Apollo / Athene get ratings for ACRA 2 sidecars, $4bn+ commitments targeted

The latest vintage of the life and annuity focused reinsurance sidecar structure launched by Athene Holding Ltd., the life and retirement reinsurance company majority owned by investor and private equity specialist Apollo Global, has received its ratings and we understand the investor commitments to it are expected to roughly double.

Back in February 2023 we wrote about the first close of the Apollo / Athene Dedicated Investment Program II, or ADIP II, which is the second edition of the innovative sidecar structure designed to augment Athene’s growth capacity via long-term, third-party, on-demand capital.

That first close saw the ADIP II program raising commitments of $2 billion from investors.

The $2 billion of commitments were expected to be invested directly alongside the company into Athene Co-Invest Reinsurance Affiliate Holding 2 Ltd., or ACRA 2, which is a consolidated subsidiary of Athene and acts as the reinsurance sidecar.

These aren’t sidecars in the typical collateralized sense, that we more frequently see in the insurance-linked securities (ILS) market.

But, in operating like a sidecar source of third-party capital, these ACRA structures provide investors an interesting way to back the major life and annuity reinsurance player that is Athene as a way to source returns, while benefiting from its platform and Apollo investor relationship.

Now, rating agency AM Best has assigned Financial Strength Ratings of A (Excellent) and Long-Term Issuer Credit Ratings of “a+” (Excellent) to Athene Co-Invest Reinsurance Affiliate 2A Ltd. and Athene Co-Invest Reinsurance Affiliate 2B Ltd., which are both domiciled in Bermuda.

These structures will undertake the reinsurance arrangements, alongside Athene, channelling ADIP II funding into the reinsurance business.

AM Best commented, “The ratings of Athene are being extended to these companies due to their strategic role in the group’s business strategy, and the explicit financial support provided by its affiliates and investors. These companies will operate like a sidecar for Athene, providing access to on-demand third-party equity capital to support new business growth. The ability to access external funding through external capital commitments provides Athene increased flexibility in executing new business transactions but also is expected to be accretive to consolidated earnings through management fees earned, as opposed to the interest expense of utilizing debt financing.”

We under stand that Athene and Apollo have ambitions to exceed the capital commitments secured with ADIP I and ACRA 1.

That first ACRA sidecar secured close to $4 billion of commitments for Athene to deploy into its business over its life cycle.

Looking at recent results of the life and annuity reinsurance giant, there is now almost $44 billion of invested assets from noncontrolling interests are attributed to ACRA / ADIP, which shows that the deployment of the third-party capital secures significant investment float that can be used in Apollo / Athene’s strategies.

With Athene and Apollo aiming to build on the ADIP / ACRA success, with even more third-party capital commitments for ADIP II / ACRA 2, the company should grow that pool of invested assets related to the sidecar platform considerably.

These ACRA sidecars provide firepower for doing more and larger reinsurance deals, while delivering long-term investment float assets that the pair can manage. All while leveraging investor appetite to participate in the returns of its business, which is a very efficient way to fund that kind of growth.