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RenaissanceRe securitizes risk into cat bond form for investor counterparty


Bermuda based reinsurer RenaissanceRe has shown its willingness to be flexible and meet investors needs in the management and deployment of third-party reinsurance capital. The reinsurer has recently used securitization as a tool for managing third-party capital and meeting investors needs for the first time and has ceded catastrophe risk to an investor through a private insurance-linked security transaction.

The private catastrophe bond transaction was revealed in the reinsurers recent first-quarter 2013 earnings call. The call featured discussion on the topic of third-party reinsurance capital, not surprising given RenaissanceRe’s long history in this market both managing third-party capital within its sidecar and ILS fund activities as well as utilising collateralized retro capacity for its own risk transfer.

President and Global Chief Underwriting Officer of RenRe Kevin O’Donnell said that the reinsurance sector has now developed multiple vehicles to accept third-party capital in many forms. He was keen to point out RenRe’s desire to meet the needs of investors, saying; “We’ve focused on matching appropriate risk with efficient capital for many years and have developed a broad range of platforms to meet the needs of both capital and customers.”

Continuing in this vein of matching risk with capital to match cedent, or indeed RenRe’s ceding needs, with investors aspirations, O’Donnell revealed the private cat bond transaction when discussing how the reinsurer uses the capital markets for its own ceded retro. He said that RenRe was continually building out a toolkit of ways to access the retro markets third-party capital; “Issuing our first insurance-linked security in a private transaction.”

We understand that this private cat bond was transacted as a security purely because the underlying investment mandate required access to the risk in an instrument which could potentially be liquid if needed. That suggests that the cat bond was a transaction which involved a single investor or fund who wanted to use RenRe as a counterparty, likely given its longevity in the space, but wanted liquidity rather than access to risk via one of the reinsurers sidecars or another instrument such as an industry-loss warranty (ILW).

O’Donnell continued by saying that the use of a private ILS transaction was; “Consistent with our approach of providing risk to the capital markets in the form in which they wish to take it,” adding that the reinsurer would continue to use retro and other capital to optimize its portfolio of risk.

There has been some speculation that this private catastrophe bond may have used the Mona Lisa Re Ltd. Bermuda domiciled special purpose insurance vehicle which was registered on the 14th March of this year. There is a good chance that this is the case, given the naming and RenaissanceRe’s long history of using DaVinci for the name of one of its joint-venture sidecar vehicles, but we cannot confirm it and a RenRe spokesperson said the firm would rather keep the details of this transaction private.

Also of note is the fact that RenaissanceRe has chosen not to launch a Florida focused sidecar in 2013, citing an expectation that it may not be the best use of third-party investors capital. O’Donnell said that the years of managing third-party capital has taught the reinsurer the importance of discipline and patience and so it has chosen not to repeat the Timicuan sidecar strategy this year.

However, despite market conditions not being conducive enough to launch another Timicuan Re, Florida focused sidecar, O’Donnell said that RenRe continues to find good opportunities for its Upsilon Re structured retro sidecar.

Finally, RenRe sees the increase in third-party capital as an opportunity which it is excellently positioned to capitalise on. President and CEO Neil Currie said; “With the increase in third-party capital comes opportunities for a company like RenRe.”

Again coming back to the importance of identifying where to deploy capital and ensuring accurate selection of risks to match investors return and exposure ambitions, Currie continued; “Matching the right risk with the right capital is not an easy thing to do. But, it’s an art that we know how to execute. Our clients and partners, a large number of whom have been with us for many years recognize this. Our established presence in the marketplace positions us to access the most attractive business and to construct high quality portfolios, year in year out.”

So unfortunately we don’t have enough detail on this private cat bond to add it to our Deal Directory at this time, but should we gain a better understanding of the transaction we will add it in the future.

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