Prudential/Athene: Jackson heights

It is no fun to bargain with those who mock you. If they come bearing cash, however, there is little choice. At an investor meeting two years ago, Athene Holding, a US annuities specialist, shared a slide that depicted legacy life insurers as a blindfolded man who was wandering aimlessly. Athene’s point was that it could exploit the poor choices in policy underwriting that incumbents in the sector had made.

Athene’s latest mark is Prudential. On Thursday, the UK-listed insurer sold an 11 per cent stake in its US annuities business, Jackson National, to Athene for $500m. Athene also said it would reinsure $28bn of Jackson annuity liabilities.

Athene sprang from the 2008 financial crisis when it bought up insurance blocks from wayward carriers. The current, pandemic-inspired economic retrenchment may present an even better buying opportunity.

Athene’s investment values Jackson at $4.5bn, a figure that most analysts believe is light. Yet the deal takes Prudential — which has been under activist pressure — closer to listing Jackson and making a highly-anticipated exit. The insurer has already demerged M&G, its UK arm. Fast-growing Asian markets are its strong suit.

As for Athene, its trick is acquiring insurance liabilities cheaply and deploying those funds in more complex and higher-returning credit assets handpicked by its patron, Apollo Global Management. Athene has previously taken discarded units from the likes of Voya Financial and Aviva.

According to the companies, Athene’s gross investment yield is 4.6 per cent, nearly 250 basis points more than Jackson earns. If Athene and Apollo can lift Jackson’s figure, the spread will flow straight to its bottom line.

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Athene’s shares fell 70 per cent in March, following concerns about its complex investment book. They have doubled since. Unsurprisingly, the Jackson transaction involves third-party capital and financial engineering, the kinds of things Apollo brings to the table. Athene is signalling that, even in an unsettled world, it is not afraid to be aggressive. Especially with so many benighted rivals to go after.

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