RenRe will share 50% of Validus property cat risk with investors: CEO

When Bermuda based reinsurance and third-party capital management specialist RenaissanceRe closes on its acquisition of the Validus reinsurance business from AIG, its CEO believes it will cede risk from the acquired company to investors in its ILS and joint-venture vehicles at a similar rate to how it operates today.

In acquiring the Validus and also AlphaCat Managers businesses from AIG, RenaissanceRe (RenRe) will only be retaining a similar share of risk on its own balance-sheet as it does today, when it underwrites open market business, CEO Kevin O’Donnell recently explained.

Speaking during the RenRe earnings call, when asked about how the reinsurance firm will share Validus-derived risks with investors, RenRe’s O’Donnell said, “So I think it’s going to be a largely similar split to what we have now.

“I think what we’ve talked about is, we share roughly 50% of our property cat premium.”

But, with Validus having a diverse book of specialty reinsurance lines as well, it is not just the property catastrophe risk that investors stand to share in.

O’Donnell said, “The new portfolio will also go into Fontana. The Fontana percentage is just under 20%, at this point.”

Adding that, “We still have some modelling to do, but I think that’s a likely reasonable target as to how much will go in from the casualty-specialty perspective as well.”

Interestingly, we’re being told by sources that when it comes to the AlphaCat Managers ILS portfolios, there is so much cross-over with RenRe’s existing portfolio for the ILS funds it manages, that not all risks will make it across.

In fact, our sources tell us that there has been a lot of selling of catastrophe bonds coming out of AlphaCat, as positions that won’t be required for the move across and merging into RenRe’s ILS funds are shed.

It’s going to be interesting to track the changes in size to RenRe’s ILS funds and certain joint-venture vehicles, after the acquisition of Validus and AlphaCat completes, as it should give us a reasonable idea where risk has been shed, rather than brought across.