Providing unique opportunities on a global scale

18 Dec Providing unique opportunities on a global scale

Kevin O’Donnell, President & CEO, Renaissance Holdings, believes that Bermuda is the place to look at when it comes to innovation in products and services

Can you provide your analysis on the dynamism of Bermuda’s insurance market to date?

I have lived in Bermuda for 25 years. I have seen a lot of changes over the years, and one thing that has been consistent is the dynamic and responsive market here. If you look around the world, there is kind of three places where reinsurance has a hub. We have a well-respected regulator who is accessible and understands how the market is changing. As we have moved from being a primarily property catastrophe reinsurer, to expanding our third-party capital management business and becoming a more diversified reinsurer, they have been with us every step of the way. They have allowed the change within RenaissanceRe, in the number of vehicles and the number of companies that we manage, to be somewhat seamless for us to continue to match the most efficient capital with the most desirable risk through the most versatile structures.

As CEO, what lessons were learned in 2020, and what are your main priorities moving forward this year?

Everything that we thought we were going to do in February changed in March when the pandemic started to set in and we went from having fully-staffed offices to having nobody in offices. Even at this point, the most open office that we have is in Bermuda. Our offices in New York, London, Singapore, and around the world are generally shut down. From an operational standpoint, we went from having a normal year to having quite an exceptional year in thinking about how we were going to maintain the efficiency of the organization while nobody was really working together in-person. Additionally, we saw that the market was changing. In June, we went to the capital markets and we raised a billion dollars of equity with the expectation that we would be able to deploy it.

The second half of the year went from not only working remotely but into a full mobilization of our efforts to make sure that we could deploy more capital into what we saw as a better market. I am thankful to report that in the January 1st renewal, we deployed an additional billion dollars of capital to risk. Our customers were excited about our being able to expand our offering to them. Our shareholders were excited about the opportunity for us to expand the overall footprint of the organization to serve our customers better. Our staff went from trying to survive the pandemic to trying to do something exceptional, which was to grow the organization pretty materially.

When I think about 2020, it was a year that was very different than what we anticipated it to be when we set our strategy in February and then reset our strategy in March, but it was a year that I will look back at as probably one of the finest years of our organization’s history.

Gross written premiums increased 1 billion or 20.8 percent to 5.58 billion in 2020. What can you tell us about the dynamics of each segment that contributed to this increase?

When we think about what we do, growth is kind of secondary. We looked at what our customers needed, and they wanted to trade more with us. They wanted to have top-rated balance sheets and experts in the classes of business in which they were transacting. It just seemed like a natural time for us to step up and to provide more capital to the market. In addition to the capital that we provide, which is captured in the gross written premium, we also increased the third-party capital that we brought to the market. We are now one of the largest managers of non-traditional reinsurance capital. We saw opportunities that would serve the investors and our shareholders well. It all started with the need for our customers to want to trade more with us.

You previously mentioned that an important lever for the business is ceded retrocessional coverage. What does the aspect of this business look like in 2021?

We participate in the retrocessional market in two ways. We write a fair amount of retro, which is us providing capital to other reinsurers, and then we buy protection on our own portfolio. We are looking for opportunities for us to achieve adequate returns on our capital to provide capital to others to write business. Much of that comes through one of our vehicles called Upsilon. And we write the retro book through Upsilon, because of the way in which we can diversify the product against a single pool of capital, where on a rated balance sheet we write more singular risks and diversify it on the balance sheet. By bringing that type of capital to that market, we can be highly efficient. We also purchase retrocessional coverage on our books of business to improve the efficiency of the portfolios. What retro can do is allow capital to be used at a higher level of efficiency in more territories on a rated balance sheet.

Your highest-profile acquisition was Tokio Millennium Re in early 2019. Are acquisitions and expansions part of the company’s strategy this year?

We purchased a division of Tokio Marine Holdings. It was called Tokio Millennium Re. We are very confident in our strategy. We have achieved strong organic growth, and I would say that if there is an opportunity for an acquisition that furthers our strategy and it is financially viable, we would take a look. This is certainly not something that is part of our strategy. It would be a complement or an accelerant to our strategy.

Can you tell us more about the action points associated with your strategy to promote climate resilience to close the protection gap and induce positive societal change and the potential long term benefits for the company?

We are not looking at ESG as something that hangs on the side of the company, but something that is core to who we are. We are looking at how we are investing the assets that we have. This is right on our website, that we have decided to divest from direct investments in mining companies that derive more than 30 percent of revenue from thermal coal. And we are thinking about, as an asset allocator, where we can make a difference. More importantly, I think our core business, which is protecting against natural catastrophes, is at the heart of climate change resilience and what we are doing is thinking about our understanding of that risk and how we can make sure that we are still providing the protections that the most vulnerable need, even in a changing world.

When we think about how to write homeowner protections in Florida or in the Caribbean or places like that, we have to understand that the historic record is reflecting a different reality than what the world is today because of climate change. Others will talk about things that they do to understand climate. Our business is affected by climate more directly than many others. We spent a lot of money understanding how that changes and then thinking about ways in which we can bring the right price to risk for those who choose to or need to live in places where they are more vulnerable.

Can you give us a first-hand account of what it is like to invest in Bermuda and comment on the doing business climate in Bermuda, and also your experience of living and working in the country?

I have lived here for 25 years. Bermuda is my home. Bermuda is an incredibly resilient country. Maybe because of their size, they see opportunities quickly and the regulator is able to mobilize to make sure that they can meet the needs of the market in a way that is rigorous, so that they can maintain equivalence with other regulators around the world. From that standpoint, I think it is an amazing place to do business.

We, as a company, have been here since our formation. We have grown here and I think it is an amazing market to do business. If you think about when a Japanese client or a client anywhere in the world thinks about going to do their meetings to meet their reinsurers, they generally stop in New York, Bermuda, and London. It is pretty hard to beat their stop in Bermuda. Not only is it beautiful, but it is a vibrant market and it is a community where you can walk, similar to what you can do in London from company to company and have billions of dollars of capacity within a mile so that you can be really efficient with your time and really efficient with placing your program.

Would you be able to give a unique value proposition of Bermuda compared to other small island economies?

When I think about what we do and where we do it, we almost always think of innovation in Bermuda and it is because of the accessibility and the expertise of the regulator. Anything from thinking about creating a new vehicle to distributing third party capital or setting up a 953(d), which is a US taxpaying but Bermuda-regulated entity, we start here. Maybe it is the specialization, because there is such a big reinsurance and insurance market here, but the regulator here seems to be more adaptive and more informed on market changes than anywhere else in the world.

What do you envision will be the implications for the economy and to the insurance industry with the work from Bermuda Residential Certificate Program?

The opportunity is huge and I think the government is working to change the regulations in terms of how they make sure it is easy for people who decide to work remotely and want to reside in Bermuda to be here. I have lived here for 25 years and, for me, I cannot think of a better place to live and work.