RenaissanceRe, the Bermuda-based reinsurance firm and third-party capital management specialist, has raised an additional $250 million of capital from third-party investors for some of its ILS and joint-venture vehicles in the second-quarter of 2020, with the growing capital under management now driving increased fee income.
RenaissanceRe’s (RenRe) range of third-party capital management and insurance-linked securities (ILS) fund activities have been growing over the last few years, with increasing amounts of capital under its management.
The result is that fees earned, for managing the capital and in terms of profit shares, is also on the rise, while at the same time the reinsurer has also been paying out more in distributions to its third-party investors as well.
In reporting its second-quarter results yesterday, RenRe explained that it raised more than $250 million of gross capital in the second-quarter of 2020, through some of its managed joint-venture vehicles and ILS structures, including the collateralised reinsurance and retrocession focused Upsilon RFO Re Ltd., the PGGM pension fund manager joint-venture reinsurer Vermeer Reinsurance Ltd. and its RenaissanceRe Medici Fund Ltd.
Interestingly though, RenRe’s capital raising slowed considerably in the second quarter, having disclosed raising $925 million of capital in Q4 and for the January 2020 renewals across its insurance-linked securities (ILS) funds and joint-venture vehicles Upsilon, Medici and Vermeer. Then disclosing $600 million of net capital raised across some of these vehicles in the first-quarter of 2020 (with some crossover between the two).
So $250 million of capital raising in time for the mid-year renewals, when rates firmed so considerably, actually doesn’t seem so much.
But RenRe has been expansive at the renewals, reporting Q2 premiums written being up 15.2% in the period.
Of course, the company also raised over one billion dollars of equity capital as well in the period, so perhaps focused on putting that to work rather than raising quite as much third-party capital in the last quarter.
As the capital put to work on behalf of third-party investors rises, RenRe is adding growing amounts of fee income to its earnings, becoming an increasingly meaningful part of its net income.
For the second-quarter of 2020, RenRe reported that its third-party capital and joint-venture related fee income increased by $5.3 million, to $45.5 million, compared to $40.2 million in the second quarter of 2019.
The reinsurance firm said that this is largely due to “an increase in the dollar value of capital being managed, combined with the improved underlying performance of our joint ventures and managed capital vehicles.”
The performance of the third-party capital vehicles has been strong in recent months as well, it seems, with RenRe reporting that the amount of net income attributable to redeemable noncontrolling interests in Q2 2020 (effectively distributions in the period to its third-party investors), rose to $118.7 million, compared to $71.8 million in the second quarter of 2019.
This increase was largely down to the increased size and also improved performance of DaVinciRe Holdings Ltd., Medici and Vermeer, the company explained.
Fee income at RenRe’s JV and third-party capital or ILS structures is again up almost across the board, both in terms of management fees and performance, with the higher ILS and third-party assets under management driving increased income for the reinsurance company.
The fees are also relatively consistent with Q1, showing that loss activity for these structures has been relatively light once again, it appears.
RenRe reported that its joint-venture vehicles drove almost $12.2 million of management fee income in Q2 2020, while the managed ILS funds drove over $6.5 million of management fees and structured reinsurance and other related products that drive risk to capital another almost $8.74 million.
The performance fees are also consistent, with RenRe reporting that Q2 2020 saw it benefit from almost $8 million of fees from the structured reinsurance business, almost $6.2 million of performance related fees from the joint-venture vehicles and almost $3.9 million from the managed ILS funds.
Performance fees are slightly down on Q1 for the joint venture vehicles, but up for the managed ILS funds, with RenRe’s ILS fund performance fees the highest total ever reported it seems for a quarterly period.
Total management fees for the second-quarter reached almost $27.5 million, while total performance fees were just over $18 million.
Management fee income represented the highest quarterly total since RenRe began breaking out these numbers in Q2 2020, a sign of the rising assets under management. While performance fees were slightly down on Q1, but still the second-highest figure ever reported.
The total fee income of $45.5 million is the highest quarterly figure ever reported by RenRe and the six month figure of $90.87 million is now 24% up on the first-half of 2019’s almost $69 million.
It’s impressive growth in revenues and at the same time does not seem to detract from RenRe’s ability to generate premium income on its own balance-sheet capital, as the reinsurer continues to work this aligned and balanced approach to owned and managed capital management successfully.
As the third-party capital pile grows at RenRe, so too do distributions to investors, when the underwriting performance is positive.
Investors behind RenRe’s DaVinciRe third-party capitalised and equity based sidecar-like vehicle, Vermeer Re, the joint-venture vehicle with Dutch pension manager PGGM as its sole investor and Medici ILS structure, all benefited from higher distributions and income in Q2 2020.
The DaVinciRe investors benefited from over $88 million of income in Q2, while the sole Vermeer investor PGGM took $17.2 million and investors in the Medici ILS structure took $13.15 million in the period.
These non-controlling interest income figures are not indicative of the total returns made from the vehicles, but are reflective of the allocation or distribution of income or losses to third-party investors backing each structure, is how we understand it.
So RenaissanceRe continued to grow its underwriting book in the second-quarter and third-party capital activities continued to play a very important role in its business model, driving its ability to be more expansive and measured in its use of capital, all while delivering attractive fees.
With the investors also clearly benefiting, it seems the strategy is certainly working right now.