Aviva USA life insurance unit to be dealt to Global Atlantic
May 1, 2013 by Victor Epstein
New York financier Leon Black’s private equity fund reached a deal Wednesday to sell the life insurance arm of West Des Moines-based Aviva USA to Global Atlantic Financial Group for an undisclosed sum.
The announcement comes just hours after Global Atlantic completed its separation from the Goldman Sachs Group – another Wall Street firm with a reputation for aggressive wheeling and dealing. Apollo was unable to provide an exact figure on the number of jobs going to Global Atlantic, and the number that might be eliminated, but the deal splits Aviva USA in two.
Black’s Apollo Global Management is keeping the asset-heavy annuities business and Global Atlantic is buying the life insurance unit, which posted record sales of $203 million last year – a 20 percent increase from 2011.
Aviva USA has about 1,800 employees overall — 1,400 of them in the Des Moines area. It reported operating earnings of $311 million last year.
“This sale is consistent with Athene’s focus on becoming the leader in the fixed annuity segment of the retirement savings market,” Jim Belardi, chief executive officer of Apollo’s insurance business, said in a statement.
Technically, Apollo doesn’t even own Aviva USA yet, but that hasn’t stopped Black and his investment team from cutting loose the pieces of the West Des Moines-based insurer he doesn’t want. Private equity firms, also known as hedge funds, typically resell the businesses they buy more rapidly than traditional players in those industries.
Apollo’s insurance arm, Bermuda-based Athene Holding Limited, is expected to close its $1.8 billion acquisition of Aviva USA in the third quarter, provided the deal wins regulatory approval. The deal with Global Atlantic faces a similar challenge.
Belardi is chief executive officer of Athene. Its announcement of the deal with Global Atlantic said the sale of the life insurance unit is contingent on its own acquisition of Aviva USA being approved.
The proposed sale to Global Atlantic features a dizzying array of parent companies and subsidiaries. It comes at a time when higher capital requirement by European regulators are prompting some financial firms to shed assets purchased for top dollar prior to the global economic crisis – now in its sixth year. London-based Aviva Plc paid $2.9 billion for Aviva USA in 2006, when the latter was known as AmerUs, and still owns it on paper.
Apollo Managing Director Joshua Harris said Tuesday that it’s been targeting distressed assets in a bid to secure greater returns in a “world awash in cash” and marked by low interest rates.
“Where we see that value is in a number of areas where there is excess selling of assets versus people able to buy the assets,” Harris said at the Milken Institute Global Conference. He didn’t single out Aviva USA or the annuities sector, which is having a hard time generating its normal investment returns in the current low interest rate environment. Low rates are expected to continue through at least 2015 as developed nations continue to try to jump-start their faltering economies.
Black was head of mergers and acquisitions at Drexel Burnham Lambert when the investment bank was led by disgraced financier Michael Milken in the late 1980s. It was forced into bankruptcy by Milken’s illegal activities in the junk bond market, which led to him being imprisoned for securities and reporting violations, fined $600 million, and permanently barred from the securities industry.
Black indicated in December that insurance assets feature an extra benefit for Apollo because they can be invested in its investment funds, helping boost revenue from the fees it charges for them.
The sale of Aviva USA is part of a corporate fire sale by its parent company that began in May, when Aviva Plc announced that it was seeking buyers for 16 of its 80 business units.
Acquisitions often lead to headcount reductions as buyers eliminate redundant operations. Belardi told the Register on April 9 that the Aviva deal could lead to the loss of as many 50 of the 140 employees at the Aviva Investors business unit, which manages Aviva USA’s $56 billion of assets. Those assets are concentrated in the annuities unit, which reported a 9 percent decline in sales last year, when they fell to $4.1 billion.
Aviva USA’s life insurance business has $10 billion of assets, according to Athene.
Belardi declined to provide details on possible layoffs in other areas of Aviva USA and it may be hard to determine how to count employees who are engaged in both its annuities and life insurance businesses.
Athene plans to combine Aviva USA’s annuities business with its own smaller annuities operation and rename the combined entity Athene USA. It will be the No. 2 issuer of indexed annuities in the U.S. after the deal is complete, but is far smaller than the company it’s acquiring and has about 275 employees and $14 billion in assets.
Its parent – Apollo – had $113 billion of assets under management as of Dec. 31,
“It’s always been the plan to be in the annuity business and not in the life insurance business,” Belardi said April 9.
Annuities are designed to return a regular stream of income to policyholders after a period of initial investment and are often used in retirement planning.
Insurers selling annuities must set aside significant amounts of capital to back their promised returns. Those assets have made them more attractive to private equity funds in recent years, which believe they can invest those huge asset pools more profitably.
Apollo closed its $414 million purchase of Presidential Life Insurance on Dec. 31. The acquired company is focused on retail fixed and index annuity sales and reinsurance.
Guggenheim Partners, a Chicago-based private equity fund, bought EquiTrust Life Insurance from West Des Moines-based FBL Financial Group for $471 million in December of 2012. Guggenheim reached a deal the same month to buy Sun Life Financial’s U.S. annuity business and some of its life insurance businesses for $1.35 billion.
Philip Falcone’s Harbinger private equity fund bought Fidelity & Guaranty, the U.S. life and annuity unit of London-based Old Mutual Plc, for $350 million in 2011. Harbinger and Guggenheim also competed with Apollo for Aviva USA.
Moody’s Investors Service downgraded Aviva USA’s issuer rating after the proposed sale to Apollo was announced. The rating agency said that it expects Aviva’s assets to be managed more aggressively by Apollo, which may have a shorter outlook than more traditional players in the insurance industry.
Athene USA will continue to be based in West Des Moines, where parent company Aviva built a $135 million headquarters in 2010.
“I did a lot of acquisitions, and job cuts are part of making it work,” Roger Brooks, who ran AmerUs before selling it to Aviva in 2006, said last month.
They’re investors more than insurance people,” he said of Apollo. “They don’t want the life side.”
Brooks estimated that the life insurance side of Aviva USA represents 30 percent to 40 percent of the total workforce.
Goldman Sachs said last month that its Global Atlantic reinsurance unit had $233 million in first quarter revenue. The former subsidiary completed its separation from The Goldman Sachs Group this morning after a successful private placement.
Global Atlantic, which was founded in 2004, has $15 billion in assets and about 200 employees. Goldman Sachs will continue to hold a minority share of its former reinsurance arm.
