A pair of insurance companies made a bid for

American Equity Investment Life Holding Co.

AEL 0.46%

last month, in a bet that the small Iowa insurer’s retirement-income products will continue to be popular with conservative savers.

Massachusetts Mutual Life Insurance Co. and the publicly traded

Athene Holding Ltd.

ATH 0.24%

offered American Equity $36 a share in cash on Sept. 8, according to a letter sent to American Equity’s chief executive that was viewed by The Wall Street Journal. At that price, the bid would amount to a value of more than $3 billion.

American Equity has a current market value of about $2 billion, and its shares closed Wednesday at $21.99.

The transaction would be the latest consolidation in the insurance industry, in which Athene has been front and center. Athene was founded in 2009 and specializes in annuities. The company, which is about 35% owned by

Apollo Global Management Inc.,

APO -1.32%

has about $162 billion in assets.

All sorts of insurance products—including annuities and basic life insurance—have been hit hard by more than a decade of low interest rates. With “indexed annuities” like those sold by American Equity, insurers take lump sums from consumers and invest the money, aiming to earn more than they are obligated to pay out.

Athene and some other insurers with ties to asset managers like Apollo have been more comfortable than traditional players in venturing beyond high-quality corporate bonds to turn a profit amid the low-rate environment.

Insurers selling indexed annuities have also been affected by the coronavirus pandemic. Such annuities are typically sold in an old-fashioned way: Life-insurance agents sit down with potential buyers in face-to-face conversations.

As government stay-at-home orders and fear of Covid-19 have made those conversations next to impossible in many parts of the U.S., sales of indexed annuities plummeted in the second quarter. They slid 26% to $28.2 billion from $38 billion a year earlier, according to life-insurance-industry research firm Limra.

Under the proposed deal, MassMutual would acquire American Equity’s insurance subsidiaries and all of its employees, brands and distribution arrangements. MassMutual would reinsure 80% of American Equity’s existing business to Athene and retain the remaining 20%, according to the letter.

MassMutual, which is owned by its policyholders and isn’t publicly traded, is one of the nation’s oldest and financially strongest life insurers. Acquiring American Equity would expand its annuity offerings and distribution capabilities, as the small company has extensive arrangements with independent marketing organizations and independent advisers.

MassMutual sells primarily through a large fleet of career agents.

One of the appeals to MassMutual of an acquisition is that it has the ability to financially strengthen American Equity and make technological improvements. That could make its annuities more appealing for sales through banks and broker-dealers.

If the American Equity deal goes through, it would be the latest in a string of transactions since the global financial crisis of 2008-2009. The crisis ushered in ultralow rates that make it harder for many insurers with traditional investment strategies to turn profits on certain types of annuities, like the indexed ones.

Acquirers mostly have been insurance companies like Athene backed by private-equity firms or other financiers who are comfortable investing in potentially higher-yielding but possibly riskier mortgage-backed debt and other securities. Athene has maintained that its portfolio is well balanced and safe for consumers.

In July,


& Co. agreed to buy the retirement and life-insurance company Global Atlantic Financial Group Ltd. for more than $4.4 billion.

American Equity considered transactions back in 2018 and 2019. At the time, it confirmed news reports that it was up for sale, later saying those discussions ended without a transaction. People familiar with the matter said Athene was one of the interested parties at that time.

Write to Leslie Scism at [email protected]

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