Equitable Holdings said Tuesday that it has arranged for Venerable Holdings to reinsure about 114,000 variable annuities that were sold from 2006 through 2008.
The annuities are backed by about $12 billion in general account assets and are associated with about $14 billion in separate account value, according to Equitable Holdings. The block involved amounts to about 13% of the company’s total in-force variable annuity business.
- A copy of reinsurance deal announcement is available here.
- A deal presentation and web briefing recording are available here.
- An article about Equitable’s results for the second quarter is available here.
An Equitable subsidiary, Equitable Financial Life Insurance Co., would continue to administer the annuity contracts.
The Equitable Holdings board has approved the deal, the firm said.
To complete the deal, the company must get approvals from regulators. Equitable Holdings said it expects to close on the reinsurance arrangement by June 30, 2021.
Equitable Holdings is the New York-based parent of Equitable, the life insurance company, and AllianceBernstein, a large asset manager. Equitable Holdings uses the name “Equitable Holdings” to refer to the top-level parent company and the name “Equitable” to refer to the insurance business.
The Equitable insurance business and AllianceBernstein have about 5 million client relationships and $711 billion in assets under management.
Equitable Holdings (EQH) trades on the New York Stock Exchange. It has said it will report earnings Nov. 4.
Venerable is a privately held company that was created by an investor group. The company has headquarters in West Chester, Pennsylvania, and other operations in Des Moines, Iowa.
Apollo Global Management, Crestview Partners, Reverence Capital Partners and Athene Holdings are some of the companies in the investor group that controls Venerable.
Venerable may be best known for working with Athene to acquire $19 billion in fixed and indexed annuity liabilities from Voya Financial through a reinsurance arrangement. That deal was announced in December 2017 and closed in June 2018.
Equitable Holdings sees Venerable as “a highly credible partner with an aligned risk management philosophy and expertise in managing and hedging complex variable annuities,” Equitable Holdings said.
The Annuity Block
The block is made up of annuities issued outside of New York. The contracts contain guaranteed minimum income benefit guarantees, guaranteed minimum death benefit guarantees, or both, with the guaranteed rates ranging from 6% to 6.5%.
In addition to accounting for 13% of Equitable Holdings’ in-force variable annuity business, the block accounts for much of the company’s exposure to variable annuity guarantee risk.
The Deal Mechanics
Equitable Holdings already owns a Delaware-based reinsurance company, Corporate Solutions Life Re.
Equitable Holdings plans to sell 100% of the Corporate Solutions Life Re stock to Venerable and likely would get a 9.9% stake in Venerable’s parent company, VA Capital Co. LLC. Equitable Holdings would then have Corporate Solutions Life Re reinsure the block of annuities involved in the deal, according to Equitable Holdings.
Corporate Solutions Life Re is authorized to operate in 45 states including New York state. It has been in run-off since 2002, and all reinsurance treaties were closed to new business in 2004, according to Venerable.
The assets supporting the annuities being reinsured would go into a trust for the general account assets.
AllianceBernstein would be the “preferred investment manager” for about 80% of the assets.
Equitable Holdings expects to get a ceding commission, or cash payment, from Venerable when it cedes the block. It also expects to get a payment for Corporate Solutions Life Re. The total for the ceding commission and the payment for Corporate Solutions Life Re would be about $300 million, according to Equitable Holdings.
The deal should also free about $800 million of the statutory surplus used to support the annuities, and it should produce a $100 million tax benefit.
The total should produce about $1.2 billion in total value for Equitable Holdings, Equitable Holdings said.
Equitable Holdings said it expects to pay $500 million of that value to shareholders by buying back shares of its own stock, and that it expects to use the rest to increase its risk-based capital (RBC) ratio.
Insurance regulators use RBC ratios to get a rough sense of how well insurers are capitalized. Completing the Venerable deal would increase Equitable Holdings’ RBC ratio to 475% of the required level of capital, up from 415% on June 30.
To protect the annuity holders, Venerable would put assets in a “comfort trust” and agree to strong asset monitoring requirements, according to Equitable Holdings.
Mark Pearson, the CEO of Equitable Holdings, called the reinsurance deal a “landmark transaction.”
“This transaction accelerates the unlocking of economic value and allows us to return capital to shareholders,” Pearson said in his company’s deal announcement.
David Marcinek, Venerable’s chairman, said in a separate announcement that the Equitable Holdings deal shows Venerable is establishing itself as the partner of choice in the variable annuity reinsurance market.
“As we work to close this transaction, our team remains focused on building on this momentum and capitalizing on opportunities for further growth,” Marcinek said.
— Read Global Atlantic Reinsures $5.7 Billion in Great American Annuities, on ThinkAdvisor.