Kevin O’Donnell, President and CEO of Bermudian reinsurer RenaissanceRe (RenRe), says that pricing dynamics across both casualty and specialty lines, as well as property E&S, outperformed the company’s expectations at the January 1 renewals.
The broad feeling in the market is that reinsurance rate increases at 1/1 were more moderate than forecasts had suggested, but O’Donnell maintains that RenRe achieved very favourable pricing outcomes from the renewals.
Speaking during a Q4 earnings call, the RenRe CEO noted that by January 1 the company saw opportunities for profitable growth in both of its segments and across platforms, resulting in the full deployment into its underwriting portfolio of the $1.1 billion raised last year.
As a result, in 2021, the reinsurer expects to grow its net premiums written by approximately $1 billion, while increasing the profitability of its underwriting book.
“Heading into the renewal, we expected retro and US property cat markets to provide us with the greatest opportunities. While this was the case up until mid-December, ultimately, the market dynamics in retro and property cat reinsurance were not as strong as the market initially expected,” O’Donnell explained.
“In part, I think this was because investment portfolios were disconnected from the financial reality of COVID-19, and the economic recession. The resulting boost to book values decreased relative reinsurance demand by giving many companies the confidence to retain more risk.”
“Supply was also elevated as new capital entered the retro and property cat markets and increasing amounts of collateral were released and available for underwriting,” O’Donnell continued.
“Throughout the renewal, however, both casualty and specialty lines as well as property E&S continued to experience extremely favourable pricing dynamics. In general, both outperformed our expectations with increased rates as well as improved terms and conditions.
RenRe reported an operating and underwriting loss for the fourth-quarter of 2020 amid losses from both weather-related events and the COVID-19 pandemic.
The Bermuda domiciled reinsurer notes that Q4 2020 weather-related large losses had a net negative impact of $166.1 million on its net income in the period, while COVID-19 losses had a negative impact of $172.7 million.
But O’Donnell feels that RenRe has started 2021 on a more promising note as it emphasised growth in several lines during the renewals perdiod.
“Several years ago we began initiating small positions on desirable programmes, which we use to build strong customer relationships over time,” he noted. “This year, as rates improved, we were positioned to grow on these programmes at more profitable expected returns.”
“So, while the January 1 renewal may have been disappointing to those who approached it in a transactional manner, our focus on superior customer relationships and building efficient portfolios through risk allocation and sharing, meant that we were once again able to select the best business at the strongest returns.”