Fidelity & Guaranty Life Insurance Co., run by Philip Falcone’s Harbinger Group Inc. (HRG:US), opted to be supervised by Iowa regulators after an investment plan was rejected by the company’s previous overseers in Maryland.
Fidelity switched its legal domicile to Iowa and plans to employ at least 50 people in Des Moines within three years, the company said in a statement today. The insurer will maintain locations in Baltimore and Lincoln, Nebraska, and start its move to Iowa by leasing office space, according to the statement.
Maryland regulators last year rejected as too risky a plan by Fidelity to invest $1 billion in junk-rated assets in a trust overseen by Falcone. That ruling didn’t play a role in the decision to switch domiciles, Paul Tyler, a Fidelity spokesman, said in an interview today.
“The Iowa insurance department is really familiar with the products we sell and the markets we’re in,” Tyler said. “The state invests a lot of resources in the insurance industry.”
Wall Street money managers from Apollo Global Management LLC (APO:US) to Guggenheim Partners LLC have shaken up the life insurance industry by buying businesses that sell retirement products such as annuities. Benjamin Lawsky, the New York insurance regulator, said in a speech this year that he’s concerned the phenomenon may put customers at risk.
Falcone is chairman and chief executive officer of New York-based Harbinger Group, which also sells Rayovac batteries and invests in natural gas fields. A hedge-fund manager who became a billionaire by betting against the U.S. housing market in 2006, Falcone agreed in August to a five-year ban from the securities industry to settle Securities & Exchange Commission claims, including one that he improperly borrowed money from his fund to pay personal taxes.
S. Lynn Beckner, the chief financial analyst at the Maryland Insurance Administration, had no objection to the switch in domiciles.
“However, we would like to bring the following information to your attention,” Beckner wrote in a Sept. 6 letter to Iowa counterparts, noting the SEC settlement and the rejection of the investment plan. Beckner said Maryland officials were evaluating whether to take their own regulatory action against Fidelity in light of the SEC settlement.
Falcone is in the process of liquidating the assets managed by his hedge-fund firm, Harbinger Capital Partners LLC, which along with affiliates controls (HRG:US) most of Harbinger Group’s stock.
Insurance units of both Apollo and Goldman Sachs (GS:US) Group Inc. have opted to switch regulators.
Apollo’s annuities vehicle, Athene Holding Ltd., bought Liberty Life Insurance Co. in South Carolina in 2011. As a condition of the purchase, Liberty agreed to a series of restrictions on its investing activities. Later that year, the new owners switched Liberty’s legal domicile to Delaware.
The Delaware regulators later dropped some of the restrictions. New York-based Apollo, run by billionaire Leon Black, is one of the world’s largest private-equity firms.
Goldman Sachs, the New York investment bank, set up an insurance subsidiary in South Carolina in 2004. In 2008, after it failed to win regulators’ permission for an investment they deemed too risky, Goldman Sachs switched the insurer’s domicile to Washington, D.C. The new regulator allowed the investments to take place.
Few Fidelity employees will relocate to Iowa, Tyler said. Most hiring there will be to fill new positions or vacancies created by attrition in other locations, Tyler said. Fidelity currently has about 180 employees, mostly in Baltimore, he said.
Fidelity Chief Executive Officer Leland Launer and Chairman Phil Gass don’t plan to move to Iowa, Tyler said. Neither of those individuals is currently based in the Baltimore headquarters, he said.
Iowa regulators have broad experience with Fidelity products such as fixed index annuities and fixed index universal life, Tyler said. Competitors Athene, MetLife Inc., Principal Financial Group Inc. (PFG:US), and ING Groep NV operate Iowa-regulated units, he said.
Fidelity & Guaranty Life, a holding company that contains the business that moved to Iowa, filed in August for an initial public offering. The insurer is seeking a valuation of at least $1 billion, two people involved with the planning said that month.
As a result of the SEC settlement, Lawsky, the New York regulator, said last month that Falcone and employees of his hedge fund were barred from being officers or directors of Fidelity, or of exercising direct or indirect control over the insurance company’s operations or investments. Iowa adopted similar language in its approval of the new domicile, said Tom Alger, a spokesman for the state’s regulator.
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