Equitable Reaches Deal With Venerable to Reinsure $12 Billion in Annuities
Venerable says pact to reinsure 114,000 variable-annuity policies will double its total assets
Equitable Holdings Inc. will transfer financial risk for $12 billion of retirement-income annuities to reinsurer Venerable Holdings Inc., as life insurers continue to reduce exposures on their books in a challenging environment for turning profits.
The New York company has entered an agreement for privately held Venerable to reinsure a total of 114,000 variable-annuity policies sold between 2006 and 2008.
Variable annuities are investment products for conservative savers that provide a tax-advantaged form of investing in stock and bond funds. They typically are sold with guarantees of minimum lifetime income if the funds perform poorly.
The pact will double Venerable’s total assets, the company said. Venerable got up and running in 2017 with an agreement to buy various annuity portfolios of Voya Financial Inc.
The deal comes as many U.S. life insurers have been selling or reinsuring blocks of business to affiliates of private-equity companies that are developing expertise in managing the often-complicated products, including hedging the financial risks.
Equitable said the deal would free up $1.2 billion in capital, among other benefits. It said it would accelerate return of capital to shareholders, with $500 million of incremental share repurchases in 2021.
Equitable also said it is negotiating to buy a 9.9% equity stake in Venerable’s parent holding company, VA Capital Company LLC, and get a board seat.
Equitable said the deal involves about 13% of total variable-annuity business on its books as of June 30. The company said it remains committed to various types of variable annuities, even as these older ones are reinsured by Venerable
Mark Pearson, chief executive of Equitable, said in a release that the deal “strengthens our ability to focus on value-accretive businesses.”
Venerable was created by an investor group led by affiliates of Apollo, Crestview Partners, Reverence Capital Partners and Athene Holdings Ltd. Apollo, Crestview and Reverence each have 23% stakes. Athene has a 21% stake, and Voya has a stake just under 10%.
Apollo has been at the forefront of finding ways to acquire insurers’ annuity assets. After the financial crisis, it teamed with James Belardi, a former senior executive at American International Group Inc., to start Athene as an annuities specialist. Athene, which went public in 2016, now has more than $180 billon in assets.
In the years leading up to the 2008 financial crisis, insurers were in an arms race to offer more generous features on their variable annuities, and sales boomed. After stock markets declined sharply, those income guarantees caused large losses to insurers.
Insurers have been eager to divest the older blocks of business because they aren’t selling the same type of guarantees and have moved on to other products with less risky features and better profit potential.
Venerable’s “conservative investment approach, strong capitalization, focus on operating efficiency and deep expertise in managing risk has positioned us for this transaction,” said David Marcinek, Venerable’s chairman, in a release.