Ariel Re establishing Ariel Re Capital Partners entity with third-party capital focus

Global reinsurance company Ariel Re appears set to further formalise its activities in third-party capital management and helping investors access its risk under a new brand, with an entity named Ariel Re Capital Partners being established by the firm, Artemis can report.

Ariel Re is no stranger to the use of third-party capital and insurance-linked securities (ILS) within its business, of course, having leveraged relationships with capital markets investors within aligned risk-sharing relationships and its retrocession program for many years.

The company benefits from third-party investor capital backing its Lloyd’s syndicate, which has been consistently among the best performers in the market, averaging a combined ratio (CR) of below 87% over the last decade and reporting a CR of just 48% for the 2023 underwriting year.

Ariel Re has embraced efficient routes to source additional capital to support its business, across a range of structures over the years.

The reinsurance firm has been sponsoring catastrophe bonds as part of its retrocession arrangements since 2021, with now three Titania Re cat bonds completed that all provide reinsurance for its Lloyd’s Syndicate 1910.

In addition, Ariel Re has always sought innovative ways to enhance its capital-base, with one recent example being a 2023 capital raise of $270 million raised from five institutional and family office investors to support the expansion of its business, $170 million of which was channelled through the Lloyd’s London Bridge 2 PCC insurance-linked securities (ILS) structure.

As well as that, Ariel Re has been the beneficiary of collateralized reinsurance sidecar capacity, with the Harambee deals from when Argo was its owner supporting its syndicate, while it was also reported that Ariel Re had raised new sidecar capacity for 2023 under an unknown vehicle.

So, the fact Ariel Re might look to further formalise these activities and its interactions with third-party capital investors under a new entity is not that surprising.

We’ve learned that the reinsurer has now registered a new company in Bermuda named Ariel Re Capital Partners Operating Company Limited, which we’re told is expected to serve as a holding company for certain of Ariel Re’s third-party capital activities.

Sources said that Ariel Re Capital Partners represents a further formalisation of the third-party capital strategy at the reinsurer and another step in its evolution.

We understand Ariel Re Capital Partners will offer the reinsurer more flexibility in working with investors, especially in locations such as the United States, while also providing options to allow smaller ticket capital allocators to deploy funds to support its Lloyd’s syndicates underwriting.

Although we cannot confirm the exact plans for the new business unit at this stage, we understand it’s best to think of it as a new entity that can serve as an access point to Ariel Re’s underwriting returns, for a growing range of investors.

Ariel Re Capital Partners is expected to be structured with efficiency in mind, to enable investors smooth and capital efficient access to its underwriting returns, we understand. As a result, there is every chance Ariel Re looks to make further use of the London Bridge 2 PCC platform as one way to channel capital from the new entity into its Lloyd’s business.

So, the new entity is not really expected to be doing anything especially new or different for Ariel Re, at least to begin, but it is a further suggestion of the formalisation of third-party reinsurance capital management activities there, especially with the name.

More importantly perhaps, it is expected to provide Ariel Re with greater flexibility and optionality, when it comes to working with different types of investors and giving them access to participate in its underwriting business.

As a reminder, Ariel Re had last year hired former employee Katie Partington Howarth to rejoin the company as its new and first Chief Capital Officer.

That role was described as involving responsibility for Ariel Re’s capital strategy, including sourcing external capital and managing investor relations. So a formalisation of third-party capital activities was, it seems, already underway at that time and the new Ariel Re Capital Partners may just be the latest signal of that progression.

With numerous Bermuda based and global reinsurers, like Ariel Re, already having dedicated third-party capital or ILS management units. It would be no surprise to see Ariel Re Capital Partners playing a similar role to these for the company, as the strategy develops over time.

As third-party capital becomes increasingly core and meaningful to the operations of growing reinsurers, like Ariel Re, having a dedicated unit to manage structures and investor relationships would be a natural progression, as too would having a brand name that resonates.