Monthly LRA Update

JUDICIAL DEVELOPMENT

Athene vs. American General – COLI SVP Litigation Update

On December 18, the Delaware Superior Court held oral arguments on American General’s (Defendant) Motion to Dismiss. Athene Annuity and Life Company (Plaintiff) presented a demonstrative exhibit to the Court providing a high-level overview of its primary arguments (see attached exhibit).

Noteworthy points include

• The SVP product had a $23 million value at the time of the original book value surrender request (PDF page 3). This is likely a counter argument to the Defendants’ contention that an SVP product does not have economic value.
• The 2001 Amendments provided “key benefits” to each side (PDF page 7):
  • American General received $30 million in additional premiums;
  • Zurich (as SVP provider) was relieved from an immediate surrender obligation of $23 million;
  • Investment fees were increased from 25 bps to ~70 bps; and
  • Athene obtained a guaranteed minimum crediting rate of 8% (with a 10% ceiling).
• Excerpt of 26 C.F.R. § 1.817-5(d) (PDF page 24)
  • Paragraph (d) of the minimum diversification rules under § 1.817-5 provides a clarification that market fluctuations, by themselves, do not cause a violation of the minimum diversification rules.
  • This excerpt was likely included to challenge American General’s contention that the SVP product’s value must be limited to no more than 55% to comply with the diversification rules. It is worth noting that Athene sought a Private Letter Ruling on this point and the IRS declined to provide a ruling.

Docket: Delaware Superior Court Case No. N19C-10-055 PRW CCLD