AM Best has commented that the Financial Strength Ratings (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of "a+" of Equitable Financial Life Insurance Company (Equitable Financial) (New York, NY) and Equitable Financial Life Insurance Company of America (Phoenix, AZ) remain unchanged, following the announcement that Equitable Financial and AllianceBernstein (AB) have entered into an agreement with Venerable Holdings, Inc. (Venerable) to reinsure $12 billion of legacy variable annuity (VA) policies sold between 2006-2008 and to select AB as the preferred investment manager for the assets. Venerable’s obligations under the reinsurance transaction will be secured by a comfort trust with an initial balance of approximately $12 billion of general account assets. As part of the transaction, Equitable Holdings, Inc. also will sell its run-off VA reinsurance entity, Corporate Solutions Life Reinsurance Company. Concurrently, AM Best has commented that the Long-Term ICR of "bbb+" of Equitable Holdings, Inc. [NYSE: EQH] (headquartered in New York, NY) and all of its Long-Term Issue Credit Ratings (Long-Term IR) also remain unchanged. The outlook of these Credit Ratings (ratings) is stable.
Venerable is a privately held company with over $16 billion in assets under management that brings industry experience in managing solutions in consolidation of VA blocks and the creation of long-term economic value, backed by a consortium of investors, including Apollo Global Management, LLC, Crestview Partners and Reverence Capital Partners. Equitable Holdings, Inc. is in discussions to acquire a 9.9% equity stake and a board seat as part of the reinsurance transaction, providing additional governance oversight. AB will continue to manage approximately 80% of the transferred general account assets it currently manages. Equitable Financial plans to continue administering all of the reinsured policies.
The transferred block will represent approximately 33% of the Equitable Holdings, Inc.’s fixed-rate GMxB business or 13% of the total VA policies inforce as of June 30, 2020. The transaction will create an estimated $1.2 billion of value on a statutory accounting basis, through an $800 million capital release, approximately $300 million of consideration paid by Venerable, and a $100 million tax benefit. While AM Best anticipates that Equitable Holdings, Inc. will utilize a portion of this value for share repurchases over the near term, the company is expected to maintain risk-adjusted capital ratios and debt-to-capital ratios in line with its long-term targets. The closing date of the transaction is expected sometime in the second quarter of 2021, subject to closing conditions and regulatory approvals.
AM Best intends to monitor the overall performance of the reinsurance program, as well as the company’s capital adequacy and operating performance going forward.
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