New York Proposes New Rules on Private Equity Buys of Insurance Companies
May 20, 2014 by Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com
ALBANY, N.Y. – New York’s Department of Financial Services is proposing new regulations it said would increase policyholder protections as they apply to private equity purchases of insurers, especially life insurance annuity companies.
The reforms include more transparency and a higher financial standard and are based on conditions the department required during several individual transactions last year in which investment firms Guggenheim, Apollo, and Harbinger bought annuity companies. Last year, Apollo Global Management agreed to New York’s new policyholder protections as part of the planned purchase of Aviva Life and Annuity of New York by Apollo affiliate Athene Holding Ltd. A review of private investors buying annuities businesses delayed Canada’s Sun Life Financial’s close on the sale of its U.S. annuities business and some life insurance business to Delaware Life Holdings, which is owned by Guggenheim Partners’ shareholders, before it was finalized July 31, 2013 (Best’s News Service, Aug. 15, 2013).
The Life Insurance Council of New York said it’s reviewing the new plan.
The reforms include stronger disclosure and transparency requirements; enhanced regulatory scrutiny of operations, dividends, investments and reinsurance and increased financial accountability. It would also create an additional backstop trust account from the acquirer if the department determines it would be needed to protect policyholders. The latter was required in the Guggenheim, Apollo and Harbinger transactions.
The department is publishing the regulations because it has observed a trend in which private equity firms and other investment companies are moving into the insurance business primarily by purchasing annuity companies. “The trend raised concerns since such firms typically have a more short-term oriented business model than traditional insurers and the insurance business is focused on ensuring long-term security for policyholders,” it said in a statement. “Moreover, consumer protections are especially important for annuity companies since they help support secure retirements for seniors.”
Superintendent Benjamin Lawsky said in his statement the department is “seeking to strike an appropriate balance that keeps markets open to new entrants, while at the same time putting in place necessary safeguards.”
The department requires it grant prior approval of material changes to operation plans within five years of the purchase, including investments, dividends or reinsurance transactions. Also, the proposed rules would require purchasers to disclose to the department information concerning its corporate structure, control persons and other operations information. In seeking more financial accountability, the proposal would allow the department to obligate purchasers to provide more capital if necessary should they change their operations plans.
The rules follow Lawsky’s April speech at a conference New York in which he told a crowd that regulators would move to ramp up activity to regulate private firm purchase of annuity companies. He said private equity-controlled insurers current account for almost 30% of the indexed annuity market and 15% of the total fixed annuity market, numbers that have increased from 7% and 4% a year ago, respectively.
Aviva Life and Annuity Company of New York and Athene Annuity and Life Assurance Co. of New York have Best’s Financial Strength Ratings of B++ (Good).
(By Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com)
