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December 27, 2012 at 07:24 AM
Already a force in the indexed annuity business, Athene Holding Ltd. was a logical choice to buy Aviva USA, say industry observers. On Friday, Athene announced its plan to buy Aviva USA from Aviva PLC for $1.8 billion, once again indicating the growing presence of private equity in the fixed and indexed annuity industry.
“I think everyone was expecting one of the private equity companies to buy Aviva USA, so it’s not a surprise,” said Judith Alexander, director of sales and marketing for Beacon Research, which tracks the sale of fixed and indexed annuities.
Based on how Athene has absorbed its previously acquired companies, Alexander said it’s unlikely it will run Aviva USA as a closed block of business. “They’ve invested, developed and introduced new products and that’s what the industry wants to see,” she said.
Further, Alexander noted that Bermuda-based Athene’s top management has experience in the insurance industry. Its founder, chairman and CEO, James Belardi, held executive positions at SunAmerica Life Insurance Co. and AIG Retirement Services, Inc.
“A lot of people have expressed some concern that the private equity people don’t really understand the annuity industry,” she said. “But Athene’s founder and executives know the industry very well. They were in it for years. That bodes well, too.”
In a company statement, Athene said its latest acquisition will be renamed Athene USA and will remain headquartered in Des Moines, Iowa. It also stated it is “committed to retaining a substantial employee base in Des Moines.” Less certain is the fate of Aviva USA’s life business. In the same statement, Athene said it “is evaluating strategic options with respect to Aviva USA’s life insurance operations.” Once closed sometime in 2013, the merger will vault Athene to the second spot among U.S. fixed indexed annuity issuers, said the company statement.
Matt Golab, RIA and a licensed insurance agent at Aaron Matthews Financial Resources in Elk Grove, Calif., gave the union of Aviva USA and Athene a favorable review. “Many in the industry have had their eye on Athene over the last year as the company strategically built its presence in the indexed annuity space as well as the hybrid income annuity space,” he stated via email.
For advisors who focus on retirement income planning and conservative asset management, the combination of the two companies is a positive, Golab added. “The strength of Aviva’s U.S.-based indexed annuity business plus the innovation Athene has brought in recent years will continue to place them at the top of the indexed annuity business.”
Private equity play
Athene is not the only private equity player that has been active in the indexed annuity space in recent months. Earlier this month, Guggenheim Partners, one of the rumored buyers of Aviva USA, snapped up the U.S. annuity line of Sun Life Financial, Inc. for $1.35 billion. In August, two Guggenheim affiliates, Security Benefit Life Insurance Co. and Equitrust Life Insurance Co., agreed to purchase the U.S. fixed annuity business of another Canadian-based insurer, Industrial Alliance Insurance and Financial Services, Inc., for $800 million.
Also in the summer, Athene agreed to buy Presidential Life Corp. in a $415-million all-cash deal. One of the products Presidential sells is fixed annuities.
In its announcement of the Aviva USA deal, Athene said it has received a $621-million capital infusion and expects to hold more than $3.5 billion of combined statutory capital within its insurance company subsidiaries following the Aviva transaction.
Indexed annuity sales have risen even as other types of annuities, like fixed-rate products, have seen their sales slump. Yet Beacon’s Alexander pointed out that sales of indexed annuities would have fallen if not for private equity companies like Athene, Equitrust and Security Benefit Life.
