RenRe & its Upsilon ILS vehicle potentially exposed to wildfire liability

RenaissanceRe could be on the hook for an enlarged share of losses from the current California wildfire outbreaks given the firm had completed two large wildfire excess casualty deals in the second and third quarters of this year, with its Upsilon vehicle taking some of the risk in the latter transaction.

Bermudian reinsurance firm RenaissanceRe had previously revealed that it targeted what it saw as a dislocation in the market for California wildfire excess liability coverage this year.

During the second quarter of 2018 RenRe had underwritten one large event based excess casualty deal, as a response to the dislocation in the California liability market, a transaction which accounted for a material amount of RenRe’s casualty segment growth that quarter.

The following quarter, in Q3 2018, RenRe underwrote another large and bespoke casualty transaction for the California wildfire liability market, a similar arrangement to the prior quarter. But in this case some of the risk was shared with the reinsurers third-party reinsurance and ILS capital vehicle Upsilon.

That was the first time RenRe had ceded casualty risks into the Upsilon vehicle and associated ILS fund strategies, as it had previously been focused on collateralized reinsurance and retrocession in the property catastrophe space only.

The timing may have been unfortunate though, as the recent California wildfire outbreak that is set to drive record levels of losses to the industry could result in these transactions becoming exposed to losses, it would seem.

Of course we have no idea who the counterparty is, in relation to these specific transactions, nor whether they are corporate insurance deals or reinsurance or retro transactions for a re/insurer that takes on wildfire liability risks.

If the former (corporate risk), then it seems that the only way these deals could become exposed is if they are providing coverage to at-risk electrical utility PG&E, given that seems the most likely source of a liability claim for the Camp fire at least.

If the latter (reinsurance or retrocession), then these deals may have a broader exposure to the ongoing wildfire events, but any losses again likely triggered via PG&E.

If RenRe takes any losses to the third-quarter transaction then it seems that Upsilon’s third-party investors would also be on the hook for a share.

RenaissanceRe is expected to be among the most exposed reinsurers to the California wildfire losses anyway, given its underwriting focus and reach in the region, but these two large wildfire casualty arrangements could result in its exposure being much greater than just the typical property catastrophe impacts.

Read our previous coverage of this wildfire outbreak:

California wildfires to cost over $10 billion “if not much more” – Aon.

California’s Camp wildfire toll rises by another 1,273 structures destroyed.

Wildfire losses should have been priced in, says Fitch.

Mutual & listed ILS funds decline further on wildfire threat.

Modest wildfire impact possible for Pioneer ILS Interval Fund.

Cat bond funds take NAV hit on wildfire cat bond write-down.

RMS puts Camp & Woolsey wildfire losses at up to $13 billion.

California wildfire losses rising, destruction nears 15,500 structures.

PG&E’s wildfire cat bond marked down for loss, traded at distressed price.

USAA cat bond & private ILS also at risk of wildfire losses: Twelve Capital.

PG&E sued over Camp wildfire, putting Cal Phoenix Re cat bond in the frame.

Wildfires could cost insurers $5bn to $10bn: Credit Suisse analysts.

Wildfires to drive up to $6bn industry insured loss – Moody’s.

Wildfire losses to hit record in 2018, pricing needs to change: A.M. Best.

Stone Ridge & CATCo fund prices dented by California wildfire threat.

Cat bond price volatility & discounts expected from wildfires: Plenum.

California wildfire most destructive ever, multi-billion losses expected.