RenRe positioned to weather competition from alternative capital: Moody’s

RenaissanceRe, the Bermuda-based property catastrophe reinsurance firm, stands better positioned than many of its competitors to weather the increasing competition from alternative sources of reinsurance capital, according to rating agency Moody’s Investors Service.

This comment was made as Moody’s affirmed the ratings of RenaissanceRe Holdings Ltd. and the reinsurers joint-venture subsidiary DaVinci Reinsurance Ltd. and assigned provisional ratings to a shelf registration made by the firm.

Moody’s said that the property catastrophe reinsurance market is faced by significant competition from alternative sources of capital, such as pension funds, dedicated catastrophe risk funds, institutional investors and hedge funds).

RenaissanceRe has a high concentration of its business in property catastrophe reinsurance and is overweight in terms of exposure to the United States, particularly in Florida. These are the lines of business and geographies where reinsurers face the most competition from alternative capital, meaning RenaissanceRe is exposed to the current interest in reinsurance from third-party investors.

Moody’s believes that RenaissanceRe is better positioned than many of its peers to weather the competition from alternative capital though. The reinsurers long track-record of partnering with alternative capital and generating significant returns for those partners puts RenaissanceRe in a strong position to capitalise on this trend rather than suffer from it.

RenaissanceRe is a reinsurance firm which has a long history of managing third-party capital, establishing joint-ventures with third-party capital providers and using alternative capital to help it meet clients needs with an expanded offering as well as earning fee income and participating in profits from it.

Rating agency Moody’s clearly sees the long track-record in insurance-linked securities and managing alternative reinsurance capital as a strong positive for RenRe.

Despite this positive, Moody’s sees little room for upside in the RenaissanceRe rating as the firm is so reliant on property catastrophe reinsurance as its core product line. With the competition from alternative capital currently focused on this area of the reinsurance market, Moody’s sees stability as about the best RenaissanceRe can hope for in the current market without some major changes to the way it does business.

RenaissanceRe itself recently said that the optimal structure for a property catastrophe reinsurer right now is to have a mix of rated and third-party reinsurance capital. RenaissanceRe has certainly differentiated itself historically by following this mixed balance-sheet approach to capital, but with many other reinsurers now following the same strategy we wonder how long this can be seen as a differentiator for.

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RenaissanceRe recently began managing third-party investor capital in its Medici insurance-linked securities (ILS) fund for the first time.