How Sixth Street Laid the Groundwork for Its Massive Allianz Deal

The investment manager has been working to add insurance assets to its portfolio for five years.

Nathan Laine/Bloomberg

Nathan Laine/Bloomberg

Wagering that the wave of insurance divestments will continue, $55 billion investment manager Sixth Street is positioning itself to take advantage.

On Friday, Allianz Life announced that it had entered into a massive reinsurance agreement with Sixth Street’s portfolio company Talcott and partner Resolution Life, Sixth Street’s second big insurance deal of the year.

Pending the deal’s close, the two will reinsure roughly $35 billion in Allianz Life’s fixed indexed annuity liabilities. Allianz Life will continue to manage the insurance policies, and Allianz and PIMCO will remain the primary asset managers, according to the announcement. Talcott and Resolution Life will access the policyholders’ fee streams as a form of ongoing revenue.

Sixth Street is poised to complete similar deals moving forward.

Sixth Street began to explore the insurance business about five years ago, making sure to give itself enough time to fully understand the complexities of the industry. “We got to know the business, working within the regulatory framework, and understanding how to look out for policyholders,” said Michael Muscolino, co-founder and partner at Sixth Street, in a phone call with Institutional Investor.

Sixth Street started small, completing a series of life insurance deals in the Netherlands, including one with Allianz. In 2020, one of Sixth Street’s portfolio companies, Lifetri Groep, took over the pension obligations of roughly 4,000 participants in Allianz’s Dutch pension scheme, Stichting Pensioenfonds Allianz Nederland Groep.

Through that deal, the two became familiar, and as Allianz began to consider a larger deal for its life insurance business, the two firms stayed in touch. Allianz ran an official process, so while Sixth Street was certainly in play, the private equity firm wasn’t the only buyer that Allianz considered.

“The familiarity with the two organizations was helpful going into the process,” Muscolino said.

In the meantime, Sixth Street was building up its own insurance capabilities, growing a team of insurance experts that today totals 20 people, some of whom were recruited out of organizations like Swiss Re and Equitable.

Sixth Street also acquired Talcott Resolution Life Insurance, a company that would serve as a platform for its future insurance deals. As part of the deal, which was announced in January, Sixth Street used its Tao investment platform to purchase the company from a consortium of investors, which included Cornell Capital, Atlas Merchant Capital, TRB Advisors, Global Atlantic Financial Group, Pine Brook, J. Safra Group, and the Hartford.

“One thing that was important to us [when] acquiring Talcott was [getting] a platform with a big group of talented people with systems and abilities to act,” Muscolino said.

Both deals have come at a time when insurers are eager to sell. Persistently low interest rates are “likely to affect growth and profitability” in annuities and other non-term life insurance products, which could prompt insurance companies to divest, according to an M&A outlook report published by Deloitte earlier this year. For private equity firms, meanwhile, insurance policies are seen as high-quality, less risky assets.

Five days after Sixth Street announced it would acquire Talcott, Blackstone announced that it planned to acquire Allstate Life Insurance Company. Less than two weeks later, KKR revealed that its acquisition of fixed-rate and fixed-annuity provider Global Atlantic Financial Group had closed. A month later, Apollo announced its official merger with annuity provider Athene.

The structures of the deals lay bare two disparate approaches that private equity firms are taking when they acquire insurance businesses or do reinsurance deals. KKR and Apollo have opted to move the insurance assets onto their respective balance sheets, while Blackstone and Sixth Street acquired these companies through funds.

In Sixth Street’s case, that fund was the TAO vehicle, which holds assets for longer than a traditional private equity fund might and allows investors to recycle capital in the vehicle if they like.

Pending the deal closure, Allianz’s fixed indexed annuity liabilities will be held by Talcott, while Allianz will continue to manage the policies on behalf of clients.

“We’re focused on getting this deal closed by year-end, and we hope and expect that there will be more opportunities for fruitful deals,” said Muscolino.