Leading United States life, retirement and annuities insurance and reinsurance company Global Atlantic has put its co-investment vehicle named Ivy, which operates as a kind of sidecar structure, to work in a $5.7 billion annuity reinsurance deal with American Financial Group affiliate, Great American Life Insurance Company.
It’s the first time the Ivy Re reinsurance investment vehicle has been seen to go to work alongside Global Atlantic, bringing third-party institutional capital to bear in allowing the company to enter into a very large transaction.
Global Atlantic launched Ivy earlier this year, with the vehicle funded by third-party investors with $1 billion to invest in life and annuity reinsurance deals alongside the carrier.
The company then told us that its newly launched life and annuity co-investment vehicle Ivy is considered akin to the sidecars that are a feature of the insurance-linked securities (ILS) market.
Now the structure can be seen being put to work, to help Global Atlantic enter into larger deals with the help of third-party investor appetites.
“We are proud to partner with such a high caliber client in Great American to help them achieve their desired financial and capital management objectives,” Manu Sareen, who heads Global Atlantic’s Institutional business commented on the $5.7 billion fixed and fixed-indexed annuity reinsurance transaction.
“Global Atlantic’s Institutional platform provided a highly customized and accretive solution, while working collaboratively and quickly to meet our client’s goals.”
Global Atlantic said that it leveraged “the third-party capital benefits” of its Ivy Co-Investment Vehicle LLC to co-invest in the transaction alongside its subsidiaries.
The annuities business ceded to Ivy Re Limited is being managed using Global Atlantic’s own risk and investment management capabilities.
American Financial Group, Inc. also announced that it has entered into the reinsurance agreement with Commonwealth Annuity and Life Insurance Company, a subsidiary of Global Atlantic.
AFG’s Annuity subsidiary, Great American Life Insurance Company, ceded around $5.7 billion of in-force traditional fixed and indexed annuities, which is roughly 15% of its in-force business, and transferred related investment assets to Commonwealth.
Demonstrating the benefits of the deal, Great American Life Insurance Company will benefit from freeing up between $300 million and $325 million of statutory capital in the fourth quarter of 2020, while the deal is expected to create $375 million to $400 million of additional excess capital for AFG.
S. Craig Lindner, AFG’s Co-Chief Executive Officer, commented, “This transaction presents an exceptional opportunity for AFG to further strengthen its already significant amount of excess capital, and is expected to result in higher core operating earnings and core operating returns in both the Annuity segment and AFG. The agreement will have no impact on AFG’s relationship with, and commitments to, our annuity policyholders and distribution partners, and AFG will continue serving the annuity market as a leading provider of fixed and indexed annuity products. Global Atlantic has demonstrated strong capabilities partnering with us in the past, and they delivered a custom solution to meet our financial objectives.”
“AFG’s excess capital prior to this reinsurance transaction was approximately $1 billion at September 30, 2020, including parent cash of nearly $600 million. The majority of the additional excess capital freed up at GALIC will be paid as a dividend to AFG by GALIC; the remaining amount will be retained by GALIC to further increase its excess capital levels. As illustrated in the table below, taking into account the additional excess capital created by the reinsurance agreement and adjusting for the November redemption of our 6% Subordinated Debentures, AFG’s excess capital on a proforma basis at September 30, 2020 would have been approximately $1.2 billion. We will continue to evaluate opportunities for deploying AFG’s excess capital, including the potential for healthy, profitable organic growth, and opportunities to expand our Specialty Property & Casualty niche businesses through acquisitions and start-ups that meet our target return thresholds, share repurchases and special dividends.”
The fact Ivy was put to work in this large deal is another clear example of the attraction certain investors have to annuity reinsurance returns and its related assets, while the sidecar structure provides perhaps a better vehicle for bringing these investors into a company’s underwriting than more traditional equity raises and the like.
We expect to see increasing numbers of life and annuity players looking to the appetites of the capital markets to increase their deal-making firepower over time and the sidecar structure also employed in other areas of reinsurance, such as the legacy and run-off market as an efficient way to channel investor funds into underwritten deals.