United States life, retirement and annuities insurance and reinsurance company Global Atlantic continues to deploy capital from its co-investment vehicle named Ivy, which operates like a sidecar structure, with the structure participating in an $8.5 billion reinsurance transaction with Unum Group.
The reinsurance transaction featured a closed block of seasoned individual disability income business backed by $8.5 billion in assets, Global Atlantic said.
This new transaction is set to close in two phases, with roughly $7 billion in assets closing concurrent with its signing and the remaining $1.5 billion expected to close in the first quarter of 2021, on receipt of any required approvals and consents.
This is now the third transaction that the Ivy Re reinsurance investment vehicle has been put to work alongside Global Atlantic, bringing third-party institutional capital to bear in helping the company to enter into a very large transaction.
Global Atlantic said that after this new Unum reinsurance deal, the Ivy structure will have deployed approximately 60% of its capital commitments.
More than 95% of the disability income block consists of spread-based claim reserves that pay a steady income stream to the policyholder, similar to fixed payout annuities, Global Atlantic explained.
The remainder is active life policies not on claim and Unum is set to provide a volatility cover on these active lives, helping to reduce any material disability risk for Global Atlantic on this business.
Unum will continue to administer the subject business and will retain all policyholder servicing and operations functions.
“We are pleased to provide a long-term solution that meets Unum’s capital objectives and strategic goals for its legacy closed block of individual disability income business,” explained Manu Sareen, President of Global Atlantic’s Institutional business. “This is a seasoned run-off block of business with a rich history of data and stability of cash flows that are very attractive to Global Atlantic.”
“Global Atlantic’s experience in executing block deals like these made them an ideal partner for us,” added Unum Group’s President & CEO Richard P. McKenney. “The team’s collaborative approach resulted in a custom solution tailored specifically to meet our financial objectives.”
“With this agreement, we continue to make meaningful steps in actively managing the Closed Block to increase our financial flexibility and further rebalance our portfolio to more capital efficient businesses,” McKenney added. “Looking forward, we remain focused on delivering growth in our core businesses while continuing to pursue additional opportunities to optimize our capital and balance sheet for long-term shareholder value.”
The Ivy sidecar will invest in the Unum transaction alongside Global Atlantic’s subsidiaries and business ceded to Ivy will be managed using the firms risk and investment management capabilities.
Global Atlantic launched Ivy earlier this year, with the vehicle funded by third-party investors with $1 billion of capital to invest in life and annuity reinsurance deals alongside the carrier.
The company 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.
Including this new reinsurance transaction with Unum, Global Atlantic said that it is the third block reinsurance deal it has entered into in 2020, totaling over $16 billion of assets.
We expect to see an increasing number of life and annuity players looking to the appetite of capital markets investors to increase their deal-making firepower over time, with the sidecar structure now being more broadly 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.