RenRe adds $700m+ third-party capital, earns bumper fee income in Q2

RenaissanceRe said that it raised over $700 million of new third-party capital from investors for its joint-venture and insurance-linked securities (ILS) vehicles in the second-quarter of 2019.

At the same time, the Bermudian reinsurance firm also reported a bumper quarter of third-party capital related fee income, as the expanded size of the ILS and joint-venture vehicle platform at the firm began to deliver a strong quarterly income boost.

RenaissanceRe (RenRe) reported a strong quarter of net income overall, but largely driven by an outstanding investment result, while its underwriting dipped slightly compared to the prior year, as our sister publication Reinsurance News reported earlier today.

But the headline for those with an alternative and ILS market leaning, is that RenRe continues to expand its third-party capital partner relationships during the period, adding a significant additional chunk of underwriting capital to its warchest thanks to strong investor inflows.

RenRe explained that during the second-quarter of 2019 over $700 million of capital was raised for its range of third-party reinsurance and investment vehicles.

This isn’t a surprise, given CEO Kevin O’Donnell said earlier this year that the company may raise new ILS funds for June 1st.

The vehicles benefiting from the $700 million plus of investor inflows included, third-party capital backed equity-based reinsurance sidecar liked vehicle DaVinciRe Holdings Ltd., collateralized reinsurance and retrocession fund vehicle Upsilon RFO Re Ltd., its newest joint-venture Vermeer Reinsurance Ltd. which was capitalised for up to $1 billion by Dutch pension investment manager PGGM) and its largely catastrophe bond focused RenaissanceRe Medici Fund Ltd.

Given the growing capital in RenRe’s third-party ILS vehicles and joint-ventures, the firm needs to cede more risk into them, to continue feeding investor appetite.

As a result, the reinsurer said that its ceded premiums written in the property underwriting segment rose by $40.3 million to $295.1 million in Q2 2019, with the increase “principally due to a portion of the increase in gross premiums written in the catastrophe class of business noted above being ceded to third-party investors,” as well as some increased retro purchases.

During the quarter, the amount of capital that flowed back to third-party investors to cover their share of profits in the joint-ventures and ILS operations increased significantly, largely due to the fact the Vermeer joint-venture with PGGM is now fully operational.

RenRe explained that net income attributable to redeemable non-controlling interests in Q2 2019 reached $71.8 million, up from $54.5 million in Q2 2018, with this increase “primarily driven by the results of operations of Vermeer being included in net income attributable to redeemable noncontrolling interests in the second quarter of 2019” the reinsurer said, as well as higher underwriting income and higher total investment results generated by DaVinciRe.

While the growing third-party capital pool at RenRe means more income shared with third-party investors, it also means more income for RenRe itself, as the fee income earned from these joint-ventures and ILS funds continues to grow.

In terms of management fees, RenRe reported that joint-ventures drove just over $9.5 million in the quarter, while the managed ILS funds drove almost $6.5 million of management fees and structured reinsurance and other related products that drive risk to capital drove just shy of $10 million.

In total the third-party capital related management fee income reported for the second-quarter of 2019 was $25.96 million, a significant uplift from the $21.8 million in Q1 and the $17.8 million reported a year ago.

In addition RenRe records performance fee income earned from the third-party capital vehicles and ILS funds.

Performance fees for the joint-ventures was $5.2 million, the managed ILS funds just $470,000, and the other structured products $8.5 million.

So in total the performance fees came out at almost $14.23 million for Q2 2019, which is more than double the $7 million reported in Q1 but slightly down on Q2 2018’s $14.8 million.

So it looks like performance fees continue to be affected by the losses of prior years, which has suppressed them somewhat in Q2. But the management fees have soared on the back of the increased amount of third-party capital put to work in the joint-ventures and ILS fund vehicles by RenRe.

In total RenRe reports almost $40.2 million of fee income from these largely third-party capital related activities in the second-quarter of 2019, up from $28.8 million in Q1 of this year and $32.7 million in Q2 2018.

These figures could rise much higher once performance fees return to a non-loss affected level, at which point we should really see how this third-party capital and ILS business delivers income for RenaissanceRe.

One other interesting figure to note from RenRe’s results is the amount of redeemable non-controlling interest, which represents some but not all of the third-party capital managed in JV’s and ILS vehicles at the reinsurer.

At the end of Q2 2019 this figure had risen to $2.7 billion, up from $2.1 billion at the end of Q1 and significantly higher than the Q2 2018 report of $1.49 billion.

In total RenRe manages somewhere approaching $5 billion of capital in these various vehicles now, a significant additive and flexible underwriting pot out of which it is beginning to extract significant value.

It will be fascinating to watch how the income mix changes as the hangover of prior year catastrophe losses evaporates and the increased premiums written at higher pricing flow through.