Venerable Holdings Inc. isn’t your typical insurance startup. 

The newly formed annuity company, which formally launched on June 1, has leapt out of the gate with about $30 billion in annuity assets under management, over 600,000 policyholders and approximately 240 employees, half of whom are already working in downtown Des Moines. 

A consortium of private equity investors — led by affiliates of Apollo Global Management — created Venerable as a stand-alone company to specialize in acquiring and managing blocks of variable annuity policies. Venerable’s initial acquisition was a $30 billion closed block of variable annuities that it bought from Voya Financial Inc. 

Rather than selling its own variable annuities, Venerable will seek growth by reinsuring or acquiring additional portfolios of variable annuity policies that insurers want to divest. The company is equally dividing its headquarters between Des Moines and West Chester, Pa., a western suburb of Philadelphia where Voya had based a portion of its variable annuity business.

The potential market for acquiring and managing blocks of variable annuities is substantial, said Patrick Lusk, president and CEO of Voya Insurance and Annuity Co., the operating arm of Venerable Holdings. (The operating company's legal name will change to Venerable Insurance and Annuity Co. when required regulatory filings are completed sometime next year). 

“We view it as a very large opportunity,” Lusk said. “There are hundreds of billions of dollars of assets under management out there. Some of that would be in the form of closed blocks, while other companies may still be writing variable annuities that may have closed blocks [no longer selling new policies] from the past that they find to be underperforming. Just given the size of these blocks, it wouldn’t take too many transactions necessarily to grow our block of business substantially.” 

According to a special report published in June by insurance rating company A.M. Best Co., most private equity transactions have involved the firms acquiring variable annuity or fixed annuity businesses from life and annuity companies. 

“These blocks generally line up well for private equity investors interested in managing the assets of what are essentially run-off blocks of business,” the report said. “These run-off blocks also can become platforms for private equity firms to buy additional blocks to add to the run-off model and manage additional assets.” A.M. Best said it expects to see continued interest from private equity funds in the life and annuity segment. 

Venerable’s launch also provided a business win for Athene Holding Ltd., whose annuity and insurance operations are based in West Des Moines. As part of the Voya transaction that closed on June 1, Athene will reinsure approximately $19 billion of Voya’s fixed and fixed indexed annuities from Venerable and Voya, all of which will be administered by Venerable. That arrangement allows Venerable to focus on its variable annuity niche, Lusk said. 

Both Voya and Athene, which are minority investors in Venerable, will also benefit by providing the asset management services for those annuities. Athene Asset Management will provide its services for the fixed annuities that Athene will reinsure, while Voya Investment Management will serve as the preferred asset management partner for Venerable’s variable annuities. 

Along with its initial acquisition of annuity policies from Voya, the company acquired Voya’s expertise in that area by picking up nearly all of its initial staff from Voya. Those employees didn’t even have to move from the building — Voya subleases two floors and a shared-space floor in Hub Tower to Venerable. 

The Des Moines operation is led by Ken Brown, executive vice president and chief operations officer, who most recently was senior vice president of sales development with Voya, where he worked for 14 years.

“My charge is to make sure that the policyholders and customers are well cared for,” Brown said. “One of the nice things is that we brought a lot of seasoned annuity professionals over to Venerable as part of this transaction. So we’ve got years and years of knowledge about how to appropriately service customers.”  

Variable annuities financially squeezed many an insurer in the late 1990s and early 2000s, after companies such as Voya — formerly ING — realized they hadn’t adequately reserved to earn profitable spreads after paying policyholders. It resulted in numerous insurers closing these products to new investors and searching for ways to manage their existing blocks of business profitably.

“Once those reserves are established and the proper hedging policies are in place, the variable annuity blocks can be managed correctly,” said Lusk, who was previously Voya’s chief actuary and head of its closed-block variable annuity business. “But because there are market-based guarantees in the products, the results can be more volatile. Again, with the right reserving and hedging, you can ride out those market conditions.” 

Venerable’s majority owners — who with Apollo Global include New York City-based private equity firms Crestview Partners and Reverence Capital Partners — will have the patience to manage the business for the long haul, Lusk said. 

“In private hands, we don’t have to report to public shareholders,” he said. “We do have to file the same statutory insurance reports every quarter as any other insurance company does, but we don’t have to have shareholder calls. We don’t have to watch the stock price in the business press every day.” 

Going forward, Venerable intends to grow by reinsuring blocks of variable annuities from other insurers, Lusk said. “The sale from Voya was an outright sale of an insurance entity. We ultimately would be open to sales of companies, or insurance transactions or other ways to take on risk from companies that don’t want to retain those risks.” 

Venerable’s staffing plan calls for expanding to about 300 employees between its two locations by the end of the year; it currently has 22 open positions posted on its website. 

“As a completely stand-alone company, we also have to build out various corporate functions; for example, procurement and purchasing, a tax department, facilities management and other functions,” Lusk said. Among key hires yet to be made in Des Moines are the heads of its facilities and purchasing areas. 

“In terms of our staffing model, we want it to be scalable,” Brown said. “We want to be in a position where we can capture additional opportunities in the marketplace. A lot of it depends on the operational needs and what execution requirements that company might require. One of the things we’re trying to establish is an effective, very fluid and adaptable organization. So one of the key elements we look for in our employees is an entrepreneurial spirit. We embrace people who are willing to modify their activities to meet the needs of the client.” 

Venerable has a vested interest in establishing its reputation with both the insurance industry as a great place to work as well as a trustworthy place for other insurers to transfer their variable annuity assets, Brown said. 

The company’s collaborative work environment in Hub Tower includes several “idea bars”  where employees can gather to discuss projects. Among its perks is 40 hours of paid volunteer time off to get involved in community organizations. 

“In the spirit of entrepreneurship, we try to look for ways to offer our employees not only a great place to work, but also a cultural difference that makes you feel great about coming in to work and doing great work for whatever customer you may be serving,” Brown said.

Deal a ‘win-win-win’ for Apollo, Athene and Voya

In a recent letter to investors, Leon Black, chairman and CEO of Apollo Global Management, described the deal in which Venerable bought Voya’s variable annuity business and sold the remaining fixed annuity business to Athene “a win-win-win solution for Apollo, Athene and Voya.” 

“This transaction added $18 billion of fixed annuities to Athene’s balance sheet and together with several strategic investors, we established a new permanent capital vehicle called Venerable that acquired the variable annuity piece of the transaction. Athene is our largest permanent capital vehicle. And following the Voya transaction, their balance sheet is approximately $100 billion, a phenomenal success story for a business that did not exist 10 years ago.

“Through the strength of our strategic relationship with Athene, where we serve as the investment manager for their assets, we’ve helped them to consistently deliver leading returns within the life insurance industry. The total amount of AUM [assets under management] in all the permanent capital vehicles we manage is nearly $125 billion or approximately 45 percent of Apollo’s total AUM.”

A somewhat complicated ownership structure

Who are Venerable’s owners? The short answer is that Apollo Global Management, Crestview Partners and Reverence Capital Partners each own 23 percent of the company, while Athene holds 21 percent and Voya has 10 percent. But who ultimately controls the business is more complicated, as described in this excerpt from Venerable’s approved acquisition application with the Iowa Insurance Division: 

“The complex structure of the proposed acquisition has resulted in multiple ultimate controlling persons in this application. The acquiring party, Venerable, is a wholly owned subsidiary of VA Capital. VA Capital is in turn controlled, through intermediaries, by Athene Holding, Apollo Global Management, Crestview Partners, and Reverence’s management vehicle, RCP GenPar HoldCo. Athene Holding and Apollo Global Management are each controlled by Leon Black, Joshua Harris, and Marc Rowan. Crestview Partners is controlled by Barry S. Volpert and Thomas S. Murphy, Jr. Finally, RCP GenPar HoldCo is controlled by Peter C. Aberg, Milton R. Berlinski, and Alexander A. Chulack. Facts in the record indicate that these ultimate controlling persons are experienced and competent based upon their experience in the insurance and financial industries.”