the $1 billion figure that outsiders were predicting would be the sale price.

The announcement brings to end months of conjecture over who would buy Aviva USA. The rumblings started soon after the carrier’s UK parent, AVIVA plc, announced in May that it would be selling off non-core assets. Aviva USA wasn’t named at the time, but observers soon concluded it was a distinct possibility.

Unnamed sources repeatedly floated the name of private equity firm Guggenheim Partners LLC as the probable buyer. But by the fall, market watchers also maybe’d the names of Apollo Global Management LLC and Harbinger Capital Partners.

As it turns out, those guessing that Apollo would win out came closest to being right. This is because the Athene deal has the “support” of Apollo. Specifically, the Bermuda investment manager says it has agreed to provide “up to $100 million of capital support to Athene to the extent such support is necessary.”

The acquisition announcement does not paint Apollo as the buyer. It says Athene Holdings is the buyer. However, the Apollo connection appears to be critical to the acquisition. Consider:

·         Apollo says it has been providing asset allocation and related services to Athene and has been directly managing a portion of these assets and that it may do the same for a portion of Athene’s newly acquired Aviva assets, once the deal closes.

·         When Athene Holding was formed in 2008, an affiliate of Apollo provided the company with “solutions related to tax efficient savings vehicles to support retiring baby boomers,” according to Athene.

·         Apollo has a fixed annuity reinsurance business in Bermuda and is also reported to be a majority shareholder of Athene Annuity & Life, with administrative offices in Greeneville, S.C. In recent years Athene Annuity, acquired Royal Bank of Canada’s Liberty Life annuity book as well as Presidential Life.

Deal details

These are some highlights of the transaction as provided by Athene Holding:

Athene will acquire Aviva plc’s U.S. annuity and life insurance operations. Those operations currently do business as Aviva USA. The issuing companies include Aviva Life and Annuity Company, West Des Moines, Iowa, and Aviva Life and Annuity Company of New York.

The Aviva USA business will merge into Athene Holding’s primary U.S. operating subsidiary. This subsidiary is Athene Annuity & Life Assurance Company, a Delaware-domiciled insurer in the retail fixed and indexed annuities and reinsurance business.

Aviva USA will be renamed Athene USA. It will become the parent for Athene’s U.S. operations, with headquarters in West Des Moines, Iowa. This is the city where Aviva USA has its headquarters now.

Athene says it recently received a $621 million capital infusion in anticipation of the transaction. The source of that infusion is not identified.

Following the transaction, Athene expects to have over $3.5 billion of combined statutory capital within its insurance company subsidiaries, the company says.

From small to big

A key impact for annuity professionals will be on the fixed indexed annuity business in the U.S.  Up to now, Athene Annuity has been a smaller player in that business. At the end of third quarter, its year-to-date indexed annuity sales of nearly $87.5 million put it in 26th place in the sales rankings of, Pleasant Hill, Iowa.

But when it swallows Aviva USA, Athene Annuity will go from small to big. After all, at the end of third quarter, Aviva USA ranked in 2nd place in the AnnuitySpecs list for year-to-date indexed annuity sales of more than $3.3 billion. If Athene’s year-to-date business were combined with Aviva’s year-to-date business as of the end of that same quarter, the combined total would have been a bit over $3.4 billion.

The $3.4 billion is still a distance from the industry’s top selling indexed annuity carrier, Allianz Life Insurance Company of North America. At the end of third quarter, the Minneapolis-based Allianz produced year-to-date indexed annuity sales of nearly $4.2 billion, according to AnnuitySpecs.

But since Athene had formerly been in 26th place, catapulting to 2nd place will change the company’s industry profile in significant ways. The most obvious shift is that it will soon have a large book of existing business and, presumably, a large distribution network in the independent channels.

Athene’s product profile will expand as well. In the last year, Athene Annuity has debuted a new fixed indexed annuity plus a couple of multi-year guaranteed annuities. But with Aviva added to its quiver, the Athene operation will be able to offer a wider selection of products and the company will have more product development expertise at hand. (This assumes the company builds on the products and talent pool that it has purchased.)

Mergers and acquisitions always raise questions for producers. When one of their companies is acquired, producers wonder about what will happen to their market, their contracts, the add-ons and extras such as educational programs, as well as compensation, business processes, and more.

However, in this case, it may well be that business will flow pretty much as usual, at least for quite a while if not for a long while. This is based on Athene’s statement that “Athene is committed to retaining a substantial employee base in Des Moines as the centerpiece of Athene USA’s nationwide operations.” That statement doesn’t say a word about distribution, but it is virtually certain that distribution will benefit from the commitment. After all, the acquisition will be subject to intense regulatory oversight, as will the newly combined company, and regulators are keenly interested in seeing that mergers and acquisitions flow smoothly, have a long-term focus, and present solid prospects for stability.

What happens with the life insurance book that Athene will acquire along with the annuity business is as yet unclear. As Athene notes in its announcement, the company is focused on becoming the leading U.S. fixed annuity company, so it “is evaluating strategic options with respect to Aviva USA’s life insurance operations.”

Management expertise

Industry watchers will want to know about the bench strength of management. Here is the high level picture.

Athene Holding was formed in 2008 by James R. Belardi, formerly president of SunAmerica Life Insurance Company and CIO of AIG Retirement Services, Inc. and Chip Gillis, former head of Bear Stearns’ Insurance Solutions Group. Belardi is CEO of Athene Holding. This suggests annuity expertise is hard-wired into the deal.

Apollo was co-founded in 1990 by Leon Black and three colleagues from Michael Milken’s Drexel Burnham Lambert Inc. This suggests there is financial expertise close at hand.

Meanwhile, Aviva has substantial insurance and fixed annuity expertise. The company was formed in 2006, when it acquired most of its U.S. operations of AmerUs Group Co., Des Moines, Iowa, which was also heavy on the annuity side.  The fixed annuity business has suffered in the post-recession years, but as noted above, the Aviva operation did rank in second place in year-to-date sales.

Jack Marrion, president of Advantage Compendium, a St. Louis-based research and consulting firm, sees the transaction as largely positive for the industry and for producers. “Athene had already shown that they wanted to be a player in the fixed indexed annuity business, and with this acquisition, they are showing that they intend to be a major player, and that they have the capital to move forward,” he explains.

Commitment like that at a time when there is so much economic uncertainty in the air should be a positive for everyone, he continues.

“As for producers, they now know that their clients with Aviva policies will be taken care of and that the business will not be split up.”

Where products are concerned, “the new designs that come out from the combined companies should benefit from the experience that the buyer is bringing in areas such as valuation, financials and insurance,” he says.

The insurance industry is almost at the end of a very difficult period, Marrion adds. “This acquisition should provide evidence that some big players are now willing to invest in the annuity industry.” That should provide a dose of optimism that the industry needs.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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