Apollo has used its in-house insurer Athene to remake US non-public capital, utilizing billions of {dollars} from retirees to feed its asset administration machine. However now it’s one other Apollo-backed insurer, Athora, that’s on the march in Europe, with a £5.7bn acquisition that heralds the non-public fairness big’s arrival into the continent’s largest retirement market.
The most important UK deal of the yr up to now pertains to the obscure however profitable insurance coverage area of interest of pension threat transfers or bulk annuities. Over the subsequent decade, British corporations are anticipated to dump about £500bn of retirement obligations and the belongings backing them to insurers by way of pension threat switch agreements as they wind down outlined profit pension schemes.
The enterprise has boomed as larger rates of interest closed schemes’ deficits, making gross sales to insurers extra engaging and spawning a market dominated within the UK by Goldman Sachs’ former unit Rothesay, London-listed insurer Authorized & Normal, and the Pension Insurance coverage Company (PIC), which Athora agreed to purchase final week.
Shopping for PIC will hand Athora a fifth of the UK bulk annuity market in a single fell swoop, a route that Apollo’s US non-public capital rivals KKR and Carlyle had every explored earlier than Athora struck its deal.
“Apollo’s arrival within the UK exhibits retirement teams and the belongings backing them will keep non-public for longer, if not ceaselessly,” Abid Hussain of Panmure Liberum stated. The Athora acquisition of PIC follows a transfer by Canadian non-public capital agency Brookfield final yr to money in on the bonanza by constructing its personal bulk annuities enterprise Blumont from scratch.
“UK insurers are struggling to maintain tempo with the sophistication of US non-public capital companies,” Hussain stated.
However the PIC acquisition additionally speaks to how Apollo is having to adapt the technique that has tripled its share value over the previous 5 years, uniting non-public capital and retirement providers below one roof, to beat European resistance to the trade.
“Initially, when Apollo divided up the world, the UK was Athene’s jurisdiction, not Athora’s,” one insurance coverage analyst stated. However Apollo appeared to have redrawn the map after concluding that Athora’s “pure searching floor [of continental Europe] is closed to them”.
Apollo chief govt Marc Rowan pioneered a broadly imitated mannequin of managing life insurance coverage belongings for “unfold” earnings — shopping for liabilities at a reduction and investing them in higher-yielding belongings akin to non-public credit score.
The mannequin offers Apollo a big base of “everlasting capital” that continually refreshes with new annuities offered — in distinction with its conventional non-public fairness funds, which require new fundraising each few years.
However somewhat than utilizing Athene to enter the UK market as beforehand seemed to be Apollo’s plan, the non-public capital agency is making its debut within the UK bulk annuity market by an entity by which it solely has a minority possession stake.
Insurers’ hyperlinks to non-public capital giants have come below scrutiny on either side of the Atlantic from regulators and retirees involved that they could be taking over an excessive amount of funding threat.
The opposition stems from monetary difficulties with non-public equity-backed insurers, not least issues at 777 Companions final yr and the collapse in 2023 of Italian life insurer Eurovita.
After rising rates of interest prompted policyholders to give up financial savings contracts early, Eurovita’s UK-based proprietor Cinven stumped up lower than half of the capital regulators requested it to inject into the enterprise. Individuals conversant in the matter stated Athora later sought to accumulate German life insurer Viridium, however the group was finally offered to a consortium that included Allianz.
“The commonest query I get is: ‘Do you’ve non-public fairness fund capital?’ We have now none,” stated Athora chief govt Mike Wells, who beforehand served as chief govt of London-listed insurer Prudential.
Wells attracts a distinction between Apollo’s non-public capital funds and its retirement providers companies, which it owns outright. The distinction in possession construction meant there was “no expectation” Athora would exit the PIC funding in lower than 5 years or be pushed to liquidate, Wells instructed the Monetary Instances.
Whereas Athora was backed by “a agency that has non-public fairness experience”, Wells stated, “there’s not one of the kinds of pressures {that a} PE-backed insurer would have”.
Athora was initially a Bermuda-based holding firm for Athene’s European operations, carved out of the bigger US insurer in 2018. Apollo co-founder Leon Black pitched it as “Athene-like, but it surely’s European”: a “everlasting capital” automobile to assist the group’s much less liquid lending.
Since then, nonetheless, the fashions have diverged. Apollo introduced Athene, which it created in 2009 however maintained as an affiliate, in-house in 2021 by an $11bn all-share deal. At Athora, Apollo has stored its distance. It and Athene have retained a mixed 25 per cent stake and simply shy of half the seats on the board. A subsidiary of the Abu Dhabi Funding Authority, a frequent co-investor with Apollo, holds 19 per cent of Athora’s shares.
Apollo has stated non-public capital companies have been the primary drive behind recapitalising the struggling life insurance coverage sector previously decade, and Athora itself has raised €6.75bn in fairness capital from an investor combine, together with sovereign wealth funds and pensions. It has purchased life insurance coverage “blocks” from blue-chip European insurers akin to Generali, and now runs the biggest pension threat switch enterprise within the Netherlands.
However acquisitions in Europe have proved “politically very tough”, Rowan instructed buyers final October. Rowan stated the continent’s marketplace for retirement merchandise providing assured earnings had “just about shut down,” as some jurisdictions had been “hostile to non-public markets”.
Athora struggled to make huge acquisitions in Europe even supposing Apollo had made an effort to “look and act like an insurance coverage firm”, the insurance coverage analyst stated. Shopping for PIC might sign a shift in strategy.
Utilizing Athora to purchase PIC somewhat than Athene means the US non-public capital group will forgo the complete insurance coverage unfold it retains by offers with Athene. As an alternative, it could acquire a price for managing some — although not all — of PIC’s belongings, Wells stated. Apollo at the moment manages a couple of third of Athora’s belongings.
Whether or not or not the PIC acquisition finally ends up being a superb deal for Athora might finally rely on how a lot threat it is ready to shift offshore by so-called funded reinsurance. UK regulators are extra open to the technique than European ones, however the observe is below scrutiny by the nation’s Prudential Regulation Authority.
Within the US, in the meantime, Athene’s pension threat switch dealmaking has been on ice since corporations that offered it their pensions had been hit with lawsuits from trustees involved about funding dangers. Not one of the lawsuits have but succeeded.
Apollo executives have argued that European regulators should soften their opposition to non-public capital teams’ retirement product roll-ups in the end, because the continent’s ageing inhabitants wants entry to the non-public investments it specialises in. Life insurance coverage and retirement merchandise have long-term liabilities, which might pair nicely with illiquid loans that take years to pay again.
The problem can be for the 2 People — Wells and Todd Solash — tasked with main Athora’s cost to show they’ll squeeze extra worth from the UK’s life insurance coverage market than its earlier non-public fairness house owners, in a market that’s already extremely aggressive.
PIC already turned a juggernaut in pension threat transfers below the stewardship of funding group Reinet Investments, buyout agency CVC Capital and personal credit score store HPS Funding Companions. The corporate has grown its belongings almost 10 instances since Reinet first took a stake in 2012.
Tracy Blackwell, chief govt of PIC, stated the sale would “give us extra firepower to put money into the UK” and entry to “a much bigger steadiness sheet”. Wells stated listed insurers would wrestle to satisfy the demand from corporations to dump their obligations to pensioners due to the totally different priorities of their backers. The market wanted non-public capital to step in.
“Somewhat than progress, [traditional] insurers are usually extra targeted on dividends and payback,” Wells stated. “We may also help fill the hole.”
