RenaissanceRe Ventures investing in run-off through Catalina

RenaissanceRe Ventures, the unit of the Bermudian reinsurance firm that manages investments and third-party capital joint-ventures, is taking a minority investment in run-off specialist Catalina Holdings, demonstrating RenRe’s desire to broaden its scope and bring investor capital to new insurance-linked opportunities.

Just yesterday we wrote about the attraction run-off opportunities can have for insurance-linked investors and the fact that ILS markets could have a growing role in financing run-off and consolidation initiatives.

In making this investment, Bermudian reinsurer RenaissanceRe and non-life run-off and consolidation specialist Catalina, recognise the potential for RenRe to open up a “wider range of transaction structures” for Catalina to leverage in its run-off activities.

With RenRe Ventures a proven manager of third-party reinsurance capital and also adept at structuring capital market reinsurance opportunities, there is every opportunity for RenRe and Catalina to benefit from the current appetite investors have for accessing insurance-linked returns.

The investment will see RenRe become a minority shareholder in Catalina, in a transaction timed to close concurrently with the majority acquisition of Catalina by affiliates of private equity giant Apollo Global Management.

Aditya Dutt, President of Renaissance Underwriting Managers, Ltd., who leads the Ventures and other third-party capital activities at RenRe, will be joining the Catalina board of directors, once the investment is complete.

The announcement explained, “RenaissanceRe’s investment will provide strategic benefits to Catalina and help the business to explore a wider range of transaction structures as it continues to execute its growth strategy that has seen the business grow steadily and consistently over many years.”

There is a significant opportunity for financial structuring to create opportunities for RenaissanceRe’s third-party investors to access the returns of run-off business acquired and managed by Catalina here.

Institutional capital flowing through structures akin to special purpose vehicles or sidecars could augment the run-off acquisition capacity of Catalina, while RenRe could manage the investors and structures. This would leave Catalina to do what it excels at, identifying, managing and acquiring run-off opportunities, while RenRe can leverage its near twenty year experience of managing third-party investors that seek to access the returns of insurance and reinsurance business.

It’s a compelling partnership and also offers RenaissanceRe another diversification angle, as it continues to build itself out into a broader reinsurance operation. Just over a week ago the reinsurer launched a third-party capital backed life and annuity reinsurance start-up named Langhorne Re, alongside life specialist Reinsurance Group of America (RGA).

Third-party capital, delivered through efficient (ILS like) financial market structures rather than traditional equity investments, is set to play a much broader role across reinsurance markets and run-off portfolios, backing business where an experienced manager like Catalina can extract the best possible returns from the underlying risks.

Therefore a RenRe partnership with Catalina would be an interesting proposition.

Commenting on the investment, Chris Fagan, Chairman and Chief Executive of Catalina, said, “We’re delighted to welcome RenaissanceRe as shareholders in Catalina. They join us at time of significant opportunity to help us capitalize on the continued growth of the non-life legacy sector.

“Together with Apollo, our new shareholders provide us with access to additional expertise and substantial financial resources that will help us to take advantage of the vast array of legacy market opportunities we continue to see, driving our business through the next phase of its growth, and strengthening our position as one of the legacy market’s leading consolidators.”

Kevin O’Donnell, President and Chief Executive Officer of RenaissanceRe, added, “We are pleased to partner with Catalina as they have demonstrated a strong, consistent track record in managing legacy businesses. This transaction is consistent with our strategy to expand the suite of capabilities at our disposal to bring to our clients, through partnership with a proven industry leader. We look forward to working with the Catalina team on new opportunities.”