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Apollo / Athene’s ACRA sidecar funds 63% of $27bn Pru reinsurance transaction


Apollo Global Management has put its third-party capitalised sidecar vehicle for life and retirement investment opportunities, the Athene Co-Invest Reinsurance Affiliate (ACRA), to good use in completing a massive $27 billion fixed annuity block reinsurance transaction and investment in a subsidiary of Prudential plc.

apollo-athene-acraAnnounced today, Apollo owned Athene has reinsured a $27 billion in-force block of fixed deferred and fixed indexed annuities for the Jackson National Life Insurance Company, part of Prudential plc.

Apollo’s Athene has also made a $500 million equity investment in Jackson, taking on an 11% stake in the company to help it drive further growth.

The Athene Co-Invest Reinsurance Affiliate (ACRA) insurance-linked sidecar vehicle, which was established by Apollo and Athene as a way to bring in third-party capital for deployment into large life and retirement reinsurance deals and pension risk transfer arrangements, has fronted most of the necessary capital for this large transaction.

Commitments to the Athene Co-Invest Reinsurance Affiliate (ACRA) insurance-linked sidecar vehicle reached $3.2 billion earlier this year, as the feeder fund managed by Athene parent, investor and private equity specialist Apollo Global continued to attract new investor interest.

Life, annuities and pensions focused insurance and reinsurance company Athene, and its parent Apollo, have been steadily putting that capital to work alongside their own, helping them to leverage third-party investor appetite for insurance and reinsurance linked returns, bringing their capital in to participate in private deals alongside the firm.

For Apollo, the giant alternative investment manager, these transactions are as much about adding investment assets as assuming any insurance or reinsurance risk.

In 2020 so far, Apollo said that is has added, including this transaction, almost $80 billion in insurance-related assets under management, the company said.

Apollo Co-Founder Josh Harris commented on this deal, “This transaction serves as another great example of the strategic benefits of Apollo’s relationship with Athene and the full value Apollo’s insurance platform can bring to bear. Apollo, along with Athene and other insurance entities, have collectively invested approximately $1 billion to build out the infrastructure of expertise, technology, regulatory compliance and management necessary to efficiently and effectively perform as best-in-class operating companies. This infrastructure combined with available capital gives our insurance clients what we believe is a significant advantage in the marketplace. As our insurance asset management business continues to grow, we will continue to invest in these capabilities to serve our clients.”

Apollo Senior Managing Director Gary Parr added, “We believe Athene’s most recent deal exemplifies the competitive advantage of Apollo’s insurance clients and why they can be solutions providers to the industry. The transaction portfolio has a high percentage of short-term securities, of which the vast majority will be redeployed over the next 12-18 months into highly rated, longer term investments matching the liability profile, while maintaining a high capital position, strong ratings and prudent risk management. Apollo’s investment origination capabilities, which we think are not easily replicated due to the cost, human capital, expertise and scale that’s required for success, gives our clients confidence in underwriting investments.”

Adding a new source of earnings for Athene and ultimately Apollo, is the third-party capital management fees related to the ACRA sidecar vehicle.

The pair earn income based on assets managed and profitability of the portfolio held by ACRA, we assume, so as it scales and supports more of Athene’s deal flow, those earnings should increase.

Athene said that with this transaction specifically, thanks to the use of ACRA as a supportive source of capital, some 63% of the total capital deployment will be funded by third-party investors via ACRA, while 37% will be funded by Athene on a standalone basis.

“We are very pleased to announce this mutually beneficial transaction with Jackson, which further validates our business model and demonstrates the continued execution of our inorganic growth strategy,” explained Jim Belardi, CEO of Athene. “This compelling transaction enables us to grow our gross invested assets by approximately 20% with predictable liabilities we know well. The deal was underwritten to a return that is consistent with our target for inorganic growth, with upside achievable through portfolio redeployment above forecasted levels. Importantly, the deal exemplifies Athene’s ability to act as a preferred solutions provider because of our robust capital position, deep expertise in the retirement services industry, and our ability to close transactions that build long-term shareholder value.”

ACRA operates as a kind of reinsurance sidecar for Athene, fed by an investment fund under the management of Apollo.

The structure allows investors to participate alongside the re/insurer, providing sidecar-like capacity to support large reinsurance transactions that Athene enters into, with the third-party investors sharing more directly in the returns of this business.

Athene was already a major player in this market, but the use of sidecar capital through ACRA helps it to enter into even larger deals and more transactions, augmenting its position in the space and ultimately driving even more assets to parent Apollo’s strategies as well.

“We are delighted to be forging a new relationship with the team at Athene, given their deep expertise in the US annuity sector and long-term commitment to its development,” added Mike Wells, Group Chief Executive of Prudential plc. “Athene is a high-quality, well capitalised reinsurer and, in coordination with its strategic partner, Apollo Global Management, has structured an attractive transaction which we believe will benefit all parties. This new agreement is a key step forward in meeting our strategic objectives for Jackson.”

“Today’s transactions with Athene, a leading franchise in the retirement services market, further strengthen our capital position and enhance our ability to grow,” further explained Michael Falcon, Chief Executive Officer of Jackson Holdings LLC. “We value Athene’s investment in Jackson, which is aligned to our common goal of serving the growing population of American savers transitioning into and through retirement.”

As we previously reported, Athene co-founder and Chairman Chip Gillis said previously that ACRA is a reflection of Bermuda’s sidecar innovation.

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