Bermuda headquartered global reinsurance firm RenaissanceRe continued to expand its underwriting in the second-quarter of the year, which provided it an opportunity to share more risk with some of its third-party capital partners.
The company increased its appetite for certain property catastrophe reinsurance risks, although not across the market as its appetite for Florida remained diminished compared to the past.
But with property catastrophe reinsurance rates hardening, the company found a good opportunity to maximise on its strategy of leveraging third-party investor capital alongside its own to take opportunities that appear in the market cycle.
Speaking during its recent Q2 earnings call, RenaissanceRe’s CFO Bob Qutub explained how the reinsurer approached the renewals growth opportunity.
“Growth in the quarter was driven by property catastrophe and is an excellent example of our ability to employ our gross-to-net strategy,” Qutub said.
“As we found attractive opportunities to grow at the mid year, we were able to share more risk with our joint venture partners particularly DaVinci, Upsilon, and Vermeer,” he continued.
Going into more detail, Qutub explained, “We continue to retain about one-third of property catastrophe gross premiums written, with the balance being ceded through traditional retro and our joint ventures.”
Of course, by sharing more risk with third-party capital investors, RenRe stands to manage its exposure and earn fee income from the insurance-linked securities (ILS) funds and structures it manages.
Commenting on fee development, Qutub said, “Management fees were relatively stable to the comparative quarter driven by an overall reduction in Upsilon and structured reinsurance products, mostly offset by an increase in the size of DaVinci Vermeer, Medici and Fontana.”
Positively for the fee income going forwards, Qutub also said that RenRe is moving beyond the impacts of prior year catastrophe losses.
“In the second quarter, performance fees continued to be impacted by a deficit related to 2021 cat events. We have now largely earned out of this deficit and expect performance to pick up in the third quarter as long as there are no significant cat events.”
He also explained that RenRe’s latest third-party capital joint-venture vehicle Fontana, which is a casualty and specialty reinsurance focused structure, has begun to earn some fee income for the reinsurer as well, which should further boost the run-rate of fees going forwards.
Qutub said, “This is the first quarter we have started to accrue management fees on Fontana, our new casualty-specialty joint-venture vehicle. Fontana’s management fees are based on net-earned premium and will take several quarters to fully ramp up.”
RenRe CEO Kevin O’Donnell also commented on the Fontana structure during the call, saying, “Last quarter we launched our casualty-specialty joint-venture Fontana Re.
“It is performing well so far and we expect it will bring material capacity to our customers, diversifying risk to our Capital Partners and attractive fee income to our shareholders.”