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Portfolio > Alternative Investments > Private Equity

Athene closes on Aviva USA deal

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It took nine months and a lot of regulatory wrangling, but Athene Holding Ltd. has closed on its acquisition of Aviva USA Corp. The new entity, now to be known as Athene USA, will make its headquarters in West Des Moines, Iowa, and operate as Athene’s U.S. arm.

The purchase price, first set at $1.55 billion, closed $800 million higher than that figure. In a statement, the seller, Aviva PLC in London, attributed the increase to the repayment of a $290 million loan and “estimated earnings and other improvements in statutory surplus over the period from June 30, 2012 to Sept. 30, 2013.”

Athene USA President Grant Kvalheim said in an interview with that the timing of the deal played out as expected, given the regulatory approvals needed as well as the complexity of the deal. He noted that the acquisition was completed at the same time Athene closed on its sale of Aviva USA’s life business to a subsidiary of Global Atlantic. Terms of that deal were not disclosed.

“We’re gratified we received all the approvals we needed and also by the efforts of the regulators to understand what is a complex transaction,” Kvalheim said.

Regulators in both Iowa and New York State approved the deal, but only after stipulating that Athene agree to more oversight, most notably higher reserve requirements.

The deal also raised concerns about the viability of private equity firms buying annuity businesses. Athene Holding’s major shareholder is a publicly traded permanent capital fund managed by Apollo Global Management LLC. Critics, including industry competitors, point to private equity’s propensity to buy and quickly sell holdings, a strategy they contend is a mismatch for long-term investment products like annuities.

Kvalheim countered that such assertions are “misinformation” and that Athene’s capital is long-term in nature.

“When people talk about ‘private equity’ ownership, the implication is that it is money coming from a private equity fund that has a time fuse on it,” he said. “There is not a single dollar invested in Athene that has a time fuse on it or comes out of a fund with a time fuse on it. That’s always been the case in Athene’s history. The equity that is in Athene is permanent capital. The same way the equity in any other insurance company is permanent capital. People have asked questions about it, but when we explain what the true story is there is no there there in that story.”

For the immediate future, the emphasis is on integrating the two companies into one unit, Kvalheim said. Yet he confirmed that as of the closing, about 150 staff cuts were made across the company.

“Tomorrow we’ll be selling products both off the Athene platform, which is a Delaware-domiciled insurance company, and the Aviva platform, which is an Iowa domiciled insurance company,” he said. “There is a lot of work to do both operationally and regulatory-wise to create one company, and that is going to take us the better part of a year.”

New product development has been put on the back burner for now, although Kvalheim said both Athene and Aviva have introduced new products this year that are doing well in the marketplace. “So the product suite is pretty fresh and the focus is on integration and cohesion and [bringing together] Athene and Aviva,” he said.

According to LIMRA, Aviva USA was the 11th largest seller of fixed annuities in the U.S. as of the second quarter, coming in at $1.092 billion. According to Athene, it has roughly $60 billion in assets, making it one of the largest fixed annuity companies in the U.S.

“We’re excited about the opportunity in front of us,” Kvalheim said. “We believe with the two companies combined, we’ll have the second largest fixed indexed annuity reserve in the country, so it’s a substantial platform for us to grow from.”

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