RenRe expects to recover $500mn from collateralized retro reinsurance

by Artemis on November 7, 2017

Reinsurer RenaissanceRe (RenRe) has revealed that it ceded more than two-thirds of its gross losses from Q3 events to retrocessionaires and third-party investors, which includes a roughly $500 million collateralised reinsurance recovery.

The Bermuda-based reinsurance firm announced gross losses of around $2.2 billion for catastrophe events experienced in the third-quarter, and a net negative impact of roughly $615 million.

The firm’s President and Chief Executive Officer (CEO), Kevin O’Donnell, said during its Q3 earnings call, that differences between its gross and net losses from the events, means that over two-thirds of its gross losses “have effectively been ceded to retrocessionaires, shared with third-party capital, and are offset by reinstatement premiums.”

Furthermore more, when questioned on the split between the impact to its traditional market operations in comparison to its third-party, or alternative reinsurance capital operations, O’Donnell said, “it’s roughly half a billion of collateralised recovery.”

RenRe operates and participates in a range of joint-ventures and managed balance-sheet vehicles that utilise third-party capital markets investors, and it’s clear from the company’s results announcement, and comments made by O’Donnell about its collateralized reinsurance recovery, that its insurance-linked securities (ILS) investors have helped the firm pay claims during a costly quarter.

Despite the major losses reported in Q3, RenRe said recently that it’s “fully-capitalized,” after successfully raising funds for its Upsilon collateralized reinsurance and retrocession funds, as well as the replenishment of its DaVinciRe third-party capital-backed reinsurance vehicle.

Both the retro markets and the collateralized markets have taken a large share of the losses, and O’Donnell stressed that a “material portion of their capital will have been impaired or locked up.

“The ability of some of these funds to recapitalize and trade forward will be heavily dependent on rate. Investors experiencing large losses will need material price increases before they agree to reinvest. This could cause disruption in January 1, when roughly three quarters of the retro market renews,” said O’Donnell.

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