Confirming an earlier report, Voya Financial Inc. said it agreed to divest substantially all of its closed block variable annuity segment and its individual fixed and fixed indexed annuity business to an investor group led by affiliates of Apollo Global Management LLC, Crestview Partners LP and Reverence Capital Partners LP.
Voya Insurance and Annuity Co., which has primarily issued Voya Financial's variable, fixed and fixed indexed annuities, will be acquired by Venerable Holdings Inc., a newly formed investment vehicle owned by a consortium of investors led by Apollo, Crestview and Reverence. Athene Holding Ltd. and Voya Financial also will participate in the consortium and the latter will have a 9.9% equity stake in the vehicle.
Following the acquisition of Voya Insurance, Venerable will hold substantially all of the variable annuities in Voya Financial's closed block variable annuity segment with account value of approximately $35 billion based on June 30 balances.
In connection with the above transaction, Athene signed a definitive agreement to reinsure approximately $19 billion of Voya Financial's fixed and fixed indexed annuities, which will be administered by Venerable, and Athene Asset Management will provide asset management services for these fixed annuities. Voya Financial said it intends to cease manufacturing non-retirement-focused individual annuities after the transaction closes.
Voya Financial estimates the transaction to result in about $1.1 billion of value, which includes the benefit of a $400 million ceding commission paid by Athene for Voya Financial's fixed and fixed indexed annuities business.
Voya Financial expects immediately deployable capital in excess of $500 million, which is subject to change until closing. The company intends to utilize that capital for additional share repurchases beyond its $1 billion existing authorization. The company also expects to benefit from the assets that are not liquid today.
Voya Financial's quarterly operating EPS is expected to increase to between $1.10 and $1.20 within 12 months of the transaction closing, Chairman and CEO Rodney Martin Jr. said in a statement. The company will undertake further efforts to reduce expenses associated with the businesses involved in the transaction, and in corporate and shared services functions. As a result, it expects to realize $110 million to $130 million in cost savings in the 12 months following the close of the transaction, Martin said.
As part of the agreement, Voya Investment Management will serve as the preferred asset management partner for Venerable. For a minimum of five years following the closing of the transaction, Voya Investment Management will manage about $10 billion of general account assets under management. It also will continue to manage the funds platform associated with the variable annuities, representing approximately $22 billion of AUM as of Sept. 30, and will be the preferred asset manager for future blocks acquired by Venerable.
The transaction has been unanimously approved by Voya Financial's board and is expected to close in the second quarter or third quarter of 2018, subject to closing conditions, including regulatory approvals.
After completing the transaction, Voya Financial expects annual free cash flow of between $600 million and $700 million and anticipates that nearly 80% of its operating earnings would be generated from its retirement, investment management and employee benefits businesses. As a result of its planned exit from the individual annuities business, the company intends to conduct a strategic review of its individual life business during the first half of 2018.
Voya Financial estimates that the transaction would result in a $2.3 billion after-tax reduction to shareholders equity, excluding accumulated other comprehensive income, the majority of which reflects an after-tax loss that is subject to change upon finalizing fourth-quarter financials and would be recorded in the fourth quarter.
After the sale, Voya Insurance or one of Venerable's affiliates will administer most of the variable, fixed and fixed indexed annuities included in the transaction, subject to some exceptions and transitional arrangements. Certain business in Voya Financial's annuities segment is not part of the transaction, including approximately $6 billion in investment-only products, primarily Select Advantage, that will be retained by the company.
Goldman Sachs & Co. LLC is serving as financial adviser and Willkie Farr & Gallagher LLP is serving as legal counsel to Voya Financial in connection with the transaction. Barclays is serving as financial adviser and Sidley Austin LLP is serving as legal counsel to Venerable and Athene. Houlihan Lokey is serving as financial adviser and Latham & Watkins LLP is serving as legal adviser to the special committee of independent directors of Athene's board.