Bermuda domiciled re/insurance, run-off and legacy specialist Enstar Group has partnered with global insurer Allianz SE and investment manager Hillhouse Capital Management to launch a new reinsurer, Enhanzed Reinsurance Ltd. (Enhanzed Re).
The joint-venture looks like another efficiency play that will benefit its launch investors, creating a source of efficient reinsurance and complementary deal capacity with an investment strategy that will likely seek to outperform.
In this way, Enhanzed Re looks akin to a total-return reinsurance venture, offering its sponsors efficiency, a way to effectively retain more of the risk premium from business they underwrite, as well as a chance to profit in future through the potential to make an initial public offering (IPO) for Enhanzed Re.
Of course, Enstar has form here, having backed the Aligned Re hedge fund reinsurer that never quite got off the ground and also being the now 100% owner of total-return reinsurer KaylaRe Ltd.
It’s clear Enstar understands the need to create structures that allow it to add efficiency to its own balance-sheet capacity and lower its cost-of-capital, through greater retention of the risk premium its underwriting generates and a more progressive approach to investment management side of the business.
Enhanzed Re promises to offer all of that to Enstar, who will take on the role of insurance and reinsurance manager, cede some of its risks to the new reinsurer and benefit from profit shares as well, it’s assumed.
Enhanzed Re will reinsure a range of business, from life, to non-life run-off, and also property and casualty insurance business, with it all initially sourced from Allianz SE and Enstar.
That suggests that the reinsurer could go market-facing in future and it’s likely part of the long-term plan for Enhanzed Re.
The joint-venture partners have all made equity investments amounting to $470 million into Enhanzed Re, leaving Enstar owning the majority of the reinsurer at 47.4%, Allianz owning 24.9%, and an affiliate of Hillhouse Capital Management Ltd. owning 27.7%.
Hillhouse will act as the primary investment manager for Enhanzed Re and Allianz will also provide investment management services through an affiliate of the company.
Underwriting business from affiliates of its operating sponsors, Allianz and Enstar, Enhanzed Re will target underwriting a book of business that maximises its diversification by risk and geography.
Enstar will benefit from this partially owned source of reinsurance capacity, adding efficiency to its business, allowing it to extract more of the risk premium from business it has originated and structures, using Enhanzed Re capacity to boost its own legacy deals, as well as earning management fee income and a share of investment profits.
Allianz will benefit in the same way by utilising Enhanzed Re as an efficient source of reinsurance capital, while also earning profit shares and commissions, as well as some investment management fees through its entity that assists on the asset side.
Hillhouse meanwhile gains a new source of assets to manage and will earn fee income for its services, as well presumably as profit shares.
Hence it’s a good arrangement all around, providing a lever for efficiency and a venture that in time could scale and seek to IPO, in order to generate a significant profit on their initial investments for the partners as well.
Dominic Silvester, Enstar’s Chief Executive Officer, commented, “Enhanzed Re brings Enstar together with our established partners Allianz and Hillhouse to provide a vehicle that will reinsure a diversified book of life and P&C reserves sourced through a strong pipeline of opportunities provided by Enhanzed Re’s operating sponsors. Enhanzed Re will benefit from world-class investment managers prudently managing capital while pursuing risk-adjusted returns. Through Enhanzed Re, Enstar gains exposure to attractive life and P&C business and in return can offer opportunities for Enhanzed Re to participate in our future significant legacy transactions. We look forward to working with our co-investors, Allianz and Hillhouse, in building this business.”
It’s also interesting to note that Enstar and Allianz have worked together before, notably in this $1.1 billion legacy reinsurance deal between Enstar and Allianz Re.
Enhanzed Re could provide a platform for the future that allows the pair to significantly increase their cooperation through deals of this kind, which could make the new reinsurer one to watch as it may be able to scale much faster than other similar joint-venture approaches.
Hybrid reinsurance ventures like Enhanzed Re enable their owners to extract risk-linked returns through their investment in the vehicle, extracting as much of the risk premium as they can while also benefiting from asset management strategies that seek to outperform.