Bermuda domiciled reinsurance firm and third-party or ILS capital manager RenaissanceRe (RenRe) saw a decline in its catastrophe premiums written during the first-quarter of 2016, but its third-party backed rated sidecar DaVinci Re profited from lower catastrophe experience and it added third-party capital.
RenaissanceRe operates a number of joint-ventures, third-party capital backed reinsurance vehicles and collateralised reinsurance or ILS funds, within its Ventures unit. It also manages catastrophe premiums at Lloyd’s of London.
Among the catastrophe vehicles RenRe operates, DaVinci Re, the rated and largely third-party capital backed reinsurance vehicle, is perhaps the best known. Operating a little like a sidecar for RenaissanceRe and providing the reinsurer with a way to bring third-party capital to the market through an A.M. Best rated vehicle, DaVinci is an important part of the reinsurers multi-balance sheet underwriting platform.
Premiums underwritten across the catastrophe reinsurance areas of RenRe’s business declined in Q1 2016, including across the managed catastrophe ventures, as the reinsurer continued to navigate the challenging and softened property catastrophe reinsurance market.
Gross catastrophe reinsurance premiums written were $360.4m in Q1 2016, down $28.8m or 7.4%, compared to $389.2m a year earlier. RenRe explained that “market conditions remained challenging” saying that the reinsurer “continued to exercise underwriting discipline given prevailing terms and conditions,” which explains the decline.
Managed catastrophe reinsurance premiums written were $386.2m, a decline of $36.9m or 8.7%, from the $423.1m in Q1 2015.
DaVinci Re also underwrote less in the way of premiums during Q1 2016, $114.3m versus $123.5m in Q1 2015, again reflecting the fact that RenRe follows a disciplined approach to underwriting for both its own balance-sheet and the third-party capital backed vehicles.
But revenues at DaVinci Re were up in the first-quarter of 2016, at $80.9m versus $78.7m in Q1 2015, as a lower combined ratio on lower catastrophe losses, better investment results and foreign exchange effects helped this quarter beat the prior year.
As a result net income for DaVinci Re shareholders came in at $56.5m in Q1 2016, up from $52m a year earlier.
The result of this is that RenRe reports that the net income attributable to non-controlling interests, or third-party shareholders and investors in some of its vehicles, in Q1 2016 was $44.6m, up from $39.7m in Q1 2015, which the reinsurer said is “principally due to an increase in the profitability of DaVinciRe.”
At the same time RenRe reduced slightly its stake in DaVinciRe over the last year, to 24.0% at March 31, 2016, compared to 26.3% at March 31, 2015.
Likely partially as a result of the decline in its stake in DaVinci Re, but also as a result of bringing new third-party capital into its vehicles and ILS funds, RenaissanceRe reports that redeemable non-controlling interest rose to $1.081 billion at the end of Q1 2016, up from $1.045 billion at the end of 2015, and $968.4m a year earlier.
That’s not the total extent of RenRe’s third-party balance-sheet vehicles, but is a good reflection of the continued attraction to the RenRe underwriting platform that third-party investors continue to show.
The increased profitability of DaVinci Re, despite the reduction in underwriting, reflects both the continued low catastrophe loss environment, as well as RenRe’s discipline. It will be interesting to see how the vehicle and RenaissanceRe’s other catastrophe reinsurance underwriting vehicles perform through the second-quarter, as recent events such as the Japanese earthquakes and Texas convective storms feature in the combined ratio.