Athene & Apollo get long-term capital in $19bn annuity reinsurance deal

by Artemis on December 21, 2017

Athene Holding Ltd., the life and retirement reinsurance focused company that is majority owned and works alongside private equity specialists Apollo Global Management, LLC, has entered into a $19 billion reinsurance agreement covering $19 billion of fixed and fixed indexed annuity liabilities for Voya Financial.

The arrangement is a clear demonstration of the appetite of large private equity type investors to access long-term sources of capital through reinsurance business, with this massive deal also seeing Athene taking the rights to reinsurer liabilities associated with a further $8 billion book of annuity business underwritten by Voya.

The assets associated with these transactions will be managed by Athene Asset Management, a subsidiary of Apollo that looks after all of the investments for Athene’s reinsurance business.

By securing these large annuity reinsurance transactions, private equity specialists like Apollo can capitalise on large amounts of long-term capital assets for their balance-sheets, which can help in their investing strategies.

As part of the arrangement with Voya, investors led by Apollo affiliates, along with Crestview Partners and Reverence Capital Partners, agreed to purchase Voya Insurance and Annuity Company, including its Closed Block Variable Annuity segment.

Venerable Holdings, Inc., a newly formed standalone entity, will be created to administer the fixed and variable annuity blocks.

Athene itself is also set to make a $75 million minority equity investment in Venerable, but the benefits don’t stop there. Athene has also secured the rights to reinsure liabilities from Venerable’s annuity book as well, which is estimated to amount to roughly $8 billion over the life of the block.

Athene noted that this will provide it with a significant flow of future liabilities on an annual basis, which will also keep the assets flowing for Apollo.

“We are excited to enter into this agreement with Voya, which is highly strategic for Athene and a compelling example of how our association with Apollo enables us to deliver creative solutions to the insurance industry. The large block of fixed annuities we will be reinsuring are products Athene understands well, and they present a meaningful asset redeployment opportunity,” commented Jim Belardi, CEO of Athene. “Amid a historically tight credit spread environment, we expect this transaction to achieve our mid-teens return target, leaving us well-positioned for incremental value creation in a more favorable credit spread environment or through enhanced asset management.”

Apollo, Crestview and Reverence commented on their part in the arrangement, “We are attracted to Voya’s CBVA Business due to the strength of the team and platform, and the structure and stability of the underlying assets. We believe blocks such as the CBVA Business are best owned through private ownership. In addition, we believe success in variable annuities is primarily calibrated with effective risk management, which is Venerable’s most significant core competency. With a sole focus on variable annuities and support from an outstanding group of strategic investors, Venerable is uniquely positioned to serve as a leading industry solution for the consolidation of variable annuity blocks and the creation of long-term economic value.”

The attraction to insurance and reinsurance premium float assets is clear in the investor community, as a source of long-term capital that attracts the likes of hedge funds and private equity investors.

With specialists like Athene to underwrite and manage the liabilities and Apollo on the asset side, the proposition from the pair is that they can extract greater value per unit of risk out the business than existing owners can, all the while securing an ongoing source of float and fee income.

Transactions such as these represent an interesting side of the insurance and reinsurance market, that sees new forms of capital coming in and tapping the market for risk-linked returns and investment float assets.

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