Athene, a top writer of indexed annuities, will emerge a big winner following Voya Financial’s decision to separate itself from its closed block of variable annuities and its portfolio of individual fixed and fixed indexed annuities, market analysts said.
Under the deal, which is expected to close in the first half of 2018, Voya will part with about $35 billion worth of variable annuities and $19 billion worth of fixed and indexed annuities, Voya Financial said.
The $19 billion is to be reinsured through a deal with Athene.
“Athene understands the business, and the products they are acquiring with Voya,” Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc., wrote in an email.
Moore said the transaction will allow Athene to take advantage of economies of scale, and “develop efficiencies.”
“I would anticipate that this will not be the last acquisition for Athene,” she wrote.
Athene, launched in 2009, has grown mainly through acquisition. In the retail channel, Athene distributes fixed indexed annuities (FIAs) and multi-year guaranteed annuities (MYGAs) primarily through insurance marketing organizations.
In the past year, Athene has broadened its distribution relationships to include banks and broker/dealer channels.
With $96 billion in assets, Athene distributes annuities in 50 states. It was the No. 3 seller of indexed annuities in 2016, according to Wink.
A Model Match for Athene
The Voya Financial deal, announced Dec. 21, is expected to improve Athene’s per share earnings by 7 percent to 9 percent and its return on equity by 90 to 100 basis points in 2020, wrote SunTrust Robinson Humphrey analyst Mark Hughes.
The new block of annuities is comprised of 78 percent fixed indexed annuities, 17 percent fixed rate annuities and 5 percent payout annuities, “very similar to Athene’s underlying business in terms of risk profile,” Hughes wrote in a research note to clients.
Athene managers have “expressed optimism” regarding the flow of potential deals while tax reform – signed into law last week by President Donald Trump – limits competition “insofar as it will be difficult for new players to establish offshore platforms,” Hughes wrote.
Athene is a holding company for Athene Germany, Athene USA, Athene Asset Management and Athene Life Re Ltd., a Bermuda-based life insurance subsidiary.
Two Pillars of the Deal
The deal involves Voya Financial divesting itself of Voya Insurance and Annuity Co. (VIAC), the subsidiary that has issued Voya’s variable, fixed and fixed indexed annuities.
VIAC will be acquired by Venerable Holdings, a new company owned by a consortium of investors led by Apollo Global Management, Crestview Partners and Reverence Capital Partners.
Athene Holding and Voya also will participate in the consortium, with Voya having a 9.9 percent equity stake in Venerable.
Venerable will hold the variable annuities in Voya’s closed block, which is valued at about $35 billion.
Concurrent with the VIAC sale to Venerable, Voya said it will sell, through reinsurance, about $19 billion worth of its individual fixed and fixed indexed annuities to Athene.
Because the transaction involving the fixed and indexed annuities is a reinsurance agreement that will be administered by Venerable, “it will not restrain Athene from pursuing additional large opportunities in the near term,” Hughes wrote.
Athene has pursued growth through reinsurance deals and mergers and acquisition.
Landmark Day for Voya
Voya Financial Chairman and CEO Rodney O. Martin Jr. said the “landmark transaction” would open a new chapter in the company’s history.
From now on, Voya Financial, with about 2,100 financial advisors serving the retail market, would be steering away from the volatility associated with variable annuities and interest rate and insurance risks of the fixed annuities business, Martin said.
“With this transaction, we will invest even more in our high growth, high return, capital-light businesses and will streamline and drive further efficiency,” Martin said in a conference call with analysts. “We will become a faster and more nimble organization.”
Proceeds from the sales will help toward the repurchase of $1 billion worth of common stock by June 30, 2018, and reduce debt by $300 million in 2018, the company said.
Voya Financial’s investment-only variable annuities sold under the Select Advantage brand are not part of the deal and will be retained by Voya, the company said.
Voya Financial has $541 billion in assets under management.
Life Insurance Under Review
With Voya Financial’s annuity businesses heading for the exits, analysts were wondering how long it would be until the company divests itself of the life insurance product portfolio weighted down by slow growth and low interest rates.
The life insurance business would undergo a “strategic review” in the first half of 2018, Voya Financial said last week.
However, in the conference call with analysts Martin said it would be a mistake to presume anything about the future of the company’s life business.
“But please don’t draw conclusions,” Martin said.
Yet there’s little doubt that even if the life insurance business remains in Voya Financial’s fold in the short-term, it’s long-term future is shaky at best and some of the company's 6,700 employees will likely face layoffs.
More than 80 percent of Voya Financial’s operating earnings come from the high-growth, high-return and capital-light business lines embodied by the retirement, investment management and employee benefits business segments.
For the year ended Sept. 30, the retirement business segment was responsible for 37 percent of Voya Financial’s operating earnings, the company reported.
The annuities segment was responsible for 25 percent of operating earnings, investment management responsible for 22 percent, employees benefits 11 percent and the individual life segment 6 percent, the company said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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