Bermuda-based insurer RenaissanceRe is aiming to raise around $900m in the industry’s biggest equity issue since the crisis began.
Insurance and reinsurance companies could be hit with more than $100bn of claims from individuals and businesses affected by the pandemic. They are also facing investment losses because of the turmoil in financial markets. Prices for all types of cover have already started rising steeply in response and are expected to continue to increase for the rest of the year at least.
Insurers that want to take advantage of the higher prices and sell more policies have to have enough capital to back this new business.
RenaissanceRe said on Tuesday that it would sell 5.5m new shares, which at Monday’s closing price would be worth just over $900m. It will also sell $75m shares in a placing with US insurer State Farm, which owns just over 4 per cent of RenaissanceRe.
The company said it would use the money “for general corporate purposes, which may include expanding existing business lines, entering new business lines, forming new joint ventures, or acquiring books of business from other companies.”
Its New York-listed shares rose by 4 per cent in response to the news, but at $170 they are still below the $200 that they hit before the crisis.
Last month RenaissanceRe said it faced almost $104m of claims related to the pandemic, in areas such as event cancellation. At the time, chief executive Kevin O’Donnell said the company was “well capitalised with ample liquidity and our core franchise remains strong”.
Last month Hiscox, another insurer, raised £375m while Beazley raised £247m, with both citing new business opportunities as a reason. QBE, which is based in Australia, raised $750m in April to give itself the capital to withstand economic and market turmoil.
Prices have already started rising in many lines of insurance, some at a faster rate than at any time in the past 20 years. Prices for property reinsurance in Florida rose by around 30 per cent on the key June 1 renewal date. And the cost of directors’ and officers’ liability insurance — the cover companies buy in case their bosses face legal action — has doubled in some areas.
Hardeep Manku, a credit analyst at S&P Global Ratings said: “There are opportunities to be had, especially in an environment where capital will be constrained.” He added that RenaissanceRe’s equity raising gave it “the flexibility to address the opportunities that could be in the market”.
Reinsurers are facing high claims for the third consecutive year; natural catastrophes in 2018 and 2019 were expensive for the industry.
The Lloyd’s of London insurance market estimates the crisis will cost insurers and reinsurers about $200bn in total, including claims and investment losses. That would make it one of the most expensive events in the industry’s history.