RenaissanceRe, the Bermuda-based reinsurance firm and third-party capital management specialist, held true to its forecast and returned some capital from its Upsilon collateralized reinsurance and retrocession vehicle to investors around the renewals, underwriting a slightly smaller portfolio for the vehicle as a result.
RenaissanceRe’s (RenRe) CEO Kevin O’Donnell revealed this during his firms earnings call yesterday and while it conflicts with opinions in the market, as many had assumed Upsilon would have written a larger book given how active sources suggest RenRe was in quoting for retrocession, it does align with O’Donnell’s forecast from a quarter earlier.
O’Donnell had predicted back in October 2020 that the experience the reinsurance market had with COVID-19 and business interruption, as well as the ongoing uncertainty over eventual industry losses from the pandemic, would combine to elevate cedents preference for rated paper.
As a result, O’Donnell had forecast that RenRe could end up shrinking Upsilon slightly, as a result.
In yesterday’s earnings call, O’Donnell commented that, “While each of our vehicles enjoyed strong renewals, we particularly demonstrated both discipline and superior capital management in our Upsilon joint venture. We were able to materially improve its portfolio, but consistent with our track record chose to return unused capital to investors, rather than deploy it at unattractive rates of return.
“As we predicted when we raised our equity capital last June, Upsilon wrote a slightly smaller portfolio but with higher expected profit.”
In fact, O’Donnell said that RenRe “demonstrated discipline by choosing to write a slightly smaller retro book.”
Again, this is not what market sources had been expecting, as RenRe had been seen to be very active and quite aggressive on price, broking sector executives had told us. Although perhaps that just shows that while some may see visible quoting in the market, it does not always mean the company is writing that business.
But O’Donnell noted that volume wasn’t the focus for RenRe in retrocession at this renewal, as with consecutive years of rate improvements in that market segment, “while a little smaller our retro book is attractive.”
RenRe sees this ability to respond to market conditions as beneficial for its investors.
O’Donnell explained, “We are leaders in ILS management and believe we acted accordingly, upholding the highest underwriting standards while putting the interests of our partners first.”
On the subject of whether it is fair that perhaps one constituent of investors benefits, while another suffers, as business flows to different balance-sheets, O’Donnell sees this as all part of the strategy and how you target the best returns for each investor category, depending on the point in the cycle and pricing conditions.
“I see, long-term, our shareholders benefiting from the ability for us to manage both sets of capital effectively and fairly. So I don’t think of it as a trade-off, as giving risk to one or the other. I see it as the pursuit of providing the best solutions to our clients with the most efficient capital.
“That should recognise the best return for each of our stakeholders, and most importantly, our shareholders,” he explained.