Bermuda-based insurer and reinsurer RenaissanceRe Holdings Ltd. (RenRe) has fallen to a net loss of $82 million in the first-quarter of 2020, as the ongoing COVID-19 pandemic adversely impacted its net investment result and the performance of its Casualty and Specialty segment.
A net loss of $82 million in Q1 2020 compares with net income of $273.7 million in Q1 2019, while operating income declined by more than 78% year-on-year to $33.4 million. RenRe’s annualised return on average common equity came in at negative 6.3% in the quarter, against a positive RoE of 23.5% a year earlier.
The significant volatility in financial markets and dwindling equity markets as a result of the current crisis, had an adverse impact on RenRe’s investment performance in Q1 2020, with the reinsurer reporting an investment loss of $11.2 million and an annualised total investment return of negative 0.1%. In contrast, the reinsurer reported an investment gain of $252.1 million and an annualised total investment return of 8% in Q1 2019.
RenRe explains that its investment portfolio was favourably positioned during the recent disruption caused by COVID-19 as a sizeable slice of its portfolio is weighted towards high-quality fixed maturity investments. Instead, RenRe attributes the investment loss mostly to its net realised and unrealised losses on equity investments trading, which represent 2% of its total $17.8 billion investment portfolio.
As well as the hit to its investments, the COVID-19 coronavirus pandemic has also dented the company’s underwriting performance in Q1, notably across Casualty and Specialty.
Overall, the Bermudian reinsurer has reported underwriting income of $64.1 million and a combined ratio of 93% in the opening quarter of the year, compared with underwriting income of $154.1 million and a combined ratio of 72% a year earlier. Gross written premiums (GWP) increased by a significant 29.5% to $461.4 million, with an increase of $273.1 million the Casualty and Specialty segment, and an increase of $188.1 million in property.
RenRe notes that the increases are due to expanded participation on existing transactions, certain new transactions, rate improvements, and the acquisition of Tokio Millennium Re.
A closer look at the firm’s underwriting result in Q1 reveals that the overall decline was driven by an $83.2 million underwriting loss within Casualty and Specialty, with the unit recording a combined ratio of 116.9% in the quarter. In comparison, this segment recorded underwriting profit of $1.7 million and a combined ratio of 99.3% in the first-quarter of 2019.
RenRe explains that the loss within this segment relates to net claims and claims expense of almost $104 million associated with the COVID-19 pandemic, which added 2.1 percentage points to the net claims and claims expense ratio and the combined ratio.
“The losses primarily represent the cost of claims incurred but not yet reported, with respect to exposures such as event contingency and event-based casualty covers,” says the reinsurer.
Turning to the firm’s property segment, and underwriting income declined slightly to $147.1 million while the combined ratio deteriorated to 65.1%, against 47.6% a year earlier.
RenRe notes that the property segment underwriting result and combined ratio were principally impacted by an elevated level of current accident year net claims and claim expenses mostly as a result of higher attritional losses, and also a relatively higher amount of small insured catastrophes. Furthermore, RenRe’s Property segment booked $14 million of adverse development on prior years net claims and claim expenses, in Q1 2020.
GWP in the Property segment jumped by more than 18% to $1.2 billion for RenRe in Q1 2020, with almost 11% growth occurring in the catastrophe class of business to over $936 million. Ceded premiums within this segment increased by 16.6% to $545.9 million, driven by increases in GWP in the catastrophe class of business being ceded to capital markets investors in the firm’s alternative capital, or insurance-linked securities (ILS) operations.
In addition, RenRe raised roughly $600 million of net capital in the first-quarter of the year through its joint ventures and third-party reinsurance capital vehicles, as the Bermudian continues to increase the amount of ILS capital under management and reinsurance within these operations.
Kevin O’Donnell, President and Chief Executive Officer (CEO) of RenRe, commented: “We extend our sympathies to all those affected by the COVID-19 pandemic and recognize the immense social, economic and health hardships that many are experiencing, as well as the tremendous sacrifices being made by medical personnel and other first responders around the world. Operationally, we are effectively working from home, and I am very proud of what our people have accomplished in such a short time and under difficult circumstances.
“While our financial performance in the first quarter was negatively impacted by COVID-19, we are well capitalized with ample liquidity and our core franchise remains strong. I am confident that we are prepared to meet both the challenges as well as the opportunities of this evolving situation, and will continue delivering long-term value.”
In its Q1 2020 results announcement, RenRe discusses the current COVID-19 crisis in more detail, noting that it continues to evaluate the impacts on its business and potential exposures across reinsurance, insurance, or investments.
“The Company expects losses to emerge over time as the full impact of the pandemic and its effects on the global economy are realized. A longer or more severe recession, or high unemployment levels will increase the probability of losses,” says RenRe. “In addition to coverage exposures, volatility in global financial markets and a continued slowdown in global economic conditions, have adversely affected, and may continue to adversely affect, the Company’s investment portfolio. These conditions may also negatively impact the Company’s ability to access liquidity and capital markets financing.”
