As insurance companies take over corporate pension plans, advocates are concerned about risks to retirees.
Athene Annuity & Life, the insurer backing most of the pension obligations, has $54 billion in assets, filings show. And a $1.2 billion surplus — which is roughly $1 billion above the level at which the regulator overseeing the company would have to move in to protect policyholders.
In a typical reinsurance or coinsurance arrangement, an insurer will pay an unrelated company to provide a backstop to cover the initial insurer’s obligations if necessary. Under such an arrangement, the initial and secondary insurers share profits and losses based on a preset ratio. Karen Lynn, a spokeswoman for Athene, said its Bermuda-based reinsurers are strong and have capital “consistent with a AA-rated company.”
For Thomas Gober, however, the relationship between the companies is problematic. There is nothing illegal about Athene's practices, but Gober sees problems with the company's relatively thin surplus, the quality of Athene’s investments, and the habit of Athene of investing in Apollo-related entities. Apollo owns 35 percent of Athene, and Athene owns seven percent of Apollo.
When an insurance company sells a policy or annuity, it agrees to pay the holder a set amount under certain circumstances. To meet these obligations, insurers typically invest policyholders’ money in corporate bonds, government obligations, and mortgages. By comparison, Prudential Annuities Life Assurance Corp. has total assets of $54 billion and surplus of $6.4 billion — roughly the same assets as Athene but five times the surplus. Its investments in parent, subsidiaries and affiliates total just $231 million.
To manage the conflicts of interest arising from Athene’s ties to Apollo, Lynn said the company’s board has a committee that approves the deals. The transactions are also vetted by disinterested directors at Athene, with both groups advised by independent legal and financial advisers.But the Athene proxy filings show all three conflicts committee members are or were directors of Apollo affiliates, including Apollo Residential Mortgage Inc.
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