Insurers Linked to Wall Street Face Scrutiny Over Irate Clients
March 27, 2018 by Katherine Chiglinsky
Insurers linked to some of Wall Street’s biggest firms have run into trouble over unhappy customers.
Athene Holding Ltd. and Global Atlantic Financial Group Ltd. have come under scrutiny by regulators in New York and Texas. The companies are part of a recent rush of financial firms getting into the market for life insurance and annuities that’s seen policy sales grow 9 percent in the last three years to $836 billion.
The insurers are relative newcomers to the market. Athene started operating in 2009 and went public in 2016 after being nurtured by Apollo Global Management LLC. Global Atlantic was formed as Goldman Sachs Reinsurance Group in 2004, and Goldman Sachs Group Inc. still owns a stake. That compares with the 150-year history of competitor MetLife Inc. and 143 years for rival Prudential Financial Inc.
Money-management companies have been lured to the insurance industry by the steady streams of cash they can then invest. The customer-service issues are a lesson to firms that haven’t been singled out by regulators, including Blackstone Group LP and Paul Singer’s Elliott Management Corp., that the basic business of insurance has as many pitfalls as trading in complex markets.
‘It’s Hard’
“There are a lot of moving pieces that go into being a carrier,” said Samantha Chow, a senior analyst with Boston-based market researcher Aite Group. “It’s hard. There are a lot of brick walls to knock through to get there and be good at it.”
Athene said the problems stem from policies it agreed to buy six years ago from Aviva Plc. The life insurance was then reinsured by units of Global Atlantic Financial Group, according to an Athene regulatory filing. A third-party administrator was also helping provide some services, the filing said, without naming the company.
New York’s Department of Financial Services identified a “significant” number of asserted violations of the state’s insurance laws, according to the Athene filing. The two firms are in discussions with the agency to resolve the matter. The Texas Department of Insurance notified Athene last year that it was planning to undertake an enforcement proceeding over similar complaints. Spokesmen for both regulators declined to comment. So did representatives for Athene and Global Atlantic.
Policy Transfer
“Our understanding is that the issue is around policyholder communications, not something more harmful such as a failure to meet policyholder obligations,” Tom Gallagher, an analyst at Evercore Partners Inc., said in a March 15 note to clients.
The transfer of policies to Athene from Aviva caused a headache for Blake Mendez, a Texas resident who spent years selling life insurance before joining the energy industry.
In 2011, Mendez’s parents bought his newborn son, Blaine, an Aviva life insurance policy. The goal was to have a financial safety net that could eventually pay for big-ticket items like his college education or his first house.
Cash Value
Mendez asked Athene about the cash value of the policy. He said the company couldn’t tell him and blamed the transition from Aviva. Mendez said his back and forth with the company ended up taking more than a year, during which he alerted the Texas regulator.
“It has a lot of meaning to it,” Mendez said about the policy. “So I was very deliberate in protecting it. And I was successful, but I was only successful because I was persistent.”
He said he’s since moved his policy to another company.
“The insured shouldn’t have to suffer simply because one company decided to buy another one,” Dinnocenzo said.
Athene shares have risen 23 percent since its December 2016 initial public offering. In October, Global Atlantic was said to interview bankers for a prospective IPO.
Even firms that have been around for a long time have gone astray. MetLife disclosed last year that it had lost track of thousands of people owed pension benefits, an issue that the company later said affected 13,500 people. About five years ago, multiple insurers paid fines to resolve a probe into whether they were properly using a Social Security Administration database to check whether policyholders were living or dead.
The issues also reveal the complexity of the market. With reinsurance deals, the primary insurers maintain connections to the policies, according to James Carson, an insurance professor at the University of Georgia’s Terry College of Business. That’s why regulators are watching Athene even though it sold, via reinsurance, some policies to Global Atlantic.
Athene said in filings that it’s received inquiries from other regulatory authorities and that it’s possible that any fines, penalties or payments to policyholders due to this matter could be “material,” even though the company’s not able to estimate that now.
Incidents such as this can pose risks to a company’s reputation, said Peggy Poon, an associate director at S&P Global Ratings. Athene buys blocks of policies that other companies wrote and also sells annuities through agents. Reputation matters in both areas, Poon said. Both Athene and Global Atlantic rank among the top 15 annuity sellers in the U.S.
“It’s worthwhile to think about the brand not just from the policyholder perspective, but also from the intermediaries,” Poon said.
