RenaissanceRe upsizes its Upsilon retro vehicle following 2017 losses

Bermudian reinsurance firm RenaissanceRe fell to a loss for the full-year 2017 after the major catastrophe events of the third and fourth quarters, but the company took advantage of heightened investor demand for its third-party capital vehicles it seems, in particular increasing the size of its retrocessional vehicle Upsilon RFO.

We’d already reported last year that RenaissanceRe had been increasing the size of its third-party investor capital backed retrocessional reinsurance vehicle Upsilon through the mid-year renewals and into the third-quarter.

But it is the capital raise that RenRe has completed for the Upsilon RFO vehicle in time for the January 1st 2018 reinsurance renewals that is most impressive.

RenRe reported its full-year results yesterday, revealing a net loss of $244.8 million for full-year 2017 and a net loss of $3.5 million for the fourth-quarter.

The impacts of major natural catastrophe events, including hurricanes Harvey, Irma and Maria, the California wildfires and Mexican earthquakes impacted the reinsurer and also its third-party capital vehicles in 2017, so the loss is not unexpected given RenRe’s reach into property catastrophe reinsurance markets.

The firms DaVinci Re vehicle, a third-party capitalised underwriting vehicle that operates a little like a sidecar, took its share of the losses, with reported net loss attributable to noncontrolling interests in 2017 coming in at $132.3 million, which the reinsurer said was largely due to losses at DaVinciRe because of the 2017 catastrophe events and losses to aggregate contracts as well.

But the company raised more funds for DaVinci Re even after the hurricanes, reporting an October 1st equity raise of $248.6 million from third-party investors and RenaissanceRe, as well as selling $49.7 million of its own shares in DaVinciRe to third-party investors.

Additionally, at October 1st, RenRe raised more funds for the retro vehicle Upsilon RFO, raising $46.5 million from investors, including $17.7 million of its own capital.

But then at January 1st 2018, in time for the key reinsurance renewal, the Upsilon RFO vehicle issued $600.5 million of shares to investors, including $75 million to RenRe itself, which is the largest capital raise for the collateralized retrocession strategy that we’ve seen to-date. As a result of this larger capital raise, RenRe’s share in the risks assumed by Upsilon RFO fell from 16% at October 1st to 14.1% at January 1st.

Clearly RenRe has found opportunities in the retro market that it deemed attractive enough to raise additional capital from its third-party investors to upsize the Upsilon strategy. Upsilon RFO is focused on per-occurrence and aggregate opportunities in retrocession.

RenaissanceRe also raised some fresh capital for its Medici ILS fund strategy for the January renewals as well, it seems.

The RenaissanceRe Medici Fund Ltd. is an insurance-linked securities (ILS) strategy that invests across the spectrum of insurance and reinsurance linked assets, including catastrophe bonds, predominately in property catastrophe risks.

RenRe reported that third-party investors subscribed for $41.5 million of shares in Medici and the reinsurer also redeemed $25 million of shares in Medici as well, which left its noncontrolling economic ownership in Medici at 19.7% as of January 1st 2018.

So RenaissanceRe has raised and we assume deployed more third-party capital at the 1/1 2018 reinsurance renewals, which is likely due to a greater availability of more attractive underwriting opportunities allowing it to capitalise on an increase in third-party investor demand.