According to Kevin O’Donnell, CEO of RenaissanceRe, with the acquisition of AIG’s reinsurance business under the Validus brand now finishedthe insurer remains on track to invest $500 million in two of the RenaissanceRe Capital Partners vehicles.
Part of the deal in the deal that saw AIG sell its Validus reinsurance and AlphaCat ILS business to RenaissanceRe also involved the insurer making a significant investment in the DaVinciRe sidecar structure and the general and specialty insurance joint venture Fonatana Holdings.
A $500 million investment is a significant addition to these structures, but it is split and will go a long way toward allowing AIG to continue to benefit from reinsurance market returns, even without having its own underwriting vehicles in that market after the sale.
Speaking on RenaissanceRe’s earnings call yesterday, CEO Kevin O’Donnell said everything was on track.
“Moving to our ILS business, it has been a quiet quarter at Capital Partners as we continue to prepare for the integration of Validus. One of the many benefits that Validus will bring to us is the growth of our Capital Partners business. Indeed, as our underwriting portfolio renews next year, we will share it proportionally with Capital Partners,” he explained.
Before we add that, “AIG remains on track to invest $500 million total in DaVinci and Fontana. This investment is expected to be facilitated by a combination of partial sale of our shares and injection of new capital to support growth.
Bob Qutub, CFO of RenRe, also said: “Move to fee income. These will benefit from the increased capital we bring to our joint ventures to support our growing underwriting portfolio.
“This includes a substantial investment expected by AIG in our financial partner businesses beginning January 1.”
Thus, the $500 million in capital is expected to be paid out in time for the 1/1 renewal cycle, providing additional scale to the more property and casualty-focused DaVinciRe and the lines-focused Fontana Holdings damage and specialty insurance.
O’Donnell later said: “Going forward, AIG’s investment in us means we can jointly benefit from the future performance of the underwriting portfolio. »
With the takeover of Validus’ books, likely including the AlphaCat portfolios, RenRe is undertaking portfolio optimization across its business, in which AIG’s additional capital will likely be factored in.
O’Donnell commented on the impact of the acquisition and investments on the portfolios managed by RenRe: “I can tell you that we are changing not only Validus, but also RenRe’s risk sharing to optimize DaVinci, Fontana and all our own balance sheets. So it’s not as simple as saying we’re going to take 50% of Validus’ ownership and move it, we’re also moving what comes from RenRe Limited.
“I would say overall, Fontana will grow, DaVinci will grow by a smaller percentage. RenRe will decrease its percentage share with DaVinci and Fontana will be 50-50.
But when asked if he expects more capital raisings, particularly for DaVinci and Fontana, it appears that AIG’s capital infusion could meet what’s needed to meet demand from the walk.
As O’Donnell explains, “I think we’re going to stay relatively steady on incremental increases within DaVinci, maybe a little more at Fontana.”