Ren Re CEO: Industry must incentivise investors or lose their capital

During the RenaissanceRe third-quarter earnings call today, CEO Kevin O’Donnell explained that the reinsurance and insurance-linked securities (ILS) industry has to provide returns to its investors and shareholders, or risk capital exiting the space.

“In order to ensure the long term availability of reinsurance capacity, we must realise the interests of our customers and investors,” O’Donnell explained.

Adding that, “Investors need to be appropriately incentivised to continue providing their capital.”

He said that this is especially true given the growing range of investment alternatives that allocators may be able to look at right now, with rates rising and other asset classes looking more attractive.

“Property cat needs to be the most profitable business line in the P&C market commensurate with the level of volatility it absorbs,” O’Donnell continued.

But said that, in order for this to be achieved, something has to change in reinsurance.

He explained, “There must be a step change in the pricing and structuring of reinsurance coverage to ensure an additional margin of safety for our investors.”

At RenaissanceRe, this means the company will be “recalibrating” its underwriting approach to property catastrophe reinsurance in a number of ways, to ensure investors are properly incentivised, protected from unwarranted losses and receive the returns they are seeking.

He said that, at the renewals, RenRe will be, “Requiring substantial rate increases, whether or not the business is loss impacted.” Saying that, “This will not be a glide-path, but rather a step change.”

He also said that RenRe will be, increasing retentions on property programmes, further tightening terms and conditions, while also narrowing coverage in most instances to named peril only.

In addition he said RenRe will offer non-concurrent capacity and private placement on many deals, and require broad participation and improved economics across cedents reinsurance programmes, and not just in property reinsurance, but also in casualty and specialty lines as well.

He said that, for any programmes where these conditions are not met, RenRe intends to reduce its participation “meaningfully”.

“I am confident that this reasonable approach will restore RenaissanceRe to its long-term track-record of rewarding investors, while ensuring the long-term capacity our customers need,” O’Donnell said.

Going on to explain that, because of the revised underwriting approach, “In 2023, we will be paid more for every dollar of risk that we take. This increased profit will cover our investors against potential loss.”

O’Donnell also said that some of the firm’s third-party capital and joint-venture partnerships are particularly well-positioned to assist, as the reinsurance market undergoes this step-change.

“We will lead from the top-down. Increased demand for property cat will be at the upper end of programmes. Our Top Layer Re and Vermeer Re joint-ventures have ample capacity to grow on these lines, which will provide us opportunities throughout placements.

“Once again, our strategy of having the most efficient capital will give us access to the most desirable risk,” he said.

Finally, in his opening remarks, O’Donnell added, “We are entering one of the hardest markets we have observed in decades and we expect this to be evidence to the January 1 renewals.

“At the end of the day, the only way to ensure that our customers will get the capacity they need is to make sure that our investors get the returns they require.”