Apollo has used its in-house insurer Athene to remake US private capital, using billions of dollars from retirees to feed its asset management machine. But now it is another Apollo-backed insurer, Athora, that is on the march in Europe, with a £5.7bn acquisition that heralds the private equity giant’s arrival into the continent’s largest retirement market.
The biggest UK deal of the year so far relates to the obscure but lucrative insurance niche of pension risk transfers or bulk annuities. Over the next decade, British companies are expected to offload about £500bn of retirement obligations and the assets backing them to insurers via pension risk transfer agreements as they wind down defined benefit pension schemes.
The business has boomed as higher interest rates closed schemes’ deficits, making sales to insurers more attractive and spawning a market dominated in the UK by Goldman Sachs’ former unit Rothesay, London-listed insurer Legal & General, and the Pension Insurance Corporation (PIC), which Athora agreed to buy last week.
Buying PIC will hand Athora a fifth of the UK bulk annuity market in one fell swoop, a route that Apollo’s US private capital rivals KKR and Carlyle had each explored before Athora struck its deal.
“Apollo’s arrival in the UK shows retirement groups and the assets backing them will stay private for longer, if not forever,” Abid Hussain of Panmure Liberum said. The Athora acquisition of PIC follows a move by Canadian private capital firm Brookfield last year to cash in on the bonanza by building its own bulk annuities business Blumont from scratch.
“UK insurers are struggling to keep pace with the sophistication of US private capital firms,” Hussain said.
But the PIC acquisition also speaks to how Apollo is having to adapt the strategy that has tripled its share price over the past five years, uniting private capital and retirement services under one roof, to overcome European resistance to the industry.
“Originally, when Apollo divided up the world, the UK was Athene’s jurisdiction, not Athora’s,” one insurance analyst said. But Apollo appeared to have redrawn the map after concluding that Athora’s “natural hunting ground [of continental Europe] is closed to them”.
Apollo chief executive Marc Rowan pioneered a widely imitated model of managing life insurance assets for “spread” earnings — buying liabilities at a discount and investing them in higher-yielding assets such as private credit.
The model gives Apollo a large base of “permanent capital” that constantly refreshes with new annuities sold — in contrast with its traditional private equity funds, which require new fundraising every few years.
But rather than using Athene to enter the UK market as previously appeared to be Apollo’s plan, the private capital firm is making its debut in the UK bulk annuity market through an entity in which it only has a minority ownership stake.
Insurers’ links to private capital giants have come under scrutiny on both sides of the Atlantic from regulators and retirees concerned that they may be taking on too much investment risk.
The opposition stems from financial difficulties with private equity-backed insurers, not least problems at 777 Partners last year and the collapse in 2023 of Italian life insurer Eurovita.
After rising interest rates prompted policyholders to surrender savings contracts early, Eurovita’s UK-based owner Cinven stumped up less than half of the capital regulators asked it to inject into the business. People familiar with the matter said Athora later sought to acquire German life insurer Viridium, but the group was ultimately sold to a consortium that included Allianz.
“The most common question I get is: ‘Do you have private equity fund capital?’ We have none,” said Athora chief executive Mike Wells, who previously served as chief executive of London-listed insurer Prudential.
Wells draws a distinction between Apollo’s private capital funds and its retirement services businesses, which it owns outright. The difference in ownership structure meant there was “no expectation” Athora would exit the PIC investment in less than five years or be pushed to liquidate, Wells told the Financial Times.
While Athora was backed by “a firm that has private equity expertise”, Wells said, “there’s none of the sorts of pressures that a PE-backed insurer would have”.
Athora was originally a Bermuda-based holding company for Athene’s European operations, carved out of the larger US insurer in 2018. Apollo co-founder Leon Black pitched it as “Athene-like, but it’s European”: a “permanent capital” vehicle to support the group’s less liquid lending.
Since then, however, the models have diverged. Apollo brought Athene, which it created in 2009 but maintained as an affiliate, in-house in 2021 through an $11bn all-share deal. At Athora, Apollo has kept its distance. It and Athene have retained a combined 25 per cent stake and just shy of half the seats on the board. A subsidiary of the Abu Dhabi Investment Authority, a frequent co-investor with Apollo, holds 19 per cent of Athora’s shares.
Apollo has said private capital firms have been the main force behind recapitalising the struggling life insurance sector in the past decade, and Athora itself has raised €6.75bn in equity capital from an investor mix, including sovereign wealth funds and pensions. It has bought life insurance “blocks” from blue-chip European insurers such as Generali, and now runs the largest pension risk transfer business in the Netherlands.
But acquisitions in Europe have proved “politically very difficult”, Rowan told investors last October. Rowan said the continent’s market for retirement products offering guaranteed income had “virtually shut down,” as some jurisdictions had been “hostile to private markets”.
Athora struggled to make big acquisitions in Europe despite the fact that Apollo had made an effort to “look and act like an insurance company”, the insurance analyst said. Buying PIC could signal a shift in approach.
Using Athora to buy PIC rather than Athene means the US private capital group will forgo the full insurance spread it retains through deals with Athene. Instead, it would collect a fee for managing some — though not all — of PIC’s assets, Wells said. Apollo currently manages about a third of Athora’s assets.
Whether or not the PIC acquisition ends up being a good deal for Athora may ultimately depend on how much risk it is able to shift offshore through so-called funded reinsurance. UK regulators are more open to the strategy than European ones, but the practice is under scrutiny by the country’s Prudential Regulation Authority.
In the US, meanwhile, Athene’s pension risk transfer dealmaking has been on ice since companies that sold it their pensions were hit with lawsuits from trustees concerned about investment risks. None of the lawsuits have yet succeeded.
Apollo executives have argued that European regulators will have to soften their opposition to private capital groups’ retirement product roll-ups sooner or later, since the continent’s ageing population needs access to the private investments it specialises in. Life insurance and retirement products have long-term liabilities, which can pair well with illiquid loans that take years to pay back.
The challenge will be for the two Americans — Wells and Todd Solash — tasked with leading Athora’s charge to prove they can squeeze more value from the UK’s life insurance market than its previous private equity owners, in a market that is already highly competitive.
PIC already became a juggernaut in pension risk transfers under the stewardship of investment group Reinet Investments, buyout firm CVC Capital and private credit shop HPS Investment Partners. The company has grown its assets nearly 10 times since Reinet first took a stake in 2012.
Tracy Blackwell, chief executive of PIC, said the sale would “give us more firepower to invest in the UK” and access to “a bigger balance sheet”. Wells said listed insurers would struggle to meet the demand from companies to offload their obligations to pensioners because of the different priorities of their backers. The market needed private capital to step in.
“Rather than growth, [traditional] insurers tend to be more focused on dividends and payback,” Wells said. “We can help fill the gap.”
