Vermeer launch helps RenRe “address more of its cedents’ concerns”

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The launch of Vermeer Reinsurance Ltd. by RenaissanceRe, with the sole backing of Dutch pension fund manager and significant ILS investor PGGM, will help the reinsurer to “address more of its cedents’ concerns” while bringing diversified capital to market, analysts say.

The launch of Vermeer Re was announced this week and it sees RenRe teaming up with long-time insurance-linked securities (ILS) investor to launch what is now the reinsurers first managed rated reinsurance vehicle for a single pension fund investor.

Of course, RenRe is no stranger to managing third-party reinsurance capital from large institutional investors like PGGM, or in managing joint-venture reinsurance vehicles (such as Top Layer Re, DaVinciRe and Langhorne Re), but the launch of Vermeer does bring a new element to RenRe’s market-facing fire power that will help it expand its influence among clients.

Analysts at Keefe, Bruyette & Woods spoke with RenRe about the launch of Vermeer Reinsurance yesterday and highlights that it will bring a number of benefits to the reinsurer.

While they at first speculated that the launch of Vermeer “reflects RNR’s expectations of improving property catastrophe reinsurance and/or retro returns in 2019.”

Adding, “We think this announcement reflects RNR’s expectations of improving property catastrophe reinsurance and/or retro returns in what is likely to be a late January 2019 renewal season.”

The analysts followed up to highlight that, “Although some recent news (including the California wildfires and the disclosed Markel CATCo reserve inquiries) probably points to better property catastrophe reinsurance market conditions in 2019, Vermeer’s formation plans started much earlier. A.M. Best rarely gives any start-ups ‘A’ ratings, and (in our view) almost certainly wouldn’t in just three weeks.”

Knowing the investors at PGGM backing Vemeer this is likely to have been in the works for some months and aligns with the pension fund managers strategy of lowering the costs that reduce the margin in its allocations to ILS and reinsurance.

KBW’s analysts highlighted that Vemeer plans to underwrite the more risk-remote layers of U.S. property catastrophe risks, which it says are analogous to the layers that Top Layer Re underwrites and “generally written by a relatively small group of strongly rated (A+ to AA) global reinsurers.”

RenRe hadn’t previously targeted those layers of property catastrophe risk itself, “because of the obvious correlation with its other U.S. catastrophe business and because of the capital charges associated with extremely volatile lines,” the analysts continued.

But now with Vemeer, the analysts said, “We think this joint venture allows RNR to address more of its cedents’ concerns while still providing diversified capital.”

RenaissanceRe’s strategy with its third-party capital vehicles is to add complementary sources of capital that target areas of risk it cannot expand into too much on its own balance-sheet, it feels are underserved, or where it sees opportunity to improve margin for itself and the investors backing the vehicles, or where its cedant clients express a need for more efficient capacity.

Vemeer Re will address all of those areas for the firm, which in turn enhances its own relevance among its client base.

Of course Vemeer also benefits RenRe by bringing it more fee income for the underwriting and management services rendered to the joint-venture reinsurance vehicle.

In addition it further raises RenRe’s profile as a manager of ILS assets and a firm that can generate attractive opportunities for large institutional investors, given its globally relevant size and footprint.

“This deal also demonstrates RNR’s ongoing attractiveness to ILS investors, in contrast with other asset managers’ reported redemptions,” KBW notes.

Finally, the analysts say that RenRe expects this new joint-venture will be a long-term relationship between itself and investor PGGM.

PGGM will also be looking to this as a long-term part of its strategy to access reinsurance linked returns, especially given the fact Vemeer Re will likely prove a particularly efficient way to access layers of property catastrophe risk that are harder to access without significant intermediation costs for many ILS investors.

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