If Voya Financial Inc.'s rumored negotiation to sell $50 billion in retirement annuities to Athene Holding Ltd. materializes into a deal, it could signal a market trend of private equity snapping up discounted life insurance blocks, according to industry observers.
A report on the rumor in The Wall Street Journal surfaced a week after a group of private-equity investors struck a deal to buy the closed life insurance line Talcott Resolution Inc. from The Hartford Financial Services Group Inc. The $2.05 billion Hartford agreement is the first of its kind in recent years.
Private equity had historically avoided buying into highly regulated insurance lines, said Dale Myer, a managing director for MarshBerry. However, the investment sector will follow nontraditional capital into regulated spaces if they see an advantage, Myer explained in an interview.
Given a robust fundraising environment, private equity firms have been adding to their hefty stores of uncalled capital. Relative performance, and valuations, of certain insurance properties may make the sector attractive to private equity, according to Myer.
"We see an unbelievable amount of PE dry powder, and they're seeing the insurance industry as an attractive vehicle," he said in an interview. Life insurance assets are investments expected to be longer-tailed rather than short-term vehicles, Myer said. Assets that are properly underwritten can boost the more patient return strategies, he added.
CFRA analyst Cathy Seifert believes The Hartford's deal could be a watershed event for life companies with retirement assets that are perpetual drags on their financial results. Larger, competing life insurers might need to follow suit to keep from slipping competitively, Seifert said in an interview.
"If you're a holder of these assets and competitors have found a way to monetize them, it then becomes incumbent upon you to do the same thing," she said.

Athene's largest shareholder, Apollo Global Management LLC, might employ a typical investment strategy of finding a good entry price so it can exit several years later at a profit, Seifert said. Apollo could hold the block for at least three years, waiting for interest rates to rise and lift the value of a life insurance line that has been pressured by persistently low rates, she said.
Wells Fargo analyst Sean Dargan in a Dec. 11 note said a deal between Voya and Apollo Global would be mutually beneficial. Voya has not been reporting earnings from its closed-book variable annuities, and Dargan's model attaches no value to the line in his $51 price target.
"We think the absence of the hangover would be a net positive for [Voya's] stock," Dargan said.
If an agreement comes to fruition, Dargan speculated that Apollo would hold onto the variable annuities business, estimated at $37 billion, and reinsure the $13 billion of fixed annuities to Athene.
Share prices of the three companies involved with the rumor scarcely moved following the Journal report. A week earlier, The Hartford's share price declined shortly after announcing the Talcott transaction. Wells Fargo's Elyse Greenspan linked the decline to a lower deal value for the runoff business than the $3.0 billion to $3.5 billion observers believed The Hartford was seeking, Greenspan said in a Dec. 4 note.
RBC Capital Markets analyst Mark Dwelle said the long-awaited sale would still be a net benefit to the insurer, as it would create a less volatile business capable of double-digit returns on equity.
"In the short-run we expect some transitional friction on results but over time see an improved valuation and earnings run-rate," Dwelle wrote in a Dec. 4 note.
