Athene CEO criticizes offshore reinsurance, risk-taking by competitors

Athene executives continued the company’s withering criticism Thursday of poorly capitalized competitors who are attracting unwanted investigations and attention from regulators.

Athene, a subsidiary of Apollo Global Management and a top seller of annuities, hosted a conference call with Wall Street analysts. Grant Kvalheim, CEO of Athene, sought to distance the company from other asset-management-owned life insurers.

Private equity-owned life insurers, such as Delaware Life Insurance Co., are under fire for using policyholder premiums and reserves as capital to invest in higher-yielding, riskier private credit and alternative assets originated by their parent firms. In turn, the parent firms earn recurring management fees while often using offshore reinsurance to lower taxes and capital requirements.

“We do not feel the industry should accept this reputational risk and leave policyholders susceptible,” Kvalheim said. “For us, it is particularly troublesome to allow outsized risks when the industry itself is required to pay the bill through the operation of the guarantee fund.

“In short, we need equal capital for equal risk.”

The comments echo those made last week by Apollo CEO Marc Rowan, who claimed some asset managers view insurance companies not as businesses that must manage long-term policyholder obligations, but as vehicles for expanding asset-management fees.

Strong annuity sales continue

Athene Life & Annuity remain the kings of the annuity sales charts, with $20.2 billion in first-half sales, according to LIMRA. October saw Athene add “north of $4.6 billion,” Kvalheim said, adding that rising interest rates are having an impact.

“The part that makes it a little harder to manage is rates have been volatile, so there's a difference in how we react,” he explained. “We're a spread business, obviously, and I do think higher rates are a net positive for our business. It makes our products more attractive.”

The partnership between Apollo and Athene has drawn its own scrutiny from industry analysts. As Rowan did last week, Kvalheim said their model is different.

“For us, transparency is key, and for that reason, we provide our affiliate asset composition by type, showing material unaffiliated collateral and significant third-party participation,” he said. “In particular, Athene does not have any affiliated assets constituting equity in an affiliate without having significant third-party participation.”

Apollo operates as a principal, underwriting risks itself and seeking returns on equity that justify the capital committed, Rowan said last week. He also pointed to third-party investors who invest alongside Apollo and pay the company fees to participate in its investment opportunities.

'Most direct indictment to date'

Kvalheim hailed an Oct. 26 memorandum from Wisconsin Insurance Commissioner Nathan Houdek, chairman of the Financial Condition Committee within the National Association of Insurance Commissioners.

The memo directed the Life Risk-Based Capital Working Group to take immediate action on reinsurance recapture and counterparty risks, particularly involving transactions with jurisdictions that do not qualify for reciprocal treatment under U.S. insurance rules.

The directive follows an analysis by the NAIC's Valuation Analysis Working Group of confidential company filings required under Actuarial Guideline 55. The review identified a significant number of reinsurance transactions that regulators believe raise concerns about insurers' ability to meet future policyholder obligations.

Most notably, approximately 70% of life insurers ceding business to non-reciprocal jurisdictions have portfolios of comparatively higher-risk assets supporting generous annuity guarantees, according to the NAIC memorandum.

Regulators warned that the reserves and capital supporting those liabilities could fall below the standards established under the newly adopted Valuation Manual 22 annuity reserve requirements, as well as U.S. risk-based capital standards.

Kvalheim called the memo, “the most direct indictment to date of offshore regulatory arbitrage.”

Athene primarily uses affiliated offshore reinsurance in Bermuda, ceding the vast majority of its policies to its own sister reinsurance subsidiaries, alongside third-party co-investment vehicles.

“We take very seriously that our first obligation is to meet the promises that we've made to policyholders, and to do so in a clear and transparent manner,” Kvalheim said. “For this reason, we have a strong desire to see the industry operate on a level playing field, with a shared commitment to safety and soundness. Collectively, it is our job to maintain and preserve trust.”

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.