RenaissanceRe’s managed ILS funds hit by losses in Q1

RenaissanceRe, the Bermuda-based reinsurance firm and third-party capital management specialist, reported that its managed insurance-linked securities (ILS) funds drove negative performance related fee income in Q1 2021, implying they were hit by the major catastrophes during the period.

RenaissanceRe (RenRe) itself fell to a net loss of $290.9 million for the first-quarter of 2021, with the main driver being the US winter storms in February 2021, or Winter Storm Uri, which drove a $179.8 million net negative impact primarily to its property reinsurance portfolio.

As ever, we’d expect RenRe to share in its losses with the third-party investors in its joint-ventures and managed insurance-linked securities (ILS) funds, and negative performance fee income suggests this was the case in Q1.

While the catastrophe activity clearly hit RenRe’s third-party investors in its ILS funds and other vehicles, the continued increase in third-party assets under management of its RenaissanceRe Capital Partners business has driven higher management fee income for the company in the last quarter.

The company reported that it raised an impressive over $760 million, which includes $131 million from its own coffers during the first-quarter. This is $30 million higher than the figure reported for the January renewals, so it seems RenRe added a little more over the three month period and therefore RenRe’s AuM may have risen a little further from the $6.4 billion we reported.

The new capital was added to RenaissanceRe’s collateralised reinsurance and retrocession focused Upsilon RFO Re Ltd., third-party capitalised and market facing reinsurance company DaVinciRe Ltd., and its RenaissanceRe Medici Fund Ltd., which invests in catastrophe bonds and other reinsurance-linked assets.

Management fee income from across the third-party capital and joint-venture business at RenRe reached just over $28.5 million for Q1 2021, up almost $2 million on the prior year.

The biggest increase has been seen in the managed ILS funds, with management fees reaching $8.62 million (up from the prior years $6.4 million), which is where the majority of the AuM increase has been seen over the last year.

However, demonstrating the hit from the catastrophe activity in the first-quarter of 2021, RenRe reported a performance fee loss of -$4.535 million, with the managed ILS funds driving a performance fee hit of -$4.8 million, slightly offset by positive performance fees of alsmost $1.6 million from joint-ventures, which was well down on the prior year quarters $7.8 million of positive performance fee income from JV’s.

The -$4.535 million of performance fee income from across the third-party capital, joint-venture and ILS fund management business at RenRe for Q1 2021, was well down on the prior year quarters positive $18.6 million of performance fees earned during what was a much quieter catastrophe quarter in the United States.

Of course, RenRe’s AuM is much higher now, so when quieter catastrophe quarters do occur, we should see performance fee income bouncing back particularly strongly now.

Because of the catastrophe loss experience of RenRe’s ILS funds and other structured reinsurance products, overall fee income across these activities came out at almost $24 million, well down on the prior year quarters $45.4 million of fee income earned.

Kevin J. O’Donnell, President and Chief Executive Officer of RenRe commented on the results, “We materially grew our underwriting portfolio while returning significant capital to our shareholders during a quarter that was negatively impacted by Winter Storm Uri and volatile capital markets. Going forward, we anticipate additional opportunities to grow into a broadly improving market by matching desirable risk with efficient capital, both on our wholly owned balance sheets and in our industry-leading RenaissanceRe Capital Partners business. Together with improved yields in our investment portfolio, this diligent execution of our strategy will further contribute to shareholder value creation.”

RenRe also said that during Q1 it ceded more business to some of its ILS funds, with overall ceded premiums rising by $62.4 million, or 11.4%, to $608.4 million, which the company said was “Primarily driven by an increase in gross premiums written which were ceded to third-party investors in RenaissanceRe’s managed vehicles, principally RenaissanceRe Upsilon Fund Ltd.”

The company also recognised impacts to its Medici fund during the quarter, saying that a net foreign exchange loss of $22.8 million was “primarily driven by losses attributable to third-party investors in Medici”, as well as some foreign exchange losses generated by other underwriting activities.

It’s important to remember that, while third-party investors in RenRe’s ILS operations have taken some losses through the first-quarter, this was to be expected given the scale of the winter storm impacts in the United States.