Fitch Maintains Rating Watch Negative on Athene's IFS Rating
CHICAGO -- October 3, 2013
Fitch Ratings has maintained the Rating Watch Negative for the 'BBB+' Insurer
Financial Strength (IFS) rating of Athene Annuity & Life Assurance Company
(Athene) following the completion of the acquisition of Aviva USA Corporation
and its subsidiaries, Aviva Life and Annuity Company and Aviva Life and
Annuity Company of New York (collectively Aviva USA).
KEY RATING DRIVERS
Fitch placed Athene on Rating Watch Negative on Dec. 21, 2012, following the
company's announcement that Athene Holding Ltd. (AHL) would be acquiring the
Aviva USA business from Aviva PLC for $1.55 billion plus purchase price
During the fourth quarter of 2013, Fitch expects to complete a comprehensive
review of the Aviva USA business. Fitch will conduct further discussions with
company actuaries. Fitch will also conduct a review of the results of Aviva
USA's cash flow testing and stress testing results under various scenarios,
particularly given the interest sensitive nature of the business. Fitch is
concerned with the persistency and profitability of the existing block of
business AHL will acquire, which may have been negatively impacted by the
timeframe from deal announcement until close.
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 assets to approximately $60 billion and thus provide
greater economies of scale. The combined entities will become one of the
largest issuers of fixed annuities in the U.S.
Fitch believes Athene faces execution and integration risk, particularly since
this is the company's largest deal to date. Favorably, AHL has established a
successful track record over the past two years with the purchase and
integration of Athene, Investors Insurance Corporation and Presidential Life
Fitch is also concerned by the significant increase in AUM resulting from the
acquisition. To date, AHL has been able to remain nimble and capitalize on
opportunities and dislocations in the marketplace. Fitch will continue to
monitor the redeployment of Aviva USA's investment portfolio and the company's
ability to continue to capture an adequate risk-adjusted spread.
Fitch views Athene's investment portfolio as somewhat aggressive relative to
traditional life insurance companies. Athene has an above-average exposure to
structured securities, in particular non-agency RMBS that the company acquired
beginning in 2011 at a steep discount. In 2012, AHL also increased its
exposure to higher-yielding mezzanine mortgage loans and limited partnerships.
The acquisition of Aviva USA will result in an increase in operating and asset
leverage. However, run-rate leverage metrics are expected to remain supportive
of the current rating category. Additionally, AHL's financial leverage remains
below that of its peers.
The key rating triggers that could result in a Rating Watch removal and
subsequent ratings affirmation:
--Completion of the review of the Aviva USA annuity business with no
unforeseen issues that could lead to results significantly below Athene's
--Reasonable integration plan;
--Leverage, capitalization and financial metrics commensurate with the current
The key rating triggers that could result in a ratings downgrade include:
--Any unexpected issues arising from the acquisition of Aviva USA;
--The announcement of any other acquisitions this year that reduce management
focus on the Aviva USA integration;
--Deterioration in operating performance, resulting in Athene's run-rate
operating losses for four consecutive quarters;
--A decline in Athene's RBC ratio below 350% or a decline in 7% capital to
reserves at AHL;
--Significant changes in asset allocation, which may include an increase in
limited partnership exposure to over 15% or a large increase in BIG exposure.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Aug. 19, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Tana M. Higman, +1-312-368-3122
Fitch Ratings Inc.
70 W. Madison Street
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 (New York)
Press spacebar to pause and continue. Press esc to stop.