RenRe’s third-party capital & ILS fee income rises 65.5% to $56.7m in Q2

RenaissanceRe has reported a significant year-on-year uplift in its fee income earned from third-party reinsurance capital and insurance-linked securities (ILS) operations, with the second-quarter 2023 seeing the total earned rise by 65.5% to $56.7 million.

It takes RenaissanceRe’s (RenRe) third-party capital and ILS fee income earned for the first-half of 2023 to a significant nearly $102 million, some 62% up on the previous year.

The run-rate of fees earned has been steadily increasing for RenRe, with the firms increasing levels of third-party assets under management one of the core drivers.

The RenaissanceRe Capital Partners business counted some $6.6 billion of third-party assets within its main joint-venture reinsurance and ILS fund structures at the end of the first-quarter of 2023.

That figure has almost certainly risen further by the middle of the year, as we reported yesterday that RenRe has raised another $350.5 million, largely for its catastrophe bond fund structures, during Q2 2023.

Those new inflows raised from third-party investors in Q2 also outpaced a relatively high level of redemptions, as RenRe successfully dealt with more of the trapped capital linked to its reinsurance and retrocession strategy Upsilon and returned that capital to investors in the structure.

Of course, when it comes to earning fees from managing insurance-linked securities (ILS) and third-party reinsurance capital investment strategies, it takes more than assets, performance is also critical.

In the second-quarter of 2023, RenRe reported earning $56.7 million in overall fees, a 65.5% increase on the prior year.

Kevin J. O’Donnell, President and Chief Executive Officer of RenRe, noted that this fee income was a new “record” for the company and it is definitely the highest figure for a quarter that we have seen.

The company now sees fee income earned by its Capital Partners business as one prong of three drivers of profit, which are its underwriting, fees and investment income.

Management fee income, which is driven by the increased assets under management (AUM) in RenRe ILS and third-party capitalised reinsurance joint-venture vehicles, reached $43.4 million for Q2 2023, up from just $30.7 million a year earlier.

Performance fee income, which is the other and perhaps more important part of the equation when managing ILS capital, reached $13.2 million in Q2, significantly higher than the $3.5 million earned in the prior year quarter.

For the first-half of 2023, the fees break down to $84.3 million of management fee income and $17.1 million of performance fee income.

RenRe said that the increase in management fee income was down to higher capital under management at its DaVinciRe Holdings equity-like sidecar investment vehicle, its Vermeer Re joint-venture reinsurer that is backed by investor PGGM, and its catastrophe bond focused RenaissanceRe Medici Fund .

In addition, the management fees benefited from the recording of previously deferred management fees in DaVinci that had been held back after the weather-related large losses experienced in the prior years.

On the performance fee side, RenRe said the increase recorded for Q2 2023 over the prior year was driven by its current year underwriting results.

For Q2 2023, the management fee income of $43.4 million breaks down to $30.3 million from the joint-venture vehicles, almost $7 million from structured reinsurance products and other initiatives, and just over $6.1 million earned from the managed ILS funds.

On the performance fee side, $13.1 million came from the joint-venture reinsurance vehicles, while the managed ILS funds delivered $307k, but the structured reinsurance side saw a -$197k loss.

Some $48.9 million of the total quarterly fee income is put down to earnings from third-party investors in the joint-venture and ILS structures.

While management fee income continues to build, the second-quarter 2023 saw the highest performance fees earned from the third-party reinsurance capital business for a while for RenRe, perhaps reflecting the improvements in the market, in terms of attaching higher and the stricter terms reinsurance capital is being deployed at.

Separately, RenRe reported delivering almost $175 million of net income to the third-party investor non-controlling interests in its joint-ventures and ILS funds, thanks to strong underwriting results from DaVinci and Vermeer, strong net investment income driven by higher interest rates and yields in the portfolios of the joint ventures and managed funds, as well as net realised and unrealised gains on catastrophe bonds recorded during the quarter in Medici.

Also read: RenRe raised $350.5m of third-party capital for cat bond strategies in Q2.

View information on many dedicated ILS fund managers, as well as reinsurers offering ILS style investment opportunities, such as RenaissanceRe, in our Insurance-Linked Securities Investment Managers & Funds Directory.