Fitch Places Athene on Watch Negative Following Aviva USA Acquisition
CHICAGO -- December 21, 2012
Fitch Ratings has placed the 'BBB+' Insurer Financial Strength (IFS) rating of
Athene Annuity & Life Assurance Company (Athene) on Rating Watch Negative.
The rating action follows today's announcement that Athene Holding Ltd. (AHL)
will be acquiring the U.S. annuity and life operations (Aviva USA) of Aviva
PLC for $1.55 billion. Following close, Aviva USA's insurance operations will
become wholly owned subsidiaries of Athene.
Fitch views this transaction as a transformational event for Athene due to the
large block of the existing business and the significant new business
infrastructure Athene will acquire. The transaction is expected to increase
Athene's aggregate liabilities to over $60 billion and thus provide greater
economies of scale. The combined entities will become the second largest
issuer of fixed indexed annuities in the U.S.
Offsetting these positives is the financing risk associated with the
transaction. Apollo Global Management, LLC has agreed to provide up to $100
million of capital support to Athene. However, Athene will need to secure
additional capital support prior to close. This could include the issuance of
debt or equity, or the use of reinsurance.
As part of the transaction Athene will acquire Aviva USA's inforce block of
life business that includes traditional life, universal life and indexed
universal life. Aviva USA has a number of captives in place to fund its XXX
and AXXX reserve requirements. Fitch's expectation is that Athene will either
sell this business or engage a life reinsurance partner prior to transaction
Additionally Fitch believes Athene faces execution and integration risk,
particularly since this is the company's largest deal to date. Athene will
also close on the purchase of Presidential Life Corporation by year-end and
will be integrating that acquisition as well.
Fitch anticipates resolving the Rating Watch following further discussions
with Athene management regarding ultimate funding of the required capital
support, as well as operational and strategic plans. Upon resolution of the
Rating Watch, Fitch's expectation is that Athene's rating will either be
affirmed at its current level or downgraded one or more notches.
The key rating triggers that could result in a ratings affirmation include:
--Completion of the review of Aviva USA transaction and its impact on run-rate
profitability and capitalization;
--Financial, operating and asset leverage metrics commensurate with the
current rating level;
--Reasonable integration plan;
--Sustained maintenance of risk-based capital (RBC) above 400% at Athene and
7% capital to assets at AHL.
The key rating triggers that could result in a downgrade include:
--Inability of Athene to sell or secure an appropriate reinsurance partner for
Aviva USA's life block;
--A material increase in financial, operating and asset leverage that no
longer supports the current rating level;
--Poor integration planning and execution;
--Decline in RBC below 300%.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Oct. 18, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology -- Amended
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Tana M. Higman, +1-312-368-3122
70 W. Madison, Chicago, IL 60602
Bradley S. Ellis, CFA, +1-312-368-2089
Brian C. Schneider, CPA, +1-312-606-2321
Brian Bertsch, +1-212-908-0549
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