RenaissanceRe starts managing third-party capital in its Medici ILS fund

by Artemis on August 2, 2013

Bermuda based reinsurance firm RenaissanceRe has begun managing third-party investor capital in its Medici insurance-linked securities (ILS) fund for the first time. The RenaissanceRe Medici Fund Ltd. has existed since 2009 but has only invested RenRe’s own capital in catastrophe bonds until now.

RenaissanceRe has been investing in catastrophe bonds and ILS for a number of years, with its RenaissanceRe Ventures Ltd. unit managing a portfolio of cat bonds within the Medici Fund on the firms behalf. We believe RenRe’s own investments in cat bonds date back beyond the formation of the Medici Fund Ltd., which was formed in Bermuda in June 2009.

During the firms recent second-quarter earnings call, CFO Jeffrey Kelly revealed that the firm is now in the business of managing third-party capital within a dedicated ILS fund, adding to its other third-party capital activities in sidecars and joint-ventures. Kelly said; “Our Medici fund, which has in recent years managed a portfolio of catastrophe bonds on our behalf, began accepting third-party capital to manage during the quarter.”

This new strategy, to manage third-party capital within a catastrophe bond focused (for the moment) ILS fund, is new to RenaissanceRe and is perhaps another sign of the reinsurers continuing move towards a multi-capital source approach to underwriting. RenRe has its own shareholder capital, joint-venture capital from long-term partners, institutional investor capital in sidecars and its Upsilon collateralized retro vehicle and now more third-party capital in an ILS fund.

This multiple capital source approach will help the reinsurer to meet its aim of matching the right risks with the right capital and meeting its various investors risk/return targets.

It’s early days for RenaissanceRe with third-party capital in its Medici ILS fund though and it had taken just $8m of investor capital into the fund at the 1st June 2013. Prior to that date, RenRe was the sole owner of the RenaissanceRe Medici Fund Ltd., but after taking on that small injection of external capital RenRe’s ownership stake in Medici decreased to 92.2%, which would suggest that the fund was around $102.5m in size at the 1st June.

Medici is an exempted fund incorporated in Bermuda with an objective to invest substantially all of its assets in various ILS investment instruments that have returns primarily tied to property catastrophe risks. In its latest SEC filings RenRe said that it expects its ownership share in the Medici ILS fund will fluctuate from time to time, which suggests that it will seek to raise more capital for it.

Jeffrey Kelly confirmed this on the recent earnings call, saying about Medici; “We expect to increase the level of managed capital in this unit overtime.”

It’s not surprising that RenaissanceRe has decided to open this fund to external investors. It will likely have a number of investor partners that already participate in other RenRe strategies, such as DaVinci Re or Upsilon, and would love to access an ILS fund as well.

RenRe will have built a track record for its Medici Fund having invested its own capital in catastrophe bonds and ILS through the fund for three years. RenaissanceRe will be hoping that Medici’s track record, alongside its track record managing third-party capital in its other ventures and also its more traditional reinsurance underwriting operations, proves an attractive draw to investors.

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