Bermudian-based RenaissanceRe has built up an investment in gold that was worth $1.2 billion by the end of last year.

Kevin O’Donnell, the reinsurer’s chief executive officer, said investing in commodities was not typical for RenRe and that the gold investment was intended as a hedge against inflation and geopolitical turbulence.

Writing in the RenRe 2025 annual report, which was released yesterday, Mr O’Donnell said the gold position produced a $400 million mark-to-market gain in 2025.

Explaining the logic behind RenRe’s gold investment, Mr O’Donnell said: “We initiated our gold position at the end of 2023 as an inflationary and geopolitical hedge. If you recall at the time, geopolitical instability was rising, with the ongoing Russian invasion of Ukraine, Middle East unrest and growing concerns around an increasingly fractured world order.

“We were also concerned over the potential for inflation, debasement and weakness in the US dollar. Since initiating this position, none of these risks have diminished and many have grown.”

RenRe used gold futures as a more capital-efficient way of investing than holding physical gold.

Mr O’Donnell added that the company started with $250 million of notional exposure, with the intent of incrementally adding to the hedge over time. Much of the growth in the size of the position was due to the approximate doubling in the price of gold, he added.

The CEO also offered some insight on how RenRe would manage its gold exposure in the coming months, as a part of an investment portfolio that totalled $36 billion by the end of 2025.

“We think the current size of our gold holdings is an appropriate allocation against our overall portfolio,” Mr O’Donnell wrote. “Given that, I would expect that we will manage our position accordingly in 2026.

“This means not allowing it to become outsized by harvesting gains when appropriate. That said, as we expect the current period of US dollar weakness, inflation and geopolitical uncertainty to continue, gold is likely to remain an effective hedge.”

Insurers and reinsurers are traditionally conservative investors, putting the majority of their portfolios into sovereign and corporate bonds with durations that match their underwriting liabilities.

Traditionally, investors have regarded gold as a safe haven, an asset that reduces exposure to volatile financial markets and provides a buffer during times of stress. But like all commodities, its pricing action can be volatile.

The price of gold started 2024 at around $2,060 per ounce and by yesterday afternoon, it was trading at $4,618 per ounce - an increase of around 123 per cent over that period.

A mix of geopolitical turbulence, driven by military and trade conflicts, as well as inflation fears, a weakening US dollar and interest rate changes, AI disruption and concern over the health of private credit, have combined to create an environment in which gold has performed strongly as an asset.

In RenRe’s annual report, Mr O’Donnell also touched upon the first year paying Bermuda’s corporate income tax, and how tax credits were of benefit to the company, given its economic substance on island.

“We demonstrated our ability to continue producing excellent returns in a higher tax environment,” Mr O’Donnell wrote.

“This year we also benefited from substance-based tax credits, which the Bermuda Government introduced to encourage investment in Bermuda.

“There are two main components to the credits – compensation-related and expense-related. These credits are meant to incentivise companies to hire or locate employees in Bermuda and benefit the economy by encouraging domestic spending.

“We have a significant presence on the island, and the credits provide a positive tailwind to our results, acting as an offset to certain operating and corporate expenses.”

There has been much discussion of softening reinsurance rates. Mr O’Donnell explained that he disliked the traditional description of a market as hard or soft, saying he preferred focusing on rate adequacy.

“A common misconception is that falling rates define a soft market,” Mr O’Donnell wrote. “Property catastrophe reinsurance in 2025 is a good example. Rates were indeed falling, but they remained strongly adequate. Our actions for the year were driven by the level of rate adequacy, which is why we grew our property catastrophe business even though rates were declining. We wrote more risk even at lower rates, because we expect it will be highly accretive to shareholders.”

Mr O’Donnell noted that the annual aggregate catastrophe losses trend showed an average increase of 6 per cent over the past 30 years, but rates to reinsure this risk did not move smoothly.

Rather, rates tended to spike after a major catastrophe, but Mr O’Donnell argued that it was not the event itself that triggered the sharp increase, but rather “the cumulative effect of loss trend and inflation gradually outpacing rate”.

He added: “In the current market however, rates remain strongly adequate, so a relatively large loss would have to occur for prices to adjust substantially. That said, this threshold is smaller than what would have been required in 2025.”

In 2025, RenRe reported net income of $2.6 billion, despite incurring $786 million of net negative impact from large loss events.

This was the third year in a row in which RenRe grew tangible book value per common share plus change in accumulated dividends by more than 25 per cent.

• To read RenRe’s full annual report, click here