RenaissanceRe grows Medici ILS fund, shrinks Upsilon ILS fund

Bermuda headquartered reinsurance firm and third-party, or ILS, capital manager RenaissanceRe (RenRe) has adjusted the size of two of its ILS fund vehicles in recent months, growing the Medici Fund but shrinking the Upsilon Funds.

The changes to the RenaissanceRe Medici Fund (Medici Fund), Upsilon Collateralized Fund and RenaissanceRe Diversified Fund (collectively known as the Upsilon Funds), are likely due to the current challenging and softened state of the global reinsurance and retrocession market.

RenRe had said previously that retro pricing was largely not attractive anymore and the Upsilon Fund has always had more of a retro focus, hence no surprise that the third-party inflows for Upsilon reduced in 2016.

The Medici Fund meanwhile invests across the spectrum of insurance and reinsurance linked assets, including catastrophe bonds, predominately in property catastrophe risks and clearly RenRe feels opportunities remain better in the markets Medici targets as the firm accepted increased inflows from investors for 2016.

RenRe increased the third-party investments in Medici Fund by approximately $40m (gross of redemptions) during the first quarter of 2016, reporting that non-controlling (or third-party) interest in Medici Fund had grown from $115m to $155.2m since the start of the year.

During Q1 2016 RenRe explained that third-party investors subscribed for and redeemed an aggregate of $39.5m and $0.9m of shares respectively in the Medici Fund. That’s already more inflows than were seen in the whole of 2015, when investors only subscribed for and redeemed an aggregate of $36.1m and $20.1m of Medici Fund shares respectively.

As a result of the new subscriptions and inflows of third-party capital to the Medici Fund, RenRe’s own economic ownership in the vehicle shrank to 39% at 31st March 2016, down from 46.1% at the end of 2015.

That suggests that the Medici Fund grew to around $255m at the end of the first-quarter of 2016, with RenRe’s slightly smaller proportional share of 39% working out at roughly $100m of the total, with third-party investors taking the rest.

The additional size of the Medici ILS fund also helped to drive higher income for shareholders, with RenRe reporting just over $1.62m of net income for investors in Medici Fund for Q1 2016, compared to $1.34m a year earlier.

Meanwhile RenRe continued to downsize the Upsilon Funds. The Upsilon franchise commenced in 1/1/13 and was restructured as at 1/1/15 and has continued into 2016.

Previously, RenRe CEO Kevin O’Donnell said that the Upsilon Funds had been shrunk due to “the increasingly inadequate returns offered” in the global retrocessional reinsurance market.

The Upsilon Funds currently operate two strategies. At the end of 2015 the RenaissanceRe Upsilon Diversified Fund had total assets of $133.7m, while the RenaissanceRe Upsilon Collateralized Fund had assets of $107.2m, including RenRe’s co-invested portion in each case.

RenRe issued $62.5m of shares in Upsilon RFO Re Ltd. (Upsilon RFO Re), the special purpose reinsurance vehicle that underwrites on behalf of the Upsilon Funds, to unaffiliated third-party investors (via their investment in the Upsilon Funds) in January 2016, taking an additional $25.3m of shares issued to RenRe as it actually grew its stake in the Upsilon Funds slightly from 2015’s 21.7% to 28.3% for 2016.

The total assets of Upsilon RFO Re were recorded as $173.6m at the end of the first-quarter 2016, down from $250.6m at the end of 2015, again signifying RenRe’s reigning in of retrocessional market participation.

So the Upsilon Funds’ strategies will also have seen their level of retrocession and reinsurance linked assets shrink further by the end of March 2016.

RenaissanceRe continues to navigate the reinsurance market carefully, raising capital from investors where it can still be deployed effectively, but being careful not to raise too much in vehicles that target areas of where market competition is high (such as the Upsilon Funds).

This approach will help to give investors comfort and with RenRe having well over a decade of relationships with many third-party investors, as it has been managing ILS capital for a significant time, its experience and underwriting reach will enable it to take advantage of any opportunities to upsize on the ILS funds in future.