RenaissanceRe likes property cat, takes early jump to mid-year renewals

RenaissanceRe is already binding mid-year reinsurance renewals as it leans further and further into a property cat segment where it sees enduring market dislocation delivering rate adequacy and attractive terms, top officials have indicated.

“We are getting to a degree of rate adequacy all at once that we feel very comfortable with,” CEO Kevin O’Donnell told his company’s Q1 earnings call. “We continue to achieve significant risk adjusted rate increases and improved terms and conditions on renewals.”

Select mid-year renewal deals have already been bound with large clients with increased rates and retentions plus improved terms and conditions “consistent with what we experienced at the January 1 renewal,” he said.

RenaissanceRe will likely come through the June 1 and July 1 treaty renewals with an increased absolute dollar exposure going into wind season, but with reduced exposure as a portion of shareholder equity. “We like the balance of that,” O’Donnell said.

All the basic supply and demand drivers of the hard market remain in place, some of which may have turned endemic.

“We continue to see robust demand,” O’Donnell said. It’s likely to be an enduring demand-story, driven not only by the ongoing inflation story, but with a rising element of pent-up demand from cedents left hungry after recent stressed treaty renewals.

“As expected, some of the deferred demand from January first has already come into the market, although we anticipate much of this demand to enter in 2024 as cedents allocate more spending to reinsurance in their budgeting process,” O’Donnell said.

The supply side equally continues to support the price picture. “We have not seen significant new supply and consequently expect favourable market conditions to persist.”

Florida will be part of the mid-year renewal mix, although signals on the jurisdiction proved mixed across the full Q1 call.

“Florida in particular was coming off a reasonably good rate adequacy level and we are getting significantly more rate, so I feel that that is going to be an attractive market for us,” O’Donnell said to conditions. “I don’t see any pressure that is going to have a step change bringing us back down to where we traded before.”

But O’Donnell likewise defined the RenRe approach to Florida as “cautious” with warning that many cedents are de-risking and many are financially unable to step up reinsurance purchase. At the same time, a state-run cat fund is hosing the market down with support. “”So we are watching this market closely, but any changes to our view will depend on the rate environment.”

Renaissance Re’s move into property cat deals is financed internally in part by new reductions in select casualty lines, but also by a move out of other property exposures that had born cat risks without providing the full measure of the current hard cat market. That puts the overall property book further into XoL deals at the expense of proportional, with kick-on impact to the potential portfolio volatility profile, officials noted.

“I don’t think of it as a remediation of the other property book, which I was actually quite pleased with,” O’Donnell said of the move. “We are optimizing capital and capturing excess margin by going to property cat as compared to having any cat exposure come in through other property.”

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