Recently, RenaissanceRe Holdings Ltd. (RNR - Analyst Report) announced that it has created a new special purpose insurance vehicle – Upsilon Reinsurance II Ltd. The company will be based in Bermuda and will be managed by RenaissanceRe’s subsidiary – Renaissance Underwriting Managers Ltd.
The capital for Upsilon Re II has been provided by various investors including RenaissanceRe. The new company currently has a fully-collateralized reinsurance limit of $185 million. However, Upsilon Re II can raise additional capital and increase its reinsurance capacity in the future, depending upon the available opportunities in the market.
The formation of Upsilon Re II has increased RenaissanceRe’s reinsurance capacity to cater to the global retrocessional reinsurance market. Retrocessional reinsurance refers to partial underwriting of the reinsurance risk of one reinsurance company by another.
The new special purpose insurance vehicle will help RenaissanceRe meet its clients’ capital requirement. The company will also facilitate the participation of investors in the retrocessional reinsurance market.
RenaissanceRe had created another special purpose insurance vehicle – Upsilon Reinsurance Ltd. – in January 2012 to provide supplementary capacity to the global retrocessional property catastrophe excess of loss market for the 2012 underwriting year. Additionally, in June 2012, the company had created another Bermuda-based special purpose insurer – Timicuan Reinsurance III Limited to provide collateralized reinsurance to its portfolio of reinstatement premium protection contracts in Florida.
RenaissanceRe carries a Zacks #3 Rank (Hold). We maintain a long-term ‘Neutral’ recommendation on the stock. Other companies in the reinsurance business such as AmTrust Financial Services Inc. (AFSI - Snapshot Report) and EMC Insurance Group Inc. (EMCI - Snapshot Report) carry a Zacks #1 Rank (Strong Buy).