ACRA sidecar fees rise for Athene, but it’s all about the premium float

In the last quarter, Athene Holding Ltd., the life and retirement reinsurance company majority owned by investor and private equity specialist Apollo Global, earned an increased level of management fees from its Athene Co-Invest Reinsurance Affiliate (ACRA) sidecar vehicle.

Before getting too ahead of ourselves with excitement of how this recently raised roughly $3.2 billion of third-party investor capital commitments to its reinsurance business is driving fee income for Athene, it’s important to put it in context.

Yes, Athene add 50% to the amount of management fees it earned from ACRA in the second-quarter of 2020, but that only took the total to $3 million for Q2, up from the $2 million it earned in Q1 and to $5 million for the first-half of the year.

That’s a drop in the ocean when compared to the rest of Athene’s business, but the firms CEO did say previously not to expect ACRA management fees to expand too quickly until 2021, when we should get a better look at how the management of third-party capital is additive to the life and retirement focused reinsurance company.

But more evident in Athene’s results, that were announced today, is the other side of the business, how the third-party capital sourced to augment its ability to do larger deals and now managed using the ACRA sidecar-like structures, is already bringing in significant premium float to the benefit of Athene and its parent Apollo Global.

As we explained recently, Athene put some of the third-party capital contributed by the ACRA sidecar to work in a massive $27 billion fixed annuity block reinsurance transaction and investment in Jackson National Life Insurance Company, part of Prudential plc.

As we wrote at the time, for Apollo, the giant alternative investment manager, these transactions are as much about adding investment assets as assuming insurance or reinsurance risk.

The added firepower of ACRA makes entering into these deals less cash intensive upfront for Athene and Apollo, but the end-result is still the significant premium float that can be put to work by the investor.

Hence, while the third-party capital fee income earned from ACRA is still relatively low at this time, the accumulation of premium float remains the major benefit.

Demonstrating this, Athene today reported that invested assets related to ACRA noncontrolling interests spiked to almost $24.7 billion in the quarter, as new deposits of almost $18.3 billion during Q2, largely related to the Jackson Life deal, added to the premium float accumulated by the sidecar’s activities.

It appears that ACRA’s third-party investors may have benefited from higher investment income during the second-quarter, as Atehe reported $81 million of net investment income attributable to noncontrolling interests, up on the $72 million reported for Q1.

Finally, Athene said that it still has $1.8 billion of undrawn third-party commitments related to ACRA to put to work in any attractive life, retirement or annuities reinsurance transactions, so that means it’s only actually utilised just under half the commitments it received for the sidecar and has already made a huge addition to the premium float pot.

As we explained last week, Apollo Global’s assets related to insurance, reinsurance and also now ACRA rose significantly in the last quarter, perhaps making the firm the lead example of insurance related investment float accumulation.