Athene (ATH) Reinsures Jackson's $27B Annuities, Expands AUM

Athene Holding Ltd. ATH has inked a fixed annuity block reinsurance transaction with Jackson National Life Insurance Company (Jackson), a subsidiary of Prudential plc PRU. This transaction will help in expanding the insurance asset management business of Apollo Global Management APO, Athene’s strategic partner. Apollo has added about $80 billion in insurance-related assets under management and had $316 billion in assets under management as of Mar 31, 2020.

Per the agreement, Athene will reinsure a $27 billion in-force block of fixed deferred and fixed indexed annuities with the help of Athene Co-Invest Reinsurance Affiliate (ACRA). This apart, Athene will also make a $500 million equity investment equaling 11% stake in Jackson. This investment will help Jackson pursue growth initiatives in line with its commercial diversification strategy.

On the other hand, this reinsurance agreement will help Athene grow its gross invested assets by about 20% and fuel inorganic growth. The deal reflects Athene’s strength as a preferred solutions provider given its robust capital position as well as deep expertise in the retirement services industry.

The transaction is expected to be accretive to Athene’s adjusted operating income and return on equity in 2021 and 2022. Athene intends to deploy about $1.2 billion of total capital over the next 12-18 months into highly rated, longer-term investments matching the liability profile.  The company thus estimates further upside potential for accretion with portfolio redeployment. Of the total capital deployment, 63% will be funded by third-party investors while the remaining 37% will be funded by Athene. Athene continues to have significant financial flexibility and a strong capital position, with excess equity capital of $3 billion and total deployable capital of $7.1 billion.

As Athene is a well-capitalized reinsurer with expertise in the U.S. annuity sector, the transaction is beneficial for both the companies.

This Zacks Rank #3 (Hold) leading retirement services company had earlier entered into strategic relationships with Voya Financial VOYA, Lincoln National LNC and Aviva. The recent transaction further establishes Athene’s position as a preferred solutions provider.

Shares of Athene have lost 29.2% against its industry’s decline of 26.5% year to date.  Nonetheless, its focus on expanding retail, flow reinsurance and institutional distribution channels; broadening product portfolio, capitalizing on inorganic growth opportunities, solid liquidity; and generating strong long-term return without assuming incremental credit risk should help the stock rebound.

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