The Aviva sale: get all the facts and consider the source

By Jason Kestler

Kestler Financial Group, Inc.

I’d like to believe that the owners of independent marketing organizations (IMOs) are hard-working, ethical entrepreneurs. In fact, I consider many of them close personal friends. However, some of their internal marketers, often at the encouragement of insurance company wholesalers, tend to stray across ethical lines. The most recent evidence of this is the mud-slinging regarding the recent announcement that Aviva, PLC would be selling their U.S. operation, Aviva USA, to Athene Holding, Ltd.

We have heard numerous comments from producers:

“So and so with IMO X told me that Aviva had financial problems and was forced to sell to Athene.”

“I’ve read that Athene’s ratings are very low and Aviva USA (soon to be Athene USA) will follow suit.”

“I want to terminate my Aviva contract because I’m uncomfortable with the changes at Aviva.” (Translated as, “This gives me a reason to go roll my book of business to another company and generate new commissions at the expense of my clients.”

I have given two pieces of advice to anyone who has expressed any concern:
    1. Get all the facts.
    2. Consider the source.
Fact: Change is inherent in our industry. It’s not necessarily good or bad — it just is.

Fact: The fact that Aviva USA was a candidate for sale has been around for over a year. Why would Aviva, the oldest continuously operating insurance company in the world, decide to sell off their U.S. operations? Solvency II. This regulation put forth by the European Union (EU) essentially increases the reserving requirements for all EU insurance companies. The result is that if the company has to put more of every premium dollar into reserves, there is less to work with for things like performance, liquidity, commissions and, most of all, profit. In a 6 percent bond market, this is just another cost of doing business.

With the 10-year treasury hovering below 2 percent, it forces any European parent to question whether it makes sense to operate in the U.S. This is not only an Aviva issue. Other major players with European parents also face the same dilemma. Allianz Life of North America for example, owned by Munich based Allianz, AG, has to deal with the same set of reserving requirements. If we oversimplify, Allianz, AG has two options:
    1. Continue to invest capital reserves in its U.S. subsidiary, or
    2. Reduce benefits, commission, profitability, etc. on a going-forward basis.
Fact: When the deal is closed later this year, Athene will become the number two distributor of annuity products in the U.S. Other recent acquisitions have been Liberty Life (RBC Annuity) and Presidential Life of New York. Athene Holding Ltd. (Athene Holding) is a life insurance holding company focused principally on the retirement market and whose business, through its subsidiaries, is focused primarily on issuing or re-insuring fixed and equity indexed annuities. Currently, Athene Holding’s principal subsidiaries are Athene Annuity & Life Assurance Company, a Delaware domiciled insurance company, Athene Life Insurance Company, an Indiana domiciled insurance company, Investors Insurance Corp, a Delaware domiciled insurance company, and Athene Life Re Ltd., a Bermuda reinsurer.

Athene Holding was formed in 2008 by James R. Belardi, former President of SunAmerica Life Insurance Company and Executive Vice President and Chief Investment Officer of AIG Retirement Services, Inc. along with Chip Gillis, former head of Bear Stearns’ Insurance Solutions Group, and sponsored by an affiliate of Apollo Global Management LLC) to provide solutions to the growing need for tax-efficient savings vehicles to support retiring baby boomers. The products offered by Athene Holding, through its subsidiaries, include:
  • Retail fixed and equity indexed annuity products
  • Institutional products, such as funding agreements
  • Co-insurance and reinsurance arrangements with third party life insurance and annuity providers
Assets of Athene Holdings subsidiaries are managed by Athene Asset Management LLC.

Fact: Ratings, following the announcement:
  • S&P affirmed Aviva USA’s Financial Strength Rating of “A-”
  • AM Best lowered Aviva’s Financial Strength Rating from “A” (Excellent) to “A-” (Excellent)
  • Moody’s lowered Aviva’s Insurance Financial Strength rating one notch from “Baa1” to “Baa2”
Poor ratings? I don’t think so. These are predictable adjustments.

Consider the source

When we all took our insurance test, we had to learn the definition of “twisting:"
    “The act of inducing or attempt to induce a policy owner to drop an existing life insurance policy and to take another policy that is substantially the same kind by using misrepresentations or incomplete comparisons of the advantages and disadvantages of the two policies. Most states have enacted legislation making twisting a crime.”
Although twisting is a crime if you use it on your clients, some wholesalers have no problem using it on you to try and get your business. Remember, the vast majority of IMO marketers are commission based. They make no money until they get you to sell something for them. Keep in mind, if you use twisting tactics to sell a product to a consumer, the consumer and the regulators can come after you as recourse. How much recourse do you have on an unethical marketer? I thought so. Your best defense is to get all the facts and consider the source.

If a marketer can earn your business with superior service, marketing support or a unique product, more power to them. If they have to resort to twisting by selling half-truths and rumors, don’t just walk away — run!