Guggenheim Partners LLC shareholders won approval for a deal to buy a U.S. annuities business from Sun Life Financial Inc. (SLF) after agreeing to policyholder protections sought by a New York regulator.
The buyers will set up a trust account with $200 million to replenish capital at the New York unit if it falls below required levels, according to a statement today from the state’s Department of Financial Services. Guggenheim will also need to get prior approval from the watchdog for “material changes” to operations, including dividends or reinsurance transactions.
“These policyholder protections can and should serve as a model set of guardrails for addressing the emerging trend of private-equity firms seeking to enter the annuity business,” DFS Superintendent Benjamin Lawsky said in the statement.
Lawsky began a probe this year into deals by private-equity and asset-management firms to buy insurers, saying the acquirers may make risky investments in pursuit of short-term profits. Insurers are regulated by state overseers who make sure the firms have enough funds to back obligations to policyholders.
Sun Life agreed in December to sell its U.S. unit for $1.35 billion as it seeks to cut risk from rising obligations and to use the cash to expand through acquisitions. The Toronto-based company said in June that the acquisition was being delayed beyond the second quarter by a review from Lawsky’s office.
The transaction is expected to close by Aug. 2, Sun Life said in a statement following the approval. The acquirer is Delaware Life Holdings, whose ownership includes Guggenheim shareholders.
“We are pleased that the NYDFS has approved the transaction,” Delaware said in an e-mailed statement. The company said it looks forward to “working with the agency in the future in the same constructive fashion as we have in the past.”
Sun Life rose 4 cents, or 0.1 percent, to close at C$33.26 in Toronto. The shares have gained 26 percent this year, the sixth-best performer on the 45-company Standard & Poor’s/TSX Financials Index, which has advanced 6 percent. Guggenheim is a closely-held company.
The insurer’s U.S. annuities unit had $43.6 billion in assets under management as of March 31, according to an earnings statement. First quarter net income at the unit fell to $114 million from $280 million a year earlier.
The Canadian company is among benefits providers including Hartford Financial Services Group Inc. (HIG) that have retreated from offering variable annuities, an insurance product that offers guaranteed income for retirees. Sun Life has said the transaction will reduce volatility in earnings.
The Delaware Department of Insurance and the Financial Industry Regulatory Authority have signed off on the deal, Sun Life said last month.
Investment firms are pursuing annuity deals to add assets, betting they can manage the funds more skillfully. Philip Falcone’s publicly traded Harbinger Group Inc. (HRG), which bought a life and annuity business in 2011, and Apollo Global Management LLC (APO)’s Athene arm, which agreed in December to buy Aviva Plc (AV/)’s U.S. life and annuity unit, were also being reviewed by Lawsky’s office, a person with knowledge of the matter said in May.
Guggenheim Partners, run by Chief Executive Officer Mark Walter, has expanded from a family office with a handful of employees into a $180 billion global asset manager through deals including the acquisitions of Claymore Group and Rydex ETF owner Security Benefit Corp.
Walter, who shot to prominence as the man behind the $2 billion purchase of the Los Angeles Dodgers, has hired investing veterans including Henry Silverman, the former chief operating officer of Apollo, to advise on expansion.
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