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American Equity to Partner Varde Partners, Agam Capital

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American Equity Investment Life Holding Company (AEL - Free Report) , Varde Partners and Agam Capital Management, LLC have agreed to form a strategic partnership. The partnership will combine each of their distinctive capabilities to provide value for investors, retirement planners and retirees. The partnership, pending regulatory approvals and closing conditions, is likely to be finalized in the first half of 2021.

American Equity is a leading issuer of fixed index annuities and brings in distribution, policyholder service and administration, product development and insurance specific asset management expertise. Varde Partners, a leading global alternative investment firm, brings alternative asset management capabilities. Agam Capital, an insurance solutions provider, brings differentiated risk management solutions to the table for this strategic partnership.

Per the partnership agreement, Varde will form a Bermuda reinsurance company, which will reinsure $5 billion of fixed index annuity liabilities. This, in turn, will help American Equity to free up about $350 million of capital.

Concurrently, American Equity and Varde will jointly form an asset management entity to provide insurance asset management services to the Bermuda reinsurance company. American Equity will have 35% stake in asset manager entity and significant minority interest in the new reinsurer.

Per Anant Bhalla, CEO of American Equity, “the partnership will help in evolution of the intersection of the insurance and asset management sectors”.  Agam's co-founders, Chak Raghunathan and Avi Katz stated, "This transformative strategic partnership will set the standard for multi-dimensional solutions towards value creation in the retirement income market.”

American Equity is targeting expansion into the global life and annuity reinsurance and third-party insurance asset management businesses and thus formed this strategic partnership. It also marks a step forward toward executing its AEL 2.0 strategy through this partnership.

American Equity’s target market includes individuals in the age group of 45-75, seeking to accumulate tax-deferred savings or create guaranteed lifetime income. Per the U.S. Census Bureau, Americans aged 65 and older will represent 20% of the total population by 2030 from 13% in 2010.  Through this partnership American Equity will have access to distinguished asset origination that creates investment flexibility across market cycles. Thus, the company will be able to offer more attractive and wider variety of products to America’s retirees and pre-retirees.

Varde Partners stands to benefit from the combination of its core strengths and Agam’s differentiated pALM technology and insurance expertise that could help it execute on a number of follow-on transactions in the life and annuity space.

Shares of American Equity have lost 29.2% compared with its industry’s decrease of 22.8% year to date. The stock currently carries a Zacks Rank #4 (Sell).

Stock to Consider

Some better-ranked companies from the same space are Athene Holding Ltd , Manulife Financial Corp (MFC - Free Report) and Sun Life Financial Inc (SLF - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Athene delivered an earnings surprise of 31.05% in the last-reported quarter.

Manulife came up with an earnings surprise of 30.23% in the last-reported quarter.

Sun Life Financial delivered an earnings surprise of 10.98% in the last-reported quarter.

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