RenRe sees mid-year opportunity. ILS structures and JV’s well-positioned: Execs

Executives at RenaissanceRe (RenRe), the Bermuda-based reinsurer and third party capital manager, have said that the California wildfires may drive underwriting opportunities for the industry at the mid-year renewals, while also stating that the company’s insurance-linked securities (ILS) structures and JV’s remain well-positioned following the event.

During the company’s recently held earnings call for its results from Q4’24, the firm was asked if they believe that the LA wildfire loss is going to have an impact on non-exposed California programs, such as Florida, from a renewal perspective.

“Florida’s going to go up because of Milton. So, you know, we’re a smaller player there but the degree of optimism for Florida, I think we’re saying is that there’s a reversal of the reduction. So we’re looking at flat right now,” explained RenaissanceRe’s CEO Kevin O’Donnell.

“Part of it is we’ve got the first-quarter where we’re going to be talking to clients and understanding what their capacity needs are: Are they buying backups? Do they need more top end cover? And none of this really comes up until the second quarter.”

It’s important to highlight that the aforementioned backups are due to the losses that clients may face from the California wildfires perhaps driving a need for replacement protection.

“So what we’re looking at is, we’ve got an opportunity to learn a lot more about how rates are going to change. But we’re going in from a strong rating environment, with capacity to bring to clients that have suffered losses and will solve their problems. But we’re going to solve the level of margin that we require to put our capacity out,” O’Donnell added.

During the call, the CEO also explained that the California wildfires are a tail event for the peril and will demonstrate the continued and growing relevance of reinsurance, while also noting that most of the company’s US property catastrophe programs are loss impacted.

In addition, RenRe has also explained that it is working off a $50 billion industry loss estimate for the event.

Moreover, Bob Qutub, Executive Vice President and Chief Financial Officer, noted that RenRe believes that demand for reinsurance will increase throughout 2025, following the wildfires event.

“We believe that demand for reinsurance will increase in 2025. We anticipate being able to underwrite this demand, while also repurchasing shares at attractive valuations,” he explained.

Going back to the mid-year renewals, it’s important to note that these renewals always see a particular focus on US property catastrophe, with a notable focus on Florida in June.

“The second quarter renewals is a mix of Florida, nationwide and California specifics. Only a relatively small portion of the pure US exposed accounts renew at 1/1, so most of those are to come in the second quarter and will be loss impacted,” added David Marra, Executive Vice President and Group Chief Underwriting Officer.

He continued: “So we do expect the rate that we saw, the competition that we saw at 1/1, that drove rates down, still trading around a high level, we think that will reverse and we’ll see better opportunities going into the second quarter.”

Furthermore, O’Donnell also commented on how RenRe’s third-party capital and ILS vehicles are positioned following the wildfires.

“They’re all well capitalised as you know other than Upsilon, most of our vehicles are rated. So Top Layer is not impacted. Vermeer is in a very strong capital position, we’re already talking to them about our deployment into the year. DaVinci would have had a dividend come back, we may re-deploy the dividend back into the balance-sheet, but there’s no capital issue with DaVinci.

“Upsilon is probably largely unaffected because much of the retro didn’t have wildfire coverage. Medici is largely in a good place. Fontana is doing fine because it’s obviously not protecting the property portfolio.”

He concludes: “So when I look across it, if you go back, the challenges that others have had in the ILS market we really never suffered from. We’ve had good access and right now are in a strong capital position and the way the deals are structured, we should be in pretty good shape going through 2025.”

RenaissanceRe raised almost $238 million in additional third-party capital from investors for some of its ILS structures in time for the 1/1 renewal season, while over the course of 2024 investors benefited from strong earnings from its joint-ventures and ILS funds.