Ariel Re CEO Ryan Mather has said that the set-up of Ariel Re Capital Partners was an “addition to our armoury” that will enable it to capture “the whole gamut of potential investors”.
The commingled vehicle is designed to bring in smaller-scale investors with the capacity to allocate between $5mn-$25mn.
The firm’s existing third-party investors, ranging from family offices to PE/credit funds, more typically are able to allocate between $50mn-$100mn to the space.
The Capital Partners fund, like its others, will be a Funds at Lloyd’s vehicle that takes a quota share of its portfolio.
Chief capital officer Katie Partington-Howarth said: “It’s exciting because it’s a way to target a class of investor that hasn’t been served by the Lloyd’s market before.”
Investing in the commingled fund will mean the 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 the collective funds to support its Lloyd’s portfolio.
Partington-Howarth said it remained a challenging fundraising environment as investors had a “healthy amount of scepticism” over industry returns, but argued that it was still a “fantastic investment” for them to be in currently.
The onus was on the industry to be “judicious with all the capital we use”, she added.
Some have argued that the complexities of the London marketplace make it harder to win over institutional capital.
Mather said that it could be difficult to explain Lloyd’s jargon to investors, as words such as “RITC” (reinsurance-to-close) may lead them to “glaze over” but he said the marketplace’s unique features were also a selling point.
For example, RITC mechanisms were a tool to provide “guaranteed liquidity”, and the range of risks available beyond the catastrophe segment dominant in the rest of the ILS world were attractive to investors, he noted.
Ariel Re, which is backed by third-party capital alongside its investors Pelican Ventures and JC Flowers, raised $270mn of third-party capital in late 2022, including a $170mn London Bridge 2 vehicle.
More broadly, Mather noted that reinsurers had only earned more than their cost of capital in one or two of the past 10 years, and that calls to sharpen pricing had to take that into account.
AM Best estimates that US/Bermuda reinsurers earned a 23% return on equity in 2023.
Reinsurers “have to compete” but could not return to the market of a few years ago, as top of the cycle current returns have to account for underlying volatility, Mather said.