Bermuda-based reinsurer and third-party reinsurance capital management specialist RenaissanceRe is not actively looking for new third-party investors in the current reinsurance market environment, according to CEO Kevin O’Donnell.
RenaissanceRe is trying to manage its mix of balance-sheet, third-party and joint-venture sourced reinsurance capital in particularly difficult market conditions at the moment. In the current softening market and declining rate environment, the reinsurer has stopped actively looking to grow its third-party assets under management.
The same is true of some larger insurance-linked securities (ILS) managers, who while still marketing their funds and services are not out there looking to take on new capital right now in the current environment. Many ILS managers and reinsurer operated third-party capital units are fully invested right now, so for some the focus will be on lining up future inflows for the January renewals, if they see sufficient attractive opportunities to redeploy capital from deals that expire as well as some new funds as well.
Kevin O’Donnell said during RenaissanceRe’s recent earnings call that the reinsurer continues to get a lot of interest from investors looking to access the reinsurance linked investments space, with many expressing an interest to get into RenRe third-party capital vehicles.
The reason for this, believes O’Donnell, is the strong alignment between RenRe and its third-party investors, with its own capital invested alongside outside funds, encouraging investors that the reinsurer constantly assesses the risks it puts in its third-party and ILS vehicles, something O’Donnell said is valuable to investors.
While not actively looking for new investors at this time, RenRe can always make room for the right capital should it show an interest. O’Donnell explained; “At this point we have not actively been looking for new investors to come in but when we see long-term partners that we want we will in many instances make room for them.”
Investors are looking for an alignment of capital, said O’Donnell, alongside risk adjusted returns that are acceptable to them over the longer term. Because of this, RenaissanceRe continues to see good interest in the various vehicles it offers.
Alongside not actively trying to boost its capital in the current market, RenaissanceRe has actively pulled back on catastrophe reinsurance underwriting as it seeks out only the opportunities that meet its risk and return targets. O’Donnell said that this is consistent with how RenRe has always operated in a soft market environment, pulling back, being selective, positioning its portfolio for profit and also buying retrocession in order to optimise its book of business.
During the second quarter RenRe purchased a $180m retrocessional reinsurance limit to provide UNL protection for the reinsurers peak Florida exposures. RenRe looks on this type of opportunistic retro purchase as a way to enhance the expected return on its portfolio, taking more of a trading approach to managing its portfolio of risk.
One area where RenRe did take on some new investor capital was when it sold some of its own shares in the DaVinci Re vehicle to an existing third-party investor, lowering its share of the vehicle. This is one way the firm has been able to satisfy some of the investors it does want to allow into its third-party capital vehicles, as it sees them as good long-term partners, by reducing its own stake a little to allow them to participate.
In terms of where the competition is coming from in the reinsurance market, O’Donnell said it is from both traditional and alternative reinsurance capital sources.
On the traditional side, some reinsurers are protecting market share over margin, which O’Donnell said could reflect fear or uncertainty over just how much new capital there may be available to come into the space if conditions improved. This is interesting, as protecting market share does seem to have been the strategy of some players. If this is at the expense of margin, or risk controls, then this is a dangerous way to navigate the current market environment.
On the alternative capital side, O’Donnell said that the pressure to deploy capital remains an element which increases competition and puts pressure on pricing.
RenaissanceRe is being prudent in its use of capital from third-parties, slowing down on inflows as it manages its existing capital and seeks to grow investor relationships that last, rather than simply taking on more money in a difficult market. This should put it in good shape for the coming quarters as the market remains soft and competitive, while also positioning it for growth should market conditions improve.
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