RenRe cedes losses to investors, as Ian dents cat bonds & performance fees

RenaissanceRe, the Bermuda headquartered reinsurance and third-party capital management specialist, passed on some $372.4 million of losses to investors in some of its managed reinsurance structures during the third-quarter, with hurricane Ian the main driver.

As ever, it’s a little difficult to work out the true magnitude of the catastrophe loss hit to RenaissanceRe’s range of third-party capital vehicles and insurance-linked securities (ILS) funds, but from what is disclosed it appears that investors in the structures have taken a share, as you’d expect given the severity of loss events such as hurricane Ian.

RenaissanceRe (RenRe) disclosed that over the third-quarter of 2022, the net loss attributable to redeemable noncontrolling interests (so third-party investors) was $372.4 million.

This was primarily driven by weather-related losses during Q3 and their impact on the performance of RenRe’s DaVinciRe rated reinsurance and sidecar-like structure, its Medici ILS fund that largely allocates to catastrophe bonds and its rated reinsurance joint-venture Vermeer Re that counts Dutch pension allocator PGGM as its sole investor.

Within that $372.4 million of losses passed to third-party investors, or noncontrolling interests, there was also some realised and unrealised losses on investments in some of the joint venture vehicles, driven by the significant increase in interest rates, RenRe explained.

Almost $288.4 million of RenRe’s hurricane Ian losses were ceded to noncontrolling interests, it appears. However, RenRe reports the net impact of hurricane Ian to its business as over $990 million, meaning the gross impact must have been far higher, so a share below $300 million for the significant pile of third-party capital and its investors does not seem too significant when spread across the various strategies.

Another $40.6 million of catastrophe losses from other events were ceded to noncontrolling interest investors during Q3 as well.

RenaissanceRe also reported how hurricane Ian affected the catastrophe bond portfolio it manages, revealing $127 million of realised and unrealised losses to cat bonds largely held by the Medici ILS fund and in the main related to hurricane Ian’s impacts.

Given the Medici Fund had roughly $1.2 billion of assets largely in cat bonds as of the end of June 2022, this seems a relatively severe marking of positions, which could mean there is some recovery possible as prices are now recovering somewhat in the secondary market, as we’ve reported.

Given the significant impacts of hurricane Ian and the losses ceded to third-party investors, it is no surprise that performance fee income from RenRe’s third-party capital structures and joint-ventures have been largely wiped out for Q3 2022.

Management fee income remained buoyant at almost $25 million for the third-quarter, a slight increase on the prior year and reflective of higher assets under management.

But performance fee income earned fell to just $739,000 as the third-quarter weather and catastrophe losses, led by hurricane Ian, all but erased these third-party capital earnings. The prior year quarter saw almost $4.5 million of performance fees earned, while relatively loss free quarters have seen performance fees easily into double-digit millions.

So overall, Q3 third-party capital fee income in 2022 came out at over $25.7 million, which in the end was only slightly down on the prior year’s just over $28.3 million, showing that even in periods of significant catastrophe loss, the ILS and third-party capital management business can still deliver important income for RenRe.

Positively, RenRe also said that it raised some fresh third-party capital from investors during Q3 2022, amounting to $122.1 million that was raised for its Vermeer Re joint-venture and the Medici cat bond focused fund strategy.

It’s also worth remembering that RenRe has diversified its third-party capital business with the addition of Fontana, the casualty and specialty ILS focused vehicle, so that could deliver fee income even when catastrophe losses are higher as the new strategy builds-out.

Overall, for Q3, RenaissanceRe reported a net loss of $825.3 Million, with hurricane Ian and other catastrophe events contributing a $648.4 million net negative impact to that for the quarter, the rest being related to realised and unrealised investment losses.

However, the company feels that hurricane Ian could be a “catalyst for change” in reinsurance, according to its CEO.

Kevin J. O’Donnell, President and Chief Executive Officer, said, “Hurricane Ian’s arrival in the final days of the quarter was both a stark reminder of our value proposition to our customers and a catalyst for change in the reinsurance marketplace.

“RenaissanceRe’s strategic focus on reinsurance, strong capital and industry leadership uniquely situate us to drive transformative change during the upcoming renewal period.

“As a result, we are positioned to deliver an attractive return to our investors through materially increased underwriting profit, robust fee income and significantly higher investment income.”

View details of dedicated ILS fund managers and reinsurers offering ILS-style investment opportunities in our Insurance-Linked Securities Investment Managers & Funds Directory.