Key Takeaways
- • Alternative investment managers (Alt-IMs) are expected to significantly increase exposure to the insurance industry in 2019 through equity investments and investment management agreements, creating a mutually beneficial dynamic where Alt-IMs gain steady capital from insurance premiums while insurers access higher returns in a low-rate environment.
- • Apollo Global Management's insurance affiliates Athene and Athora represented 40% of the firm's AUM ($107 billion as of September 30, 2018), up 30% year-over-year following Athene's June 2018 reinsurance transaction of Voya Financial's fixed annuity business, demonstrating the scale of Alt-IM capital flowing into insurance.
- • Blackstone's insurance platform, Blackstone Insurance Solutions (BIS), held $20.2 billion in AUM as of September 30, 2018, having launched Harrington Re in 2016 and acquired a stake in Fidelity & Guaranty Life in 2017 before establishing BIS in Q4 2017 to deploy capital-efficient investments for insurance affiliates.
- • Insurers benefit from Alt-IM partnerships through access to broader deal origination, higher investment returns, capital efficiency without public market issuance, and the ability to exit underperforming legacy businesses—advantages that avoid regulatory complexity and public scrutiny associated with traditional equity offerings.
- • Fitch Ratings believes these arrangements, if properly priced and executed, will drive AUM growth and fee stability for Alt-IMs while enabling insurers to strengthen capital positions and improve returns amid persistent low-rate conditions.
Summary
Alternative investment managers are poised to deepen their presence in the insurance sector throughout 2019, creating what Fitch Ratings characterizes as a mutually beneficial relationship for both parties. This trend reflects structural advantages for Alt-IMs seeking steadier, long-term capital sources through insurance premium flows, while insurers gain access to the higher-yielding investment strategies necessary to maintain returns in an extended low-rate environment.
The scale of this capital migration is already substantial. Apollo Global Management's insurance-linked entities—Athene and Athora—accounted for $107 billion, or 40% of the firm's total AUM, as of September 30, 2018. This represented a 30% year-over-year increase driven largely by Athene's completion of a reinsurance transaction acquiring Voya Financial's fixed annuity business in June 2018. Similarly, Blackstone has built a material insurance platform: Blackstone Insurance Solutions (BIS) reported $20.2 billion in AUM as of September 30, 2018, following the firm's 2016 launch of Harrington Re (in partnership with AXIS Capital), its 2017 acquisition of a stake in Fidelity & Guaranty Life, and the establishment of BIS in the fourth quarter of 2017. Carlyle also maintains insurance affiliations, further illustrating the sector's attraction for scaled alternative asset managers.
For Alt-IMs, the insurance channel offers distinct advantages. Insurance companies generate substantial recurring premium flows that provide a predictable capital base for investment management and sub-advisory arrangements. These structures enable Alt-IMs to grow assets under management and establish more stable, recurring management fee revenue streams compared to traditional institutional fundraising cycles.
For insurers, the partnership model addresses critical business challenges. By accessing Alt-IM capital through investment management agreements and equity investments rather than public equity offerings, insurers avoid the regulatory burden and quarterly earnings scrutiny associated with being publicly traded. Simultaneously, these partnerships provide access to broader investment deal origination and higher-returning strategies, while enabling carriers to optimize balance sheets by exiting underperforming legacy in-force businesses. According to Fitch, when appropriately priced and executed, these arrangements deliver measurable value to both constituencies without the friction inherent in traditional capital-raising mechanisms.
The scale of this capital migration is already substantial. Apollo Global Management's insurance-linked entities—Athene and Athora—accounted for $107 billion, or 40% of the firm's total AUM, as of September 30, 2018. This represented a 30% year-over-year increase driven largely by Athene's completion of a reinsurance transaction acquiring Voya Financial's fixed annuity business in June 2018. Similarly, Blackstone has built a material insurance platform: Blackstone Insurance Solutions (BIS) reported $20.2 billion in AUM as of September 30, 2018, following the firm's 2016 launch of Harrington Re (in partnership with AXIS Capital), its 2017 acquisition of a stake in Fidelity & Guaranty Life, and the establishment of BIS in the fourth quarter of 2017. Carlyle also maintains insurance affiliations, further illustrating the sector's attraction for scaled alternative asset managers.
For Alt-IMs, the insurance channel offers distinct advantages. Insurance companies generate substantial recurring premium flows that provide a predictable capital base for investment management and sub-advisory arrangements. These structures enable Alt-IMs to grow assets under management and establish more stable, recurring management fee revenue streams compared to traditional institutional fundraising cycles.
For insurers, the partnership model addresses critical business challenges. By accessing Alt-IM capital through investment management agreements and equity investments rather than public equity offerings, insurers avoid the regulatory burden and quarterly earnings scrutiny associated with being publicly traded. Simultaneously, these partnerships provide access to broader investment deal origination and higher-returning strategies, while enabling carriers to optimize balance sheets by exiting underperforming legacy in-force businesses. According to Fitch, when appropriately priced and executed, these arrangements deliver measurable value to both constituencies without the friction inherent in traditional capital-raising mechanisms.
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