Apollo Global Management, the giant investor, private equity specialist and owner of life and retirement reinsurance company Athene, has entered into a novel insurance-linked investment agreement with Reinsurance Group of America, funding a reinsurer subsidiary called Chesterfield Re to the tune of $500 million.
The name Chesterfield Reinsurance Company might be familiar to some in the insurance-linked securities (ILS) space, as Reinsurance Group of America (RGA Re) had completed embedded value life securitizations using this subsidiary dating back as far as 2014.
This new arrangement sees Apollo, some of its affiliated insurance companies, third-party insurance managed accounts, and other institutional investor clients of the manager, investing $500 million into surplus notes that have been issued by Chesterfield Reinsurance Company.
Chesterfield Re issued $500 million in aggregate of 7.125% surplus notes due 2043, which were sold to the purchasers, Apollo and the investor group.
A portion of the proceeds will be used by Chesterfield Re to fund a ceding commission paid to RGA Reinsurance Company in connection with assets and insurance liabilities that have been transferred to Chesterfield Re, while the remainder will be used by Chesterfield Re for general corporate purposes.
As a result, this capital is backing a portfolio of life insurance related liabilities and assets, so it’s an efficient way for RGA to bring $500 million of capital into its operation from third-party sources.
Meanwhile, the way Apollo can structure these large deals helps to make them possible, given the twin-angles of liabilities and assets. But at the heart this is insurance, or reinsurance, linked investment and the motivations are similar to any life ILS deal.
It’s Apollo’s second transaction with RGA Re, and put its cross-platform expertise to work, including in in insurance, insurance-linked securities, and multi-asset credit, Apollo explained.
The company sees this as a “bespoke, high-grade investment solution” for itself, its insurers and some of its institutional investor clients.
But at its heart, this is an insurance-linked investment opportunity, seeing Apollo backing life insurance related liabilities and assets that RGA has ceded to its Chesterfield Re vehicle, enabling RGA to build more capital to support that business, so it will essentially benefit from the capital infusion that ultimately helps it to write more business.
You can consider Chesterfield Re here acting as a kind of life risk focused sidecar, to take third-party investor capital that funds a book of business, providing capital efficiency benefits and importantly freeing capital for growth, for RGA.
Apollo Partner Jamshid Ehsani commented on the deal, “Apollo is pleased to serve as a long-term strategic capital partner to some of the world’s leading reinsurance companies, a role we believe we are uniquely positioned to fill.
“Our ability to structure creative, scaled solutions at a wide range of capital costs differentiates us from other platforms and provides attractive investment opportunities for our affiliated and third-party insurance clients and other investors seeking high quality credit.”
Apollo Capital Solutions, a unit of the company that facilitates more efficient access to capital and provides cross-platform origination, structuring, and syndication services for Apollo, worked on this deal providing structuring and syndication services in connection with the transaction.
Latham & Watkins provided legal counsel to Apollo, while Sidley Austin offered the same to RGA.
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