RenRe raised $925m for ILS vehicles in Q4 and at Jan 2020 renewals

Bermuda-headquartered global reinsurance firm and third-party capital manager RenaissanceRe has revealed that it raised an impressive more than $925 million for its insurance-linked securities (ILS) and joint-venture vehicles Upsilon, Medici and Vermeer in recent months.

The information comes as RenaissainceRe (RenRe) reported results that fell slightly below analysts expectations, on the back of lower than expected releases from reserves and a higher than expected core loss ratio, of which typhoon Hagibis was a major contributor it seems.

Net income of $33.8 million for Q4 2019 still beat the prior year for the quarter and full-year 2019 net income of $712.0 million was significantly higher than the catastrophe loss hit 2018. But growth in the book positions the company for a positive 2020, as premiums written rose a huge 45% for the year.

Helping in the growth though is RenRe’s burgeoning third-party capital and ILS business, which sees the company leveraging third-party investor interest in insurance and reinsurance linked returns to drive growth through its business, while also moderating its losses and earning attractive fee income.

In the fourth-quarter of 2019 RenRe said it raised more than $300 million of capital within its managed joint ventures and third-party capital vehicles, including Vermeer Reinsurance Ltd., Upsilon RFO Re Ltd. and RenaissanceRe Medici Fund Ltd.

Vermeer is the firms newest joint-venture, which was capitalised for up to $1 billion by Dutch pension investment manager PGGM), has a focus on underwriting more risk-remote layers of U.S. property catastrophe reinsurance where RenRe itself was not so active.

That capitalisation continued through 2019 and we understand the reinsurer was active at recent renewals as a result.

Upsilon is RenRe’s retrocession and collateralised reinsurance focused vehicle, which has been benefiting from market conditions, particularly on the retro side.

Medici meanwhile is a more catastrophe bond focused ILS strategy that RenRe operates for third-party investors.

As well as the capital raised in Q4 2019, RenRe has also revealed that during 2019 as a whole it took in over $1.5 billion of capital within its managed joint ventures and third-party capital vehicles, DaVinciRe, Upsilon RFO, Vermeer and Medici, which included a $175 million injection from RenRe itself.

The capital raising didn’t stop at the end of the year though and as of January 1st 2020 RenRe added another over $625 million of capital through its Upsilon RFO and Medici vehicles specifically, again including a stake taken by the company of $100 million.

It’s an impressive raise of third-party capital again by RenRe, signalling further ability for the firm to make the most of market conditions at the renewals this year.

The retrocession market renewals have seen RenRe able to selectively take opportunities to match its investors return requirements, market sources said.

These fresh third-party capital raises have also helped to drive RenRe’s investment results, as the investment of these fundraising efforts counts towards the reinsurers consolidated investment portfolio.

RenRe also noted higher returns in the catastrophe bonds in its portfolio, which also accentuated the returns of its overall investments.

Increased third-party and ILS capital under management from RenRe’s third-party capital joint-ventures, which include DaVinciRe Holdings Ltd., Top Layer Reinsurance Ltd., Vermeer Reinsurance Ltd. and entities investing in life focused Langhorne Holdings LLC,  rose in step with the higher assets under management.

For the fourth-quarter this joint-venture fee income came out at $11.9 million, up significantly from just over $3.6 million in the prior year.

For the managed funds, so RenRe’s insurance-linked securities (ILS) vehicles including the catastrophe bond focused Medici and the retrocession and collateralised reinsurance focused Upsilon, management fee income rose to over $3.8 million for Q4 2019, up from just over $3 million in the prior year.

Other structured and third-party capital backed reinsurance products, including the Fibonacci Re vehicle, also helped RenRe to a just over $8.2 million, relatively flat with the prior year.

For the full-year, management fee income from all of these third-party capital and ILS fund management activities reached $96.4 million, significantly up on the prior years almost $71.2 million, driven by the higher assets under RenRe’s management.

Performance fees came out as a loss for the second consecutive fourth-quarter, with a higher -$10.7 million in Q4 2019, compared to -$6.3 million a year earlier.

Performance fees for the year were almost $17.8 million, just slightly down on 2018’s $18.7 million, likely reflecting a number of major catastrophe losses suffered in the period.

For the year though, total fee income from managed joint-venture vehicles and third-party or ILS capital activities rose by $24.3 million, to $114.2 million, compared to $89.9 million in 2018, again driven by the higher levels of capital being managed.

The contribution to RenRe’s overall net income from these third-party and ILS activities continues to rise, alongside the capital being managed.

RenRe’s redeemable non-controlling interest, which represents some but not all of the third-party capital managed in joint-ventures and ILS vehicles managed at the reinsurer, reached over $3.07 billion at the end of 2019, up from almost almost $2.78 billion at the end of Q3 2019 and from just over $2.05 billion at the end of 2018.

The fee income and investment boost that RenRe receives from its still growing third-party capital management activities are increasingly important to the overall company results, providing a valuable increment to the underwriting and investment profits generated on its own capital.