American Equity Announces $5 Billion Deal Agreement

Two financial services companies have agreed to help American Equity Investment Life Holding Company set up a new financing structure.

American Equity announced the agreement, with Värde Partners and Agam Capital Management, earlier this week.

Värde, a Minneapolis-based money manager, says it will set up a Bermuda-based reinsurance company that will reinsure $5 billion of American Equity non-variable indexed annuity obligations, the companies said in the agreement announcement.

Resources

A link to the American Equity/Värde/Agam deal announcement is available here.
An article about American Equity Life’s earnings is available here.

Värde will work with American Equity to manage the new reinsurer’s assets, and Agam — a financial risk management analysis firm — will help with risk management, the companies said.

The companies said that American Equity will get a “significant minority interest” in the new Bermuda-based reinsurer, and that American Equity will also get a 35% interest in the newly formed asset manager that will manage the reinsurer’s assets.

The three companies described their deal as an agreement in principle.

The three companies said they hope to get the regulatory approvals they need to close on the deal, and meet other customary closing conditions, by July 1, 2021.

The Players

American Equity is a publicly traded life insurer based in West Des Moines, Iowa.

The company reported a $253 million net loss for the third quarter on $920 million in revenue. It recorded a $1.2 billion drop in the fair value of embedded derivatives.

The company also reported $100 million in operating income.

Värde bills itself as an alternative investment firm with roots in credit and distressed assets. It was founded in 1994 and now manages about $14 billion in assets.

Agam is a company that started up in 2013.

Agam’s founders are Avi Katz, who previously was a partner at Apollo Capital Management and who has also been a partner at Och Ziff Friedheim, and Chak Raghunathan, who spent six years as chief risk officer at Apollo Management and later was chief investment risk officer at Aflac.

Agam says it focuses more on the tools for managing asset risk and optimizing hedging than on increasing asset yields.

The Ideas

Anant Bhalla, the chief executive officer of American Equity, said the Bermuda reinsurance company deal is part of American Equity’s AEL 2.0 strategy.

Implementing the deal should help the company expand its presence into new markets, including the global life and annuity reinsurance and third-party insurance asset management businesses, Bhalla said.

The deal should also free up about $350 million of American Equity capital, Bhalla said.

Bhalla said the deal should also give American Equity more investment flexibility, by giving it access to investment asset origination processes that are different from what many competitors use.

“This would ultimately enable the company to offer more attractive, and a wider variety of, products to America’s retirees and pre-retirees,” Bhalla said.

Elena Lieskovska, a partner at Värde, said the deal should help Värde and Agam meet their goal of building a world-class insurance solutions platform.

“Through this partnership we anticipate being able to execute on a number of follow-on transactions in the life and annuity space,” Lieskovska said.

Raghunathan and Katz said they think Agam’s technology will help American Equity, increase the value of its business, by providing strong asset-liability management and enterprise risk management infrastructure.

Eagle Life

In other American Equity news, the company says it has named Graham Day president of the company’s Eagle Life Insurance Company subsidiary.

Graham previously was chief sales and distribution officer at Equitable’s individual retirement business.

Graham has a bachelor’s degree from Lafayette College. He holds the Chartered Retirement Planning Counselor and Certified Insurance Continuing Education Instructor professional designations.