RenRe’s Upsilon cat reinsurance & retro vehicle passes $1bn AuM

Bermudian reinsurer and third-party reinsurance capital management firm RenaissanceRe has continued to increase the size of its collateralized reinsurance and retrocession vehicle Upsilon, issuing another set of shares to investors during the second-quarter, increasing the overall size of the vehicle to more than $1 billion for the first time.

Earlier this year, in time for the January 1st 2018 reinsurance renewals, RenaissanceRe’s Upsilon RFO vehicle issued $600.5 million of shares to investors, including $75 million to RenRe itself, which was the largest capital raise for the collateralized reinsurance and retrocession strategy to-date.

Following this successful and significant capital raise for Upsilon, the vehicle reached a new high of over $800 million of limit for owner RenRe and while retrocession rates were not as attractive as the reinsurer had hoped for, it took the opportunity to underwrite a more balanced portfolio, almost a 50/50 mix between retrocession and primary reinsurance or enterprise risks, for the Upsilon strategy for the first time.

So the Upsilon strategy now represents a mixed collateralized retrocession and reinsurance strategy, with a smattering of enterprise risks as well, which perhaps offers RenRe a chance to grow the strategy even further, providing a greater choice of transactions for the vehicle to participate in.

As a result, Upsilon has once again upsized, with RenRe reporting that during the second-quarter of 2018 the Upsilon RFO vehicle issued $205.4 million of non-voting preference shares to investors, $32.8 million of which RenRe itself took.

After this latest capital raise for the Upsilon vehicle, RenRe’s own participation in the risks assumed by the Upsilon RFO strategy was 14.6%, slightly up from the 14.1% share it had at January 1st.

So in the first-half of 2018 the Upsilon RFO vehicle has raised at least $806 million of new capital from investors and its own participation in the risks underwritten, which is a significant uplift on the just $134 million of capital raised through share issues from Upsilon in the first-half of 2017.

Now, we understand that the Upsilon vehicle accomodates $917 million of third-party capital, which if you add in RenRe’s participation of $146 million (the 14.6%) takes the total size of the assets under management within the Upsilon strategy to roughly $1.063 billion.

That’s a clear reflection of the higher return potential of reinsurance portfolios following the major catastrophe losses of 2017 and while rate increases are continually bemoaned as too small, for some the higher priced risks are worth allocating more capital to and RenRe is capitalising on this higher investor demand to grow its third-party capital operations.