RenaissanceRe cedes casualty risk to Upsilon for first time

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Bermudian reinsurance firm RenaissanceRe has broadened the scope of its activities within the Upsilon ILS vehicle and funds, utilising it to transfer casualty risks to third-party investors for the first time recently.

The Upsilon vehicle and associated ILS fund strategies is focused on both collateralized reinsurance and retrocession, but to date has had a property catastrophe focus, as you’d expect.

That vehicle is maturing though and RenRe has been growing it steadily in recent years, increasing the overall size of the Upsilon vehicle to more than $1 billion for the first time at the mid-year.

Now it seems the remit of the vehicle is expanding and RenRe has used its own expanding diversification to bring a new class of risk to investors, casualty business,

Speaking today during a conference call on the recently announced acquisition of Tokio Millennium Re, CEO of RenRe Kevin O’Donnell was discussing the use of partner capital this year and his firms innovation in the ILS space.

“In addition to bringing substantial capacity to a dislocated market, we were able to cede two-thirds of our risks to partners. This includes Upsilon, where we ceded casualty risk to a collateralised vehicle for the first time. This represents our innovation,” O’Donnell said.

He continued, “There has to be, in my experience, for risk to be structured in a certain way for third-party capital to be interested. It has to be a pretty certain set of circumstances.

“One of the primary drivers for interest in the reinsurance market is diversification of extreme events or cats, and as we know a lot of casualty business income is related to flow that’s related to the tail.

“We are in a unique spot to bring that risk to the capital.”

He went on to say that investors are expressing interest in accessing the returns of a broader range of insurance and reinsurance business, including casualty risks.

However, he also noted that this won’t always meet investors primary objectives for allocating to reinsurance and ILS, hence it won’t be for everyone.

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