Aviva Plc’s New York insurance unit is in talks with state regulators who are pushing for stronger reserves tied to its planned sale to Leon Black’s Apollo Global Management LLC.
The New York Department of Financial Services is also seeking advance approval of changes in investment strategy or payments from the unit to the parent, said a person familiar with the talks. The $1.8 billion deal also involves an Iowa unit and faces a hearing with that state’s insurance regulator tomorrow. New York contacted Iowa counterparts, said the person, who asked not to be identified because talks are private.
DFS Superintendent Benjamin Lawsky is investigating deals by investment firms such as Apollo to acquire insurers, saying they may make financial wagers that put policyholders at risk. Any conditions reached in the deal might set a standard for approval in future transactions, the person said. The probe already delayed the purchase of Sun Life Financial Inc.’s U.S. annuity operation by a firm tied to Guggenheim Partners LLC.
“The risk that we’re concerned about at DFS is whether these private equity-firms are more short-term focused, when this is a business that’s all about the long haul,” Lawsky said in an April 18 speech. “Their short-term focus may result in an incentive to increase investment risk and leverage.”
Apollo’s Athene insurance unit is committed to working with Lawsky’s office, the company said in an e-mailed statement today. The firm plans to move the Aviva New York unit into Athene’s Presidential subsidiary, which is based in the state, and the combination will bolster the acquired business, according to the statement.
“This would substantially increase the capital reserves and would make Aviva New York a stronger, more financially stable company,” Athene said.
Most of the Aviva business is in Iowa, and Athene is “actively engaged” in discussion with regulators there, according to the statement.
The talks with regulators were disclosed in a document tied to the Iowa hearing scheduled for tomorrow in Des Moines. The push from Lawsky’s office was reported yesterday by the Wall Street Journal. A spokeswoman for London-based Aviva said the company still expects the deal to be completed this year.
“We’re aware of their conversations,” said Tom Alger, a spokesman for Iowa’s insurance regulator. “What’s happening in New York, for that unit, is not part of our considerations here for tomorrow.”
Apollo seeks to gain funds to invest through the acquisition of Aviva’s U.S. annuity business, which collects payments from clients who are guaranteed future income under the contracts. The private equity company has struck a deal to sell the Aviva business that provides life insurance.