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Business case

Inspection And Certifying Audits

Cash flow analysis

The Base Case represents a Life Re business that generates 11% IRR in a 10 year run-off.

Aragon Re represents the identical business, however it generates a 30% IRR because the Company has invested 30% of its portfolio into alternative funds earning 14% per year.

Equity capital

  • € 300,000,000
  • € 270,000,000
  • € 240,000,000
  • € 210,000,000
  • € 180,000,000
  • € 150,000,000
  • € 120,000,000
Base Case 2020 2021 2022 2023 2024 2025 2026

Revenues
Insurance Assets 2,500,000,000 2,250,000,000 2,000,000,000 1,750,000,000 1,500,000,000 1,250,000,000 1,000,000,000
Investment Income 162,500,000 146,250,000 130,000,000 113,750,000 97,500,000 81,250,000 65,000,000

Expenses
Total Liabilities 129,500,000 116,550,000 103,600,000 90,650,000 77,700,000 64,750,000 51,800,000
Net Income 33,000,000 29,700,000 26,400,000 23,100,000 19,800,000 16,500,000 13,200,000
Return of Capital 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000
300,000,000 63,000,000 59,700,000 56,400,000 53,100,000 49,800,000 46,500,000 43,200,000
IRR 11%
Aragon Re Case 2020 2021 2022 2023 2024 2025 2026

Revenues
Insurance Assets 2,500,000,000 2,250,000,000 2,000,000,000 1,750,000,000 1,500,000,000 1,250,000,000 1,000,000,000
Investment Income (core) 113,750,000 102,375,000 91,000,000 79,625,000 68,250,000 56,875,000 45,500,000
Investment Income (alpha) 105,000,000 94,500,000 84,000,000 73,500,000 63,000,000 52,500,000 42,000,000
Total Investment Income 218,750,000 196,875,000 175,000,000 153,125,000 131,250,000 109,375,000 87,500,000

Expenses
Total Liabilities 129,500,000 116,550,000 103,600,000 90,650,000 77,700,000 64,750,000 51,800,000
Net Income 89,250,000 80,325,000 71,400,000 62,475,000 53,550,000 44,625,000 35,700,000
Return of Capital 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000
  119,250,000 110,325,000 101,400,000 92,475,000 83,550,000 74,625,000 65,700,000
IRR 30%

The returns and value created

A reinsurance company making alternative asset fund returns on a portion of its asset portfolio can generate +30% IRRs.
On a pre-tax basis, an alternative asset manager would earn 1.8x in additional profit by investing in the reinsurance company versus simply managing the same amount of assets on shore.

  Aragon Re 10 year Alternative Asset Fund
IRR 30% 14%
Payback on €300mm 3.25 years 10 years
Management Fees 82,500,000 60,000,000
Performance Fees 115,500,000 84,000,000
8.3% of Profits 65,642,625 NA
Pre-tax Profit 263,642,625 144,000,000
* Note: Table assumes that the 10-year Alternative Asset Fund earns 14% for 10 years (2/20 fees). The Aragon Re returns assume an investment of €100mm in equity which buys €800 million in insurance assets, 30% of the assets are invested back into the Alternative Asset Funds, while the remaining portfolio earns 6.5% over the same period. The Aragon Re returns are also modeled on a run-off business that returns capital each year.

Strategy

Create a newly formed Bermuda company.

Source conservative life insurance liabilities with simple business acquisition dynamics (retro, blocks)

Create Asset Management Advisory firm in Bermuda with an exclusive sponsorship agreements for managing the Aragon alternative asset portion.

Plan minimal infrastructure with outsourcing partnerships in all non-core areas. Major servicing operations will be executed in the Philippines.

Opportunistically evaluate additional methods to acquiring liabilities.

Life reinsurance business model

Business model

Reinsurer writes treaties on conservative life liabilities.
Reinsurance company may also look at block transactions.

Asset management dynamics

Typically portfolio assets are equal to about 8 to 9x initial equity capital (€100mm in equity buys €800m in assets to management, These assets secure the insurance liabilities.)

Up to 30% of the assets are managed by a sponsoring alternative asset manager with the stated goal of generating Alpha within the stated liquidity requirements.

The remaining assets are managed for liquidity and an A1 or higher rating through our Alternative Asset Management division.

What will the business do?
Traditional Life Reinsurance (Full UL, Yearly Renewable Term, Fixed Annuities)

Run Off Solutions

Manage assets with a sponsoring alternative asset manager

Aragon Re will provide solutions to help U.S. life insurers actively manage their risks and capital.

Meet the return parameters of our investors by generating alpha in our investment portfolio, while taking on extremely conservative liabilities

Additional Sources of Profit
In addition to reinsuring life mortality risks, there are several other life insurance initiatives that should be considered for this reinsurance company.

Life Insurance acquisitions

Life settlements involving Term Life Policies

Critical Illness Coverage

International Student Major Medical Insurance

Assumptions on ownership
A single US shareholder may own 24.9% of the company if there are no other US owners, while still preserving Bermuda Tax laws.

We assume that our captive sponsoring alternative asset manager will be the sole US shareholder.

All remaining shareholders will be foreign limited partners.

Operations and Due Diligence

Core investment-related activities and asset management will be managed in house while policy administration, and other functions will be outsourced.

  In House Outsourced
Operational Functions X  
Origination/Pricing X  
Underwriting X  
Asset Management X  
Risk Management   X
Policy Administration   X
Accounting   X
HR and IT   X

Success or failure in Bermuda

Success or failure in Bahamas depends on two critical factors:

Asset management

Moore Capital never had a down quarter until Max Re went public. If the alternative assets do not perform well, neither will the insurance business.

Insurance expertise

Wilton Re is an excellent example of a start-up reinsurer who is currently returning approximately 15% to their on shore investors without trying to increase returns on their invested portfolio. Wilton’s entire investment portfolio is managed to an A1 or higher rating through their fixed income manager Black Rock.
Due Diligence Partners      
Valuation/Actuarial Towers Watson Mercer AON
Asset Management Cutwater BlackRock PIMCO
Accounting/Audit Ernst & Young Deloitte KPMG
Investment Banking Goldman Sachs UBS JPMorgan
Legal Baker & McKenzie DLA Piper Mayer Brown JSM