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Global Atlantic to acquire Forethought Financial

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Last week, when Global Atlantic Financial Group (Global Atlantic) announced that they would be acquiring Forethought Financial Group, Inc. (Forethought) for an undisclosed amount, many industry-watchers and analysts concluded that it was an unsurprising move for a company that has been increasingly active lately.

Global Atlantic, the multiline insurance and reinsurance company that in May split from The Goldman Sachs Group, Inc., while retaining it as an investor, is expected to close their deal to purchase Aviva USA’s life insurance business from Athene Holding Ltd. (Athene) sometime within the next two months. The flurry of activity by Global Atlantic and its operating subsidiaries — Commonwealth Annuity and Life Insurance Co. and First Allmerica Financial Life Insurance Co.—showcase Global Atlantic’s aggressive risk appetite regarding the growth of consumption capital and their expansion into higher risk annuity products and transaction risk.

Forethought, the privately-held life insurance–based financial services firm specializing in the senior middle market that last year purchased The Hartford’s U.S. variable annuity business, and its own primary operating subsidiary, Forethought Life Insurance Company, will be folded in and itself become a wholly-owned subsidiary of Global Atlantic, which will acquire all products and designs, distribution, marketing, intellectual capital and employees as well as all in-force business.

Moody’s Investor Service (Moody’s), however, sees the acquisition as a credit negative for both Global Atlantic and Forethought.

Moody’s cited the fact that Forethought will be acquired by a lower credit quality insurer and noted Global Atlantic’s risk appetite and its recent rapid transactional activity. Moody’s maintains that Global Atlantic will encounter increased financial risks by operating at lower capital levels and greater leverage than it had previously. Moody’s warned that their metrics will decline from strong levels and will fall in line with insurance industry averages over the next year. Although its pro forma financial fundamentals remain adequate, Moody’s suggested that increased growth could pressure capital.

Moody’s cautioned that the Forethought businesses complement Global Atlantic and hinted that they could be combined with a minimal level of disruption. Moody’s expects a continuation of Forethought’s sales growth in both fixed and variable annuity businesses.