No sign of new capital wave to alter 1.1 renewal trajectory
Despite traction in fundraising at a number of ILS funds and progress for at least one mooted reinsurance start-up, there is no expectation in the market of a meaningful influx of capital at a level that will alter the supply-demand equation at the upcoming 1 January renewals.
As this publication has reported over the last two days at APCIA, the renewal dynamics seem largely set, with reinsurers confident of achieving rate increases ahead of inflation in cat after the step-change that led to a generational hard market at 1.1 this year.
And the casualty treaty market also looks to be heading towards a hardening amid concerns over social inflation and prior-year reserve development.
The headline thesis looks strong for a new entrant as a balance sheet reinsurer, given much-improved pricing conditions. At the same time, interest rates are rising again, potentially impacting incumbents with unrealized investment losses but benefiting any newcos with investment yield.
Arguably, on that basis, the thesis is even stronger now than it was earlier this year.
But there is no expectation in the market of any late Class of 2023 start-ups.
Of the new reinsurance-focused vehicles reportedly in the works around the time of the Monte Carlo Rendez-Vous, sources have said that Alpine Re– the start-up being worked on by Willy Zeller and Steve Arora – has gained meaningful traction as it fundraises with Howden Tiger Capital Markets.
As previously reported, however, the proposed Switzerland-based multiline P&C reinsurer is looking to make a strategic entry early next year in time for the 1 April renewals.
Sources have said that at this stage it is unlikely any notable start-up projects will be advanced enough to begin underwriting at 1 January.
Although there will be exceptions amid a flight to quality and specific investor appetite for certain business plans and management teams, there is a sense that investor enthusiasm for reinsurance-focused vehicles in general is muted.
In part this is because for investors such as private equity, the horizon for exiting start-ups at a valuation they would find appealing looks uncertain given where public company reinsurers are trading at.
And on RenaissanceRe’s earnings call last week, CEO Kevin O’Donnell said: “I don’t believe there will be a Class of 2023. I think it's very late in the cycle for that capital coming in [and] it certainly won’t be operational by 1.1.
“If we were raising equity we would have done it by now because we would want to have interactive conversations with clients and brokers.”
Instead, the expectation is that any incremental capital raised at 1.1 will flow into incumbents such as RenRe, which has a strong fundraising record even in challenging conditions across its Capital Partners stable of joint ventures and other vehicles – and has just completed its $3.6bn acquisition of Validus.
O’Donnell said the Bermudian has a robust excess capital position and is prepared to meet some additional demand, while the transaction with AIG also sees the insurance giant commit funds to RenRe’s managed vehicles.
Among other carriers that have drawn fresh capital is Everest, which earlier this year raised $1.5bn of equity capital to support attractive opportunities, including in the reinsurance market.
ILS funds out raising
There are also active fundraising efforts from a number of ILS funds as they look to target 1 January opportunities.
The general view has been that ILS investors have been favoring cat bonds as an asset class in 2023 to collateralized reinsurance. That has been seen in the strong appetite on the supply side that has fueled what looks to be a record volume of issuance this year, providing cedants a much-needed alternative to traditional reinsurance in their cat placements.
But sources have said that long-established and well-regarded fund managers such as Elementum, Pillar and Nephila have gained traction as they look to raise incremental assets under management (AUM) to deploy at the upcoming renewal.
The process is likely to have been helped by a North Atlantic hurricane season that has so far run relatively clean.
Back at Monte Carlo, there were suggestions that Elementum was looking to raise capital to target both the more remote end of the risk spectrum – including cat bonds – as well as higher-risk lower layers where there has been market dislocation.
Meanwhile, it was said that Pillar was looking to bring additional AUM to deploy as it looks to up its participation on deals.
Securis is understood to be allocating a portion of its recent committed capital raise of up to $1bn to segments of the cat market, including low rate-on-line retro.
Elsewhere, sources have said that Vantage Risk’s third-party capital collateralized reinsurer platform AdVantage is looking to scale up meaningfully after launching ahead of this year’s 1.1 renewal with $1bn of support from investors.
And White Mountains is expected to renew its participation in Ark sidecar vehicle Outrigger Re, with the potential for other investors to come in.
Meanwhile at Lloyd’s, there has been a rush of pre-emptions to target attractive market conditions, with a meaningful number of syndicates seeking double-digit increases in capacity for 2023.
And there is also anecdotal evidence of reinsurance brokers looking to bring in additional capacity to support facilities.