Power Brokers Leon Black and White Knight Legend Warren Buffet Black have joined sabres in the pending acquisition of the U.S. unit of Aviva PLc as Warren Buffet’s Symmetry Financial Corp announced that the life insurer that includes Buffets Berkshire Hathaway Inc. as its parent had joined hands with the Leon Blacks, private equity group, Apollo Global Management LLO. The deal which may be announced in days is like a team of superheroes of private equity joining hands. Black has been on a roll this year after a disappointing 2011. Black, like many other private equity managers took his company public in 2011 and after sinking 5.4% has roared back 37%.in 2012. The billionaire teaming up with white knight and Oracle of Omaha, Warren Buffet, is even better news for Aviva shareholders and policyholders who have watched their shares nearly double this year while sales sagged. Nevertheless. Aviva remains the second largest seller of fixed indexed annuities which have inched up to $34 billion this year and the largest seller of the fast growing indexed life market. After spending hundreds of millions of advertising to brand its U.S. products though, the U.K. insurer finds its indexed life share of the market cut in half over the last 5 years as new carriers entered the market, its products were mispriced, and scandals rocked the parent company across the pond.
In the early 2000s, I worked for Amerus(Aviva) sister company, Ameritas which primarily marketed dental insurance, Variable Annuities and Variable Life. The idea was that Ameritas would cross sell indexed products while Amerus would sell Variable. When the tech wrecking ball came along, VA/VUL sales plummeted and that became one of Amerus first missteps which led to Aviva’s purchase of Amerus in 2006. Indianapolis Life was another poor acquisition contributing to the acquisition by Aviva.
As a Ameritas pensioner, I am more enthused about experienced insurance investors like Buffet and Black joining ranks. Buffet acquired the old Safeco and immediately sold its broker dealer and changed the name of the company to Symetra which has become a respectable growing life and Annuity Company after sagging earnings growth before Buffet. Black has been one of the largest private art collectors in the World and his art of the deal has been on a roll of late as well. The fact that overstretched private equity manager, Guggenheim LLC is out of the deal is good news for agents, policyholders, and shareholders. The consensus that all three parties named above benefit all parties is still up in the air but there is no doubt that private equity find growth opportunities in the indexed annuity industry is encouraging during the “Age of Safety” . Savers and investors are more concerned with risk aversion and assurance of lifetime income. Americans perceptions of the market are that Wall Street has developed a new weapon that destroys people but leaves buildings standing called stocks.
The combination of super private equity managers like the double killer bees, Buffet and Black means that the deal would occur at a ”significant discount” to book value is a testament that some of the industry’s companies have been mismanaged since 25% of the business will now be managed by private equity. If #1 FIA Carrier, Allianz SE, were not in the mix of measurements, the number would be even higher. The investor saver quest for a ride on the roller coaster in lieu of a carousel has ended for a season . Private Equity Funds performance has not been much better than the overall market but the fortunes of these power brokers with the exception of Phillip Falcone have soared. During the Great Recession as his shares plummeted, an executive called to his secretary to get his broker to which the secretary replied “Stock or Pawn” Certainly two of the biggest power brokers in history see pawnshop values in Aviva and even greater values in the growth of indexed annuity and life.
One fact is certain. If Buffet is successful in acquiring Aviva U.S. it will be a short commute over the Missouri River to Iowa for the Oracle of Omaha!