Bermuda-based reinsurer RenaissanceRe (RenRe) is “delighted” with the state of the market, and with demand for coverage on the rise in an increasingly stable market, it’s a good time to be a reinsurance company, according to the firm’s Chief Executive Officer (CEO), Kevin O’Donnell.
As we covered this morning, RenRe performed strongly in the second quarter of 2024, reporting a 36% rise in underwriting income across the group, which together with higher fee income and an improved investment result, saw net income swell to more than $495 million.
Speaking recently on RenRe’s second quarter 2024 earnings call, CEO O’Donnell described a reinsurance marketplace that is “pretty balanced” between the amount of capital looking to be deployed and the demand that’s entering the space.
“It is an exciting time to be a reinsurer, and we are confident in our strategy, and we trust our execution,” said O’Donnell.
As the firm’s Q2’24 results show, and as emphasised by O’Donnell during the call, RenRe is delivering results across each of its three drivers of profit, and the CEO explained why he’s confident this will continue to be the case going forwards.
“First, property reinsurance rates remain attractive. We led the market pricing reset in 2023 and are confident that the rate strength we are currently experiencing will continue. The market is becoming increasingly stable. Primary companies are adjusting to the new reinsurance market by increasing property rates. This allows them to continue to add limit to their reinsurance protections,” said O’Donnell.
According to O’Donnell, over the preceding year, demand for property catastrophe reinsurance limit in the US, excluding catastrophe bonds, has risen by roughly $20 billion.
“This new demand was present at the beginning of the year and accelerated into the mid-year renewals. Supply ultimately met this demand but did not exceed it,” he explained.
Expanding on capital entering the marketplace, O’Donnell stressed that capital is always coming into the industry, and highlighted the fact RenRe has created a lot of capital that it is more than happy to deploy.
“So, what we’re seeing is a pretty balanced market between the amount of capital that’s looking to be deployed and the demand that’s coming to the market.
“One of the things I think it’s important to touch on, the reset in pricing that happened in 2023 is persistent in the market. And like any financial market, we’re trading around a new level, but we’re not on a negative trend back to the 2022 pricing. We always watch supply and demand dynamics, and I think particularly in the property cat market, it’s in a good state of equilibrium,” said O’Donnell.
As well as greater demand for reinsurance and still attractive property rates, O’Donnell said that the fact interest rates have proven to be sticky and will likely remain higher than they have been over most of the past two decades, regardless of anticipated rate cuts, is another reason the firm is confident it will continue to deliver results.
“At the same time, our investment portfolio continues to grow. The combination of increased investment leverage, largely benefiting from our casualty and specialty portfolio, and increased book yield are driving compelling returns and benefiting shareholders,” he said.
Alongside underwriting and investments, fee income is the third profit driver for RenRe, and O’Donnell noted that the Capital Partners business is performing well.
“We have attractive structures and provide our third-party capital partners access to several offerings, all of which benefit from the exceptional talent of our underwriting franchise. This aligned strategy continues to attract capital and separates us from other managers. Our Capital Partners business improves our offerings to customers, enhances our ability to optimize our portfolio, and generates attractive fees for doing so,” said the CEO.
Another reason RenRe is excited about the future is the performance of its Validus acquisition.
“We have renewed most of the Validus book at this point, and we believe we achieved our most important objectives, underwriting, people, and capital. From an underwriting perspective, I am pleased to report that the Validus portfolio has outperformed initial expectations against every relevant metric,” said O’Donnell.
During the call, RenRe’s leader also commented on the recent mid-year renewals, stating that overall, the reinsurer is pleased with its results and the risk portfolio constructed.
“This remains one of the most favorable property markets that I’ve seen in my career, with attractive rates and terms and conditions relatively unchanged.
“All of which is to say we are delighted with the state of the market, which I believe remains appropriately positioned in the insurance value chain, assumes the appropriate level of risk, and is being paid attractively for it,” commented O’Donnell.
