Following a number of quarters in which Bermuda reinsurance firm RenaissanceRe has shrunk the size of its third-party investor capital backed retrocessional reinsurance vehicle Upsilon, it appears that market conditions may have been viewed more favourably in 2017 as its Upsilon RFO vehicle more than doubled in size to just shy of $400 million (on a U.S. GAAP accounting basis).
RenaissanceRe (RenRe) launched its Upsilon RFO vehicle in 2013 as a third-party capital backed vehicle to underwrite worldwide aggregate and per-occurrence retrocessional property catastrophe excess of loss reinsurance.
RenRe’s mission with its third-party capital and insurance-linked investment funds or vehicles has always been to bring additional capacity to the markets, but only when adequate returns can be generated. Hence in the last few quarters, while reinsurance as a whole has been softening, the Upsilon RFO vehicle and the Upsilon retro ILS fund it feeds, have shrunk as RenRe itself pulled back from retrocession underwriting.
But that appears to have changed in the first-quarter of 2017, as RenRe reported this week that the total assets of Upsilon RFO had jumped to $399.6 million, as reported under U.S. GAAP, more than double the $193.0 million reported at the end of 2016.
As this is U.S. GAAP accounting it doesn’t truly reflect the current assets under management of Upsilon, which we believe to be increased but at nearer $300 million. However the year-on-year GAAP accounted increase is still significant.
During the first-quarter the Upsilon RFO vehicle also returned capital to investors and RenRe, for its stake in the venture, with $41.8 million of capital returned to the third-party investors in the vehicle and $9.5 million to the company.
$134.1 million of Upsilon RFO non-voting preference shares were issued to investors during the quarter, which will have helped the growth as more capital flowed into the collateralized retrocession vehicle than out.
RenRe’s stake in Upsilon remains significant, with it having a 16.6% participation in the risks assumed by Upsilon RFO at the 31st March 2017. However it has shrunk as the reinsurer has brought more third-party capital into the collateralized reinsurance venture, having stood at 18.8% at the end of 2016 and as high as 28.9% at the end of Q3 2016.
As the market opportunity has seemingly improved for Upsilon, RenRe has been able to bring in more capital from investors which has reduced its stake. However a 16.6% share is a significant alignment of interests, which is a trend RenRe has followed with all its third-party capital ventures.
It certainly looks as if RenRe has found new opportunities for capital deployment with Upsilon, helping it to more than double its size over the quarter. Whether this shows an increased appetite for retro across RenRe, or just in the third-party capital vehicle is unclear at this time.
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