Private Equity Firms Flowing To The Annuity Business; Should There Be Concern?

By |2015-05-22T19:01:15+00:00August 27th, 2013|General Business|

In the past 20 or so years, we have seen deal after deal made by Private Equity (PE) firms.  The public’s perception of a PE firm is buying a larger company, splitting it up, selling the most valuable portions and leaving the rest in shambles….oh and letting the government worry about the pension obligations while making massive profits for itself.  While that may not be representative of all PE firm deals, it does have strong merit.

PE firms are short term thinkers, make the money and move on.  Recently a much respected company, The Hartford, was purchased by a PE firm who promptly got The Hartford out of its core business, annuities.

Why?

Concern over having to actually pay a claim that it had contractually promised?  Fear over future earning being less is we as humans actually lived longer and they had to keep paying our retirement income?

Yes and no.  PE Firms want short term deals, deals they can spin and harvest for great profits.  So what is the annuity business, short or long term?  Naturally it is and always has been a long term proposition.

Long term promises and long term commitments, from the annuity owner’s side and the annuity company’s side, promises and obligations, that is the annuity business.

AVIVA USA recently was sold by its parent company, AVIVA UK to a PE firm, Athene.  Athene owns several insurance companies and some based in Bermuda. The parent company, the PE Firm is Apollo Global Management

Concern over the deal is apparent and certainly justified.  Why would Athene want a short term investment?  What are their real plans? A recent article about the deal was published in Insurance News Net (Linda Koco).

It said:  As soon as the proposed transaction was announced, concern erupted about whether the short-term nature of the typical private equity business model would be a good match for the long-term interests of insurance and annuity policyholder.

That became a hot topic because Athene’s parent, Apollo Global Management, is a private equity firm based in New York.

Policyholder advocates brought their concerns about a possible mis-match to the state insurance regulators, which have the authority to approve or disapprove company acquisitions.

Certain insurance interests, including some annuity producers, worried about the impact of the deal on the annuity marketplace. In particular, would the carrier’s annuity products remain available through the broad independent distribution system, and /or would there be changes in terms and conditions of selling agreements?

Some insurance interests just shook their heads, not knowing what the impact could be of a private equity firm owning a leading annuity company. (In the first quarter, Aviva USA was the fourth-ranked indexed annuity carrier, according to Wink, an annuity resource.)

Some international interests who got wind of these concerns became unsettled, too. A few even called InsuranceNewsNet to express thoughts about what would happen if the deal did not go through, and about how such an outcome could impact Aviva Plc and European markets. 

New York Department of Financial recently has approved the sale, I guess time will tell.  My guess is they will not be a good fit for our industry. Hope I am wrong.

Here is a link to the Insurance News Net article for all the details.

http://annuitynews.com/Article/Regulators-OK-Athene/Aviva-Deal/390821#.Uhzy4Xbn85s

About the Author:

Bill Broich
Bill Broich is a well-known annuity expert with over 30 years of experience. He has written hundreds of articles on annuities and other financial topics, and has been a featured commentator on TV, Radio and the Internet. To follow Bill's profile, click here.