NY Times Hammers Athene

Did you read last week’s newsletter titled: Alert: Minnesota Life Suspends EIUL Sales? If not, click on the following link to read: http://eiultraining.com/alert-mn-life-suspends-eiul-sales.

Recently an advisor forwarded me an article in the NY Times that really blew me away. To read the entire article (which I highly recommend), click on the following link: http://eiultraining.com/ny-times-article. The article outlined how Athene (formerly Aviva which was formerly Amerus Life) ended up investing in Caesar’s casino at a time when everyone thought the casino would go bankrupt (see Debt-ridden Caesar’s Buried in Financial Woes).

Why would an insurance company who has policy holders to take care of invest in a casino that might be going bankrupt? That’s a question for Athene’s parent company Apollo to answer.

In addition to the Caesar’s investment, the NY Times article outlined a complicated shell game Athene has apparently been playing with reinsurance carriers in order to meet certain reserve requirements with the state. The article will send shivers up your spine if you’ve been selling Athene.

Then last week I got the announcement that A.M. Best upgraded Athene from B+ to A-.  If what the NY Times article says is accurate (and I’m sure if there were issues with the story there would already have been a lawsuit filed), it would seem to defy logic that Athene received an upgrade.

Most IMOs Have an Agenda

What’s somewhat pathetic in our industry is that instead of others in the industry (like IMOs) making insurance agents aware of the NY Times article, all I received were two e-newsletters from IMOs touting the fact that Athene received the upgrade.

Why? A logical guess would be that the IMOs touting the upgrade, but not making agents aware of the NY Times article, is because Athene is one of, if not, “the” major carrier the IMO pushes. That means the IMO’s year-end bonuses, etc. are determined by how much premium goes into Athene products. Because the A.M. Best upgrade will help agents feel better about selling Athene, it will then help the IMO be in the best position to reach its bonus levels.

This is the EXACT thing that’s wrong with our industry.  And you wonder why it was so easy for me to write my book Bad Advisors: How to Identify Them; How to Avoid Them (www.badadvisors.com).

Risky Moves in the Game of Life Insurance

The above is the title of the NY Times article (which is quite long and somewhat complicated). As I stated, in addition to the risky investment in Caesar’s casino, the article mostly focused on the use of “captive reinsurance” as a way to increase reserves on paper but apparently not in reality.

The article gives the history of Aviva (now Athene) and how it was doing very well financially back in 2006. However, in 2012 Aviva’s international owner decided to sell to Apollo for $1.5 billion. The article states that Apollo actually paid $2.2 billion for Aviva but that it only paid $400 million of its own funds for the sale (the remainder came from an “extraordinary dividend” paid by the target company).

Then things get really complicated. I’ll simply quote from the NY Times article which does a great job explaining the shell game:

Apollo wanted only Aviva USA’s annuities business, which it could reinsure through an affiliate in Bermuda. A spokesman said Athene provided $2 billion to the affiliate “to support the new risks it assumed.” In addition, Apollo brought a second company into the acquisition, Accordia Life and Annuity. Accordia was a new insurer created by Global Atlantic, a Bermuda company controlled by Goldman Sachs. As soon as the acquisition closed, in October 2013, Apollo transferred the life insurance business to Accordia.

If Accordia followed the N.A.I.C. rule book, it would need about $7 billion in high-grade assets to secure the obligations. But it didn’t have that much.

So instead, Accordia set up six subsidiaries to reinsure part of the business for less. Iowa granted a “permitted practice” exception, allowing i.o.u.s to back the obligations instead of the solid assets, like bonds, that the N.A.I.C. requires.

Public financial documents in Iowa show that Accordia followed a pattern set by Aviva. The company and its parent declined to confirm the details in those records or comment on the record.

Four subsidiaries, in Iowa and Vermont, were to serve as Accordia’s reinsurers. Accordia sent them some bonds, but nowhere near enough to secure the $3.3 billion worth of obligations that they were to reinsure.

There is much more in the NY Times article and I’m not going to take up more space in this newsletter to try and tell you what the NY Times does such a great job of explaining in their article (again, I recommend everyone read the NY Times article).

My Point

My point with this newsletter is trust is something that needs to be earned, not given out blindly in our industry.

The NY Times article coupled with the lack of disclosure by IMOs pushing Athene products proves again that you can’t trust our own industry.

I certainly wouldn’t trust IMOs that push Athene if they didn’t also disclose the NY Times article. Don’t you think potential buyers of Athene products should be aware of these issues before deciding to buy? Of course they should.

I’ll leave it up to readers to determine if they should be selling Athene.  For me, my answer is no thanks.  If Athene ended up having the “best” product mathematically for a particular client, I would recommend disclosing that to the client, but then telling the client of the issue in the NY Times article. If the client still wants to buy the product, that’s their choice, but at least it then becomes a fully informed purchase that can’t come back on the agent if Athene can’t meet their financial obligations to the client.

The content of this newsletter is NOT for public use and should not be used without prior written consent of The Wealth Preservation Institute.

Roccy DeFrancesco, JD, CWPP™, CAPP™, CMP™
Founder, The Wealth Preservation Institute
Author of: The Doctor’s Wealth Preservation Guide; The Home Equity Management Guidebook; The Home Equity Acceleration Plan; Retiring Without Risk; Bad Advisors: How to Identify Them; How to Avoid Them; and Peace of Mind Planning: Losing Money is No Longer an Option.