RenRe initially forecast it would grow premiums by $2.7bn through the bolt-on deal, retaining around 90% of Validus business. O’Donnell now tells analysts there is a potential for premiums to come in higher.
Furthermore, the reinsurer believes it can support Validus’ underwriting portfolio with 30% less capital, with some help from additional third-party funds.
Finally, O’Donnell highlighted increased investment benefits. With the current interest rate environment more than 100 basis points (bps) higher than when the deal was announced, Validus will “serve as an even strong tailwind to profitability,” said O’Donnell.
AIG remains on track to invest $500mn in aggregate into its joint ventures DaVinci and Fontana. When questioned on further ILS growth prospects beyond that, O’Donnell suggested RenaissanceRe would “hold relatively flat on additional raises with DaVinci, maybe a little bit more in Fontana”.
One of its flagship third-party vehicles, DaVinci, returned to profit in Q3, contributing to the firm earning higher fee income amid a more benign cat quarter.
Meanwhile, the firm also discussed early expectations for 2024 renewals.
O’Donnell expects ongoing gains in property cat markets, with increased demand expected to materialise throughout 2024.
Increased demand should create healthy tension for pricing, with “expectations of positive rate change but rate change that’s not disruptive,” O’Donnell said.
Demand is expected to come in around the single digit billions, according to O’Donnell.
Questioned by analysts on whether retained reinsurer earnings, with returns expected to be above 20%, would offset the impact of new demand, O’Donnell said that earnings would temper some of the demand.
“But it cannot all be deployed against what is likely to come to the market, which is those top layers,” he argued.
On specialty markets, the CEO believes “pockets” of the business remained attractive, while on casualty, the firm has been “exercising discipline in coming off business that does not meet our return hurdles”, after scaling up in 2020-2022.
On an underwriting year basis casualty portfolios were providing strong returns, but more rate was required because of the prior year rating cycles, he added.
“We look at this market as very accretive, one in which rate is above trend, but partly close to trend in many classes.”
“So what our strategy will be is we're going to reward companies that are committed to increasing rate to stay ahead of social inflation, economic inflation and overall trend.”
Despite proposals from the Bermuda government for a 15% corporate income tax effective from 2025, which CFO Robert Qutub said could lead to the firm paying more tax.
“We believe that being based in Bermuda will still create a competitive advantage for us for a variety of reasons, including tax,” he added.
