On Guggenheim, Sun Life Financial, and Annuities
December 19, 2012 by Linda Koco
Wouldn’t you know it? Once again, just when the annuity industry had stopped talking about the Guggenheim Partners expansion into “the annuity space,” the Chicago- and New York-based private equity went and made another annuity-infused deal.
The natural question is, will this deal have much impact on the annuity market?
First, an overview of the deal. This time, Guggenheim Partners made their move through a company they own called Delaware Life Holdings. This firm has agreed to buy the domestic U.S. annuity business and certain life insurance businesses of Sun Life Financial, Toronto. It will be a cash transaction, for $1.35 billion (U.S.).
Once the deal is done, the company’s name will change to Delaware Life Insurance Company.
Sun Life provided these other highlights:
–The sale includes Sun Life Financial’s domestic U.S. variable annuity, fixed annuity and indexed annuity products, corporate and bank-owned life insurance products and variable life insurance products.
— The transaction is expected to close by the end of second quarter 2013 though that’s subject to regulatory approvals and closing conditions.
— Guggenheim Partners will provide services to the company including investment management.
On the surface level, this deal would appear to have no overpowering market impact on the U.S. annuity business.
After all, Sun Life Financial had already announced in late 2011 that it would stop selling new annuities. So most annuity professionals have been all but expecting the Canadian company to find a buyer for the existing annuity businesses.
Not surprisingly, Sun Life Financial’s market share for annuity sales in the United States has fallen, making the impact of the deal all the less significant for producers.
For example: the firm’s variable annuity sales, which had ranked in 16th place on LIMRA’s list of U.S individual annuity sales in third quarter 2009, did not
even appear on LIMRA’s Top 20 chart in third quarter 2012. So too with indexed annuities: The firm had ranked in 18th place on AnnuitySpecs.com’s list of indexed annuity sales in third quarter 2009, but three years later, the company did not even appear on the Annuity Specs’ list of indexed annuity players.
True enough, the seller — Sun Life Financial — is Canada’s third-largest life insurance company. But that claim to fame does little to influence how the recent deal affects the U.S. annuity business.
So annuity professionals might just slough off this piece of industry news as a bit of idle chatter, nothing more.
Beefing up the annuity business
On second thought, however, the deal does have a kernel of significance. That is because it represents one more sign that Guggenheim Partners is continuing to beef up its annuity and insurance business.
Before the Sun Life Financial purchase, Guggenheim Partners had already created or purchased: Guggenheim Life and Annuity, Security Benefit Life, Standard Life of Indiana (reinsured life and annuity book), Equitrust and Industrial Alliance Insurance and Financial Services of Quebec.
In addition, unnamed wags have trotted out the Guggenheim Partners name as a possible suitor for Aviva US, a big indexed annuity writer based in Des Moines, Iowa.
The Iowa carrier has made no such announcement to date, and neither has it confirmed the speculation. Still, the mere linking of the Guggenheim name to such a potential purchase has had an effect on the industry — by stirring up uncertainty about the firmness of the market and the go-to places for new cases.
That uncertainty has taken on a life of its own. For instance, it has spurred some annuity carriers to respond competitively to the notion of private equity expansion into the business.
Last month, for example, Allianz, the top-selling indexed annuity player according to AnnuitySpecs.com’s rankings, sent out a marketing piece that raises questions about what hedge funds, private equity groups and money managers are doing in the annuity business.
“Are they controlled by outside entities that don’t have insurance background or experience?” the Allianz message asks at one point. “Do their products feature rates that are far above what the competition is offering?”
The Allianz document does not mention names of firms to which it is referring. But it is hard to imagine that readers would not view the message as an arrow
aimed straight into the beating hearts of the private equity companies that have been buying up annuity assets in recent years. These companies include not only Guggenheim Partners but also Apollo Global Management and Harbinger Capital Partners.
The Allianz message probably also serves as a prod to the conscience of producers who might be toying with whether to represent carriers owned by private
equity companies. In this sense, the message is an “are you sure you want to do this?” kind of communication.
All of which goes to suggest that anyone who thinks the insurance and annuity business is not competitive is largely off track and/or misinformed. One could even argue that the industry is even more competitive now that the environment of “prolonged low interest rates and sustained market volatility” is forcing
shake-ups everywhere. The players are jousting, and the private equity players are part of the action.
For these reasons, then, the Guggenheim/Sun Life Financial deal does have meaning for the annuity industry. It awakens ideas about shifting sands, suitable partners and future destiny. That’s not an immediate and overpowering impact, but it forces a look at what is and what could be. Business forms and flourishes on just such thoughts.
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