RenaissanceRe sees significant $725m hit from catastrophes in Q3

RenaissanceRe (RenRe), the Bermuda headquartered global reinsurance firm and third-party capital management specialist, has pre-announced an expectation of $725 million of net catastrophe losses for the third-quarter of 2021, a particularly significant hit for the period.

It’s a figure that is even higher than RenaissanceRe had pre-announced after the third-quarter of 2017’s hurricanes Harvey, Irma and Maria, when the company pre-announced a $625 million initial estimate for the net cat loss burden that quarter.

RenaissanceRe’s property and catastrophe exposures are set to come strongly into focus this quarter, given the size of the loss anticipated from third-quarter events.

The company, calling this a “net negative impact”, will certainly share some of this burden with its range of third-party capital and insurance-linked securities (ILS) fund and joint-venture structures, so it’s entirely possible the gross catastrophe loss impact would rise above the billion-dollar mark or above, when factoring in all of RenRe’s underwriting portfolios on a gross loss basis.

Of course, RenRe is known as a global specialist in property catastrophe risks, so taking a significant impact from major global catastrophe events is to be expected.

But, as the company has targeted diversification in recent years as well, this loss does seem quite significant, in a quarter where total industry losses from global natural catastrophes may only be in the mid- $40 billion’s to $50 billion range or so, showing that the reinsurance firm continues to be one of the most exposed players in nat cat risks, taking a particularly significant market share of losses as a result.

RenaissanceRe said that the $725 million estimate for net catastrophe losses from Q3 2021 consists of around $440 million from hurricane Ida’s impacts in the United States, $210 million from the severe flooding in north west Europe and the rest comes from other global losses, as well as aggregate losses associated with these and other events.

Kevin J. O’Donnell, President and Chief Executive Officer of RenaissanceRe, commented on the pre-announcement, “We extend our sympathies to the many people around the world impacted by the quarter’s catastrophic events. In another active season for hurricanes, floods, and other natural disasters, we are rapidly paying our customers’ claims, which helps communities recover and reinforces the value of the protection we provide. Looking ahead to 2022, our fortress balance sheet and superior customer relationships should allow us to extend our leadership in the global reinsurance market.”

RenRe said that its estimate of “net negative impact” includes all net claims and claim expenses incurred related to catastrophes that occurred in Q3, as well as earned reinstatement premiums assumed and ceded, earned and lost profit commissions and its redeemable noncontrolling interest.

That means this estimated $725 million of net catastrophe losses is delivered net of any expected retrocession recoveries the company makes and also net of effects related to its noncontrolling interests, that includes the third-party capital investors.

RenRe’s joint venture vehicle DaVinciRe, which operates kind of like a balance-sheet sidecar, would be expected to face losses related to these major catastrophes.

As too would the Upsilon strategy, which is an ILS fund investing in predominantly collateralized reinsurance and retrocession.

RenRe’s Medici ILS fund, which is more catastrophe bond focused, may also be exposed to some of the cat bonds that are facing secondary price pressure and the potential for losses.

In addition, the Vermeer Re rated reinsurance joint-venture, that is backed by the largest ILS investor, Dutch pension manager PGGM, would also be anticipated to have at least some exposure to such major catastrophe events.

RenRe noted “meaningful uncertainty” regarding its estimates for catastrophe losses from the third-quarter and noted these figures are all subject to change, “perhaps materially.”

RenaissanceRe is the second of the major Bermudian re/insurers to pre-announces its catastrophe losses from the quarter, following on from Arch Capital which said it anticipates up to $345 million of net losses.

Arch estimated the industry impact from Q3 catastrophe events as being $47 billion or more.

Of course, these large loss burdens for reinsurers at this stage of the year are going to help keep the upwards pressure under rates at the January 2022 reinsurance renewals.

Analysts at KBW estimated RenRe’s own gross losses at around $1.05 billion, with another estimated $210 million attributable to noncontrolling interests.