DaVinci Re continues to perform for investors despite catastrophe losses

by Artemis on July 27, 2016

Bermuda-based reinsurance firm RenaissanceRe’s (RenRe) third-party backed rated sidecar vehicle, DaVinci Re, was profitable again in the second-quarter, despite increased catastrophe losses, underlining the important role third-party capital continues to play in the firm’s multiple balance-sheet strategy.

DaVinci Re, RenRe’s catastrophe reinsurance focused vehicle, reported a net income of $37.2 million in the second-quarter of 2016, representing an increase of more than 50% on the same period last year, despite the vehicle experiencing catastrophe losses of just over $30 million, prior to reserves.

The vehicle’s combined ratio improved slightly on Q2 2015, despite increased cat losses from severe convective hailstorms in Texas and the Fort McMurray, Canada wildfires, to 67.7%. Roughly $6.8 million of prior accident year reserves helped bring cat losses down to $23.2 million, compared with $22.8 million a year earlier.

Artemis discussed previously that the reinsurer’s DaVinci Re rated vehicle saw its profits grow in the first-quarter of 2016 owing to a reduced catastrophe experience, improved investment results and positive foreign exchange effects, a trend that has continued in Q2.

Investment returns improved significantly in Q2 2016 when compared with the same period last year, with the vehicle reporting a gain of $11 million, compared with an investment loss of $8.6 million in Q2 2015.

An increase in reserve releases to offset a higher catastrophe loss experience in the quarter, combined with substantially more favourable investment gains and a lower combined ratio, helped RenRe report that the net income attributable to non-controlling interest (third-party shareholders and investors in some of its vehicles) in Q2 was $30.6 million, compared with $12.2 million a year earlier.

Unlike the first-quarter of this year, DaVinci actually increased the volume of catastrophe premiums underwritten during the three months of Q2, to $145.7 million, compared with $142.1 million a year earlier, and $114.3 million at March 31st, 2016.

The growth in catastrophe reinsurance premiums witnessed by DaVinci helped the reinsurer report group catastrophe premiums of $397.4 million, an increase of roughly $12 million on Q2 2015.

Managed catastrophe premiums, which are largely third-party capital backed, also increased in the quarter to $461.8 million, compared with $439.3 million a year earlier, reported RenRe.

RenRe revealed that its ownership in DaVinci Re remained at 24% at the end of Q2, the same as at the end of the first-quarter, but down from the 26.3% reported at the end of Q2 2015.

In part as a response to its reduced stake in the vehicle when compared to a year earlier, RenRe states that redeemable non-controlling interest increased to $1.12 billion in the quarter from $988.8 million a year earlier, and from the $1.08 billion reported at the end of Q1 2016.

“Market conditions remained challenging during the second quarter of 2016, however the Company was able to increase its participation on a select number of transactions it believes have comparably attractive risk-return attributes, while continuing to exercise underwriting discipline given prevailing market terms and conditions,” said RenRe.

Even though catastrophe losses were higher in the second-quarter the DaVinci vehicle remains profitable to investors, underlining the disciplined underwriting RenRe shows in the challenging market conditions, and the benefit utilising third-party reinsurance capital can bring to a balance sheet.

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