The $1.55 billion acquisition of Aviva USA Corp. and its subsidiaries, including Aviva Life and Annuity Co., by Athene Holding Ltd. got the green light from Iowa’s insurance regulators today. The acquisition is subject to tightened conditions and restrictions, including a review of all money exiting the annuity company, and a bolstering of reserve requirements.
Athene is affiliated with alternative investment manager (AIM) Apollo Global Management LLC through Athene Asset Management LLC.
State insurance regulators, alarmed at recent low-cost purchases of depressed annuity firms for the fast-growing indexed annuity products, coupled with their well-publicized purchases of sports and entertainment franchises with some insurance company money, are seeking to batten down the hatches in their approvals of these deals and their subsequent regulation.
The National Association of Insurance Commissioners (NAIC) is also looking into these transactions via a new subgroup.
Under the terms announced today, Aviva cannot — without prior approval from the commissioner — pay dividends or other distributions for five years, change its plan of operations or make investments, payments or agreements to or with affiliates.
The risk-based capital minimum level will rise to 400 percent, above the average minimum of 250 percent RBC but below the 450 percent the New York regulators are now requiring of AIMs and hedge fund annuity buyers.
Athene also had agreed to voluntarily increase policy reserves by an additional $150 million. The company will also submit to a capital management agreement for capital and surplus requirements.
Also, all non-variable deferred annuities containing guaranteed minimum death benefits or withdrawal benefits issued by Aviva beginning Jan, 1. 2014, must meet the stricter reserving standards of Actuarial Guideline 33.
Going forward, all domestic companies now must comply with AG 33 for their non-variable annuities containing these features as Commissioner Nick Gerhart has written, “any company applying for the use of Actuarial Guideline 43 for these products will not have their application approved for the foreseeable future.”
Aviva, as well as others, have been using AG 43. As reported by the Des Moines Register, AG 33 is stricter and requires insurers to set their reserves for the worst-case scenario, while AG 43 is described as “less demanding and allows more money to be diverted from reserves to other uses, while requiring more capital,” according to the report.
The NAIC confirmed some insurers’ use of AG 43 for indexed products, stating AG 43 is “more principle-based” and AG 33 is more formula-based. The NAIC’s long-term plan is to develop principle-based valuation standards for non-variable annuities. The goal is to develop a new section of the Valuation Manual that will supersede AG 33 for non-variable annuities issued after its adoption.
According to Iowa First Deputy Commissioner Jim Mumford, this will be true for domestic companies, but the division has not talked yet with non-domiciled insurers such as Security Benefit Life in Kansas, (a Guggenheim Partners company) Mumford said.
Guggenheim’s Mark Walter led a group of investors including Magic Johnson, the pro basketball Hall of Famer, and Stan Kasten, the team’s president and CEO, in a purchase of the Los Angeles Dodgers. The new owner is listed as Guggenheim Baseball in an over-$2 billion deal that many news reports suggested was an inflated price considering the team’s estimated value.
Fox News reported the deal left many people “scratching their heads” and it did not go unnoticed in insurance circles, too, as detailed in an April 2012 article by Andrew Ross Sorkin for the New York Times. Walter was quoted in the NY Times earlier as stating, “I don’t want to realize a return on investment on buying the Dodgers. I want to have a multigenerational relationship that changes my life, Magic’s life, Magic’s grandchildren’s lives and all of our lives.” Guggenheim and its affiliate declined questions and an interview about the deal and Security Benefit’s role. The NY Times reported insurance money was used in the deal.
The Iowa Insurance Division and the commissioner have decided they “wanted to have stronger reserves in the company,” Mumford said, describing why regulators asked Aviva to go back to AG 33.