Fortitude Re takes $2.1bn in equity from owner pool, shuffles funds back in advisory fees

Bermuda-based multi-line reinsurer  Fortitude Re has taken $2.1 billion in fresh equity from existing shareholders to power forward on new growth, and will proceed payback its key owner in a new scheme of advisory and asset management fees.

Global investment firm Carlyle coordinated the capital increase and will pony up a dilutive $150 million of its own into the deal, Carlyle said in a statement. Co-investor T&D Insurance Group is also in on the deal for an unspecified sum.

"The new capital will strengthen Fortitude Re’s position to pursue further growth and provide innovative solutions to the global insurance industry," management said.

Carlyle and Fortitude Re further adjusted terms of their strategic advisory services agreement. A newly formed Carlyle unit will provide Fortitude Re with M&A, transaction origination and execution, and capital management services, "as well as source new growth opportunities," management said.

The deal should drain Fortitude Re of $50 million in an adjustable annual fee, a sum that should grow further as Fortitude grows its business, Carlyle indicated.

"If Fortitude Re grows as anticipated, Carlyle expects to more than double the [fee related earnings] FRE generated by this advisory relationship by 2025," the NASDAQ-listed Carlyle said.

Fortitude Re will end up with adjusted equity capital of more than $6 billion. Including the previously announced acquisition of Prudential Annuities Life Assurance Corporation, Fortitude Re will manage a general account of approximately $55 billion across life, annuity and property casualty insurance products.

Participants in the capital increase will also take minority stakes in the new advisory unit, Carlyle Insurance Solutions Management.

The $150 million contribution by Carlyle appears to be dilutive of its current stake. Carlyle directly owns 19.9% of Fortitude's holding company, versus the neighbourhood 7% of the current capital increase. Carlyle indirectly holds a controlling majority stake via funds it manages.

Mark Jenkins, head of global credit at Carlyle, said: “Our approach is all about creating alignment and building a structure that benefits Carlyle, Fortitude Re, our investors and Fortitude Re’s policyholders. These transactions position us to accelerate Fortitude Re’s growth while meaningfully increasing Global Credit AUM and FRE to deliver shareholder value.”

Brian Schreiber, head of Carlyle Insurance Solutions, said: “These milestones significantly accelerate our Insurance Solutions strategy and enhance our capabilities to pursue the multi-trillion dollar global market opportunity for legacy liabilities. We made great strides in 2021 with several transactions across all of Fortitude Re’s lines of business and are honored to have the support of a world-class group of counterparties and investors.”

James Bracken (pictured), CEO of Fortitude Re, said: “We are very pleased to expand our successful partnership with Carlyle, strengthening Fortitude Re’s capabilities to serve our insurance clients and their policyholders. We expect this strategic agreement with Carlyle, including the significant capital raise, will support our continued growth as a leading global reinsurer of legacy insurance portfolios.”