DEALTALK-Regulators put chill on U.S. private-equity insurance deals
By Jessica Toonkel
NEW YORK, June 26 (Reuters) - With acquisitions in the U.S. financial services industry slowing to a crawl since the 2008-09 financial crisis, private equity funds have provided a rare bright spot with their pursuit of annuity portfolios that insurers have been eager to sell.
But the dealmaking may have hit a roadblock now that New York's top financial regulator has decided to launch a review, concerned that the private equity firms are taking on too much risk - at the expense of consumers who hold the annuities.
As a consequence, some insurers are putting on hold plans to sell their businesses, while bankers and attorneys who are working on two deals nearing completion are worried that the probe could derail them completely.
In November, Aviva, Britain's No. 2 insurer, agreed to sell its U.S. annuity business to Athene for $1.8 billion . The following month, Sun Life Financial Inc agreed to sell its U.S. annuity business to Guggenheim Partners, a subsidiary of Delaware Life Holdings for $1.35 billion.
"Potential sellers of insurance businesses are holding off because some of the best buyers of these assets are working through these issues," said one insurance banker, who wished to remain anonymous because he is not permitted to speak to the media. "People want more clarity before proceeding with sales."
Many insurers are looking to get out of the business of selling annuities - insurance contracts that guarantee the investor a minimum monthly payment. The products have become an obstacle to profitability at a time when interest rates are low, market volatility is high and a wave of baby boomers is getting set to retire in the United States.
But regulators fear that private equity firms, which generally seek to maximize profit in the short term with an eye toward exiting a business, may not manage the portfolios appropriately, putting customers at risk. Continued...