Aviva USA sales, workforce decline
September 16, 2013 by Victor Epstein
Since May 1, about 43% of workers have either left or been told their jobs are being eliminated.
Jobs and annuity sales at Aviva USA are both plummeting as Apollo Global Management moves closer to completing its $1.8 billion bid for the business, and some insurance agency leaders are concerned by the changes.
The deal is expected to close in October — about 17 months after the West Des Moines-based insurance company was first placed on the auction block.
“Uncertainty in the marketplace always has some adverse impact on an insurance carrier, (because) agents and brokers are reluctant to offer a product from a carrier whose future is a bit unknown,” said Bob Skow, chief executive officer of the Independent Insurance Agents of Iowa. “The job thing (at Aviva USA) is bad, too, because Iowa prides itself on creating new jobs, especially in insurance.”
Sales of Aviva USA’s indexed annuities fell 55 percent to $504 million in the second quarter, even as industry sales as a whole expanded 5.5 percent to $9.2 billion from a year-ago, according to the Wink’s Sales & Market Report. The company’s ranking among the 39 U.S. insurers that sell indexed annuities tumbled from No. 2, with 12.76 percent of the market, to No. 6, with a market share of 5.48 percent.
Since May 1, about 43 percent of Aviva USA’s 1,800 workers have either left or been told their jobs are being eliminated by Apollo’s insurance arm, which is known as Athene.
Apollo has promised to move Athene’s operational headquarters to West Des Moines from Greenville, S.C., and to expand the business there once it acquires Aviva USA. Neither Athene CEO Jim Belardi nor President Grant Kvalheim is moving his own home to Iowa.
“A lot of people are interested in what’s going on at Aviva — we’re interested,” said Jim Middendorf, president of Clive-based Middendorf Insurance Associates. “The past three or four months, people are sitting and waiting to see what happens there.”
Middendorf Insurance Associates counts Aviva USA life insurance and annuity policies among the products it sells. Apollo’s status as a private equity firm makes some industry insiders nervous. Some private equity firms have a reputation for being ruthlessly committed to the bottom line, cutting jobs to reduce labor costs, and discarding less profitable business lines.
“Anytime there’s a sale like this, you like to see who you’re going to be doing business with,” said Middendorf, 61. “Agents can go another route when a company is going through some turmoil and things are changing.”
Randy Binner, an insurance industry analyst with FBR Capital Markets, said the prolonged period of uncertainty about the future of Aviva USA has hurt its annuity sales. London-based Aviva Plc first put its U.S. insurance business on the auction block in April 2012. It has been nine months since Apollo submitted its winning bid for Aviva USA in December and four months since it agreed to deal the insurance piece of the business to a company called Global Atlantic.
Sales of indexed annuities at Aviva USA fell 52 percent to $1.1 billion in the first six months of this year from the same period of 2012.
Aviva USA officials acknowledged that their sales are down in a statement that attributed the decline to pricing discipline, ratings changes, the pending transaction and uncertainty about the buyer of its life insurance unit. They’ve been trying to contain concern among insurance agents like Middendorf with memos with titles like “How to do business with us during the transition,” which promise nothing will change through the end of 2013.
“Marketing organizations like to know that the issuing company — meaning the current issuer — is committed to the space and is going to continue to offer the product,” Belardi said last week. “We’ll be indicating that after we close this deal. It’s a growth area for us.”
West Des Moines-based American Equity tends to gain market share when Aviva USA falters, Binner said, and the Wink’s sales data support that view. Indexed annuity sales by American Equity rose 27 percent to $1.1 billion in the second quarter from the same period a year ago. That represents 11.82 percent of the $9.2 billion in indexed annuity sales that took place in the U.S. during the second quarter, which began April 1 and ran through June 30.
Among the Des Moines-area annuity firms, EquiTrust posted the fastest sales growth. Its sales rose 173 percent to $541 million to push it past Aviva USA. Sales at ING, whose former U.S. business now operates under the “Voya” brand name, fell 9 percent to $279 million.
Indexed annuities accounted for $38 billion of the $219 billion worth of annuities of all types sold last year.
Aviva USA’s official head count has fallen from 1,800 to 1,500 since May 1. Kvalheim described the reduction as “normal attrition,” meaning voluntary departures.
Apollo told Aviva USA employees last week that 154 of them would be laid off. It confirmed last week that an additional 326 positions will be eliminated over the next two years.
Aviva USA is a key economic engine for the Des Moines area, which is one of the largest insurance hubs in the U.S., and had built a reputation as one of its most generous employers. The area employs 24,100 insurance professionals and the industry contributes more than $8 billion to its economy. Actuaries, the insurance professionals who help calculate risk, made an average wage of $90,150 in the Des Moines area in May of last year, and underwriters brought home $61,620.
“This is so discouraging because Aviva is one of the highest-paying home offices in the Des Moines area,” said Sheryl J. Moore, president and CEO of Moore Market Intelligence and the Wink insurance research firms, both based in Pleasant Hill. “Layoffs are a part of mergers and acquisitions, which is unfortunately part of the insurance industry — but they hurt families, and these layoffs are going to hurt a lot of Des Moines families.”
Ray Bening, president of Bening Financial in Des Moines, said his perception of Aviva USA is that they’re really not someone you want to do business with right now. Bening Financial provides financial planning and retirement planning services, including matching clients with annuities.
“My view doesn’t have as much to do with their reduction in staffing as it does with confusion over their vision for the future,” Bening said. “When we look at things and who we want to do business with, we’re looking for a long-term, consistent, reliable business partner. … These contracts are set up for 25, 30, 40 years, so we have to have a lot of faith in the institution.”
Apollo and its fellow hedge funds and private equity funds have entered the insurance industry in recent years by snapping up distressed insurance companies for a fraction of their value before the global economic crisis that began in September 2008. Guggenheim Partners LLC, another New York-based private equity firm, purchased West Des Moines-based EquiTrust from FBL in January for $471 million.
London-based Aviva Plc originally paid $2.9 billion for Aviva USA in July 2006, when it was known as AmerUs.
Roger Brooks, former head of AmerUs, said some layoffs are normal in any acquisition but described those now occurring at the company he helped build as “pretty substantial.” The Iowa Business Hall of Fame member remains active in the insurance industry and is a member of the board of directors at FBL.
Brooks said honesty with workers is critical when making layoffs, and Apollo needs to be more forthcoming.
“They have a lot of talent out there, and if they’re going to keep them they need to calm them down because every one of them is scared to death right now,” Brooks said of Aviva USA. “People deserve to know what the future holds for them.”
Athene CEO Jim Belardi
What are annuities?
Annuities are popular with retirees because most policies provide a steady stream of income — often for decades — after an initial period of investment. Indexed annuities tie those returns to stock market indexes.
