Aviva-Athene deal prompts hope, certainty for insurance agents

Fingers crossed for product enhancements, ratings upgrades

Dec 27, 2012 @ 1:26 pm

By Darla Mercado

annuities, indexed annuities
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With Athene Holding Ltd.'s purchase of Aviva USA, agents and others are breathing a little easier about the fate of the second-biggest indexed-annuity seller.

Athene, backed by Apollo Global Management LLC, last Friday announced it would purchase Aviva for $1.55 billion, finally putting to rest speculation about Aviva's fate that had been swirling since the spring. Once the deal closes in mid-2013, Aviva USA will be renamed Athene USA and act as the parent for the firm's U.S. operations, operating out of Aviva's home base in West Des Moines, Iowa.

Bill Free, a spokesman for Athene, would not comment on the plans for Aviva, but noted: “At Athene, we remain sharply focused on expanding our presence in the independent space. We are evaluating our options for the combined business consistent with our growth plans and strategic objectives.”

Insurance agents generally are leery of private-equity-backed firms' snapping up market share in the indexed-annuity world. They worry about how these companies invest amid low interest rates to offer attractive product features.

At the same time, they seem to be optimistic about the Aviva-Athene deal.

“There is a lot of security in doing business with the multinational companies that are diversified around the world,” said Russell Smith, an insurance agent and owner of Torimax Financial Group Inc. “Private-equity firms don't match that worldwide diversification, but I'll keep an open mind and see how things shake out.”

Noting that the company's general message to agents since the acquisition has been that it will be “business as usual,” Mr. Smith expressed hope the move will pave the way for product enhancements.

The deal also could present an opportunity for a ratings hike, depending on how the transaction unfolds, said Judith Alexander, director of sales and marketing for Beacon Research Publications Inc.

Earlier this month, Moody's Investors Service Inc. lowered Aviva Life and Annuity Co.'s insurance financial strength ratings to Baa1 from A1, citing loss of support from its British parent Aviva PLC.

But carriers can get a boost following their acquisition, as was the case for Security Benefit Life Insurance Co., which was upgraded by the major ratings agencies, based on the support it receives from Guggenheim Partners LLC.

The fact that agents no longer have to worry about who's courting Aviva could very well be a boon for sales, said Wayne Dalton, a senior industry analyst at SNL Financial.

Amid the rumors, the insurer sold $1.05 billion in indexed annuities in the third quarter, down 22.86% from the year-ago period, according to AnnuitySpecs.

“What helps here is that you've removed the uncertainty around what will happen with Aviva,” Mr. Dalton said. “That's one of the things that would've held up sales of products — not knowing what will happen with the company.”

Aviva is a big win for Athene, but certainly not its first. The firm has been snapping up insurers and expanding its footprint in the fixed- and indexed-annuity market for close to two years. In 2011, the company bought Liberty Life Insurance Co.

It followed that purchase with the acquisition of life carrier Investors Insurance Corp. and then snapped up Presidential Life Insurance Co. in July.

Mr. Dalton said that in the short term, he will focus on how Athene handles the investment portfolio of the insurers it acquires. “They did a good job of managing the portfolio, trading out bonds for mortgage-backed securities,” he said.

Still, in the long term, the jury is out on where private-equity firms hope to take these insurers.

“If a private-equity firm or hedge fund comes in to buy someone, oftentimes, it's not the end goal to be in the business long-term,” said Mr. Dalton. “Who's to say what the end strategy is here? At the end of the day for hedge funds and private equity firms, it's doing what's best for your clients.”

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