The leadership at RenaissanceRe, the global reinsurance firm and third-party capital manager, expects fee income from the Capital Partners and related insurance-linked securities (ILS) capital management business will trend higher this year, as the unit’s scale and AuM increases.
As we reported yesterday, RenaissanceRe (RenRe) said that $1.4 billion of third-party capital was raised for its range of joint-venture vehicles and ILS structures or funds in 2022, while a further $403 million was raised for the January 2023 reinsurance renewal season deployment.
As the assets under management (AuM) across the range of joint-ventures and ILS structures or funds increases, the leadership at RenRe expects a higher level of fees to be earned.
Fee income earned through these third-party capital management activities at RenRe reached $30.347 million during the fourth-quarter of 2022 and $118.7 million for full-year 2022, which was down $9.8 million from full-year 2021’s total fees earned.
During the RenRe leaderships earnings call yesterday afternoon, CFO Bob Qutub explained that,”2022 management fees contributed a consistent $25 million to $30 million per-quarter.
“We expect management fees to increase to around $35 million per quarter in 2023, reflecting increased capital managed in our joint-venture balance sheets.”
The primary driver of this is the increased capital managed within RenRe’s sidecar-like, but equity structured, DaVinci Re joint-venture vehicle, Qutub said.
RenRe raised $462.7 million for the DaVinci Re sidecar-like vehicle in 2022 and a further $377.2 million flowing to DaVinci Re as of January 1st 2023.
This significant growth of the DaVinci Re vehicle has resulted in RenaissanceRe shrinking its share of the vehicle, with Qutub disclosing that RenRe now owns 25% of the structure, down from 31%.
The reduction in RenRe’s ownership was “in order to make room for several long term oriented investors,” Qutub explained.
As well as the management fee component increasing, in-line with the increased assets under management in the joint-ventures and ILS structures RenRe manages, the reinsurance firm also anticipates performance fees recovering.
Qutub said that, within RenRe’s Capital Partners business, “Performance fees continued to be depressed, due to the cumulative impact of cat events in 2022.”
He added that, “We expect to see performance fees start to recover mid-year, absent any significant catastrophe events.”
RenRe’s CEO Kevin O’Donnell also commented on the Capital Partners business, saying that this is one of the core pillars of the reinsurers business.
“We have always taken a differentiated approach to our Capital Partners business,” O’Donnell said.
He explained that first this is because as recognised leaders in underwriting, he feels RenRe starts with “sourcing desirable risk and only then seeks to match it with the most efficient capital.”
“We have a long and successful track record of managing third party capital and are always strongly aligned with our investors,” O’Donnell continued. “Our partners know that we always stand alongside them, sharing any losses and this provides them with the confidence to reinvest with us after large events.”
He said that RenRe’s Capital Partners unit offers “the broadest suite of investment vehicles,” with owned and managed balance sheets for every risk the firm takes.
“In addition to being innovative, our vehicles are highly flexible from a capital perspective and have features allowing us to call capital when it is needed, and return it when it is not,” O’Donnell said.
Adding, “This allows us to navigate difficult markets, as we did in 2022 and also to facilitate the liquidity needs our institutional investors demand.”
Finally, O’Donnell said that, on the Capital Partners business, “This differentiated approach is highly appreciated by our partners, it also explains our success in raising capital in 2022, as both new and existing investors chose to trust us with their capital.
“That we can continue to scale our Capital Partners business, even under the most difficult circumstances, demonstrates that it is a permanent part of our franchise.
“We have every intention of continuing to grow it in the future, in order to bring reliable, sustainable capital to our customers.
“We fully expect our Capital Partners business to increasingly generate low volatility income for the benefit of our shareholders.”
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