RenaissanceRe grows Upsilon ILS strategy to $2.1bn

RenaissanceRe, the Bermuda headquartered specialty re/insurer and third-party reinsurance capital manager, has had continued success in raising new funds for its collateralised reinsurance and retrocession focused Upsilon ILS strategy in the first-half of the year.

As we explained yesterday, when RenaissanceRe announced its second-quarter 2020 results the company revealed some further capital raising amounting to $250 million for its insurance-linked securities (ILS) structures and joint-venture vehicles.

At yesterday’s earnings call, Chief Financial Officer Bob Qutub explained that Upsilon has been one of the beneficiaries over the course of the last year, with the strategy now expanded to $2.1 billion.

“Total managed capital at the end of the second quarter was $2.1 billion, $1.8 billion of which belongs to our partners,” Qutub said of Upsilon.

That’s a significant uplift from the $1.4 billion of total capital allocated to Upsilon as of January 1st 2019, reflecting the strong ability to continue to raise capital that RenRe has displayed in recent quarters, despite the challenges faced with trapped collateral in the ILS market and then more recently market volatility from Covid-19.

RenRe’s CEO Kevin O’Donnell explained that Upsilon has been put to good use at the recent reinsurance renewals, helping the company to provide “bespoke solutions to a number of very large cedents seeking to reduce their volatility, by utilising our full suite of cat-focused balance sheets,” which includes Upsilon alongside the other third-party capitalised, ILS style structures.

This is one way RenRe has been optimising its catastrophe risk exposure, while still being able to grow into the hardening market it seems.

Putting structures like Upsilon, and the other joint-ventures or ILS structures, to work alongside its own balance-sheet, allows RenRe to offer larger and more all-encompassing risk solutions to large cedents, without having to take too much peak cat exposure on its own capital.

O’Donnell explained that Upsilon has an opportunity for further growth towards the end of 2020 and into the 2021 renewals, given the expected firming in retrocession.

“The one likely area where risk will be underwritten in a material way is in the retro market and in the aggregate market. The vehicle, which mostly takes that risk, for us, is Upsilon,” O’Donnell explained.

O’Donnell said that Upsilon is a vehicle with room for further growth, explaining that, “We can certainly continue to invest more in Upsilon, should we want to rightsize that vehicle.”

Upsilon’s steady growth over the last year or more reflects the opportunity in retrocession and collateralised reinsurance markets, as well as RenaissanceRe’s ability to originate sufficient of that risk to be attractive to its own balance-sheet and its partner capital structures.