In thinking about the increased crowding in the annuity / insurance space by alternative investment players, I think a lot about how Apollo’s lead in the space may be short lived.
Within the US – almost every big name has entered the fixed annuity space. Blackstone, KKR, Ares, Carlyle, Brookfield, Sixth Street and more – all have permutations up and running. The inorganic market for large fixed annuity blocks from legacy insurers is bid from these players looking to pay a high price to get scale in the business.
Thankfully, Apollo and its Athene insurance unit have developed an organic origination pathway direct to retail which at present, none of the competitors have any meaningful presence in. Last year Apollo originated ~$30-40B of annuities “organically.”
But what gets me really excited about Apollo’s position is the culture in which the approach the business and the canvas on which they are playing going forward.
On how they approach the annuities business:
As it relates to private equity in insurance, what’s interesting is this is a journey we’ve been on for 12-plus years. We have paid an immense amount of tuition. And others who are interested in following what we do will quickly find out that this is not a trade. This is a lifestyle. And you have to build the infrastructure capable of navigating the fact that you operate in a regulated business.
APO Q4-2021 Earnings Transcript
There is no other player with the “all in” focus on annuities. Strong focus, but it is just one of their many product lines that they are using to drive growth.
Second, Apollo’s international presence is something none of the other players have encroached on. Apollo’s European Athora unit, its growing partnership with Australia’s Challenger unit, its partnership with FWD in Hong Kong, existing reinsurance agreements in Japan, and growing UK presence are unmatched.
Regarding the ability for others to enter in these geographies similar to how the US market played out:
And I’ll make one final point. Whatever tuition needed to be paid [by us] in the U.S. over more than a decade, [Europe] is advanced chemistry. It is a much more complicated market. Solvency II is a much more complicated regime to operate in. Being able to speak both languages, RBC and Solvency II, is a huge advantage.
APO Q4-2021 Earnings Transcript
And this complexity via Solvency 2 is spreading worldwide:
You’re seeing it. Japan is moving towards Solvency II. Hong Kong and the rest of Asia, moving towards Solvency II. And you’ve seen us across the platform, not just in Athora, but also in Athene, be able to take the skill set of understanding how a Solvency II balance sheet works and do the first couple of reinsurance transactions in Japan for Athene. So I expect this to continue to be a very active area.
APO Q4-2021 Earnings Transcript
While complexity is no guarantee that competitors will stay away, it’s a good start.
Disclosure: I own shares in APO, this is not an investment recommendation.