RenRe committed to generating returns for third-party capital investors

by Artemis on July 29, 2015

Bermudian reinsurance firm and third-party capital management specialist RenaissanceRe remains committed to “generating superior returns for our shareholders and third party capital providers” as the firm reported a more stable quarter.

In recent quarters RenaissanceRe has been shrinking the amount of catastrophe reinsurance premiums it had been underwriting, while at the same time shrinking some of its managed and third-party reinsurance capital or insurance-linked securities (ILS) vehicles, in response to market conditions.

The pull-back on catastrophe risks appears to have stopped, perhaps due to the increase in demand from the Florida property catastrophe markets driven by the Florida Hurricane Catastrophe Fund (FHCF) itself buying cover for the first time, a purchase RenRe and its DaVinci Re vehicle participated in.

During the second-quarter, a peak time for RenRe’s U.S. and Florida focused property catastrophe underwriting, the reinsurer reports that while its gross written catastrophe premiums were almost flat with the prior year at $385.4m, its managed catastrophe reinsurance premiums (which includes all the third-party capital and joint-venture vehicles) actually increased by a very small amount to $439.3m.

It’s almost certain that the new demand for catastrophe reinsurance seen in Florida this year has enabled RenaissanceRe to stem the reductions in business written, no doubt the reinsurer used its reputation and dominance in those specific markets to secure large shares of new business, such as the FHCF.

The integration of Platinum is now completed at RenRe and the reinsurer is beginning to demonstrate the benefits of this newly added diversification to its business.

RenRe’s specialty reinsurance unit reported premiums up 210% for the quarter, thanks to the addition of the Platinum lines and experience. It also helped RenRe to increase its Lloyd’s of London written premiums as well, likely putting Platinum expertise to work in that market as well.

Kevin J. O’Donnell, CEO of RenaissanceRe, commented; “Our integration of Platinum has gone well. We are operating as one company with a consistent and united approach to the market.”

The addition of Platinum and the newly expanded focus into specialty and casualty reinsurance lines that has brought to RenRe has not lessened its focus on managing catastrophe premiums for itself, its joint-venture partners and capital market investors.

“We remain committed to our goal of generating superior returns for our shareholders and third party capital providers over the long term by continuing to be market leaders in matching desirable risk with efficient capital,” O’Donnell explained.

RenRe’s managed catastrophe premiums includes the business underwritten in its joint ventures, such as Top Layer Re, the DaVinci Re vehicle and its Upsilon sidecar and ILS funds. By keeping these now more stable RenRe can maximise the possible returns to its third-party capital providers and partners.

DaVinci Re itself saw a $5m decline in premiums written, to $142m, compared to the prior year quarter. However the profits earned by the DaVinci Re sidecar vehicle declined by 65% to $16.78m, largely due to lower earned premiums, higher net claims experience and some previously unrealised investment losses coming through.

The profitability of the DaVinci Re vehicle has responded to the pressures in reinsurance markets, making its results steadily less consistent. Following the stabilisation of catastrophe premiums seen in Q2 and the participation of DaVinci Re in programs such as the FHCF’s, RenRe will be hoping it can stabilise the vehicle’s performance as profits from that new business flows through.

During the second-quarter, RenaissanceRe actually slightly increased its third-party capital under management. The reinsurer reported its total redeemable non-controlling interest as $988.8m at the end of Q2 2015, compared to $968.4m at the end of Q1 2015.

It’s not clear where the slight increase was raised, or whether this is purely appreciation on the third-party capital assets that the reinsurance firm reported earlier this year.

This redeemable non-controlling interest is spread across various third-party reinsurance capital and insurance-linked securities vehicles, including DaVinci Re, the Medici ILS fund strategy and two Upsilon ILS fund strategies.

Net income attributable to the non-controlling interests was reported as $12.17m for the second quarter, down from $36.08m a year earlier. However the reinsurer reported its non-controlling interest as $1.024 billion at that time.

RenaissanceRe remains one of the largest reinsurer managers of alternative capital from third-party investors. Its access to business and model of matching risk with the most efficient forms of capital and capacity make it an attractive partner for investors.

This stabilisation of catastrophe premiums written, assisted by the increased demand seen at June 1st, will position its third-party capital vehicles well for the remainder of the year, particularly if the U.S. wind season remains benign.

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