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What an Annuity Giant Is Telling Investors About COVID-19 Risk

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The virus that causes COVID-19 — severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) — looks as if it could have an obvious effect on health insurers’ claims, and on life insurers’ life insurance claims.

How much of an effect could it really have on annuity issuers?


  • A copy of the Athene preliminary prospectus supplement is available here.
  • An article about how COVID-19 mortality could affect life and annuity issuers’ 2020 earnings is available here.

Athene Holding Ltd., a large annuity issuer based in Pembroke, Bermuda, has addressed that question in a risk factors addition in a preliminary prospectus supplement for a future note offering.

The supplement would help Athene issue senior notes due in 2030. The principal amount and the interest rate are yet to be determined.

Companies often paint extremely bleak pictures of what could go wrong in their risk factors statements, because they hope to use the statements as protection against lawsuits filed by investors who claim they weren’t warned about what could go wrong.

But the statements may give a rough idea of what companies think the worst foreseeable COVID-19 scenarios might look like.

Here are things Athene is saying about the risks in the new risk factors addition:

1. Economic Turmoil

“The COVID-19 pandemic has caused significant economic and financial turmoil both in the U.S. and around the world, and has fueled concerns that it will lead to a global recession,” according to Athene. “These conditions are expected to continue and worsen in the near term.”

2. Timing

“At this time, it is not possible to estimate how long it will take to halt the spread of the virus,” Athene says.

3. Overall Impact on Athene

“The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition, liquidity or prospects will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions taken to contain or address its impact, and may cause us to revisit or revise estimates of future earnings or other guidance we have previously provided to the markets,” Athene says.

4. Impact on Athene’s Operations

“Currently, most of our employees are working remotely, with only operationally critical employees working at our facilities for business continuity purposes, to the extent lawfully permitted,” according to Athene. “An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.”

5. Impact on Vendors

Athene notes that it hires outside companies to handle some important business activities for Athene.

“As a result, we rely upon the successful implementation and execution of the business continuity planning of such entities in the current environment,” Athene says. “While we closely monitor the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside our control. If one or more of the third parties to whom we outsource certain critical business activities experience operational failures as a result of the impacts from the spread of COVID-19, or claim that they cannot perform due to a force majeure, it may have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows.”

6. Location Implications

Athene notes that some of its companies intend to be classified as companies based in the United Kingdom for income tax purposes.

“However, our directors and personnel reside in various jurisdictions and often must travel to carry out their duties in accordance with such intended tax positions,” Athene says. “Travel restrictions imposed as a result of the COVID-19 pandemic have limited, and may continue to limit, such travel. While we have implemented contingency plans to mitigate the impact of such travel restrictions, no assurances can be provided that we will not become subject to greater tax liabilities than anticipated due to restrictions on the ability of our directors and personnel to carry out their activities from the intended jurisdictions.”

7. Impact on Current Annuity Holders and Prospects

“Increased economic uncertainty and increased unemployment resulting from the economic impacts of the spread of COVID-19 may also result in policyholders seeking sources of liquidity and withdrawing at rates greater than we previously expected,” Athene warns.

“If policyholder lapse and surrender rates significantly exceed our expectations, it could have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows,” the company says. “Such events or conditions could also have an adverse effect on our sales of new policies.”

8. Impact on Investments

“Our investment portfolio (and, specifically, the valuations of investment assets we hold) has been, and may continue to be, adversely affected as a result of market developments from the COVID-19 pandemic and uncertainty regarding its outcome,” Athene says. “Moreover, changes in interest rates, reduced liquidity or a continued slowdown in the U.S. or in global economic conditions may also adversely affect the values and cash flows of these assets.”

Like other annuity issuers, Athene has large investments in mortgages and mortgage-related securities.

“Our investments in mortgages and mortgage-backed securities could be negatively affected by delays or failures of borrowers to make payments of principal and interest when due or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities,’ Athene says.

9. Impact on Investment Tracking

Athene notes that even knowing what’s happening to the value of its investments might become more difficult.

“Extreme market volatility may leave us unable to react to market events in a prudent manner consistent with our historical investment practices in dealing with more orderly markets,” the company says. “Market dislocations, decreases in observable market activity or unavailability of information, in each case, arising from the spread of COVID-19, may restrict our access to key inputs used to derive certain estimates and assumptions made in connection with financial reporting or otherwise, including estimates and changes in long term macro-economic assumptions relating to accounting for current expected credit losses.”

10. Regulation

Athene cannot predict how legal and regulatory responses to concerns about the COVID-19 pandemic and related public health issues will affect its business, the company says.

“Such events or conditions could result in additional regulation or restrictions affecting the conduct of our business in the future,” the company says.

— Read Humana Tells Investors About COVID-19 Riskson ThinkAdvisor.

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