Capital Partners launch targets small-ticket Lloyd’s distributors: Ariel Re

Ariel Re CEO Ryan Mather said the establishment of Ariel Re Capital Partners was an “addition to our arsenal” that would allow it to capture “the full range of potential investors”.

The combined vehicle is designed to bring in smaller-scale investors with the ability to allocate between $5 million and $25 million.

The company’s existing third-party investors, from family offices to PE/credit funds, are typically able to commit between $50 million and $100 million to the space.

The Capital Partners fund, like the others, will be a Funds at Lloyd’s vehicle that takes a share of its portfolio.

Equity director Katie Partington-Howarth said: “It’s exciting because it’s a way of targeting a class of investors that has not been served by the Lloyd’s market before.”

Investing in the combined fund will mean that individual investors do not need to set up their own Lloyd’s corporate member or London Bridge cell, although Ariel Re will still use the London Bridge facility to channel pooled funds to support its Lloyd’s portfolio.

Partington-Howarth said it remained a challenging fundraising environment as investors had a “healthy amount of scepticism” about the industry’s returns, but argued it was still a “fantastic investment” for them at present.

The onus was on the industry to be “judicious with all the capital we use,” she added.

Some have argued that the complexity of the London market makes it difficult to gain institutional capital.

Mather said it could be difficult to explain Lloyd’s jargon to investors because words like “RITC” (reinsurance-to-close) can lead them to “close”, but said the market’s unique features were also a point of sale.

For example, RITC facilities were a tool to provide “guaranteed liquidity” and the range of risks available beyond the dominant catastrophe segment in the rest of the ILS world was attractive to investors, he noted.

Ariel Re, which is backed by third-party capital alongside its investors Pelican Ventures and JC Flowers, has raised $270 million in third-party capital by the end of 2022, including a $170 million London Bridge 2 vehicle.

More broadly, Mather noted that reinsurers have only earned more than their cost of capital in one or two of the past 10 years, and that calls to tighten prices need to take that into account.

AM Best estimates that US/Bermuda reinsurers achieved a 23% return on equity in 2023.

Reinsurers “have to compete” but have not been able to return to the market of a few years ago because current yields at the top of the cycle have to account for underlying volatility, Mather said.