RenRe expects “reset on rates” to persist through 2023: CEO O’Donnell

RenaissanceRe’s CEO Kevin O’Donnell is bullish about his firm’s prospects for 2023, particularly in property catastrophe reinsurance where he expects the reset, higher rate environment will persist throughout the year.

O’Donnell, speaking during RenRe’s earnings call recently, said that his company anticipates strong 2023 growth in property catastrophe risks, but without absorbing too much additional risk at the same time.

The RenRe CEO believes the newly reset and higher reinsurance rate environment, alongside tighter terms of coverage, mean a more profitably book has been constructed and he expects the company will add to this through the renewals still to come in 2023.

All of which bodes well for the firm’s Capital Partners investor base, who will stand to benefit should RenRe’s performance rise with the higher rate environment.

On how RenRe approached the January 2023 renewal season, O’Donnell said he said the company was seeking to “ensure an increased margin of safety for investors in the face of mounting catastrophe losses, which exceeded $130 billion in 2022, as well as the continued effects of climate change, inflation and the increasing occurrence of secondary perils.”

“Importantly, I can now report that we accomplished all of the ambitious goals we set for ourselves in one of the most pivotal January 1 renewals in our history,” he said.

Continuing to explain, “Most notably, this includes a step change in property reinsurance pricing.

“These changes have resulted in a fundamental and necessary reset in the relationship between insurers and reinsurers, promising more appropriate risk-adjusted returns to investors, while ensuring customers sustainable access to reliable high-quality capacity.

“The structural shift that the market has undergone constitutes a stabler long-term equilibrium that will protect the interests of both investors and customers.”

He said RenRe has chosen to occupy a leading property catastrophe risk underwriter role because “it is a critical link in the insurance value-chain where we have a competitive advantage.”

Having challenged the firm’s underwriters to optimise the property and cat books in 2022, this culminated in a 2023 renewal where RenRe could “deploy significant and sustainable capacity to our customers,” O’Donnell said.

Commenting on the renewal market dynamics, he further explained, “The property renewal was very late, with many deals not bound until late December or even early January.

“Going into the renewal, we expected significant supply and demand imbalance for property cat reinsurance that would drive material rate increases in the range of 50% to 100%. As the renewals progressed, cedents understood that the market would remain disciplined on rate. They responded by increasing retentions, restricting coverage and restructuring programmes in order to control premium budgets.

“These changes benefited us in particular, as our underwriting expertise and flexible capital allowed us to execute in a structurally shifted market to increase profit, reduce risk, and better diversify our portfolio.

“Cedents reactions also meant that limits, particularly in the US, were relatively flat, albeit more remote.”

Interestingly, while cedents retained much more risk, thanks to higher attachment points within their reinsurance towers, O’Donnell believes this will come back to the reinsurance market in time.

“Overtime, we expect this risk to return to the reinsurance market, as macro-economic forces such as inflation and climate change continue to drive overall risk in the system.

“We will always have the most efficient capital to assume property cat risk, so it should ultimately sit with us,” he said.

RenRe grew its property cat book at the 1/1 renewals, assisted by its third-party capital partners.

O’Donnell commented, “I am very pleased with the property portfolio that we wrote at January 1st. As expected, we renewed business at significantly increased rates and tightened terms and conditions. Additionally, we increased allocation to property cat as it became increasingly profitable relative to other property.

“Regarding top line growth, we are seeing good opportunities and expect the reset on rates to persist through 2023.”

Adding, “The January 1 renewals is more focused on retro and international business, while the most dislocated part of the property market, US risk, mostly renews at mid-year.

“Consequently, we expect many opportunities to deploy additional capacity in property over the next six months.

“In addition to the growth we’ve already achieved, we have ample capital to deploy into a profitable market.