Fitch Places Athene on Watch Negative Following Aviva USA Acquisition Announcement

CHICAGO--()--Fitch Ratings has placed the 'BBB+' Insurer Financial Strength (IFS) rating of Athene Annuity & Life Assurance Company (Athene) on Rating Watch Negative.

The rating action follows today's announcement that Athene Holding Ltd. (AHL) will be acquiring the U.S. annuity and life operations (Aviva USA) of Aviva PLC for $1.55 billion. Following close, Aviva USA's insurance operations will become wholly owned subsidiaries of Athene.

Fitch views this transaction as a transformational event for Athene due to the large block of the existing business and the significant new business infrastructure Athene will acquire. The transaction is expected to increase Athene's aggregate liabilities to over $60 billion and thus provide greater economies of scale. The combined entities will become the second largest issuer of fixed indexed annuities in the U.S.

Offsetting these positives is the financing risk associated with the transaction. Apollo Global Management, LLC has agreed to provide up to $100 million of capital support to Athene. However, Athene will need to secure additional capital support prior to close. This could include the issuance of debt or equity, or the use of reinsurance.

As part of the transaction Athene will acquire Aviva USA's inforce block of life business that includes traditional life, universal life and indexed universal life. Aviva USA has a number of captives in place to fund its XXX and AXXX reserve requirements. Fitch's expectation is that Athene will either sell this business or engage a life reinsurance partner prior to transaction close.

Additionally Fitch believes Athene faces execution and integration risk, particularly since this is the company's largest deal to date. Athene will also close on the purchase of Presidential Life Corporation by year-end and will be integrating that acquisition as well.

Fitch anticipates resolving the Rating Watch following further discussions with Athene management regarding ultimate funding of the required capital support, as well as operational and strategic plans. Upon resolution of the Rating Watch, Fitch's expectation is that Athene's rating will either be affirmed at its current level or downgraded one or more notches.

The key rating triggers that could result in a ratings affirmation include:

--Completion of the review of Aviva USA transaction and its impact on run-rate profitability and capitalization;

--Financial, operating and asset leverage metrics commensurate with the current rating level;

--Reasonable integration plan;

--Sustained maintenance of risk-based capital (RBC) above 400% at Athene and 7% capital to assets at AHL.

The key rating triggers that could result in a downgrade include:

--Inability of Athene to sell or secure an appropriate reinsurance partner for Aviva USA's life block;

--A material increase in financial, operating and asset leverage that no longer supports the current rating level;

--Poor integration planning and execution;

--Decline in RBC below 300%.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Oct. 18, 2012).

Applicable Criteria and Related Research:

Insurance Rating Methodology -- Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=692293

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Contacts

Fitch Ratings
Primary Analyst
Tana M. Higman, +1-312-368-3122
Director
Fitch, Inc.
70 W. Madison, Chicago, IL 60602
or
Secondary Analyst
Bradley S. Ellis, CFA, +1-312-368-2089
Director
or
Committee Chairperson
Brian C. Schneider, CPA, +1-312-606-2321
Senior Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Tana M. Higman, +1-312-368-3122
Director
Fitch, Inc.
70 W. Madison, Chicago, IL 60602
or
Secondary Analyst
Bradley S. Ellis, CFA, +1-312-368-2089
Director
or
Committee Chairperson
Brian C. Schneider, CPA, +1-312-606-2321
Senior Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com