Annuity Commission Money Can Pay for Income Guarantees: Marc Rowan

Offering fee-only annuities through retirement plan fiduciaries could free the cash needed to pay for lifetime income guarantees, a key annuity industry player said today.

Marc Rowan, the chief executive officer of Athene's parent, Apollo Global Management, told securities analysts that a company like Apollo wants to take care of retirement savers' investment risk, not their "longevity risk," or the risk that they will live longer than expected.

"There is the opportunity to work with market participants who are on the other side of the longevity bet to hedge out that risk," Rowan said. "Right now, the cost of hedging that out would not allow for the distribution of a product that neutralized longevity risk in a commercial sale."

But, if an issuer could sell lifetime income guarantees through a channel governed by a fiduciary rule, with no sales commissions involved, "one could, in fact, offer guaranteed lifetime income and have the costs of a longevity hedge borne by commission," he said. "I think you will see a number of firms in our industry that this year. I think that if we, as an industry, are successful in doing that, we will open up a different market, and a market that is potentially very large and very attractive."

What it means: Some of the big, relatively new life and annuity industry players may be about to make noise in what has been a relatively quiet income annuity market.

Apollo and Athene: Apollo, which started up in 1990, is one of the biggest asset managers in the world, with about $651 billion in assets under management.

Apollo formed Athene in 2009, to take advantage of the investment opportunities created by the 2007-2009 Great Recession.

Athene originally operated separately from Apollo. Apollo merged with Athene in January 2022.

The earnings: Apollo held the conference call to go over earnings for the fourth quarter of 2023 with securities analysts.

Apollo reported $3.7 billion in net income for the fourth quarter on $11 billion in revenue, up from $1 billion in net income on $4.8 billion in revenue for the fourth quarter of 2022.

Investment spread-related at the Apollo retirement services business, which includes Athene and related companies, increased to $748 million, from $698 million.

Athene, which ended the third quarter with $270 billion in assets, had $66 billion in asset inflows from retail annuity sales and other activities, such as reinsurance arrangements, in 2023, according to Rowan.

Growth drivers: Rowan predicted that Apollo will double 2023 earnings by 2026.

He said one reason for optimism about Apollo and Athene is that sophisticated advisors are realizing that too much of the value of the public stock market depends on the value of a handful of tech stocks.

"While that's going up, that feels great," Rowan said. "That can just as easily go in the other direction."

Cashing in on public stocks quickly may still be easier than cashing in quickly on private investment deals, but Rowan said requiring full liquidity in the $12 trillion 401(k) plan market makes no sense.

"These are the people in our country who need returns the most, and we force them to be daily liquid for 50 years," Rowan said. "Why? I don't know why. I don't think there's a good reason why."

Another reason for optimism is bank regulators' moves to put tighter restrictions on bank lending, Rowan said.

"That doesn't mean that the banking system doesn't play a vital role or that it will shrink," he said. "It simply means that much of the credit growth is going to occur in the investment marketplace."

Annuities: Rowan said one modest growth driver in the annuity market could be efforts to create new types of investment indexes for use in indexed annuities.

But "the holy grail of this business, in my opinion, is both simplification of and a much simpler promise of guaranteed lifetime income," he said.

If U.S. companies are successful at offering that, they can use the same strategies to grow in other countries, Rowan said.

He observed that the new European Union capital rules have cut the availability of guaranteed income products by 40% and that companies in countries like Australia have spent far more time thinking about retirement asset accumulation than how to provide guaranteed retirement income.

"Cracking the code on guaranteed lifetime income is in its very early days," Rowan said.

Marc Rowan. Photo: Jonathan Alcorn/Bloomberg