Guggenheim Becoming Major Annuity Player

The arrival of Guggenheim Partners into the retail fixed annuity business was so quiet that even long-time industry professionals rarely spoke of it. But for the past couple of weeks, it has become a topic.

The trigger was a report in the British Telegraph a couple of weeks ago that a Guggenheim Partners business — Guggenheim Life and Annuity — is a potential buyer for Aviva USA.

That drew some “yikes!” from the advisor community. After all, Aviva is the No. 2-ranked leader in indexed annuity sales in the country, based on first-half figures from AnnuitySpecs.com. And Guggenheim Partners, based in Chicago and New York, is a global financial services brand whose family name in business stretches back to 1881. A deal between the two brands could make a splash in the U.S. fixed annuity marketplace.

As of this writing, Aviva USA has not confirmed that it is cutting a deal with Guggenheim. “As a matter of policy, we do not have any comment on the current media speculation,” an Aviva spokesman told InsuranceNewsNet.

However, the “yikes” people were already off and running. There has been an eye-rubbing quality to their discussion ever since. “Where is Guggenheim coming from?” “Where are they going?” and, of course, “Huh?”

Some of the Aviva/Guggenheim musing took a pause a few days later when a Canadian insurer — Industrial Alliance Insurance and Financial Services — came out with its own Guggenheim-related news.

The Quebec-based carrier said it had concluded an agreement to sell, “by way of indemnity reinsurance and assumption reinsurance, all its U.S. fixed annuities and accumulation riders to Security Benefit Life Insurance Company and EquiTrust Life Insurance Company, two affiliates of Guggenheim Partners.” The price: $800 million (U.S.) in contract liabilities and related assets.

What happened

That news launched another round of “what’s-going-on-with-Guggenheim?” Then the annuity wonks began putting two-and-two together, to see if they could assess the firm’s annuity and life insurance aspirations. Here’s a brief summary from the public record:

Sept. 15, 2009- Guggenheim Life and Annuity Co. becomes the new name of Indianapolis-based Wellmark Community Insurance, according to insurance department records from Oregon. The Guggenheim insurer is backed by Guggenheim Partners, a privately-held financial services firm with headquarters in Chicago and New York.

Feb. 16, 2010- Guggenheim Partners and a group of investors (including certain shareholders of Guggenheim Partners) announce that they have reached an agreement to acquire Security Benefit Corporation, a Kansas insurer that writes fixed and indexed annuities and life insurance among other products.The two firms had begun working together in June 2009 when Guggenheim became the investment advisor for Security Benefit’s general account.

Dec. 29, 2010- Guggenheim Life and Annuity agrees to reinsure the life and annuity business of Standard Life of Indiana under a reorganization agreement arranged by the Indiana Insurance department. The deal follows a two-year period when Standard had been in rehabilitation. Previously, the Guggenheim carrier had been “predominantly a reinsurer of fixed annuities,” according to the department’s announcement of the agreement.

Oct. 7, 2011- Guggenheim Partners and “certain of its controlled affiliates” agrees to acquire EquiTrust Life from FBL Financial Group, an Iowa company that sells fixed and indexed annuities and life insurance. EquiTrust focuses on indexed annuities, though not exclusively.

Aug. 16, 2012- Industrial Alliance Insurance and Financial Services of Quebec announces it has agreed to sell, via reinsurance, its U.S. fixed annuities and accumulation riders to Guggenheim’s Security Benefit and EquiTrust companies.

That deal indicates the company is pressing forward into the annuity/life marketplace. That should probably come as no surprise, since Guggenheim Partners CEO Mark Walter said in 2011 that Guggenheim has an “ongoing commitment to grow our presence in the annuity and life insurance arena.”

A leaf in the breeze

But Walter’s message appears to have blown right past the industry headlights, like a leaf swept away by a fall breeze seen by few. Perhaps some of that is simply oversight, but it may also have to do with the way that privately held companies tend to do deals in the insurance business. Consider these characteristics.

· These companies tend to move very quietly. They don’t hide their buys, of course. They even announce them after the fact, as Guggenheim dutifully does. But these companies tend to be subtle about their initiatives — they reinsure a book of business here, buy a company there, no particular rah-rah, no glitzy image-building effort. Just process.

· They can, and do, partner up with other investors. The other interests could be affiliates, other private firms or individual investors. For example, in 2010, Guggenheim said that “Guggenheim Partners, LLC and a group of investors (including…)” were buying Security Benefit. Sometimes, lengthy buyer descriptions like that don’t get much attention. Maybe the market-watchers just glaze over all those words as they get lost in the weeds of who-is-who.

· They play things very close to the vest. They are privately held companies, after all. The deals may involve investors/individuals personally known to them or perhaps families (does the Guggenheim Family ring a bell?), instead of unknowns (like investors in publicly-traded companies). The personal nature of the alliances seems to help them keep deals under wraps until they are ready to announce. That’s not 100 percent insulation, but even outsiders with a good nose have a hard time sniffing out these deals.

· They often continue using the names of the companies they buy. Hence, Security Benefit and EquiTrust are still in use even though they are now Guggenheim companies. Keeping the original name can bring beaucoup benefits to the new owner, especially if the name of an acquired company is well known and regarded, but one thing it does not do is signal that a new owner is at the helm. So some onlookers may not even learn of the change of hands until months later.

· They don’t broadcast their master plan. By comparison, publicly traded corporations — which operate under complex public disclosure requirements — often trumpet their master plan, and they use it to generate buzz, guide sales campaigns and measure results. In the privately held world, you have to hunt for the plan in the tea leaves — by asking questions, watching for key words, analyzing moves, etc. So, if a privately held company decides to bulk up on annuity business, it may take the market a while to figure out that this is indeed the plan.

The quiet ways of privately- held firms is their competitive advantage in the insurance world. It gives them an element of surprise, enabling them to build roots and alliances in their target arenas before the broad market catches on. The challenge for everyone else is to keep the old ear to the ground, seeking heads-up clues on the privately-helds that will make it unnecessary to shout “yikes.”

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