UPDATE 1-U.S. insurance asset sales attract new private equity players, strategies
(Adds Voya-Cetera deal announced Monday in paragraph five andPrudential comments in paragraph six.)
By Alwyn Scott and David French
NEW YORK, Feb 8 (Reuters) - U.S. insurers are stepping upsales of annuities and other capital-intensive assets amid asurge in interest from new and established private equity buyershungry to boost the amount of money they manage, according toindustry sources and public data.
Companies such as Sixth Street Partners and KKR & Co Inchave spent billions of dollars in the last year buyingup insurance assets they can use as foundations for furtheracquisitions, while Blackstone Group Inc last monthbought a business after restructuring its insurance operationsunder a new executive last year.
Insurers inked 441 deals worth $25 billion in 2020, up from356 deals worth about $22 billion the year before, according todata from Refinitiv. That momentum continued this year, withJanuary marking the most active month for insurance deal-makingin 20 years, according to PricewaterhouseCoopers.
Among January's deals were Blackstone's $2.8 billionpurchase of Allstate's life and annuity business andSixth Street's $2 billion takeover of TalcottResolution.
On Monday, Voya Financial Inc said it is shifting$40 billion of assets and 900 workers in its retail financialplanning unit to Cetera Financial Group Inc, leaving Voya morefocused on institutional business.
On Friday, Prudential Financial Inc said it may sellblocks of life insurance, annuities, and other "low growth"parts of its business.
The demand for such assets is allowing insurers to releasecapital for share repurchases and investment in core businesses,while private equity buyers can increase assets under managementand generate more revenue, though they do take on some risk.
"There's a whole new attitude in the C-suite and board roomsof insurers," said John Marra, U.S. insurance deals leader atconsultant PricewaterhouseCoopers.
He said executives across the industry had been given thegreen light to hire advisors and consult with regulators as theystep up the hunt for books of business or whole units to sell.
Super low interest rates have eroded yields from theregulatory capital required to back life insurance and annuitypolicies, driving insurers to consider selling inactive blocksand non-core business lines. The Federal Reserve has said itexpects to keep rates near zero until 2024.
Credit Suisse estimates insurers have about $1.7 trillion inannuity assets that could be sold to eager private equity firms.
"They can divest blocks of annuities at pretty goodmultiples, in the 8-12 range, and often buy back stock at halfthose multiples," said Credit Suisse analyst Andrew Kligerman,referring to multiples of earnings.
FEEDING FRENZY
Private equity firms can invest the cash from insurancepremiums into their existing raft of higher-yielding assets suchas real estate and infrastructure, at the same time drivingoperational cost savings, say industry executives.
Executives said a range of new strategies are emerging.
Retirement services firm Athene Holding Ltd, backedby private equity giant Apollo Global Management, hasled the charge in leveraging insurance assets for more than adecade. Apollo generates fees by charging Athene for sourcinghigher-yielding investments, an arrangement some other privateequity players are looking to replicate, said executives.
Brookfield Asset Management is among them,announcing in October it would take a 19.9% stake in AmericanEquity Investment Life Holding Co and provide the fixedindex annuity provider with access to Brookfield's alternativeassets.
Other private equity firms are looking to consolidate theinsurance assets onto their own books to bolster their financialmetrics.
For example, when KKR announced last year it was buying U.S.annuity provider Global Atlantic Financial Group for $4.4billion, it said the transaction would increase permanentcapital as a percentage of its total assets under management to33% from 9%.
Higher permanent capital ratios point to greater financialsecurity for private equity firms, as companies have more stablecash reserves.
Insurance assets, though, do pose some risks for buyers. Tovalue blocks of policies, for example, buyers must estimatefuture payouts on the policies as well as tax and regulatorycapital requirements. That means more competition is unlikely toinflate sale prices for insurers, industry figures said.
Where competition will take its toll is on smaller privateequity-backed insurance vehicles that don't have the name-brandrecognition, or the financial resources, of the larger entrants.
"A few players will win out," said the head of one privateequity firm's insurance operations. "There are only a few peoplein the world who can write $1 billion checks."
(Reporting by Alwyn Scott and David French; editing by MichellePrice and Diane Craft)
