Athene expects ACRA sidecar capacity to help on pension risk transfer

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The Athene Co-Invest Reinsurance Affiliate (ACRA) insurance-linked sidecar vehicle is expected to raise further capital, with investor discussions ongoing and senior executives say the third-party capital vehicle will become a significant source of capacity for its pension risk transfer deals.

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

The Athene Co-Invest Reinsurance Affiliate (ACRA) vehicle launched aiming to raise around $4 billion of capital, as life, annuities and pensions focused insurance and reinsurance company Athene and its parent Apollo sought to enable third-party investors to participate in private deals alongside the firm.

ACRA will operate as a kind of reinsurance sidecar, fed by an investment fund managed by Apollo, allowing investors to participate alongside the re/insurer, so providing sidecar-like capacity to support large reinsurance transactions that Athene tends to enter into, with investors sharing more directly in the returns of this business.

More funds are expected to be committed, although the company may not go as high as $4 billion straight away, executives said recently.

Athene has recently launched a new $500 million notes offering, the proceeds of which are to be partially put to work in funding its own commitments to ACRA, suggesting a level of continued growth for the sidecar structure.

“With regard to ACRA fundraising, we’re at $3.2 billion, we’re having closing discussions with a couple other investors and so we expect that number to grow,” CFO Marty Klein explained.

“The original goal was $4 billion,” he continued. “I don’t know if we’ll quite get to $4 billion or not before we finally stop, it will just kind of depend.

“But in our minds, we’re effectively done. As we move forward, we’re certainly going to raise more than $3.2 billion. But will we get all the way to $4 billion? I don’t know.”

Athene clearly doesn’t need the capital to sustain its business and it is purely looking to leverage investor appetite for reinsurance related returns to do more and larger deals, a healthy approach to working with third-party capital.

Unlike some traditional players in the P&C space, Athene doesn’t require external capital to help it maintain relevance or to moderate volatility, it’s all about the opportunity to do more with less of its own capital, to the benefit of both shareholders and third-party investors.

It’s not really about fee income either for Athene, as it is the transaction based revenue flows and assets that will make ACRA worthwhile for the company, while fee income is expected to be relatively minimal, except for when large, inorganic transactions are executed.

“I don’t expect the fees by the end of the year in the absence of an inorganic deal to be all that meaningful, maybe $2 million to $3 million a quarter in the absence of a inorganic transaction,” CEO Jim Belardi explained on ACRA.

“That’s going to move around, the guidance, quite a lot if there was a deal, particularly a large deal,” he said.

Athene sees opportunities in the pension risk transfer space for ACRA, a highly competitive marketplace where scale of capital matters and the sidecar-like structure could come into its own.

With global players forecasting another busy year for pension risk transfer deals, ACRA’s investors may find this becomes the major source of returns for them.

“We do expect that, of the PRT business that we do, most of those deals, if not all of those deals, will go into ACRA,” Belardi said.

As of now, Athene still has around $2.4 billion of undrawn third-party capital in its ACRA strategic sidecar vehicle, Belardi explained last week during the firms earnings call.

ACRA continues to operate in a managed fashion though, not simply following Athene’s own view on risk in pension risk transfer deals.

As a result, ACRA has declined to participate in a couple of Athene’s pension risk transfer deals in recent months, as it has its own return hurdles to meet for the third-party investors backing it.

Athene President Bill Wheeler said that, “I think ACRA will probably take more PRT deals going forward.

On the very large pension risk transfer deals that Athene encounters, ACRA could contribute as much as two-thirds of the capital, it is understood, but only where the risk and return profile of the business meets that of its strategy and investors.

Commenting on Athene’s capital base and how ACRA augments it, CEO Belardi said, “Belardi continued, “We are armed with one of the best capitalized balance sheets in the industry, and when combined with resources in our sidecar capital vehicle, ACRA, we have more than $7 billion of deployable capital which can be used to support nearly $90 billion of opportunistic growth. We have record levels of liquidity, a proven ability to take advantage of dislocation, and I’m confident that we will emerge from this crisis even stronger than before.”

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