Legal Alert: Acquisitions of Insurers by Private Equity Firms Under Heightened Regulatory Scrutiny

by Eversheds Sutherland (US) LLP

In recent months, the New York Department of Financial Services (the DFS) has raised concerns over the perceived trend of private equity firms and other investment companies acquiring insurance companies, particularly those that write fixed and indexed annuity contracts.

In an April 18, 2013 speech, Benjamin Lawsky, Superintendent of Financial Services, relayed his concern over what the DFS perceives to be the short-term focus of private equity firms on maximizing their immediate financial returns, rather than ensuring that policyholders receive their promised benefits. To this end, Superintendent Lawsky opined that “private equity firms typically manage their investments with a much shorter time horizon – for example, 3-5 years – than is typically required for prudent insurance company management.”

Shortly following these remarks (which were posted on the DFS website on April 24, 2013), the press reported that the DFS had subpoenaed several companies, including Apollo Global Management, LLC, Guggenheim Partners LLC, Harbinger Group Inc. and Global Atlantic Financial Group, to obtain information on the investments held by these companies to back their fixed annuity business. Separately, in May 2013, the DFS sent written requests, commonly referred to as “Section 308 Letters,” to certain New York authorized insurers requesting information on “inquiries, offers or solicitations you received from private investors, since January 1, 2010, to acquire, reinsure or invest in your annuity or life insurance business, annuity contracts or life insurance policies.”

In light of this history, recently the DFS was asked to approve the proposed acquisition of control of Sun Life Insurance and Annuity Company of New York (Sun Life New York) and Aviva Life and Annuity Company of New York (Aviva New York) by Guggenheim Partners LLC and Athene Holding Ltd., respectively. The DFS eventually approved both acquisitions, but subject to the condition that the acquiring parties agree to an “enhanced set of policyholder safeguards.” In order to complete the acquisitions, Guggenheim and Apollo Global Management, LLC (an affiliate of Athene) agreed to implement these safeguards. In this regard, the DFS stated publicly that Guggenheim’s agreement marks “the first time a private equity firm has agreed to an enhanced set of policyholder safeguards in an acquisition of an annuity company[.]”

Specifically, as a condition to DFS approval of Guggenheim’s acquisition of Sun Life New York, Guggenheim agreed to the following:

  1. Heightened RBC Levels – Instead of the typical 250% company action level RBC requirement, Guggenheim agreed to maintain Sun Life New York’s RBC levels at an amount not less than 450%. 
  2. Backstop Trust Account – Guggenheim will establish a backstop trust account totaling $200 million to provide policyholders with protection beyond the heightened capital levels.  If Sun Life New York’s RBC levels fall below 450%, the funds in the backstop trust account will be used to top off the Sun Life New York RBC level to at least 450%.  The funds in the trust account will be held separately from Sun Life New York’s other funds for at least seven years and will be dedicated to the sole purpose of protecting policyholders.
  3. Prior Written Approval of Material Changes to Plan of Operations – Any material changes to Guggenheim’s plan of operations of Sun Life New York, including investments, dividends or reinsurance transactions, require prior written approval of the DFS.
  4. Stronger Disclosure and Transparency Requirements – Sun Life New York will file quarterly RBC level reports to the DFS, rather than annually.  Sun Life New York will also disclose to the DFS information concerning corporate structures and control persons, as well as other information regarding the operations of the company.

Apollo also agreed to implement a nearly identical set of policyholder safeguards as a condition to DFS approval of Athene’s acquisition of Aviva New York. Based on published reports, the only safeguard that is different is the amount of the backstop trust account, which is required to total approximately $35 million, as opposed to the $200 million required in the Guggenheim transaction.

Additionally, the Iowa Insurance Division (the IID) imposed several “enhanced” conditions with respect to its approval of Athene’s acquisition of Aviva Life and Annuity Company (Aviva). Specifically, the IID’s approval order is conditioned upon Aviva not paying dividends or distributions for five years, changing its plan of operations, or making investments, payments or agreements (whether or not below the Form D materiality threshold) with an affiliate without the Insurance Commissioner’s approval.  Further, Aviva is required to reserve for all non-variable deferred annuities containing guaranteed minimum death benefits or withdrawal benefits using AG 33, as opposed to AG 43. The conditions imposed by the IID are in addition to enhanced reserving measures voluntarily offered by Athene as part of its “change of control” filings.  Specifically, Athene has agreed to voluntarily increase policy reserves by an additional $150 million and to enter into a capital management agreement with respect to RBC requirements.

The approval conditions imposed by the DFS and the IID are noteworthy in several respects. The “enhanced policyholder protections” required in these transactions appear, in large part, to be predicated on the regulators’ characterization of the proposed acquirer as a “private equity firm” and either the implicit or explicit belief that the business model, investment practices and plan of operations of such firms result in increased risk to policyholders. From that perspective, it is difficult to predict the full ripple effect of these transactions on future acquisitions of insurance companies. Despite this uncertainty, the potential implications of these precedents may include the following:

  1. Future acquirers may attempt to distinguish their operations from companies which have been characterized by regulators as “private equity” firms. In this connection, neither the DFS nor the IID has published objective parameters or criteria for identifying companies that will be deemed private equity firms or that otherwise will be required to provide enhanced policyholder protections.
  2. Sellers of insurance companies or blocks of business may attempt to obtain the contractual commitment of prospective buyers to agree, in advance, to accept regulatory approval conditions similar to those imposed in the Sun Life and Aviva acquisitions.
  3. Traditional insurance companies may highlight the extent to which they differ from so-called private equity firms in an effort to enhance their bids (as presenting lower “regulatory” or “deal execution” risk) in auctions of insurers or blocks of business.
  4. Other state insurance departments may follow New York’s and Iowa’s lead and impose similar approval conditions with respect to acquisitions of insurance companies by acquirers that are deemed by regulators to be private equity firms.
  5. State insurance departments may consider, in appropriate situations, requiring “enhanced policyholder safeguards” in acquisitions by more traditional insurance groups that conceptually might not be considered private equity firms.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Eversheds Sutherland (US) LLP | Attorney Advertising

Written by:

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.