According to senior executives at Reinsurance Group of America (RGA), the fee income flowing to the company from its third-party capitalised Ruby Re life reinsurance sidecar is already meaningful and while a new transaction was ceded to the sidecar in Q3 last year, the structure still had around two-thirds of its capital and capacity left to deploy at the time.
Recall that, in November RGA announced that its capital raise for Ruby Re had reached $480 million following the close of its second funding round, which is near the upper limit of the $400 million to $500 million target range for the Missouri-domiciled sidecar vehicle.
Launched in December 2023 with backing from a number of investors, including insurance-linked securities (ILS) specialist Hudson Structured Capital Management, Ruby Re writes U.S. asset-intensive life reinsurance business via RGA.
The structure acts as a third-party capital play for the life reinsurance company, enabling it to boost its own underwriting firepower with the support of aligned capital partners.
As we reported in March 2024, RGA was believed to be raising more capital for its new sidecar amid plans to make the vehicle a key part of its more asset intensive business.
Additional commitments helped RGA lift the fundraise to $480 million and even though the capital has only been partially put to work, the reinsurer’s executive team said the strategy is paying off.
During the RGA third-quarter earnings call in November, President and CEO Tony Cheng commented, “We placed another transaction with Ruby Re during the third quarter.”
RGA CFO Axel André provided more detail, saying, “We continue to be active in seeking various forms of capital to effectively and efficiently fund these opportunities.
“We are very happy with the level of interest expressed by investors, and this gives us confidence that there will be interest in future vehicles that we pursue.
“We successfully completed a retrocession of $350 million of liabilities to Ruby Re in the third quarter.
“Including the additional capital raised, we have roughly 2/3 of the capital capacity left available to be deployed.”
Looking into filings made by RGA, this transaction is disclosed as “a coinsurance funds withheld transaction under which it retroceded $390 million of asset-intensive business to Ruby Re.”
As of September 30th 2024, RGA had a ceded reinsurance recoverable from Ruby Re of approximately $2.7 billion, which gives an idea of the activity undertaken through the sidecar structure to-date, even with only one-third of capital deployed.
Asked by analysts how Ruby Re is contributing to RGA’s earnings, André explained that the strategy comes with a number of fee income streams.
“For Ruby, we basically, as we cede business into Ruby, we’ve got various fee streams. We’ve got origination fees. We’ve got on-going admin fees, servicing fees, if you will, and then, of course, asset management fees because we’re the asset manager for the vehicle.
“All of that adds up, I don’t know that it’s material enough for us to start talking about fee-related earnings and pretending that it needs to be a whole new business segment. But it is meaningful, it is material, and we’re looking to build up over it over time.”
RGA CEO Cheng further said, “Just to add on the strategic side, I mean we did Ruby and obviously, it’s a meaningful source of capital.
“But, it is really to open up that channel as another form of capital down the road for other vehicles. That was the more strategic direction, as to why we pursued it.”
It’s clear that Ruby Re is already fulfilling a valuable role within RGA’s overall capital structure, allowing the life reinsurance company to lean on third-party capital to provide greater elasticity to its own balance-sheet firepower, while generating fee income that is already proving to be meaningful.
The use of third-party capitalised sidecars by large life and annuity reinsurers is evolving at-pace and with the sponsors finding valuable synergies as they fund incremental opportunities and deliver income as well, it seems a strategy set to grow in the life reinsurance market over time.
