Fontana casualty-specialty vehicle hard to replicate: RenRe CEO O’Donnell

RenaissanceRe believes the work it has put into building out its casualty and specialty reinsurance lines, as well as its third-party reinsurance capital management expertise, mean it would be hard for competitors to replicate its new joint-venture vehicle Fontana, with CEO Kevin O’Donnell saying the company has built a “sustainable moat” around the strategy.

RenaissanceRe has been building out its casualty and specialty reinsurance underwriting operations over the last decade and now the books of business are at a scale where third-party capital can also be incorporated.

Speaking during his firms recent earnings call, RenRe CEO Kevin O’Donnell gave some background into that segment of the business and how the Fontana strategy evolved.

“Our casualty and specialty business, which constitutes about 60% of our net premiums written for the quarter, we intentionally, but carefully begin building this segment during a more challenging phase of the market, constructing a portfolio with embedded options for growth.

“For the last three years, we have accelerated this growth into an improving market,” O’Donnell explained.

He went on to say that net premiums have grown roughly three and a half times since 2019, leading him to suggest, “Our casualty business will be a significant tailwind to our earnings.”

He also added that, “Profitability on this book continues to improve and the leverage it provides our investment portfolio will be increasingly valuable in a rising interest rate environment. ”

So that’s the backdrop, against which RenRe’s Capital Partners team has worked to create the first meaningful joint venture with third-party investors focused on the casualty and specialty reinsurance space.

Explaining the background to the launch, O’Donnell said, “This quarter, we also introduced a new strategic dimension to the casualty business, our most recent joint venture, Fontana.

“Fontana is the first fund that is 100% dedicated to writing casualty and specialty risks, including long-tail lines.

“It continues our track record of innovation and reflects robust external validation of both the market leadership we have built in casualty and specialty, as well as our recognition as a leading manager of partner capital across multiple risk classes.”

The launch puts RenRe in a unique position of being the “only reinsurer that has both owned and managed, rated and fronted at-scale vehicles for every class of risks that we write,” O’Donnell went on.

He added that, now in casualty lines, RenRe is “employing the same strategy that for 20 years we successfully deployed in our property business.”

O’Donnell believes that the new Fontana ILS vehicle offers a range of benefits to all of RenRe’s stakeholders.

“For customers, it helps us to be broader and a deeper partner, by providing long-term capital that allows us further flexibility to grow our casualty and specialty business and bring additional capacity to dislocated markets.

“For our capital partners, it gives investors direct access to market-leading underwriting and claims management, through a whole account quota-share of our casualty and specialty businesses.

“And for our shareholders, it reduces volatility and furthers our strategic aim of monetising our competitive advantage in underwriting, by trading underwriting risk for fee income,” O’Donnell explained.

O’Donnell went on to say that he believes RenRe is “uniquely capable of bringing a solution such as Fontana to the market.”

He explained, “We built the underwriting infrastructure necessary to source attractive casualty and specialty risk and underwrite it profitably.

“We have 40 underwriters in this segment, many with decades of experience, as well as strong relationships with the largest and most prominent insurance companies.

“Equally important, we have built a robust casualty – specialty claims infrastructure, which is vital to managing the life cycle of the casualty business.”

On top of that, Fontana is a relative rarity in the non-catastrophe insurance-linked securities (ILS) space, as its returns are primarily derived from underwriting profit, not from the investment returns, O’Donnell noted.

Which lead the CEO to say, “None of the competitive advantages we bring to Fontana can be quickly or cheaply replicated by third-party capital, providing investors the confidence they need to invest in long-tail lines and the liquidity they will ultimately desire to efficiently exit, which creates a deep and sustainable moat around this business.

“We think Fontana provides long-term strategic advantages to us in managing our casualty business.”

Also read:

RenRe’s Fontana casualty/specialty JV has flexibility to be market-facing.

RenRe’s Fontana – Investors wanted efficient casualty/specialty access point: Parry

RenRe launches $475m casualty & specialty lines JV Fontana Holdings.