Athene is on the hunt for deals in Europe as the recently floated US pensions provider looks to take advantage of the pressure on life insurance companies caused by ultra low interest rates.
James Belardi, chief executive, said Athene, backed by private equity group Apollo, was eyeing acquisitions in Germany as well as reinsurance transactions in the UK.
“There’s a reason we’ve received a lot of calls about potential acquisition opportunities,” he said. “There’s a lot of challenged companies out there that would like a well-capitalised parent to come in.”
Mr Belardi’s comments signal that prospective buyers are gearing up to consolidate the fragmented industry. Clive Cowdery, the British life insurance dealmaker, is also known to be interested in pursuing deals in Europe.
Life and pension companies globally are suffering as their business models require them to invest heavily in bonds, whose prospective returns have dropped in the easy money era.
The difficulties are particularly acute in European markets including Germany, where until recently the industry has been making generous long-term promises on payouts to customers.
German life companies must generate an average return on their investments of 2.4 per cent to meet the promises, which typically stretch out over 16 years, according to rating agency Fitch.
Although the companies are making returns at 3.3 per cent on investments made when yields were higher, they face a tightening squeeze because of low rates.
Backers of Athene say it has an advantage over rivals because it is based in low-tax Bermuda, has picked up other acquisitions — including the US business of UK insurer Aviva — on the cheap, and gets Apollo to manage its investments.
The group was valued at $7.4bn in a New York listing in December that raised about $1.1bn for selling shareholders led by Apollo. Its shares have since risen to value it at $10.9bn.
Athene has been expanding rapidly since it was formed in 2009 to capitalise on problems in the US market after the financial crisis. Figures published on Friday by trade body Limra show it has become the third-biggest provider of “fixed indexed annuities” in the US.
The group purchased Delta Lloyd’s German unit in 2015 but has yet to expand further in Europe. “There’s a lot of opportunities for additional acquisitions in Germany, as well as reinsurance opportunities in the UK,” Mr Belardi said.
The group would be taking on so-called longevity risk — the risk that customers live longer than expected. Mr Belardi added that Athene was planning to raise capital from third-party investors “to pursue opportunities” in Germany but would not provide further details.
The M&A market for European annuities is growing. Regulatory changes and rising life expectancy are encouraging corporate pension schemes, as well as insurers, to pass on these liabilities to specialists. Last year Dutch insurer Aegon sold £9bn worth of UK annuities to Rothesay Life and Legal & General.
European insurers complain that the introduction of the EU’s Solvency II capital rules has made it more difficult to sell such long-term products. They are looking at passing risks over to counterparts based in Bermuda and the US, where Solvency II does not apply.
Athene’s chief has said the group has $2.5bn of firepower for acquisitions. It has been linked with a possible purchase of the US insurer Fidelity & Guaranty Life, and is also seeking to take on risks from pension plans in the US.
John Barnidge, analyst at Sandler O’Neill, said Athene was unusual in the US sector in eyeing European expansion. He noted the bigger operators MetLife and Prudential Financial had been grappling with toughened regulations that have curtailed their M&A ambitions.
“There aren’t a lot of people going over there,” he said.