Athene Life Re’s recently capitalised sidecar vehicle for life and retirement investment opportunities, Athene Co-Invest Reinsurance Affiliate (ACRA), is a reflection of the innovation in Bermuda that led to the sidecar, applied to the life risks sector, according to Chairman Chip Gillis.
Having successfully raised $3 billion in investor commitments for the ACRA sidecar vehicle, as the company revealed recently, life and retirement reinsurance firm Athene, majority owned by private equity and alternative investment specialist Apollo Global Management, is already beginning to put the structure to good use.
Speaking at the PwC Insurance Summit in Bermuda yesterday, Athene co-founder and Chairman Chip Gillis discussed the ACRA Re vehicle and what it means to the company.
“ACRA became more public last spring and the earlier this week we announced that we had raised $3 billion for ACRA Re.
“It’s a reflection of Bermudian innovation. It’s things that have been done in sidecars here by the P&C and other industries and it’s us taking advantage of this technology and applying it to our space. I’m very excited by it.”
He went on to explain that ACRA is already active in taking risk, with the raised commitments now waiting to be drawn down on as suitable deal-flow is entered into.
“There’s already business there, by the way. A couple of transactions, a pension risk transfer transaction and a large block transaction,” he explained.
He then went on to discuss how the ACRA structure works for the third-party investors backing the vehicle.
Commenting, “These investors, like other sidecars you might find here, that’s defined, and I think we’ve been public, it’s a tenyear horizon. So, these investors can be out in ten years.
“They get to participate in exactly what we’re doing, pro-rata, so there’s no biases one way or the other. We do charge a modest fee, like you see in other sidecars, for providing that, but the ultimate returns are reflective of ours.”
There are benefits to this for the investors, who get to leverage the depth of expertise that Athene has built up, as well as its ability to enter into now increasingly large transactions, with the help of the additional capital ACRA provides.
“In general, they have a lower expense factor, because we’ve got a full risk team, a full build-out team that effectively we’re using to do transactions.
“I think it’s very exciting, I think others will be doing it as well and it’s another innovation being applied, that’s only been used here, and it’s being applied into our industry, so I think it’s very exciting,” he said.
But importantly, Athene has built ACRA to give investors the certainty in their time horizon, which in the life space has hindered companies ability to get third-party capital onboard.
Investors need some certainty in how they can get out of a vehicle, not wanting to be on the hook endlessly for these long-tail transactions.
“Investors want to know when is their exit and what does it look like,” Gillis said, adding, “So that’s been built into it.”
ACRA provides investors with a mid-term allocation horizon with a way to access life and retirement risks in a structure providing the returns they seek, in a way they can see this exit point clearly.
Other companies are likely to take notice and see the opportunity to bring in complementary sources of capital, or to tap into new investor groups with different appetites, all while providing an insurance or reinsurance linked return which meets the alternative needs of many institutions mandates.
It’s an interesting strategy and one which could see significant traction, given the size of the risk pool out there in this kind of sector.
Whether it could be replicated for other classes of longer-tailed risks remains to be seen, but with the right exit terms and guaranteed opportunities to exit made available, it’s certainly possible and could help to expand the pool of available insurance-linked opportunities more rapidly for those investors this is most suited to.
It’s encouraging to see companies putting the proven ILS technology of the sidecar vehicl to work in bringing capital to bear on other classes of risk.