Going from strength to strength

Launching as an independent business is a challenge at the best of times. But when you are taking your first steps into the world as an independent business in the middle of a global pandemic, such as happened to multiline reinsurer Fortitude Re, those initial months are made that bit trickier.

Thankfully, the company was operating from a strong background. Originally conceived in 2017 as a Bermuda-domiciled multiline carrier to reinsure the legacy balance sheet of its then affiliate AIG insurance companies, the firm was spun off last year with backing from a consortium of investors led by private equity giant the Carlyle Group, and T&D Insurance Group.

Prior to its launch as an independent entity, the company had received a stellar investment grade rating from Fitch and secured a $550 million credit facility, and has gone on to sign a headline deal.

In September Fortitude Re announced an agreement with US insurance behemoth Prudential to purchase Prudential Annuities Life Assurance Company (PALAC) for a total transaction value of $2.2 billion.

Fortitude Re chief executive officer James Bracken told Bermuda:Re+ILS that while the timing may not have been ideal launching last year, ultimately the firm had the backing and stable foundation to set off independently on the right footing.

“It was a fraught time with COVID-19 and all the market gyrations going on, but we were able to do all the necessary steps and get the company launched at that time. The good thing was that we have a strong risk management framework,” he said.

“So while there was a lot of movement in interest rates and concerns about the pandemic, our business is resilient. We closed the deal (with investors), we exited AIG, and we have an ownership structure with a very strong capital foundation, good fundamentals, and the strength to move forward.

“During the COVID-19 crisis we had to refinance some debt and we received very good active support from many very high quality banks to renew our banking facilities right in the middle of the pandemic.

“That was in the March, April timeframe, so we were very pleased we got that away. It was a $550 million facility, so it was pretty neat,” Bracken recalled.

With intentions to reinsure life & annuity and property & casualty business, Fortitude Re sought to be domiciled in a jurisdiction where the firm could manage its myriad books under a single operating licence.

While other jurisdictions such as Germany and Switzerland offered attractive potential destinations, the company was ultimately formed in Bermuda due to what Bracken highlights as its regulatory sophistication and international equivalence.

“We selected Bermuda for a number of reasons. Bermuda was very attractive, because of the composite licence. It is attractive because it is a Solvency II jurisdiction, it has a very credible and commercial regulator, and as we went through our discussions with them, we were very comforted by their approach,” he said.

Future confidence

That business mix is one of the key factors which Bracken and the executive team believe sets the firm apart from its competition.

When others deal with international firms they can often operate only within one or the other sphere (life & annuity or property & casualty), limiting the offering and coming into potential conflict with the underlying business of the client.

Bracken says that Fortitude Re’s scale and offering mix means it can do business with even the largest global insurance companies for large-scale books of legacy business.

“Our product offering means that we can offer solutions to the largest insurers in the world, more holistically than many others, who may be more focused. They may also have a competition or channel conflict,” he said.

“We are confident we can go into almost any insurer globally, and be able to price and reinsure or require their legacy blocks of business, assuming those blocks can be priced.

“In some cases, however, they can’t be priced because there isn’t enough data to support the actuarial analysis that gives you confidence around your pricing.”

That said, there are very few cases where the Fortitude Re team struggles to accurately price the risk at hand.

With nearly half of the team of 140 made up of professional actuaries, plenty of analysis goes on behind the scenes to ensure that the transactions they enter into are adequately priced.

It also helps that the company has a rated balance sheet and a long-time horizon, which Bracken says helps give security and peace of mind to partners.

“We’re pretty unusual in that we provide both P&C and life solutions. On the P&C side, we are fortunate that we have a very large balance sheet and our balance sheet is rated. People know if they transact with us that the balance sheet will stick around for a very long time,” he said.

“If you’re a P&C insurer looking to lay off casualty reserves, which you think might not be paid for 20 or 25 years, we can tell you that that’s pretty short-dated stuff for us—we have liabilities that go out 70, 80 years from now.

“We’re going to be around and our mindset is focused on a very long-dated outlook, and our investors are supporting us over a very long timeframe.

“We’re running the company this way because we know we need to be there for our policyholders for the next 50, 60, 70 years,” he concluded.