Apollo’s Rowan Blasts Regulators for Handling of Walter Insurers

Apollo Global Management Inc. Chief Executive Officer Marc Rowan blasted insurance regulators in Delaware for their handling of Mark Walter’s insurance companies, which are now the subject of a federal probe.

Rowan singled out the Delaware Department of Insurance for having allowed two of Walter’s insurers to label more than $20 billion in investments as unaffiliated when they weren’t.

“If one was not aware of affiliate transactions relating to three high-profile sports teams that we can all name, what are you doing as a regulator?” Rowan said at the Bank of America Securities Financials CEO conference on Wednesday. “This has been a wake-up moment for the U.S. regulatory system.”

Walter’s insurers haven’t detailed all the loans that went to affiliated entities. He has owned stakes in the Los Angeles Dodgers, Los Angeles Lakers and Chelsea Football Club, though he’s announced plans to sell the latter two.

As head of Apollo, Rowan has overseen the acquisition and explosive growth of Athene, the firm’s insurance arm and a key component of the parent company’s overall strategy. It’s become a model for asset managers looking to use insurers’ long-term capital to house investments — and a potential thicket for affiliated transactions and conflicts of interest.

“We should be financial giants striding the globe. Instead we are dealing with the potential loss of trust,” Rowan said of the industry. “Loss of trust comes from regulatory arbitrage. It also comes from allowing situations like have happened with Delaware Life.”

Rowan’s comment adds to the growing pressure on the Delaware regulators, who are also scrutinizing Aquarian Holdings’ $4.1 billion acquisition of Brighthouse Financial Inc.

That deal missed its original deadline as regulators pored over Aquarian’s sources of funding and its plans to manage Brighthouse’s balance sheet.

But Rowan’s criticism extended beyond Delaware to the broader insurance regulatory system, which relies on a fragmented approach that varies state by state.

He warned against the temptation for state regulators to court the industry, perhaps by loosening rules designed to ensure the stability and solvency of domestic insurers. That creates the potential for arbitrage, he said, and threatens to weaken the entire industry.

In particular, Rowan took aim at the race to the bottom between states about reinsurance.

“You have a few U.S. states that, in order to make their local companies more competitive, have kind of done ‘onshore Caymans,'” he said, referring to the islands that have become a haven for reinsurers.

Rowan has been a longtime critic of offshore reinsurance domiciled in the Caymans, where, he says, regulators allow local reinsurance firms to take more risk with less capital, threatening the U.S. companies making deals there.

Top photo: Marc Rowan Photographer: Michael Nagle/Bloomberg.