Insurance Chief Asked To Probe AVIVA Sale

DES MOINES, Iowa--(BUSINESS WIRE)--UNITE HERE on Wednesday, July 17 urged Iowa Insurance Commissioner Nick Gerhart to ask some tough questions about the proposed acquisition of AVIVA Life & Annuity by affiliates of the private equity firm Apollo Global Management (APO), and to consider placing restrictions and conditions on the transaction.

A copy of the testimony is available at www.PECloserLook.org.

If Apollo’s application is approved, its insurance holding company – Athene Holdings – will become the second largest underwriter of fixed annuities in the United States.

At a hearing in Des Moines, UNITE HERE’s Jim Baker outlined Athene’s rapid growth since its creation in 2009, and its practice of investing an increasing share of policyholder reserves in riskier assets classes like collateralized loan obligations (CLOs), commercial mortgage backed securities (CMBS) and private equity partnership interests.

If annuity owners are concerned about the changing risk profile of the assets backing their annuities, Baker testified, they can’t cash out their policies without incurring substantial penalties. “Because of this inability to quickly liquidate a contract, annuity owners are like sitting ducks when a company undergoes a merger or other significant transformation,” Baker said.

Recently, New York Department of Financial Services Superintendent Benjamin Lawsky began investigating private equity companies’ involvement in the life insurance industry. In May, he subpoenaed documents from a number of firms, including Apollo, regarding the quality of the investments backing annuity reserves. Superintendent Lawsky has also called for reforms to the current state insurance regulations which allow some insurers to use offshore captive reinsurance companies to “artificially inflate” their reported levels of risk-based-capital.

In his testimony, Baker pointed out that Athene Holdings owns a captive Bermuda-based reinsurer (Athene Life Re) and that, according to A.M. Best, the insurer actually lowered its absolute capital in 2011 by ceding a large portion of its reserves to the Bermuda subsidiary.

Finally, Baker asked Commissioner Gerhart to examine the three layers of fees that Apollo collects from its insurance affiliates, which in the first three months of 2013 alone amounted to approximately $40 million.

UNITE HERE’s Baker urged Commissioner Gerhart to consider adopting some of the measures recently put forward by a committee of the National Association of Insurance Commissioners, including:

• Requiring the insurer to enter into a capital maintenance agreement to provide a minimum level of protection to policyholders;
• Limiting the insurer’s investment strategy to ensure the company meets asset liability matching and state insurance law requirements; and
• Conducting ongoing targeted examinations and stress tests to ensure that the insurer’s investment strategy provides a prudent approach to investing policyholder funds.

UNITE HERE is the North American hospitality union, with approximately 250,000 members primarily in the hotel, gaming, food service and laundry industries. UNITE HERE monitors developments in private equity and pension security and provides periodic testimony on financial and regulatory matters of interest to its members.

Contacts

UNITE HERE
Jim Baker, 312-933-0230
jbaker@unitehere.org