RenaissanceRe reduces aggregate covers in Upsilon and own portfolio

Bermuda based reinsurance firm and third-party capital manager RenaissanceRe has reduced its exposure to aggregate contracts this year, something that applies both to its own portfolio and to its Upsilon collateralized reinsurance and retrocession structure.

With 2021 starting with major losses due to severe winter weather and the polar vortex event in the United States, after which there have been a number of severe convective weather events around the world, the recent significant flooding in Europe and elsewhere, plus a wildfire season that has begun and looks set to be potentially impactful, aggregate reinsurance and retro contracts are again at the forefront.

Speaking during his companies second-quarter earnings call last week, RenaissanceRe (RenRe) CEO Kevin O’Donnell said that the reinsurer recognises the need to monitor these contracts as the year proceeds.

“It’s early, but I think all aggregate covers are going to be closely monitored if there’s large events in the first quarter,” he explained.

Adding that, “We’ve reduced our writing of aggregate covers this year.”

He noted that, typically, RenRe would have a focus on aggregate contracts within the Upsilon vehicle, which allocates its largely third-party investor capital to collateralized reinsurance and retrocession opportunities.

“We have a vehicle, Upsilon, which tends to be better suited capital, for a whole host of reasons, for that type of risk and that’s reduced its exposure to aggregate covers as well,” O’Donnell explained.

Expanding to say, “So, we do have exposure to it, but it’s less than last year, on a relative basis. It’s not something that at this point, we have significant concerns about.”

Insurance-linked securities (ILS) funds and collateralized reinsurance structures have been pulling-back from aggregate exposures over the last few renewal rounds, having found a number of those contracts have attracted significant losses over recent years.

For RenRe, this is all part of its efforts to shore-up its catastrophe portfolio to insulate its shareholders and third-party investors better from the kind of losses the market has experienced in recent years.

CEO O’Donnell noted that, at recent renewals, “Overall, we believe that we’ve constructed one of our best cat books in years.”

The reduction in limit deployed to aggregate covers will play a significant part in these efforts, we imagine.

Market-wide, it seems aggregate covers are less available than in prior years, particularly for some ceding companies that have ceded significant losses and also on the retrocession end of the chain.

Third-party and ILS capital managers, such as RenRe, have adjusted portfolios to avoid the aggregate layers that have driven the most losses, which is another part of ILS portfolios becoming a little more predictable, given their exposure is becoming more weighted to larger, per-occurrence events.

As we explained last week, RenRe raised an additional over $200 million of capital in Q2, primarily related to its collateralised reinsurance and retrocession focused Upsilon RFO and its largely catastrophe bond focused Medici strategies.