After achieving numerous goals at the January 1st, 2022, reinsurance renewals, Kevin O’Donnell, President and Chief Executive Officer (CEO) of Bermuda-based RenaissanceRe, feels that the reinsurer has constructed the most efficient portfolio possible.
“We had a strong January 1 renewal,” said O’Donnell, speaking yesterday during the company’s Q4 and full-year 2021 earnings call. “We expected a divergence between the property and casualty and specialty renewals, anticipating that the property renewal would be challenging and entail difficult conversations.”
Consecutive years of above-average catastrophe losses, exacerbated by the uncertain and seemingly growing impacts of climate change, has led to some challenges in the property space as reinsurers look to avoid aggregate covers and the view of risk evolves amid rising secondary peril losses.
In light of the challenges and the expectation of a difficult property renewal, O’Donnell explained that RenRe had several goals it wanted to achieve in property at 1/1.
“The most important of which were seeking rate, improving terms and conditions, adjusting for our increased view of risk, reducing exposure to aggregate deals, and keeping our PMLs relatively flat,” he said. Adding that, “We achieved these goals at the renewal; we proceeded well despite it being rather late.”
By January 1, he continued, most programmes were built although property cat lines, lower layers and retrocession covers struggled more to be placed than higher layers, “as reinsurers increasingly shifted away from frequency exposed layers.”
This retraction from aggregate coverages is a reflection of the recent catastrophe trend, which saw outsized losses from secondary perils, such as floods and wildfires, drive annual insured losses above $100 billion once again in 2021.
“As always, we’re a consistent partner offering capacity across the risk spectrum, which resulted in many opportunities for us. That said, in our property business rate increases were sufficient to maintain our current book, but not enough to warrant significant growth,” said O’Donnell.
Commenting on the firm’s casualty renewal, O’Donnell explained that business proceeded smoothly and contributed to a significant growth in both the modelled profitability and the efficiency of its underwriting portfolio.
Later in the call, O’Donnell went into more detail on the reinsurer’s approach to 1/1, given the recognition that supply would be constrained for retro and aggregates, and that demand was going to be on the rise.
“Looking at the opportunity that we had with the growth and the incumbency that we had on programs, we recognized that by restructuring into the improving market beyond just price, we could take advantage of building a better and more efficient portfolio,” he explained.
Part of this restructuring included growth in RenRe’s Capital Partners unit, and notably its joint venture vehicle DaVinciRe, which operates kind of like a balance-sheet reinsurance sidecar. The company increased both its participation in the vehicle and its share of cat to DaVinciRe.
“So, I think it’s a more nuanced question for us than simply thinking about rate change and how to leverage into a better market. This has been a two year journey for us to build options into how to construct our portfolio.
“In general, larger portfolios create more opportunity for us to think about how to spread risk across our platform. And when I look at all the things that we set out to achieve, between holding PMLs relatively flat for own balance sheets, thinking about restructuring aggregates, increasing our view of risk, particularly for Atlantic hurricane, and then thinking about secondary perils, I don’t think we could have had a better renewal or constructed a more efficient portfolio.
“So, when I look at where we are in 2022, I couldn’t be happier with the portfolio that we constructed, and I think we’ll have more opportunities as we head into the second half of the year,” said O’Donnell.
Announcing its results yesterday, RenRe reported positive income and an underwriting gain for the fourth-quarter of 2021.
