RenaissanceRe won’t slow own growth to absorb Validus: CEO O’Donnell

RenaissanceRe will not slow its drive for organic growth during the hard reinsurance market while it holds capital aside for the expected fourth quarter closing of its purchase of Validus Re, but has the capacity, appetite and clear runway to grow through the process uninterrupted, top company officials have argued.

“This market has legs,” CEO Kevin O’Donnell (pictured) said while explaining the acquisition during a call with investors. “We will continue to leverage into this market... I think it is all systems go.”

Comments follow word that RenaissanceRe will pay AIG $2.74 billion in cash and $250 million in new equity for AIG’s reinsurance operations, chiefly Validus Re, exclusive of 95% of existing reserve development, plus the ILS manager AlphaCat and renewal rights to the treaty reinsurance book at unit Talbots.

The need to pony up the cash by an end-year transaction closing will not crimp RenaissanceRe’s style during any ongoing or upcoming renewal seasons. O’Donnell sees excess capital today above and beyond what the deal consumes, and Renaissance Re continues to deploy in a business-as-usual fashion.

“Our underwriters executing into 6/1 and 7/1 weren’t even aware of the transaction and we didn’t change our strategy,” O’Donnell said.

That logic holds going forward.

“Nothing has changed since our last call three weeks ago about our outlook for the market, our capacity to deploy capital into any demand that is out there and on into 2024,” CFO Bob Qutub added.

What’s more, the capital eventually deployed on the acquisition goes to work 100% from day one, officials further argued, pointing to an uncommonly tight match between the RenaissanceRe and Validus Re existing portfolios.

Same lines, same geographies, all leaning on the same expertise base equals little need to shed any of the acquired business. Renaissance Re wrote its outlook for gross written premium down from $3.1 billion existing to $2.7 likely retained just to reflect standard attrition for such deals. But management swore off suggestion that it would run up against any cedant limits.

“I feel very confident that we are not market share constrained on this transaction and that we will be able to build the portfolio,” O’Donnell said.

Nor is the expanded RenaissanceRe likely to run into any limits of its own. PMLs in peak zones and exposures will be up in absolute terms on the new book, but “flat to down” as a percentage of the expanded shareholder equity. Validus Re may even be underweight south-east wind and Atlantic hurricane vis-à-vis the new group.

With so much declared overlap in the two portfolios, Renaissance Re defines the deal rather as an “acceleration” of existing strategy than a strategic move into any new lines or territories. Integration will be minimal.

“When I think about this [transaction] as execution into this market, I think there are very few opportunities that look like this that allow us to be fully deployed in this market and continue to be completely focused on underwriting the same business in the same geographies and have excess capital to deploy organically,” O’Donnel said.

The close match in portfolios is the entry point for quick-win synergies, in the RenaissanceRe view. Efficiencies are created nearly from day one as RenaissanceRe supports the new portfolio via its own third-party capital units DaVinci and Fontanna, in part with new moneys of up to $500 million to be ponied up for those units from AIG.

“We are a better owner of this business because of the flexibility we have from our platform, because of that we can generate excess returns from what it was as an independent Validus,” O’Donnell said. Renaissance Re expects the deal to be immediately accretive to BVPS and ROE and a double digit gain to EPS at the business’ eventual run rate.

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