Apollo Global Management Agrees to New York State Policyholders Protections for Aviva Life Buy
August 19, 2013 by Thomas Harman
ALBANY, N.Y. – Apollo Global Management has agreed to New York’s new stringent policyholder protections as part of its affiliate Athene Holding Ltd.’s planned buy of Aviva Life and Annuity of New York.
In December, the U.K.-based Aviva plc agreed to sell Iowa-based Aviva USA Corp. to Athene Holding for $1.8 billion (Best’s News Service, Dec. 21, 2012). Athene, based in Bermuda, is backed by Apollo Global Management, a private equity firm (Best’s News Service, Jan. 13, 2013).
Apollo’s pact with the New York Department of Financial Services makes them the second company to agree to the safeguards, Superintendent Benjamin Lawsky said in a statement. Guggenheim Partners has agreed to a similar set of protections in June as part of its plans to buy Sun Life Insurance and Annuity Company of New York.
DFS sought the extra protections because it has highlighted a spike in private equity firms and other investment companies moving into the annuity business, a worrisome trend because those firms have business models that are more oriented for the short-term than traditional insurers, DFS said.
Apollo’s agreement with DFS requires implementation of increased capital standards and creation of a separate “backstop” trust account. Specifically, Apollo has agreed that Athene will maintain Aviva New York’s risk-based capital level at a minimum of 450% in order to handle unexpected losses. Also, Apollo agreed that Athene will establish a $35 million trust account to provide more protections for policyholders in the event the risk-based capital level falls below 450%.
The trust account will be held separately from Aviva New York’s funds for seven years and is dedicated to protecting policyholders. Also, the trust money will help provide enhanced regulatory scrutiny of investments, operations, dividends and reinsurance, as well as other strengthened disclosure and transparency requirements.
The agreement said any material changes to Athene’s plans of operations of Aviva New York, including investments, dividends or reinsurance transactions must have DFS’ prior written approval. Also, Aviva New York will file risk-based capital reports to DFS quarterly instead of annually as required by state law. DFS will gain information concerning corporate structures, control persons and other information regarding company operations, the DFS said.
“We’ve worked to build a new model for policyholder protections that will help address the emerging trend of private equity first and other investment companies entering the annuity business,” Lawsky said in a statement. “When it comes to these sorts of deals we need to ensure we are putting retirees who depend on these annuities first.”
New York’s review of private investors as owners of annuity businesses delayed Canada’s Sun Life Financial’s closing on the sale of its U.S. annuities business and some life insurance businesses. Sun Life agreed in December 2012 to sell businesses for $1.35 billion to Delaware Life Holdings, owned by Guggenheim Partners shareholders (Best’s News Service, June 21, 2013). The deal was completed on July 31. Guggenheim was the first to agree to protections that are nearly identical to those in the Apollo agreement.
The Apollo deal was approved in Iowa Aug. 15, where Aviva has its U.S. operations. The hospitality union Unite Here was urging Insurance Commissioner Nick Gerhart to place restrictions similar to those under consideration by the National Association of Insurance Commissioners, including requiring the insurer to enter into a capital maintenance agreement to provide a minimum level of protection to policyholders (Best’s News Service, July 25, 2013).
The Iowa approval is conditional on several items, including:
— Aviva Life and Annuity paying no ordinary or extraordinary dividends or other distributions to shareholders for five years, unless approved by the commissioner.
— Any changes in the company’s plan of operations will require the prior approval of the commissioner.
— Aviva Life and Annuity must submit to the commissioner a process that provides the regulator with greater scrutiny of affiliated investments and agreements.
— All non-variable deferred annuities containing guaranteed minimum death benefits or withdrawal benefits issued by Aviva Life and Annuity subsequent to Dec. 31, 2013 will meet reserving standards of Actuarial Guideline 33.
Aviva Life and Annuity Company of New York and the Aviva Life and Annuity Co. based in Iowa currently have a Best’s Financial Strength Rating of A- (Excellent). The Greenville, S.C.-based Athene Annuity and Life Insurance Co. has a Best’s Financial Strength Rating of B++ (Good.)
(By Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com)
