RenRe adds $1.4bn to ILS structures & joint-ventures in 2022 so far

RenaissanceRe, the Bermuda headquartered reinsurance underwriting firm and third-party capital manager, has added just over $1.4 billion of capital to its range of insurance-linked securities (ILS) structures and joint-venture vehicles so far in 2022.

In reporting its results last night, RenaissanceRe (RenRe) highlighted the continuing success of its ILS and third-party reinsurance capital businesses, as it added additional breadth to its ILS investment offerings, while adding more capital from investors as well.

The reinsurance company had previously revealed that its Capital Partners unit raised $453 million from external investors in time for the January 1st 2022 renewal season, the majority of which went to its rated joint venture vehicle DaVinciRe, which operates like a balance-sheet reinsurance sidecar.

At the same time, the company had significantly shrunk its collateralized reinsurance and retrocession underwriting vehicle Upsilon, after it was heavily impacted by losses and trapped capital.

RenRe’s CEO had warned that raising new capital for ILS investment vehicles would be a challenge in 2022, but his company then came back with the recent launch of its first third-party reinsurance capital backed joint venture focused on casualty and specialty risk, Fontana Holdings L.P., which launched with $475 million of capital.

Now, it turns out RenRe has been having more success bringing new capital into its range of ILS and joint-venture structures, with just over $1.4 billion of capital added so far this year.

The company said that it raised $786.3 million during the first quarter of 2022.

This was raised through RenRe’s rated balance-sheet JV DaVinciRe, its largely catastrophe bond focused fund structure Medici, its collateralized reinsurance and retro vehicle Upsilon RFO, and its rated reinsurance joint-venture with Dutch pension investor PGGM Vermeer.

Of this, $576.6 million came from third-party investors backing those vehicles, while $209.7 million came from RenaissanceRe itself.

Then, after the first-quarter, RenRe cites more capital raising in terms of the $475 million committed for the recently launched Fontana casualty and specialty lines JV vehicle, of which $400 million had been funded, $273.7 million from third-party investors and $126.3 million from RenRe.

But, on top of this, RenRe has also been able to raise additional funds for its catastrophe bond focused strategy, Medici, with another $147 million raised for the vehicle after Q1 ended, including $10 million from RenRe.

So, in total since the beginning of 2022, RenaissanceRe’s Capital Partners team has raised $987.3 million from third-party investors, alongside another $75 million undrawn commitment for its Fontana structure, plus $346 million contributed from its own funds to the ILS structures and JV vehicles, amounting to $1.408 billion.

That’s an impressive rate of new capital raising in the current market environment, but it’s perhaps notable where the money has flowed to, with DaVinci, Fontana and Medici perhaps the largest beneficiaries of new investor interest.

In recent years it had been the Upsilon collateralized reinsurance and retro vehicle that had been seeing significant interest and also new capital raised for it.

But after consecutive years of catastrophe losses that affected the reinsurance market and in the current market climate, this vehicle is currently a little out of favour with investors, we suspect, where as the balance-sheet JV’s and cat bond strategy are all benefiting from investors current focus in ILS.

On a consolidated basis, RenRe reported a $200 million underwriting profit on the back of an 86.5% combined ratio for the first-quarter of 2022, which should have translated into a reasonably profitable period for some of its third-party reinsurance capital vehicles as well.

However, the company reported a net negative impact from catastrophes and severe weather events of just over $102 million, some $34.3 million of which was attributed to noncontrolling interests, suggesting return-related impacts to some of the ILS vehicles and JV’s from Q1 cat events.

In revealing its initial reserving for the Russia – Ukraine war, RenRe said it has booked $27.1 million against casualty and specialty lines, with $2.2 million attributable to noncontrolling interests, which could represent a slight exposure to the conflict for some of RenRe’s third-party capital, although it’s impossible to know this for certain.

Interestingly, property reinsurance premiums declined significantly in Q1, by 16.9% or $273.3 million, with $175.5 million of this decline attributed to the shrunken size of Upsilon.

Management fee income from third-party and ILS capital activities at RenRe was up slightly year-on-year, at $27.222 million, while performance fee income was also slightly positive at $1.127 million, giving total fee income of $28.349 million, beating the prior year quarter by $4.36 million.

However, RenRe cautioned that performance fees continued to be impacted by the underwriting deficit carried forward from the weather-related losses in 2021, which is something that may continue through the next quarter.

Management fee income was slightly down year-on-year, which is largely due to the lower assets under management at Upsilon and a reduction in size of certain structured reinsurance products, but partially offset by the third-party capital raised elsewhere.

It is the ability of RenRe to attract new capital that remains so impressive, which is partly down to the performance of certain of its ILS and JV vehicles over recent years, as well as the balance-sheet nature of structures like DaVinci that makes them attractive at this time, plus market conditions for cat bonds, and of course the companies prowess as an underwriter.

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