RenRe took advantage of CATCo retro capacity pull-back: CEO, O’Donnell

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RenaissanceRe deployed more capacity into retrocession again at the recent mid-year reinsurance renewals, managing to provide continuity to some protection buyers that were missing the availability of Markel CATCo’s retro product.

Kevin O'Donnell RenaissanceReAs the Markel CATCo Investment Management team did not deploy any fresh capacity through its pillared retrocession product at the mid-year renewals, the market dynamic allowed those with available capacity to underwrite retro to take advantage of this.

RenaissanceRe (RenRe) was one of those, as after having raised a fresh $700 million of third-party capital for its joint-venture and insurance-linked securities (ILS) related underwriting vehicles in the second-quarter, the firm had capacity available to write more retro through its Upsilon vehicle, CEO Kevin O’Donnell said yesterday.

RenRe had been steadily ceding more risk to its Upsilon collateralized reinsurance and retrocession fund vehicle over recent quarters anyway, as opportunities in the market allowed.

But the retro pull-back by Markel CATCo has presented a unique opportunity for some firms to increase their writings in that space.

Questioned during yesterday’s earnings call, RenRe CEO Kevin O’Donnell explained, “When we find retro opportunities that don’t fit our balance sheet we put it on the Upsilon vehicle. That is the one that probably has the most parallel to the CATCo appetite.”

He clarified that Upsilon is not offering a pillared retro product, akin to the CATCo product though.

“We are not writing the CATCo product. But CATCo withdrawing capacity from the market has allowed us to provide more traditional retrocession products to some customers that were using other forms of retrocession previously,” O’Donnell explained.

While players like RenRe and some of the ILS funds have been filling gaps in retro capacity, it has not all been replaced by any means.

There remains a dearth of capacity for specific retro protection that can replace the CATCo product, as traditional indemnity retro is not the same and does not offer ceding companies the same capital treatment benefits that the pillared product offered.

That has left companies going relatively bare into the wind season, forcing them to moderate their peak exposures through portfolio management and changes to underwriting strategy as well. But it has also led to opportunities for those with the appetite to underwrite retro, with RenRe one of those benefiting here.

O’Donnell also explained that of the $700 million of third-party investor inflows around half went to its equity backed, reinsurance sidecar like joint-venture vehicle DaVinciRe.

He explained that DaVinciRe benefited from organic growth opportunities, as well as opportunities created by the folding into RenRe of the pro-forma portfolio of the acquired Tokio Millennium Re.

He explained how to think about this, “If you remember DaVinciRe’s appetite is very similar to RenRe’s cat appetite, where there’s no business in DaVinci that is not in RenRe, but there’s a lot of business in RenRe that’s not in DaVinci.”

He said that RenRe’s other third-party capital backed vehicles also saw good opportunities in the latest quarter and at the renewals, with the Vermeer rated vehicle backed with up to $1 billion by pension investor PGGM also benefiting from opportunities at the mid-year.

O’Donnell said on Vermeer, “We were pleased with the portfolio that we constructed for investor in that vehicle.”

Commenting further on the capital raise in general, O’Donnell said, “In general, our partners choose to trust us with their capital. Given our long-term track record, superior underwriting and modeling capabilities, aligned approach, and their belief that RenaissanceRe will be in the best position to leverage improving market conditions.”

RenRe has clearly benefited from the shake-out in ILS capital, raising fresh inflows and finding new deployment opportunities as well.

It will be interesting to see how that continues as the other major ILS funds increasingly put the losses behind them, deal with trapped collateral and begin to raise new funding as well.

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