Regulators in Iowa and New York approved the closely watched acquisition of fixed annuity insurer Aviva Life and Annuity Co. and its subsidiaries by Athene Holding.
Both approvals are subject to the new owner meeting certain conditions. The conditions are aimed at ensuring consumer protections.
The approvals bring to end several months of speculation about whether the deal, valued at $1.8 billion, would go through. Aviva Plc, the owner of the two carriers, put its two U.S. insurance units up for sale in May 2012. In December, the London company announced it had agreed to sell the firms to Athene.
As soon as the proposed transaction was announced, concern erupted about whether the short-term nature of the typical private equity business model would be a good match for the long-term interests of insurance and annuity policyholder.
That became a hot topic because Athene’s parent, Apollo Global Management, is a private equity firm based in New York.
Policyholder advocates brought their concerns about a possible mis-match to the state insurance regulators, which have the authority to approve or disapprove company acquisitions.
Certain insurance interests, including some annuity producers, worried about the impact of the deal on the annuity marketplace. In particular, would the carrier’s annuity products remain available through the broad independent distribution system, and /or would there be changes in terms and conditions of selling agreements?
Some insurance interests just shook their heads, not knowing what the impact could be of a private equity firm owning a leading annuity company. (In the first quarter, Aviva USA was the fourth-ranked indexed annuity carrier, according to Wink, an annuity resource.)
Some international interests who got wind of these concerns became unsettled, too. A few even called InsuranceNewsNet to express thoughts about what would happen if the deal did not go through, and about how such an outcome could impact Aviva Plc and European markets.
Both state departments made sure the public knew they were giving the deals a close look, and Iowa held a hearing on the Aviva USA transaction in June.
Then, on Thursday, Iowa Insurance Commissioner Nick Gerhart approved Athene’s acquisition of Des Moines, Iowa-based Aviva USA, subject to several conditions.
The day before, Benjamin M. Lawsky, superintendent of financial services in the New York State Department of Financial Services, had approved Athene’s acquisition of sister company Aviva Life and Annuity Co., of New York, also subject to conditions — or as New York put it, to Apollo’s agreement to meet “heightened policyholder protections.”
The Iowa conditions are:
· The company will pay no ordinary or extraordinary dividends or other distributions to shareholders for five years, unless approved by the commissioner.
· Any changes in the company’s plan of operations will require the prior approval of the commissioner after it submits a revised plan of operations and financial projections.
· The company will submit certain affiliated agreements and investments to the commissioner, to facilitate “greater scrutiny of [Athene’s] affiliated transactions and investments.”
· All non-variable deferred annuities containing guaranteed minimum death benefits or withdrawal benefits issued by the company subsequent to Dec. 31, 2013, must meet the more conservative reserving standards of Actuarial Guideline 33 (rather than Actuarial Guideline 43).
“These conditions are in addition to enhanced reserving measures voluntarily offered by Athene,” Gerhart said in his order. This entails Athene’s voluntarily increasing policy reserves by an additional $150 million and the company submitting itself to certain capital and surplus requirements.
The New York heightened policyholder protections include:
· Athene will maintain the company’s risk-based capital levels at an amount not less than 450 percent.
· Athene will establish a separate backstop trust account totaling approximately $35 million so that if the carrier’s risk-based capital levels fall below 450 percent, the backstop will restore the levels to at least 450 percent.
· Any material changes to Athene’s plans of operations for the carrier, including investments, dividends, or reinsurance transactions, will receive Department of Financial Service prior approval.
· The insurer will file quarterly risk-based capital level reports to the department (not just annual reports) and make certain corporate and operational disclosures to the department.
In July, the New York department approved Guggenheim Partners’ acquisition of Sun Life Insurance and Annuity Co. of New York following a similar process of review. The approval was also subject to a similar set of protections, according to a statement from the department.
Athene’s principal subsidiaries include Athene Annuity & Life Assurance Co. and Athene Life Insurance Co., both domiciled in Delaware; Presidential Life Insurance Co., a New York-domiciled company, and Athene Life Re Ltd., a Bermuda-based reinsurer.
Athene has indicated its new acquisition will operate as Athene USA and will be based in Des Moines. The deal is expected to close in this fall.
The company’s products include: Retail fixed and equity indexed annuities; institutional products, such as funding agreements; and reinsurance arrangements with third party annuity providers.
Athene says it had approximately $14 billion of assets and $2 billion of equity capital at December 31, 2012.
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