RenRe launches new Upsilon sidecar, DaVinci more profitable

by Artemis on February 5, 2014

Bermuda-based reinsurance and third-party capital management specialists RenaissanceRe has revealed a renaming of the firms Upsilon retrocessional reinsurance sidecar for 2014, changing it to Upsilon Reinsurance Fund Opportunities Ltd.

Upsilon Reinsurance Fund Opportunities Ltd., or Upsilon RFO, was previously known as Upsilon Reinsurance II Ltd. It is a Bermuda domiciled special purpose insurance vehicle which acts as a sidecar for RenaissanceRe, allowing the reinsurer to leverage its own capital, as well as any raised from third-party institutional investors, in underwriting property catastrophe retrocessional reinsurance business.

In its latest quarterly results report, RenaissanceRe said that it has funded Upsilon Reinsurance Fund Opportunities Ltd. to create additional capacity for the worldwide aggregate retrocessional reinsurance market. Opportunities within worldwide retro have remained attractive at the recent renewals so Upsilon likely saw some demand for its product.

Upsilon Reinsurance Fund Opportunities has been capitalised by investors, including RenaissanceRe, and the fully-collateralized retro reinsurance limit has been fully deployed in reinsurance contracts, likely at the January 1st renewals.

RenaissanceRe said a few months ago that it would like to increase the size of its Upsilon retro sidecar for the January renewals, as the reinsurer saw good opportunities and demand for its worldwide retrocessional reinsurance product.

Upsilon Reinsurance Fund Opportunities Ltd. is managed by RenaissanceRe’s third-party capital management team, Renaissance Underwriting Managers, Ltd.

Upsilon RFO may raise additional capital in the future and provide additional fully-collateralized retrocessional reinsurance capacity if the market opportunities present themselves, said the reinsurer. Suggesting that RenRe is ready to pounce on any underwriting opportunities that come along.

There will likely be excess demand from third-party investors to participate in Upsilon RFO, meaning that RenaissanceRe should be able to quickly accommodate more capital should better market conditions and opportunities for capital deployment emerge during 2014.

RenRe’s joint-venture entity, DaVinci Re, saw a more profitable fourth quarter, helping the reinsurer to recognise net income from its noncontrolling interests of $54.2m in the fourth quarter of 2013, up from $9.7m in the fourth quarter of 2012.

RenaissanceRe said that the increase in income from its noncontrolling interests was due to DaVinci Re seeing an increase in profitability due to better underwriting performance driven by light catastrophe losses.

In January 2014 DaVinci Re redeemed more of its outstanding shares from investors, as RenaissanceRe continued a policy of only taking capital it knows it can put to good use. At the same time a new shareholder was also introduced to DaVinci Re.

President and CEO of RenaissanceRe Kevin O’Donnell said a few months ago that it would not seek to grow DaVinci Re this year as the market opportunities were not conducive to doing so.

However, despite buying back more DaVinci Re shares RenRe actually owns less of the vehicle than it did a year ago. In January 2013 after buying back $150m of DaVinci Re shares RenRe upped its stake in the vehicle to almost 33%. At the 1st January 2014 RenRe’s DaVinci Re stake stood at 26.5%, which suggests that the reinsurer perhaps sold some of its own share in the vehicle.

The net redemption as a result of buying back DaVinci Re shares and taking on a new shareholder was $300m, according to the reinsurers results.

RenaissanceRe continues to optimise its use of capital, as well as the returns it can offer to third-party investors, to take advantage of the most attractive opportunities in the reinsurance market. The renewal of its retro sidecar as Upsilon Reinsurance Fund Opportunities Ltd. and the buying back of more DaVinci Re shares is evidence of this ongoing portfolio and capital optimisation at the firm.

Overall RenaissanceRe saw a profitable fourth quarter, helped by some reserve releases related to hurricane Sandy and a low-level of catastrophe losses. There is also some evidence that the firm has pulled back slightly in catastrophe reinsurance renewals while growing its specialty and Lloyd’s business at renewals, another reaction to the current market conditions no doubt.

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