RenRe will look to share Platinum prop-cat book with third-party capital

Bermuda reinsurance firm RenaissanceRe will look to share some of the property catastrophe business it is going to assume due to the just announced acquisition of Platinum Underwriters with its third-party reinsurance capital vehicles and their investors.

Speaking during a conference call to discuss RenaissanceRe’s acquisition of Platinum Underwriters Holdings, which was announced earlier today, RenRe CEO Kevin O’Donnell said that as the Platinum property catastrophe reinsurance book is assumed into Renaissance, some of that risk would likely be shared with third-party capital vehicles and investors. He also didn’t rule out ceding some of the casualty and specialty risks to third-party capital in the future.

O’Donnell commented on the deal; “We are excited about this deal and believe it enhances RenRe’s competitive advantages and position in the marketplace today.”

O’Donnell said that the acquisition would enhance client and broker relationships for RenRe, growing its product offering and accelerating its U.S. domestic market growth as a reinsurer as well. The enhanced access to the U.S. market is important to maintain access and grow U.S. reinsurance business for RenRe. O’Donnell also cited operational efficiencies, greater leverage and capital efficiency as well as further diversification of RenRe’s property catastrophe reinsurance book as all positives for the deal.

The combined business, which will operate under the RenaissanceRe brand, will have a lower percentage focus on property catastrophe, with the merged entity being 50% property cat, but an increased casualty and specialty focus at 31%, while the Lloyd’s business will shrink a little to 13%, although further growth of RenRe’s Lloyd’s operation is expected in the future.

The combination of the RenRe and Platinum books will reduce RenRe’s required capital, so will enhance leverage for the firm. As a result the firm expects to benefit from greater capital efficiency and flexibility from a larger and more diversified combined business.

RenaissanceRe plans to retain much of the Platinum Bermuda book of reinsurance business. The firm will leverage third-party capital strategies, ceded retrocession strategy and multiple balance sheets, along with industry leading modelling and science to generate efficiency across the larger property portfolio, RenRe executives said.

O’Donnell said that the Platinum acquisition is further to the organic growth initiatives that Ren Re has been pursuing. He said that it is seen as incremental to the firms existing business, adding greater diversification and capital efficiency.

He said that during due diligence on the deal RenRe spent a lot of time examining the Platinum book of business and that the firm feels it can retain what it wants to retain of it. Anything not retained could see RenRe requiring more retrocession in the future as it may choose to offload some of the Platinum business to other parties.

On the property catastrophe book specifically, which made up 21% of Platinum’s business, O’Donnell said that RenRe will look at the best ways to integrate it, both for its own balance-sheet as well as for its third-party and ILS capital vehicles such as DaVinci. Some of the Platinum business could even require its own vehicles or sidecars, O’Donnell suggested.

“We have been a leader in third-party capital for many years and we believe this transactions will bring us additional flexibility in how we manage not just our own capital but our third-party capital as well,” O’Donnell said.

For RenRe, bringing diversifying premium on add’s efficiency and allows the firm to write more property catastrophe reinsurance business if it should choose, said O’Donnell, adding that the appetite for property catastrophe risks at RenRe remains just as strong after the transaction as before it.

When asked whether RenRe would look to leverage third-party capital to share some of the now increased casualty and specialty business that the combined firm will hold, O’Donnell said it was possible in the future.

Our expertise in third-party capital is largely around property catastrophe, O’Donnell explained. But RenRe has relationships with many capital providers, some of whom have expressed an interest in other types of business as well. In time we may look to share some of the other types of risk, O’Donnell said referring to casualty and specialty, with third-party capital providers as well. But for the moment he said that Platinum’s casualty and specialty business is likely to reside on balance sheet.

O’Donnell was asked whether RenaissanceRe would look to pursue the alternative or hedge fund style investment strategy that Platinum had initiated. O’Donnell said that he wouldn’t, clearly preferring a more traditional approach to the asset side of his reinsurance business.

It will be interesting to watch how RenaissanceRe develops, as it brings onboard the Platinum book and staff and establishes how much of the business it wants to hold on its balance-sheet or cede to third-party investors or retrocessional capacity providers. The acquisition could present an opportunity to ILS investors that would like to access the RenRe third-party vehicles and sidecars and could result in a greater amount of business being ceded to third-party capital at the reinsurer.

Lastly, RenRe had 30 days of exclusivity to get the Platinum deal completed, meaning that Platinum was not marketed as an acquisition option to other reinsurers. It will be interesting to see whether the sudden announcement of this deal sees other reinsurers begin conversations on potential acquisitions.