Harbinger Group Makes Another Annuity Move

By Linda Koco InsuranceNewsNet

Harbinger Group has made still another foray into the annuity business. The publicly held company’s latest deal is an annuity reinsurance treaty closed with Bankers Life.

According to the treaty, Bankers Life will cede approximately $160 million of its annuity business to Front Street Re (Cayman) Ltd., a Harbinger subsidiary that focuses on life and fixed annuity reinsurance products.

Bankers Life is a St. Petersburg, Fla.-based subsidiary of Bankers Financial. It sells single premium deferred annuities, single premium immediate annuities and guaranteed fixed rate annuities.

According to a statement from Harbinger, the State of Florida Office of Insurance Regulation has approved the reinsurance agreement with Bankers Life, retroactive to Nov. 30. Front Street Re will manage the assets supporting carrier reserves, in accordance with Bankers Life’s internal investment policy.

Annuity profile

Harbinger already owns Fidelity & Guaranty Life (FGL), a Baltimore, Md.-based carrier that sells fixed annuities, principally indexed annuities, as well as life insurance, through independent agents.

Harbinger bought FGL (then called Old Mutual) in 2011. The name change came shortly thereafter.

The reinsurance transaction with Bankers Life is not the first annuity reinsurance arrangement for Harbinger. In December 2012, the holding company announced that the Maryland Insurance Administration had approved a reinsurance treaty — involving annuities -- between FGL and Front Street.

Under that earlier treaty, FGL was to cede approximately 10 percent, or approximately $1.5 billion of liabilities, of its annuity business to Front Street before year-end 2012. HGI Asset Management, another subsidiary of Harbinger Group, was named to manage the assets supporting reserves.

The new deal won’t upset the national annuity cart. Bankers Life focuses mostly on the southeastern markets, and it involves reinsurance, not direct sales.

But for agents, the reinsurance pact is another sign of the shifting sands that agents have witnessed in the annuity industry since the last recession.

That a Harbinger subsidiary is involved will draw some buzz. Some will take it as a sign that the New York holding company is increasing its annuity footprint and wonder, “where this might go next?”

That is the same question agents have been asking about other changes in the business in recent times. Those changes include the entry of private equity buyers in the fixed annuity business, the product curtailments that carriers have made to cope with the low interest environment, and the capacity limits on the variable annuity side of the business, among many others.

Regulatory experience

Harbinger already has had a taste of high profile side of the annuity business. The company found itself caught up in this year’s non-stop controversy over whether private equity firms should be allowed to purchase fixed annuity companies, and if so, under what circumstances.

Harbinger Group is not a private equity company — it is a public holding company — but it has a private equity subsidiary called Harbinger Capital Partners. That private equity subsidiary participated in/helped facilitate the 2011 purchase of Old Mutual (now FGL) from Old Mutual Plc of London.

This involvement turned out to be brief in duration but long in impact.

Because of the subsidiary’s role in the transaction, insurance regulators in several states included the parent company, Harbinger Group, on their watch list for private equity/annuity company purchase activity. Regulators in New York even included Harbinger Group on its list of private equity firms the state subpoenaed in mid-year — a move designed to help New York learn more about private equity activity in the annuity marketplace.

Ever since, Harbinger Group has become a household name in annuity circles that have deals on their radar screen, whether private equity related or not.

As can be seen from the Front Street/Bankers Life deal, Harbinger has not been deterred by regulatory inquiry into the actions of its subsidiaries.

At the LIMRA annual meeting in Chicago last year, a Harbinger executive made some comments that may help explain this unflinching approach to annuity-related deals.

In a breakout session, Gus Cheliotis, a vice president and investment counsel for the New York company, told the packed audience of insurance executives that Harbinger takes a long term view toward keeping its acquisitions. He said his company stresses that point in its meetings with regulators.

In other words, the company is accustomed to interacting with regulators, and to addressing the questions that regulators may have before approving the transactions. Harbinger appears to take such exchanges in stride, as part of the business rather than a reason to stay away.

The announcement about the Bankers Life treaty indicates that Harbinger is anticipating making more deals in the life and annuity business, at least on the reinsurance side. For instance, after noting that its Front Street subsidiary is a provider of customized reinsurance solutions to the life insurance and fixed annuity industry, Harbinger’s managing director Phil Gass said, “We see significant additional opportunities for Front Street Re to support the life insurance and fixed annuity industry for years to come.”

In other developments involving Harbinger and annuities:

• In December, FGL completed its previously announced initial public offering for a portion of the company, but Harbinger Group still retains control.

• In November, A.M. Best Co. affirmed the financial strength rating of B++ (Good) and issuer credit ratings (ICR) of “bbb+” of FLG and its New York state sister company. The analysts spoke favorably of the insurers’ competitive position in fixed annuities, proactive new product development, consistent positive statutory net income, and several other characteristics. But they also cautioned about potential challenges stemming not only from the low interest rate environment and the carriers’ reliance on fixed indexed annuity sales growth, but also from “the weak, albeit somewhat improved” credit profile of Harbinger. In view of Harbinger’s level of indebtedness, the Best analysts said, the company’s ability to provide capital to the insurance companies “may be limited” during periods of financial stress.

Bankers Life, which is ceding its annuity business to Harbinger, is a subsidiary of Bankers Insurance Group, which is owned by Bankers Financial Corporation. All are based in St. Petersburg. The group has a number of other companies too, including some in the property-casualty market.

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

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