RenRe raised $568m in Q2, but performance fees hit by prior year losses

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RenaissanceRe, the Bermuda-based reinsurance firm and third-party capital management specialist, added almost $568 million of additional capital to its range of insurance-linked securities (ILS) structures and joint-venture vehicles during the second-quarter of the year.

renaissancere-buildingThe majority of this haul went to the recently launched casualty and specialty reinsurance lines focused joint-venture vehicle Fontana, while the Medici fund, which is largely catastrophe bond focused, accounted for most of the rest of the fresh capital raised.

Out of the $567.7 million of new ILS and joint-venture vehicle capital raised during the second-quarter of 2022, RenaissanceRe (RenRe) said that $431.4 million was from third-party investors, while the remaining $136.3 million was its own contribution to the haul.

RenRe’s third-party assets under management, in managed ILS and joint-venture funds or vehicles, had reached $6.8 billion during the quarter.

In announcing its results last night, RenRe revealed strong underwriting growth again, with an overall 23.2% growth in net premiums written, out of which the Casualty and Specialty segment grew 37.6% and Property 10.5%.

Massive investment write-downs hit the overall result though, as the effects of a macro-environment characterised by interest rate rises and declining equity values drove some $654 million of realised and unrealised losses during the quarter.

The end-result being a net loss attributable to shareholders of $324.9 million, despite strong underwriting performance across the business.

We’re going to see a lot more of these significant write-downs across investment portfolios during the current results season for insurance and reinsurance firms.

Had it not been for the investment write-downs, RenRe’s result would have been more than adequate, given $316.4 million of underwriting income was earned, along with $34.3 million of fee income and $107.2 million of net investment income during Q2.

Kevin J. O’Donnell, President and Chief Executive Officer, commented on the result, “We reported a strong quarter, with continuing top line growth and solid operating profitability demonstrating the power of our diversified platform. Our financial results were driven by strong performance across both underwriting segments, a significant increase in net investment income and an expanding Capital Partners business.

“We are pleased with our 18.4% annualized operating return on average common equity during the quarter, and are confident that our consistent strategy, leadership in a strengthening market and robust capital position will enable us to continue maximizing shareholder value.”

The company said it saw “new opportunities” notably in property catastrophe reinsurance, during the quarter, which helped in driving property premium growth.

RenRe also cited the “improving rate environment” in property business, which will ultimately benefit the ILS and joint-venture partners as well.

Catastrophe activity was seen as slightly higher in Q2 2022, than it was in the prior year period, which slightly depressed the underwriting result by raising the combined ratio to 57.6%, from 43.8% in the prior year, for RenRe’s property underwriting segment.

One offsetting factor for RenRe this quarter, is the fact managed capital in its collateralized reinsurance and retrocession vehicle Upsilon is now much lower than a year ago.

The corresponding reduction in management fees from Upsilon and other structured reinsurance products that have also shrunk, provided less benefit to the combined ratio this year.

Management fee income, earned from the ILS, joint-venture and other managed third-party capital activities at RenRe, was slightly down year-on-year, at $30.7 million for Q2 2022, down from $31.97 million.

Management fees dropped on the reduced capital at the Upsilon vehicle, and declined structured reinsurance activity, while it was offset by increased capital managed in RenRe’s equity structured sidecar like reinsurer DaVinciRe Holdings Ltd., its join-venture (with PGGM) rated reinsurer Vermeer Reinsurance Ltd., its cat bond focused fund strategy Medici, and its casualty-specialty vehicle Fontana Holdings L.P.

But it was performance fee income that took the biggest hit, as the effects of 2021 catastrophe losses continues to impact RenRe’s earnings on its third-party capital.

Performance fees for Q2 2022 were just $3.55 million, down from almost $14.2 million in the prior year.

On performance fees, the company said, “Performance fee income continued to be impacted by the underwriting deficit carried forward from the weather-related losses in 2021 in the current period, although to a lesser extent than in recent quarters.”

Additionally, strong underwriting performance in DaVinci and Vermeer, as well as higher managed capital levels helped to drive $49.3 million of net-income attributable to non-controlling interests for RenRe’s investor partners.

But there was a hit to Medici investors, as RenRe also reported net foreign exchange losses of $50.8 million, which it said were primarily driven by losses attributable to third-party investors in Medici.

Fee income earned by RenRe from the range of insurance-linked securities (ILS) structures and third-party capitalised reinsurance joint-ventures was the highest in Q2 2022 since the prior year quarter, suggesting a slow recovery from the prior year loss activity that had affected results of the structures.

As a result, it will be interesting to see how performance is going forwards, although of course the hurricane season and any fresh catastrophe activity would dent the recovery before we really see the full-earnings power of RenaissanceRe’s Capital Partners business.

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