Regular readers will know we like to cover any news on Chubb’s total-return and third-party capitalised reinsurance joint-venture ABR Re, which we see as becoming increasingly strategically important to the insurer.
ABR Reinsurance Capital Holdings Ltd., the parent and ABR Reinsurance Ltd. (ABR Re), the reinsurance underwriting company, was launched in 2015 by Chubb (ACE at the time) as a total-return or investment oriented reinsurance joint-venture vehicle.
ABR Re launched with around $800 million of capital, supplied by third-party investors, and was set up in a partnership with asset manager Blackrock, which provides the investment strategy for the reinsurance vehicle.
ABR Re is an internal reinsurance vehicle, with a mandate only to underwrite risks from Chubb and it is said to follow market terms on that business.
Ever since its launch, Chubb has been expanding its use of ABR Re, ceding more of its risk to the third-party capitalised reinsurance vehicle each year.
As we recently explained, Chubb has increased its ownership stake in ABR Re, with its direct ownership stake in ABR Reinsurance Ltd. rising from 12% at the end of 2019, to a 16% ownership share at the end of 2020.
At the same time, the value Chubb places on its stake in ABR Re rose by 14%, to $114 million at Dec 31st 2020, up from $100 million a year earlier.
Reflecting the importance of the reinsurance structure, Chubb ceded even more risk to ABR Re in 2020 as well, with ceded premiums rising to $350 million for 2020, up by 9% from the $321 million ceded in the prior year.
Commissions received rose to $100 million in 2020, up from $96 million for 2019, but the reinsurance recoverable Chubb reports associated with ABR Re has increased significantly to $806 million, up from $674 million at the end of 2019.
Which brings us onto the fee sharing arrangement that sits at the heart of ABR Re, that sees Chubb and joint-venture partner Blackrock sharing some of the additional earnings that come through the vehicle.
Chubb provides contractual services to ABR for reinsurance and reinsurance operations, while Blackrock for asset management services.
The pair entered into a fee-sharing arrangement, which sees them equally sharing certain fees payable by ABR under these service contracts with each party.
Up until 2020, no fee sharing revenues had been reported at all by Chubb, but last year the insurer received $5.4 million from BlackRock pursuant to the fee-sharing arrangement over 2020.
In 2019 Chubb paid Blackrock under the agreement, albeit only $777,000. In 2018, the first year a fee sharing payment was made, Chubb paid Blackrock a little more, at $1.16 million.
So Chubb receiving a $5.4 million payment from the asset management service provider, under an agreement that sees them equally sharing fees earned from ABR Re under their respective services, perhaps suggests the investment return Blackrock achieved for the joint-venture vehicle was a lot higher in 2020, however we can’t confirm this due to the limited information available on ABR Re.
But the payment shows an additional route through which the ABR Re venture can add incremental income for Chubb, although the reinsurance efficiencies, synergies and cost-reduction they bring are likely the biggest benefit.