Bermudian reinsurance firm and third-party capital management specialist RenaissanceRe (RenRe) has revealed that it estimates its net third-quarter catastrophe losses, from recent hurricanes and earthquakes, at $625 million. The firms third-party capital vehicles and joint-ventures will also be taking a share of its ultimate loss.
RenRe said that hurricanes Harvey, Irma and Maria and the Mexico City earthquake all add up to a negative impact of $625 million on the reinsurance firms Q3 2017 results.
RenRe breaks the events down as $225 million from hurricane Harvey and $175 million from hurricane Irma.
The fact Irma is the lower of the two hurricane losses likely reflects RenRe’s move away from being such a Florida focused reinsurer over the last few years, and also that the company can call on more of its retrocessional reinsurance and third-party capital partners to share the burden from Florida losses.
Less accuracy is given to the more recent losses, with RenRe estimating that hurricane Maria and the Mexico City earthquake will have contribute a $225 million dent to its Q3 results combined.
The reason for less accuracy around the latter two catastrophe events is that there is much greater uncertainty still and RenRe warns that the hurricane Maria and Mexico quake losses could increase.
“These estimates may be even more uncertain for the two more recent events, Hurricane Maria and the Mexico City Earthquake because, among other things, recovery, insurance loss adjusting and exposure estimates are at earlier stages. Furthermore, seismic events such as the Mexico City Earthquake generally have longer development periods than windstorm events, which may be amplified in this instance by dynamics such as the risk of geological liquefaction and the potential for uncertainty in claims adjudication. In respect of Hurricane Maria, recovery efforts are ongoing and expanding, with power outages, infrastructure damage, communications disruptions and other issues complicating loss mitigation and estimation.”
A more accurate estimate of these losses will be given in the firms third-quarter results.
Kevin J. O’Donnell, CEO of RenaissanceRe, said; “We extend our sympathies to all those affected by these recent catastrophic events, and recognize their enormous human impact. As we have always done, we stand ready to help rebuild the many affected communities by serving our customers and paying claims.”
How much RenRe’s gross losses are we may never fully understand, but it is certain that the reinsurers third-party capital vehicles, such as its Upsilon retro ILS strategy, the DaVinci Re reinsurance vehicle, perhaps even its Top Layer JV with State Farm, and perhaps other mandates it has with larger ILS investors, are likely all to have shared in at least some of the losses from these major events.
RenRe is also a significant user of retrocession, so other markets (including ILS) will have shared in RenRe’s losses as well, through its retro program, at least some of which is likely fully collateralized. We understand that RenRe also buys industry loss warranty (ILW) protection, so it is possible that some losses will fall here as well.
Interestingly, analysts at Keefe0 Bruyette & Woods (KBW) noted that RenRe’s losses could represent almost 13% of 2017 shareholders equity, but the reinsurers share price has only fallen just under 5% since before Harvey struck.
That suggests two things, that RenRe has taken a higher share of losses than its market share alone would have suggested, the analysts say, and that its share price could come under a little pressure as a result of the announcement.
But, KBW says that RenRe is likely one of the winners should property catastrophe reinsurance pricing rise, after recent events, with its market positioning enabling it to take advantage of rising prices and increase its premiums written.
RenRe can also command more third-party capital from its ILS investors, if the opportunity allows, so the reinsurer will be well-positioned going into January renewals.