PartnerRe CEO says “significant” third party capital growth helping

PartnerRe, the Bermuda headquartered, EXOR owned reinsurance company, is feeling the benefits from its increased haul of third-party reinsurance capital, according to CEO Jacques Bonneau.

The reinsurance company reported its first-quarter results yesterday, saying that while it fall to a net loss of $66 million because of unrealised losses on fixed investment maturities because of risk free rate movements, the companies underwriting improved and it delivered an underwriting profit, despite the impacts of US winter storm Uri.

Net premiums underwritten rose by 9% to $2.05 billion, with property and casualty reinsurance net premiums rising by 12%, generally driven by higher rates.

On the non-life side of PartnerRe’s business, the company delivered an underwriting profit of $40 million, on a combined ratio of 96.7%.

This is despite $104 million of net, after retrocession, losses from US winter storm Uri’s impacts, $97 million of which fell to the P&C side.

The P&C loss ratio was elevated, but it seems PartnerRe has shared its losses with retrocessional partners and also with its third-party reinsurance capital partners, assisting it in reducing volatility through the first-quarter.

As a reminder, PartnerRe had grown its third-party capital assets under management earlier this year, lifting them above $1 billion around the January 2021 renewals.

PartnerRe has been building out its third-party capital business recently, moving into direct partnerships with large institutional investors, as well as building out an infrastructure to support that and broader co-mingled ILS investment opportunities.

PartnerRe formalised its third-party capital activities within a dedicated unit last year, hiring Andrew Hughes (formerly of Hiscox) as its CEO of Third Party Capital.

That came shortly before its latest quota share sidecar arrangement was revealed in January, a collateralized retrocession and specialty reinsurance focused investment vehicle named Laplace-C, which secured its backing from private equity investor Olympus Partners.

There is also the €750 million of capital that French insurance group Covéa injected into special purpose reinsurance vehicles managed by PartnerRe.

Plus, PartnerRe had expanded its reinsurance investment partnerships introducing a relationship with Dutch pension investor PGGM, the largest ILS investor in the market, through its Huygens structure.

All of which grew the third-party capital pile, which has likely increased further through Q1 and as a result will have assisted the reinsurer in managing the impacts of the winter storms and catastrophe loss events, given the risk-sharing nature of these investor relationships.

PartnerRe President and Chief Executive Officer Jacques Bonneau commented on the results, “The 2021 underwriting year started on a positive note from a pricing perspective, and we have seen continued momentum throughout our April 1 non-life renewals, while remaining focused on the execution of our strategy to improve profitability. We are seeing positive rate movement in most, if not all, of our lines of business while achieving price improvements in new and renewal business of approximately 9% for our non-life portfolio through April 1.

“We were also able to reduce our exposures on poorly performing lines and programs as we continue to drive for increased margins. The underwriting improvements in the first quarter were masked by Winter Storm Uri. The favorable pricing conditions, combined with the benefits we are seeing from our re-underwriting actions and significant growth in third party capital, position us well to deliver improvements in our underwriting and financial results during the remainder of 2021.”

Finding the right balance, with third-party reinsurance capital initiatives, to deliver on investor demands for returns from portfolios of risk, while leveraging their appetite to moderate volatility in the underwriting book and drive growth, can be challenging and isn’t always an exact science.

The gap between PartnerRe’s gross to net premiums in the P&C reinsurance segment has widened significantly this quarter.

Q1 2021 saw the company writing $1.517 billion of gross P&C premiums, which was reduced to $1.153 billion net, compared to Q1 2020’s $1.137 billion gross and $1.03 billion net.

Clearly there’s growth in here, evident in the increased gross premiums written. But the much wider gap from gross to net suggests both retrocession recoveries, in more premiums ceded, as well as perhaps the effects of a larger pool of this-party capital, with more premium ceded to those vehicles and investors.

Perhaps further evidence of PartnerRe leveraging the appetite of its ILS and third-party capital investors appetites for risk to help it grow its book in an aligned manner.