According to RenaissanceRe’s CEO Kevin O’Donnell, with the acquisition of AIG’s reinsurance businesses under the Validus brand now complete, the insurer remains on-track to invest $500 million into two of the RenaissanceRe Capital Partners vehicles.
Part of the agreement in the deal that saw AIG selling its Validus reinsurance and AlphaCat ILS arms to RenaissanceRe involved the insurer also making a significant investment into the DaVinciRe sidecar-like structure and the casualty and specialty joint-venture Fonatana Holdings.
A $500 million investment is a significant addition to these structures, however it is split and will go a long way towards enabling AIG to continue benefiting from reinsurance market returns, even without having its own underwriting vehicles in that marketplace after the sale.
Speaking during the RenaissanceRe earnings call yesterday, CEO Kevin O’Donnell said everything is on-track.
“Moving now to our ILS business, it was a quiet quarter in Capital Partners, as we continue to prepare for the Validus integration. One of the many advantages Validus will bring us is growth in our Capital Partners business. This is because as our underwriting portfolio renews next year, we will share it proportionally with Capital Partners,” he explained.
Before adding that, “AIG remains on track to invest $500 million in aggregate into DaVinci and Fontana. This investment is expected to be facilitated through a combination of partially selling down our shares and injecting new capital to support growth.”
Bob Qutub, CFO at RenRe, also opined, “Moving to fee income. These will benefit from the increased capital we’re bringing to our joint ventures to support our growing underwriting portfolio.
“This includes a substantial expected investment by AIG into our capital partners business effective on January 1.”
So the $500 million in capital is expected to flow in time for the 1/1 renewal cycle it seems, providing additional scale to the more property and catastrophe focused DaVinciRe and the casualty and speciality lines focused Fontana Holdings.
O’Donnell later said that, “Going forward, AIG’s investment in us means we can jointly benefit from the underwriting portfolio’s future performance.”
With the assumption of the Validus books, presumably including AlphaCat portfolios, RenRe is undertaking a portfolio optimisation across its business, which the additional capital from AIG will likely factor into.
O’Donnell commented, as to how the acquisition and investments will impact the portfolios RenRe manages, “I can tell you we are shifting not only Validus, but RenRe’s risk sharing to optimize DaVinci, Fontana and all of our own balance-sheets. So it’s not as simple as a question of saying, we’re going to take 50% of the property cat from Validus and move it, we’re actually shifting what is coming from RenRe Limited as well.
“I would say the overall, Fontana will grow, DaVinci will grow by a smaller percentage. RenRe will drop its percentage share with DaVinci and Fontana will ballpark be 50-50.”
But when asked whether he expected much more capital raising to occur, in particular for DaVinci and Fontana, it seems the AIG capital injection may satisfy what is needed to meet market demand.
As O’Donnell explained, “I think we’re going to hold relatively flat on additional raises within DaVinci, maybe a little bit more in Fontana.”
Also read: RenRe Capital Partners fee income soars, releases & returns more trapped collateral.
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