RenaissanceRe “not constrained to grow ILS”, says CEO O’Donnell

RenaissanceRe’s CEO Kevin O’Donnell believes his firm is well-positioned to continue growing its insurance-linked securities (ILS) offering and doesn’t see the rest of the market as able to disrupt its strategy.

O’Donnell was not expecting to see significant capital raises coming into reinsurance, either on the traditional equity or the collateralized side, it appears. So, as of late 2023, he saw no reason to feel the market would be particularly disrupted from its current course.

Speaking during the last RenaissanceRe earnings call, O’Donnell said, “I don’t believe there will be a class of 2023, I think it’s very late in the cycle for that capital coming in. It certainly can’t be operational by 1/1.

“If we were raising equity, we would have done it by now because we would want to have interactive conversations with clients and brokers.

“So there may be equity raised between now and year-end, but from the lens that we would place on it, it’s late.”

O’Donnell acknowledged the success of the catastrophe bond market in 2023, but also noted that RenRe, in addition to operating its own cat bond fund, can also use its third-party capital vehicles to compete against this area of the ILS market as well.

“I think the capital market has had a good year, but I think it’s probably slowing a little bit for the pace of new money coming in,” O’Donnell said.

Then stated, “But, you know, Vermeer is designed to be an efficient vehicle to compete with both cat bonds and traditional players. So, more cat bond activity tends to be at the Vermeer or internationally the Top Layer type level, but we continue to have great success deploying Vermeer in lieu of people issuing cat bonds but also alongside people who chose to issue cat bonds as well.”

These joint-venture reinsurance structures, Vermeer Re and Top Layer Re, target higher-layer property catastrophe risks and so operate at the level of the catastrophe bond market, providing RenRe with an alternative mechanism to capitalise on cedent demand for protection higher in their reinsurance towers.

O’Donnell believes that the RenaissanceRe Capital Partners offering is differentiated and so less affected by market forces that see some ILS strategies struggling to grow significantly at this point in time.

“From an ILS perspective, we’re a different Capital Partners business than others. Most of our vehicles are all rated, so trapped collateral and other things that have been the bane of the market don’t really exist on our platform,” O’Donnell said.

“The fact that we underwrite all the risks, we are the largest investor in DaVinci, we share the risk in RenRe across our platform. So there’s a sense of security in the underwriting that’s achieved at RenRe for investors to feel comfortable. The structures of the vehicles provide them more flexibility than traditional ILS platforms and many of our investors, for that reason, are in more than one vehicle.”

He continued to explain, “We are not constrained to grow ILS. We are optimising the platform against the ILS opportunities we want to bring to that capital and the risk that we want to retain on our own balance-sheets.

“I think the rest of the market will remain a bit challenged to increase and certainly will not be able to increase at a scale that’s disruptive to our strategy.”