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Life, annuity acquisitions by AIMs hit $138B

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Acquisitions of annuity blocks of business by alternative investment managers now total $138 billion in value, new research shows.

Moody’s Investor’s Service, New York, published this finding today in a “Special Comment” that explores the growing number of “unwanted” annuity/life insurance businesses, credit implications of alternative investment manager firms entering the life/annuity space and AIMs’ interest in the market.

The report attributes the AIMS’ buyouts of life and annuity blocks of business in recent years in part to continuing low interests and, as a consequence, insurers’ earnings. These pressures, combined with heightened regulatory requirements, have prompted insurers to divest themselves of underperforming blocks of their U.S. life and annuity businesses.

But while viewing emergence of alternative investment managers as “credit positive” for the selling companies, Moody’s believes that such acquisitions are “credit negative” for the target company.

“We believe that AIM firms are more likely motivated by financial rather than strategic considerations, often focused on an intermediate-term exit,” the report states. “[AIMs] may see to extract dividends from the life insurer and employ more aggressive capital management.

“In addition, AIMs’ higher risk tolerance relative to traditional life insurers may result in a more aggressive investment strategy at the insurer to achieve higher returns,” the report adds. “We expect AIMs to remain opportunistic in the medium term as more motivated sellers emerge.”

The top five life and annuity transactions by AIM firms since July of 2009 include:

$52.4 billion—Athene’s purchase of Aviva Life and Annuity Company’s fixed annuity business in Decembe3r of 2012.

$47.3 billion—Guggenheim purchase of Sun Life Assurance Company of Canada’s variable and fixed annuity business.

$16.4 billion—Harbinger’s buy-out of Fidelity & Guaranty Life’s fixed annuity business in August of 2010.

$9.7 billion—Athene’s purchase of Investor Insurance Corp.’s fixed annuity business in February of 2011.

$3.5 billion—Athene’s acquisition of Presidential Life’s fixed annuity business is July of 2012.