RenaissanceRe, the Bermuda-based reinsurance firm and third-party capital management specialist, saw strong inflows from investors in time for the January renewal season, as its Capital Partners unit raised $453 million from external investors.
As anticipated, the majority of the new third-party assets under management raised appears to have flowed to joint venture vehicle DaVinciRe, which operates kind of like a balance-sheet reinsurance sidecar.
Previously, after highlighting the impacts to the retrocession market, RenaissanceRe CEO Kevin O’Donnell noted the more challenging fund raising environment and that it was likely the company would shrink its collateralized reinsurance and retrocession vehicle Upsilon at the end of 2021, while its DaVinci vehicle would likely be one area that benefited from continued investor appetite.
Which seems to have been the case, as the company revealed a $500 million addition of capital to DaVinci Re, which includes RenaissanceRe’s (RenRe) own stake.
Last night, RenRe announced its fourth-quarter and full-year results, highlighting 25% growth in property premiums, alongside a much improved combined ratio at 64.4% for Q4 2021.
Property catastrophe business shrank in the quarter, largely due to lower reinstatement premiums, but catastrophe exposed U.S. property excess and surplus lines increased.
Highlighting the shrinking of the Upsilon vehicle, RenRe reported that its ceded premiums written declined $19 million or two-thirds in the quarter, which was largely down to the non-renewal of certain deals ceded to Upsilon RFO Re Ltd.
Overall, Q4 premiums written rose by 40% across RenRe’s business, while its combined ratio was just 79.4% in the quarter, delivering $211 million of net income for the period and a strong underwriting profit.
For the full-year 2021, RenRe grew net premiums by an impressive 45%, or $1.8 billion during the year, which only serves to make third-party capital more important as it is a significant source of underwriting capital for the company these days.
RenRe raised $1.1 billion during 2021 in its Capital Partners division, which is where the insurance-linked securities (ILS) funds, reinsurance sidecar like vehicles and joint-venture platforms are operated.
Of this, $258 million was contributed by RenaissanceRe itself.
In terms of capital raised in time for 1/1 2022, RenRe raised $662.7 million, including $209.7 million from the reinsurer, hence the $453 million of third-party capital.
That’s down almost 25% on assets raised for its ILS and joint-venture business a year ago, when RenRe raised almost $600 million in third-party capital in time for January renewal deployment.
Last year the capital raise had a significant Upsilon focus, but after another heavy loss year when Upsilon was affected through its aggregate and retro positions, we understand, the focus of the investor base at RenRe has shifted towards the DaVinci Re vehicle.
DaVinci is an equity based investment into a balance-sheet vehicle that operates a little like a sidecar for RenRe, so a different proposition and not collateralized in the same way as Upsilon.
DaVinci has become quite a strategic third-party capital vehicle for RenRe, as it can underwrite a range of business and depending on market conditions can prove a more attractive place for investors to place their capital, while still accessing reinsurance market returns, so ideal for the current point in the cycle.
This fresh capital was raised into Upsilon RFO, DaVinci and the catastrophe bond focused Medici fund structure for 1/1, although DaVinci appears to have taken the lions share.
CEO Kevin O’Donnell commented, “At the January 2022 renewal, our Capital Partners team once again led the industry, raising $500 million in DaVinci to grow in an improving environment and further optimize our Property segment.”
After the latest capital raise for 1/1, RenRe reported that its ownership stake in Upsilon RFO, DaVinci and Medici was 13.6%, 30.9% and 13.7%, respectively.
RenRe has increased its stake in DaVinci again, raising it from 28.7% at September 30th 2021.
The reinsurers stake in Medici has increased slightly from 13.4% a quarter ago.
For Upsilon, meanwhile, RenRe reported at the end of Q3 that its participation in the risks assumed by Upsilon RFO was 12.6% at September 30th 2021, so again here it seems RenRe’s participation has likely increased at 1/1.
Fee income from the joint-venture and ILS business under the Capital Partners brand at RenRe came out at $30 million for the fourth-quarter, which was up slightly on Q3’s $28 million, but down on the prior year $36 million.
For the full-year 2021 fee income fell to $128.5 million, down from $145.2 million in 2020.
That’s despite their being more assets under management through 2021, reflecting another challenging year of catastrophe loss events for the reinsurance and ILS industry.
However, in a year where catastrophe losses are now seen as the fourth highest on record for the global insurance and reinsurance industry, the fact RenaissanceRe earned $128.5 million of fee income from this business is testament to the importance of this ILS and third-party capital activity.
RenRe, for the full-year, reported a net loss to common shareholders of $73.4 million, which would have been a far higher loss without the third-party capital and joint-venture business under Capital Partners it seems.
Meaning the Capital Partners business has significantly reduced the net income decline for RenRe, while also providing significant and complementary underwriting capacity through 2021 as well.
Performance fee income took a hit in the fourth quarter again for the managed ILS funds segment, as the impacts of loss activity affected these third-party capital vehicles.
But also playing into that was a reported fourth-quarter net loss for the Medici Fund, the more cat bond focused strategy, which included net foreign exchange losses that were attributable to its third party investors, resulting in net income being retained by RenRe.
The year 2021 was not without challenges for the investors in RenRe’s third-party capital vehicles, as they faced losses like any other ILS investors and this drove higher underwriting losses in DaVinci and lower underwriting income in the Vermeer vehicle RenRe operates for pension investor PGGM.
But overall, the results drive home the critical role of third-party capital in RenRe’s overall business platform, particularly the fee income contribution which is again significant and helped to improve results in a challenging year.
Commenting on the results CEO Kevin O’Donnell said, “The fourth quarter was a solid finish to a difficult year. We reported a return on average common equity of over 14% for the quarter driven by record profitability in our Casualty and Specialty segment and strong results in our Property segment. For the full year, we earned a modest operating profit despite catastrophe losses of nearly $1 billion. At the same time, we exercised leadership in the market, growing net premiums written by 45% while simultaneously returning over $1 billion in capital to shareholders.
“We continued to expand our Casualty and Specialty business in an attractive market, and as a result have built a stronger, more diversified and efficient underwriting portfolio that I am confident will produce superior returns for our shareholders in 2022.”