RenaissanceRe Holdings Ltd (NYSE:RNR) Q2 2020 Earnings Conference Call - Final Transcript

Jul 29, 2020 • 11:00 am ET

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RenaissanceRe Holdings Ltd (NYSE:RNR) Q2 2020 Earnings Conference Call - Final Transcript

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Executive
Kevin O'Donnell

large losses and substantial trapped ILS capital. Capital casualty markets were beset by significant loss inflation, caused by historically large jury verdicts and increasing frequency of severity. This preexisting rate trend was accelerated by COVID-19 and the deep economic recession that follows. COVID-19 will be among the largest insured losses in history.

The loss will develop slowly and will add uncertainty, which drives demand for reinsurance as buyers look to reduce volatility. At the same time, the increase in demand has been mirrored by a reduction in supply caused by increased underwriting discipline in dislocated retro markets. This confluence of factors has resulted in material rate increases that will impact almost all lines for an extended period, and which we expect will create opportunities for us over the next several years.

For all the reasons, we concluded that this was the ideal time to raise new equity. Second, why did we choose equity? Our strategy is to use our integrated system to match desirable risk with efficient capital. Throughout our history, we have been innovators in preferentially accessing the most efficient forms of capital, depending on market conditions, flexing between common, preferred cat bonds, retro, side cars and dedicated third-party capital as well as senior debt, credit revolvers and LOCs. Each form of capital is selected to maximize its efficiency relative to the risk it is deployed against.

Given our current conditions, common equity was the best option. It is permanent. It is flexible capital fully available for underwriting that we can deploy in order to maximize long-term shareholder value. And finally, why $1 billion? On our previous earnings call, we told you we already had excess capital. But we chose this amount as we believe it gives us the increased scale necessary to maximize the market opportunity we are expecting.

We ran multiple proformas to determine the size of this opportunity and feel confident that we can deploy the capital we raised while maintaining a prudent buffer. We envisioned two main opportunities to deploy the capital we raised: opportunity one, is growing into an improving market; and opportunity two, is retaining more risk. Our first and best opportunity is to grow into an improving market. We have a long-term demonstrated track record of profitable growth and believe that current conditions afford us considerable options to grow our business by deploying more equity.

With the fortress balance sheet, we can provide our customers with certainty of execution. Many insurers are concerned about their ability to purchase sufficient reinsurance in retro next year. This will result in a reluctance to take new risk or renew existing business even at attractive rates. Approximately half of our business renews at January one, and we are already having productive conversations with our customers ahead of this important renewal. Providing certainty of execution makes us a first call market for both new and large opportunities and gives us preferential access to private deals.

Our second deployment opportunity is to retain more risk. A key component