Dutch pension fund manager PGGM has partnered with Bermudian reinsurer and third-party capital manager RenaissanceRe on a new risk-remote rated property catastrophe reinsurance vehicle named Vermeer Reinsurance Ltd.
Vermeer Re will initially be capitalised with $600 million of funding from PGGM and the pension fund manager has an option to add another $400 million of investment in order to underwrite any available growth opportunities in 2019. PGGM will be the sole investor in Vemeer.
The new reinsurance vehicle will focus on underwriting the more risk-remote layers of U.S. property catastrophe reinsurance.
PGGM typically looks for a roughly 4% above the risk free rate return from its ILS investments, making the low volatility business in the risk remote property catastrophe layers very attractive and lacking in correlation with its broader investment portfolios.
So the A.M. Best A (Excellent) rated Vermeer Re will target $1 billion of capacity for PGGM, with the funding likely coming from the PFZW pension fund that PGGM works on behalf of in ILS investing.
PGGM, which has $215 billion of assets under its management, allocates somewhere around $4.5 billion to $5 billion of capital into insurance-linked securities (ILS) funds and other vehicles, including the Leo Re Ltd. private sidecar arrangements with Munich Re that we covered earlier today.
Vermeer Reinsurance Ltd. is the first rated reinsurance investment venture for PGGM and should give the investor much broader access to property catastrophe risks as a result, with the assistance of RenaissanceRe.
Aditya Dutt, President of Renaissance Underwriting Managers, Ltd., commented on the news, “We are proud to partner with a respected global leader in PGGM to create Vermeer. This continues RenaissanceRe’s 20-year track record of creating and managing joint ventures that match well-underwritten portfolios of risk to diverse sources of capital. We continue to be a pioneer in this area and are pleased to bring our excellent service and deep expertise in underwriting, modeling and claims to address the risk challenges of our clients.”
Eveline Takken-Somers, Senior Director, Credit and Insurance Linked Investments of PGGM, added, “Since 2014, we have focused on building strategic partnerships with top tier reinsurance companies to improve access to and selection of risk. We seek efficient implementation of our investments as we believe this leads to superior returns. RenaissanceRe is a world leader in both reinsurance and the creation of joint venture vehicles and we look forward to the opportunities Vermeer will provide as PGGM continues to grow its insurance portfolio.”
Vermeer has been given Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of “a+” by A.M. Best and has been approved in principle for licensing and regulation by the Bermuda Monetary Authority as a Class 3B reinsurer.
Vermeer will be managed by Renaissance Underwriting Managers, Ltd., the reinsurers unit that looks after its third-party capital and joint-venture relationships and its results are expected to be consolidated into RenaissanceRe’s financial statements.
A.M. Best noted that RenRe has board control of Vemeer and owns 100% of the voting shares.
Renaissance Underwriting Managers, Ltd. will manage Vermeer’s underwriting, pricing, risk selection, reserves, investments, claims, and other areas of its business, with the underwriting portfolio aligned with RenRe’s, as the reinsurer will participate on every risk alongside Vermeer.
In rating Vermeer Re, A.M. Best highlighted the strength and depth of RenRe’s management team, its experience in third-party capital management and its leading position in the property catastrophe market.
Vermeer should benefit from this expertise, the rating agency said, clearly what drew PGGM to select RenRe as a partner.
For PGGM, Vermeer will offer it an efficient platform to significantly expand its capital deployment into reinsurance markets on a rated basis, opening up opportunities to work with new cedants and in markets where ratings are more important.
For RenRe, the reinsurer gains an extra up to $1 billion of capacity to put to work, growing its own footprint and relevance in the market, while it will also earn fee income for managing Vermeer as well, we’d imagine.