RenRe Capital Partners fee income could rise 23% YoY for Q2: CFO & CEO

For Bermuda based reinsurance company and third-party capital manager RenaissanceRe, the fee income earned from its joint-venture and insurance-linked securities (ILS) operations has become a significant contributor to earnings and the second-quarter is expected to see these fees rise by around 23% year-on-year, its leadership said today.

Speaking during the RenaissanceRe (RenRe) earnings call just now, CFO Bob Qutub and CEO Kevin O’Donnell highlighted the fee income earned in Q1 and the fact it is expected to come in with significant year-on-year increases, thanks to the expansion of the RenaissanceRe Capital Partners business and its assets under management (AUM).

As we wrote earlier today, RenRe reported that it raised almost $566 million of third-party capital in the first-quarter of 2024, while fee income earned across the Capital Partners range of ILS funds and reinsurance joint-venture vehicles soared 87% in the quarter.

The main driver of the fee income growth was performance fees in Q1, with some favourable development booked (which might in part be due to recovery of certain position values after hurricane Ian, we suspect), as well as the higher management fees driven by increased third-party assets under management.

We had previously reported that RenRe’s third-party AUM under the Capital Partners ILS funds and joint-ventures had almost reached $7 billion at the start of 2024.

This figure may have risen higher by the end of Q1 and going-forwards it will now drive commensurately higher management fees going forwards.

During the earnings call today, RenRe CFO Bob Qutub explained that, looking ahead, “In the second quarter, we expect management fees of around $55 million and performance fees of around $15 million, absent the impact of any large loss events.”

So that would equate to around $70 million in third-party capital related fee income earned for Q2 this year.

Looking back, that would be a roughly 23% increase on the prior year, as Q2 2022 saw almost $56.7 million in fee income earned, split $43.4 million to management fees, $13.2 million to performance fees.

Impressively, if you look back to the second-quarter of 2022, overall fee income from the ILS and joint-venture vehicles managed by RenaissanceRe Capital Partners was almost $34.3 million, so will have more than doubled in two years, if CFO Qutub’s forecast is accurate.

RenRe CEO Kevin O’Donnell gave some colour on progress in the Capital Partners business at RenaissanceRe.

“Our Capital Partners business is another area where the Validus acquisition is mutually reinforcing. This business is larger than it has ever been and continues to grow.

“This generates substantial fee income for our shareholders. It also brings significant capital efficiencies to our balance sheets, and to the Validus portfolio as we bring it onto our platform.

“This efficiency will be realised over the course of the year as we successfully renew the business and place it on the designated owned or capital partner balance sheet,” O’Donnell said.

On the income earned, O’Donnell explained that, on Capital Partners, “fees were healthy this quarter and contributed significantly to financial outperformance overall.

“Capital Partners is performing well and we expect it to continue to grow.”

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