Apollo assures investors deposit flight won’t spill over to Athene

According to recent reports by Reuters, Apollo Global Management Inc. has promised its investors and analysts that its insurance company, Athene, is not at risk of public withdrawals of annuities like those experienced by some regional US banks.

Since the banking crisis began on March 8, Apollo’s shares have dropped 15%, which is more than major industry players such as Blackstone Inc., KKR & Co Inc., and Carlyle Group Inc., experienced.

However, in a shareholder update released on March 13, Apollo explained that Athene’s funding model is distinct from a bank’s. It stated that the majority of the annuities that Athene offers cannot be surrendered by their holders, and that its balance sheet is a “fortress” that can sustain withdrawals by those authorized to withdraw their money.

Annuities are financial products bought for either a lump sum or via installments to receive a fixed payment over time. They are usually offered by insurance firms. Apollo, one of the largest private equity firms, launched Athene in 2009 and utilized the funds raised from the annuities offered to generate profitable fees and broaden its assets beyond its traditional funds.

However, following the banking crisis, investors and analysts have been concerned about Athene’s funding model.

Rufus Hone, an analyst at BMO Capital Markets, stated that “Now that we are seeing runs on select U.S. regional banks, we’re also starting to see some investors voice those same concerns about insurance firms.” After meeting with Apollo executives, Hone wrote in a note last week that he did not anticipate a rise in withdrawals from annuity holders and that Athene’s funding base is stable.

An Apollo representative stated that Athene had enough cash and liquidity, and that the number of new annuity policies they issued “meaningfully” exceeded maturing policies and withdrawals. In its March 13 investment update, Apollo revealed that Athene had received $8.8 billion in inflows from the beginning of the year to March 10.

The outflows were consistent with the quarterly average of about $5 billion, according to someone familiar with the situation.

Of Athene’s estimated $184 billion in liabilities as of March 10, about 82% of the annuities do not face any withdrawal risk due to the terms being non-surrendable or financially excessively onerous to surrender. Furthermore, insurance firms, rather than individuals, hold some of the annuities, according to Apollo. However, 18% of the annuities, amounting to approximately $33 billion of Athene’s liabilities, are not protected by surrender charges, making them more susceptible to being withdrawn by holders. Investors and analysts have focused their questions to Apollo on this subset of annuity policies.

Apollo stated in its presentation that there are several reasons why annuity holders are less likely to withdraw their money than bank account holders, including that annuities are long-term investments used mainly for retirement, and they provide better returns than traditional bank products. Moreover, as of March 10, Apollo stated it had $73 billion of available liquidity to address potential spikes in demand for annuity withdrawals, including a $56.9 billion fixed-income portfolio mainly containing publicly traded investment-grade corporate bonds.

Analyst Stephen Biggar from Argus Research believed that if Apollo would have to realize losses by selling some of the portfolio, as the recent rise in interest rates has led to a general dropping in the value of bonds. Other big insurers that provide annuities, like American Equity Investment Life Holding Co, have also seen a decrease in their market capitalization following the banking crisis’s aftermath.

Finian O’Shea, a Wells Fargo analyst, claimed that Athene’s business was not currently at risk since annuity withdrawals were still limited. Nonetheless, he argued that investors were increasingly concerned about Athene’s balance sheet, triggered by the Federal Reserve’s effort to raise interest rates, and some US regional banks’ recent failures.

(Reporting by Chibuike Oguh in New York; Editing by Greg Roumeliotis and Leslie Adler)