RenRe’s third-party capital fees rise as inflows continue, investor distributions grow

Bermuda-based reinsurance firm and third-party capital management specialist RenaissanceRe has again reported a rise in the amount of fee income earned through its various third-party capital management and ILS fund activities, also paying out more in distributions to investors as well.

RenaissanceRe (RenRe) entered the first-quarter of 2020 with a significantly increased pool of third-party reinsurance capital under management, having raised additional capital at the end of 2019 in time for the January 2020 renewal season.

As we explained previously, that totalled more than $925 million of capital raised, across its insurance-linked securities (ILS) funds and joint-venture vehicles Upsilon, Medici and Vermeer.

In announcing its first-quarter 2020 results yesterday we get another good view of just how additive the third-party capital and ILS business has become for RenRe, as the company reported another significant increase in fee income earned from these activities.

RenRe also revealed that the capital raising has continued, as it added another roughly $600 million of net capital in the first quarter of 2020 its managed joint ventures and third-party capital vehicles, including Upsilon RFO Re Ltd. and RenaissanceRe Medici Fund Ltd.

There’s probably some crossover between the capital raising we previously reported and the $600 million announced by RenRe in its results, but the upshot is that RenRe continues to expand its ILS capital under management and reinsurance capital in its joint-ventures.

Total fee income from its joint-venture vehicles, managed ILS funds and other structured reinsurance arrangements reached an impressive almost $45.4 million in Q1 2020, an impressive 55% higher than Q1 2019 and 244% higher than seen in Q4 2019.

Fee income is up across the board, both in terms of management fees and performance, as the higher ILS and third-party assets under management plus a cleaner quarter with less catastrophe loss activity helped RenRe benefit significantly.

This also gives a view of how the fee income could run when losses are lower and just how profitable a contribution the managed capital and ILS business is becoming for RenRe.

RenRe reported that joint-ventures drove almost $11.8 million of management fee income in Q1 2020, while the managed ILS funds drove over $6.4 million of management fees and structured reinsurance and other related products that drive risk to capital another almost $8.6 million.

The performance fees are also impressive, with RenRe reporting that Q1 2020 saw it benefit from almost $8.4 million of fees from the structured reinsurance business, over $7.8 million of performance related fees from the joint-venture vehicles and almost $2.4 million from the managed ILS funds.

Total management fees for the first-quarter were almost $26.8 million, while total performance fees were almost $18.6 million, with both of these being the highest quarterly totals since RenRe began breaking out these numbers.

The investors behind RenRe’s DaVinciRe third-party capitalised and equity based sidecar-like vehicle and Vermeer Re, the joint-venture vehicle with Dutch pension manager PGGM as its sole investor, all benefited from higher distributions and income in Q1 2020.

RenRe reported income attributable to non-controlling interests in these vehicles hit highs in the first-quarter, with the DaVinciRe investors benefiting from almost $85 million of income and Vermeer investor PGGM almost $17.9 million.

Conversely, the investors in RenRe’s Medici took a loss of almost $4.7 million during the period, it’s not clear why at this time.

These non-controlling interest income and loss figures are not indicative of the total returns made from the vehicles, but are reflective of the allocation of income or losses generated being distributed to investors, is how we understand it.

Overall though, RenRe’s results were hit by the Covid-19 coronavirus pandemic, with the company reporting an $82 million net loss for the first-quarter of the year.

The decline was largely due to net claims and claim expenses associated with the Covid-19 pandemic of $103.8 million that fell within RenRe’s casualty and specialty reinsurance books. The property portfolio was seemingly not affected so far, or any impacts were not broken out.

RenRe further explained that the Covid-19 losses were due to the cost of claims incurred but not yet reported, with in lines of business such as event contingency and event-based casualty covers.

Kevin J. O’Donnell, President and Chief Executive Officer of RenaissanceRe, commented on the quarter, “We extend our sympathies to all those affected by the COVID-19 pandemic and recognize the immense social, economic and health hardships that many are experiencing, as well as the tremendous sacrifices being made by medical personnel and other first responders around the world. Operationally, we are effectively working from home, and I am very proud of what our people have accomplished in such a short time and under difficult circumstances. While our financial performance in the first quarter was negatively impacted by COVID-19, we are well capitalized with ample liquidity and our core franchise remains strong. I am confident that we are prepared to meet both the challenges as well as the opportunities of this evolving situation, and will continue delivering long-term value.”

Positively for the year ahead, RenRe grew its Q1 portfolio by almost 30%, with increases across its entire book. Some of the property line increases will have been ceded to the increased levels of third-party capital the company is managing these days, which at higher rates earned at renewals suggests the return potential for investors is growing, while on the back of more capital raising, the fee potential stands significantly higher for RenRe than a year ago.