Abu Dhabi Investment Authority exploring reinsurance market entry

The Abu Dhabi Investment Authority (ADIA), a sovereign wealth investment fund owned by the Emirate of Abu Dhabi and tasked with investing funds on behalf of the Government of the Emirate, is looking to expand its activities in reinsurance with its own carrier and also insurance-linked securities (ILS), we’re told.

Sources have told us that the Abu Dhabi Investment Authority (ADIA) has been running a beauty parade of reinsurance brokers and advisories in recent months, as the investor looks to identify the most appropriate points of entry and structures to access a more meaningful source of direct reinsurance linked returns, as it builds out its initiatives across the space.

We’re told the new interest and broker selection is coming from the private equity arm of the Abu Dhabi Investment Authority (ADIA), as it looks to enter reinsurance, likely with a rated carrier approach, at some stage in 2021 or 2022.

Our sources said this had originally been loosely targeted at the mid-year 2021 renewals, but has since been pushed back with the January 2022 renewals seen as the more likely point of entry for a newly launched ADIA-backed reinsurance start-up.

Part of the advice being sought from brokers is on domicile location for a new reinsurance start-up, as well as guidance on lines-of-business to target and also ideas on an executive team to run the reinsurance venture for ADIA, we understand.

We’re told that the decision on selecting a broker to assist has been delayed somewhat, so missing the mid-year target.

But that this process is ongoing at ADIA and either capitalising its own reinsurance start-up, or providing the capital to back an established team’s venture, could both be potential outcomes of this exploration.

ADIA has also recently gained an appreciation for reinsurance linked returns through its allocations to ILS funds.

ADIA first allocated to insurance-linked securities (ILS) back in 2019, putting around $550 million into deployments across a range of ILS fund managers, across catastrophe bonds, collateralized reinsurance and also possibly retrocession.

ADIA has an Emerging Opportunities mandate, for niche alternative asset classes, through which it looks to generate returns from new asset types it is trialling.

This is where the allocations to insurance-linked securities (ILS) funds sat and it is this allocation which we’re also told ADIA is looking to grow in size, with a long-term goal of it becoming a larger component of its alternatives portfolio.

We’re told that ADIA is keen to access risk-linked returns from across the ILS spectrum and sees its ILS fund allocations as a foundational start, but that it has broader ambitions to allocate a more meaningful proportion of its assets to the space.

We understand that ADIA has been looking at ways to increase its investments in ILS for a while now, even having looked at hiring internal experts for underwriting and portfolio management, which had been ongoing before the pandemic.

The pandemic has slowed progress we hear, which is understandable for any major investor looking at ILS growth last year.

But we’re told that ADIA’s desire to identify the optimal structures for deploying more funds into ILS continue and that eventually this could collide with the work on the more traditional side of the reinsurance market.

Should ADIA develop and launch its own reinsurance company or entity, it would make sense if that it also underwrote on behalf of its direct investments into collateralized business, so creating ILS portfolios for the investor.

Sources said that this remains a distinct possibility and that ADIA’s plans to capitalise a reinsurer are likely to result in the investor registering or acquiring its own licensed reinsurance entity (or becoming a majority backer of a startup), with anything from a collateralised reinsurer, to a rated and balance-sheet ready reinsurance company possible.

Positively for the market, this means that one of the world’s largest sovereign wealth investors remains attracted to reinsurance and insurance-linked securities (ILS), which should mean we see ADIA playing an increasing role in the market over time.

The Abu Dhabi Investment Authority already has major holdings in some existing traditional reinsurance players, including Fidelis who it invested in last year, pension risk transfer specialist Pension Insurance Corp.

Given the size of its investment firepower and its experience already gained in insurance and reinsurance, it’s perhaps no surprise the sovereign wealth investor would be working towards launching its own reinsurance vehicle.