The Clash of Giants: Swiss Re Predicts Higher Indexed Annuity Sales

The battle between traditional annuity issuers and private equity firms is heating up, with Swiss Re Institute analysts predicting that this clash of the giants will drive indexed annuity sales higher. Private equity firms have been putting pressure on the U.S. individual annuity market, leading to an increase in the supply of registered index-linked annuities.

In response, traditional annuity issuers have been strengthening their positions by forming captive insurers and sidecars to compete against the private equity-backed newcomers. This competition is expected to fuel the expansion of the registered index-linked annuity (RILA) market, without much impact on traditional fixed annuity sales or a revival in the traditional variable annuity market.

The increase in interest rates that began in 2022 has boosted U.S. individual fixed annuity sales, but the Swiss Re Institute analysts believe that this trend is likely to plateau. Instead, they predict steady growth in products that combine fixed and variable aspects.

Private equity firms have been investing heavily in the life and annuity market since 2009, acquiring about $1 trillion in assets globally and owning approximately 25% of U.S. individual annuity liabilities. This has created friction between private equity players and traditional issuers, as they both navigate a world where U.S. retirement savers face a savings shortfall of about $45 trillion.

Despite the competition and search for new growth opportunities, the analysts do not expect companies to reintroduce products that performed poorly during the low-interest-rate era. Instead, they anticipate a continued focus on RILAs and a cautious approach to assuming more risk in variable annuity lines.

Overall, the clash of the giants in the annuity market is expected to reshape the industry landscape and provide clients with more options in the future.

Bank of England’s Concerns with Private Equity Financing: Key Points and Next Steps [co-author: William Adams]

The Bank of England’s Financial Policy Committee (FPC) and the Prudential Regulation Authority (PRA) have raised concerns about the evolution of private equity financing and the banking sector’s exposure to the private equity industry. In a series of speeches and a thematic review, the regulators highlighted the growth of the private equity industry and the increasing complexity of financing arrangements.

Over the past decade, the private equity industry has seen significant growth, with assets under management reaching $8 trillion. This growth has been fueled by low interest rates, leading to a shift in the financing of the industry. Private equity funds are now highly leveraged vehicles, with a rise in “upstream” and “midstream” lending, as well as the use of private credit funds for lending to portfolio companies.

The PRA’s thematic review found that banks were struggling to identify and measure their exposure to the private equity sector due to siloed risk management processes. Banks were also lacking independent credit and counterparty risk management procedures to assess risks comprehensively. The PRA emphasized the need for banks to improve their data aggregation, credit due diligence, stress testing frameworks, and board level reporting to manage their exposure effectively.

Chief Risk Officers at banks have been tasked with reviewing the findings of the review and assessing their risk framework against the key findings. They are required to report back to their board risk committees and share the analysis results with the PRA by August 30, 2024.

The regulators’ concerns highlight the need for banks to enhance their risk management processes and address the complexities of their exposure to the private equity industry. As the private equity sector continues to grow and evolve, it is crucial for banks to adapt and strengthen their risk frameworks to mitigate potential risks.

Surmodics Soars as Private Equity Firm GTCR Announces Acquisition

Surmodics, a medical device company based in Eden Prairie, saw its stock soar on Wednesday following the announcement of its impending sale to private equity firm GTCR. The Chicago-based firm will acquire Surmodics for $627 million, or $43 per share, pending shareholder and regulatory approval.

GTCR, which focuses on investments in the healthcare and technology sectors, recently announced an $11.5 billion fund to acquire companies in various industries. The firm currently manages $40 billion in equity capital.

Surmodics, known for its components for medical devices such as coatings and in vitro diagnostic tests, has projected revenue of $122 million to $124 million for the fiscal year. The company generates over 29% of its sales from coatings sold to other medical device companies, making it an attractive target for private equity investment.

Despite a recent decline in sales, Surmodics remains a key player in the medical device industry, with business partnerships with major companies like Medtronic and Abbott. The company’s CEO, Gary Maharaj, expressed confidence in the sale, stating that it will benefit physicians, patients, and customers.

In response to delays in FDA approval for its SurVeil drug-coated balloon, Surmodics cut 13% of its staff earlier this year. The device was eventually approved in June 2023, leading to the company’s decision to sell to GTCR.

Analysts believe that the private equity deal with GTCR makes sense for Surmodics, as the firm has a strong track record in the industry. With the acquisition, GTCR aims to expand Surmodics’ offerings and reach in the market.

As of September 30, Surmodics had 376 employees, with a significant portion based outside the U.S. The company’s acquisition of Ireland-based Vetex Medical in 2021 has contributed to its global presence.

Representatives from GTCR declined to comment further on the acquisition. The transaction is expected to close in the second half of the year, marking a new chapter for Surmodics as a privately held company.

Geoff Hoffmann’s Family Investment Firm Emerges as Top Bidder for Bankrupt Oberweis Dairy

Geoff Hoffmann, co-CEO of his family’s private equity firm, has emerged as the new milkman in Chicago after winning the bid for the bankrupt assets of the century-old Oberweis Dairy. The undisclosed offer from the Hoffmann Family of Companies through its investment arm, Osprey Capital, beat out Brian Boomsma, owner of Dutch Farms, who made a $20 million bid in April.

Hoffmann expressed excitement about the acquisition, stating, “We think that the brand is as good as it gets in the ice cream and dairy space. We’re ready to make investments in the company to make it as big and as strong as it’s ever been.” The deal, pending final court approval, will add Oberweis Dairy to the Hoffmann investment portfolio, which includes a diverse range of businesses from wineries to minor league hockey teams.

Founded in 1915 by Peter Oberweis, the dairy company has faced challenges in recent years, leading to its Chapter 11 bankruptcy filing in April. Despite its struggles, Oberweis is known for its old-school bottled milk and ice cream, with 40 stores across multiple states and a home delivery service.

Geoff Hoffmann comes from a milk pedigree, with his grandfather being a home milk delivery man in Missouri. This acquisition marks the Hoffmann family’s first venture into the dairy business, adding to their extensive portfolio of over 100 brands in 30 countries.

Plans for Oberweis under new ownership include building on the brand’s heritage, keeping the North Aurora plant operational, and focusing on growth. Hoffman intends to invest in the plant to enhance production capabilities and streamline operations, while keeping the current management team in place.

A sale hearing is scheduled for June 5 in a Chicago bankruptcy court, with the acquisition expected to close within 10 days of court approval. Hoffmann’s vision for Oberweis is centered around growth and maintaining the brand’s reputation for premium dairy products.