2016 Annual Report
RenaissanceRe
Holdings Ltd.
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RenaissanceRe Holdings Ltd.
Renaissance House
12 Crow Lane
Pembroke HM 19
Bermuda
Tel: +1 441 295 4513
renre.com
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Contents
Financial Highlights
Letter to Shareholders
Message from the Chair
Comments on Regulation G
Form 10-K
Office Locations
Leadership Team
Board of Directors,
Financial and Investor Information
1
2
6
7
9
Last Page
Last Page
Inside
Back Cover
Board of Directors
Financial and Investor Information
RenaissanceRe Holdings Ltd.
RenaissanceRe Holdings Ltd. and Subsidiaries
James L. Gibbons
Non-Executive Chair
RenaissanceRe Holdings Ltd.
Kevin J. O’Donnell
President and Chief Executive Officer
RenaissanceRe Holdings Ltd.
David C. Bushnell
Retired Chief Administrative Officer
Citigroup Inc.
Brian G. J. Gray
Former Group Chief Underwriting Officer
Swiss Reinsurance Company Ltd.
William F. Hagerty IV
Founder and Former Managing Director
Hagerty Peterson & Company LLC
Jean D. Hamilton
Private Investor
Independent Consultant
Henry Klehm III
Partner
Jones Day
Ralph B. Levy
Retired Senior Partner
King & Spalding LLP
Carol P. Sanders
Former Chief Financial Officer
Sentry Insurance a Mutual Company
Anthony M. Santomero
Former President
Federal Reserve Bank of Philadelphia
Edward J. Zore
Retired Chairman and Chief Executive Officer
The Northwestern Mutual Life Insurance Company
All stocks used in this report are FSC® certified.
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Please recycle this publication.
General Information About the Company
For the Company’s Annual Report, press releases, Forms 10-K and
10-Q or other filings, please visit our website: renre.com
Or Contact:
Kekst and Company, 437 Madison Avenue,
19th Floor, New York, NY 10022
Tel: +1 212 521 4800
Investor Inquiries Should be Directed to:
Investor Relations, RenaissanceRe Holdings Ltd.
Tel: +1 441 295 4513 E-mail: investorrelations@renre.com
Additional Requests Can be Directed to:
The Corporate Secretary, RenaissanceRe Holdings Ltd.
Tel: +1 441 295 4513 E-mail: secretary@renre.com
Stock Information
The Company’s stock is listed on The New York Stock Exchange
under the symbol ‘RNR’.
The following table sets forth, for the period indicated, the high and low
closing prices per share of our common shares as reported in composite
New York Stock Exchange trading.
Price Range of Common Shares
Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016
2015
High
Low
High
Low
$120.59 $107.47 $104.72
$93.89
121.38
107.27
105.96
99.20
122.97
114.34
108.79
99.35
137.21
117.36
116.10
104.78
Certifications
The Chief Executive Officer and Chief Financial Officer have certified
in writing to the Securities and Exchange Commission (the “SEC”) as
to the integrity of the Company’s financial statements included in this
Annual Report and in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2016 filed with the SEC and as to
the effectiveness of the Company’s disclosure controls and procedures
and internal control over financial reporting.
The certifications are filed as Exhibits 31.1, 31.2, 32.1 and 32.2
to our Form 10-K. Our Chief Executive Officer has certified to the
New York Stock Exchange in 2016 that he was not aware of any
violation by the Company of the New York Stock Exchange corporate
governance listing standards.
Independent Registered Public Accounting Firm
Ernst & Young Ltd., Hamilton, Bermuda
Registrar and Transfer Agent
Computershare
Tel: +1 800 522 6645 or +1 201 680 6578
Shareholder website
www.computershare.com/investor
Shareholder online inquiries
https://www-us.computershare.com/investor/Contact
Shareholder correspondence should be mailed to:
Computershare
P.O. BOX 30170
College Station, TX 77845-3170
Overnight correspondence should be sent to:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77842
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Financial Highlights
Financial Highlights for RenaissanceRe Holdings Ltd. and Subsidiaries
(In thousands of United States dollars, except per share amounts and percentages)
Gross premiums written
Net income available to RenaissanceRe common shareholders
Operating income available to RenaissanceRe common shareholders (1)
Total assets
Total shareholders’ equity
Per common share amounts
2016
2015
2014
$
2,374,576
2,011,310
1,550,572
$
$
480,581
408,811
510,337
339,253
477,729
468,904
$ 12,352,082
11,555,287
8,202,307
$
4,866,577
4,732,184
3,865,715
Net income available to RenaissanceRe common shareholders per common share – diluted
$
11.43
9.28
12.60
Operating income available to RenaissanceRe common shareholders
per common share – diluted (1)
Book value per common share
Tangible book value per common share (1)
$
8.03
$ 108.45
$ 101.87
10.86
99.13
92.54
11.56
90.15
89.29
Tangible book value per common share plus accumulated dividends (1)
$ 118.59
108.02
103.57
Dividends per common share
$
1.24
1.20
1.16
Ratios
Return on average common equity
Operating return on average common equity (1)
Net claims and claim expense ratio
Underwriting expense ratio
Combined ratio
%
%
%
%
%
11.0
7.8
37.8
34.7
72.5
9.8
11.4
32.0
32.7
64.7
14.9
13.7
18.6
31.6
50.2
(1) Represents a non-GAAP financial measure, which is reconciled in the Comments on Regulation G on pages 7 and 8.
Financial Strength Ratings
Renaissance Reinsurance Ltd. (1)
DaVinci Reinsurance Ltd. (1)
Renaissance Reinsurance U.S. Inc. (1)
RenaissanceRe Specialty U.S. Ltd. (1)
Renaissance Reinsurance of Europe Unlimited Company (1)
Top Layer Reinsurance Ltd. (1)
RenaissanceRe Syndicate 1458
Lloyd’s Overall Market Rating (2)
RenaissanceRe (3)
A.M. Best
S&P
Moody’s
Fitch
A+
A
A
A
A+
A+
–
A
–
AA-
AA-
AA-
AA-
AA-
AA
–
A+
Very Strong
A1
A3
–
–
–
–
–
–
–
A+
–
–
–
–
–
–
AA-
–
(1) The A.M. Best, S&P, Moody’s and Fitch ratings for these companies set forth in the table above reflect the insurer’s financial strength rating and, in addition to the insurer’s
financial strength rating, the S&P ratings reflect the insurer’s issuer credit rating.
(2) The A.M. Best, S&P and Fitch ratings for the Lloyd’s Overall Market Rating represent its financial strength rating.
(3) The S&P rating for RenaissanceRe represents the rating on its Enterprise Risk Management practices.
1
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Letter to Shareholders
By Kevin O’Donnell
President and Chief Executive Officer
The common thread across
changing markets has been
our focus on leadership
through innovation.
Dear Shareholders,
When I look back on 2016, I am proud of our
accomplishments and the shareholder value we
delivered. We achieved strong financial performance;
deepened and broadened our relationships with
customers and brokers; continued to build an attractive
casualty and specialty business; effectively executed on
our gross-to-net strategy; and strengthened our team.
Our most significant accomplishment in 2016, however,
is not what changed, but what stayed the same. At the
core of our culture and deep in our DNA, we remain
the same company we were at our founding 24 years
ago – we are still very much RenaissanceRe.
Financial Performance
In 2016, our focus on shareholder value was reflected
across a number of financial metrics. We generated net
income available to RenaissanceRe common shareholders
of $480.6 million and operating income available to
RenaissanceRe common shareholders of $339.3 million,
resulting in a return on average common equity of 11.0%
and an operating return on average common equity of
7.8%. We increased book value per common share by
9.4% and tangible book value per common share plus
change in accumulated dividends by 11.4%. Our combined
ratio, the sum of our loss ratio and underwriting expense
ratio, was 72.5%, which was higher than in prior low-loss
years. We expect our underwriting expense ratio to grow as
we expand our casualty business, which tends to generate
higher loss ratios, but lower volatility. At the end of 2016,
we had $4.9 billion of total shareholders’ equity, not counting
the capital we manage on behalf of private investors. Our
total shareholder return in 2016 was 21.6%.
During 2016, we returned $361.0 million to our shareholders
through common share buybacks and dividends. We take
a long-term view of capital management, with the goal of
maximizing shareholder value. Our capital management
philosophy remains unchanged, and we primarily seek to
deploy capital in our existing businesses. This ensures
that we have adequate capital and liquidity to meet our
customers’ needs. We endeavor to be good stewards of
your capital, and have returned more than $1.2 billion to
you over the past three years.
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RenaissanceRe Holdings Ltd. 2016 Annual Report
Deepening Superior Customer
Relationships
A year ago, I set the goal of strengthening and deepening
our customer relationships. With risk being scarce and capital
abundant, we increased our focus on listening to what
customers wanted, and responded with new products and
platforms to meet those needs. Now we have a larger, more
diversified portfolio supporting our customers across more
lines of business than at any other time in our history. We
also made significant progress deepening our relationships,
with 40% of our accounts now served by our core underwriting
platforms in Bermuda, the U.S. and Europe. In 2017, we look
forward to growing this number further.
In 2016, we increased our strategic ties to customers by
helping them grow their businesses. We worked with them
on their toughest risk problems and supported them with
new and innovative products.
Our continued recognition that there are two stakeholders
in every transaction – the customer and the broker – has
been critical to building customer relationships. We value
our broker relationships and have worked to strengthen them
through open dialogue and collaboration during periods of
market stress. As the role of the broker changes, we remain
committed to working with them, and believe we will be
integral to their success as they evolve.
Growing Casualty and Specialty
Over the last several years, we have built an industry leading
casualty and specialty business. This required us to refine
tools, construct platforms and hire and train people to serve
our customers’ and brokers’ evolving needs. We leveraged
our world class risk management, proprietary technology, and
differentiated culture in these new lines and achieved scale
and profitability. Casualty and specialty is core to our business,
and we continue to demonstrate leadership in many lines,
including professional liability, general liability, mortgage and
other financial lines, accident and health, regional multi-line
and composite specialty.
In 2016, our casualty and specialty platform, including the
business we write through RenaissanceRe Syndicate 1458 at
Lloyd’s, continued to grow. We increased signings on existing
programs, where customers looked to consolidate their
panels, and we wrote more lines of business with existing
customers. Notably, we now derive more than half of our
gross premiums written from casualty and specialty business,
a big change from the past.
Customers and brokers have long recognized our core
strengths are building risk distributions, assessing
correlations and determining tail risk. We have translated
these strengths to our casualty and specialty business, and
they are fundamental elements of our underwriting process
in each new line of business that we add to our portfolio.
Executing on Gross-to-Net
As a leader in matching desirable risk with efficient capital,
our gross-to-net strategy enables us to build portfolios that
seek to optimize returns across a spectrum of potential
outcomes. Underwriting desirable risk is the first step to
constructing a superior portfolio, but by diversifying the capital
supporting these portfolios, we improve our expected returns.
Our gross-to-net strategy is primarily focused on three areas:
(i) changing our cessions to respond to market conditions; (ii)
maintaining a healthy level of capital to support future growth;
and (iii) protecting our capital against large losses. In 2016,
we purchased additional retrocessional coverage across our
business lines, ceding more than 35% of our gross written
premiums, and retaining less than half the premiums in our
property catastrophe line of business. In short, we reduced risk
because we were paid less to take it. This looks expensive in a
low-cat environment, but as I have said many times in the past,
there is a cost associated with doing the right thing in difficult
markets. We believe our gross-to-net strategy is the right one
for building shareholder value over the long term.
An additional benefit of our gross-to-net strategy is that it
helps us to maintain a consistent gross position with our
customers. This means we can remain consistent partners
to our customers while maintaining underwriting discipline,
regardless of pricing cycles. By being a consistent partner,
we preserve our access to potentially desirable risk.
Additionally, by using a wide variety of capital sources
to reduce our net position, we lower our balance sheet
risk at a time when prices are declining.
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Letter to Shareholders (continued)
We have translated this same gross-to-net strategy to our
casualty and specialty portfolios in order to manage our net
retained risk and transform risk income into fee income.
By applying the gross-to-net skills we originally developed
in property catastrophe, our casualty and specialty portfolio
has a better risk-adjusted return profile than it otherwise
would on a gross basis.
Enduring Value Proposition
Even in today’s challenging market, our property catastrophe
risk appetite remains unchanged, but our discipline requires
us to write less than we want. Given a better market, we could
grow dramatically on both our own capital and the capital we
manage on behalf of others.
In a market characterized by pricing pressures, both cyclical
and secular, we are proud to have a value proposition that
extends beyond price. Our customers and brokers recognize
the importance of our problem-solving capabilities and our
ability to match desirable risk with efficient capital. They value
the integrated solutions we offer through our underwriting
platforms and our joint ventures to help their businesses
grow, and the expertise provided by our scientists at
Weather Predict Consulting Inc.
We have a demonstrated track record of recognizing market
trends and continue to act decisively to maintain our leadership
position. In 1992, we created a new business model for
property catastrophe following Hurricane Andrew; in 1999
we recognized the benefits of third-party capital and formed
Top Layer Re; and, following the credit crisis, we began the
process of building a global, diversified operating platform.
More recently, we foresaw the consolidation of reinsurance
panels across several business lines and moved early and
efficiently to acquire Platinum ahead of a wave of consolidation.
The common thread across changing markets has been our
focus on leadership through innovation. The result of that
leadership is a powerful, flexible and nimble platform
powering a differentiated ability to match desirable risk with
efficient capital across several platforms, supporting our
customers’ evolving needs and delivering shareholder value.
Strengthening the Team
Our executive management and key underwriting
team is strong, stable and experienced. They have led
RenaissanceRe through a range of market cycles and
are prepared to continue our track record of creating
shareholder value through customer-focused innovation.
They will lead our company and the broader market
through the challenges ahead.
In 2016, Robert Qutub came aboard as our Chief Financial
Officer; David Marra was appointed head of our U.S. platform;
and we announced that Aditya Dutt would expand his role
to include that of Treasurer in 2017. We also welcomed
Carol Sanders to our Board of Directors.
The bench strength of our team was also reflected in
a number of senior leadership roles we were able to
fill with internal talent. In addition, we expanded the
technical expertise on our casualty and specialty teams
at RenaissanceRe Syndicate 1458 as well as in our
ventures unit, maintaining operational efficiency while
strengthening our ability to meet the changing needs
of our customers.
Four Vectors of Influence
As proud as we are of all we accomplished in 2016, we
expect many of the challenges facing the industry will
continue to intensify in 2017. Ours has been an insular
business that was only recently discovered by financial
services, putting us on the road to maturity. To succeed,
we must continue to focus on our customers, constantly
innovate, and improve our efficiency. We believe our products
will move from being managed as another risk product to
being managed as another capital product, and increasingly
CEOs and CFOs will be making the buying decisions.
Under this new paradigm, successful companies will need to
find ways to navigate several emerging trends, which I refer
to as the “four vectors of influence.” Each of these vectors
has the potential to radically change the supply chain of risk
and the way the industry delivers value to shareholders.
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RenaissanceRe Holdings Ltd. 2016 Annual Report
The first vector of influence: redundant links in the risk
chain are disappearing. By removing redundant links,
successful companies will create a win-win scenario where
they capture more of the economics for themselves while
reducing costs for ultimate customers.
The second vector of influence: making the remaining
links in the chain more efficient. In addition to removing
redundant links, successful companies will focus on
reducing underwriting and other expenses, enhancing
their own returns and reducing costs for customers.
They will look to provide services currently offered by
other participants in the chain and try to take on additional
links, i.e., capture more of the services that others are
providing. For us, this is an area of opportunity, as we
have the capabilities to partner with firms in different ways
and can provide our product with increasing flexibility.
The third vector of influence: continuing capital-side
innovation. Third-party capital, which has traditionally been
focused on reinsurance, will attempt to diversify vertically
and move closer to the customer. It remains to be seen how
successful capital will be in this endeavor, but we anticipate
increased efforts here. This capital has been much more
nimble than most understand. In 2006, after the market
dislocation caused by Hurricanes Katrina, Rita and Wilma,
the majority of our investors were hedge funds. They
moved quickly when they saw there was a great opportunity.
Additionally, conventional wisdom expected third-party capital
would move horizontally across our business and write other
short-tail lines. Instead, we have seen third-party capital being
much more committed to property and moving vertically, trying
to get closer to the customer. We have managed third-party
capital in some form for over 20 years and are the preferred
manager in many classes. We believe that third-party capital
will remain an important part of our business and it will
continue to evolve, looking for new ways to take risk.
The fourth vector of influence: greater impact from
technology or “FinTech.” Successful companies, including
new entrants from outside the traditional insurance sector,
will employ new approaches to underwriting risks and
interacting with customers. The use of algorithms and
breakthrough technologies has the potential to significantly
disrupt our industry and radically change how insurance is
bought, sold and reinsured.
I expect each of these vectors will become increasingly
influential over time. They will also help to distinguish the
successful companies from the ones left behind.
Ready for the Future
RenaissanceRe has continued to grow stronger across our
business and enhance shareholder value. We have more
resources, a broader set of underwriting capabilities, better
access to multiple forms of capital, and a bigger global
footprint than ever before. We have globally coordinated
underwriting capabilities in Bermuda, New York, Chicago,
London and Singapore. We can trade with customers of any
size, in any time zone, and across any reinsurance product.
As a result, we are stronger today than ever before and
better able to handle a broader set of future market states.
By maintaining a focus on capital strength, flexibility,
shareholder value and, most importantly, serving our clients,
we believe we have embraced and adapted to the many
challenges facing our industry. We have a well-integrated
enterprise risk management framework that allows us to stay
coordinated and nimble as we navigate these pressures and
we are confident that our core strengths – superior customer
relationships, superior capital management and superior risk
selection – will continue to drive our leadership going forward.
Sincerely,
Kevin J. O’Donnell
President and Chief Executive Officer
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Message from the Chair
RenaissanceRe is ready for
the future and we will continue
to take the steps necessary
to fulfill our oversight role
effectively. We have every
confidence that our Company
is well-positioned to compete
and succeed in an ever-
changing environment.
In his letter to shareholders this year, Kevin provides
insight into the key challenges and potential changes in
our industry, as well as the balance the Company needs to
strike between consistency and change. My fellow directors
and I are proud of our Company’s efforts to balance these
dynamics in 2016, innovating and expanding the services
provided to clients worldwide, while nurturing and protecting
RenaissanceRe’s distinct culture, high ethical standards, and
commitment to excellence. These efforts are reflected in our
Company’s financial results, our ability to attract and retain
what we believe is the best team in our industry, and in the
confidence and support of our clients and investors.
Your Board of Directors, too, must balance change and
consistency. Governance standards, third-party expectations,
regulatory tests and the like all continued to evolve in 2016.
Looking ahead to 2017, we expect the pace of change to
accelerate in ways that, at times, will surprise. Nevertheless, we
remain constant in our oversight, commitment to our fiduciary
duties, and execution of our obligations to RenaissanceRe and
its shareholders.
Just as your highly-experienced management team has been
strengthened by new additions, we believe a healthy board
similarly balances evolution and consistency in its own roster.
Accordingly, we continually review our Board’s composition,
experiences, and skills against RenaissanceRe’s strategic
needs and external market trends. In recent years,
6
we have welcomed the fresh perspectives of new additions
to the Board. Our “pipeline” also supports our ability to
rotate directors amongst board assignments, broadening
their experience and leveraging our ability to benefit from
tenured directors.
In this context, and on behalf of the Board, it is my pleasure to
salute the distinguished service of Ralph Levy, my predecessor
as non-Executive Chair. Ralph joined the RenaissanceRe
board in 2007 and was elected Non-Executive Chair in 2011.
Ralph led the Board through change and transitions, while
ensuring the consistency of our approach and protecting the
collegiality of our Board. These are no small feats and I hope
to emulate Ralph’s example. Ralph’s wisdom and judgment
remain available to us as he picks up new responsibilities on
the Board, including his gracious support of my transition to
this role. We are all grateful for Ralph’s leadership and his
continuing contributions to RenaissanceRe.
Finally, I would like to thank the shareholders and stakeholders
who participated in our continual engagement process. We are
grateful for your investment in RenaissanceRe as management’s
engagement with you helps make our Company stronger.
We thank for your support in 2016 and look forward to your
continued feedback.
Our Board believes that RenaissanceRe is ready for the
future and we will continue to take the steps necessary to
fulfill our oversight role effectively. We have every confidence
that our Company is well-positioned to compete and succeed
in an ever-changing environment. We remain committed to
supporting management’s efforts to deliver long-term value
for our shareholders and make further strategic progress.
It is my pleasure to thank you, on behalf of my fellow directors,
for your ongoing support.
Sincerely,
James L. Gibbons
Non-Executive Chair
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Comments on Regulation G
In addition to financial measures prepared in accordance with generally accepted accounting principles (“GAAP”) set forth in this
Annual Report, the Company has included certain non-GAAP financial measures within the meaning of Regulation G. The Company
has consistently provided these financial measures in previous investor communications and the Company’s management believes
that these measures are important to investors and other interested persons, and that investors and such other persons benefit
from having a consistent basis for comparison between years and for comparison with other companies within the industry. These
measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors
are cautioned not to place undue reliance on these non-GAAP measures in assessing the Company’s overall financial performance.
The Company uses “operating income available to RenaissanceRe common shareholders” as a measure to evaluate the underlying
fundamentals of its operations and believes it to be a useful measure of its corporate performance. “Operating income available to
RenaissanceRe common shareholders” as used herein differs from “net income available to RenaissanceRe common shareholders,”
which the Company believes is the most directly comparable GAAP measure, by the exclusion of net realized and unrealized gains
and losses on investments. The Company’s management believes that “operating income available to RenaissanceRe common
shareholders” is useful to investors because it more accurately measures and predicts the Company’s results of operations by
removing the variability arising from fluctuations in the Company’s fixed maturity investment portfolio, equity investments trading
and investments-related derivatives. The Company also uses “operating income available to RenaissanceRe common shareholders”
to calculate “operating income available to RenaissanceRe common shareholders per common share – diluted” and “operating
return on average common equity – needed”. The following is a reconciliation of: 1) net income available to RenaissanceRe common
shareholders to operating income available to RenaissanceRe common shareholders; 2) net income available to RenaissanceRe
common shareholders per common share – diluted to operating income available to RenaissanceRe common shareholders per
common share – diluted; and 3) return on average common equity to operating return on average common equity:
(in thousands of United States dollars, except per
share amounts and percentages)
Net income available to RenaissanceRe common shareholders
Adjustment for net realized and unrealized (gains) losses on investments
Year Ended December 31,
2016
2015
2014
$480,581
(141,328)
$408,811
$510,337
68,918
(41,433)
Operating income available to RenaissanceRe common shareholders
$339,253
$477,729
$468,904
Net income available to RenaissanceRe common shareholders per common share - diluted
Adjustment for net realized and unrealized (gains) losses on investments
Operating income available to RenaissanceRe common shareholders per common share - diluted
Return on average common equity
Adjustment for net realized and unrealized (gains) losses on investments
Operating return on average common equity
$11.43
(3.40)
$ 8.03
11.0%
(3.2%)
7.8%
$ 9.28
1.58
$10.86
9.8%
1.6%
11.4%
$12.60
(1.04)
$11.56
14.9%
(1.2%)
13.7%
25332 aRR 2016.3.7 cc15.indd 7
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The Company has included in this Annual Report “tangible book value per common share” and “tangible book value per common
share plus accumulated dividends”. “Tangible book value per common share” is defined as book value per common share excluding
goodwill and intangible assets per share. “Tangible book value per common share plus accumulated dividends” is defined as
book value per common share excluding goodwill and intangible assets per share, plus accumulated dividends. The Company’s
management believes “tangible book value per common share” and “tangible book value per common share plus accumulated
dividends” are useful to investors because they provide a more accurate measure of the realizable value of shareholder returns,
excluding the impact of goodwill and intangible assets. The following is a reconciliation of book value per common share to
tangible book value per common share and tangible book value per common share plus accumulated dividends:
Book value per common share
Adjustment for goodwill and other intangibles (1)
Tangible book value per common share
Adjustment for accumulated dividends
Year Ended December 31,
2016
2015
2014
$108.45
$ 99.13
$ 90.15
(6.58)
101.87
16.72
(6.59)
92.54
15.48
(0.86)
89.29
14.28
Tangible book value per common share plus accumulated dividends
$118.59
$108.02
$103.57
Change in book value per common share
Change in tangible book value per common share plus change in accumulated dividends
9.4%
11.4%
10.0%
5.0%
12.3%
13.9%
(1) For 2016, 2015 and 2014, goodwill and other intangibles includes $19.7 million, $23.2 million and $25.3 million, respectively, of goodwill and other intangibles included in investments
in other ventures, under equity method.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-14428
RENAISSANCERE HOLDINGS LTD.
(Exact Name Of Registrant As Specified In Its Charter)
Bermuda
(State or Other Jurisdiction of
Incorporation or Organization)
98-014-1974
(I.R.S. Employer
Identification Number)
Renaissance House, 12 Crow Lane, Pembroke HM 19 Bermuda
(Address of Principal Executive Offices)
(441) 295-4513
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, Par Value $1.00 per share
Series C 6.08% Preference Shares, Par Value $1.00 per share
Series E 5.375% Preference Shares, Par Value $1.00 per share
Name of each exchange on which registered
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company, as defined in Rule 12b-2 of the Act. Large accelerated filer
Smaller reporting company
, Non-accelerated filer
, Accelerated filer
,
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of Common Shares held by nonaffiliates of the registrant at June 30, 2016 was $4,756.6 million based
on the closing sale price of the Common Shares on the New York Stock Exchange on that date.
The number of Common Shares, par value US $1.00 per share, outstanding at February 17, 2017 was 40,944,207.
Portions of the registrant’s definitive proxy statement for the 2017 Annual General Meeting of Shareholders are incorporated by
reference into Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
RENAISSANCERE HOLDINGS LTD.
TABLE OF CONTENTS
NOTE ON FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER
MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES . . . . . . . . . . .
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . .
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
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MANAGEMENT AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . .
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16. 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . .
INDEX TO SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . .
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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F-1
S-1
i
NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the year ended December 31, 2016 (this “Form 10-K”) of
RenaissanceRe Holdings Ltd. (“RenaissanceRe”) contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are
necessarily based on estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can affect actual results and could
cause actual results to differ materially from those expressed in any forward-looking statements made by, or
on behalf of, us. In particular, statements using words such as “may”, “should”, “estimate”, “expect”,
“anticipate”, “intend”, “believe”, “predict”, “potential”, or words of similar import generally involve forward-
looking statements. For example, we may include certain forward-looking statements in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” with regard to trends in results,
prices, volumes, operations, investment results, margins, combined ratios, fees, reserves, market
conditions, risk management and exchange rates. This Form 10-K also contains forward-looking statements
with respect to our business and industry, such as those relating to our strategy and management
objectives, market standing and product volumes, competition and new entrants in our industry, industry
capital, insured losses from loss events, government initiatives and regulatory matters affecting the
reinsurance and insurance industries.
The inclusion of forward-looking statements in this report should not be considered as a representation by
us or any other person that our current objectives or plans will be achieved. Numerous factors could cause
our actual results to differ materially from those addressed by the forward-looking statements, including the
following:
• the frequency and severity of catastrophic and other events we cover;
• the effectiveness of our claims and claim expense reserving process;
• our ability to maintain our financial strength ratings;
• the effect of climate change on our business;
• the effects of United States (“U.S.”) business tax reform proposals;
• adverse tax developments, including potential changes to the taxation of inter-company or related
party transactions, or changes to the tax treatment of our shareholders or investors in our joint
ventures or other entities we manage;
• the effect of emerging claims and coverage issues;
• continued soft reinsurance underwriting market conditions;
• our reliance on a small and decreasing number of reinsurance brokers and other distribution services
for the preponderance of our revenue;
• our exposure to credit loss from counterparties in the normal course of business;
• the effect of continued challenging economic conditions throughout the world;
• a contention by the Internal Revenue Service (the “IRS”) that Renaissance Reinsurance Ltd.
(“Renaissance Reinsurance”), or any of our other Bermuda subsidiaries, is subject to taxation in the
U.S.;
• the performance of our investment portfolio;
• losses we could face from terrorism, political unrest or war;
• the effect of cybersecurity risks, including technology breaches or failure, on our business;
• our ability to successfully implement our business strategies and initiatives;
• our ability to retain our key senior officers and to attract or retain the executives and employees
necessary to manage our business;
• our ability to determine the impairments taken on our investments;
• the availability of retrocessional reinsurance on acceptable terms;
1
• the effects of inflation;
• the ability of our ceding companies and delegated authority counterparties to accurately assess the
risks they underwrite;
• the effect of operational risks, including system or human failures;
• our ability to effectively manage capital on behalf of investors in joint ventures or other entities we
manage;
• foreign currency exchange rate fluctuations;
• our ability to raise capital if necessary;
• our ability to comply with covenants in our debt agreements;
• changes to the regulatory systems under which we operate, including as a result of increased global
regulation of the insurance and reinsurance industry;
• changes in Bermuda laws and regulations and the political environment in Bermuda;
• our dependence on the ability of our operating subsidiaries to declare and pay dividends;
• the success of any of our strategic investments or acquisitions, including our ability to manage our
operations as our product and geographical diversity increases;
• aspects of our corporate structure that may discourage third party takeovers and other transactions;
• the cyclical nature of the reinsurance and insurance industries;
• adverse legislative developments that reduce the size of the private markets we serve or impede their
future growth;
• other political, regulatory or industry initiatives adversely impacting us;
• risks related to Solvency II;
• the effect on our business of the highly competitive nature of our industry, including the effect of new
entrants to, competing products for and consolidation in the (re)insurance industry;
• consolidation of competitors, customers and insurance and reinsurance brokers;
• increasing barriers to free trade and the free flow of capital;
• international restrictions on the writing of reinsurance by foreign companies and government
intervention in the natural catastrophe market;
• the effect of Organization for Economic Co-operation and Development (the “OECD”) or European
Union (“EU”) measures to increase our taxes and reporting requirements;
• the effect of the vote by the U.K. to leave the EU;
• changes in regulatory regimes and/or accounting rules that impact financial results irrespective of
operations; and
• our need to make many estimates and judgments in the preparation of our financial statements.
As a consequence, our future financial condition and results may differ from those expressed in any
forward-looking statements made by or on behalf of us. The factors listed above, which are discussed in
more detail in “Part I, Item 1A. Risk Factors”, in this Form 10-K, should not be construed as exhaustive.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to
revise or update forward-looking statements to reflect new information, events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
2
PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, references in this Form 10-K to “RenaissanceRe” refer to
RenaissanceRe Holdings Ltd. (the parent company) and to the “Company” refers to RenaissanceRe
Holdings Ltd. and its subsidiaries, which include Renaissance Reinsurance, RenaissanceRe Specialty U.S.
Ltd. (“RenaissanceRe Specialty U.S.”), Renaissance Reinsurance U.S. Inc., formerly known as Platinum
Underwriters Reinsurance, Inc. (“Renaissance Reinsurance U.S.”), Renaissance Reinsurance of Europe
Unlimited Company (“Renaissance Reinsurance of Europe”) and the Company’s Lloyd’s syndicate,
RenaissanceRe Syndicate 1458 (“Syndicate 1458”).
We also underwrite reinsurance on behalf of joint ventures, including Top Layer Reinsurance Ltd. (“Top
Layer Re”), recorded under the equity method of accounting, Upsilon RFO Re Ltd. (“Upsilon RFO”), a
consolidated variable interest entity, Fibonacci Reinsurance Ltd. ("Fibonacci Re"), an unconsolidated
variable interest entity, and DaVinci Reinsurance Ltd. (“DaVinci”). In addition, through RenaissanceRe
Medici Fund Ltd. (“Medici”), we invest in various insurance based investment instruments that have returns
primarily tied to property catastrophe risk. The financial results of Medici, and DaVinci and DaVinci’s parent
company, DaVinciRe Holdings Ltd. (“DaVinciRe”), are consolidated in our financial statements.
For your convenience, we have included a “Glossary of Selected Insurance and Reinsurance Terms” at the
end of “Part I, Item 1. Business” of this Form 10-K. All dollar amounts referred to in this Form 10-K are in
U.S. dollars unless otherwise indicated. Any discrepancies in the tables included herein between the
amounts listed and the totals thereof are due to rounding.
OVERVIEW
RenaissanceRe is a global provider of reinsurance and insurance. We aspire to be the world’s best
underwriter by matching well-structured risks with efficient sources of capital and our mission is to produce
superior returns for our shareholders over the long term. We seek to accomplish these goals by being a
trusted, long-term partner to our customers for assessing and managing risk, delivering responsive and
innovative solutions, leveraging our core capabilities of risk assessment and information management,
investing in these core capabilities in order to serve our customers across the cycles that have historically
characterized our markets and keeping our promises. Our strategy focuses on superior risk selection,
superior customer relationships and superior capital management. We provide value to our customers and
joint venture partners in the form of financial security, innovative products, and responsive service. We are
known as a leader in paying valid claims promptly. We principally measure our financial success through
long-term growth in tangible book value per common share plus the change in accumulated dividends,
which we believe is the most appropriate measure of our financial performance and in respect of which we
believe we have delivered superior performance over time.
Our core products include property, casualty and specialty reinsurance and certain insurance products
principally distributed through intermediaries, with whom we seek to cultivate strong long-term relationships.
We believe we have been one of the world’s leading providers of property reinsurance since our founding.
In recent years, through the strategic execution of a number of initiatives, including organic growth and our
acquisition of Platinum Underwriters Holdings, Ltd. (“Platinum”) on March 2, 2015, we have expanded our
casualty and specialty platform and products and believe we are a leader in certain casualty and specialty
lines of business. We have determined our business consists of the following reportable segments: (1)
Property, which is comprised of catastrophe and other property reinsurance and insurance written on behalf
of our operating subsidiaries and certain joint ventures managed by our ventures unit, and (2) Casualty and
Specialty, which is comprised of casualty and specialty reinsurance and insurance written on behalf of our
operating subsidiaries and certain joint ventures managed by our ventures unit.
To best serve our clients in the places they do business, we have operating subsidiaries, joint ventures and
underwriting platforms around the world, including DaVinci, Renaissance Reinsurance, Top Layer Re,
Fibonacci Re and Upsilon RFO in Bermuda, Renaissance Reinsurance U.S. in the U.S., and Syndicate
1458 in the United Kingdom (the “U.K.”). In addition, we have a presence in Ireland and Singapore and from
time to time explore opportunities in other jurisdictions. We write property and casualty and specialty
reinsurance through our wholly owned operating subsidiaries, joint ventures and Syndicate 1458 and
certain insurance products primarily through Syndicate 1458. Although each underwriting platform may write
3
any or all of our classes of business, our Bermuda platform has traditionally written, and continues to write,
the preponderance of our property business and our U.S. platform and Syndicate 1458 write a significant
portion of our casualty and specialty business. Syndicate 1458 provides us with access to Lloyd’s extensive
distribution network and worldwide licenses and also writes business through delegated authority
arrangements. The underwriting results of our operating subsidiaries and underwriting platforms are
included in our Property and Casualty and Specialty segment results as appropriate.
Since a meaningful portion of the reinsurance and insurance we write provides protection from damages
relating to natural and man-made catastrophes, our results depend to a large extent on the frequency and
severity of such catastrophic events, and the coverages we offer to customers affected by these events. We
are exposed to significant losses from these catastrophic events and other exposures we cover.
Accordingly, we expect a significant degree of volatility in our financial results and our financial results may
vary significantly from quarter-to-quarter and from year-to-year, based on the level of insured catastrophic
losses occurring around the world. We view our increased exposure to casualty and specialty lines of
business as an efficient use of capital given these risks are generally less correlated with our property lines
of business. This has allowed us to bring additional capacity to our clients, across a wider range of product
offerings, while continuing to be good stewards of our shareholders’ capital. In the future, our casualty and
specialty lines of business may represent a greater proportion of our premiums and claims and claim
expenses.
We continually explore appropriate and efficient ways to address the risk needs of our clients. We have
created and managed, and continue to manage, multiple capital vehicles and may create additional risk
bearing vehicles in the future. As our product and geographical diversity increases, we may be exposed to
new risks, uncertainties and sources of volatility.
Our revenues are principally derived from three sources: (1) net premiums earned from the reinsurance and
insurance policies we sell; (2) net investment income and realized and unrealized gains from the investment
of our capital funds and the investment of the cash we receive on the policies which we sell; and (3) fees
and other income received from our joint ventures, advisory services and various other items.
Our expenses primarily consist of: (1) net claims and claim expenses incurred on the policies of reinsurance
and insurance we sell; (2) acquisition costs which typically represent a percentage of the premiums we
write; (3) operating expenses which primarily consist of personnel expenses, rent and other operating
expenses; (4) corporate expenses which include certain executive, legal and consulting expenses, costs for
research and development, transaction and integration-related expenses, and other miscellaneous costs,
including those associated with operating as a publicly traded company; (5) redeemable noncontrolling
interests, which represent the interests of third parties with respect to the net income of DaVinciRe and
Medici; and (6) interest and dividend costs related to our debt and preference shares. We are also subject
to taxes in certain jurisdictions in which we operate. Since the majority of our income is currently earned in
Bermuda, which does not have a corporate income tax, the tax impact to our operations has historically
been minimal, however, in the future, our net tax exposure may increase as our operations expand
geographically, or as a result of adverse tax developments.
The underwriting results of an insurance or reinsurance company are discussed frequently by reference to
its net claims and claim expense ratio, underwriting expense ratio, and combined ratio. The net claims and
claim expense ratio is calculated by dividing net claims and claim expenses incurred by net premiums
earned. The underwriting expense ratio is calculated by dividing underwriting expenses (acquisition
expenses and operational expenses) by net premiums earned. The combined ratio is the sum of the net
claims and claim expense ratio and the underwriting expense ratio. A combined ratio below 100% indicates
profitable underwriting prior to the consideration of investment income. A combined ratio over 100%
indicates unprofitable underwriting prior to the consideration of investment income. We also discuss our net
claims and claim expense ratio on a current accident year basis and a prior accident years basis. The
current accident year net claims and claim expense ratio is calculated by taking current accident year net
claims and claim expenses incurred, divided by net premiums earned. The prior accident years net claims
and claim expense ratio is calculated by taking prior accident years net claims and claim expenses incurred,
divided by net premiums earned.
4
CORPORATE STRATEGY
We aspire to be the world’s best underwriter by matching well-structured risks with efficient sources of
capital and our mission is to produce superior returns for our shareholders over the long term. Our strategy
for achieving these objectives, which is supported by our core values, our principles and our culture, is to
operate an integrated system of what we believe are our three competitive advantages: superior customer
relationships, superior risk selection and superior capital management. We believe all three competitive
advantages are required to achieve our objectives, and we aim to seamlessly coordinate the delivery of
these competitive advantages for the benefit of our ceding insurers, brokers, investors in our joint ventures
and shareholders.
Superior Customer Relationships. We seek to be a trusted long-term partner to our customers for assessing
and managing risk and delivering responsive solutions. We believe our modeling and technical expertise,
our risk management products and our track record of keeping our promises have made us a provider of
first choice in many lines of business to our customers worldwide. We seek to offer stable, predictable and
consistent risk-based pricing and a prompt turnaround on claims.
Superior Risk Selection. We seek to build a portfolio of risks that produces an attractive risk-adjusted return
on utilized capital. We develop a perspective of each risk using both our underwriters’ expertise and
sophisticated risk selection techniques, including computer models and databases such as Renaissance
Exposure Management System (“REMS©”). We pursue a disciplined approach to underwriting and seek to
select only those risks that we believe will produce a portfolio with an attractive return, subject to prudent
risk constraints. We manage our portfolio of risks dynamically, both within sub-portfolios and across the
Company.
Superior Capital Management. We seek to write as much attractively priced business as is available to us
and then manage our capital accordingly. We generally seek to raise capital when we forecast increased
demand in the market, at times by accessing capital through joint ventures or other structures, and seek to
return capital to our shareholders or joint venture investors when the demand for our coverages appears to
decline and when we believe a return of capital would be beneficial to our shareholders or joint venture
investors. In using joint ventures, we aim to leverage our access to business and our underwriting
capabilities on an efficient capital base, develop fee income, generate profit commissions, diversify our
portfolio and provide attractive risk-adjusted returns to our capital providers. We routinely evaluate and
review potential joint venture opportunities and strategic investments.
We believe we are well positioned to fulfill our objectives by virtue of the experience and skill of our
management team, our integrated underwriting and operating platform, our significant financial strength, our
strong relationships with brokers and customers, our commitment to superior service and our proprietary
modeling technology. In particular, we believe our strategy, high performance culture, and commitment to
our customers and joint venture partners help us to differentiate ourselves by offering specialized services
and products at times and in markets where capacity and alternatives may be limited.
SEGMENTS
We continually monitor and review our segment reporting structure in accordance with authoritative
accounting guidance to determine whether any changes have occurred that would impact our reportable
segments. As a result of the evolution of the Company following our acquisition of Platinum, the integration
of Platinum’s activities within the Company, the growth of our casualty and specialty lines of business, our
current management structure including recent management changes and our current underwriting
platforms, we have changed our reportable segments to “Property” and “Casualty and Specialty”. The
change in reportable segments had no impact on our historical consolidated financial positions, results of
operations or cash flows, as previously reported.
Our reportable segments are defined as follows: (1) Property, which is comprised of catastrophe and other
property reinsurance and insurance written on behalf of our operating subsidiaries and certain joint ventures
managed by our ventures unit, and (2) Casualty and Specialty, which is comprised of casualty and specialty
reinsurance and insurance written on behalf of our operating subsidiaries and certain joint ventures
managed by our ventures unit. In addition to our two reportable segments, we have an Other category,
which primarily includes our strategic investments, investments unit, corporate expenses, capital servicing
5
costs, noncontrolling interests, certain expenses related to the acquisition of Platinum and the remnants of
our former Bermuda-based insurance operations.
For the year ended December 31, 2016, our Property and Casualty and Specialty segments accounted for
46.8% and 53.2%, respectively, of our gross premiums written. Operating results relating to our segments
are included in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
The following table shows gross premiums written allocated between our segments:
Year ended December 31,
(in thousands)
Property
Casualty and Specialty
Other category
Total gross premiums written
2016
2015
2014
$ 1,111,263 $ 1,072,159 $ 1,074,890
475,373
309
$ 2,374,576 $ 2,011,310 $ 1,550,572
1,263,313
—
939,241
(90)
We write proportional business as well as excess of loss business. In addition, we maintain delegated
authority arrangements through Syndicate 1458, which are included in our Property and Casualty and
Specialty segments, as appropriate. Our relative mix of business between proportional business and excess
of loss business has fluctuated in the past and will likely vary in the future. In recent periods, due to an
increased contribution from our Casualty and Specialty segment, a relatively larger portion of our gross
premiums written have come from proportional business than in many of our comparative periods.
Proportional and delegated authority business typically have relatively higher premiums per unit of expected
underwriting income, together with a higher acquisition expense ratio and combined ratio, than traditional
excess of loss reinsurance. In addition, these coverages tend to be exposed to relatively more attritional,
and frequent, losses while being subject to less expected severity.
The following table shows gross premiums written allocated between excess of loss, proportional and
delegated authority for each of our segments:
Year ended December 31, 2016
(in thousands)
Excess of loss
Proportional
Delegated authority
Total gross premiums written
Year ended December 31, 2015
Excess of loss
Proportional
Delegated authority
Total gross premiums written
Year ended December 31, 2014
Excess of loss
Proportional
Delegated authority
Total gross premiums written
Property
Casualty and
Specialty
Other
Total
$ 932,725
148,555
29,983
$1,111,263
$ 218,816
900,819
143,678
$1,263,313
$ 919,986
132,522
19,651
$1,072,159
$ 206,522
647,733
84,986
$ 939,241
$ 987,545
73,279
14,066
$1,074,890
$ 161,502
280,827
33,044
$ 475,373
$
$
$
$
$
$
— $1,151,541
1,049,374
—
173,661
—
— $2,374,576
(90)
—
—
(90)
$1,126,418
780,255
104,637
$2,011,310
— $1,149,047
354,415
47,110
$1,550,572
309
—
309
6
Property Segment
The following table shows gross premiums written in our Property segment allocated by class of business:
Year ended December 31,
(in thousands)
Catastrophe
Other property
Total Property segment gross premiums written
2016
2015
2014
$
884,361 $
226,902
989,335
85,555
$ 1,111,263 $ 1,072,159 $ 1,074,890
930,578 $
141,581
Our Property segment includes our catastrophe class of business, principally comprised of excess of loss
reinsurance and excess of loss retrocessional reinsurance to insure insurance and reinsurance companies
against natural and man-made catastrophes, and our other property class of business, primarily comprised
of proportional reinsurance, property per risk, property (re)insurance, binding facilities and regional U.S.
multi-line reinsurance. We write catastrophe reinsurance and insurance coverage protecting against large
natural catastrophes, such as earthquakes, hurricanes and tsunamis, as well as claims arising from other
natural and man-made catastrophes such as winter storms, freezes, floods, fires, windstorms, tornadoes,
explosions and acts of terrorism. We offer this coverage to insurance companies and other reinsurers
primarily on an excess of loss basis. This means we begin paying when our customers’ claims from a
catastrophe exceed a certain retained amount. We also offer proportional coverages and other structures
on a catastrophe-exposed basis and may increase these offerings on an absolute or relative basis in the
future.
Our excess of loss property contracts generally cover all natural perils, as outlined above. Our predominant
exposure under such coverage is to property damage. However, other risks, including business interruption
and other non-property losses, may also be covered under our property reinsurance contracts when arising
from a covered peril. We offer our coverages on a worldwide basis. Because of the wide range of possible
catastrophic events to which we are exposed, including the size of such events and the potential for multiple
events to occur in the same time period, our property business is volatile and our financial condition and
results of operations reflect this volatility.
To moderate the volatility of our risk portfolio, we may increase or decrease our presence in the property
business based on market conditions and our assessment of risk-adjusted pricing adequacy. We frequently
purchase reinsurance or other protection for our own account for a number of reasons, including, to
optimize the expected outcome of our underwriting portfolio, to manage capital requirements for regulated
entities and to reduce the financial impact that a large catastrophe or a series of catastrophes could have
on our results.
Casualty and Specialty Segment
We write casualty and specialty reinsurance and insurance covering primarily targeted classes of business
where we believe we have a sound basis for underwriting and pricing the risk we assume. The following
table shows gross premiums written in our Casualty and Specialty segment allocated by class of business:
Year ended December 31,
(in thousands)
Financial lines (1)
General liability
Professional liability
Other
Total Casualty and Specialty segment gross premiums
written
2016
2015
2014
$
413,068 $
204,337
323,144
322,764
265,170 $
189,439
244,930
239,702
148,461
90,387
135,791
100,734
$ 1,263,313 $
939,241 $
475,373
(1)
Includes financial guaranty, mortgage guaranty, political risk, surety and trade credit.
7
Included in the other category within our Casualty and Specialty segment is accident and health,
agriculture, automobile liability, aviation, casualty clash, workers’ compensation, cyber, employers’ liability,
energy, environmental liability, marine, medical malpractice, satellite, terrorism and umbrella or excess
casualty. Lines of business such as regional multi-line and whole account may have characteristics of
various other classes of business, and are allocated accordingly. Principally all of the business is
reinsurance, however our book of direct insurance business has been increasing in recent periods, and may
continue to do so.
In recent years, we have expanded our Casualty and Specialty segment operations through organic growth
initiatives and the acquisition of Platinum, and we plan to continue to expand these operations over time if
market conditions are appropriate.
Our Casualty and Specialty segment gross premiums written may be subject to significant volatility as
certain lines of business in this segment can be influenced by a small number of relatively large
transactions. Our team of experienced professionals seeks to underwrite these lines using a disciplined
underwriting approach and sophisticated analytical tools. We generally target lines of business where we
believe we can adequately quantify the risks assumed and provide coverage where we believe our
underwriting is robust and the market is attractive. We also seek to identify market dislocations and write
new lines of business whose risk and return characteristics are estimated to exceed our hurdle rates.
Furthermore, we also seek to manage the correlations of this business with our overall portfolio. We believe
that our underwriting and analytical capabilities have positioned us well to manage our casualty and
specialty business.
We offer our casualty and specialty reinsurance products principally on a proportional basis, and we also
provide excess of loss coverage. We expect to grow our proportional coverage on an absolute or relative
basis within this segment in the future. These products frequently include tailored features such as limits or
sub-limits which we believe help us manage our exposures. Any liability exceeding, or otherwise not subject
to, such limits reverts to the cedant. Our Casualty and Specialty segment frequently provides coverage for
relatively large limits or exposures, and thus we are subject to potential significant claims volatility.
Our Casualty and Specialty segment offers certain casualty insurance products through Syndicate 1458
including, but not limited to, general liability, medical malpractice and professional liability. Syndicate 1458
also writes business through delegated authority arrangements.
As a result of our financial strength, we have the ability to offer significant capacity and, for select risks, we
have made available significant limits. We believe these capabilities, the strength of our casualty and
specialty reinsurance underwriting team, and our demonstrated ability and willingness to pay valid claims
are competitive advantages of our casualty and specialty reinsurance business. While we believe that these
and other initiatives will support growth in our Casualty and Specialty segment, we intend to continue to
apply our disciplined underwriting approach which, together with current and forecasted market conditions,
is likely to temper such growth in current and near-term periods.
Other
Our Other category primarily includes the results of: (1) our share of strategic investments in certain
markets we believe offer attractive risk-adjusted returns or where we believe our investment adds value,
and where, rather than assuming exclusive management responsibilities ourselves, we partner with other
market participants; (2) our investment unit which manages and invests the funds generated by our
consolidated operations; (3) corporate expenses, certain expenses related to the acquisition of Platinum,
capital servicing costs and noncontrolling interests; and (4) the remnants of our former Bermuda-based
insurance operations.
8
VENTURES
We pursue a number of other opportunities through our ventures unit, which has responsibility for creating
and managing our joint ventures, executing customized reinsurance transactions to assume or cede risk
and managing certain investments directed at classes of risk other than catastrophe reinsurance.
Property Catastrophe Managed Joint Ventures
We actively manage property catastrophe-oriented joint ventures, which provide us with an additional
presence in the market, enhance our client relationships and generate fee income and profit commissions.
These joint ventures allow us to leverage our access to business and our underwriting capabilities on a
larger capital base. Currently, our principal joint ventures include DaVinci, Top Layer Re, Medici, Upsilon
RFO and Fibonacci Re. Renaissance Underwriting Managers, Ltd. (“RUM”), a wholly owned subsidiary of
the Company, acts as the exclusive underwriting manager for each of these joint ventures except Medici.
DaVinci
DaVinci was established in 2001 and principally writes property catastrophe reinsurance and certain low
frequency, high severity specialty reinsurance lines of business on a global basis. In general, we seek to
construct for DaVinci a portfolio with risk characteristics similar to those of Renaissance Reinsurance’s
property catastrophe reinsurance portfolio, and from time to time, certain lines of specialty reinsurance
written by Renaissance Reinsurance such as terrorism and workers’ compensation. In accordance with
DaVinci’s underwriting guidelines, it can only participate in business also underwritten by Renaissance
Reinsurance. We maintain majority voting control of DaVinci’s holding company, DaVinciRe, and
accordingly, consolidate the results of DaVinciRe into our consolidated results of operations and financial
position. The underwriting results of DaVinciRe are principally included in our Property segment. We seek to
manage DaVinci’s capital efficiently over time in light of the market opportunities and needs we perceive
and believe we are able to serve. Our noncontrolling economic ownership in DaVinciRe was 24.0% at
December 31, 2016 (2015 - 26.3%).
We expect our noncontrolling economic ownership in DaVinciRe to fluctuate over time. See “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, Capital
Resources” for additional information with respect of DaVinci.
Top Layer Re
Top Layer Re was established in 1999 and writes high excess non-U.S. property catastrophe reinsurance.
Top Layer Re is owned 50% by State Farm Mutual Automobile Insurance Company (“State Farm”) and 50%
by Renaissance Reinsurance. State Farm provides $3.9 billion of stop loss reinsurance coverage to Top
Layer Re. We account for our equity ownership in Top Layer Re under the equity method of accounting and
our proportionate share of its results is reflected in equity in earnings of other ventures in our consolidated
statements of operations.
Medici
Medici is an exempted fund, incorporated under the laws of Bermuda. Medici’s objective is to invest
substantially all of its assets in various insurance-based investment instruments that have returns primarily
correlated to property catastrophe risk. Third-party investors subscribe for the majority of the participating,
non-voting common shares of Medici. We maintain majority voting control of Medici’s parent,
RenaissanceRe Fund Holdings Ltd. (“Fund Holdings”), therefore the results of Medici and Fund Holdings
are consolidated in our financial statements. Our economic ownership in Medici was 36.5% at
December 31, 2016 (2015 - 46.1%).
Upsilon RFO
Effective January 1, 2013, we formed and launched a managed joint venture, Upsilon RFO, a Bermuda
domiciled special purpose insurer (“SPI”), to provide additional capacity to the worldwide aggregate and
per-occurrence primary and retrocessional property catastrophe excess of loss market. Upsilon RFO’s
creation further enhances our efforts to match desirable reinsurance risk with efficient capital through a
strategic capital structure. Original business is written directly by Upsilon RFO under fully-collateralized
reinsurance contracts capitalized through the sale of non-voting shares to us and Upsilon Fund. Upsilon
9
RFO is considered a VIE as it has insufficient equity capital to finance its activities without additional
financial support and we are the primary beneficiary. As a result, we consolidate Upsilon RFO and all
significant inter-company transactions have been eliminated. Other than our equity investment, we have not
provided any financial or other support to Upsilon RFO we were not contractually required to provide.
Upsilon Fund
Effective November 13, 2014, we incorporated Upsilon Fund, an exempted Bermuda limited segregated
accounts company. Upsilon Fund was formed to provide a fund structure through which third party investors
can invest in property reinsurance risk managed by us. As a segregated accounts company, Upsilon Fund
is permitted to establish segregated accounts to invest in and hold identified pools of assets and liabilities.
Each pool of assets and liabilities in each segregated account is ring-fenced from any claims from the
creditors of Upsilon Fund’s general account and from the creditors of other segregated accounts within
Upsilon Fund. Third party investors purchase redeemable, non-voting preference shares linked to specific
segregated accounts of Upsilon Fund and own 100% of these shares. Upsilon Fund is managed by
RenaissanceRe Fund Management Ltd. in return for a management fee and performance based incentive
fee. We have not provided any financial or other support to Upsilon Fund we were not contractually required
to provide. Currently, Upsilon Fund is invested in Upsilon RFO and Medici.
Fibonacci Re
Effective November 7, 2016, Fibonacci Re, a Bermuda-domiciled SPI, was formed to provide collateralized
capacity to Renaissance Reinsurance and its affiliates. Fibonacci Re raised capital from third party
investors and us via a private placement of participating notes that are listed on the Bermuda Stock
Exchange. This arrangement enables Renaissance Reinsurance to support its clients with additional
property catastrophe reinsurance capacity and we believe it provides attractive risk-adjusted returns to our
capital partners. We concluded that Fibonacci Re meets the definition of a VIE as it does not have sufficient
equity capital to finance its activities. Therefore, we evaluated our relationship with Fibonacci Re and
concluded we are not the primary beneficiary of Fibonacci Re as we do not have power over the activities
that most significantly impact the economic performance of Fibonacci. As a result, we do not consolidate the
financial position and results of operations of Fibonacci. Other than our investment in the participating notes
of Fibonacci Re, we have not provided financial or other support to Fibonacci Re that we were not
contractually required to provide.
Strategic Investments
Ventures also pursues strategic investments where, rather than assuming exclusive management
responsibilities ourselves, we partner with other market participants. These investments are directed at
classes of risk other than catastrophe reinsurance, and at times may also be directed at non-insurance
risks. We find these investments attractive because of their expected returns, and because they provide us
with diversification benefits and information and exposure to other aspects of the market. Examples of these
investments include our investments in Tower Hill Insurance Group, LLC. (“THIG”), Tower Hill Holdings, Inc.
(“Tower Hill”),Tower Hill Signature Insurance Holdings, Inc. (“Tower Hill Signature”) and Tower Hill Re
(collectively, the “Tower Hill Companies”), Essent Group Ltd. (“Essent”) and Trupanion Inc. (“Trupanion”).
The carrying value of these investments on our consolidated balance sheet, individually or in the aggregate,
may differ from the realized value we may ultimately attain, perhaps significantly so. For example, we
believe that our investment in the Tower Hill Companies, which is recorded under the equity method of
accounting in our consolidated financial statements in accordance with generally accepted accounting
principles in the U.S. (“GAAP”), would attract a significantly higher valuation than what is currently
recognized in our consolidated financial statements. However, under GAAP, we are prohibited from
recording this investment at fair value. In addition, there is no liquid market for this investment.
Other Transactions
Ventures works on a range of other customized reinsurance and financing transactions. For example, we
have participated in and continuously analyze other attractive opportunities in the market for insurance-
linked securities and derivatives. We believe our products contain a number of customized features
designed to fit the needs of our partners, as well as our risk management objectives.
10
Our ventures unit business activities that appear in our consolidated underwriting results, such as DaVinci
and certain reinsurance transactions, are included in our Property and Casualty and Specialty segment
results as appropriate; the results of our equity method investments, such as Top Layer Re, and other
ventures are included in the Other category of our segment results.
GEOGRAPHIC BREAKDOWN
Our exposures are generally diversified across geographic zones, but are also a function of market
conditions and opportunities. Our largest exposure has historically been to the U.S. and Caribbean market,
which represented 63.2% of our gross premiums written for the year ended December 31, 2016. A
significant amount of our U.S. and Caribbean premium provides coverage against windstorms (mainly U.S.
Atlantic hurricanes), earthquakes and other natural and man-made catastrophes. The following table sets
forth the amounts and percentages of our gross premiums written allocated to the territory of coverage
exposure:
Year ended December 31,
(in thousands, except percentages)
Property Segment
U.S. and Caribbean
Worldwide
Worldwide (excluding U.S.) (1)
Japan
Europe
Australia and New Zealand
Other
2016
2015
2014
Gross
Premiums
Written
Percentage
of Gross
Premiums
Written
Gross
Premiums
Written
Percentage
of Gross
Premiums
Written
Gross
Premiums
Written
Percentage
of Gross
Premiums
Written
$
743,226
31.3% $
671,887
33.4 % $
635,069
210,168
55,043
44,536
37,611
13,729
6,950
8.9%
2.3%
1.9%
1.6%
0.6%
0.3%
234,801
11.7 %
76,370
32,830
32,973
15,869
7,429
3.8 %
1.6 %
1.6 %
0.8 %
0.4 %
210,441
137,466
33,967
33,115
22,746
2,086
41.0%
13.6%
8.9%
2.2%
2.1%
1.5%
0.1%
Total Property Segment
1,111,263
46.9%
1,072,159
53.3 %
1,074,890
69.4%
Casualty and Specialty Segment
U.S. and Caribbean
Worldwide
Worldwide (excluding U.S.) (1)
Europe
Australia and New Zealand
Other
757,052
471,301
13,840
5,541
5,073
10,506
Total Casualty and Specialty Segment
1,263,313
Other category
—
31.9%
19.8%
0.6%
0.2%
0.2%
0.4%
53.1%
—%
522,778
320,452
87,597
936
1,627
5,851
26.0 %
15.9 %
4.4 %
— %
0.1 %
0.3 %
228,062
226,652
6,946
238
7,865
5,610
939,241
46.7 %
475,373
(90)
— %
309
Total gross premiums written
$ 2,374,576
100.0% $ 2,011,310
100.0 % $ 1,550,572
14.7%
14.6%
0.4%
—%
0.5%
0.4%
30.6%
—%
100.0%
(1) The category “Worldwide (excluding U.S.)” consists of contracts that cover more than one geographic region (other than the
U.S.).
NEW BUSINESS
From time to time we consider diversification into new ventures, either through organic growth, the
formation of new joint ventures, or the acquisition of or the investment in other companies or books of
business of other companies. This potential diversification includes opportunities to write targeted,
additional classes of risk-exposed business, both directly for our own account and through new joint venture
opportunities. We also regularly evaluate potential strategic opportunities we believe might utilize our skills,
capabilities, proprietary technology and relationships to support possible expansion into further risk-related
coverages, services and products. Generally, we focus on underwriting or trading risks where we believe
reasonably sufficient data is available and our analytical abilities provide us with a competitive advantage, in
order for us to seek to model estimated probabilities of losses and returns in respect of our then current
portfolio of risks.
11
We regularly review potential strategic transactions that might improve our portfolio of business, enhance or
focus our strategies, expand our distribution or capabilities, or provide other benefits. In evaluating potential
new ventures or investments, we generally seek an attractive estimated return on equity, the ability to
develop or capitalize on a competitive advantage, and opportunities which we believe will not detract from
our core operations. We believe that our ability to attract investment and operational opportunities is
supported by our strong reputation and financial resources, and by the capabilities and track record of our
ventures unit.
COMPETITION
The markets in which we operate are highly competitive, and we believe that competition is, in general,
increasing and becoming more robust. Our competitors include independent reinsurance and insurance
companies, subsidiaries and/or affiliates of globally recognized insurance companies, reinsurance divisions
of certain insurance companies, domestic and international underwriting operations, and a range of entities
offering forms of risk transfer protection on a collateralized or other non-traditional basis. As our business
evolves, we expect our competitors to change as well.
We believe that our principal competitors include other companies active in the Bermuda market, currently
including Allied World Assurance Company, AG, Arch Capital Group Ltd., Aspen Insurance Holdings
Limited, Axis Capital Holdings Limited, Chubb Limited, Endurance Specialty Holdings Ltd., Everest Re
Group, Ltd., Fidelis Insurance Holdings Limited (“Fidelis”), Hamilton Re Ltd. (“Hamilton Re”), PartnerRe
Ltd., Third Point Reinsurance Ltd. (“Third Point”), Validus Holdings, Ltd., White Mountains Insurance Group,
Ltd. and XL Group plc, as well as a growing number of private, unrated reinsurers offering predominately
collateralized reinsurance. We also compete with certain Lloyd’s syndicates active in the London market, as
well as with a number of other industry participants, such as American International Group, Inc., Berkshire
Hathaway Inc., Hannover Rückversicherung AG (“Hannover Re”), Ironshore Inc., Münchener
Rückversicherungs-Gesellschaft Aktiengesellschaft in München (“Munich Re”) and Swiss Re Ltd.
Hedge funds, pension funds and endowments, investment banks, investment managers (such as Nephila
Capital Ltd.), exchanges and other capital market participants are increasingly active in the reinsurance
market and the market for related risk, either through the formation of reinsurance companies (such as
Greenlight Reinsurance Ltd., Aeolus Re Ltd., Fidelis, Hamilton Re, and Third Point) or through the use of
other financial products, such as catastrophe bonds, other insurance-linked securities and collateralized
reinsurance investment funds. We expect competition from these sources to continue to increase. In
addition, we continue to anticipate growth in financial products offered to the insurance market that are
intended to compete with traditional reinsurance, such as exchange traded catastrophe options, insurance-
linked securities, unrated privately held reinsurance companies providing collateralized or other non-
traditional reinsurance, catastrophe-linked derivative agreements and other financial products.
The tax policies of the countries where our customers operate, as well as government sponsored or backed
catastrophe funds, also affect demand for reinsurance, sometimes significantly. Moreover, government-
backed entities increasingly represent competition for the coverages we provide directly or for the business
of our customers, reducing the potential amount of third party private protection our clients might need or
desire.
UNDERWRITING AND ENTERPRISE RISK MANAGEMENT
Underwriting
Our primary underwriting goal is to construct a portfolio of reinsurance and insurance contracts and other
financial risks that maximizes our return on shareholders’ equity, subject to prudent risk constraints, and to
generate long-term growth in tangible book value per common share plus the change in accumulated
dividends. We assess each new (re)insurance contract on the basis of the expected incremental return
relative to the incremental contribution to portfolio risk.
We have developed a proprietary, computer-based pricing and exposure management system, REMS©,
which has analytic and modeling capabilities that help us to assess the risk and return of each incremental
(re)insurance contract in relation to our overall portfolio of (re)insurance contracts. We believe that REMS©
is a robust underwriting and risk management system that has been successfully integrated into our
business processes and culture. The REMS© framework encompasses and facilitates risk capture,
12
analysis, correlation, portfolio aggregation and capital allocation within a single system for all of our natural
hazards and non-natural hazards (re)insurance contracts. We continue to invest in and improve REMS©,
incorporating our underwriting and modeling experience and adding proprietary software and a significant
amount of new industry data. We continually strive to improve our analytical techniques for both natural
hazard and non-natural hazard models in REMS© and while our experience is most developed for
analyzing natural hazard catastrophe risks, we continue to invest in and evolve our capabilities for
assessing non-natural hazard catastrophe risks. With the acquisition of Platinum and our recent growth in
our casualty and specialty lines of business, we have increased our modeling and underwriting resources
and associated capabilities with respect to our casualty and specialty lines of business.
We generally utilize a multiple model approach when evaluating a proposed program, combining both
probabilistic and deterministic techniques. We combine the analyses generated by REMS© with other
information available to us, including our own knowledge of the client submitting the proposed program, to
assess the premium offered against the risk of loss and the cost of utilized capital which the program
presents. The underlying risk models integrated into our underwriting and REMS© framework are a
combination of internally constructed and commercially available models. We use commercially available
natural hazard catastrophe models to assist with validating and stress testing our base model and REMS©
results.
Before we bind a (re)insurance risk, exposure data, historical loss information and other risk data is
gathered from customers. Using a combination of proprietary software, underwriting experience, actuarial
techniques and engineering expertise, as we deem appropriate, the exposure data is reviewed and
augmented. We use this data as primary inputs into the REMS© modeling system as a base to create risk
distributions to represent the risk being evaluated. We believe that the REMS© modeling system helps us to
analyze each policy on a consistent basis, assisting our determination of what we believe to be an
appropriate price to charge for each policy based upon the risk to be assumed. In part, through the process
described above and the utilization of REMS©, we seek to compare our estimate of the expected returns in
respect of a contract with the amount of capital we notionally allocate to the contract based on our estimate
of its marginal impact on our portfolio of risks. A key advantage of our REMS© framework is our ability to
include additional perils, risks and geographic areas that may not be captured in commercially available
natural hazards risk models.
We periodically review the estimates and assumptions that are reflected in REMS© and our other tools. For
example, the 2011 and 2010 New Zealand Earthquakes and the Tohoku Earthquake provided new insight
on certain aspects of hazard and vulnerability to the global earthquake science community. Utilizing internal
research capabilities from our team of scientists at Weather Predict Consulting Inc. (“Weather Predict”) and
new research from the global earthquake science community, we updated several of our internal regional
representations of earthquake risk in advance of the commercially available models. In late 2012, Storm
Sandy gave rise to new data relating to storm surge, flood persistence and mid-Atlantic tropical storm
meteorology. We subsequently updated our North Atlantic storm surge model to reflect this new data.
Our underwriters use the combination of our risk assessment and underwriting process, REMS© and other
tools in their pricing decisions, which we believe provides them with several competitive advantages. These
include the ability to:
• simulate a range of potential outcomes that adequately represents the risk to an individual contract;
• analyze the incremental impact of an individual reinsurance contract on our overall portfolio;
• better assess the underlying exposures associated with assumed retrocessional business;
• price contracts within a short time frame;
• capture various classes of risk, including catastrophe and other insurance risks;
• assess risk across multiple entities (including our various joint ventures) and across different
components of our capital structure; and
• provide consistent pricing information.
As part of our risk management process, we also use REMS© to assist us, as a retrocedant, with the
purchase of reinsurance coverage for our own account.
13
Our underwriting and risk management process, in conjunction with REMS©, quantifies and manages our
exposure to claims from single events and the exposure to losses from a series of events. As part of our
pricing and underwriting process, we also assess a variety of other factors, including:
• the reputation of the proposed cedant and the likelihood of establishing a long-term relationship with
the cedant;
• the geographic area in which the cedant does business and its market share;
• historical loss data for the cedant and, where available, for the industry as a whole in the relevant
regions and lines of business, in order to compare the cedant’s historical catastrophe loss experience
to industry averages;
• the cedant’s pricing strategies; and
• the perceived financial strength of the cedant and factors such as the cedant’s historical record of
making premium payments in full and on a timely basis.
In order to estimate the risk profile of each line of non-natural hazard reinsurance (i.e., our casualty and
specialty lines of business), we establish probability distributions and assess the correlations with the rest of
our portfolio. In lines with catastrophe risk, such as excess workers’ compensation and terrorism, we seek
to directly leverage our skill in modeling property reinsurance risks, and seek to appropriately estimate and
manage the correlations between these casualty and specialty lines and our property reinsurance portfolio.
For other classes of business, in which we believe we have little or no natural catastrophe exposure, and
therefore less correlation with our property reinsurance coverages, we derive probability distributions from a
variety of underlying information sources, including recent historical experience, and the application of
judgment as appropriate. The nature of some of these businesses lends itself less to the analysis we use
for our property reinsurance coverages, reflecting both the nature of available exposure information, and the
impact of human factors such as tort exposure. We produce probability distributions to represent our
estimates of the related underlying risks which our products cover, which we believe helps us to make
consistent underwriting decisions and to manage our total risk portfolio.
In addition, we also produce, utilize and report on models which measure our utilization of capital in light of
regulatory capital considerations and constraints. Our position in respect of these regulatory capital models
is reviewed by our risk management professional staff and periodically reported to and reviewed by senior
underwriting personnel and executive management with responsibility for our regulated operating entities.
Enterprise Risk Management (“ERM”)
We believe that high-quality and effective ERM is best achieved when it is a shared cultural value
throughout the organization and consider ERM to be a key process which is the responsibility of every
individual within the Company. We have developed and utilize tools and processes we believe support a
culture of risk management and create a robust framework of ERM within our organization. We believe that
our ERM processes and practices help us to identify potential events that may affect us, quantify, evaluate
and manage the risks to which we are exposed, and provide reasonable assurance regarding the
achievement of our objectives. We believe that effective ERM can provide us with a significant competitive
advantage. We also believe that effective ERM assists our efforts to minimize the likelihood of suffering
financial outcomes in excess of the ranges which we have estimated in respect of specific investments,
underwriting decisions, or other operating or business activities, although we do not believe this risk can be
eliminated. We believe that our risk management tools support our strategy of pursuing opportunities and
help us to identify opportunities we believe to be the most attractive. In particular, we utilize our risk
management tools to support our efforts to monitor our capital position, on a consolidated basis and for
each of our major operating subsidiaries, and to allocate an appropriate amount of capital to support the
risks we have assumed in the aggregate and for each of our major operating subsidiaries. We believe that
our risk management efforts are essential to our corporate strategy and our goal of achieving long-term
growth in tangible book value per share plus the change in accumulated dividends for our shareholders.
Our Board of Directors is responsible for overseeing enterprise-wide risk management and is actively
involved in the monitoring of risks that could affect us. The members of the Board have regular, direct
access to the senior executives and other officers responsible for identifying and monitoring our risks and
coordinating our ERM, including our Group Chief Risk Officer, Chief Financial Officer, and Group General
14
Counsel and Chief Compliance Officer, each of whom reports directly to our Chief Executive Officer, as well
as other senior personnel such as our Chief Accounting Officer, Global Corporate Controller and Head of
Internal Audit. The Board also receives regular reports from the Controls and Compliance Committee.
Our ERM framework operates via a three lines of defense model. The first line of defense consists of
individual functions that deliberately assume risks on our behalf and own and manage risk within the
Company on a day-to-day and business operational basis. The second line of defense is responsible for
risk oversight and also supports the first line to understand and manage risk. A dedicated risk team led by
the Group Chief Risk Officer is responsible for this second line and reports to the Board of Director’s
Investment and Risk Management Committee and the Chief Executive Officer. The third line of defense, our
Internal Audit team, reports to the Audit Committee of the Board of Directors and provides independent,
objective assurance as to the assessment of the adequacy and effectiveness of our internal control systems
and also coordinates risk-based audits and compliance reviews and other specific initiatives to evaluate and
address risk within targeted areas of our business.
The principal risk areas that make up our ERM framework are assumed risk (including reserve risk),
business environment risk and operational risk:
• Assumed Risk. We define assumed risk as activities where we deliberately take risk against our
capital base, including underwriting risks and other quantifiable risks such as credit risk and market
risk as they relate to investments, ceded reinsurance credit risk and strategic investment risk, each
of which can be analyzed in substantial part through quantitative tools and techniques. Of these, we
believe underwriting risk to be the most material to us. In order to understand, monitor, quantify and
proactively assess underwriting risk, we seek to develop and deploy appropriate tools to estimate
the comparable expected returns on potential business opportunities and the impact that such
incremental business could have on our overall risk profile. We use the tools and methods
described above in “Underwriting” to seek to achieve these objectives. Embedded within our
consideration of assumed risk is our management of our aggregate, consolidated risk profile. In part
through the utilization of REMS© and our other systems and procedures, we analyze our in-force
aggregate assumed risk portfolio on a daily basis. We believe this capability helps us to manage
our aggregate exposures and to rigorously analyze and evaluate individual proposed transactions
in the context of our in-force portfolio. This aggregation process captures line of business, segment
and corporate risk profiles, calculates internal and external capital tests and explicitly models ceded
reinsurance. Generally, additional data is added quarterly to our aggregate risk framework to reflect
updated or new information or estimates relating to matters such as interest rate risk, credit risk,
capital adequacy and liquidity. This information is used in day-to-day decision making for
underwriting, investments and operations and is also reviewed quarterly from both a unit level and
consolidated financial position perspective. We also regularly assess, monitor and review our
regulatory risk capital and related constraints.
Reserve Risk. Reserve risk is a subcomponent of assumed risk. We define reserve risk as the
risks related to our reserve for net claims and claim expenses, including the amount, both absolute
and relative, of our outstanding reserve for net claims and claim expenses, and the impact of
economic, social, legal and regulatory matters. Our reserve for net claims and claim expenses is
subject to significant uncertainty and has the potential to develop adversely in future periods. While
reserve risk may increase in both absolute terms and relative to its overall consideration in our ERM
framework, we employ robust resources, procedures and technology to identify, understand,
quantify and manage this risk. Our reserving methodologies and sensitivities for each respective
line of business described in “Part II. Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations, Summary of Critical Accounting Estimates, Claims and Claim
Expense Reserves.”
• Business Environment Risk. We define business environment risk as the risk of changes in the
business, political or regulatory environment that could negatively impact our short term or long-
term financial results or the markets in which we operate. This risk area also typically includes
emerging risks. These risks are predominately extrinsic to us and our ability to alter or eliminate
these risks is limited, so we focus our efforts on monitoring developments, assessing potential
impacts of any changes, and investing in cost effective means to attempt to mitigate the
consequences of and ensure compliance with any new requirements applicable to us.
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• Operational Risk. We are subject to a number of additional risks arising out of operational,
regulatory, and other matters. We define operational risk to include the risk we fail to create,
manage, control or mitigate the people, processes, structures or functions required to execute our
strategic and tactical plans and assemble an optimized portfolio of assumed risk, and to adjust to
and comply with the evolving requirements of business environment risk applicable to us. In light of
the rapid evolution of our markets, business environment, and business initiatives, we seek to
continually invest in the tools, processes and procedures we use to mitigate our exposure to
operational risk on a cost-effective basis. As with assumed risk and business environment risk,
operational risk presents intrinsic uncertainties, and we may fail to appropriately identify or mitigate
applicable operational risk.
Controls and Compliance Committee. We believe that a key component of our current operational risk
management platform is our Controls and Compliance Committee. The Controls and Compliance
Committee is comprised of our Chief Financial Officer, Chief Compliance Officer, Chief Accounting Officer,
Global Corporate Controller, Group Chief Risk Officer, Head of Internal Audit, staff compliance professionals
and representatives from our business units. The purpose of the Controls and Compliance Committee is to
establish, assess the effectiveness of, and enforce policies, procedures and practices relating to
accounting, financial reporting, internal controls, regulatory, legal, compliance and related matters, and to
ensure compliance with applicable laws and regulations, our Code of Ethics and Conduct (the “Code of
Ethics”), and other relevant standards. In addition, the Controls and Compliance Committee is charged with
reviewing certain transactions that potentially raise complex and/or significant tax, legal, accounting,
regulatory, financial reporting, reputational or compliance issues.
In addition, we address other areas of operational risk through our disaster recovery program, human
resource practices such as motivating and retaining top talent, our strict tax protocols and our legal and
regulatory policies and procedures.
Ongoing Development and Enhancement. We seek to reflect and categorize risks we monitor in part
through quantitative risk distributions, even where we believe that such quantitative analysis is not as robust
or well developed as our tools and models for measuring and evaluating other risks, such as catastrophe
and market risks. We also seek to improve the methods by which we measure risks and believe effective
risk management is a continual process that requires ongoing improvement and development. We seek
from time to time to identify effective new practices or additional developments both from within our industry
and from other sectors. We believe that our ongoing efforts to embed ERM throughout our organization help
us produce and maintain a competitive advantage and achieve our corporate goals.
RATINGS
Financial strength ratings are an important factor in evaluating and establishing the competitive position of
reinsurance and insurance companies. Rating organizations continually review the financial positions of our
reinsurers and insurers. We have received high claims-paying and financial strength ratings from A.M. Best
Company, Inc. (“A.M. Best”), Standard and Poor’s Rating Services (“S&P”), Moody’s Investors Service
(“Moody’s”) and Fitch Ratings Ltd. (“Fitch”). These ratings represent independent opinions of an insurer’s
financial strength, operating performance and ability to meet policyholder obligations, and are not an
evaluation directed toward the protection of investors or a recommendation to buy, sell or hold any of our
securities. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations, Capital Resources, Ratings” for the ratings of our principal operating subsidiaries and joint
ventures by segment, and details of recent ratings actions.
In addition, S&P assesses companies’ ERM practices, which is an opinion on the many critical dimensions
of risk that determine overall creditworthiness. RenaissanceRe has been assigned an ERM rating of “Very
Strong”, which is the highest rating assigned by S&P, and indicates that S&P believes RenaissanceRe has
very strong capabilities to consistently identify, measure, and manage risk exposures and losses within
RenaissanceRe’s predetermined tolerance guidelines.
RESERVES FOR CLAIMS AND CLAIM EXPENSES
We believe the most significant accounting judgment made by management is our estimate of claims and
claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and
statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid
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claims and claim expenses arising from the insurance and reinsurance contracts we sell. We establish our
claims and claim expense reserves by taking claims reported to us by insureds and ceding companies, but
which have not yet been paid (“case reserves”), adding estimates for the anticipated cost of claims incurred
but not yet reported to us, or incurred but not enough reported to us (collectively referred to as “IBNR”) and,
if deemed necessary, adding costs for additional case reserves which represent our estimates for claims
related to specific contracts previously reported to us which we believe may not be adequately estimated by
the client as of that date, or adequately covered in the application of IBNR.
Our reserving techniques, assumptions and processes differ among our Property and Casualty and
Specialty segments. Refer to “Note 8. Reserve for Claims and Claim Expenses in our Notes to the
Consolidated Financial Statements” for more information on the risks we insure and reinsure, the reserving
techniques, assumptions and processes we follow to estimate our claims and claim expense reserves, prior
year development of the reserve for claims and claim expenses, analysis of our incurred and paid claims
development and claims duration information for each of our Property and Casualty and Specialty
segments. In addition, refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations, Summary of Critical Accounting Estimates, Claims and Claim
Expense Reserves” for more information on our current estimates versus our initial estimates of our claims
reserves, and sensitivity analysis for each of our Property and Casualty and Specialty segments.
INVESTMENTS
Our investment guidelines stress preservation of capital, market liquidity, and diversification of risk. The
majority of our investments consist of highly rated fixed income securities. We also hold a significant
amount of short term investments which are managed as part of our investment portfolio and have a
maturity of one year or less when purchased. In addition, we have an allocation to other investments
including private equity partnerships, catastrophe bonds, senior secured bank loan funds, and hedge funds,
and to certain equity securities. We may from time to time re-evaluate our investment guidelines and
explore investment allocations to other asset classes. Our investments are subject to market-wide risks and
fluctuations, as well as to risks inherent in particular securities.
For additional information regarding our investment portfolio, refer to “Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources,
Investments” and “Note 5. Investments in our Notes to the Consolidated Financial Statements”.
MARKETING
We believe that our modeling and technical expertise, the risk management products we provide to our
customers, and our reputation for paying claims promptly has enabled us to become a provider of first
choice in many lines of business to our customers worldwide. We market our products primarily through
reinsurance brokers and we focus our marketing efforts on targeted brokers and partners. We believe that
our existing portfolio of business is a valuable asset and, therefore, we attempt to continually strengthen
relationships with our existing brokers and customers. We believe that by maintaining close relationships
with brokers, we are able to obtain access to a broad range of potential reinsureds. We target prospects
that are capable of supplying detailed and accurate underwriting data and that potentially add further
diversification to our book of business.
We believe that primary insurers’ and brokers’ willingness to use a particular reinsurer is based not just on
pricing, but also on the financial security of the reinsurer, its claim paying ability ratings and demonstrated
willingness to promptly pay valid claims, the quality of a reinsurer’s service, the reinsurer’s willingness and
ability to design customized programs, its long-term stability and its commitment to provide stable
reinsurance capacity across market cycles. We believe we have established a reputation with our brokers
and customers for prompt response on underwriting submissions, for fast payments on valid claims and for
providing creative solutions to our customers’ needs.
Our portfolio of business continues to be characterized by relatively large transactions with ceding
companies with whom we do business, although no current relationship exceeds 10% of our gross
premiums written. Accordingly, our gross premiums written are subject to significant fluctuations depending
on our success in maintaining or expanding our relationships with these customers. We believe that our
willingness and ability to design customized programs and to provide bespoke risk management products
has helped us to develop long-term relationships with brokers and customers.
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Our brokers assess client needs and also perform data collection, contract preparation and other
administrative tasks, enabling us to market our products cost effectively by maintaining a smaller staff. In
recent years, our distribution has become increasingly reliant on a small and relatively decreasing number
of broker relationships reflecting consolidation in the broker sector. We expect this concentration to continue
and perhaps increase. In 2016, three brokerage firms accounted for 80.8% of our gross premiums written.
The following table shows the percentage of our Property and Casualty and Specialty segments’ gross
premiums written generated through subsidiaries and affiliates of our largest brokers:
Year ended December 31, 2016
AON
Marsh
Willis Towers Watson
Total of largest brokers
All others
Total
Property
Casualty and
Specialty
Total
51.8%
26.0%
7.9%
85.7%
14.3%
41.7%
21.4%
13.4%
76.5%
23.5%
46.4%
23.6%
10.8%
80.8%
19.2%
100.0%
100.0%
100.0%
The following table shows the number of brokers for which we issued authorization for coverage on
programs, the number of program submissions received and the number and percent of authorizations
issued, allocated between our Property and Casualty and Specialty segments:
Year ended December 31, 2016
Number of brokers
Program submissions
Programs authorized
Programs authorized as a percentage of program submissions
Property
Casualty and
Specialty
33
4,138
1,423
34.4%
50
3,068
1,024
33.4%
EMPLOYEES
At February 17, 2017, we employed 376 people worldwide (February 18, 2016 - 376, February 18, 2015 -
281). None of our employees are subject to collective bargaining agreements and we are not aware of any
current efforts to implement such agreements at any of our subsidiaries.
INFORMATION TECHNOLOGY
Our information technology platform and services are critical in supporting our operational capabilities. We
have an integrated team of professionals who manage and support our communication platforms,
transaction-management systems, and analytics and reporting capabilities, including the development of
proprietary solutions like REMS©. In addition, we have secure, off-site data centers in North America and
Europe to support our global operational needs. While most of our core applications are currently housed
on our own infrastructure, our use of cloud-based services is increasing as the security and cost-
effectiveness of these services improves.
Our business and support functions utilize information systems that provide critical services to both our
employees and our customers. Information security and privacy are important concerns, with an increasing
cyber-threat environment and evolving regulatory requirements driving continued investment in this area.
Computer viruses, hackers, employee misuse or misconduct and other external hazards could expose our
data systems to security breaches, cyber attacks or other disruptions.
We protect our information systems with physical and electronic safeguards as well as backup systems
considered appropriate by management. In addition, we perform regular security penetration test scenarios
and provide regular security risk staff education awareness sessions, to evaluate our preparedness and
enhance both our system and user ability to detect, alert and respond to such an incident. We have
implemented disaster recovery and business continuity plans for our operations which are tested at least
annually with respect to our business-critical infrastructure and systems. We employ data backup
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procedures that seek to ensure that our key business systems and data are regularly backed up, and can
be restored promptly if and as needed. In addition, we generally store backup information at off-site
locations, in order to seek to minimize our risk of loss of key data in the event of a disaster. Our recovery
plans involve arrangements with our off-site, secure data centers. We believe we will be able to access our
systems from these facilities in the event that our primary systems are unavailable due to various scenarios,
such as natural disasters.
REGULATION
The business of insurance and reinsurance is regulated in most countries and all states in the U.S.,
although the degree and type of regulation varies significantly from one jurisdiction to another. Currently,
we operate primarily in Bermuda, the U.S. and the U.K. We also have operations in Singapore and Ireland.
Although principally regulated by the regulatory authorities of their respective jurisdictions, our operating
subsidiaries may also be subject to regulation in the jurisdictions of their ceding companies. In addition,
expansion into additional insurance markets could expose us or our subsidiaries to increasing regulatory
oversight. However, we intend to continue to conduct our operations so as to minimize the likelihood that
Renaissance Reinsurance, DaVinci, Top Layer Re, RenaissanceRe Specialty U.S., Upsilon RFO, or any of
our other Bermudian subsidiaries will become subject to direct U.S. regulation.
Bermuda Regulation
All Bermuda companies must comply with the provisions of the Companies Act 1981. In addition, the
Insurance Act 1978 and related regulations (collectively, the “Insurance Act”), regulate the business of our
Bermuda insurance, reinsurance and management company subsidiaries.
As a holding company, RenaissanceRe is not currently subject to the Insurance Act. However, the
Insurance Act regulates the insurance and reinsurance business of our Bermuda-licensed operating
insurance companies. RenaissanceRe’s Bermuda-licensed operating insurance subsidiaries and joint
ventures include Renaissance Reinsurance and DaVinci, which are registered as Class 4 general business
insurers, and RenaissanceRe Specialty U.S., which is registered as a Class 3B general business insurer,
and Top Layer Re, which is registered as a Class 3A general business insurer under the Insurance Act.
RenaissanceRe also has operating subsidiaries registered as SPIs under the Insurance Act, including
Upsilon RFO. RUM and RenaissanceRe Underwriting Management Ltd. are each registered as insurance
managers under the Insurance Act.
The Insurance Act imposes solvency and liquidity standards as well as auditing and reporting requirements
and confers on the Bermuda Monetary Authority (the “BMA”) powers to supervise, investigate and intervene
in the affairs of insurance companies.
On March 24, 2016, the BMA was recognized by the European Parliament as fully equivalent under
Solvency II for its commercial (re)insurers, retroactive to January 1, 2016. To achieve this status, the BMA
made certain changes to the filing requirements and public disclosure requirements applicable to
commercial (re)insurers and insurance groups, including amendments to the statutory financial reporting
regime, aligning it with GAAP, International Financial Reporting Standards (“IFRS”) or other acceptable
accounting standards, and the introduction of an economic balance sheet (“EBS”) framework. Amendments
were made to the Insurance Act to meet these changing requirements.
General Purpose Financial Statements. All Class 3A, Class 3B and Class 4 insurers must prepare financial
statements in respect of their insurance business in accordance with GAAP, IFRS or other acceptable
accounting standards, which are published on the BMA website.
Statutory Financial Statements. Each Class 3A, Class 3B and Class 4 general business insurer is required
to submit annual statutory financial statements as part of its statutory financial return no later than four
months after the insurer’s financial year end (unless specifically extended). The GAAP or IFRS financial
statements are the basis on which statutory financial statements are prepared, subject to the application of
certain prudential filters as outlined in the Insurance Accounts Rules 2016. The statutory financial
statements contain statements both on a consolidated and unconsolidated basis. The unconsolidated
information forms the basis for assessing the insurer’s liquidity position, minimum solvency margin and
class of registration.
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Capital and Solvency Return. Class 3A, 3B and 4 insurers are also required to file a capital and solvency
return in respect of their general business, which includes, among other items, the EBS, a schedule of
governance and risk management, a catastrophe risk return, a schedule of loss triangles or reconciliation of
net loss reserves, a schedule of eligible capital and the Enhanced Capital Requirement (“ECR”) as
calculated by the Bermuda Solvency and Capital Requirement (“BSCR”) model. The consolidated
information within the statutory financial statements form the starting basis for the preparation of the EBS.
The EBS is, in turn, used as the basis to calculate the insurer’s ECR.
Financial Condition Report. Class 3A, 3B and 4 insurers and insurance groups are required to prepare and
publish a financial condition report (“FCR”), which was introduced to the regulatory regime in 2016 as part
of the measures undertaken to achieve Solvency II equivalence. The FCR provides, among other things,
details of measures governing the business operations, corporate governance framework and solvency and
financial performance of the insurer/insurance group.
Minimum Solvency Margin. A general business insurer’s statutory assets must exceed its statutory liabilities
by an amount, equal to or greater than the prescribed minimum solvency margin (“Minimum Solvency
Margin”), which varies with the category of its registration. The Minimum Solvency Margin that must be
maintained by a Class 4 insurer is the greater of (i) $100.0 million, (ii) 50% of net premiums written (with a
credit for reinsurance ceded not exceeding 25% of gross premiums), (iii) 15% of net aggregate loss and
loss expense provisions and other insurance reserves, or (iv) 25% of the ECR, which is established by
reference to the BSCR model. The Minimum Solvency Margin for a Class 3A or Class 3B insurer is the
greater of (i) $1.0 million, (ii) 20% of the first $6.0 million of net premiums written; if in excess of $6.0 million,
the figure is $1.2 million plus 15% of net premiums written in excess of $6.0 million, (iii) 15% of net
aggregate loss and loss expense provisions and other insurance reserves, or (iv) 25% of the insurer’s ECR.
Enhanced Capital Requirement. Each Class 3A, Class 3B and Class 4 insurer is required to maintain its
capital at a level at least equal to its ECR which is established by reference to either the BSCR or an
approved internal capital model. In either case, the ECR shall at all times equal or exceed the respective
Class 3A, Class 3B and Class 4 insurer’s Minimum Solvency Margin and may be adjusted in circumstances
where the BMA concludes that the insurer’s risk profile deviates significantly from the assumptions
underlying its ECR or the insurer’s assessment of its risk management policies and practices used to
calculate the ECR applicable to it. While not specifically referred to in the Insurance Act, the BMA has also
established a target capital level (“TCL”) for each Class 3A, Class 3B and Class 4 insurer equal to 120% of
the respective ECR. While a Class 3A, Class 3B and Class 4 insurer is not currently required to maintain its
statutory capital and surplus at this level, the TCL serves as an early warning tool for the BMA and failure to
maintain statutory capital at least equal to the TCL will likely result in increased BMA regulatory oversight.
Minimum Liquidity Ratio. An insurer engaged in general business is required to maintain the value of its
relevant assets at not less than 75% of the amount of its relevant liabilities (“Minimum Liquidity Ratio”).
Eligible Capital. To enable the BMA to better assess the quality of an insurer’s capital resources, Class 3A,
Class 3B and Class 4 insurers must maintain available capital in accordance with a “three tiered capital
regime”. All capital instruments are classified as either basic or ancillary capital, which in turn are classified
into one of three tiers (Tier 1, Tier 2 and Tier 3) based on their "loss absorbency" characteristics (the "Tiered
Capital Requirements"). Eligibility limits are then applied to each tier in determining the amounts eligible to
cover regulatory capital requirement levels. The highest capital is classified as Tier 1 capital and lesser
quality capital is classified as either Tier 2 capital or Tier 3 capital. Under this regime, not more than certain
specified percentages of Tier 1, Tier 2 and Tier 3 capital may be used to satisfy the Class 3A, 3B and 4
insurers' Minimum Solvency Margin and ECR requirements.
Restrictions on Dividends, Distributions and Reductions of Capital. Class 3A, Class 3B and Class 4 insurers
are prohibited from declaring or paying any dividends if in breach of the required Minimum Solvency Margin
or Minimum Liquidity Ratio (the “Relevant Margins”) or if the declaration or payment of such dividend would
cause the insurer to fail to meet the Relevant Margins. Further, Class 3A, 3B and Class 4 insurers are
prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory
capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files (at least
seven days before payment of such dividends) with the BMA an affidavit stating that it will continue to meet
its Relevant Margins. Class 3A, Class 3B and Class 4 insurers must obtain the BMA’s prior approval for a
reduction by 15% or more of the total statutory capital as set forth in its previous year’s financial statements.
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These restrictions on declaring or paying dividends and distributions under the Insurance Act are in addition
to the solvency requirements under the Companies Act which apply to all Bermuda companies.
Fit and Proper Controllers. The BMA maintains supervision over the controllers (as defined herein) of all
Bermuda registered insurers. Currently, the Insurance Act states that no person shall become a controller of
any description of a registered insurer unless the BMA has been served notice in writing stating that the
person intends to become such a controller. A controller includes the managing director and chief executive
of the registered insurer or its parent company; a 10%, 20%, 33% or 50% shareholder controller; and any
person in accordance with whose directions or instructions the directors of the registered insurer or of its
parent company are accustomed to act. In addition, all Bermuda insurers are also required to give the BMA
written notice of the fact that a person has become, or ceased to be, a controller or officer of the registered
insurer within 45 days of becoming aware of such fact. An officer in relation to a registered insurer includes
a director, secretary, chief executive or senior executive by whatever name called.
Material Change. All registered insurers are required to give the BMA 30 days’ notice of certain matters that
are likely to be of material significance to the BMA in carrying out its supervisory function under the
Insurance Act. The Insurance Act prescribes which matters require advance notice.
Insurance Code of Conduct. All Bermuda insurers are required to comply with the BMA’s Insurance Code of
Conduct, which establishes duties, requirements and standards to be complied with to ensure each insurer
implements sound corporate governance, risk management and internal controls. Failure to comply with
these requirements will be a factor taken into account by the BMA in determining whether an insurer is
conducting its business in a sound and prudent manner under the Insurance Act.
Special Purpose Insurer Reporting Requirements. Unlike other (re)insurers, SPIs are fully funded to meet
their (re)insurance obligations; therefore the application and supervision processes are streamlined to
facilitate the transparent structure. Further, the BMA has the discretion to modify such insurer’s accounting
requirements under the Insurance Act. Like other (re)insurers, the principal representative of an SPI has a
duty to inform the BMA in relation to solvency matters, where applicable. During 2016, new legislative
requirements were introduced requiring SPIs to file annual statutory or modified financial returns via an
electronic filing system. Under these requirements, SPIs are required to map GAAP financial statements to
the electronic statutory forms and are required to provide information around ownership structure,
assessment of risks, analyses of premium and details of segregated cells.
Insurance Manager Reporting Requirements. During 2016, the BMA undertook to enhance its oversight of
insurance managers as part of the development of Bermuda’s insurance regulatory framework. As part of
this, the BMA introduced the Insurance Manager Code of Conduct and required insurance managers to file
specific details via an Insurance Manager’s Return. The Insurance Manager’s Return requires, among other
things, details around directors and officers of the insurance manager, the services provided by the entity,
and details of the insurers managed by the insurance manager.
Group Supervision. Pursuant to the Insurance Act, the BMA acts as the group supervisor of the
RenaissanceRe group of companies (the “RenaissanceRe Group”) and it has designated Renaissance
Reinsurance to be the “designated insurer” in respect of the RenaissanceRe Group. The designated insurer
is required to ensure that the RenaissanceRe Group complies with the provisions of the Insurance Act
pertaining to groups and all related group solvency and group supervision rules (together, the “Group
Rules”). Under the Group Rules, the RenaissanceRe Group is required to annually prepare and submit to
the BMA group GAAP financial statements, group statutory financial statements, a group capital and
solvency return (including an EBS) and an FCR. An insurance group must ensure that the value of the
insurance group's assets exceeds the amount of the insurance group's liabilities by the aggregate of: (i) the
individual Minimum Solvency Margin of each qualifying member of the group controlled by the parent
company; and (ii) the parent company’s percentage shareholding in the member multiplied by the member’s
Minimum Solvency Margin, where the parent company exercises significant influence over a member of the
group but does not control the member (the "Group Minimum Solvency Margin"). A member is a qualified
member of the insurance group if it is subject to solvency requirements in the jurisdiction in which it is
registered. Every insurance group is also required to submit an annual group actuarial opinion when filing
its group capital and solvency return. The group is required to appoint an individual approved by the BMA to
be the group actuary. The group actuary must provide an opinion on the RenaissanceRe Group’s technical
provisions as recorded in the RenaissanceRe Group statutory EBS. Insurance groups are required to
maintain available economic statutory capital and surplus to an amount that is equal to or exceeds the value
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of its group ECR, which is calculated at the end of its relevant year by reference to the BSCR model of the
group (the “Group BSCR”) or an approved internal capital model provided that the group ECR shall at all
times be an amount equal to or exceeding the Group Minimum Solvency Margin. The group ECR is being
phased in over a period of six years, which commenced with the 2013 financial year end. For the 2016
financial year end the applicable group ECR is equivalent to 80% of the amount determined by the Group
BSCR or an approved internal capital model. This requirement will increase by increments of 10% in each
of the following two years until 100% of the amount determined by the Group BSCR or an approved internal
capital model for the ECR is required for the 2018 financial year end. The BMA expects insurance groups to
operate at or above a group TCL, which exceeds the group ECR. The TCL for insurance groups is set at
120% of its group ECR. In addition, under the Tiered Capital Requirements described above, not more than
certain specified percentages of Tier 1, Tier 2 and Tier 3 capital may be used by an insurance group to
satisfy the Group's Minimum Solvency Margin and group ECR requirements. Further, our Board of Directors
has established solvency self assessment procedures for the RenaissanceRe Group that factor in all
foreseeable material risks; Renaissance Reinsurance must ensure that the RenaissanceRe Group’s assets
exceed the amount of the RenaissanceRe Group’s liabilities by the aggregate minimum margin of solvency
of each qualifying member; and our Board of Directors has established and implements corporate
governance policies and procedures designed to ensure they support the overall organizational strategy of
the RenaissanceRe Group. In addition, the RenaissanceRe Group is required to prepare and submit to the
BMA a quarterly financial return comprising unaudited consolidated group financial statements, a schedule
of intra-group transactions and a schedule of risk concentrations.
The BMA has certain powers of investigation and intervention relating to insurers and their holding
companies, subsidiaries and other affiliates, which it may exercise in the interest of such insurer’s
policyholders or if there is any risk of insolvency or of a breach of the Insurance Act or the insurer’s license
conditions. The BMA may cancel an insurer’s registration on certain grounds specified in the Insurance Act.
Under the provisions of the Insurance Act, the BMA may, from time to time, conduct “on site” visits at the
offices of insurers it regulates. Over the past several years, the BMA has conducted “on site” reviews in
respect of our Bermuda-domiciled operating insurers.
Income Taxes. Currently, neither we nor our shareholders are required to pay Bermuda income or profits
tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax in respect of our
shares. We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted
Undertakings Tax Protection Act 1966 that, if Bermuda enacts legislation imposing any tax on profits,
income, capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax
shall not be applicable to us, our operations or our shares, debentures or other obligations until March 31,
2035, except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in
respect of real property owned or leased by us in Bermuda.
U.S. Regulation
Admitted Company Regulation. Renaissance Reinsurance U.S. is a Maryland domiciled insurer licensed in
26 states and the District of Columbia and qualified or certified as a reinsurer in 24 states. As a U.S.
licensed and authorized insurer, Renaissance Reinsurance U.S. is subject to considerable regulation and
supervision by state insurance regulators. The extent of regulation varies but generally has its source in
statutes that delegate regulatory, supervisory and administrative authority to a department of insurance in
each state. Among other things, state insurance departments regulate insurer solvency, authorized
investments, loss and loss expense reserves and provisions for unearned premiums, and deposits of
securities for the benefit of policyholders. State insurance departments also conduct periodic examinations
of the affairs of authorized insurance companies and require the filing of annual and other reports relating to
the financial condition of companies and other matters. The Maryland Insurance Administration, as
Renaissance Reinsurance U.S.’s domestic regulator, is the primary financial regulator of Renaissance
Reinsurance U.S. We are pursuing growth in many of lines of business written by Renaissance
Reinsurance U.S., which may increase the impact of U.S. regulation on our business as a whole.
Holding Company Regulation. We are subject to the insurance holding company laws of Maryland, the
domestic state of Renaissance Reinsurance U.S. These laws generally require Renaissance Reinsurance
U.S. to file certain reports concerning its capital structure, ownership, financial condition and general
business operations with the Maryland Insurance Administration. Generally, all affiliate transactions
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involving Renaissance Reinsurance U.S. must be fair and, if material or of specified types, require prior
notice and approval or non-disapproval by the Maryland Insurance Administration. Further, Maryland law
places limitations on the amounts of dividends or distributions payable by Renaissance Reinsurance U.S.
Payment of ordinary dividends by Renaissance Reinsurance U.S. requires notice to the Maryland Insurance
Administration. Declaration of an extraordinary dividend, which must be paid out of earned surplus,
generally requires thirty days’ prior notice to and approval or non-disapproval of the Maryland Insurance
Administration. An extraordinary dividend includes any dividend whose fair market value together with that
of other dividends or distributions made within the preceding twelve months exceeds the lesser of (1) ten
percent of the insurer’s surplus as regards policyholders as of December 31 of the preceding year or (2) the
insurer’s net investment income, excluding realized capital gains (as determined under statutory accounting
principles), for the twelve month period ending December 31 of the preceding year and pro rata distributions
of any class of the insurer’s own securities, plus any amounts of net investment income (subject to the
foregoing exclusions), in the three calendar years prior to the preceding year which have not been
distributed.
Maryland law also requires prior notice and Maryland Insurance Administration approval of acquisitions of
control of a Maryland-domestic insurer or an entity directly or indirectly controlling a Maryland-domestic
insurer, including its holding company. Any purchaser of 10% or more of the outstanding voting securities of
an insurance company, its holding company or any other entity directly or indirectly controlling the insurance
company is presumed to have acquired control, unless the presumption is rebutted. Therefore, any investor
who intends to acquire 10% or more of RenaissanceRe’s outstanding voting securities may need to comply
with these laws and would be required to file notices and reports with the Maryland Insurance
Administration before such acquisition.
Effective for 2014, Maryland adopted enterprise risk management and reporting obligations applicable to
insurance holding company systems that are meant to protect the licensed companies from enterprise risk.
These obligations include requiring an annual enterprise risk report by the ultimate controlling person
identifying the material risks within the insurance holding company system that could pose enterprise risk to
the licensed companies. We timely filed our enterprise risk reports with the Maryland Insurance
Administration for 2015 and 2016.
Reinsurance Regulation. The insurance laws of each U.S. state regulate the sale of reinsurance to licensed
ceding insurers by non-admitted alien reinsurers acting from locations outside the state. With some
exceptions, the sale of insurance or reinsurance within a jurisdiction where the insurer is not admitted to do
business is prohibited. Our Bermuda-domiciled insurance operations and joint ventures (principally
Renaissance Reinsurance, DaVinci, Top Layer Re, RenaissanceRe Specialty U.S. and Upsilon RFO) are all
admitted to transact insurance business in Bermuda and do not maintain an office or solicit, advertise, settle
claims or conduct other insurance activities in any other jurisdiction where the conduct of such activities
would require that any company be so admitted.
RenaissanceRe Underwriting Managers U.S. LLC is licensed by the Connecticut Department of Insurance
as a reinsurance intermediary broker and is required to maintain its reinsurance intermediary broker license
in force in order to conduct its reinsurance operations in Connecticut.
Although reinsurance contract terms and rates are generally not subject to regulation by state insurance
authorities, a primary U.S. insurer ordinarily will enter into a reinsurance agreement only if it can obtain
credit on its statutory financial statements for the reinsurance ceded. State insurance regulators permit U.S.
ceding insurers to take credit for reinsurance ceded to non-admitted, non-U.S. (alien) reinsurers if the
reinsurance contract contains certain minimum provisions and if the reinsurance obligations of the non-U.S.
reinsurer are appropriately collateralized. Qualifying collateral may be established by an alien reinsurer
exclusively for a single U.S. ceding company. Alternatively, an alien reinsurer that is accredited by a state
may establish a multi-beneficiary trust with qualifying assets equal to its reinsurance obligations to all U.S.
ceding insurers, plus a trusteed surplus amount. Renaissance Reinsurance and DaVinci are each an
accredited reinsurer in New York and Florida and have established multi-beneficiary trusts with a qualifying
financial institution in New York for the benefit of their U.S. cedants.
States generally require alien reinsurers to provide collateral equal to one hundred percent of their
reinsurance obligations to U.S. ceding insurers. However, thirty-two states have credit for reinsurance laws
that permit U.S. ceding insurers to take full credit for reinsurance when a “certified” reinsurer posts reduced
collateral amounts. Under these credit for reinsurance laws, qualifying alien reinsurers may reduce their
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collateral for future reinsurance agreements based on a secure rating assigned by the U.S. insurance
regulator. The secure rating is assigned by the state upon an assessment of the reinsurer’s financial
condition, financial strength ratings and other factors. In addition, the alien reinsurer must be domiciled in a
jurisdiction that is “qualified” under state law. The National Association of Insurance Commissioners (the
“NAIC”) granted conditional qualified jurisdiction status to Bermuda effective January 1, 2014. Effective
January 1, 2015, the NAIC approved its initial list of qualified jurisdictions, including Bermuda, and states
that have these credit for reinsurance laws may accept such qualification in assessing reinsurers for
certification. Florida has approved Renaissance Reinsurance and DaVinci for collateral reduction.
The Dodd-Frank Act also addresses states’ extraterritorial regulation of credit for reinsurance and the
solvency regulation of U.S. reinsurers. The Dodd-Frank Act prohibits a state in which a U.S. ceding insurer
is licensed, but not domiciled, from denying credit for reinsurance if the ceding insurer’s domestic state
recognizes credit for reinsurance for the insurer’s ceded risk and is a state accredited by the NAIC (or has
substantially similar financial solvency requirements).
NAIC Ratios. The NAIC has established 13 financial ratios to assist state insurance departments in their
oversight of the financial condition of licensed property and casualty insurance companies operating in their
respective states. The NAIC’s Insurance Regulatory Information System (“IRIS”) calculates these ratios
based on information submitted by insurers on an annual basis and shares the information with the
applicable state insurance departments. Each ratio has an established “usual range” of results and assists
state insurance departments in executing their statutory mandate to oversee the financial condition of
insurance companies. A ratio result falling outside the usual range of IRIS ratios is not considered a failing
result; rather unusual values are viewed as part of the regulatory early monitoring system. Furthermore, in
some years, it may not be unusual for financially sound companies to have several ratios with results
outside the usual ranges. An insurance company may fall outside of the usual range for one or more ratios
because of specific transactions that are themselves immaterial.
Federal Oversight and Other Government Intervention. Government intervention in the insurance and
reinsurance markets in the U.S. continues to evolve. Although U.S. state regulation is currently the primary
form of regulation of insurance and reinsurance, Congress has considered proposals in several areas that
may impact the industry, including the creation of an optional federal charter, repeal of the insurance
company antitrust exemption from the McCarran Ferguson Act, and tax law changes, including changes to
increase the taxation of reinsurance premiums paid to off-shore affiliates with respect to U.S. risks and
comprehensive business tax reform legislation including border adjustments. We are unable to predict what
other proposals will be made or adopted or the effect, if any, that such proposals would have on our
operations and financial condition.
The Dodd-Frank Act established federal measures that impact the U.S. insurance business and preempt
certain state insurance laws. For example, the Dodd-Frank Act created the Financial Stability Oversight
Council (the “FSOC”), which is authorized to designate a nonbank financial company as “systemically
significant” if its material financial distress could threaten the financial stability of the U.S. Since 2013, the
FSOC has designated three insurance groups as systemically significant nonbank financial companies. The
FSOC’s potential recommendation of measures to address systemic risk in the insurance industry could
affect our insurance and reinsurance operations as could a determination that we or our counterparties are
systemically significant.
The Dodd-Frank Act also created the Federal Insurance Office (the “FIO”). The FIO does not have general
supervisory or regulatory authority over the business of insurance, but it has preemption authority over state
insurance laws that conflict with certain international agreements. The FIO is also authorized to monitor the
U.S. insurance industry and identify potential regulatory gaps that could contribute to systemic risk and may
recommend to the FSOC the designation of systemically important insurers. In addition, the FIO represents
the U.S. at the International Association of Insurance Supervisors. The Dodd-Frank Act authorizes the U.S.
Department of the Treasury (“Treasury”) and the Office of the U.S. Trade Representative (“USTR”) to enter
into international agreements of mutual recognition regarding the prudential regulation of insurance or
reinsurance (a “Covered Agreement”). The FIO is authorized to preempt state measures that (i) are
inconsistent with a Covered Agreement and (ii) disfavor non-U.S. insurers subject to a Covered Agreement.
On January 13, 2017, Treasury and the USTR notified Congress that they had negotiated a Covered
Agreement with the EU which establishes mutually binding prudential insurance standards and addresses
three areas of insurance regulation: group supervision, reinsurance and the exchange of information
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between insurance supervisors. This Covered Agreement could potentially allow credit to be taken for
reinsurance ceded to a non-U.S. reinsurer domiciled in an EU jurisdiction, without the need for such
reinsurer to post 100 percent qualified security or to be designated by the state as a “certified reinsurer.” In
addition, and importantly for state regulation, it contemplates that in the U.S. it will be implemented by the
states by incorporating its standards into state law. However, if state law is not amended to incorporate such
standards and disadvantages an EU insurer, the FIO is authorized to preempt the offending state law. The
Dodd-Frank Act does not provide any express statutory authority to the U.S. Congress to disapprove the
negotiated Covered Agreement in its current form or require that any amendments be made to the Covered
Agreement. However, Congress could exercise its authority to amend provisions of the Dodd-Frank Act
governing the Covered Agreement’s entry into force. Further, the U.S. Congress has a variety of general
authorities under which it could make implementation of the joint agreement by federal agencies difficult or
impossible, including prohibiting the expenditure of federal funds for implementation. Furthermore, it is
uncertain how the Trump administration will view the Covered Agreement, and they could choose to
terminate it.
It is possible the FIO will, in the future, issue recommendations or take or initiate actions in respect of the
reinsurance market that would, if enacted, impact our markets or our operations significantly, perhaps
adversely. Over time, the Dodd-Frank Act or those agencies responsible for its enforcement may lay the
foundation for some form of U.S. federal regulation of insurance.
Government intervention in the property insurance market, particularly with respect to natural catastrophe
losses, one of our key markets, has occurred on the state and federal level over recent years. Most
significantly, beginning in 2007, the state of Florida enhanced the authority of the Florida Hurricane
Catastrophe Fund (the “FHCF”) to offer coverage at below-market rates and expanded the ability of the
state-sponsored insurer, Citizens Property Insurance Corporation (“Citizens”), to compete with private
insurance companies, and other companies that cede business to us. This legislation reduced the role of
the private insurance and reinsurance markets in Florida, a key target market of ours. In succeeding years,
Florida legislation allowed Citizens to increase rates and cut back support for the FHCF, which has
supported, over this period, a relatively increased role for private insurers in Florida, a market in which we
have established substantial market share. However, we cannot assure you that this increased role will
continue or be maintained, or that adverse new legislation will not be passed.
See “Part I, Item 1A. Risk Factors” and “Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations, Current Outlook, Legislative and Regulatory Update” for further
information regarding recent legislative and regulatory proposals and the potential effects on our business
and results of operations.
U.K. Regulation
Lloyd’s Regulation
General. The operations of RSML are subject to oversight by Lloyd’s, substantially effected through the
Lloyd’s Franchise Board. RSML’s business plan for Syndicate 1458, including maximum underwriting
capacity, requires annual approval by the Lloyd’s Franchise Board. The Lloyd’s Franchise Board may
require changes to any business plan presented to it or additional capital to be provided to support the
underwriting plan. Lloyd’s also imposes various charges and assessments on its members. If material
changes in the business plan for Syndicate 1458 were required by the Lloyd’s Franchise Board, or if
charges and assessments payable to Lloyd’s by RenaissanceRe CCL were to increase significantly, these
events could have an adverse effect on the operations and financial results of RSML. We have deposited
certain assets with Lloyd’s to support RenaissanceRe CCL’s underwriting business at Lloyd’s. Dividends
from a Lloyd’s managing agent and a Lloyd’s corporate member can be declared and paid provided the
relevant company has sufficient profits available for distribution.
By entering into a membership agreement with Lloyd’s, RenaissanceRe CCL has undertaken to comply with
all Lloyd’s bye-laws and regulations as well as the provisions of the Lloyd’s Acts and the Financial Services
and Markets Act 2000, as amended by the Financial Services Act 2012 (the “FSMA”).
Capital Requirements. The underwriting capacity of a member of Lloyd’s must be supported by providing a
deposit (referred to as “Funds at Lloyd’s”) in the form of cash, securities or letters of credit in an amount
determined under the capital adequacy regime of the U.K.’s Prudential Regulation Authority (the “PRA”).
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The amount of such deposit is calculated for each member through the completion of an annual capital
adequacy exercise. Under these requirements, Lloyd’s must demonstrate that each member has sufficient
assets to meet its underwriting liabilities plus a required solvency margin.
Restrictions. A Reinsurance to Close (“RITC”) generally is put in place after the third year of operations of a
syndicate year of account. On successful conclusion of a RITC, any profit from the syndicate’s operations
for that year of account can be remitted by the managing agent to the syndicate’s members. If the
syndicate’s managing agency concludes that an appropriate RITC cannot be determined or negotiated on
commercially acceptable terms in respect of a particular underwriting year, it must determine that the
underwriting year remain open and be placed into run-off. During this period, there cannot be a release of
the Funds at Lloyd’s of a member of that syndicate without the consent of Lloyd’s.
The financial security of the Lloyd’s market as a whole is regularly assessed by three independent rating
agencies (A.M. Best, S&P and Fitch). Syndicates at Lloyd’s take their financial security rating from the
rating of the Lloyd’s Market. A satisfactory credit rating issued by an accredited rating agency is necessary
for Lloyd’s syndicates to be able to trade in certain classes of business at current levels. RSML and
RenaissanceRe CCL would be adversely affected if Lloyd’s current ratings were downgraded.
Intervention Powers. The Council of Lloyd’s has wide discretionary powers to regulate members’
underwriting at Lloyd’s. It may, for instance, change the basis on which syndicate expenses are allocated or
vary the Funds at Lloyd’s requirements or the investment criteria applicable to the provision of Funds at
Lloyd’s. Exercising any of these powers might affect the return on the corporate member’s participation in a
given underwriting year. If a member of Lloyd’s is unable to pay its debts to policyholders, the member may
obtain financial assistance from the Lloyd’s Central Fund, which in many respects acts as an equivalent to a
state guaranty fund in the U.S. If Lloyd’s determines that the Central Fund needs to be increased, it has the
power to assess premium levies on current Lloyd’s members. The Council of Lloyd’s has discretion to call or
assess up to 3% of a member’s underwriting capacity in any one year as a Central Fund contribution.
PRA and FCA Regulation
The PRA currently has ultimate responsibility for the prudential supervision of the Lloyd’s market and the
Financial Conduct Authority (the “FCA”) has responsibility for market conduct regulation. Both the PRA and
FCA have substantial powers of intervention in relation to Lloyd’s managing agents, such as RSML,
including the power to remove an agent’s authorization to manage Lloyd’s syndicates. In addition, each
year the PRA requires Lloyd’s to satisfy an annual solvency test which measures whether Lloyd’s has
sufficient assets in the aggregate to meet all outstanding liabilities of its members, both current and run-off.
If Lloyd’s fails this test, the PRA may require the entire Lloyd’s market to cease underwriting or individual
Lloyd’s members may be required to cease or reduce their underwriting.
Lloyd’s as a whole is authorized by the PRA and regulated by both the FCA and the PRA. Lloyd’s is
required to implement certain rules prescribed by the PRA and by the FCA; such rules are to be
implemented by Lloyd’s pursuant to its powers under the Lloyd’s Act 1982 relating to the operation of the
Lloyd’s market. Lloyd’s prescribes, in respect of its managing agents and corporate members, certain
minimum standards relating to their management and control, solvency and various other requirements.
The PRA and the FCA directly monitor Lloyd’s managing agents’ compliance with the systems and controls
prescribed by Lloyd’s. If it appears to either the PRA or the FCA that either Lloyd’s is not fulfilling its
delegated regulatory responsibilities or that managing agents are not complying with the applicable
regulatory rules and guidance, the PRA or the FCA may intervene at their discretion. Future regulatory
changes or rulings by the PRA or FCA could impact RSML’s business strategy or financial assumptions,
possibly resulting in an adverse effect on RSML’s financial condition and operating results.
Change of Control. The PRA and the FCA currently regulate the acquisition of control of any Lloyd’s
managing agent which is authorized under the FSMA. Any company or individual that, together with its or
his associates, directly or indirectly acquires 10% or more of the shares in a Lloyd’s managing agent or its
parent company, or is entitled to exercise or control the exercise of 10% or more of the voting power in such
Lloyd’s managing agent or its parent company, would be considered to have acquired control for the
purposes of the relevant legislation, as would a person who had significant influence over the management
of such Lloyd’s managing agent or its parent company by virtue of their shareholding or voting power in
either. A purchaser of 10% or more of RenaissanceRe’s common shares or voting power would therefore be
considered to have acquired control of RSML. Under the FSMA, any person or entity proposing to acquire
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control over a Lloyd’s managing agent must give prior notification to the PRA and the FCA of their or the
entity’s intention to do so. The PRA and FCA would then have 60 working days to consider the application
to acquire control. Failure to make the relevant prior application could result in action being taken against
RSML by the PRA or the FCA or both of them. Lloyd’s approval is also required before any person can
acquire control (using the same definition as for the PRA and FCA) of a Lloyd’s managing agent or Lloyd’s
corporate member.
Other Applicable Laws. Lloyd’s worldwide insurance and reinsurance business is subject to various
regulations, laws, treaties and other applicable policies of the EU, as well as of each nation, state and
locality in which it operates. Material changes in governmental requirements and laws could have an
adverse effect on Lloyd’s and market participants, including RSML and RenaissanceRe CCL.
Solvency II
Solvency II was adopted by the European Parliament in April of 2009 and came into effect on January 1,
2016. Solvency II represents a risk-based approach to insurance regulation and capital adequacy. Its
principal goals are to improve the correlation between capital and risk, effect group supervision of insurance
and reinsurance affiliates, implement a uniform capital adequacy structure for (re)insurers across the EU
Member States, establish consistent corporate governance standards for insurance and reinsurance
companies, and establish transparency through standard reporting of insurance operations. Under Solvency
II, an insurer’s or reinsurer’s capital adequacy in relation to various insurance and business risks may be
measured with an internal model developed by the insurer or reinsurer and approved for use by the
Member State’s regulator or pursuant to a standard formula developed by the EC. The PRA granted
approval to Lloyd’s internal model application in December 2015.
Singapore Regulation
Branches of Renaissance Reinsurance and DaVinci based in the Republic of Singapore (the “Singapore
Branches”) have each received a license to carry on insurance business as a general reinsurer. The
activities of the Singapore Branches are primarily regulated by the Monetary Authority of Singapore
pursuant to Singapore’s Insurance Act. Additionally, the Singapore Branches are each regulated by the
Accounting and Corporate Regulatory Authority (the “ACRA”) as a foreign company pursuant to Singapore’s
Companies Act. Prior to the establishment of the Singapore Branches, Renaissance Reinsurance had
maintained a representative office in Singapore commencing April 2012. We do not currently consider the
activities and regulatory requirements of the Singapore Branches to be material to us.
Renaissance Services of Asia Pte. Ltd., our Singapore-based service company, was established as a
private company limited by shares in Singapore on March 15, 2012 and is registered with the ACRA and
subject to Singapore’s Companies Act.
Ireland Regulation
Renaissance Reinsurance of Europe, incorporated under the laws of Ireland, provides coverage to insurers
and reinsurers, primarily in Europe. Business is written both in Dublin and through a branch office in the
U.K.
Renaissance Reinsurance of Europe and its U.K. branch are regulated and supervised by the Central Bank
of Ireland and are subject to the requirements of Solvency II. Renaissance Reinsurance of Europe is
registered with the Companies Registration Office in Ireland and is subject to the Companies Act 2014. The
Central Bank of Ireland adopts a risk-based framework to the supervision of regulated firms. Firms are rated
according to the impact their failure would have on financial systems, the Irish economy and on the citizens
of Ireland. Renaissance Reinsurance of Europe is currently considered by the Central Bank of Ireland to be
a ‘low impact’ firm. We do not currently consider the regulatory requirements of Renaissance Reinsurance
of Europe and its U.K. branch to be material to us.
Renaissance Services of Europe Ltd., our Dublin-based Irish service company, was established as a private
company limited by shares in Ireland and is registered with the Companies Registration Office and subject
to the Companies Act 2014.
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ENVIRONMENTAL AND CLIMATE CHANGE MATTERS
Our principal economic exposures arise from our coverages for natural disasters and catastrophes. We
believe, and believe the consensus view of current scientific studies substantiates, that changes in climate
conditions, primarily global temperatures and expected sea levels, are likely to increase the severity, and
possibly the frequency, of weather related natural disasters and catastrophes relative to the historical
experience over the past 100 years. We believe that this expected increase in severe weather, coupled with
currently projected demographic trends in catastrophe-exposed regions, contributes to factors that will
increase the average economic value of expected losses, increase the number of people exposed per year
to natural disasters and in general exacerbate disaster risk, including risks to infrastructure, global supply
chains and agricultural production. Accordingly, we expect an increase in claims, especially from properties
located in coastal areas. We have taken measures to mitigate losses related to climate change through our
underwriting process and by continuously monitoring and adjusting our risk management models.
In addition to the impacts that environmental incidents have on our business, there has been a proliferation
of governmental and regulatory scrutiny related to climate change and greenhouse gases, which will also
affect our business. Although most regulations related to climate change and greenhouse gases do not
directly apply to our business, these regulations could indirectly impact our business.
GLOSSARY OF SELECTED INSURANCE AND REINSURANCE TERMS
Accident year
Year of occurrence of a loss. Claim payments and reserves for claims and
claim expenses are allocated to the year in which the loss occurred for
losses occurring contracts and in the year the loss was reported for claims
made contracts.
Acquisition expenses
The aggregate expenses incurred by a company for acquiring new
business, including commissions, underwriting expenses, premium taxes
and administrative expenses.
Additional case reserves
Additional case reserves represent management’s estimate of reserves for
claims and claim expenses that are allocated to specific contracts, less
paid and reported losses by the client.
Attachment point
The dollar amount of loss (per occurrence or in the aggregate, as the case
may be) above which excess of loss reinsurance becomes operative.
Bordereau
Bound
Broker
Capacity
A report providing premium or loss data with respect to identified specific
risks. This report is periodically furnished to a reinsurer by the ceding
insurers or reinsurers.
A (re)insurance policy is considered bound, and the (re)insurer
responsible for the risks of the policy, when both parties agree to the terms
and conditions set forth in the policy.
An intermediary who negotiates contracts of insurance or reinsurance,
receiving a commission for placement and other services rendered,
between (1) a policy holder and a primary insurer, on behalf of the insured
party, (2) a primary insurer and reinsurer, on behalf of the primary insurer,
or (3) a reinsurer and a retrocessionaire, on behalf of the reinsurer.
The percentage of surplus, or the dollar amount of exposure, that an
insurer or reinsurer is willing or able to place at risk. Capacity may apply to
a single risk, a program, a line of business or an entire book of business.
Capacity may be constrained by legal restrictions, corporate restrictions or
indirect restrictions.
Case reserves
Loss reserves, established with respect to specific, individual reported
claims.
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Casualty insurance or
reinsurance
Insurance or reinsurance that is primarily concerned with the losses
caused by injuries to third persons and their property (in other words,
persons other than the policyholder) and the legal liability imposed on the
insured resulting therefrom. Also referred to as liability insurance.
Catastrophe
A severe loss, typically involving multiple claimants. Common perils
include earthquakes, hurricanes, hailstorms, severe winter weather,
floods, fires, tornadoes, explosions and other natural or man-made
disasters. Catastrophe losses may also arise from acts of war, acts of
terrorism and political instability.
Catastrophe excess of loss
reinsurance
A form of excess of loss reinsurance that, subject to a specified limit,
indemnifies the ceding company for the amount of loss in excess of a
specified retention with respect to an accumulation of losses resulting from
a “catastrophe.”
Catastrophe-linked securities;
cat-linked securities
Cat-linked securities are generally privately placed fixed income securities
where all or a portion of the repayment of the principal is linked to
catastrophic events. This includes securities where the repayment is
linked to the occurrence and/or size of, for example, one or more
hurricanes or earthquakes, or insured industry losses associated with
these catastrophic events.
Cede; cedant; ceding
company
When a party reinsures its liability with another, it “cedes” business and is
referred to as the “cedant” or “ceding company.”
Claim
Request by an insured or reinsured for indemnification by an insurance
company or a reinsurance company for losses incurred from an insured
peril or event.
Claims made contracts
Contracts that cover claims for losses occurring during a specified period
that are reported during the term of the contract.
Claims and claim expense
ratio, net
The ratio of net claims and claim expenses to net premiums earned
determined in accordance with either statutory accounting principles or
GAAP.
Claim reserves
Combined ratio
Liabilities established by insurers and reinsurers to reflect the estimated
costs of claim payments and the related expenses that the insurer or
reinsurer will ultimately be required to pay in respect of insurance or
reinsurance policies it has issued. Claims reserves consist of case
reserves, established with respect to individual reported claims, additional
case reserves and “IBNR” reserves. For reinsurers, loss expense reserves
are generally not significant because substantially all of the loss expenses
associated with particular claims are incurred by the primary insurer and
reported to reinsurers as losses.
The combined ratio is the sum of the net claims and claim expense ratio
and the underwriting expense ratio. A combined ratio below 100%
generally indicates profitable underwriting prior to the consideration of
investment income. A combined ratio over 100% generally indicates
unprofitable underwriting prior to the consideration of investment income.
Decadal
Refers to events occurring over a 10-year period, such as an oscillation
whose period is roughly 10 years.
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Delegated authority
A contractual arrangement between an insurer or reinsurer and an agent
whereby the agent is authorized to bind insurance or reinsurance on
behalf of the insurer or reinsurer. The authority is normally limited to a
particular class or classes of business and a particular territory. The
exercise of the authority to bind insurance or reinsurance is normally
subject to underwriting guidelines and other restrictions such as maximum
premium income. Under the delegated authority, the agent is responsible
for issuing policy documentation, the collection of premium and may also
be responsible for the settlement of claims.
Excess and surplus lines
reinsurance
Any type of coverage that cannot be placed with an insurer admitted to do
business in a certain jurisdiction. Risks placed in excess and surplus lines
markets are often substandard in respect to adverse loss experience,
unusual, or unable to be placed in conventional markets due to a shortage
of capacity.
Excess of loss
Reinsurance or insurance that indemnifies the reinsured or insured
against all or a specified portion of losses on underlying insurance policies
in excess of a specified amount, which is called a “level” or “retention.”
Also known as non-proportional reinsurance. Excess of loss reinsurance is
written in layers. A reinsurer or group of reinsurers accepts a layer of
coverage up to a specified amount. The total coverage purchased by the
cedant is referred to as a “program” and will typically be placed with
predetermined reinsurers in pre-negotiated layers. Any liability exceeding
the outer limit of the program reverts to the ceding company, which also
bears the credit risk of a reinsurer’s insolvency.
Exclusions
Those risks, perils, or classes of insurance with respect to which the
reinsurer will not pay loss or provide reinsurance, notwithstanding the
other terms and conditions of reinsurance.
Expense override
An amount paid to a ceding company in addition to the acquisition cost to
compensate for overhead expenses.
Frequency
The number of claims occurring during a given coverage period.
Funds at Lloyd’s
Funds of an approved form that are lodged and held in trust at Lloyd’s as
security for a member’s underwriting activities. They comprise the
members’ deposit, personal reserve fund and special reserve fund and
may be drawn down in the event that the member’s syndicate level
premium trust funds are insufficient to cover its liabilities. The amount of
the deposit is related to the member’s premium income limit and also the
nature of the underwriting account.
Generally Accepted
Accounting Principles in the
United States (“GAAP”)
Accounting principles as set forth in the statements of the Financial
Accounting Standards Board (“FASB”) and related guidance, which are
applicable in the circumstances as of the date in question.
Gross premiums written
Total premiums for insurance written and assumed reinsurance during a
given period.
Incurred but not reported
(“IBNR”)
Reserves for estimated losses that have been incurred by insureds and
reinsureds but not yet reported to the insurer or reinsurer, including
unknown future developments on losses that are known to the insurer or
reinsurer.
Insurance-linked securities
Financial instruments whose values are driven by (re)insurance loss
events. Our investments in insurance-linked securities are generally linked
to property losses due to natural catastrophes.
International Financial
Reporting Standards (“IFRS”)
Accounting principles, standards and interpretations as set forth in
opinions of the International Accounting Standards Board which are
applicable in the circumstances as of the date in question.
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Layer
Line
The interval between the retention or attachment point and the maximum
limit of indemnity for which a reinsurer is responsible.
The amount of excess of loss reinsurance protection provided to an
insurer or another reinsurer, often referred to as limit.
Line of business
The general classification of insurance written by insurers and reinsurers,
e.g., fire, allied lines, homeowners and surety, among others.
Lloyd’s
Loss; losses
Loss reserve
Depending on the context, this term may refer to (a) the society of
individual and corporate underwriting members that insure and reinsure
risks as members of one or more syndicates (i.e., Lloyd’s is not an
insurance company); (b) the underwriting room in the Lloyd’s building in
which managing agents underwrite insurance and reinsurance on behalf
of their syndicate members (in this sense Lloyd’s should be understood as
a market place); or (c) the Corporation of Lloyd’s which regulates and
provides support services to the Lloyd’s market.
An occurrence that is the basis for submission and/or payment of a claim.
Whether losses are covered, limited or excluded from coverage is
dependent on the terms of the policy.
For an individual loss, an estimate of the amount the insurer expects to
pay for the reported claim. For total losses, estimates of expected
payments for reported and unreported claims. These may include amounts
for claims expenses.
Managing agent
An underwriting agent which has permission from Lloyd’s to manage a
syndicate and carry on underwriting and other functions for a member.
Net claims and claim
expenses
The expenses of settling claims, net of recoveries, including legal and
other fees and the portion of general expenses allocated to claim
settlement costs (also known as claim adjustment expenses or loss
adjustment expenses) plus losses incurred with respect to net claims.
Net claims and claim expense
ratio
Net claims and claim expenses incurred expressed as a percentage of net
earned premiums.
Net premiums earned
The portion of net premiums written during or prior to a given period that
was actually recognized as income during such period.
Net premiums written
Gross premiums written for a given period less premiums ceded to
reinsurers and retrocessionaires during such period.
Non-proportional reinsurance See “Excess of loss.”
Perils
Profit commission
This term refers to the causes of possible loss in the property field, such
as fire, windstorm, collision, hail, etc. In the casualty field, the term
“hazard” is more frequently used.
A provision found in some reinsurance agreements that provides for profit
sharing. Parties agree to a formula for calculating profit, an allowance for
the reinsurer’s expenses, and the cedant’s share of such profit after
expenses.
Property insurance or
reinsurance
Insurance or reinsurance that provides coverage to a person with an
insurable interest in tangible property for that person’s property loss,
damage or loss of use.
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Property per risk
Reinsurance on a treaty basis of individual property risks insured by a
ceding company.
Proportional reinsurance
A generic term describing all forms of reinsurance in which the reinsurer
shares a proportional part of the original premiums and losses of the
reinsured. (Also known as pro rata reinsurance, quota share reinsurance
or participating reinsurance.) In proportional reinsurance, the reinsurer
generally pays the ceding company a ceding commission. The ceding
commission generally is based on the ceding company’s cost of acquiring
the business being reinsured (including commissions, premium taxes,
assessments and miscellaneous administrative expense) and also may
include a profit factor. See also “Quota Share Reinsurance”.
Quota share reinsurance
A form of proportional reinsurance in which the reinsurer assumes an
agreed percentage of each insurance policy being reinsured and shares
all premiums and losses accordingly with the reinsured. See also
“Proportional Reinsurance”.
Reinstatement premium
The premium charged for the restoration of the reinsurance limit of a
catastrophe contract to its full amount after payment by the reinsurer of
losses as a result of an occurrence.
Reinsurance
An arrangement in which an insurance company, the reinsurer, agrees to
indemnify another insurance or reinsurance company, the ceding
company, against all or a portion of the insurance or reinsurance risks
underwritten by the ceding company under one or more policies.
Reinsurance can provide a ceding company with several benefits,
including a reduction in net liability on insurances and catastrophe
protection from large or multiple losses. Reinsurance also provides a
ceding company with additional underwriting capacity by permitting it to
accept larger risks and write more business than would be possible
without an equivalent increase in capital and surplus, and facilitates the
maintenance of acceptable financial ratios by the ceding company.
Reinsurance does not legally discharge the primary insurer from its liability
with respect to its obligations to the insured.
Reinsurance to Close
Also referred to as a RITC, it is a contract to transfer the responsibility for
discharging all the liabilities that attach to one year of account of a
syndicate into a later year of account of the same or different syndicate in
return for a premium.
Retention
The amount or portion of risk that an insurer retains for its own account.
Losses in excess of the retention level are paid by the reinsurer. In
proportional treaties, the retention may be a percentage of the original
policy’s limit. In excess of loss business, the retention is a dollar amount of
loss, a loss ratio or a percentage.
Retrocedant
A reinsurer who cedes all or a portion of its assumed insurance to another
reinsurer.
Retrocessional reinsurance;
Retrocessionaire
A transaction whereby a reinsurer cedes to another reinsurer, the
retrocessionaire, all or part of the reinsurance that the first reinsurer has
assumed. Retrocessional reinsurance does not legally discharge the
ceding reinsurer from its liability with respect to its obligations to the
reinsured. Reinsurance companies cede risks to retrocessionaires for
reasons similar to those that cause primary insurers to purchase
reinsurance: to reduce net liability on insurances, to protect against
catastrophic losses, to stabilize financial ratios and to obtain additional
underwriting capacity.
Risks
A term used to denote the physical units of property at risk or the object of
insurance protection that are not perils or hazards. Also defined as chance
of loss or uncertainty of loss.
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Risks attaching contracts
Contracts that cover claims that arise on underlying insurance policies that
incept during the term of the reinsurance contract.
Solvency II
Specialty lines
Statutory accounting
principles
Stop loss
Submission
Syndicate
Treaty
Underwriting
A set of regulatory requirements that codify and harmonize the EU
insurance and reinsurance regulation. Among other things, these
requirements impact the amount of capital that EU insurance and
reinsurance companies are required to hold. Solvency II came into effect
on January 1, 2016.
Lines of insurance and reinsurance that provide coverage for risks that are
often unusual or difficult to place and do not fit the underwriting criteria of
standard commercial products carriers.
Recording transactions and preparing financial statements in accordance
with the rules and procedures prescribed or permitted by Bermuda, U.S.
state insurance regulatory authorities including the NAIC and/or in
accordance with Lloyd’s specific principles, all of which generally reflect a
liquidating, rather than going concern, concept of accounting.
A form of reinsurance under which the reinsurer pays some or all of a
cedant’s aggregate retained losses in excess of a predetermined dollar
amount or in excess of a percentage of premium.
An unprocessed application for (i) insurance coverage forwarded to a
primary insurer by a prospective policyholder or by a broker on behalf of
such prospective policyholder, (ii) reinsurance coverage forwarded to a
reinsurer by a prospective ceding insurer or by a broker or intermediary on
behalf of such prospective ceding insurer or (iii) retrocessional coverage
forwarded to a retrocessionaire by a prospective ceding reinsurer or by a
broker or intermediary on behalf of such prospective ceding reinsurer.
A member or group of members underwriting (re)insurance business at
Lloyd’s through the agency of a managing agent or substitute agent to
which a syndicate number is assigned.
A reinsurance agreement covering a book or class of business that is
automatically accepted on a bulk basis by a reinsurer. A treaty contains
common contract terms along with a specific risk definition, data on limit
and retention, and provisions for premium and duration.
The insurer’s or reinsurer’s process of reviewing applications submitted for
insurance coverage, deciding whether to accept all or part of the coverage
requested and determining the applicable premiums.
Underwriting capacity
The maximum amount that an insurance company can underwrite. The
limit is generally determined by a company’s retained earnings and
investment capital. Reinsurance serves to increase a company’s
underwriting capacity by reducing its exposure from particular risks.
Underwriting expense ratio
The ratio of the sum of the acquisition expenses and operational expenses
to net premiums earned.
Underwriting expenses
The aggregate of policy acquisition costs, including commissions, and the
portion of administrative, general and other expenses attributable to
underwriting operations.
Unearned premium
The portion of premiums written representing the unexpired portions of the
policies or contracts that the insurer or reinsurer has on its books as of a
certain date.
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AVAILABLE INFORMATION
We maintain a website at www.renre.com. The information on our website is not incorporated by reference
in this Form 10-K. We make available, free of charge through our website, our Annual Reports on Form 10-
K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after
we electronically file such material with, or furnish such material to, the U.S. Securities and Exchange
Commission (the “SEC”). We also make available, free of charge from our website, our Audit Committee
Charter, Compensation and Corporate Governance Committee Charter, Corporate Governance Guidelines,
and Code of Ethics. Such information is also available in print for any shareholder who sends a request to
RenaissanceRe Holdings Ltd., Attn: Office of the Corporate Secretary, P.O. Box HM 2527, Hamilton, HMGX,
Bermuda. Reports filed with the SEC may also be viewed or obtained at the SEC Public Reference Room at
100 F Street, N.E., Washington, DC 20549. Information on the operation of the SEC Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that
contains reports, proxy and information statements, and other information regarding issuers, including the
Company, that file electronically with the SEC. The address of the SEC’s website is www.sec.gov.
ITEM 1A. RISK FACTORS
Factors that could cause our actual results to differ materially from those in the forward-looking statements
contained in this Form 10-K and other documents we file with the SEC include the following:
Risks Related to Our Company
Our exposure to catastrophic events could cause our financial results to vary significantly from one
period to the next and could adversely impact our financial results.
We have a large overall exposure to natural and man-made disasters, such as earthquakes, hurricanes,
tsunamis, winter storms, freezes, floods, fires, tornadoes, hailstorms, drought, cyber-risks and acts of
terrorism. As a result, our operating results have historically been, and we expect will continue to be,
significantly affected by low frequency and high severity loss events.
Claims from catastrophic events could cause substantial volatility in our quarterly and annual financial
results and could materially adversely affect our financial condition, results of operations and cash flows.
We believe that certain factors, including increases in the value and geographic concentration of insured
property, particularly along coastal regions, the increasing risks associated with extreme weather events as
a result of changes in climate conditions, and the effects of inflation, may continue to increase the number
and severity of claims from catastrophic events in the future. Accordingly, unanticipated events could result
in net negative impacts as compared to our competitors. Historically, a relatively large percentage of our
coverage exposures have been concentrated in the U.S. southeast, but due to the expected increase in
severe weather events, there is the potential for significant exposures in other geographic areas in the
future.
Our claims and claim expense reserves are subject to inherent uncertainties.
Our claims and claim expense reserves reflect our estimates, using actuarial and statistical projections at a
given point in time, of our expectations of the ultimate settlement and administration costs of claims
incurred.
We use actuarial and computer models (See “Part I, Item 1. Business, Underwriting and Enterprise Risk
Management.”), historical reinsurance and insurance industry loss statistics, and management’s experience
and judgment to assist in the establishment of appropriate claims and claim expense reserves. Our
estimates and judgments are based on numerous factors, and may be revised as additional experience and
other data become available and are reviewed, as new or improved methodologies are developed, as loss
trends and claims inflation impact future payments, or as current laws or interpretations thereof change.
Due to the many assumptions and estimates involved in establishing reserves and the inherent uncertainty
of modeling techniques, the reserving process is inherently uncertain. It is expected that some of our
assumptions or estimates will prove to be inaccurate, and that our actual net claims and claim expenses
paid and reported will differ, perhaps materially, from the reserve estimates reflected in our financial
statements. Accordingly, we may understate the exposures we are assuming and our results of operations
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and financial condition may be adversely impacted, perhaps significantly. Conversely, we may prove to be
too conservative and contribute to factors which would impede our ability to grow in respect of new markets
or perils or in connection with our current portfolio of coverages.
A decline in our financial strength ratings may adversely impact our business, perhaps materially
so.
Financial strength ratings are used by ceding companies and reinsurance intermediaries to assess the
financial strength and quality of reinsurers and insurers. Rating agencies evaluate us periodically and may
downgrade or withdraw their financial strength ratings in the future if we do not continue to meet the criteria
of the ratings previously assigned to us. In addition, rating agencies may make changes in their capital
models and rating methodologies which could increase the amounts of capital required to support the
ratings.
Negative ratings actions could adversely affect our ability to write new business. In addition, many
reinsurance contracts contain provisions permitting cedants to cancel coverage pro rata if the reinsurer is
downgraded below a certain rating level. We cannot predict whether a client would exercise this right or the
effect a cancellation would have on our financial condition or future operations, but the effect could be
material.
In addition, a ratings downgrade could adversely impact our ability to compete with other reinsurers and
insurers, which could materially adversely affect our results of operations. For example, following a ratings
downgrade we might lose customers to more highly rated competitors or retain a lower share of the
business of our customers.
For the current ratings of certain of our subsidiaries and joint ventures and additional ratings information,
refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources, Ratings”.
The trend towards increasingly frequent and severe climate events could result in underestimated
exposures that have the potential to adversely impact our financial results.
Our most severe estimated economic exposures arise from our coverages for natural disasters and
catastrophes. An increase in the severity and frequency of weather related natural disasters and
catastrophes which we believe is likely to result from changes in climate conditions, coupled with currently
projected demographic trends in catastrophe-exposed regions, contributes to factors which may increase
the average economic value of expected losses, increase the number of people exposed per year to natural
disasters and in general exacerbate disaster risk, including risks to infrastructure, global supply chains and
agricultural production. Accordingly, we expect an increase in claims, especially from properties located in
coastal areas.
A substantial portion of our coverages may be adversely impacted by climate change, and we cannot
assure you that our risk assessments accurately reflect environmental and climate related risks. We cannot
predict with certainty the frequency or severity of tropical cyclones or other catastrophes. Unanticipated
environmental incidents could lead to additional insured losses that exceed our current estimates, resulting
in disruptions to or adverse impacts on our business, the market, or our clients. Further, certain
investments, such as catastrophe-linked securities and property catastrophe managed joint ventures related
to hurricane coverage, or other assets in our investment portfolio, could also be adversely impacted by
climate change.
U.S. tax reform proposals could reduce our access to capital, decrease demand for our products
and services or otherwise adversely affect us.
We believe that the likelihood of the implementation of comprehensive business tax reform in the U.S. has
increased recently. Certain proposals, such as the Tax Reform Task Force Blueprint dated June 24, 2016,
which recommends moving to a consumption or destination-based tax system and provides for border
adjustments taxing imports, could, if enacted, materially adversely impact the insurance and reinsurance
industry and our results of operations. The enactment of legislation including border adjustments could
substantially decrease the exportability of risk and reduce our access to capital and business as a whole.
Such legislation may also result in increased prices for our products and services, which could cause a
decrease in demand for these products and services due to limitations on the available resources of our
clients. It is also possible that border adjustments could result in retaliatory actions by other countries.
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There are many other comprehensive tax reform proposals being discussed in Congress and by the Trump
administration, and we are currently unable to predict the final form that any legislation would take, or the
ultimate impact on our business and results of operations.
Other changes and developments in U.S. tax law or regulations could have a material adverse
impact on us, our shareholders or investors in our joint ventures or other entities we manage.
From time to time, Congress has considered legislation relating to the tax treatment of offshore insurance
that would adversely affect reinsurance between affiliates and offshore insurance and reinsurance more
generally. In addition, other legislation has been introduced in Congress intended to eliminate certain
perceived tax advantages of companies (including insurance companies) that have legal domiciles outside
the U.S. but have certain U.S connections. To date, none of this legislation has been approved by
Congress, and the IRS has not effected any formal action in respect of these practices. However, we can
provide no assurance that similar legislation will not ultimately be adopted or that the IRS will not effect any
such formal action in the future, and any such legislation or formal IRS action could have a material adverse
impact on us our our shareholders.
Furthermore, over the last several years, members of Congress and the IRS have proposed legislation and
regulations which, if adopted, would clarify when certain non-U.S. insurance companies would be
considered a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, and it is
anticipated that the IRS will issue amended proposed regulations in respect of these matters. We cannot
predict the likelihood of the enactment or finalization of the proposed regulations and legislation or the
scope, nature, or impact of the proposed regulations on us, should they be formally adopted or enacted.
Accordingly, we cannot reliably estimate what the potential impact of any such changes could be to us, our
sources of capital, our investors or the market generally. Among other things, it is possible that these IRS
actions, or new legislation or rulemaking, could adversely impact the tax attributes to certain U.S. investors
of participating in our joint ventures or other entities we manage, even inadvertently, in light of the perceived
need for reforms.
Emerging claim and coverage issues, or other litigation, could adversely affect us.
Unanticipated developments in the law as well as changes in social conditions could potentially result in
unexpected claims for coverage under our insurance and reinsurance contracts. These developments and
changes may adversely affect us, perhaps materially so. For example, we could be subject to developments
that impose additional coverage obligations on us beyond our underwriting intent, or to increases in the
number or size of claims to which we are subject.
In addition, we believe our property results have been adversely impacted over recent periods by increasing
primary claims level fraud and abuses, as well as other forms of social inflation, and that these trends may
continue, particularly in certain U.S. jurisdictions in which we focus, including Florida and Texas. For
example, in Florida, homeowners are increasingly assigning the benefit of their insurance recovery to third
parties, typically related to a water loss claim but also with respect to other claims. This practice is referred
to as an ”assignment of benefits”, and is characterized by an inflated size and number of claims, increased
incidence of litigation, interference in the adjustment of claims, and the assertion of bad faith actions and
one-way attorney fees. Assignments of benefits and related insurance fraud may directly affect us,
potentially materially, through any policy we write in Florida, as well as by inflating the size of occurrences
we cover under our reinsurance treaties and reducing the value of certain investments we have in Florida,
including both debt and equity investments in domestic reinsurers.
With respect to our casualty and specialty reinsurance operations, these legal and social changes and their
impact may not become apparent until some time after their occurrence. For example, we could be deemed
liable for losses arising out of a matter, such as the potential for industry losses arising out of a pandemic
illness, that we had not anticipated or had attempted to contractually exclude. Moreover, irrespective of the
clarity and inclusiveness of policy language, we cannot assure you that a court or arbitration panel will
enforce policy language or not issue a ruling adverse to us. Our exposure to these uncertainties could be
exacerbated by the increased willingness of some market participants to dispute insurance and reinsurance
contract and policy wording. Alternatively, potential efforts by us to exclude such exposures could, if
successful, reduce the market’s acceptance of our related products. The full effects of these and other
unforeseen emerging claim and coverage issues are extremely hard to predict. As a result, the full extent of
our liability under our coverages may not be known for many years after a contract is issued. Furthermore,
36
we expect that our exposure to this uncertainty may grow as our “long-tail” casualty businesses grow,
because in these lines claims can typically be made for many years, making them more susceptible to
these trends than our traditional catastrophe business, which is typically more “short-tail.” While we
continually seek to improve the effectiveness of our contracts and claims capabilities, we may fail to
mitigate our exposure to these growing uncertainties.
A continued soft reinsurance underwriting market would adversely affect our business and
operating results.
In a soft reinsurance underwriting market, premium rates are stable or falling and coverage is readily
available. In a hard reinsurance underwriting market, premium rates are increasing and less coverage is
available. Leading global intermediaries and other sources have generally reported that the U.S.
reinsurance market reflected a soft underwriting market during the last several years, with growing levels of
industry wide capital held. This capital has been supplied principally by traditional market participants and
increasingly by alternative capital providers. We believe that the reinsurance underwriting market will
continue to be cyclical, with hard markets caused by withdrawal or use of excess capital, large or frequent
loss events and other factors. However, it is possible that increased access of primary insurers to capital,
new technologies and other factors may eliminate or significantly lessen the possibility of any future hard
reinsurance underwriting market.
We depend on a few insurance and reinsurance brokers for a preponderance of our revenue, and
any loss of business provided by them could adversely affect us.
We market our insurance and reinsurance products worldwide exclusively through a limited number of
insurance and reinsurance brokers. As our business is heavily reliant on the use of a few brokers, the loss
of a broker, through a merger, other business combination or otherwise, could result in the loss of a
substantial portion of our business, which would have a material adverse effect on us. Our ability to market
our products could decline as a result of the loss of the business provided by any of these brokers and it is
possible that our premiums written would decrease. Further, due to the concentration of our brokers, our
brokers may have increasing power to dictate the terms and conditions of our arrangements with them,
which could have a negative impact on our business.
We are exposed to counterparty credit risk, including with respect to reinsurance brokers and
customers.
In accordance with industry practice, we pay virtually all amounts owed on claims under our policies to
reinsurance brokers, and these brokers, in turn, pay these amounts over to the insurers that have reinsured
a portion of their liabilities with us (we refer to these insurers as ceding insurers). Likewise, premiums due to
us by ceding insurers are virtually all paid to brokers, who then pass such amounts on to us. In many
jurisdictions, we have contractually agreed that if a broker were to fail to make a payment to a ceding
insurer, we would remain liable to the ceding insurer for the deficiency. Conversely, in many jurisdictions,
when the ceding insurer pays premiums for these policies to reinsurance brokers for payment over to us,
these premiums are considered to have been paid by the cedants and the ceding insurer is longer liable to
us for those amounts, whether or not we have actually received the premiums. Consequently, in connection
with the settlement of reinsurance balances, we assume a substantial degree of credit risk associated with
brokers around the world.
We are also exposed to the credit risk of our customers, who, pursuant to their contracts with us, frequently
pay us over time. We cannot assure you that our premiums receivable or reinsurance recoverables, which
are generally not collateralized, will be collected or that we will not be required to write down additional
amounts in future periods. To the extent our customers or retrocedants become unable to pay future
premiums, we would be required to recognize a downward adjustment to our premiums receivable or
reinsurance recoverables, as applicable, in our financial statements.
As a result of the recent period of economic uncertainty, our consolidated credit risk, reflecting our
counterparty dealings with agents, brokers, customers, retrocessionaires, capital providers, parties
associated with our investment portfolio, and others has increased, perhaps materially so.
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Weakness in business and economic conditions generally or specifically in the principal markets in
which we do business could adversely affect our business and operating results.
Challenging economic conditions throughout the world could adversely affect our business and financial
results. If economic conditions should weaken, the business environment in our principal markets would be
adversely affected, which could adversely affect demand for the products sold by us or our customers. In
addition, volatility in the U.S. and other securities markets may adversely affect our investment portfolio or
the investment results of our clients, potentially impeding their operations or their capacity to invest in our
products. Global financial markets and economic and geopolitical conditions are outside of our control and
difficult to predict, being influenced by factors such as national and international political circumstances
(including governmental instability, wars, terrorist acts or security operations), interest rates, market
volatility, asset or market correlations, equity prices, availability of credit, inflation rates, economic
uncertainty, changes in laws or regulations including as regards taxation, trade barriers, commodity prices,
interest rates, currency exchange rates and controls. In addition, as discussed above, we believe our
consolidated credit risk is likely to increase during an economic downturn.
U.S. taxing authorities could contend that one or more of our Bermuda subsidiaries is subject to
U.S. corporate income tax, as a result of changes in law or regulations, or otherwise.
If the IRS were to contend successfully that one or more of our Bermuda subsidiaries is engaged in a trade
or business in the U.S., such subsidiary would, to the extent not exempted from tax by the U.S.-Bermuda
income tax treaty, be subject to U.S. corporate income tax on the portion of its net income treated as
effectively connected with a U.S. trade or business, as well as the U.S. corporate branch profits tax. If we
were ultimately held to be subject to taxation, our earnings would correspondingly decline.
In addition, benefits of the U.S.-Bermuda income tax treaty which may limit any tax to income attributable to
a permanent establishment maintained by one or more of our Bermuda subsidiaries in the U.S. are only
available to a subsidiary if more than 50% of its shares are beneficially owned, directly or indirectly, by
individuals who are Bermuda residents or U.S. citizens or residents. Our Bermuda subsidiaries may not be
able to continually satisfy, or establish to the IRS that they satisfy, this beneficial ownership test . Finally, it is
unclear whether the U.S.-Bermuda income tax treaty (assuming satisfaction of the beneficial ownership
test) applies to income other than premium income, such as investment income.
A decline in our investment performance could reduce our profitability and hinder our ability to pay
claims promptly in accordance with our strategy.
We have historically derived a meaningful portion of our income from our invested assets, which are
comprised of, among other things, fixed maturity securities, such as bonds, asset-backed securities,
mortgage-backed securities, equity securities, and investments in private equity partnerships, bank loan
funds and hedge funds. Accordingly, our financial results are subject to a variety of investment risks,
including risks relating to general economic conditions, inflation, market volatility, interest rate fluctuations,
foreign currency risk, liquidity risk and credit and default risk. Additionally, with respect to certain of our
investments, we are subject to pre-payment or reinvestment risk.
The market value of our fixed maturity investments is subject to fluctuation depending on changes in
various factors, including prevailing interest rates and widening credit spreads. Increases in interest rates
could cause the market value of our investment portfolio to decrease, perhaps substantially. Conversely, a
decline in interest rates could reduce our investment yield, which would reduce our overall profitability.
Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and
international economic and political conditions and other factors beyond our control. Any measures we take
that are intended to manage the risks of operating in a changing interest rate environment may not
effectively mitigate such interest rate sensitivity.
A portion of our investment portfolio is allocated to other classes of investments including equity securities
and interests in alternative investment vehicles such as catastrophe bonds, private equity partnerships,
senior secured bank loan funds and hedge funds. These other classes of investments are recorded on our
consolidated balance sheet at fair value, which is generally established on the basis of the valuation criteria
set forth in the governing documents of such investment vehicles. Such valuations may differ significantly
from the values that would have been used had ready markets existed for the shares, partnership interests,
notes or other securities representing interests in the relevant investment vehicles. We cannot assure you
that, if we were forced to sell these assets, we would be able to sell them for the prices at which we have
38
recorded them, and we might be forced to sell them at significantly lower prices. Furthermore, our interests
in many of the investment classes described above are subject to restrictions on redemptions and sales
which limit our ability to liquidate these investments in the short term. These classes of investments expose
us to market risks including interest rate risk, foreign currency risk, equity price risk and credit risk. The
performance of these classes of investments is also dependent on the individual investment managers and
the investment strategies. It is possible that the investment managers will leave and/or the investment
strategies will become ineffective or that such managers will fail to follow our investment guidelines. Any of
the foregoing could result in a material adverse change to our investment performance, and accordingly,
adversely affect our financial results.
In addition to the foregoing, we may from time to time re-evaluate our investment approach and guidelines
and explore investment opportunities in respect of other asset classes not previously discussed above,
including, without limitation, by expanding our relatively small portfolio of direct investments in the equity
markets. Any such investments could expose us to systemic and price volatility risk, interest rate risk and
other market risks. Any investment in equity securities carries with it inherent volatility. We cannot assure
you that such an investment will prove profitable and we could lose the value of our investment.
Accordingly, any such investment could impact our financial results, perhaps materially, over both the short
and the long term.
We could face losses from terrorism, political unrest and war.
We have exposure to losses resulting from acts of terrorism, political unrest and acts of war. The frequency
of these events has increased in recent years and it is difficult to predict the occurrence of these events or
to estimate the amount of loss an occurrence will generate. Accordingly, it is possible that actual losses
from such acts will exceed our probable maximum loss estimate and that these acts will have a material
adverse effect on us.
We closely monitor the amount and types of coverage we provide for terrorism risk under reinsurance and
insurance treaties. If we think we can reasonably evaluate the risk of loss and charge an appropriate
premium for such risk we will write some terrorism exposure on a stand-alone basis. We generally seek to
exclude terrorism from non-terrorism treaties. If we cannot exclude terrorism, we evaluate the risk of loss
and attempt to charge an appropriate premium for such risk. Even in cases where we have deliberately
sought to exclude coverage, we may not be able to completely eliminate our exposure to terrorist acts.
The Terrorism Risk Insurance Act of 2002 was amended and extended by the Terrorism Risk Insurance
Extension Act of 2005 and amended and extended again by the Terrorism Risk Insurance Program
Reauthorization Act of 2007 (“TRIPRA”). TRIPRA expired on December 31, 2014 and was amended and
renewed on January 12, 2015 for a six year period. TRIPRA provides a federal backstop to all U.S. based
property and casualty insurers for insurance related losses resulting from any act of terrorism on U.S. soil or
against certain U.S. air carriers, vessels or foreign missions. We benefit from TRIPRA as this protection
generally inures to our benefit under our reinsurance treaties where terrorism is not excluded.
We are subject to cybersecurity risks and may incur increasing costs in an effort to minimize those
risks.
We depend on the proper functioning and availability of our information technology platform, including
communications and data processing systems and our proprietary pricing and exposure management
system, in operating our business. We are also required to effect electronic transmissions with third parties
including brokers, clients, vendors and others with whom we do business, and with our Board of Directors.
We have established security measures, controls and procedures to safeguard our information technology
systems and to prevent unauthorized access to such systems and any data processed or stored in such
systems, and we periodically evaluate and test the adequacy of such systems, measures, controls and
procedures and perform third-party risk assessments; however, there can be no guarantee that such
systems, measures, controls and procedures will be effective, that we will be able to establish secure
capabilities with all of third parties, or that third parties will have appropriate controls in place to protect the
confidentiality of our information. Security breaches could expose us to a risk of loss or misuse of our
information, litigation and potential liability.
In addition, cyber incidents that impact the availability, reliability, speed, accuracy or other proper
functioning of our systems could have a significant impact on our operations, and potentially on our results.
We protect our information systems with physical and electronic safeguards as well as backup systems
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considered appropriate by management. However, it is not possible to protect against every potential power
loss, telecommunications failure, cybersecurity attack or similar event that may arise. Moreover, the
safeguards we use are subject to human implementation and maintenance and to other uncertainties.
We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of
cyberattacks. A significant cyber incident, including system failure, security breach, disruption by malware or
other damage could interrupt or delay our operations, result in a violation of applicable privacy and other
laws, damage our reputation, cause a loss of customers or give rise to monetary fines and other penalties,
which could be significant. While management is not aware of a cybersecurity incident that has had a
material effect on our operations, there can be no assurances that a cyber incident that could have a
material impact on us will not occur in the future.
Our disaster recovery and business continuity plans involve arrangements with our off-site, secure data
centers. We cannot assure you that we will be able to access our systems from these facilities in the event
that our primary systems are unavailable due to various scenarios, such as natural disasters or that we
have prepared for every conceivable disaster or every scenario which might arise in respect of the disaster
for which we have prepared, and cannot assure you our efforts in respect of disaster recovery will succeed,
or will be sufficiently rapid to avoid harm to our business.
Publicly reported instances of cyber security threats and incidents have increased over recent periods, and
it is possible that cyber-related risks for us or the costs to us of complying with new or developing regulatory
requirements will increase. In 2011, the SEC drafted informal staff-level guidance for public companies to
use when considering whether to disclose cyber-attacks and their impact on a company's financial
condition. In 2016, the New York Department of Finance promulgated new cybersecurity regulations that
have the potential to impose pre-breach cybersecurity obligations with which we may be required to comply,
and it is possible that similar laws and regulations may be enacted in the future in other jurisdictions. We
also operate in a number of jurisdictions with strict data privacy and other related laws, which could be
violated in the event of a significant cybersecurity incident, or by our personnel. Failure to comply with these
obligations can give rise to monetary fines and other penalties, which could be significant.
See “Part I, Item 1. Business, Information Technology” for additional information related to information
technology and cybersecurity.
We may from time to time modify our business and strategic plan, and these changes could
adversely affect us and our financial condition.
We regularly evaluate our business plans and strategies, which often results in changes to our business
plans and initiatives. Given the increasing importance of strategic execution in our industry, we are subject
to increasing risks related to our ability to successfully implement our evolving plans and strategies,
particularly as the pace of change in our industry continues to increase. Changing plans and strategies
requires significant management time and effort, and may divert management’s attention from our core and
historically successful operations and competencies. Moreover, modifications we undertake to our
operations may not be immediately reflected in our financial statements. Therefore, risks associated with
implementing or changing our business strategies and initiatives, including risks related to developing or
enhancing our operations, controls and other infrastructure, may not have an impact on our publicly
reported results until many years after implementation. Our failure to carry out our business plans may have
an adverse effect on our long-term results of operations and financial condition.
Our current business strategy focuses on writing reinsurance, with limited writing of primary insurance.
Certain of our competitors have, in connection with consolidation in the insurance and reinsurance
industries, recently increased the amount of primary insurance they are writing, both on an absolute and
relative basis. There can be no assurance that our business strategy of focusing on writing reinsurance,
with limited writing of primary insurance, will prove prudent as compared to the strategies of our
competitors.
The loss of key senior members of management could adversely affect us.
Our success depends in substantial part upon our ability to attract and retain our senior officers. The loss of
services of members of our senior management team and the uncertain transition of new members of our
senior management team may strain our ability to execute our strategic initiatives. The loss of one or more
of our senior officers could adversely impact our business, by, for example, making it more difficult to retain
40
customers, attract or maintain our capital support, or meet other needs of our business, which depend in
part on the service of the departing officer. We may also encounter unforeseen difficulties associated with
the transition of members of our senior management team to new or expanded roles necessary to execute
our strategic and tactical plans from time to time.
In addition, our ability to execute our business strategy is dependent on our ability to attract and retain a
staff of qualified underwriters and service personnel. The location of our global headquarters in Bermuda
may impede our ability to recruit and retain highly skilled employees. Under Bermuda law, non-Bermudians
(other than spouses of Bermudians, holders of Permanent Residents’ Certificates and holders of Working
Residents’ Certificates) may not engage in any gainful occupation in Bermuda without a valid government
work permit. Some members of our senior management are working in Bermuda under work permits that
will expire over the next several years. The Bermuda government could refuse to extend these work
permits, and no assurances can be given that any work permit will be issued or, if issued, renewed upon the
expiration of the relevant term. If any of our senior officers or key contributors were not permitted to remain
in Bermuda, or if we experienced delays or failures to obtain permits for a number of our professional staff,
our operations could be disrupted and our financial performance could be adversely affected as a result.
The determination of impairments taken is highly subjective and could materially impact our
financial position or results of operations.
The determination of impairments taken on our investments, investments in other ventures, goodwill and
other intangible assets and loans varies by type of asset and is based upon our periodic evaluation and
assessment of known and inherent risks associated with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information becomes available. Management
updates its evaluations regularly and reflects impairments in operations as such evaluations are revised.
There can be no assurance that our management has accurately assessed the level of impairments taken
in our financial statements. Furthermore, additional impairments may need to be taken in the future, which
could materially impact our financial position or results of operations. Historical trends may not be indicative
of future impairments.
Retrocessional reinsurance may become unavailable on acceptable terms, or may not provide the
coverage we intended to obtain.
As part of our risk management, we buy reinsurance for our own account, which is known as “retrocessional
reinsurance.” From time to time, market conditions have limited or prevented insurers and reinsurers from
obtaining retrocessional reinsurance. Accordingly, we may not be able to obtain our desired amounts of
retrocessional reinsurance. In addition, even if we are able to obtain such retrocessional reinsurance, we
may not be able to negotiate favorable terms. This could limit the amount of business we are willing to write,
or decrease the protection available to us as a result of large loss events.
When we purchase reinsurance or retrocessional reinsurance for our own account, the insolvency of any of
our reinsurers, or inability or reluctance of any of our reinsurers to make timely payments to us under the
terms of our reinsurance agreements could have a material adverse effect on us. Generally, we believe that
the “willingness to pay” of some reinsurers and retrocessionaires is declining, so this risk may be more
significant to us at present than at many times in the past. Complex coverage issues or coverage disputes
may impede our ability to collect amounts we believe we are owed.
A large portion of our reinsurance protection is concentrated with a relatively small number of reinsurers.
The risk of such concentration of retrocessional coverage may be increased by recent and future
consolidation within the industry.
We may be adversely impacted by inflation.
We monitor the risk that the principal markets in which we operate could experience increased inflationary
conditions, which would, among other things, cause loss costs to increase, and impact the performance of
our investment portfolio. The impact of inflation on loss costs could be more pronounced for those lines of
business that are considered to be long tail in nature, as they require a relatively long period of time to
finalize and settle claims. Changes in the level of inflation also result in an increased level of uncertainty in
our estimation of loss reserves, particularly for long tail lines of business. The onset, duration and severity
of an inflationary period cannot be estimated with precision.
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We depend on the policies, procedures and expertise of ceding companies and delegated authority
counterparties, who may fail to accurately assess the risks they underwrite, which exposes us to
operational and financial risks.
Like other reinsurers, we do not separately evaluate each primary risk assumed under our reinsurance
contracts or pursuant to our delegated authority business. Accordingly, we are heavily dependent on the
original underwriting decisions made by our ceding companies and delegated authority counterparties and
are therefore subject to the risk that our customers may not have adequately evaluated the risks to be
reinsured, or that the premiums ceded to us will not adequately compensate us for the risks we assume,
perhaps materially so. To the extent we continue to increase the relative amount of proportional coverages
we offer, we will increase our aggregate exposure to risks of this nature.
Our business is subject to operational risks, including systems or human failures.
We are subject to operational risks including fraud, employee errors, failure to document transactions
properly or to obtain proper internal authorization, failure to comply with regulatory requirements or
obligations under our agreements, failure of our service providers, such as investment custodians,
actuaries, information technology providers, etc., to comply with our service agreements, or information
technology failures. Losses from these risks may occur from time to time and may be significant.
We are exposed to risks in connection with our management of capital on behalf of investors in
joint ventures or other entities we manage.
Our operating subsidiaries owe certain legal duties and obligations (including reporting, governance and
allocation obligations) to third party investors and are subject to a variety of increasingly complex laws and
regulations relating to the management of third party capital. Complying with these obligations, laws and
regulations requires significant management time and attention. Although we continually monitor our
compliance policies and procedures, faulty judgments, simple errors or mistakes, or the failure of our
personnel to adhere to established policies and procedures, could result in our failure to comply with
applicable obligations, laws or regulations, which could result in significant liabilities, penalties or other
losses to us and seriously harm our business and results of operations.
In addition, in furtherance of our goal of matching well-structured risk with capital whose owners would find
the risk-return trade-off attractive, we may invest capital in new and complex ventures with which we do not
have a significant amount of experience, which may increase our exposure to legal, regulatory and
reputational risks.
In addition, our third party capital providers may redeem their interests in our joint ventures, which could
materially impact the financial condition of such joint ventures, and could in turn materially impact our
financial condition and results of operations.
Certain of our joint venture capital providers provide significant capital investment and other forms of capital
support in respect of our joint ventures. The loss, or alternation in a negative manner, of any of this capital
support could be detrimental to our financial condition and results of operations. Moreover, we can provide
no assurance that we will be able to attract and raise additional third party capital for our existing joint
ventures or for potential new joint ventures and therefore we may forego existing and/or potentially
attractive fee income and other income generating opportunities.
We may be adversely affected by foreign currency fluctuations.
We routinely transact business in currencies other than the U.S. dollar, our financial reporting currency.
Moreover, we maintain a portion of our cash and investments in currencies other than the U.S. dollar.
Although we generally seek to hedge significant non-U.S. dollar positions, we may, from time to time,
experience losses resulting from fluctuations in the values of these foreign currencies, which could cause
our consolidated earnings to decrease. In addition, failure to manage our foreign currency exposures could
cause our results of operations to be more volatile. Adverse, unforeseen or rapidly shifting currency
valuations in our key markets, such as the Eurozone jurisdictions or Japan, may magnify these risks over
time.
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We may require additional capital in the future, which may not be available or may only be available
on unfavorable terms.
To the extent that our existing capital is insufficient to support our future operating requirements, we may
need to raise additional funds through financings or limit our growth. Our operations are subject to
significant volatility in capital due to our exposure to potentially significant catastrophic events. Any further
equity or debt financings, or capacity needed for letters of credit, if available at all, may be on terms that are
unfavorable to us. Our ability to raise such capital successfully would depend upon the facts and
circumstances at the time, including our financial position and operating results, market conditions, and
applicable legal issues. We are also exposed to the risk that the contingent capital facilities we have in
place may not be available as expected. If we are unable to obtain adequate capital when needed, our
business, results of operations and financial condition would be adversely affected.
In addition, we are exposed to the risk that we may be unable to raise new capital for our managed joint
ventures and other private alternative investment vehicles, which would reduce our future fee income and
market capacity and thus negatively affect our results of operations and financial condition.
The covenants in our debt agreements limit our financial and operational flexibility, which could
have an adverse effect on our financial condition.
We have incurred indebtedness, and may incur additional indebtedness in the future. Our indebtedness
primarily consists of publicly traded notes, letters of credit and a revolving credit facility. For more details on
our indebtedness, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations, Capital Resources.”
The agreements governing our indebtedness contain covenants that limit our ability and the ability of certain
of our subsidiaries to borrow money, make particular types of investments or other restricted payments, sell
or place a lien on our or their respective assets, merge or consolidate. Certain of these agreements also
require us or our subsidiaries to maintain specific financial ratios. If we or our subsidiaries fail to comply with
these covenants or meet these financial ratios, the noteholders or the lenders could declare a default and
demand immediate repayment of all amounts owed to them or, where applicable, cancel their commitments
to lend or issue letters of credit or, where the reimbursement obligations are secured, require us to pledge
additional or a different type of collateral.
The regulatory systems under which we operate and potential changes thereto could restrict our
ability to operate, increase our costs, or otherwise adversely impact us.
Certain of our operating subsidiaries are not licensed or admitted in any jurisdiction except Bermuda,
conduct business only from their principal offices in Bermuda and do not maintain offices in the U.S. The
insurance and reinsurance regulatory framework continues to be subject to increased scrutiny in many
jurisdictions, including the U.S. and Europe. If our Bermuda insurance or reinsurance operations become
subject to the insurance laws of any state in the U.S., jurisdictions in the EU, or elsewhere, we could face
challenges to the future operations of these companies.
Moreover, we could be put at a competitive disadvantage in the future with respect to competitors that are
licensed and admitted in U.S. jurisdictions. Among other things, jurisdictions in the U.S. do not permit
insurance companies to take credit for reinsurance obtained from unlicensed or non-admitted insurers on
their statutory financial statements unless security is posted. Our contracts generally require us to post a
letter of credit or provide other security (e.g., through a multi-beneficiary reinsurance trust). In order to post
these letters of credit, issuing banks generally require collateral. It is possible that the EU or other countries
might adopt a similar regime in the future, or that U.S. or EU regulations could be altered in a way that
treats Bermuda-based companies disparately. It is possible that individual jurisdiction or cross border
regulatory developments could adversely differentiate Bermuda, the jurisdiction in which we are subject to
group supervision, or could exclude Bermuda-based companies from benefits such as market access,
mutual recognition or reciprocal rights made available to other jurisdictions, which could adversely impact
us, perhaps significantly. Any such development, or our inability to post security in the form of letters of
credit or trust funds when required, could significantly and negatively affect our operations.
We could be required to allocate considerable time and resources to comply with any new or additional
regulatory requirements in any of the jurisdictions in which we operate, including Bermuda, Maryland and
the U.K., and any such requirements could impact the operations of our insurance and/or non-insurance
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subsidiaries, result in increased costs and burdens for us and impact our financial condition. In addition, we
could be adversely affected if a regulatory authority believed we had failed to comply with applicable law or
regulations.
Our current or future business strategy could cause one or more of our currently unregulated subsidiaries to
become subject to some form of regulation. Any failure to comply with applicable laws could result in the
imposition of significant restrictions on our ability to do business, and could also result in fines and other
sanctions, any or all of which could adversely affect our financial results and operations.
We face risks related to changes in Bermuda law and regulations, the political environment in
Bermuda.
We are incorporated in Bermuda and many of our operating companies are domiciled in Bermuda.
Therefore, our exposure to potential changes in Bermuda law and regulation that may have an adverse
impact on our operations, such as the imposition of tax liability, increased regulatory supervision or changes
in regulation is heightened. The Bermuda insurance and reinsurance regulatory framework recently has
become subject to increased scrutiny in many jurisdictions, including in the U.S. and in various states within
the U.S. We are unable to predict the future impact on our operations of changes in Bermuda laws and
regulations to which we are or may become subject.
In addition, we are subject to changes in the political environment in Bermuda, which could make it difficult
to operate in, or attract talent to, Bermuda. For example, Bermuda is a small jurisdiction and may be
disadvantaged in participating in global or cross border regulatory matters as compared with larger
jurisdictions such as the U.S. or the leading EU and Asian countries. In addition, Bermuda, which is
currently an overseas territory of the U.K., may consider changes to its relationship with the U.K. in the
future. These changes could adversely affect Bermuda or the international reinsurance market focused
there, either of which could adversely impact us commercially.
Because we are a holding company, we are dependent on dividends and payments from our
subsidiaries.
As a holding company with no direct operations, we rely on our investment income, cash dividends and
other permitted payments from our subsidiaries to make principal and interest payments on our debt and to
pay dividends to our shareholders. From time to time, we may not have sufficient liquid assets to meet
these obligations. Regulatory restrictions on the payment of dividends under Bermuda law and various U.S.
insurance regulations may limit the ability of our subsidiaries to pay dividends. If our subsidiaries are
restricted from paying dividends to us, we may be unable to pay dividends to our shareholders or to repay
our indebtedness.
Acquisitions or strategic investments we have made or may make could turn out to be
unsuccessful.
As part of our strategy, we frequently monitor and analyze opportunities to acquire or make a strategic
investment in new or other businesses we believe will not detract from our core operations. The negotiation
of potential acquisitions or strategic investments as well as the integration of an acquired business or new
personnel, could result in a substantial diversion of management resources.
Future acquisitions could likewise involve numerous additional risks such as potential losses from
unanticipated litigation or levels of claims and inability to generate sufficient revenue to offset acquisition
costs. As we pursue or consummate a strategic transaction or investment, we may value the acquired or
funded company or operations incorrectly, fail to integrate the acquired operations appropriately into our
own operations, fail to successfully manage our operations as our product and geographical diversity
increases, expend unforeseen costs during the acquisition or integration process, or encounter other
unanticipated risks or challenges. If we succeed in consummating a strategic investment, we may fail to
value it accurately or divest it or otherwise realize the value which we originally invested or have
subsequently reflected in our consolidated financial statements. Any failure by us to effectively limit such
risks or implement our acquisitions or strategic investment strategies could have a material adverse effect
on our business, financial condition or results of operations.
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Some aspects of our corporate structure may discourage third party takeovers and other
transactions or prevent the removal of our current board of directors and management.
Some provisions of our Amended and Restated Bye-Laws may discourage third parties from making
unsolicited takeover bids or prevent the removal of our current board of directors and management. In
particular, our Bye-Laws prohibit transfers of our capital shares if the transfer would result in a person
owning or controlling shares that constitute 9.9% or more of any class or series of our shares. In addition,
our Bye-Laws reduce the total voting power of any shareholder owning, directly or indirectly, beneficially or
otherwise, more than 9.9% of our common shares to not more than 9.9% of the total voting power of our
capital stock unless otherwise waived at the discretion of the Board. The primary purpose of these
provisions is to reduce the likelihood we will be deemed a “controlled foreign corporation” within the
meaning of the Internal Revenue Code for U.S. federal tax purposes. However, these provisions may also
have the effect of deterring purchases of large blocks of our common shares or proposals to acquire us,
even if our shareholders might deem these purchases or acquisition proposals to be in their best interests.
In addition, our Bye-Laws provide for, among other things:
•
•
•
•
a classified Board, whose size is fixed and whose members may be removed by the shareholders only
for cause upon a 66 2/3% vote;
restrictions on the ability of shareholders to nominate persons to serve as directors, submit resolutions
to a shareholder vote and requisition special general meetings;
a large number of authorized but unissued shares which may be issued by the Board without further
shareholder action; and
a 66 2/3% shareholder vote to amend, repeal or adopt any provision inconsistent with several
provisions of the Bye-Laws.
These Bye-Law provisions make it more difficult to acquire control of us by means of a tender offer, open
market purchase, proxy contest or otherwise and could discourage a prospective acquirer from making a
tender offer or otherwise attempting to obtain control of us. In addition, these Bye-Law provisions could
prevent the removal of our current board of directors and management. To the extent these provisions
discourage takeover attempts, they could deprive shareholders of opportunities to realize takeover
premiums for their shares or could depress the market price of the shares.
Maryland law also requires prior notice and Maryland Insurance Administration approval of changes in
control of a Maryland-domestic insurer or its holding company. Any purchaser of 10% or more of the
outstanding voting securities of an insurance company or its holding company is presumed to have
acquired control, unless the presumption is rebutted. Therefore, any investor who intends to acquire 10% or
more of our outstanding voting securities would be required to file notices and reports with the Maryland
Insurance Administration before such acquisition.
The PRA and FCA regulate the acquisition of control of RSML, our Lloyd’s managing agent, which is
authorized under the FSMA. Any company or individual that, together with its or his associates, directly or
indirectly acquires 10% or more of the shares in a Lloyd’s managing agent or its parent company, or is
entitled to exercise or control the exercise of 10% or more of the voting power in such Lloyd’s managing
agent or its parent company, would be considered to have acquired control for the purposes of the relevant
legislation, as would a person who has significant influence over the management of such Lloyd’s managing
agent or its parent company by virtue of its or his shareholding or voting power in either. Lloyd’s approval is
also required before any person can acquire control (using the same definition as for the PRA and FCA) of
a Lloyd’s managing agent or Lloyd’s corporate member.
Investors may have difficulty in serving process or enforcing judgments against us in the U.S.
We are a Bermuda company. In addition, certain of our officers and directors reside in countries outside the
U.S. All or a substantial portion of our assets and the assets of these officers and directors are or may be
located outside the U.S. Investors may have difficulty effecting service of process within the U.S. on our
directors and officers who reside outside the U.S. or recovering against us or these directors and officers on
judgments of U.S. courts based on civil liabilities provisions of the U.S. federal securities laws whether or
not we appoint an agent in the U.S. to receive service of process.
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Risks Related to Our Industry
The reinsurance and insurance businesses are historically cyclical and the pricing and terms for
our products may decline, which would affect our profitability.
The reinsurance and insurance industries have historically been cyclical, characterized by periods of
decreasing prices followed by periods of increasing prices. Reinsurers have experienced significant
fluctuations in their results of operations due to numerous factors, including the frequency and severity of
catastrophic events, perceptions of risk, levels of capacity, general economic conditions and underwriting
results of other insurers and reinsurers. All of these factors may contribute to price declines generally in the
reinsurance and insurance industries. Following an increase in capital in our industry after the 2005
catastrophe events and the subsequent period of substantial dislocation in the financial markets, the
reinsurance and insurance markets have experienced a prolonged period of generally softening markets.
Our catastrophe-exposed lines are affected significantly by volatile and unpredictable developments,
including natural and man-made disasters. The occurrence, or nonoccurrence, of catastrophic events, the
frequency and severity of which are inherently unpredictable, affects both industry results and consequently
prevailing market prices of our products.
We expect premium rates and other terms and conditions of trade to vary in the future. If demand for our
products falls or the supply of competing capacity rises, our prospects for potential growth, due in part to
our disciplined approach to underwriting, may be adversely affected. In particular, we might lose existing
customers or suffer a decline in business, which we might not regain when industry conditions improve.
Recent or future U.S. federal or state legislation may impact the private markets and decrease the
demand for our property reinsurance products, which would adversely affect our business and
results of operations.
Legislation adversely impacting the private markets could be enacted on a state, regional or federal level. In
the past, federal bills have been proposed in Congress which would, if enacted, create a federal
reinsurance backstop or guarantee mechanism for catastrophic risks, including those we currently insure
and reinsure in the private markets. These measures were not enacted by Congress; however, new bills to
create a federal catastrophe reinsurance program to back up state insurance or reinsurance programs, or to
establish other similar or analogous funding mechanisms or structures, may be introduced. We believe that
such legislation, if enacted, could contribute to growth, inception or alteration of state insurance entities in a
manner that would be adverse to us and to market participants more generally. If enacted, bills of this
nature would likely further erode the role of private market catastrophe reinsurers and could adversely
impact our financial results, perhaps materially. Moreover, we believe that numerous modeled potential
catastrophes could exceed the actual or politically acceptable bonded capacity of Citizens and of the FHCF.
This could lead either to a severe dislocation or the necessity of federal intervention in the Florida market,
either of which would adversely impact the private insurance and reinsurance industry.
In March 2014, Congress passed the “Homeowner Flood Insurance Affordability Act of 2014” (the “Grimm-
Waters Act”), which we believe has had an adverse impact on near term prospects for increased U.S.
private flood insurance demand, the stability of the National Flood Insurance Program (the “NFIP”) and the
primary insurers that produce policies for the NFIP or offer private coverages, and it is possible that
additional adverse legislation or rulemaking will be enacted at the federal or state level.
In 2007, the state of Florida enacted legislation to expand the FHCF’s provision of below-market rate
reinsurance to up to $28.0 billion per season and expanded the ability of Citizens to compete with private
insurance companies and other companies that cede business to us, which reduced the role of the private
insurance and reinsurance markets in Florida. Because we are one of the largest providers of catastrophe-
exposed coverage globally and in Florida, the 2007 bill and the weakened financial position of Florida
insurers may have a greater adverse impact on us than it would on other reinsurance market participants. In
addition, it is possible that other regulatory or legislative changes that impact Florida could affect our ability
to sell certain of our products and have a material adverse effect on our operations. Other states,
particularly those with Atlantic or Gulf Coast exposures or seismic exposures (such as California), may
enact new or expanded legislation based on the 2007 Florida model or otherwise, that could further
diminish aggregate private market demand for our products. See “Part II, Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations, Current Outlook, Legislative and Regulatory
Update” for further information.
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Other political, regulatory and industry initiatives by state and international authorities could
adversely affect our business.
The insurance and reinsurance regulatory framework is subject to heavy scrutiny by the U.S. and individual
state governments, as well as an increasing number of international authorities, and we believe it is likely
there will be increased regulatory intervention in our industry in the future. For example, the U.S. federal
government has increased its scrutiny of the insurance regulatory framework in recent years (including as
specifically addressed in the Dodd-Frank Act), and some state legislators have considered or enacted laws
that will alter and likely increase state regulation of insurance and reinsurance companies and holding
companies. Moreover, the NAIC, which is an association of the insurance commissioners of all 50 states
and the District of Columbia, and state insurance regulators regularly reexamine existing laws and
regulations. We could also be adversely affected by proposals or enacted legislation to expand the scope of
coverage under existing policies for perils such as hurricanes or earthquakes or for a pandemic disease
outbreak, mandate the terms of insurance and reinsurance policies, expand the scope of the FIO or
establish a new federal insurance regulator, revise laws, regulations, or contracts under which we operate,
disproportionately benefit the companies of one country over those of another or repeal or diminish the
insurance company antitrust exemption from the McCarran Ferguson Act.
Due to this increased legislative and regulatory scrutiny of the reinsurance industry, our cost of compliance
with applicable laws may increase, which could result in a decrease to both our profitability and the amount
of time that our senior management allocates to running our day-to-day operations.
Further, as we continue to expand our business operations to different regions of the world outside of
Bermuda, we are increasingly subject to new and additional regulations with respect to our operations,
including, for example, laws relating to anti-corruption and anti-bribery, which have received increased
scrutiny in recent years.
We face certain risks related to Solvency II.
The EU directive covering the capital adequacy, risk management and regulatory reporting for insurers,
known as Solvency II, came into effect on January 1, 2016. We could be materially impacted by the
implementation of Solvency II depending on the costs associated with implementation by each EU country,
any increased capitalization requirements and any costs associated with adjustments to our operating
structure. Solvency II could also materially impact us since Solvency II affects the calculation of the
solvency of international groups which conduct reinsurance and insurance operations both inside and
outside of the EU. Other risks include more complex and intensive regulatory reporting burdens and
regulatory requirements that conflict with requirements in other jurisdictions, all of which may have a
negative impact on our results of operations. In addition, we could be required to undertake a significant
amount of additional work if compliance with the Solvency II regime came into question, which in turn may
divert finite resources from other business related tasks.
Although Solvency II is now in force, uncertainty remains as to how the Solvency II regime will be enforced
or amended and the effectiveness of the coordination and cooperation of information sharing among
supervisory bodies and regulators and the effect, if any, these developments may have on our operations
and financial condition. This uncertainty has increased as a result of the 2016 U.K. referendum vote to exit
the EU (“Brexit”) at a yet to be determined date. Following the withdrawal of the U.K. from the EU, the U.K.
would be free to determine its own regulatory regime though it is anticipated that the U.K. will seek to have
its insurance regulatory regime deemed to be equivalent to Solvency II post Brexit. We cannot currently
predict whether this will be the case or the impact on us if the future U.K. regulatory regime is not found to
be equivalent to Solvency II.
Bermuda was granted full Solvency II equivalence in 2016, but the U.S. currently has only been granted
provisional equivalence with regard to group solvency calculations (but not group supervision and
reinsurance) for a period of 10 years. If the U.S./EU Covered Agreement does not take effect, the absence
of Solvency II reinsurance equivalence for the U.S. could have an adverse impact on our operations
because our U.S. reinsurance companies who provide reinsurance to cedants headquartered in the
European Economic Area may be required to post collateral in respect of any such reinsurance.
47
We operate in a highly competitive environment.
The reinsurance industry is highly competitive. We compete, and will continue to compete, with major U.S.
and non-U.S. insurers and reinsurers, including other Bermuda-based reinsurers. Many of our competitors
have greater financial, marketing and management resources than we do. Historically, periods of increased
capacity levels in our industry have led to increased competition and decreased prices for our products.
In recent years, hedge funds, pension funds, endowments, investment banks, investment mangers,
exchanges and other capital markets participants have been increasingly active in the reinsurance market
and markets for related risks, either through the formation of reinsurance companies or the use of other
financial products intended to complete with traditional reinsurance. We expect competition from these
sources and others to continue to increase over time. It is possible that such new or alternative capital could
cause reductions in prices of our products, or reduce the duration or amplitude of attractive portions of the
historical market cycles. New entrants or existing competitors may attempt to replicate all or part of our
business model and provide further competition in the markets in which we participate. Moreover,
government-backed entities increasingly represent competition for the coverages we provide directly or for
the business of our customers, reducing the potential amount of third party private protection our clients
might need or desire. To the extent that industry pricing of our products does not meet our hurdle rate, we
would generally expect to reduce our future underwriting activities, thus resulting in reduced premiums and
a reduction in expected earnings. We are unable to predict the extent to which the foregoing or other new,
proposed or potential initiatives may affect the demand for our products or the risks for which we seek to
provide coverage.
Consolidation in the (re)insurance industry could adversely impact us.
The (re)insurance industry, including our competitors, customers and insurance and reinsurance brokers,
has been consolidating. Should the market continue to consolidate, there can be no assurance we would
remain a leading reinsurer. These consolidated client and competitor enterprises may try to use their
enhanced market power to negotiate price reductions for our products and services and/or obtain a larger
market share through increased line sizes. If competitive pressures reduce our prices, we would generally
expect to reduce our future underwriting activities, resulting in reduced premiums and a reduction in
expected earnings. As the insurance industry consolidates, competition for customers will become more
intense and the importance of sourcing and properly servicing each customer will become greater. We
could incur greater expenses relating to customer acquisition and retention, further reducing our operating
margins. In addition, insurance companies that merge may be able to spread their risks across a
consolidated, larger capital base so that they require less reinsurance. The number of companies offering
retrocessional reinsurance may decline. Reinsurance intermediaries could also continue to consolidate,
potentially adversely impacting our ability to access business and distribute our products. We could also
experience more robust competition from larger, better capitalized competitors. Any of the foregoing could
adversely affect our business or our results of operation.
Increasing barriers to free trade and the free flow of capital could adversely affect the reinsurance
industry and our business.
Recent political initiatives to restrict free trade and close markets, such as Brexit and the Trump
administration’s decision to withdraw from the Trans-Pacific partnership, could adversely affect the
reinsurance industry and our business. The reinsurance industry is disproportionately impacted by restraints
on the free flow of capital and risk because the value it provides depends on our ability to globally diversify
risk.
Internationally, restrictions on the writing of reinsurance by foreign companies and government
intervention in the natural catastrophe market could reduce market opportunities for our customers
and adversely impact us.
Internationally, many countries with fast growing economies, such as China and India, continue to impose
significant restrictions on the writing of reinsurance by foreign companies. In addition, in the wake of recent
large natural catastrophes, a number of proposals have been introduced to alter the financing of natural
catastrophes in several of the markets in which we operate. For example, the Thailand government has
announced it is studying proposals for a natural catastrophe fund, under which the government would
provide coverage for natural disasters in excess of an industry retention and below a certain limit, after
which private reinsurers would continue to participate. The government of the Philippines has announced
48
that it is considering similar proposals. Indonesia’s financial services authority has announced a proposal to
increase the amount of insurance business placed with domestic reinsurers. A range of proposals from
varying stakeholders have been reported to have been made to alter the current regimes for insuring flood
risk in the U.K., flood risk in Australia and earthquake risk in New Zealand. If these proposals are enacted
and reduce market opportunities for our clients or for the reinsurance industry, we could be adversely
impacted. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Current Outlook, Legislative and Regulatory Update” for further information.
The OECD and the EU may pursue measures that might increase our taxes and reduce our net
income and increase our reporting requirements.
The OECD has published reports and launched a global dialog among member and non-member countries
on measures to limit harmful tax competition. These measures are largely directed at counteracting the
effects of jurisdictions perceived by the OECD to be tax havens or offering preferential tax regimes. The
OECD has not listed Bermuda as an uncooperative tax haven jurisdiction because Bermuda has committed
to eliminating harmful tax practices and to embracing international tax standards for transparency,
exchange of information and the elimination of any aspects of the regimes for financial and other services
that attract business with no substantial domestic activity. We are not able to predict what changes will arise
from the commitment or whether such changes will subject us to additional taxes.
In addition, in 2015, the OECD published its final series of Base Erosion and Profit Shifting (“BEPS”) reports
related to its attempt to coordinate multilateral action on international tax rules. The proposed actions
include an examination of the definition of a “permanent establishment” and the rules for attributing profit to
a permanent establishment. One of these reports covers “country-by-country” reporting, which calls for the
provision, at a country-specific level, of information such as affiliate and non-affiliate revenues, profit or loss
before tax, income taxes paid and accrued, capital, number of employees and tangible assets. It is
expected that some countries, including some EU countries, would deem a failure to implement country-by-
country reporting to be sufficient rationale to place another country on a “black-list”, thus potentially
restricting in some way business between the two countries. Bermuda has agreed to implement country-by-
country reporting in 2016 for 2017 reporting. The implementation and ongoing requirements of country-by-
country reporting will require significant management time and resources. Although we believe Bermuda’s
agreement to implement country-by-country reporting has reduced the likelihood that Bermuda would
appear on a “black-list”, some uncertainty remains. Any changes in the tax law of an OECD member state in
response to the BEPS reports and recommendations could subject us to additional taxes.
The vote by the U.K. to leave the EU could adversely affect our business.
As a result of Brexit, negotiations are expected to commence to determine the terms of the U.K.’s
withdrawal from the EU and its future relationship with the EU. As a result, we face risks associated with the
potential uncertainty and consequences that may follow Brexit, including with respect to volatility in financial
markets, exchange rates and interest rates. These uncertainties could increase the volatility of, or reduce,
our investment results in particular periods or over time. Brexit could adversely affect European or
worldwide political, regulatory, economic or market conditions and could contribute to instability in global
political institutions and regulatory agencies. Brexit could also lead to legal uncertainty and differing laws
and regulations between the U.K., and the EU, and could impair or adversely affect the ability of the Lloyd’s
market, including Syndicate 1458, to transact business in EU countries, particularly in respect of primary or
direct insurance business as to which we currently rely on the licensure afforded to syndicates at Lloyd’s for
access to EU markets. In addition, these uncertainties could affect the operations, strategic position or
results of insurers or reinsurers on whom we ultimately rely to access underlying insured coverages. Any of
these potential effects of Brexit, and others we cannot anticipate, could adversely affect our results of
operations or financial condition.
Regulatory regimes and changes to accounting rules may adversely impact financial results
irrespective of business operations.
Accounting standards and regulatory changes may require modifications to our accounting principles, both
prospectively and for prior periods, and such changes could have an adverse impact on our financial
results. Required modification of our existing principles, and new disclosure requirements, could have an
impact on our results of operations and increase our expenses in order to implement and comply with any
new requirements.
49
The preparation of our consolidated financial statements requires us to make many estimates and
judgments.
The preparation of consolidated financial statements requires us to make many estimates and judgments
that affect the reported amounts of assets, liabilities (including claims and claim expense reserves),
shareholders' equity, revenues and expenses, and related disclosures. On an ongoing basis, we evaluate
our estimates, including those related to premiums written and earned, our net claims and claim expenses,
investment valuations, income taxes and those estimates used in our risk transfer analysis for reinsurance
transactions. We base our estimates on historical experience, where possible, and on various other
assumptions we believe to be reasonable under the circumstances, which form the basis for our judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Our
judgments and estimates may not reflect our actual results. We utilize actuarial models as well as historical
insurance industry loss development patterns to establish our claims and claim expense reserves. Actual
claims and claim expenses paid may deviate, perhaps materially, from the estimates reflected in our
financial statements. For more details on our estimates and judgments, see “Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Estimates.”
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease office space in Bermuda, which houses our executive offices and operations for our Property and
Casualty and Specialty segments. Our U.S. based subsidiaries lease office space in a number of U.S.
locations, including New York, New York, Stamford, Connecticut, Chicago, Illinois and Raleigh, North
Carolina. We also lease office space in London, England (U.K.), principally for our Lloyd’s underwriting
platform, and in Dublin, Ireland and Singapore. While we believe that our current office space is sufficient
for us to conduct our operations, we may expand into additional facilities and new locations to
accommodate future growth. To date, the cost of acquiring and maintaining our office space has not been
material to us as a whole.
ITEM 3. LEGAL PROCEEDINGS
We and our subsidiaries are subject to lawsuits and regulatory actions in the normal course of business that
do not arise from or directly relate to claims on reinsurance treaties or contracts or direct surplus lines
insurance policies. In our industry, business litigation may involve allegations of underwriting or claims-
handling errors or misconduct, disputes relating to the scope of, or compliance with, the terms of delegated
underwriting agreements, employment claims, regulatory actions or disputes arising from our business
ventures. Our operating subsidiaries are subject to claims litigation involving, among other things, disputed
interpretations of policy coverages. Generally, our direct surplus lines insurance operations are subject to
greater frequency and diversity of claims and claims-related litigation than our reinsurance operations and,
in some jurisdictions, may be subject to direct actions by allegedly injured persons or entities seeking
damages from policyholders. These lawsuits involving or arising out of claims on policies issued by our
subsidiaries, which are typical to the insurance industry in general and in the normal course of business, are
considered in our loss and loss expense reserves which are discussed in its loss reserves discussion. In
addition, we may from time to time engage in litigation or arbitration related to claims for payment in respect
of ceded reinsurance, including disputes that challenge our ability to enforce our underwriting intent. Such
matters could result, directly or indirectly, in providers of protection not meeting their obligations to us or not
doing so on a timely basis. We may also be subject to other disputes from time to time, relating to
operational or other matters distinct from insurance or reinsurance claims. Any litigation, arbitration or
regulatory process contains an element of uncertainty, and, accordingly, the value of an exposure or a gain
contingency related to a dispute is difficult to estimate. Currently, we believe that no individual litigation or
arbitration to which we are presently a party is likely to have a material adverse effect on our financial
condition, business or operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
50
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS
AND ISSUER REPURCHASES OF EQUITY SECURITIES
MARKET INFORMATION AND NUMBER OF HOLDERS
Our common shares are listed on the NYSE under the symbol “RNR.”
The following table sets forth, for the periods indicated, the high and low prices per share of our common
shares as reported in composite NYSE trading:
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Price Range
of Common Shares
High
Low
$
$
120.59 $
121.38
122.97
137.21
104.72 $
105.96
108.79
116.10
107.47
107.27
114.34
117.36
93.89
99.20
99.35
104.78
On February 17, 2017, the last reported sale price for our common shares was $146.04 per share and there
were 125 holders of record of our common shares.
51
PERFORMANCE GRAPH
The following graph compares the cumulative return on our common shares, including reinvestment of our
dividends on our common shares, to such return for the S&P 500 Composite Stock Price Index (“S&P 500”)
and S&P’s Property-Casualty Industry Group Stock Price Index (“S&P P&C”), for the five-year period
commencing December 31, 2011 and ending December 31, 2016, assuming $100 was invested on
December 31, 2011. Each measurement point on the graph below represents the cumulative shareholder
return as measured by the last sale price at the end of each calendar year during the period from January 1,
2012 through December 31, 2016. As depicted in the graph below, during this period, the cumulative return
was (1) 94.5% on our common shares; (2) 98.1% for the S&P 500; and (3) 143.7% for the S&P P&C.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
DIVIDEND POLICY
Since our initial public offering, we have paid dividends on our common shares every quarter and have
increased our dividend each year. The Board of Directors declared regular quarterly dividends of $0.31 per
common share to shareholders of record on March 15, 2016, June 15, 2016, September 15, 2016 and
December 15, 2016, respectively. The Board of Directors declared regular quarterly dividends of $0.29 per
common share to shareholders of record on March 13, June 15, September 15 and December 15, 2015,
respectively. On February 22, 2017, RenaissanceRe’s Board of Directors approved an increased dividend
of $0.32 per common share, payable on March 31, 2017, to shareholders of record on March 15, 2017. The
declaration and payment of dividends are subject to the discretion of the Board and depend on, among
other things, our financial condition, general business conditions, legal, contractual and regulatory
restrictions regarding the payment of dividends by us and our subsidiaries and other factors which the
Board may in the future consider to be relevant.
52
The laws of the various jurisdictions in which we and our subsidiaries are organized restrict the ability of
RenaissanceRe to pay dividends to its shareholders and of our subsidiaries to pay dividends to
RenaissanceRe. Refer to “Part II, Item 1. Business, Regulation”, “Part II, Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources, Financial
Condition” and “Note 18. Statutory Requirements in our Notes to the Consolidated Financial Statements” for
additional information.
ISSUER REPURCHASES OF EQUITY SECURITIES
Our share repurchase program may be effected from time to time, depending on market conditions and
other factors, through open market purchases and privately negotiated transactions. On February 22, 2017
RenaissanceRe’s Board of Directors approved a renewal of the authorized share repurchase program to an
aggregate amount of $500.0 million. Unless terminated earlier by resolution of RenaissanceRe’s Board of
Directors, the program will expire when we have repurchased the full value of the shares authorized. The
table below details the repurchases that were made under the program during the three months ended
December 31, 2016, and also includes other shares purchased, which represents withholdings from
employees surrendered in respect of withholding tax obligations on the vesting of restricted stock or in lieu
of cash payments for the exercise price of employee stock options.
Total shares purchased Other shares purchased
Shares purchased under
repurchase program
Shares
purchased
Average
price per
share
Shares
purchased
Average
price per
share
Shares
purchased
Average
price per
share
Dollar
amount
still
available
under
repurchase
program
(in millions)
— $
—
3,122
16,250
19,372
$
$
$
130.19
136.22
135.25
— $
3,122
16,250
19,372
$
$
$
—
130.19
136.22
135.25
— $
— $
— $
— $
$
500.0
—
—
—
— $
—
—
—
500.0
Beginning dollar amount
available to be
repurchased
October 1 - 31, 2016
November 1 - 30, 2016
December 1 - 31, 2016
Total
During the year ended December 31, 2016, we repurchased an aggregate of 2.7 million common shares in
open market transactions at an aggregate cost of $309.4 million and at an average share price of $112.87.
In the future, we may authorize additional purchase activities under the currently authorized share
repurchase program, increase the amount authorized under the share repurchase program, or adopt
additional trading plans.
Subsequent to December 31, 2016 and through the period ended February 17, 2017, we repurchased 281
thousand common shares in open market transactions at an aggregate cost of $40.0 million and at an
average share price of $142.40.
53
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth our selected consolidated financial data and other financial information at the
end of and for each of the years in the five-year period ended December 31, 2016. The results of Platinum
are included in our consolidated financial data from March 2, 2015. The selected consolidated financial data
should be read in conjunction with our consolidated financial statements and related notes thereto and “Part
II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this
Form 10-K.
Year ended December 31,
2016
2015
2014
2013
2012
(in thousands, except share and per share data
and percentages)
Statements of Operations Data:
Gross premiums written
Net premiums written
Net premiums earned
Net investment income
Net realized and unrealized gains (losses) on
investments
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income
Net income
Net income available to RenaissanceRe
common shareholders
Net income available to RenaissanceRe
common shareholders per common share –
diluted
Dividends per common share
Weighted average common shares outstanding
– diluted
Return on average common equity
Combined ratio
At December 31,
Balance Sheet Data:
Total investments
Total assets
Reserve for claims and claim expenses
Unearned premiums
Debt
Capital leases
Preference shares
Total shareholders’ equity attributable to
RenaissanceRe
Common shares outstanding
Book value per common share
Accumulated dividends
Book value per common share plus
accumulated dividends
$ 2,374,576
1,535,312
1,403,430
181,726
$ 2,011,310
1,416,183
1,400,551
152,567
$ 1,550,572
1,068,236
1,062,416
124,316
$ 1,605,412
1,203,947
1,114,626
208,028
$ 1,551,591
1,102,657
1,069,355
165,725
141,328
530,831
289,323
197,749
385,527
630,048
(68,918)
448,238
238,592
219,112
494,609
542,242
41,433
197,947
144,476
190,639
529,354
686,256
35,076
171,287
125,501
191,105
626,733
841,768
163,121
325,211
113,542
179,151
451,451
748,949
480,581
408,811
510,337
665,676
566,014
11.43
1.24
9.28
1.20
12.60
1.16
14.87
1.12
11.23
1.08
41,559
43,526
39,968
44,128
49,603
11.0%
72.5%
9.8%
64.7%
14.9%
50.2%
20.5%
43.8%
17.7%
57.8%
2016
2015
2014
2013
2012
$ 9,316,968
12,352,082
2,848,294
1,231,573
948,663
26,073
400,000
$ 8,999,068
11,555,287
2,767,045
889,102
960,495
26,463
400,000
$ 6,743,750
8,202,307
1,412,510
512,386
248,279
26,817
400,000
$ 6,821,712
8,177,651
1,563,730
477,888
247,950
27,138
400,000
$ 6,355,394
7,926,909
1,879,377
399,517
347,620
27,428
400,000
4,866,577
4,732,184
3,865,715
3,904,384
3,503,065
41,187
108.45
16.72
125.17
$
$
43,701
99.13
15.48
114.61
$
$
38,442
90.15
14.28
104.43
$
$
43,646
80.29
13.12
93.41
$
$
45,542
68.14
12.00
80.14
$
$
Change in book value per common share plus
change in accumulated dividends
10.7%
11.3%
13.7%
19.5%
16.8%
54
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of our results of operations for 2016, compared to 2015, and
2015, compared to 2014, respectively. The following also includes a discussion of our liquidity and capital
resources at December 31, 2016. The results of Platinum are included in our results of operations from
March 2, 2015. This discussion and analysis should be read in conjunction with the audited consolidated
financial statements and notes thereto included in this filing. This filing contains forward-looking statements
that involve risks and uncertainties. Actual results may differ materially from the results described or implied
by these forward-looking statements. See “Note on Forward-Looking Statements.”
OVERVIEW
RenaissanceRe is a global provider of reinsurance and insurance. We aspire to be the world’s best
underwriter by matching well-structured risks with efficient sources of capital and our mission is to produce
superior returns for our shareholders over the long term. We seek to accomplish these goals by being a
trusted, long-term partner to our customers for assessing and managing risk, delivering responsive and
innovative solutions, leveraging our core capabilities of risk assessment and information management,
investing in these core capabilities in order to serve our customers across the cycles that have historically
characterized our markets and keeping our promises. Our strategy focuses on superior risk selection,
superior customer relationships and superior capital management. We provide value to our customers and
joint venture partners in the form of financial security, innovative products, and responsive service. We are
known as a leader in paying valid claims promptly. We principally measure our financial success through
long-term growth in tangible book value per common share plus the change in accumulated dividends,
which we believe is the most appropriate measure of our financial performance and in respect of which we
believe we have delivered superior performance over time.
Our core products include property, casualty and specialty reinsurance and certain insurance products
principally distributed through intermediaries, with whom we seek to cultivate strong long-term relationships.
We believe we have been one of the world’s leading providers of catastrophe reinsurance since our
founding. In recent years, through the strategic execution of a number of initiatives, including organic growth
and our acquisition of Platinum on March 2, 2015, we have expanded our casualty and specialty platforms
and products and believe we are a leader in certain casualty and specialty lines of business. We have
determined our business consists of the following reportable segments: (1) Property, which is comprised of
catastrophe and other property reinsurance and insurance written on behalf of our operating subsidiaries
and certain joint ventures managed by our ventures unit, and (2) Casualty and Specialty, which is
comprised of casualty and specialty reinsurance and insurance written on behalf of our operating
subsidiaries and certain joint ventures managed by our ventures unit.
To best serve our clients in the places they do business, we have operating subsidiaries, joint ventures and
underwriting platforms around the world, including DaVinci, Renaissance Reinsurance, Top Layer Re,
Fibonacci Re and Upsilon RFO in Bermuda, Renaissance Reinsurance U.S. in the U.S., and Syndicate
1458 in the U.K. In addition, we have a presence in Ireland and Singapore and from time to time explore
opportunities in other jurisdictions. We write property and casualty and specialty reinsurance through our
wholly owned operating subsidiaries, joint ventures and Syndicate 1458 and certain insurance products
primarily through Syndicate 1458. Although each underwriting platform may write any or all of our classes of
business, our Bermuda platform has traditionally written, and continues to write, the preponderance of our
property business and our U.S. platform and Syndicate 1458 write a significant portion of our casualty and
specialty business. Syndicate 1458 provides us with access to Lloyd’s extensive distribution network and
worldwide licenses and also writes business through delegated authority arrangements. The underwriting
results of our operating subsidiaries and underwriting platforms are included in our Property and Casualty
and Specialty segment results as appropriate.
Since a meaningful portion of the reinsurance and insurance we write provides protection from damages
relating to natural and man-made catastrophes, our results depend to a large extent on the frequency and
severity of such catastrophic events, and the coverages we offer to customers affected by these events. We
are exposed to significant losses from these catastrophic events and other exposures we cover.
Accordingly, we expect a significant degree of volatility in our financial results and our financial results may
vary significantly from quarter-to-quarter and from year-to-year, based on the level of insured catastrophic
55
losses occurring around the world. We view our increased exposure to casualty and specialty lines of
business as an efficient use of capital given these risks are generally less correlated with our property lines
of business. This has allowed us to bring additional capacity to our clients, across a wider range of product
offerings, while continuing to be good stewards of our shareholders’ capital. In the future, our casualty and
specialty lines of business may represent a greater proportion of our premiums and claims and claim
expenses.
We continually explore appropriate and efficient ways to address the risk needs of our clients. We have
created and managed, and continue to manage, multiple capital vehicles and may create additional risk
bearing vehicles in the future. As our product and geographical diversity increases, we may be exposed to
new risks, uncertainties and sources of volatility.
Our revenues are principally derived from three sources: (1) net premiums earned from the reinsurance and
insurance policies we sell; (2) net investment income and realized and unrealized gains from the investment
of our capital funds and the investment of the cash we receive on the policies which we sell; and (3) fees
and other income received from our joint ventures, advisory services and various other items.
Our expenses primarily consist of: (1) net claims and claim expenses incurred on the policies of reinsurance
and insurance we sell; (2) acquisition costs which typically represent a percentage of the premiums we
write; (3) operating expenses which primarily consist of personnel expenses, rent and other operating
expenses; (4) corporate expenses which include certain executive, legal and consulting expenses, costs for
research and development, transaction and integration-related expenses, and other miscellaneous costs,
including those associated with operating as a publicly traded company; (5) redeemable noncontrolling
interests, which represent the interests of third parties with respect to the net income of DaVinciRe and
Medici; and (6) interest and dividend costs related to our debt and preference shares. We are also subject
to taxes in certain jurisdictions in which we operate. Since the majority of our income is currently earned in
Bermuda, which does not have a corporate income tax, the tax impact to our operations has historically
been minimal, however, in the future, our net tax exposure may increase as our operations expand
geographically, or as a result of adverse tax developments.
The underwriting results of an insurance or reinsurance company are discussed frequently by reference to
its net claims and claim expense ratio, underwriting expense ratio, and combined ratio. The net claims and
claim expense ratio is calculated by dividing net claims and claim expenses incurred by net premiums
earned. The underwriting expense ratio is calculated by dividing underwriting expenses (acquisition
expenses and operational expenses) by net premiums earned. The combined ratio is the sum of the net
claims and claim expense ratio and the underwriting expense ratio. A combined ratio below 100% indicates
profitable underwriting prior to the consideration of investment income. A combined ratio over 100%
indicates unprofitable underwriting prior to the consideration of investment income. We also discuss our net
claims and claim expense ratio on a current accident year basis and a prior accident years basis. The
current accident year net claims and claim expense ratio is calculated by taking current accident year net
claims and claim expenses incurred, divided by net premiums earned. The prior accident years net claims
and claim expense ratio is calculated by taking prior accident years net claims and claim expenses incurred,
divided by net premiums earned.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Claims and Claim Expense Reserves
General Description
We believe the most significant accounting judgment made by management is our estimate of claims and
claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and
statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid
claims and claim expenses arising from the insurance and reinsurance contracts we sell. We establish our
claims and claim expense reserves by taking claims reported to us by insureds and ceding companies, but
which have not yet been paid (“case reserves”), adding estimates for the anticipated cost of claims incurred
but not yet reported to us, or incurred but not enough reported to us (collectively referred to as “IBNR”) and,
if deemed necessary, adding costs for additional case reserves which represent our estimates for claims
56
related to specific contracts previously reported to us which we believe may not be adequately estimated by
the client as of that date, or adequately covered in the application of IBNR.
On March 2, 2015 we acquired Platinum and the transaction was accounted for under the acquisition
method of accounting in accordance with FASB ASC Topic Business Combinations. Total consideration paid
was allocated among acquired assets and assumed liabilities based on their fair values, including
Platinum’s claims and claim expense reserves, which totaled $1.4 billion at March 2, 2015, and consisted of
$179.7 million and $1.2 billion included in our Property and Casualty and Specialty segments, respectively.
These claims and claim expense reserves are subject to the reserving methodologies for each respective
line of business as described below.
The following table summarizes our claims and claim expense reserves by line of business, allocated
between case reserves, additional case reserves and IBNR:
At December 31, 2016
(in thousands)
Property
Casualty and Specialty
Other
Total
At December 31, 2015
(in thousands)
Property
Casualty and Specialty
Other
Total
Case
Reserves
Additional
Case Reserves
IBNR
Total
$
$
$
$
214,954 $
591,705
6,935
813,594 $
298,687 $
553,574
2,071
854,332 $
226,512 $
186,308 $
105,419
—
627,774
2,195,126
1,498,002
25,394
18,459
291,727 $ 1,742,973 $ 2,848,294
241,676 $
165,838 $
129,866
—
706,201
2,033,166
1,349,726
27,678
25,607
295,704 $ 1,617,009 $ 2,767,045
Activity in the liability for unpaid claims and claim expenses is summarized as follows:
Year ended December 31,
(in thousands)
Net reserves as of January 1
Net incurred related to:
Current year
Prior years
Total net incurred
Net paid related to:
Current year
Prior years
Total net paid
Amounts acquired (1)
Foreign exchange
Net reserves as of December 31
Reinsurance recoverable as of December 31
Gross reserves as of December 31
2016
2015
2014
$ 2,632,519 $ 1,345,816 $ 1,462,705
694,957
(164,126)
530,831
610,685
(162,447)
448,238
341,745
(143,798)
197,947
83,015
506,279
589,294
39,830
241,286
281,116
—
(33,720)
1,345,816
66,694
$ 2,848,294 $ 2,767,045 $ 1,412,510
95,747
425,565
521,312
— 1,394,117
(34,340)
2,632,519
134,526
(5,326)
2,568,730
279,564
(1) Represents the fair value of Platinum's reserve for claims and claim expenses and reinsurance recoverable acquired at March 2,
2015.
57
The following table details our prior year development by segment of its liability for unpaid claims and claim
expenses:
Year ended December 31,
(in thousands)
Property
Casualty and Specialty
Other
Total favorable development of prior accident years net claims
and claim expenses
2016
2015
2014
$ (104,876) $
(58,140)
(1,110)
(93,786) $
(67,791)
(870)
(87,258)
(50,403)
(6,137)
$ (164,126) $ (162,447) $ (143,798)
Our reserving methodology for each line of business uses a loss reserving process that calculates a point
estimate for our ultimate settlement and administration costs for claims and claim expenses. We do not
calculate a range of estimates and do not discount any of our reserves for claims and claim expenses. We
use this point estimate, along with paid claims and case reserves, to record our best estimate of additional
case reserves and IBNR in our consolidated financial statements. Under GAAP, we are not permitted to
establish estimates for catastrophe claims and claim expense reserves until an event occurs that gives rise
to a loss.
Reserving for our reinsurance claims involves other uncertainties, such as the dependence on information
from ceding companies, the time lag inherent in reporting information from the primary insurer to us or to
our ceding companies, and differing reserving practices among ceding companies. The information
received from ceding companies is typically in the form of bordereaux, broker notifications of loss and/or
discussions with ceding companies or their brokers. This information may be received on a monthly,
quarterly or transactional basis and normally includes paid claims and estimates of case reserves. We
sometimes also receive an estimate or provision for IBNR. This information is often updated and adjusted
from time to time during the loss settlement period as new data or facts in respect of initial claims, client
accounts, industry or event trends may be reported or emerge in addition to changes in applicable statutory
and case laws.
Our estimates of losses from large events are based on factors including currently available information
derived from claims information from certain customers and brokers, industry assessments of losses from
the events, proprietary models, and the terms and conditions of our contracts. The uncertainty of our
estimates for large events is also impacted by the preliminary nature of the information available, the
magnitude and relative infrequency of the events, the expected duration of the respective claims
development period, inadequacies in the data provided to the relevant date by industry participants, the
potential for further reporting lags or insufficiencies and, in certain cases, the form of the claims and legal
issues under the relevant terms of insurance and reinsurance contracts. In addition, a significant portion of
the net claims and claim expenses associated with certain large events can be concentrated with a few
large clients and therefore the loss estimates for these events may vary significantly based on the claims
experience of those clients. The contingent nature of business interruption and other exposures will also
impact losses in a meaningful way, which we believe may give rise to significant complexity in respect of
claims handling, claims adjustment and other coverage issues, over time. Given the magnitude of certain
events, there can be meaningful uncertainty regarding total covered losses for the insurance industry and,
accordingly, several of the key assumptions underlying our loss estimates. Loss reserve estimation in
respect of our retrocessional contracts poses further challenges compared to directly assumed reinsurance.
In addition, our actual net losses from these events may increase if our reinsurers or other obligors fail to
meet their obligations.
Because of the inherent uncertainties discussed above, we have developed a reserving philosophy which
attempts to incorporate prudent assumptions and estimates, and we have generally experienced favorable
net development on prior accident years net claims and claim expenses in the last several years. However,
there is no assurance that this favorable development on prior accident years net claims and claim
expenses will occur in future periods.
Our reserving techniques, assumptions and processes differ among our Property and Casualty and
Specialty segments. Refer to “Note 8. Reserve for Claims and Claim Expenses in our Notes to the
Consolidated Financial Statements” for more information on the risks we insure and reinsure, the reserving
58
techniques, assumptions and processes we follow to estimate our claims and claim expense reserves, prior
year development of the reserve for claims and claim expenses, analysis of our incurred and paid claims
development and claims duration information for each of our Property and Casualty and Specialty
segments.
Property Segment
Actual Results vs. Initial Estimates
As discussed above, the key assumption in estimating reserves for our Property segment is our estimate of
incurred claims and claim expenses. The table below shows our initial estimates of incurred claims and
claim expenses for each accident year and how these initial estimates have developed over time. The initial
estimate of accident year incurred claims and claim expenses represents our estimate of the ultimate
settlement and administration costs for claims incurred in our Property segment occurring during a
particular accident year, and as reported as of December 31 of that year. The re-estimated incurred claims
and claim expenses as of December 31 of subsequent years, represent our revised estimates as reported
as of those dates. Our most recent estimates as reported at December 31, 2016 differ from our initial
accident year estimates and demonstrate that our initial estimate of incurred claims and claim expenses are
reasonably likely to vary from our most recent estimate, perhaps significantly. Changes in this estimate will
be recorded in the period in which they occur. In accident years where our current estimates are lower than
our initial estimates, we have experienced favorable development while accident years where our current
estimates are higher than our original estimates indicates adverse development. The table is presented on
a net basis and, therefore, includes the benefit of reinsurance recoverable. In addition, we have included
historical incurred claims and claim expenses development information related to Platinum in the table
below. For incurred accident year claims denominated in foreign currency, we have used the current year-
end balance sheet foreign exchange rate for all periods provided, thereby eliminating the effects of changes
in foreign currency translation rates from the incurred accident year claims development information
included in the table below.
The following table details our Property segment incurred claims and claim expenses, net of reinsurance, as
of December 31, 2016.
(in thousands)
Accident
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
$ 387,866
$ 309,228
$ 250,975
$ 246,823
$ 234,120
$ 213,228
$ 206,168
$ 199,792
$ 198,666
$
199,383
—
—
—
—
—
—
—
—
—
851,049
752,349
752,501
748,918
715,285
700,312
691,030
683,658
684,281
—
—
—
—
—
—
—
—
218,607
163,124
144,352
138,131
134,013
134,722
134,059
134,359
—
—
—
—
—
—
—
605,753
557,062
522,678
527,126
545,333
549,097
558,982
— 1,230,463
1,153,960
1,103,441
1,056,822
1,036,122
1,007,368
—
—
—
—
—
—
—
—
—
—
436,244
343,561
310,842
293,136
275,504
—
—
—
—
223,542
192,681
170,629
149,197
—
—
—
182,518
153,770
146,689
—
—
224,669
192,593
—
251,774
$ 3,600,130
Our initial and subsequent estimates of incurred claims and claim expenses are impacted by available
information derived from claims information from certain customers and brokers, industry assessments of
losses from the events, proprietary models, and the terms and conditions of our contracts. As described
above, given the complexity in reserving for claims and claims expenses associated with property losses,
and catastrophe excess of loss reinsurance contracts in particular, which make up a significant proportion of
our Property segment, we have experienced development, both favorable and unfavorable, in any given
accident year. For example, incurred claims and claim expenses associated with our 2007 accident year
have developed favorably by $188.5 million, which is 48.6% better than our initial estimates of incurred
claims and claim expenses for the 2007 accident year estimated as of December 31, 2007. This was driven
59
in part by reductions in estimated ultimate claims and claim expenses associated with large catastrophe
events including Windstorm Kyrill, flooding in the UK and U.S. PCS 21 Wildland Fire. In comparison, while
net claims and claim expenses associated with the 2010 accident year initially developed favorably, it has
experienced adverse development in the outer years. The adverse development in the outer years was
driven by a deterioration in expected net claims and claim expenses associated with the 2010 New Zealand
Earthquake as new and additional claims information was received. The 2010 New Zealand Earthquake
has complex issues associated with establishing estimates of incurred claims and claim expenses, including
the magnitude and relative infrequency of the event, the expected duration of the respective claims
development period and inadequacies in the data provided by industry participants on the relevant date.
In accident years with a low level of insured catastrophe losses, our other property lines of business would
contribute a greater proportion of our overall incurred claims and claim expenses within our Property
segment, compared to years with a high level of insured catastrophe losses. Our other property lines of
business tend to generate less volatility in future accident years and as such we would expect to see a
slower more stable increase or decrease in estimated incurred net claims and claim expenses over time.
However, certain of our other property contracts are exposed to catastrophe events, resulting in increased
volatility of incurred claims and claim expenses driven by the occurrence of catastrophe events. In addition,
volatility of the initial estimate associated with large catastrophe losses and the speed at which we settle
claims can vary dramatically based on the type of event.
Sensitivity Analysis
The table below shows the impact on our gross reserve for claims and claim expenses, net income and
shareholders’ equity as of and for the year ended December 31, 2016 of a reasonable range of possible
outcomes associated with our estimates of gross ultimate losses for claims and claim expenses incurred
within our Property segment. The reasonable range of possible outcomes is based on a distribution of
outcomes of our ultimate incurred claims and claim expenses from catastrophic events. In addition, we flex
the loss ratios and development curves in our other property lines of business in a similar fashion to the
sensitivity analysis performed for our Casualty and Specialty segment, discussed in greater detail below. In
general, our reserve for claims and claim expenses for more recent events are subject to greater
uncertainty and, therefore, greater variability and are likely to experience material changes from one period
to the next. This is due to the uncertainty as to the size of the industry losses from the event, which
contracts have been exposed to the catastrophic event and the magnitude of claims incurred by our clients.
As our claims age, more information becomes available and we believe our estimates become more
certain, although there is no assurance this trend will continue in the future. As a result, the sensitivity
analysis below is based on the age of each accident year, our current estimated incurred claims and claim
expenses for the catastrophic events occurring in each accident year, and a reasonable range of possible
outcomes of our current estimates of claims and claim expenses by accident year. The impact on net
income and shareholders’ equity assumes no increase or decrease in reinsurance recoveries, loss related
premium or redeemable noncontrolling interest – DaVinciRe.
Property Claims and Claim Expense Reserve Sensitivity Analysis
Reserve for
Claims and
Claim
Expenses at
December 31,
2016
718,570 $
627,774
553,511 $
$
$
$ Impact of
Change
Reserve for
Claims
and Claim
Expenses
at
December 31,
2016
% Impact of
Change
on Reserve for
Claims
and Claim
Expenses
at
December 31,
2016
% Impact of
Change on Net
Income for
the Year Ended
December 31,
2016
% Impact of
Change on
Shareholders’
Equity at
December 31,
2016
90,796
—
(74,263)
3.2 %
— %
(2.6)%
(14.4)%
— %
11.8 %
(1.9)%
— %
1.5 %
(in thousands, except
percentages)
Higher
Recorded
Lower
We believe the changes we made to our estimated incurred claims and claim expenses represent a
reasonable range of possible outcomes based on our experience to date and our future expectations. While
we believe these are a reasonable range of possible outcomes, we do not believe the above sensitivity
analysis should be considered an actuarial reserve range. In addition, the sensitivity analysis only reflects a
60
reasonable range of possible outcomes in our underlying assumptions. It is possible that our estimated
incurred claims and claim expenses could be significantly higher or lower than the sensitivity analysis
described above. For example, we could be liable for events for which we have not estimated claims and
claim expenses or for exposures we do not currently believe are covered under our policies. These changes
could result in significantly larger changes to our estimated incurred claims and claim expenses, net income
and shareholders’ equity than those noted above, and could be recorded across multiple periods. We also
caution that the above sensitivity analysis is not used by management in developing our reserve estimates
and is also not used by management in managing the business.
Casualty and Specialty Segment
Actual Results vs. Initial Estimates
As discussed above, the key assumption in estimating reserves for our Casualty and Specialty segment is
our estimate of incurred claims and claim expenses. Standard actuarial techniques are used to calculate the
ultimate claims and claim expenses and two key assumptions include the estimated incurred claims and
claim expenses ratio and the estimated loss reporting patterns. The table below shows our initial estimates
of incurred claims and claim expenses for each accident year and how these initial estimates have
developed over time. The initial estimate of accident year incurred claims and claim expenses represents
our estimate of the ultimate settlement and administration costs for claims incurred in our Casualty and
Specialty segment occurring during a particular accident year, and as reported as of December 31 of that
year. The re-estimated incurred claims and claim expenses as of December 31 of subsequent years,
represent our revised estimates as reported as of those dates. Our most recent estimates as reported at
December 31, 2016 differ from our initial accident year estimates and demonstrate that our initial estimate
of incurred claims and claim expenses are reasonably likely to vary from our most recent estimate, perhaps
significantly. Changes in this estimate will be recorded in the period in which they occur. In accident years
where our current estimates are lower than our initial estimates, we have experienced favorable
development while accident years where our current estimates are higher than our original estimates
indicates adverse development. The table is presented on a net basis and, therefore, includes the benefit of
reinsurance recoverable. In addition, we have included historical incurred claims and claim expenses
development information related to Platinum in the table below. For incurred accident year claims
denominated in foreign currency, we have used the current year-end balance sheet foreign exchange rate
for all periods provided, thereby eliminating the effects of changes in foreign currency translation rates from
the incurred accident year claims development information included in the table below.
The following table details our Casualty and Specialty segment incurred claims and claim expenses, net of
reinsurance, as of December 31, 2016.
(in thousands)
Accident
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
$ 725,801
$ 716,019
$ 707,231
$ 664,514
$ 634,627
$ 593,259
$ 572,017
$ 567,053
$ 575,730
$
570,836
—
—
—
—
—
—
—
—
—
618,202
676,892
656,247
641,364
601,770
594,084
581,268
578,390
563,225
—
—
—
—
—
—
—
—
485,953
476,058
477,829
444,594
423,610
401,671
393,315
388,207
—
—
—
—
—
—
—
382,650
389,209
375,894
340,397
318,995
305,827
304,147
—
—
—
—
—
—
381,046
379,986
350,622
320,628
313,105
307,083
—
—
—
—
—
426,089
423,973
394,474
386,310
376,260
—
—
—
—
390,524
360,284
333,772
316,751
—
—
—
475,440
459,590
454,267
—
—
410,884
428,030
—
423,604
$ 4,132,410
As each underwriting year has developed, our estimated expected incurred claims and claim expenses
have changed. As an example, our re-estimated incurred claims and claim expenses decreased for the
2007 accident year from the initial estimates. This decrease was principally driven by actual reported and
61
paid net claims and claim expenses associated with the 2007 accident year coming in less than expected,
which has resulted in a reduction in our expected ultimate claims and claim expense ratio for this accident
year. In comparison, the 2015 accident year has developed adversely compared to our initial estimates of
incurred claims and claim expenses and our current estimates are higher than our initial estimates. The
increase in incurred claims and claim expenses for the 2015 accident year is due to the deterioration of a
number of large losses in our general liability line of business.
The reserving methodology for our Casualty and Specialty segment is weighted more heavily to our initial
estimate in the early periods immediately following the contracts’ inception through the use of the expected
loss ratio method. The expected loss ratio method estimates the incurred losses by multiplying the initial
expected loss ratio by the earned premium. Under the expected loss ratio method, no reliance is placed on
the development of claims and claim expenses. The determination of when reported losses are sufficient
and credible to warrant selection of an ultimate loss ratio different from the initial expected loss ratio also
requires judgment. We generally make adjustments for reported loss experience indicating unfavorable
variances from the initial expected loss ratio sooner than reported loss experience indicating favorable
variances as reporting of losses in excess of expectations tends to have greater credibility than an absence
of or lower than expected level of reported losses. Over time, as a greater number of claims are reported
and the credibility of reported losses improves, actuarial estimates of IBNR are typically based on the
Bornhuetter-Ferguson actuarial method. The Bornhuetter-Ferguson method is weighted more heavily to
claims and claim expenses development experience. If there is adverse development of prior accident
years claims and claim expenses, we generally select the Bornheutter-Ferguson method to ensure the
claim experience is considered in the determination of our estimated claims and claim expenses with the
associated business. If we believe we lack the claims experience in the early stages of development of a
line of business, we may not select the Bornheutter-Ferguson method until such time as we believe there is
greater credibility in the expected level of reported losses. As prior accident years claims and claim
expenses development experience becomes credible, the Bornhuetter-Ferguson method is generally
selected which places greater weight on this experience as it develops. The Bornhuetter-Ferguson method
estimates our expected ultimate claims and claim expenses by applying our initial estimated loss ratio to our
undeveloped premium, and adding the reported losses to the estimate. The impact of these methodologies
can be observed in the table above. For example, the 2007 accident year has experienced favorable
development on prior accident years net claims and claim expenses for each subsequent calendar year-
end. However, the favorable development experienced in the first few years was lower than the favorable
development experienced in subsequent calendar years where the reserving methodology used changed to
the Bornhuetter-Ferguson method as the experience became more credible.
Sensitivity Analysis
The table below quantifies the impact on our gross reserves for claims and claim expenses, net income and
shareholders’ equity as of and for the year ended December 31, 2016 of a reasonable range of possible
outcomes in the actuarial assumptions used to estimate our December 31, 2016 claims and claim expense
reserves within our Casualty and Specialty segment. The table quantifies a reasonable range of possible
outcomes in our initial estimated gross ultimate claims and claim expense ratios and estimated loss
reporting patterns. The changes to the initial estimated ultimate claims and claim expense ratios represent
percentage increases or decreases to our current estimated ultimate claims and claim expense ratios. The
change to the reporting patterns represent claims reporting that is both faster and slower than our current
estimated claims reporting patterns. The impact on net income and shareholders’ equity assumes no
increase or decrease in reinsurance recoveries, loss related premium or redeemable noncontrolling interest
– DaVinciRe.
62
Casualty and Specialty Claims and Claim Expense Reserve Sensitivity Analysis
$ Impact of
Change
on Reserves
for
Claims and
Claim
Expenses at
December 31,
2016
% Impact of
Change
on Reserve
for
Claims and
Claim
Expenses at
December 31,
2016
% Impact of
Change on
Net Income
for the Year
Ended
December 31,
2016
% Impact of
Change on
Shareholders’
Equity at
December 31,
2016
$
287,340
10.1 %
(45.6)%
(5.9)%
149,800
5.3 %
(23.8)%
(3.1)%
(5,401)
(0.2)%
0.9 %
0.1 %
125,036
4.4 %
(19.8)%
(2.6)%
—
— %
— %
— %
(141,092)
(5.0)%
22.4 %
2.9 %
(37,268)
(1.3)%
5.9 %
0.8 %
(149,800)
(5.3)%
23.8 %
3.1 %
(277,198)
(9.7)%
44.0 %
5.7 %
Estimated
Loss
Reporting
Pattern
Slower
reporting
Expected
reporting
Faster
reporting
Slower
reporting
Expected
reporting
Faster
reporting
Slower
reporting
Expected
reporting
Faster
reporting
(in thousands,except percentages)
Increase expected claims and
claim expense ratio by 10%
Increase expected claims and
claim expense ratio by 10%
Increase expected claims and
claim expense ratio by 10%
Expected claims and claim
expense ratio
Expected claims and claim
expense ratio
Expected claims and claim
expense ratio
Decrease expected claims and
claim expense ratio by 10%
Decrease expected claims and
claim expense ratio by 10%
Decrease expected claims and
claim expense ratio by 10%
We believe that ultimate claims and claim expense ratios 10.0 percentage points above or below our
estimated assumptions constitute a reasonable range of possible outcomes based on our experience to
date and our future expectations. In addition, we believe that the adjustments we made to speed up or slow
down our estimated loss reporting patterns represent a reasonable range of possible outcomes. While we
believe these are a reasonable range of possible outcomes, we do not believe the above sensitivity analysis
should be considered an actuarial reserve range. In addition, the sensitivity analysis only reflects a
reasonable range of possible outcomes in our underlying assumptions. It is possible that our initial
estimated claims and claim expense ratios and loss reporting patterns could be significantly different from
the sensitivity analysis described above. For example, we could be liable for events that we have not
estimated reserves for, or for exposures we do not currently believe are covered under our contracts. These
changes could result in significantly larger changes to reserves for claims and claim expenses, net income
and shareholders’ equity than those noted above, and could be recorded across multiple periods. We also
caution that the above sensitivity analysis is not used by management in developing our reserve estimates
and is also not used by management in managing the business.
Other
Included in the Other category are the remnants of our former Bermuda-based insurance operations. These
operations are in run-off and no new business is being underwritten. Our outstanding claims and claim
expense reserves for these operations include insurance policies and proportional reinsurance with respect
to risks including: 1) commercial property, which principally included catastrophe-exposed commercial
property products; 2) commercial multi-line, which included commercial property and liability coverage, such
as general liability, automobile liability and physical damage, building and contents, professional liability and
various specialty products; and 3) personal lines property, which principally included homeowners personal
lines property coverage and catastrophe exposed personal lines property coverage and totaled $25.4
million at December 31, 2016 (2015 - $27.7 million).
Our reserving techniques and processes for our Casualty and Specialty segment also apply to our Other
category. In addition, certain of our coverages may be impacted by natural and man-made catastrophes.
63
We estimate claim reserves for these losses after the event giving rise to these losses occurs, following a
process that is similar to that used in our Property segment.
Premiums and Related Expenses
Premiums are recognized as income, net of any applicable reinsurance or retrocessional coverage
purchased, over the terms of the related contracts and policies. Premiums written are based on contract
and policy terms and include estimates based on information received from both insureds and ceding
companies. Unearned premiums represents the portion of premiums written that relate to the unexpired
terms of contracts and policies in force. Amounts are computed by pro rata methods based on statistical
data or reports received from ceding companies. Reinstatement premiums are estimated after the
occurrence of a significant loss and are recorded in accordance with the contract terms based upon paid
losses and case reserves. Reinstatement premiums are earned when written.
Due to the nature of reinsurance, ceding companies routinely report and remit premiums to us subsequent
to the contract coverage period. Consequently, premiums written and receivable include amounts reported
by the ceding companies, supplemented by our estimates of premiums that are written but not reported.
The estimation of written premiums may be affected by early cancellation, election of contract provisions for
cut-off and return of unearned premiums or other contract disruptions. The time lag involved in the process
of reporting premiums is shorter than the lag in reporting losses. In addition to estimating premiums written,
we estimate the earned portion of premiums written which is subject to judgment and uncertainty. Any
adjustments to written and earned premiums, and the related losses and acquisition expenses, are
accounted for as changes in estimates and are reflected in the results of operations in the period in which
they are made.
Lines of business that are similar in both the nature of their business and estimation process may be
grouped for purposes of estimating premiums. Premiums are estimated based on ceding company
estimates and our own judgment after considering factors such as: (1) the ceding company's historical
premium versus projected premium, (2) the ceding company's history of providing accurate estimates,
(3) anticipated changes in the marketplace and the ceding company's competitive position therein,
(4) reported premiums to date and (5) the anticipated impact of proposed underwriting changes. Estimates
of premiums written and earned are based on the selected ultimate premium estimate, the terms and
conditions of the reinsurance contracts and the remaining exposure from the underlying policies. We
evaluate the appropriateness of these estimates in light of the actual premium reported by the ceding
companies, information obtained during audits and other information received from ceding companies.
Reinsurance Recoverables
We enter into retrocessional reinsurance agreements in order to help reduce our exposure to large losses
and to help manage our risk portfolio. Amounts recoverable from reinsurers are estimated in a manner
consistent with the claims and claim expense reserves associated with the related assumed reinsurance.
For multi-year retrospectively rated contracts, we accrue amounts (either assets or liabilities) that are due to
or from our retrocessionaires based on estimated contract experience. If we determine that adjustments to
earlier estimates are appropriate, such adjustments are recorded in the period in which they are
determined.
The estimate of reinsurance recoverables can be more subjective than estimating the underlying claims and
claim expense reserves as discussed under the heading “Claims and Claim Expense Reserves” above. In
particular, reinsurance recoverables may be affected by deemed inuring reinsurance, industry losses
reported by various statistical reporting services, and other factors. Reinsurance recoverables on dual
trigger reinsurance contracts require us to estimate our ultimate losses applicable to these contracts as well
as estimate the ultimate amount of insured industry losses that will be reported by the applicable statistical
reporting agency, as per the contract terms. In addition, the level of our additional case reserves and IBNR
reserves has a significant impact on reinsurance recoverables. These factors can impact the amount and
timing of the reinsurance recoverables to be recorded.
The majority of the balance we have accrued as recoverable will not be due for collection until some point in
the future. The amounts recoverable ultimately collected are open to uncertainty due to the ultimate ability
and willingness of reinsurers to pay our claims, for reasons including insolvency and elective run-off,
contractual dispute and various other reasons. In addition, because the majority of the balances
64
recoverable will not be collected for some time, economic conditions as well as the financial and operational
performance of a particular reinsurer may change, and these changes may affect the reinsurer’s willingness
and ability to meet their contractual obligations to us. To reflect these uncertainties, we estimate and record
a valuation allowance for potential uncollectible reinsurance recoverables which reduces reinsurance
recoverables and net income.
We estimate our valuation allowance by applying specific percentages against each reinsurance
recoverable based on our counterparty’s credit rating. The percentages applied are based on historical
industry default statistics developed by major rating agencies and are then adjusted by us based on
industry knowledge and our judgment and estimates. We also apply case-specific valuation allowances
against certain recoveries we deem unlikely to be collected in full. We then evaluate the overall adequacy of
the valuation allowance based on other qualitative and judgmental factors. The valuation allowance
recorded against reinsurance recoverable was $4.2 million at December 31, 2016 (2015 - $1.6 million). The
reinsurers with the three largest balances accounted for 27.1%, 19.9% and 7.7%, respectively, of our
reinsurance recoverable balance at December 31, 2016 (2015 - 21.5%, 13.8% and 13.1%, respectively).
The three largest company-specific components of the valuation allowance represented 27.1%, 17.9% and
5.6%, respectively, of our total valuation allowance at December 31, 2016 (2015 - 22.7%, 8.3% and 3.2%,
respectively).
Fair Value Measurements and Impairments
Fair Value
The use of fair value to measure certain assets and liabilities with resulting unrealized gains or losses is
pervasive within our consolidated financial statements. Fair value is defined under accounting guidance
currently applicable to us to be the price that would be received upon the sale of an asset or paid to transfer
a liability in an orderly transaction between open market participants at the measurement date. We
recognize the change in unrealized gains and losses arising from changes in fair value in our consolidated
statements of operations.
FASB ASC Topic Fair Value Measurements and Disclosures prescribes a fair value hierarchy that prioritizes
the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and
the lowest priority to valuation techniques that use at least one significant input that is unobservable (Level
3).
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its
entirety falls has been determined based on the lowest level input that is significant to the fair value
measurement of the asset or liability. Our assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment, and we consider factors specific to the asset or
liability.
In order to determine if a market is active or inactive for a security, we consider a number of factors, including,
but not limited to, the spread between what a seller is asking for a security and what a buyer is bidding for the
same security, the volume of trading activity for the security in question, the price of the security compared to
its par value (for fixed maturity investments), and other factors that may be indicative of market activity.
At December 31, 2016, we classified $4.4 million and $17.4 million of our other assets and liabilities,
respectively, at fair value on a recurring basis using Level 3 inputs. This represented 0.0% and 0.3% of our
total assets and liabilities, respectively. Level 3 fair value measurements are based on valuation techniques
that use at least one significant input that is unobservable. These measurements are made under
circumstances in which there is little, if any, market activity for the asset or liability. We use valuation models
or other pricing techniques that require a variety of inputs including contractual terms, market prices and
rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs,
some of which may be unobservable, to value these Level 3 assets and liabilities. Our assessment of the
significance of a particular input to the fair value measurement in its entirety requires judgment. In making
the assessment, we considered factors specific to the asset or liability. In certain cases, the inputs used to
measure fair value of an asset or a liability may fall into different levels of the fair value hierarchy. In such
cases, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified
65
is determined based on the lowest level input that is significant to the fair value measurement of the asset
or liability.
Refer to “Note 6. Fair Value Measurements in our Notes to the Consolidated Financial Statements” for
additional information about fair value measurements.
Impairments
The amount and timing of asset impairment is subject to significant estimation techniques and is a critical
accounting estimate for us. The significant impairment reviews we complete are for our goodwill and other
intangible assets and equity method investments, as described in more detail below.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets acquired are initially recorded at fair value. Subsequent to initial
recognition, finite lived other intangible assets are amortized over their estimated useful life, subject to
impairment, and goodwill and indefinite lived other intangible assets are carried at the lower of cost or fair
value. If goodwill or other intangible assets are impaired, they are written down to their estimated fair values
with a corresponding expense reflected in our consolidated statements of operations.
On March 2, 2015 we acquired Platinum and the transaction was accounted under the acquisition method
of accounting in accordance with FASB ASC Topic Business Combinations. Total consideration paid was
allocated among acquired assets and assumed liabilities based on their fair values. In connection with the
acquisition of Platinum, we recognized identifiable finite lived intangible assets of $75.2 million, which will be
amortized over a weighted average period of 8 years, identifiable indefinite lived intangible assets of $8.4
million, and certain other adjustments to the fair values of the assets acquired, liabilities assumed and
shareholders’ equity of Platinum at March 2, 2015 as summarized in “Note 3. Acquisition of Platinum in our
Notes to the Consolidated Financial Statements”. Intangible assets with definite lives will be amortized over
their estimated useful lives. In addition, we recognized goodwill of $191.7 million primarily attributable to
Platinum’s workforce and synergies expected to result upon the integration of Platinum into our operations.
There were no other adjustments to carried goodwill during the period ended December 31, 2016 reflected
on our consolidated balance sheet at December 31, 2016. Goodwill resulting from the acquisition of
Platinum will not be amortized but instead will be tested for impairment at least annually, as outlined below
(more frequently if certain indicators are present).
We test goodwill and other intangible assets for impairment in the fourth quarter of each year, or more
frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable.
For purposes of the annual impairment evaluation, goodwill is assigned to the applicable reporting unit of
the acquired entities giving rise to the goodwill and other intangible assets and is tested based on the cash
flows they produce. There are generally many assumptions and estimates underlying the fair value
calculation. Principally, we identify the reporting unit or business entity that the goodwill or other intangible
asset is attributed to, and review historical and forecasted operating and financial performance and other
underlying factors affecting such analysis, including market conditions. Other assumptions used could
produce significantly different results which may result in a change in the value of goodwill or our other
intangible assets and a related charge in our consolidated statements of operations. An impairment charge
could be recognized in the event of a significant decline in the implied fair value of those operations where
the goodwill or other intangible assets are applicable. In the event we determine that the value of goodwill
has become impaired, an accounting charge will be taken in the fiscal quarter in which such determination
is made, which could have a material adverse effect on our results of operations in the period in which the
impairment charge is recorded. As at December 31, 2016, excluding the amounts recorded in investments
in other ventures, under the equity method, as noted below, our consolidated balance sheets include $197.6
million of goodwill (2015 - $197.6 million) and $53.6 million of other intangible assets (2015 - $67.6 million).
Impairment charges related to these balances were $Nil during the year ended December 31, 2016 (2015 -
$Nil, 2014 - $Nil). In the future it is possible we will hold more goodwill, which would increase the degree of
judgment and uncertainty embedded in our financial statements, and potentially increase the volatility of our
reported results.
66
Investments in Other Ventures, Under Equity Method
Investments in which we have significant influence over the operating and financial policies of the investee
are classified as investments in other ventures, under equity method, and are accounted for under the
equity method of accounting. Under this method, we record our proportionate share of income or loss from
such investments in our results for the period. Any decline in the value of investments in other ventures,
under equity method, including goodwill and other intangible assets arising upon acquisition of the investee,
considered by management to be other-than-temporary, is reflected in our consolidated statements of
operations in the period in which it is determined. As of December 31, 2016, we had $124.2 million (2015 -
$132.4 million) in investments in other ventures, under equity method on our consolidated balance sheets,
including $7.8 million of goodwill and $11.9 million of other intangible assets (2015 – $7.8 million and $15.3
million). The carrying value of our investments in other ventures, under equity method, individually or in the
aggregate, may, and likely will, differ from the realized value we may ultimately attain, perhaps significantly
so.
In determining whether an equity method investment is impaired, we take into consideration a variety of
factors including the operating and financial performance of the investee, the investee’s future business
plans and projections, recent transactions and market valuations of publicly traded companies where
available, discussions with the investee’s management, and our intent and ability to hold the investment
until it recovers in value. Accordingly, we make assumptions and estimates in assessing whether an
impairment has occurred and if, in the future, our assumptions and estimates made in assessing the fair
value of these investments change, this could result in a material decrease in the carrying value of these
investments. This would cause us to write-down the carrying value of these investments and could have a
material adverse effect on our results of operations in the period the impairment charge is taken. We do not
have any current plans to dispose of these investments, and cannot assure you we will consummate future
transactions in which we realize the value at which these holdings are reflected in our financial statements.
During the year ended December 31, 2016, we recorded $Nil (2015 - $5.6 million, 2014 - $Nil) of other-
than-temporary impairment charges related to goodwill and other intangible assets associated with our
investments in other ventures, under the equity method. Refer to “Note 4. Goodwill and Other Intangible
Assets in our Notes to the Consolidated Financial Statements” for additional information.
Income Taxes
Income taxes have been provided in accordance with the provisions of FASB ASC Topic Income Taxes.
Deferred tax assets and liabilities result from temporary differences between the amounts recorded in our
consolidated financial statements and the tax basis of our assets and liabilities. Such temporary differences
are primarily due to net operating loss carryforwards and GAAP versus tax basis accounting differences
relating to reserves for claims and claim expenses, deferred interest expense, accrued expenses, unearned
premiums, deferred underwriting results, deferred acquisition expenses, amortization and depreciation and
investments. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance against deferred tax assets is
recorded if it is more likely than not that all, or some portion, of the benefits related to deferred tax assets
will not be realized.
On March 2, 2015 we acquired Platinum and the transaction was accounted for under the acquisition
method of accounting in accordance with FASB ASC Topic Business Combinations. Total consideration paid
was allocated among acquired assets and assumed liabilities based on their fair values, including
Platinum’s net deferred tax asset which totaled $12.9 million at March 2, 2015.
At December 31, 2016, our net deferred tax asset (prior to our valuation allowance) and valuation allowance
were $98.9 million (2015 - $96.2 million) and $18.8 million (2015 - $17.9 million), respectively (see “Note 15.
Taxation in our Notes to the Consolidated Financial Statements” for additional information). At each
balance sheet date, we assess the need to establish a valuation allowance that reduces the net deferred
tax asset when it is more likely than not that all, or some portion, of the deferred tax assets will not be
realized. The valuation allowance assessment is performed separately in each taxable jurisdiction based on
all available information including projections of future GAAP taxable income from each tax-paying
component in each tax jurisdiction. Losses incurred within our U.S. tax-paying subsidiaries in the fourth
quarter of 2011 were significant enough to result in a cumulative GAAP taxable loss at the U.S. tax-paying
subsidiaries for the three year period ended December 31, 2011. We reassess our valuation allowance on a
67
quarterly basis and commencing with our reassessment effective December 31, 2011, we determined that it
is more likely than not that we would not be able to recover our U.S. net deferred tax asset and as a result,
recognized a full valuation allowance in the fourth quarter of 2011. We concluded that a valuation allowance
was required from 2011 through the period ended December 31, 2014 based on the relevant evidence
during that time period, primarily that we remained in a cumulative GAAP taxable loss position for this
period, among other facts. At December 31, 2014, the U.S. valuation allowance was $48.4 million. In the
first quarter of 2015, as a result of expected profits in our U.S.-based operations due principally to the
acquisition of Platinum, we determined it was more likely than not we would be able to recover a substantial
portion of the U.S. net deferred tax asset and thus reduced the U.S. valuation allowance from $48.4 million
to $1.0 million. Factors that led to this determination included the combined cumulative GAAP taxable
income position of our U.S.-based operations (including the entities acquired) along with the long term
expected profits of the combined operations. A valuation allowance continues to be provided against
deferred tax assets in the majority of our Ireland, U.K., and Singapore operations as these operations have
produced historical GAAP taxable losses, among other facts.
We have unrecognized tax benefits of $Nil as of December 31, 2016 (2015 - $Nil). Interest and penalties
related to unrecognized tax benefits, would be recognized in income tax expense. At December 31, 2016,
interest and penalties accrued on unrecognized tax benefits were $Nil (2015 - $Nil). Income tax returns filed
for tax years 2013 through 2015, 2012 through 2015, 2015, and 2012 through 2015, are open for
examination by the IRS, Irish tax authorities, U.K. tax authorities, and Singapore tax authorities,
respectively. We do not expect the resolution of these open years to have a significant impact on our
consolidated statements of operations and financial condition.
68
SUMMARY OF RESULTS OF OPERATIONS
Year ended December 31,
2016
2015
2014
(in thousands, except per share amounts and percentages)
Statements of operations highlights
Gross premiums written
Net premiums written
Net premiums earned
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income
Net investment income
Net realized and unrealized gains (losses) on
investments
Change in net unrealized gains on fixed maturity
investments available for sale
Total investment result
Net income
Net income available to RenaissanceRe common
shareholders
Net income available to RenaissanceRe common
shareholders per common share – diluted
Dividends per common share
$ 2,374,576
$ 1,535,312
$ 1,403,430
530,831
289,323
197,749
385,527
$
$ 2,011,310
$ 1,416,183
$ 1,400,551
448,238
238,592
219,112
494,609
$
$ 1,550,572
$ 1,068,236
$ 1,062,416
197,947
144,476
190,639
529,354
$
$
181,726
$
152,567
$
124,316
141,328
(68,918)
41,433
(1,870)
321,184
630,048
480,581
11.43
1.24
$
$
$
$
$
(1,243)
82,406
542,242
408,811
9.28
1.20
$
$
$
$
$
(855)
164,894
686,256
510,337
12.60
1.16
$
$
$
$
$
Key ratios
Net claims and claim expense ratio – current accident
year
Net claims and claim expense ratio – prior accident
years
Net claims and claim expense ratio – calendar year
Underwriting expense ratio
Combined ratio
49.5 %
(11.7)%
37.8 %
34.7 %
72.5 %
43.6 %
(11.6)%
32.0 %
32.7 %
64.7 %
32.2 %
(13.6)%
18.6 %
31.6 %
50.2 %
Return on average common equity
11.0 %
9.8 %
14.9 %
Book value
Book value per common share
Accumulated dividends per common share
Book value per common share plus accumulated
dividends
Change in book value per common share plus change
in accumulated dividends
December 31,
2016
108.45
16.72
125.17
$
$
December 31,
2015
December 31,
2014
$
$
99.13
15.48
114.61
$
$
90.15
14.28
104.43
10.7 %
11.3 %
13.7 %
Balance sheet highlights
Total assets
Total shareholders’ equity attributable to
RenaissanceRe
December 31,
2016
$12,352,082
December 31,
2015
$11,555,287
December 31,
2014
$ 8,202,307
$ 4,866,577
$ 4,732,184
$ 3,865,715
69
Results of operations for 2016 compared to 2015.
Net income available to RenaissanceRe common shareholders was $480.6 million in 2016, compared to
$408.8 million in 2015, an increase of $71.8 million. As a result of our net income available to
RenaissanceRe common shareholders in 2016, we generated an annualized return on average common
equity of 11.0% and our book value per common share increased from $99.13 at December 31, 2015 to
$108.45 at December 31, 2016, a 10.7% increase, after considering the change in accumulated dividends
paid to our common shareholders, and the impact of repurchasing an aggregate of 2.7 million common
shares in open market transactions.
The most significant events affecting our financial performance during 2016, on a comparative basis to
2015, include:
• Higher Investment Results - our total investment result of $321.2 million in 2016, which includes the
sum of net investment income, net realized and unrealized gains (losses) on investments, and the
change in net unrealized gains on fixed maturity investments available for sale, increased $238.8
million from $82.4 million in 2015. Impacting the total investment result in 2016 were: (i) net unrealized
gains in our portfolio of fixed maturity investments trading, principally the result of significant credit
spread tightening in 2016, compared to marginal credit spread widening during 2015; (ii) net investment
income in our portfolio of fixed maturity investments, driven by an increase in average invested assets;
and (iii) net realized and unrealized gains on equity investments trading as a result of the strong
performance of a number of our equity positions during the year. Partially offsetting these items were
net realized and unrealized losses on certain investment-related derivatives due to changes in the yield
curve that occurred during the year; partially offset by
• Lower Underwriting Income - we generated underwriting income of $385.5 million and a combined ratio
of 72.5% in 2016, compared to $494.6 million and 64.7%, respectively, in 2015, a decrease of $109.1
million and an increase of 7.8 percentage points, respectively. The increase in the combined ratio in
2016, compared to 2015, was primarily driven by higher net claims and claim expenses and an
increase in underwriting expenses adding 5.8 and 2.0 percentage points, respectively, to the combined
ratio. Included in net claims and claim expenses in 2016 was an aggregate of $122.6 million associated
with a wildfire originating near Fort McMurray, Alberta (the “Fort McMurray Wildfire”), a number of
weather-related events in Texas (the “2016 Texas Events”) and Hurricane Matthew. The net negative
impact of these events on our consolidated underwriting result was $102.9 million, and these events
added 7.9 percentage points to our consolidated combined ratio. See below for additional information
related to the Fort McMurray Wildfire, the 2016 Texas Events and Hurricane Matthew;
• Higher Income Tax Expense - we recognized $0.3 million of income tax expense in 2016, compared to
an income tax benefit of $45.9 million in 2015, representing a $46.2 million change in income tax
expense, primarily due to a decrease in our U.S.-based deferred tax asset valuation allowance from
$48.5 million to $1.0 million in 2015, as a result of expected profits in our U.S.-based operations due
principally to the acquisition of Platinum; and
• Higher Net Income Attributable to Redeemable Noncontrolling Interests - our net income attributable to
redeemable noncontrolling interests was $127.1 million in 2016, compared to $111.1 million in 2015,
principally due to an increase in the profitability of DaVinciRe. Our ownership in DaVinciRe was 24.0%
at December 31, 2016, compared to 26.3% at December 31, 2015.
Net Negative Impact of the Fort McMurray Wildfire, the 2016 Texas Events and Hurricane Matthew
Net negative impact includes the sum of estimates of net claims and claim expenses incurred, earned
reinstatement premiums assumed and ceded, lost profit commissions and redeemable noncontrolling
interest - DaVinci Re. Our estimate of the net negative impact of the Fort McMurray Wildfire, the 2016 Texas
Events and Hurricane Matthew are based on a review of our potential exposures, preliminary discussions
with counterparties and catastrophe modeling techniques. Given the magnitude and recent occurrence of
these catastrophe events, delays in receiving claims data, the contingent nature of business interruption
and other exposures, potential uncertainties relating to reinsurance recoveries and other uncertainties
inherent in loss estimation, meaningful uncertainty remains regarding losses from these events.
Accordingly, our actual net negative impact from these events will vary from these estimates, perhaps
significantly. Changes in these estimates will be recorded in the period in which they occur.
70
The supplemental financial data below provides additional information detailing the net negative impact of
the Fort McMurray Wildfire, the 2016 Texas Events and Hurricane Matthew on our consolidated financial
statements for the year ended December 31, 2016.
Year ended December 31, 2016
(in thousands, except percentages)
Fort
McMurray
Wildfire
2016 Texas
Events
Hurricane
Matthew
Total
Net claims and claim expenses incurred
$
(23,961) $
(38,502) $
(60,117) $ (122,580)
Assumed reinstatement premiums earned
Lost profit commissions
5,143
(330)
6,891
(1,172)
9,945
(824)
21,979
(2,326)
Net negative impact on underwriting result
(19,148)
(32,783)
(50,996)
(102,927)
Redeemable noncontrolling interest -
DaVinciRe
Net negative impact
Percentage point impact on consolidated
combined ratio
3,404
5,675
6,519
15,598
$
(15,744) $
(27,108) $
(44,477) $
(87,329)
1.4
2.5
3.8
7.9
Net negative impact on Property segment
underwriting result
Net negative impact on Casualty and Specialty
segment underwriting result
$
(18,956) $
(32,783) $
(49,271) $ (101,010)
(192)
—
(1,725)
(1,917)
Net negative impact on underwriting result
$
(19,148) $
(32,783) $
(50,996) $ (102,927)
Acquisition of Platinum
We acquired Platinum on March 2, 2015. Therefore, our results of operations for 2016 included the results
of the legacy business acquired from Platinum for the period January 1, 2016 through December 31, 2016,
while for 2015, the results of operations of Platinum were included for the period March 2, 2015 (the date of
acquisition) through December 31, 2015.
71
Results of operations for 2015 compared to 2014.
Net income available to RenaissanceRe common shareholders was $408.8 million in 2015, compared to
$510.3 million in 2014, a decrease of $101.5 million. As a result of our net income available to
RenaissanceRe common shareholders in 2015, we generated an annualized return on average common
equity of 9.8% and our book value per common share increased from $90.15 at December 31, 2014 to
$99.13 at December 31, 2015, an 11.3% increase, after considering the change in accumulated dividends
paid to our common shareholders.
The most significant events affecting our financial performance during 2015, on a comparative basis to
2014, include:
• Lower Total Investment Result - our total investment result, which includes the sum of net investment
income, net realized and unrealized gains (losses) on investments, and the change in net unrealized
gains on fixed maturity investments available for sale, was $82.4 million in 2015 compared to $164.9
million in 2014, a decrease of $82.5 million. The decrease in the total investment result was primarily
due to net unrealized losses in our portfolio of fixed maturity investments trading, principally as a result
of an upward shift in the yield curve driven by the rising interest rate environment, combined with
unrealized losses in our portfolio of equity investments trading and lower net investment income from
private equity investments. Offsetting these items was an increase in net investment income in our
portfolio of fixed maturity investments primarily driven by an increase in average invested assets, which
was principally due to the acquisition of Platinum, and net realized and unrealized gains on
investments-related derivatives due to the increasing interest rate environment;
• Lower Underwriting Income - we generated underwriting income of $494.6 million and a combined ratio
of 64.7% in 2015, compared to $529.4 million and 50.2%, respectively, in 2014. The $34.7 million
decrease in underwriting income was primarily driven by a $268.9 million increase in current accident
year net claims and claim expenses and a $94.1 million increase in acquisition expenses, partially offset
by a $338.1 million increase in net premiums earned. The increase in current accident year net claims
and claim expenses was primarily driven by our Property and Casualty and Specialty segments, while
the increase in acquisition expenses and net premiums earned are principally driven by our Casualty
and Specialty segment; and
• Higher Corporate Expenses - our corporate expenses increased $54.1 million to $77.1 million in 2015,
compared to $23.0 million in 2014, primarily due to $53.5 million of corporate expenses associated with
the acquisition and integration of Platinum; partially offset by
• Income Tax Benefit - we recognized an income tax benefit of $45.9 million in 2015, compared to an
income tax expense of $608 thousand in 2014, primarily as a result of a reduction in our U.S.-based
deferred tax asset valuation allowance from $48.5 million to $1.0 million in the first quarter of 2015 as a
result of expected profits in our U.S.-based operations due principally to the acquisition of Platinum; and
• Lower Net Income Attributable to Redeemable Noncontrolling Interests - net income attributable to
redeemable noncontrolling interests of $111.1 million in 2015, compared to $153.5 million in 2014, a
decrease of $42.5 million, principally due to a decrease in the profitability of DaVinciRe. Our ownership
in DaVinciRe was 26.3% at December 31, 2015, compared to 23.4% at December 31, 2014.
72
Underwriting Results by Segment
Property Segment
Below is a summary of the underwriting results and ratios for our Property segment:
Year ended December 31,
(in thousands, except percentages)
Gross premiums written
Net premiums written
Net premiums earned
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income
2016
2015
2014
$1,111,263
$1,072,159
$1,074,890
$ 725,321
$ 726,145
$ 662,552
$ 720,951
$ 805,985
$ 698,416
151,545
97,594
108,642
128,290
94,249
118,666
16,643
66,262
117,943
$ 363,170
$ 464,780
$ 497,568
Net claims and claim expenses incurred – current accident
year
$ 256,421
$ 222,076
$ 103,901
Net claims and claim expenses incurred – prior
accident years
(104,876)
(93,786)
(87,258)
Net claims and claim expenses incurred – total
$ 151,545
$ 128,290
$
16,643
Net claims and claim expense ratio – current accident year
Net claims and claim expense ratio – prior accident years
Net claims and claim expense ratio – calendar year
Underwriting expense ratio
Combined ratio
35.6 %
(14.6)%
21.0 %
28.6 %
49.6 %
27.6 %
(11.7)%
15.9 %
26.4 %
42.3 %
14.9 %
(12.5)%
2.4 %
26.4 %
28.8 %
Property Gross Premiums Written – In 2016, our Property segment gross premiums written increased by
$39.1 million, or 3.6%, to $1,111.3 million, compared to $1,072.2 million in 2015. Market conditions
remained challenging during 2016, resulting in decreased gross premiums written on certain programs and
transactions. However, we were able to increase our participation on a select number of transactions we
believe have comparably attractive risk-return attributes, while continuing to exercise underwriting discipline
given prevailing market terms and conditions. Included in gross premiums written in the Property segment
in 2016 was $21.4 million of reinstatement premiums associated with the Fort McMurray Wildfire, the 2016
Texas Events and Hurricane Matthew.
In 2015, our Property segment gross premiums written decreased by $2.7 million, or 0.3%, to $1,072.2
million, compared to $1,074.9 million million in 2014. Market conditions were challenging during 2015, and
we exercised underwriting discipline given prevailing terms and conditions, resulting in decreased gross
premiums written on certain programs and transactions, offset in part by increased demand and growth in
certain areas, including some new programs which provided opportunities we believed to be attractive.
These new programs included the FHCF risk transfer program which we were a substantial participant in,
and market opportunities arising as a result of the assumption of risk by domestic Florida private insurance
companies from Citizens, which in general increases the amount of ultimate private reinsurance protection
purchased in connection with the underlying individual risk.
Our Property segment gross premiums written continue to be characterized by a large percentage of U.S.
and Caribbean premium, as we have found business derived from exposures in Europe, Asia and the rest
of the world to be, in general, less attractive on a risk-adjusted basis during recent periods. A significant
amount of our U.S. and Caribbean premium provides coverage against windstorms, notably U.S. Atlantic
windstorms, as well as earthquakes and other natural and man-made catastrophes.
73
Year ended December 31,
(in thousands)
2016
2015
2014
Ceded premiums written - Property
$
385,942 $
346,014 $
412,338
Property Ceded Premiums Written – Ceded premiums written in our Property segment increased $39.9
million to $385.9 million in 2016, compared to $346.0 million in 2015, primarily reflecting increased
purchases of retrocessional reinsurance as part of our management of our risk portfolio.
Ceded premiums written in our Property segment decreased $66.3 million, to $346.0 million in 2015,
compared to $412.3 million in 2014, primarily reflecting a reduction in purchases of retrocessional
reinsurance driven by a reduction in premiums ceded to company-sponsored third party capital vehicles to
$32.9 million in 2015, compared to $65.5 million 2014, and lower premiums paid for retrocessional
reinsurance purchases.
Due to the potential volatility of the reinsurance contracts which we sell, we purchase reinsurance to reduce
our exposure to large losses and to help manage our risk portfolio. To the extent that appropriately priced
coverage is available, we anticipate continued use of retrocessional reinsurance to reduce the impact of
large losses on our financial results and to manage our portfolio of risk; however, the buying of ceded
reinsurance in our Property segment is based on market opportunities and is not based on placing a
specific reinsurance program each year. In addition, in future periods we may utilize the growing market for
insurance-linked securities to expand our ceded reinsurance buying if we find the pricing and terms of such
coverages attractive.
Property Underwriting Results – Our Property segment generated underwriting income of $363.2 million in
2016, compared to $464.8 million in 2015, a decrease of $101.6 million. In 2016, our Property segment
generated a net claims and claim expense ratio of 21.0%, an underwriting expense ratio of 28.6% and a
combined ratio of 49.6%, compared to 15.9%, 26.4% and 42.3%, respectively, in 2015.
The $101.6 million decrease in underwriting income in the Property segment in 2016, compared to 2015,
was primarily driven by an $85.0 million decrease in net premiums earned and a $23.3 million increase in
net claims and claim expenses. The $85.0 million decrease in net premiums earned was driven by an
increase in purchases of retrocessional reinsurance described above.
Included in net claims and claim expenses in the Property segment in 2016 was an aggregate of $120.1
million associated with the Fort McMurray Wildfire, the 2016 Texas Events and Hurricane Matthew. The net
negative impact of these events on the the Property segment underwriting result was $101.0 million, and
these events added 17.9 percentage points to the Property segment combined ratio.
During 2016, we experienced $104.9 million of favorable development on prior accident year net claims and
claim expenses within our Property segment, compared to $93.8 million in 2015. The favorable
development on prior accident years net claims and claim expenses in 2016 included $15.1 million from the
2011 Thailand Floods, $10.8 million from Storm Sandy in 2012, $7.3 million from the 2011 Tohoku
Earthquake and Tsunami and $5.7 million from the 2015 Tianjin Explosion, each primarily the result of
changes in our estimated ultimate loss for each respective event, with the remainder due to a number of
relatively smaller events.
Our Property segment generated underwriting income of $464.8 million million in 2015, compared to $497.6
million in 2014, a decrease of $32.8 million. In 2015, our Property segment generated a net claims and
claim expense ratio of 15.9%, an underwriting expense ratio of 26.4% and a combined ratio of 42.3%,
compared to 2.4%, 26.4% and 28.8%, respectively, in 2014.
The $32.8 million decrease in underwriting income in our Property segment in 2015, compared to 2014,
was primarily driven by a $111.6 million increase in net claims and claim expenses, including a $118.2
million increase in current accident year net claims and claim expenses, due to higher event-driven
catastrophe losses and higher attritional losses, and a $28.0 million increase in acquisition expenses, with
each of the higher attritional losses and increase in acquisition expenses driven by the increase in other
property gross premiums written. Partially offsetting these items was a $107.6 million increase in net
premiums earned, which was driven by lower ceded premiums earned due to the reduction in ceded
premiums written, noted above. Included in current accident year net claims and claim expenses is $27.9
74
million related to a number of U.S. winter storms, $27.3 million related to the Tianjin Explosion and $23.0
million related to a U.S. wind and thunderstorm event, with the remainder due to a number of other smaller
catastrophe events. During the fourth quarter of 2015, we recognized a recovery and corresponding
reduction to acquisition expenses in our Property segment of $7.7 million associated with the December
2015 decision by the IRS to revoke its position that the excise tax applies on foreign to foreign
retrocessions.
During 2015, we experienced $93.8 million of favorable development on prior accident years net claims and
claim expenses within our Property segment. Included in the favorable development of prior accident years
net claims and claim expenses related to large catastrophe events was $12.5 million related to Storm
Sandy and $10.2 million related to the April and May 2011 U.S. Tornadoes, each principally the result of
changes in our estimated ultimate loss for each respective event. In addition, we experienced $69.3 million
of favorable development related to a number of other large and small catastrophe events that we
principally estimate net claims and claim expenses for using traditional actuarial methods. Net favorable
development of prior accident years net claims and claim expenses related to the 2011 New Zealand
Earthquake, the 2011 Thailand Floods and the 2011 Tohoku Earthquake and Tsunami (collectively the “2011
International Events”) was $1.4 million and included reductions in reported losses on the 2011 Thailand
Floods and Tohoku Earthquake and Tsunami, offset by a net increase in reported losses on the 2011 New
Zealand Earthquake, with each respective movement principally driven by the same counterparties re-
allocating losses between the 2011 International Events.
See “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and
“Note 8. Reserve for Claims and Claim Expenses in our Notes to the Consolidated Financial Statements”
for additional discussion of our reserving techniques and prior year development of net claims and claim
expenses.
Year ended December 31,
(in thousands)
Profit commissions and fees
Decrease in underwriting expense ratio
Net impact of profit commissions and fees
2016
2015
2014
$
$
68,346
9.5%
112,227
$
$
61,923
7.7%
106,722
$
$
84,851
12.2%
139,036
Profit Commissions and Fees – We have entered into joint ventures and specialized quota share cessions
of our property book of business. In accordance with the joint venture and quota share agreements, we are
entitled to certain profit commissions and fee income. We record these profit commissions and fees as a
reduction in acquisition and operating expenses, respectively, and, accordingly, these profit commissions
and fees have reduced our underwriting expense ratios.
In addition, we are entitled to certain fee income and profit commissions from DaVinci. Since the results of
DaVinci and its parent, DaVinciRe, are consolidated in our results of operations, these fees and profit
commissions are eliminated in our consolidated financial statements and are principally reflected in
redeemable noncontrolling interest – DaVinciRe. The net impact of all fees and profit commissions related
to these joint ventures and specialized quota share cessions within our Property segment was $112.2
million, $106.7 million and $139.0 million in 2016, 2015 and 2014, respectively.
75
Casualty and Specialty Segment
Below is a summary of the underwriting results and ratios for our Casualty and Specialty segment:
Year ended December 31,
(in thousands, except percentages)
Gross premiums written
Net premiums written
Net premiums earned
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income
2016
2015
2014
$1,263,313
$ 939,241
$ 475,373
$ 809,848
$ 690,086
$ 405,340
$ 682,337
$ 594,614
$ 363,632
380,396
191,729
88,984
320,818
144,095
100,180
187,441
84,762
72,393
$
21,228
$
29,521
$
19,036
Net claims and claim expenses incurred – current accident
year
Net claims and claim expenses incurred – prior accident
years
$ 438,536
$ 388,609
$ 237,844
(58,140)
(67,791)
(50,403)
Net claims and claim expenses incurred – total
$ 380,396
$ 320,818
$ 187,441
Net claims and claim expense ratio – current accident year
Net claims and claim expense ratio – prior accident years
Net claims and claim expense ratio – calendar year
Underwriting expense ratio
Combined ratio
64.3 %
(8.6)%
55.7 %
41.2 %
96.9 %
65.4 %
(11.4)%
54.0 %
41.0 %
95.0 %
65.4 %
(13.9)%
51.5 %
43.3 %
94.8 %
Casualty and Specialty Gross Premiums Written – In 2016, our Casualty and Specialty segment gross
premiums written increased $324.1 million, or 34.5%, to $1,263.3 million, compared to $939.2 million in
2015, principally driven by select organic growth, primarily related to mortgage reinsurance opportunities
reflected in our financial lines of business. In addition, our casualty and specialty lines of business were
impacted in 2016 by business acquired in connection with our acquisition of Platinum for the period from
January 1, 2016 through December 31, 2016, compared to 2015, which included gross premiums written
from Platinum for the period from March 2, 2015 (the date of acquisition) through December 31, 2015.
In 2015, our Casualty and Specialty segment gross premiums written increased $463.9 million, or 97.6%, to
$939.2 million, compared to $475.4 million million in 2014, driven primarily by the acquisition of Platinum
and increases in certain casualty and financial lines of business, while continuing to exercise underwriting
discipline given prevailing terms and conditions.
During 2016 and 2015, we experienced growth in a number of our casualty and specialty lines of business
and will continue to seek to expand our casualty and specialty operations through our underwriting
platforms, including Bermuda, the U.S. and Syndicate 1458, although we cannot assure you we will do so.
Our Casualty and Specialty segment gross premiums written during 2016 reflected a relatively larger
percentage of proportional reinsurance compared to excess of loss reinsurance than in many of our
comparative periods. Our relative mix of business between proportional business and excess of loss
business has fluctuated in the past and will likely vary in the future. Proportional business typically has
relatively higher premiums per unit of expected underwriting income, together with a higher combined ratio,
than traditional excess of loss reinsurance. In addition, proportional coverage tends to be exposed to
relatively more attritional, and frequent, losses while subject to less expected severity. Moreover, market
conditions for our Casualty and Specialty segment have been impacted by a trend towards increased
ceding commissions on our assumed proportional reinsurance.
76
Year ended December 31,
(in thousands)
2016
2015
2014
Ceded premiums written - Casualty and Specialty
$
453,465 $
249,155 $
70,033
Casualty and Specialty Ceded Premiums Written – Ceded premiums written in our Casualty and Specialty
segment increased $204.3 million to $453.5 million in 2016, compared to $249.2 million in 2015, primarily
reflecting increased purchases of retrocessional reinsurance as part of our management of our risk
portfolio.
Ceded premiums written in our Casualty and Specialty segment increased $179.1 million to $249.2 million
in 2015, compared to $70.0 million in 2014, primarily reflecting an increase in the purchase of retrocessional
reinsurance driven by the increased gross premiums written, as noted above.
Casualty and Specialty Underwriting Results – Our Casualty and Specialty segment generated underwriting
income of $21.2 million in 2016, compared to $29.5 million in 2015. In 2016, our Casualty and Specialty
segment generated a net claims and claim expense ratio of 55.7%, an underwriting expense ratio of 41.2%
and a combined ratio of 96.9%, compared to 54.0%, 41.0% and 95.0%, respectively, in 2015.
Impacting our Casualty and Specialty segment combined ratio was a 1.7 percentage point increase in the
net claims and claim expense ratio in 2016, compared to 2015, principally driven by a decrease in favorable
development on prior accident years net claims and claim expenses of $9.7 million. The favorable
development on prior accident years net claims and claim expenses of $58.1 million in 2016 was principally
driven by actual reported losses coming in better than expected and $5.5 million of favorable development
associated with actuarial assumption changes.
Our Casualty and Specialty segment generated underwriting income of $29.5 million in 2015, compared to
$19.0 million in 2014. In 2015, our Casualty and Specialty segment generated a net claims and claim
expense ratio of 54.0%, an underwriting expense ratio of 41.0% and a combined ratio of 95.0%, compared
to 51.5%, 43.3% and 94.8%, respectively, in 2014.
The $10.5 million increase in underwriting income in our Casualty and Specialty segment for 2015,
compared to 2014, was principally driven by a $17.4 million increase in favorable development on prior
accident years net claims and claim expenses. In addition, our Casualty and Specialty segment
experienced a $231.0 million increase in net premiums earned, principally as a result of having a full year of
net premiums earned in connection with the acquisition of Platinum, compared to 2015, which included net
premiums earned from Platinum for the period from March 2, 2015 (the date of acquisition) through
December 31, 2015. Partially offsetting the increase in net premiums earned was a $150.8 million increase
in current accident year net claims and claim expenses and a $87.1 million increase in underwriting
expenses. The increase in current accident year net claims and claim expenses was principally due to a
higher level of attritional losses primarily as a result of the increase in net premiums earned.
The Casualty and Specialty segment experienced $67.8 million of favorable development on prior accident
years net claims and claim expenses in 2015, compared to $50.4 million in 2014. The favorable
development of prior accident years net claims and claim expenses within our Casualty and Specialty
segment in 2015 of $67.8 million was driven by $72.6 million related to the application of our formulaic
actuarial reserving methodology with attritional net claims and claim expenses reported coming in lower
than expected on prior accident years events, partially offset by adverse development of $4.8 million
associated with actuarial assumption changes.
See “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and
“Note 8. Reserve for Claims and Claim Expenses in our Notes to the Consolidated Financial Statements”
for additional discussion of our reserving techniques and prior year development of net claims and claim
expenses.
77
Year ended December 31,
(in thousands, except percentages)
Profit commissions and fees
Decrease in underwriting expense ratio
2016
2015
2014
$
31,950
$
8,726
$
1,914
4.7%
1.5%
0.5%
Profit Commissions and Fees – We have entered into specialized quota share cessions of our casualty and
specialty book of business. In accordance with these quota share agreements, we are entitled to certain
profit commissions and fee income. We record these profit commissions and fees as a reduction in
acquisition and operating expenses, respectively, and, accordingly, these profit commissions and fees have
reduced our underwriting expense ratios.
Other Underwriting Income
Year ended December 31,
(in thousands)
Underwriting income
2016
2015
2014
$
1,129 $
308 $
12,750
Included in our Other category are the remnants of our former Bermuda-based insurance operations.
Included in our Other category was underwriting income of $1.1 million in 2016, driven by favorable
development on prior accident years net claims and claim expense.
Included in our Other category was underwriting income of $12.8 million in 2014, primarily due to the
release of $6.7 million of profit commissions as a result of the commutation of several quota share
agreements and a reduction in the estimated ultimate losses on a proportional property contract of $6.1
million, each related to our former Insurance segment.
Net Investment Income
Year ended December 31,
(in thousands)
Fixed maturity investments
Short term investments
Equity investments trading
Other investments
Private equity investments
Other
Cash and cash equivalents
Investment expenses
Net investment income
2016
2015
2014
$
$
160,661 $
5,127
4,235
134,800 $
1,227
8,346
100,855
944
3,450
6,155
20,181
788
197,147
(15,421)
181,726 $
9,455
12,472
467
166,767
(14,200)
152,567 $
18,974
11,037
395
135,655
(11,339)
124,316
Net investment income was $181.7 million in 2016, compared to $152.6 million in 2015, an increase of
$29.2 million. Impacting our net investment income for 2016 was higher net investment income in our
portfolio of fixed maturity investments primarily driven by higher average invested assets and improved
returns in our portfolio of other investments principally driven by our catastrophe bond portfolio, partially
offset by a decrease in dividend income from our equity investment portfolio, due to lower average invested
assets.
Net investment income was $152.6 million in 2015, compared to $124.3 million in 2014, an increase of
$28.3 million. Impacting our net investment income for 2015 was higher net investment income in our
portfolio of fixed maturity investments primarily driven by higher average invested assets, in part due to the
acquisition of Platinum, partially offset by lower returns in our portfolio of private equity investments as a
result of the weaker returns in the broader equity markets.
78
Low interest rates in recent years have lowered the yields at which we invest our assets relative to historical
levels, and combined with the current composition of our investment portfolio and other factors, we expect
these developments to constrain investment income growth for the near term. Our private equity and other
investment portfolios are accounted for at fair value with the change in fair value recorded in net investment
income, which included net unrealized gains of $11.5 million, $10.4 million and $17.7 million in 2016, 2015
and 2014, respectively.
Net Realized and Unrealized Gains (Losses) on Investments
Year ended December 31,
(in thousands)
Gross realized gains
Gross realized losses
Net realized gains (losses) on fixed maturity investments
Net unrealized gains (losses) on fixed maturity
investments trading
Net realized and unrealized (losses) gains on
investments-related derivatives
Net realized gains on equity investments trading
Net unrealized gains (losses) on equity investments
trading
Net realized and unrealized gains (losses) on
investments
2016
2015
2014
$
72,739 $
50,488 $
45,568
(38,315)
34,424
(53,630)
(3,142)
(14,868)
30,700
26,954
(64,908)
19,680
(15,414)
14,190
5,443
16,348
(30,931)
10,908
81,174
(22,659)
11,076
$
141,328 $
(68,918) $
41,433
Our investment portfolio strategy seeks to preserve capital and provide us with a high level of liquidity. A
large majority of our investments are invested in the fixed income markets and, therefore, our realized and
unrealized holding gains and losses on investments are highly correlated to fluctuations in interest rates.
Therefore, as interest rates decline, we will tend to have realized and unrealized gains from our investment
portfolio, and as interest rates rise, we will tend to have realized and unrealized losses from our investment
portfolio.
Net realized and unrealized gains on investments were $141.3 million in 2016, compared to net realized
and unrealized losses on investments of $68.9 million in 2015, an increase of $210.2 million. Impacting our
net realized and unrealized gains on investments were:
•
•
net realized and unrealized gains on our fixed maturity investments trading of $61.4 million in 2016,
compared to losses of $68.1 million in 2015, which was positively impacted by a significant credit
spread tightening during 2016, partially offset by $15.4 million net realized and unrealized losses on
certain investments-related derivatives primarily driven by changes in the yield curve that occurred
during 2016; and
net realized and unrealized gains on equity investments trading of $95.4 million in 2016, compared
to net realized and unrealized losses of $6.3 million in 2015, an improvement of $101.7 million,
principally driven by the strong performance of a number of our equity positions in 2016, including
Essent and Trupanion.
Net realized and unrealized losses on investments were $68.9 million in 2015, compared to net realized and
unrealized gains on investments of $41.4 million in 2014, a decrease of $110.4 million. Impacting our net
realized and unrealized losses on investments was:
•
net unrealized losses on our fixed maturity investments trading of $64.9 million in 2015, compared
to gains of $19.7 million in 2014, which was negatively impacted by an upward shift in the yield
curve, driven by the increasing interest rate environment during 2015, partially offset by a
corresponding improvement of $36.4 million in net realized and unrealized gains on investments-
related derivatives to a gain of $5.4 million; and
•
net unrealized losses on equity investments trading of $22.7 million in 2015, compared to net
unrealized gains of $11.1 million in 2014, primarily driven by unrealized losses associated with our
79
investment in Essent, combined with weaker returns in the broader equity markets during 2015,
partially offset by an increase in net realized gains on equity investments trading of $5.4 million to
gains of $16.3 million in 2015, compared to 2014, principally driven by exiting a number of profitable
positions during the year.
Net Foreign Exchange (Losses) Gains
Year ended December 31,
(in thousands)
2016
2015
2014
Total foreign exchange (losses) gains
$
(13,788) $
(3,051) $
6,260
Our functional currency is the U.S. dollar. We routinely write a portion of our business in currencies other
than U.S. dollars and invest a portion of our cash and investment portfolio is currencies other than the U.S.
dollar. As a result, we may experience foreign exchange gains and losses in our consolidated financial
statements. All changes in exchange rates, are recognized in our consolidated statements of operations.
We are primarily impacted by the foreign currency risk exposures associated with our underwriting
operations and investment portfolio, and may, from time to time, enter into foreign currency forward and
option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar
denominated assets and liabilities. Refer to “Part II, Item 7A. Quantitative and Qualitative Disclosures About
Market Risk” for additional information related to our exposure to foreign currency risk and “Note 19.
Derivative Instruments in our Notes to the Consolidated Financial Statements” for additional information
related to foreign currency forward and option contracts we have entered into.
Foreign currency exchange losses were $13.8 million in 2016, compared to $3.1 million in 2015, with the
deterioration primarily driven by the significant strengthening of the U.S. dollar in 2016 against non-U.S.
currencies in which we primarily transact, including the Australian Dollar, the Euro and the British Pound,
partially offset by the New Zealand Dollar and Japanese Yen strengthening against the U.S. dollar.
Foreign currency exchange losses were $3.1 million in 2015, compared to gains of $6.3 million in 2014, with
the decrease principally the result of the U.S. dollar strengthening against the Australian Dollar, the
Canadian Dollar and the New Zealand Dollar.
Equity in Earnings of Other Ventures
Year ended December 31,
(in thousands)
Tower Hill Companies
Top Layer Re
Other
Total equity in earnings of other ventures
2016
2015
2014
$
$
10,379 $
(8,576)
(840)
963 $
13,116 $
8,026
(661)
20,481 $
18,376
10,411
(2,712)
26,075
Equity in earnings of other ventures primarily represents our pro-rata share of the net income from our
investments in the Tower Hill Companies and Top Layer Re, and, except for Top Layer Re, is recorded one
quarter in arrears. The carrying value of these investments on our consolidated balance sheets, individually
or in the aggregate, may differ from the realized value we may ultimately attain, perhaps significantly so.
Equity in earnings of other ventures was $1.0 million in 2016, compared to $20.5 million in 2015, with the
decrease driven by lower profitability in Top Layer Re and the Tower Hill Companies. Impacting equity in
earnings of other ventures during 2016 was a $8.6 million loss related to our 50% ownership in Top Layer
Re. During 2016, Top Layer Re reduced its estimated ultimate claim and claim expenses and related
reinsurance recoverable associated with the 2011 Tohoku Earthquake to $Nil as a result of favorable loss
emergence, resulting in an increase in underwriting income for Top Layer Re for 2016. However, the
increase in underwriting income was more than offset by the reversal of an unrealized foreign exchange
gain related to the reserve for claims and claim expenses, which were denominated in Japanese Yen. While
Top Layer Re had fully hedged its net economic exposure to Japanese Yen associated with this loss since
inception, because the hedged net liability went to $Nil, Top Layer Re recorded an unrealized foreign
80
exchange loss for the year. If the reserve for net claims and claim expenses had been paid in full, rather
than being reduced to $Nil, there would have been no financial statement impact to Top Layer Re.
Equity in earnings of other ventures was $20.5 million in 2015, compared to $26.1 million in 2014, with the
decrease driven by lower profitability in the Tower Hill Companies and Top Layer Re.
Other Income (Loss)
Year ended December 31,
2016
2015
2014
(in thousands)
Assumed and ceded reinsurance contracts accounted for
as derivatives and deposits
Other
Total other income (loss)
$
$
14,246 $
12,534 $
(68)
938
14,178 $
13,472 $
1,321
(1,744)
(423)
In 2016, we generated other income of $14.2 million, compared to other income of $13.5 million in 2015,
with the increase driven by our assumed and ceded reinsurance contracts accounted for as derivatives and
deposits.
In 2015, we generated other income of $13.5 million, compared to an other loss of $0.4 million in 2014, with
the increase driven by our assumed and ceded reinsurance contracts accounted for as derivatives and
deposits.
Corporate Expenses
Year ended December 31,
(in thousands)
Total corporate expenses
2016
2015
2014
$
37,402 $
76,514 $
22,749
Corporate expenses include certain executive, director, legal and consulting expenses, costs for research
and development, impairment charges related to goodwill and other intangible assets, and other
miscellaneous costs, including those associated with operating as a publicly traded company. Corporate
expenses decreased $39.1 million to $37.4 million in 2016, compared to $76.5 million in 2015, primarily
reflecting a decrease to $2.1 million of corporate expenses associated with the acquisition and integration of
Platinum incurred during 2016, compared to $53.5 million in 2015, and a $5.6 million charge in the fourth
quarter of 2015 associated with the impairment of the goodwill and other intangible assets of an investment
in other ventures, recorded under the equity method. No such impairments were recorded during the fourth
quarter of 2016. Partially offsetting these items was $15.4 million of expenses related to executive
departures recorded in 2016.
Corporate expenses increased $53.8 million to $76.5 million in 2015, compared to $22.7 million in 2014,
primarily due to $53.5 million of expenses associated with the acquisition and integration of Platinum,
comprised of $11.8 million of transaction-related expenses, $5.4 million of integration-related expenses and
$36.3 million of compensation-related expenses. Also included in corporate expenses in 2015 was a $5.6
million charge associated with the impairment of the goodwill and other intangible assets of an investment
in other ventures, recorded under the equity method.
81
Interest Expense and Preferred Share Dividends
Year ended December 31,
(in thousands)
Interest expense
2016
2015
2014
$250 million Series B 7.50% Senior Notes due 2017
$
18,750 $
15,625 $
$250 million 5.75% Senior Notes due 2020
$300 million 3.700% Senior Notes due 2025
$150 million 4.750% Senior Notes due 2025 (DaVinciRe)
Other
Total interest expense
Preferred share dividends
$125 million 6.08% Series C Preference Shares
$275 million 5.375% Series E Preference Shares
Total preferred share dividends
14,375
11,100
7,125
(9,206)
42,144
7,600
14,781
22,381
14,375
8,586
4,774
(7,090)
36,270
7,600
14,781
22,381
Total interest expense and preferred share dividends
$
64,525 $
58,651 $
—
14,375
—
—
3,027
17,402
7,600
14,781
22,381
39,783
Interest expense increased $5.9 million to $42.1 million in 2016, compared to $36.3 million in 2015,
primarily driven by:
•
•
a full year of interest expense on the $250 million of Series B 7.50% Senior Notes due 2017
assumed in connection with the acquisition of Platinum on March 2, 2015, $300 million of our
3.700% Senior Notes due 2025 issued on March 24, 2015 and $150 million of DaVinciRe’s 4.750%
Senior Notes due 2025 issued on May 4, 2015; partially offset by
amortization of net fair value adjustments of $12.8 million, included in the other category in the table
above, which reduced our interest expense and were recognized in connection with the acquisition
of Platinum and its $250.0 million Series B 7.50% Notes due June 1, 2017. See “Note 3. Acquisition
of Platinum in our Notes to the Consolidated Financial Statements” for additional information with
respect to the acquisition of Platinum and the related fair value adjustments.
Interest expense increased $18.9 million to $36.3 million in 2015, compared to $17.4 million in 2014,
primarily driven by:
•
•
•
•
interest expense of $15.6 million related to the acquisition of $250.0 million Series B 7.50% Notes
due June 1, 2017, in connection with acquisition of Platinum;
the issuance on March 24, 2015 of $300.0 million of 3.700% Senior Notes due April 1, 2025,
resulting in interest expense of $8.6 million; and
the issuance on May 4, 2015 of $150.0 million of DaVinciRe’s 4.750% Senior Notes due May 1,
2025, resulting in interest expense of $4.8 million; partially offset by
net fair value adjustments of $10.7 million, included in the other category in the table above, which
reduced our interest expense and were recognized in connection with the acquisition of Platinum
and its $250.0 million Series B 7.50% Notes due June 1, 2017.
Preferred share dividends were flat at $22.4 million in each of 2016, 2015 and 2014.
82
Income Tax (Expense) Benefit
Year ended December 31,
(in thousands)
Income tax (expense) benefit
2016
2015
2014
$
(340) $
45,866 $
(608)
We are subject to income taxes in certain jurisdictions in which we operate; however, since the majority of
our income is currently earned in Bermuda, which does not have a corporate income tax, the tax impact to
our operations has historically been minimal.
During 2016, we recognized an income tax expense of $0.3 million, compared to an income tax benefit of
$45.9 million in 2015, primarily the result of a reduction in our U.S. valuation allowance from $48.5 million to
$1.0 million in the first quarter of 2015 as a result of expected profits in our U.S.-based operations due
principally to the acquisition of Platinum. Our income tax expense of $0.3 million in 2016 is relatively flat
when compared to our income tax expense of $0.6 million in 2014.
We recognized an income tax benefit of $45.9 million in 2015, compared to an income tax expense of $0.6
million in 2014, primarily the result of a reduction in our U.S. valuation allowance, as discussed above.
At December 31, 2016, our U.S. tax-paying subsidiaries had a net deferred tax asset (after valuation
allowance) of $80.1 million. Our Ireland, U.K. and Singapore operations have historically produced GAAP
taxable losses and we currently do not believe it is more likely than not that we will be able to recover the
predominant amount of our net deferred tax assets in these jurisdictions. Our valuation allowance totaled
$18.8 million and $17.9 million at December 31, 2016 and 2015, respectively.
Our effective income tax rate, which we calculate as income tax (expense) benefit divided by income before
taxes, may fluctuate significantly from period to period depending on the geographic distribution of pre-tax
income in any given period between different jurisdictions with comparatively higher tax rates and those
with comparatively lower tax rates. The geographic distribution of pre-tax income can vary significantly
between periods due to, but not limited to, the following factors: the business mix of net premiums written
and earned; the size and nature of net claims and claim expenses incurred; the amount and geographic
location of operating expenses, net investment income, net realized and unrealized gains (losses) on
investments; outstanding debt and related interest expense; and the amount of specific adjustments to
determine the income tax basis in each of our operating jurisdictions. In addition, a significant portion of our
gross and net premiums are currently written and earned in Bermuda, which does not have a corporate
income tax, including the majority of our catastrophe business, which can result in significant volatility to our
pre-tax income (loss) in any given period. We expect our consolidated effective tax rate to increase in the
future, as our global operations outside of Bermuda expand, including in connection with the acquisition of
Platinum. In addition, it is possible we could be adversely affected by changes in tax laws, regulation, or
enforcement, any of which could increase our effective tax rate more rapidly or steeply than we currently
anticipate.
The preponderance of our revenue and pre-tax income is generated by our domestic operations (i.e.,
Bermuda) in the form of underwriting income and net investment income, when compared to our foreign
operations. The geographic distribution of pre-tax income can vary significantly between periods for a
variety of reasons, including the business mix of net premiums written and earned, the size and nature of
net claims and claim expenses incurred, the amount and geographic location of operating expenses, net
investment income and net realized and unrealized gains (losses) on investments and the amount of
specific adjustments to determine the income tax basis in each of our operating jurisdictions. Pre-tax
income for our domestic operations was higher compared to our foreign operations for the years ended
December 31, 2016, 2015 and 2014 primarily as a result of the more volatile catastrophe business
underwritten in our Bermuda operations during these periods being relatively free of catastrophe losses and
thus generating higher levels of net underwriting income than our foreign operations, which underwrite
primarily less volatile business with higher attritional net claims and claim expenses and as a result produce
lower levels of net underwriting income in benign loss years.
83
Net Income Attributable to Redeemable Noncontrolling Interests
Year ended December 31,
(in thousands)
Net income attributable to redeemable noncontrolling
interests
2016
2015
2014
$
(127,086) $
(111,050) $
(153,538)
Our net income attributable to redeemable noncontrolling interests was $127.1 million in 2016, compared to
$111.1 million in 2015. The $16.0 million increase in net income attributable to redeemable noncontrolling
interests was principally due to an increase in the profitability of DaVinciRe and a decrease in our
ownership of DaVinciRe to 24.0% at December 31, 2016, compared to 26.3% at December 31, 2015.
Our net income attributable to redeemable noncontrolling interests was $111.1 million in 2015, compared to
$153.5 million in 2014. The $42.5 million decrease in net income attributable to redeemable noncontrolling
interests was principally due to a decrease in the profitability of DaVinciRe. Our ownership in DaVinciRe
was 26.3% at December 31, 2015, compared to 23.4% at December 31, 2014.
We expect our noncontrolling economic ownership in DaVinciRe to fluctuate over time.
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
RenaissanceRe is a holding company, and we therefore rely on dividends from our subsidiaries and
investment income to make principal and interest payments on our debt and to make dividend payments to
our preference and common shareholders. The payment of dividends by our subsidiaries is, under certain
circumstances, limited by the applicable laws and regulations in the various jurisdictions in which our
subsidiaries operate, including among others, Bermuda, the U.S., the U.K. and Ireland. For example,
insurance laws require our insurance subsidiaries to maintain certain measures of solvency and liquidity.
The regulations governing our ability and the ability of our principal operating subsidiaries to pay dividends
are discussed below, with further detail provided in “Part I, Item 1. Regulation”. In addition, refer to “Note 18.
Statutory Requirements in our Notes to the Consolidated Financial Statements” for additional information
with respect to our statutory requirements.
During the year ended December 31, 2016, our principal operating subsidiaries returned capital to
RenaissanceRe, which included dividends declared and return of capital, net of capital contributions
received, of $341.7 million (2015 - $1.2 billion).
In the aggregate, our operating subsidiaries have historically produced sufficient cash flows to meet their
expected claims payments and operational expenses and to provide dividend payments to us. Our
subsidiaries also maintain a concentration of investments in high quality liquid securities, which
management believes will provide additional liquidity for extraordinary claims payments should the need
arise. See “Capital Resources” section below.
Group Supervision
The BMA is our group supervisor. Under the Insurance Act, we are required to maintain capital at a level
equal to our ECR, which is established by reference to the BSCR model. The BSCR is a mathematical
model designed to give the BMA robust methods for determining an insurer’s capital adequacy. Underlying
the BSCR is the belief that all insurers should operate on an ongoing basis with a view to maintaining their
capital at a prudent level in excess of the minimum solvency margin otherwise prescribed under the
Insurance Act. We are also subject to an early-warning level based on 120% of the ECR, which the BMA
considers to be the target capital level, which may trigger additional reporting requirements or other
enhanced oversight. We are currently completing our 2016 group BSCR, which must be filed with the BMA
on or before May 31, 2017, and at this time, we believe we will exceed the target level of required economic
statutory capital. Our 2015 group BSCR exceeded the target level of required statutory capital.
84
Bermuda Subsidiaries
Bermuda regulations require BMA approval for any reduction of capital in excess of 15% of statutory capital,
as defined in the Insurance Act. The Insurance Act also requires the Bermuda insurance subsidiaries of
RenaissanceRe to maintain certain measures of solvency and liquidity. At December 31, 2016, the statutory
capital and surplus of our Bermuda insurance subsidiaries exceeded the minimum amount required to be
maintained under Bermuda law.
As a result of the acquisition of Platinum and the potential for organizational and capital changes,
Renaissance Reinsurance and RenaissanceRe Specialty Risks Ltd. (“RenaissanceRe Specialty Risks”)
each received a request from the BMA, on February 24, 2015 and March 27, 2015, respectively, to obtain
written approval prior to paying dividends or returning capital to RenaissanceRe during 2015. Subsequent
to these requests and through December 31, 2015, Renaissance Reinsurance and RenaissanceRe
Specialty Risks returned capital to RenaissanceRe, which included dividends declared and return of capital,
of $245.0 million and $680.0 million, respectively.
Effective October 1, 2016, each of RenaissanceRe Specialty Risks and Platinum Bermuda merged into
Renaissance Reinsurance, with Renaissance Reinsurance being the sole surviving entity. As part of the
merger, Renaissance Reinsurance applied for, and effective November 18, 2016 received, approval from
the BMA to reduce its statutory capital by $500.0 million through a return of capital to RenaissanceRe. The
return of capital was completed prior to December 31, 2016.
Under the Insurance Act, RenaissanceRe Specialty U.S. is defined as a Class 3B insurer, and Renaissance
Reinsurance and DaVinci are classified as Class 4 insurers, and must each maintain capital at a level equal
to an ECR which is established by reference to the BSCR model. The 2016 BSCR for Renaissance
Reinsurance, RenaissanceRe Specialty U.S. and DaVinci must be filed with the BMA before April 30, 2017;
at this time, we believe each company will exceed its respective target level of required economic statutory
capital. In addition, audited annual financial statements prepared in accordance with GAAP for each of
Renaissance Reinsurance, RenaissanceRe Specialty U.S. and DaVinci are filed prior to April 30 of each
year with the BMA and are available free of charge on the BMA’s website.
U.K. Subsidiaries
Underwriting capacity, or stamp capacity, of a member of Lloyd’s must be supported by providing a deposit
in the form of cash, securities or letters of credit, which are referred to as Funds at Lloyd’s (“FAL”). The
amount of FAL is determined by Lloyd’s and is based on Syndicate 1458’s solvency and capital requirement
as calculated through its internal model. In addition, if the FAL are not sufficient to cover all losses, the
Lloyd’s Central Fund provides an additional level of security for policyholders. At December 31, 2016, the
stamp capacity approved by Lloyd’s for Syndicate 1458 was £353.2 million based on its business plan
originally approved in November 2016 (December 31, 2015 - £293.3 million based on its business plan
originally approved in November 2015). At December 31, 2016, the FAL required to support the
underwriting activities at Lloyd’s through Syndicate 1458 was £351.7 million (December 31, 2015 - £308.9
million). Actual FAL posted for Syndicate 1458 at December 31, 2016 by RenaissanceRe CCL is $380.0
million and £90.0 million supported 100% by letters of credit (December 31, 2015 - $360.0 million and £85.0
million).
U.S. Subsidiaries
Renaissance Reinsurance U.S. is domiciled in Maryland, which has adopted the NAIC's model law which
uses a risk-based capital ("RBC") model to monitor and regulate the solvency of licensed life, health, and
property and casualty insurance and reinsurance companies. The RBC calculation is used to measure an
insurer's capital adequacy with respect to the risk characteristics of the insurer's premiums written and net
claims and claim expenses, rate of growth and quality of assets, among other measures. At December 31,
2016, the statutory capital and surplus of Renaissance Reinsurance U.S. exceeded the minimum capital
adequacy level required to be maintained under U.S. law.
Renaissance Reinsurance U.S. is subject to certain restrictions on its ability to pay dividends pursuant to
Maryland law, including making appropriate filings with and obtaining certain approvals from its regulator.
During 2017, Renaissance Reinsurance U.S. will have an ordinary dividend capacity of $25.4 million (2016 -
$26.0 million).
85
Top Layer Re
Renaissance Reinsurance is obligated to make a mandatory capital contribution of up to $50.0 million in the
event that a loss reduces Top Layer Re’s capital below a specified level.
Liquidity and Cash Flows
Holding Company Liquidity
As a Bermuda-domiciled holding company, RenaissanceRe has limited operations of its own and its assets
consist primarily of investments in subsidiaries, and, to a degree, cash and securities in amounts which
fluctuate over time. Accordingly, RenaissanceRe’s future cash flows largely depend on the availability of
dividends or other statutorily permissible payments from our subsidiaries. As discussed above, the ability to
pay such dividends is limited by the applicable laws and regulations in the various jurisdictions in which our
subsidiaries operate.
RenaissanceRe’s principal uses of liquidity are: (1) common share related transactions including dividend
payments to our common shareholders and common share repurchases, (2) preference share related
transactions including dividend payments to our preference shareholders and preference share
redemptions, (3) interest and principal payments on debt, (4) capital investments in our subsidiaries, (5)
acquisition of new or existing companies or businesses, such as our acquisition of Platinum and (6) certain
corporate and operating expenses.
We attempt to structure our organization in a way that facilitates efficient capital movements between
RenaissanceRe and our operating subsidiaries and to ensure that adequate liquidity is available when
required, giving consideration to applicable laws and regulations, and the domiciliary location of sources of
liquidity and related obligations.
Sources of Liquidity
Historically, cash receipts from operations, consisting of premiums and investment income, have provided
sufficient funds to pay losses and operating expenses of our subsidiaries and to fund dividends to
RenaissanceRe. The premiums received by our operating subsidiaries are generally received months or
even years before losses are paid under the policies related to such premiums. Premiums and acquisition
expenses generally are received within the first two years of inception of a contract, while operating
expenses are generally paid within a year of being incurred. It generally takes much longer for claims and
claims expenses to be reported and ultimately settled, requiring the establishment of reserves for claims
and claim expenses. Therefore, the amount of claims paid in any one year is not necessarily related to the
amount of net claims incurred in that year, as reported in the consolidated statement of operations.
While we expect that our liquidity needs will continue to be met by our cash receipts from operations, as a
result of the combination of current market conditions, lower than usual investment yields, and the nature of
our business where a large portion of the coverages we provide can produce losses of high severity and
low frequency, future cash flows from operating activities cannot be accurately predicted and may fluctuate
significantly between individual quarters and years. In addition, due to the magnitude and complexity of
certain large loss events, meaningful uncertainty remains regarding losses from these events and our actual
ultimate net losses from these events may vary materially from preliminary estimates, which would impact
our cash flows from operations.
Our “shelf” registration statement on Form S-3 under the Securities Act allows for the public offering of
various types of securities, including common shares, preference shares and debt securities, and also
provides a source of liquidity. Because we are “well-known seasoned issuer” as defined by the rules
promulgated under the Securities Act, we are also eligible to file additional automatically effective
registration statements on Form S-3 in the future for the potential offering and sale of an unlimited amount
of debt and equity securities.
In addition, we maintain letter of credit facilities which provide liquidity. Refer to “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and
Capital Resources, Capital Resources” for details of these facilities.
86
Cash Flows
Year ended December 31,
2016
2015
2014
(in thousands)
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
Effect of exchange rate changes on foreign currency cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
$
469,829 $
414,737 $
660,657
(164,532)
(386,388)
(4,637)
(85,728)
506,885
(339,039)
(83,665)
(10,732)
(18,699)
525,584
141,653
(694,678)
9,920
117,552
408,032
Cash and cash equivalents, end of period
$
421,157 $
506,885 $
525,584
2016
During 2016, our cash and cash equivalents decreased $85.7 million, to $421.2 million at December 31,
2016, compared to $506.9 million at December 31, 2015.
Cash flows provided by operating activities. Cash flows provided by operating activities during the year
ended December 31, 2016 were $469.8 million, compared to $414.7 million during the year ended
December 31, 2015. Cash flows provided by operating activities during the year ended December 31, 2016
were primarily the result of certain adjustments to reconcile our net income of $630.0 million to net cash
provided by operating activities, including:
•
•
•
•
•
an increase in unearned premiums of $342.5 million due to an increase in our gross premiums
written; and
a $150.0 million increase in reinsurance balances payable due to the increase in gross premiums
ceded and the timing of our payments of gross premiums ceded;
a decrease in our reserve for claims and claim expenses of $81.2 million as a result of claims
payments of $623.8 million, partially offset by claims and claims expenses incurred of $710.7
million;
a $210.6 million decrease in prepaid reinsurance premiums due to the timing of our payments of
gross premiums ceded;
an increase in premiums receivable and deferred acquisition costs of $209.3 million and $135.9
million, respectively, due to the increase in our gross premiums written; and
•
a $145.0 million increase in reinsurance recoverable.
Cash flows used in investing activities. During the year ended December 31, 2016, our cash flows used in
investing activities were $164.5 million, principally reflecting net purchases of fixed maturity investments of
$162.5 million, short term investments of $118.6 million and other investments of $68.6 million; partially
offset by net sales of equity investments trading of $184.8 million.
Cash flows used in financing activities. Our cash flows used in financing activities in the year ended
December 31, 2016 were $386.4 million, and were principally the result of net outflows related to the
settlement of $309.4 million of common share repurchases, $51.6 million and $22.4 million of dividends
paid on our common and preference shares, respectively, and net outflows of $3.0 million related to a net
return of capital to third party shareholders, principally in DaVinciRe and Medici.
2015
During 2015, our cash and cash equivalents decreased $18.7 million, to $506.9 million at December 31,
2015, compared to $525.6 million at December 31, 2014.
Cash flows provided by operating activities. Cash flows provided by operating activities during the year
ended December 31, 2015 were $414.7 million, compared to $660.7 million during the year ended
December 31, 2014. Cash flows provided by operating activities during the year ended December 31, 2015
87
were primarily the result of certain adjustments to reconcile our net income of $542.2 million to net cash
provided by operating activities, including:
•
•
•
•
an increase in unearned premiums of $144.0 million due to an increase in our gross premiums
written; and
a $64.9 million and $128.4 million increase in reinsurance balances payable and prepaid
reinsurance premiums, respectively, due to the increase in gross premiums ceded and the timing of
our payments of gross premiums ceded;
an increase in premiums receivable and deferred acquisition costs of $105.3 million and $89.2
million, respectively, due to the increase in our gross premiums written;
a decrease in our reserve for claims and claim expenses of $43.3 million as a result of claims
payments of $588.3 million, partially offset by claims and claims expenses incurred of $545.0
million; and
•
a $64.1 million increase in reinsurance recoverable.
Cash flows used in investing activities. During the year ended December 31, 2015, our cash flows used in
investing activities were $339.0 million, principally reflecting the net cash consideration paid for Platinum of
$678.2 million, which was comprised of gross cash outflows of $904.4 million, net of cash acquired of
$226.3 million; net purchases of fixed maturity investments of $192.6 million; and net purchases of equity
investments trading of $147.6 million. Partially offsetting these net outflows were our net sales of short term
investments of $669.1 million. Refer to “Part I, Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations, Summary Results of Operations and Liquidity and Capital Resources,
Impact of Platinum Acquisition on Liquidity and Capital Resources” and “Note 3. Acquisition of Platinum in
our Notes to the Consolidated Financial Statements” for additional information with respect to the
acquisition of Platinum.
Cash flows used in financing activities. Our cash flows used in financing activities in the year ended
December 31, 2015 were $83.7 million, and were principally the result of net outflows related to the
settlement of $259.9 million of common share repurchases, net outflows of $193.0 million related to a net
return of capital to third party shareholders, principally in DaVinciRe, and $54.0 million and $22.4 million of
dividends paid on our common and preference shares, respectively, partially offset by the issuance of
$300.0 million of our 3.700% Senior Notes due 2025, net of expenses, of $297.8 million, and the issuance
of $150.0 million of DaVinciRe’s 4.750% Senior Notes due 2025, net of expenses, of $147.8 million.
Impact of Platinum Acquisition on Liquidity and Capital Resources
On March 2, 2015, we completed the acquisition of Platinum. The aggregate consideration for the
transaction was $1.93 billion, comprised of a special dividend of $253.2 million paid by Platinum, the
issuance of 7.4 million RenaissanceRe common shares valued at $761.8 million, and cash consideration of
$904.4 million. We used a short term bridge loan to fund $300.0 million of the cash consideration paid by us
and on March 24, 2015, issued $300.0 million of our 3.700% Senior Notes due 2025 (together with cash on
hand) to replace the short term bridge loan used to fund part of the cash consideration. The remaining
$604.4 million of cash consideration was funded through our available funds.
We incurred $2.1 million of corporate expenses associated with the acquisition and integration of Platinum
in the year ended December 31, 2016, in addition to $53.5 million during the year ended December 31,
2015. We expect to incur some additional costs and expenses associated with the acquisition and
integration of Platinum in 2017.
Following the close of the acquisition of Platinum and execution of the actions noted above, we believe our
operating subsidiaries have adequate capital resources in the aggregate, and the ability to produce
sufficient cash flows to meet their expected claims payments and operational expenses and to provide
dividend payments to RenaissanceRe. In turn, we believe RenaissanceRe has adequate capital resources,
or the access to capital resources, to meet our obligations, including dividend payments to our common and
preferred shareholders, interest payments on our senior notes and other liabilities, as they come due.
88
Capital Resources
In the normal course of our operations, we may from time to evaluate additional share or debt issuances
given prevailing market conditions and capital management strategies, including for our operating
subsidiaries and joint ventures. In addition, we enter into agreements with financial institutions to obtain
letter of credit facilities for the benefit of our operating subsidiaries in their reinsurance and insurance
business.
Our total shareholders’ equity attributable to RenaissanceRe and debt is as follows:
(in thousands)
Common shareholders’ equity
Preference shares
At December
31, 2016
At December
31, 2015
Change
$ 4,466,577 $ 4,332,184 $
134,393
400,000
400,000
—
Total shareholders’ equity attributable to RenaissanceRe
4,866,577
4,732,184
134,393
3.700% Senior Notes due 2025
5.75% Senior Notes due 2020
Series B 7.50% Senior Notes due 2017
4.750% Senior Notes due 2025 (DaVinciRe)
RenaissanceRe revolving credit facility – unborrowed
Total debt
296,948
248,941
255,352
147,422
250,000
296,577
248,610
268,196
147,112
250,000
371
331
(12,844)
310
—
1,198,663
1,210,495
(11,832)
Total shareholders’ equity attributable to RenaissanceRe
and debt
$ 6,065,240 $ 5,942,679 $
122,561
During 2016, our total shareholders’ equity attributable to RenaissanceRe and debt increased by $122.6
million, to $6.1 billion.
Our shareholders’ equity attributable to RenaissanceRe increased $134.4 million during 2016 principally as
a result of:
•
•
our comprehensive income attributable to RenaissanceRe of $502.0 million; partially offset by
our repurchase of 2.7 million shares in open market transactions at an aggregate cost of $309.4
million, and at an average share price of $112.87; and
•
$51.6 million and $22.4 million of dividends on our common and preference shares, respectively.
During 2016, our debt decreased $11.8 million, primarily driven by the amortization of deferred debt
issuance costs and the amortization of the fair value adjustment related to the assumption of the Series B
7.50% Senior Notes due 2017 in connection with the acquisition of Platinum. We currently anticipate
repaying the 7.50% Senior Notes due 2017 with existing cash on hand and do not plan on re-financing the
notes, however we cannot assure you we will do so.
89
Credit Facilities
The outstanding amounts issued or drawn under each of our significant credit facilities is set forth below:
At December 31, 2016
(in thousands)
RenaissanceRe Revolving Credit Facility
Uncommitted Standby Letter of Credit Facility with Wells Fargo
Uncommitted Standby Letter of Credit Facility with NAB
Bilateral Letter of Credit Facility with Citibank Europe
Funds at Lloyd’s Letter of Credit Facilities
Renaissance Reinsurance FAL Facility
Total credit facilities in U.S. dollars
Funds at Lloyd’s Letter of Credit Facilities
Renaissance Reinsurance FAL Facility
Specialty Risks FAL Facility
Total credit facilities in British Pounds
Issued or
Drawn
$
—
140,829
4,855
244,909
380,000
$
770,593
£
£
90,000
10,000
100,000
Refer to “Note 9. Debt and Credit Facilities in our Notes to the Consolidated Financial Statements” for
additional information related to our debt and credit facilities and “Note 12. Shareholders’ Equity in our
Notes to the Consolidated Financial Statements” for additional information related to our common and
preference shares.
Multi-Beneficiary Reinsurance Trusts and Multi-Beneficiary Reduced Collateral Reinsurance Trusts
Renaissance Reinsurance and DaVinci are each approved as a Trusteed Reinsurer in the state of New York
and each has established a multi-beneficiary reinsurance trust to collateralize its respective (re)insurance
liabilities associated with U.S. domiciled cedants. We expect, over time, to transition cedants with existing
outstanding letters of credit to the appropriate multi-beneficiary reinsurance trust as determined by cedant
state of domicile, thereby reducing our absolute and relative reliance on letters of credit. Accordingly, it is
our intention to seek to have new business incepting with cedants domiciled in approved states
collateralized using a multi-beneficiary reinsurance trust. Cedants collateralized with a multi-beneficiary
reinsurance trust will be eligible for automatic reinsurance credit in their respective U.S. regulatory filings.
In addition, Renaissance Reinsurance and DaVinci are each approved as an “eligible reinsurer” in the state
of Florida, and are authorized to provide reduced collateral equal to 20% and 50%, respectively, of their net
outstanding insurance liabilities to Florida-domiciled insurers.
Refer to “Note 18. Statutory Requirements in our Notes to the Consolidated Financial Statements” for
additional information related to our multi-beneficiary reinsurance trusts and multi-beneficiary reduced
collateral reinsurance trust.
Redeemable Noncontrolling Interest – DaVinciRe
Refer to “Note 10. Noncontrolling Interests in our Notes to the Consolidated Financial Statements” for
additional information related to redeemable noncontrolling interest - DaVinciRe.
Ratings
Financial strength ratings are an important factor in respect of the competitive position of reinsurance and
insurance companies. We have received high claims-paying and financial strength ratings from A.M. Best,
S&P, Moody’s and Fitch. These ratings represent independent opinions of an insurer’s financial strength,
operating performance and ability to meet policyholder obligations, and are not an evaluation directed
toward the protection of investors or a recommendation to buy, sell or hold any of our securities. Rating
90
organizations continually review the financial positions of our principal operating subsidiaries and joint
ventures and ratings may be revised or revoked by the agencies which issue them.
Presented below are the ratings of our principal operating subsidiaries and joint ventures and the ERM
rating of RenaissanceRe as of February 17, 2017.
Renaissance Reinsurance (1)
DaVinci (1)
Renaissance Reinsurance U.S. (1)
RenaissanceRe Specialty U.S. (1)
Renaissance Reinsurance of Europe (1)
Top Layer Re (1)
Syndicate 1458
Lloyd’s Overall Market Rating (2)
RenaissanceRe (3)
A.M. Best
A+
A
A
A
A+
A+
—
A
—
S&P
AA-
AA-
AA-
AA-
AA-
AA
—
A+
Very Strong
Moody’s
Fitch
A1
A3
—
—
—
—
—
—
—
A+
—
—
—
—
—
—
AA-
—
(1) The A.M. Best, S&P, Moody's and Fitch ratings for these companies set forth in the table above reflect the insurer's financial
strength rating and in addition, the S&P ratings also reflect the insurer's issuer credit rating.
(2) The A.M. Best, S&P and Fitch ratings for the Lloyd’s Overall Market Rating represent its financial strength rating.
(3) The S&P rating for RenaissanceRe represents rating on its Enterprise Risk Management practices.
A.M. Best. “A+” is the second highest designation of A.M. Best’s sixteen rating levels. “A+” rated insurance
companies are defined as “Superior” companies and are considered by A.M. Best to have a very strong
ability to meet their obligations to policyholders. “A” is the third highest designation assigned by A.M. Best,
representing A.M. Best’s opinion that the insurer has an “Excellent” ability to meet its ongoing obligations to
policyholders.
On August 19, 2016, A.M. Best affirmed the financial strength rating of “A” (Excellent) of DaVinci
Renaissance Reinsurance U.S. and Renaissance Specialty U.S. and “A+” (Superior) of Top Layer Re, with
an outlook of stable.
Following the acquisition of Platinum, on April 16, 2015, A.M. Best removed from under review with negative
implications and affirmed the financial strength rating of “A+” (Superior) for each of Renaissance
Reinsurance and Renaissance Reinsurance of Europe, with an outlook of negative. A.M. Best also removed
from under review with negative implications and affirmed the financial strength rating of “A” (Excellent) for
each of DaVinci and RenaissanceRe Specialty U.S., with an outlook of stable. Furthermore, A.M. Best
removed from under review with developing implications and affirmed the financial strength rating of
“A” (Excellent) for Renaissance Reinsurance U.S., with an outlook of stable. In addition, A.M. Best affirmed
its issuer credit rating of “a-” (Excellent) and all debt ratings of RenaissanceRe.
S&P. The “AA” range (“AA+”, “AA”, “AA-”), which has been assigned by S&P to Renaissance Reinsurance,
DaVinci, Renaissance Reinsurance U.S., RenaissanceRe Specialty U.S., Renaissance Reinsurance of
Europe and Top Layer Re, is the second highest rating assigned by S&P and indicates that S&P believes
the insurers have very strong capacity to meet its financial commitments, differing only slightly from those
rated higher. The “A” range (“A+”,”A”, “A-“), which is the third highest rating assigned by S&P, indicates that
S&P believes the insurers have strong capacity to meet their respective financial commitments but they are
somewhat more susceptible to adverse effects or changes in circumstances and economic conditions than
insurers rated higher. S&P assigns an issuer credit rating to an entity which is an opinion on the
creditworthiness of the obligor with respect to a specific financial obligation.
On December 2, 2016, S&P affirmed the financial strength ratings of Renaissance Reinsurance, DaVinci
and Renaissance Reinsurance of Europe of “AA-“ and raised the financial strength rating on each of
Renaissance Reinsurance U.S. and RenaissanceRe Specialty U.S. to “AA-“. At the same time, S&P revised
its outlook on RenaissanceRe and its subsidiaries to negative from stable. In addition, S&P withdrew its
91
ratings on RenaissanceRe Specialty Risks Ltd. and Platinum Underwriters Bermuda, Ltd. in connection with
the October 1, 2016 merger of these entities into Renaissance Reinsurance, with Renaissance Reinsurance
being the sole surviving entity.
On October 12, 2015, S&P affirmed Top Layer Re’s financial strength rating and issuer credit rating of “AA”.
The outlook for this rating is stable.
In addition, S&P assesses companies’ ERM practices, which is an opinion on the many critical dimensions
of risk management that determine overall creditworthiness. RenaissanceRe has been assigned an ERM
rating of “Very Strong”, which is the highest rating assigned by S&P, and indicates that S&P believes
RenaissanceRe has extremely strong capabilities to consistently identify, measure, and manage risk
exposures and losses within RenaissanceRe’s predetermined tolerance guidelines. On December 2, 2016,
S&P affirmed the ERM rating of RenaissanceRe of “Very Strong”.
Moody’s. Moody’s Insurance Financial Strength Ratings represent its opinions of the ability of insurance
companies to pay punctually policyholder claims and obligations and senior unsecured debt instruments.
Moody’s believes that insurance companies rated “A1”, such as Renaissance Reinsurance, and companies
rated “A3”, such as DaVinci, offer good financial security.
On November 25, 2015, Moody’s affirmed its ratings of RenaissanceRe and RenaissanceRe’s operating
subsidiaries and changed its outlook to stable, from negative. The stable outlook reflects Moody’s more
positive view of the acquisition of Platinum, although concerns linger about reinsurance sector
fundamentals.
Fitch. Fitch’s issuer financial strength ratings provide an assessment of the financial strength of an
insurance organization. Fitch believes that insurance companies rated “A+”, such as Renaissance
Reinsurance, have “Strong” capacity to meet policyholders and contract obligations on a timely basis with a
low expectation of ceased or interrupted payments. Insurers rated “AA-“ by Fitch are believed to have a
very low expectation of ceased or interrupted payments and very strong capital to meet policyholder
obligations.
On August 10, 2016, Fitch affirmed the issuer financial strength rating of Renaissance Reinsurance at “A+”.
The outlook for this rating is stable.
On November 25, 2014, following our announcement of RenaissanceRe’s intention to acquire Platinum,
Fitch affirmed its ratings of RenaissanceRe and RenaissanceRe’s operating subsidiaries. The outlook is
stable for these ratings.
Lloyd’s Overall Market Rating
A.M. Best, S&P and Fitch have each assigned an financial strength rating to the Lloyd’s overall market. The
financial risks to policy holders of syndicates within the Lloyd’s market are partially mutualized through the
Lloyd’s Central Fund, to which all underwriting members contribute. Because of the presence of the Lloyd’s
Central Fund, and the current legal and regulatory structure of the Lloyd’s market, financial strength ratings
on individual syndicates would not be particularly meaningful and in any event would not be lower than the
financial strength rating of the Lloyd’s overall market.
Reserve for Claims and Claim Expenses
We believe the most significant accounting judgment made by management is our estimate of claims and
claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and
statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid
claims and claim expenses arising from the insurance and reinsurance contracts we sell. We establish our
claims and claim expense reserves by taking claims reported to us by insureds and ceding companies, but
which have not yet been paid (“case reserves”), adding the costs for additional case reserves (“additional
case reserves”) which represent our estimates for claims related to specific contracts previously reported to
us which we believe may not be adequately estimated by the client as of that date, and adding estimates for
the anticipated cost of IBNR.
92
Our reserving techniques, assumptions and processes differ among our Property and Casualty and
Specialty segments. Refer to “Note 8. Reserve for Claims and Claim Expenses in our Notes to the
Consolidated Financial Statements” for more information on the risks we insure and reinsure, the reserving
techniques, assumptions and processes we follow to estimate our claims and claim expense reserves, prior
year development of the reserve for claims and claim expenses, analysis of our incurred and paid claims
development and claims duration information for each of our Property and Casualty and Specialty
segments. In addition, refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations, Summary of Critical Accounting Estimates, Claims and Claim
Expense Reserves” for more information on the reserving techniques, assumptions and processes we
follow to estimate our claims and claim expense reserves, our current estimates versus our initial estimates
of our claims reserves, and sensitivity analysis for each of our Property and Casualty and Specialty
segments.
Investments
The table below shows our invested assets:
At December 31,
(in thousands, except percentages)
U.S. treasuries
Agencies
Municipal
Non-U.S. government (Sovereign debt)
Non-U.S. government-backed corporate
Corporate
Agency mortgage-backed
Non-agency mortgage-backed
Commercial mortgage-backed
Asset-backed
2016
2015
Change
$ 2,617,894
90,972
519,069
333,224
133,300
28.1% $ 2,064,944
23.0% $ 552,950
1.0%
5.6%
3.6%
1.4%
137,976
583,282
334,981
138,994
1.5%
6.5%
3.7%
1.5%
(47,004)
(64,213)
(1,757)
(5,694)
1,877,243
20.2% 2,055,323
22.9% (178,080)
462,493
258,944
409,747
188,358
5.0%
2.7%
4.4%
2.0%
504,518
270,763
561,496
130,541
5.6%
3.0%
(42,025)
(11,819)
6.2% (151,749)
1.4%
57,817
Total fixed maturity investments, at fair
value
6,891,244
74.0% 6,782,818
Short term investments, at fair value
1,368,379
14.7% 1,208,401
Equity investments trading, at fair value
Other investments, at fair value
383,313
549,805
4.1%
5.9%
393,877
481,621
75.3%
13.4%
4.4%
5.4%
108,426
159,978
(10,564)
68,184
Total managed investment portfolio
9,192,741
98.7% 8,866,717
98.5%
326,024
Investments in other ventures, under
equity method
Total investments
124,227
$ 9,316,968
1.3%
132,351
1.5%
(8,124)
100.0% $ 8,999,068
100.0% $ 317,900
At December 31, 2016, we held investments totaling $9.3 billion, compared to $9.0 billion at December 31,
2015, with net unrealized appreciation included in accumulated other comprehensive income of $1.1 million
at December 31, 2016, compared to $2.1 million at December 31, 2015. Our investment guidelines stress
preservation of capital, market liquidity, and diversification of risk. Notwithstanding the foregoing, our
investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular
securities.
In addition to the information presented above and below, refer to “Note 5. Investments and Note 6. Fair
Value Measurements in our Notes to the Consolidated Financial Statements” for additional information
regarding our investments and the fair value measurement of those investments, respectively.
As the reinsurance coverages we sell include substantial protection for damages resulting from natural and
man-made catastrophes, we expect from time to time to become liable for substantial claim payments at
short notice. Accordingly, our investment portfolio as a whole is structured to seek to preserve capital and
provide a high level of liquidity which means that the large majority of our investment portfolio consists of
93
Agencies
Municipal
Non-U.S.
government
(Sovereign debt)
Non-U.S.
government-
backed corporate
highly rated fixed income securities, including U.S. treasuries, agencies, municipals, highly rated sovereign
and supranational securities, high-grade corporate securities and mortgage-backed and asset-backed
securities. We also have an allocation to publicly traded equities reflected on our consolidated balance
sheet as equity investments trading and an allocation to other investments (including catastrophe bonds,
private equity partnerships, senior secured bank loan funds, hedge funds and other investments). At
December 31, 2016, our portfolio of equity investments trading totaled $383.3 million, or 4.1%, of our total
investments (2015 - $393.9 million or 4.4%) inclusive of our investment in Essent Group Ltd. of $183.4
million (2015 - $102.1 million) and Trupanion of $42.8 million (2015 - $26.9 million), and our portfolio of
other investments totaled $549.8 million, or 5.9%, of our total investments (2015 - $481.6 million or 5.4%).
The following table summarizes the composition of our investment portfolio, including the amortized cost
and fair value of our investment portfolio and the ratings as assigned by S&P, or Moody’s and/or other rating
agencies when S&P ratings were not available, and the respective effective yield.
Amortized
Cost
Fair Value
% of Total
Investment
Portfolio
Weighted
Average
Effective
Yield
AAA
AA
A
BBB
Non-
Investment
Grade
Not Rated
Credit Rating (1)
$1,368,379
$1,368,379
14.7%
0.7% $1,353,946
$
13,086
$
367
$
454
$
249
$
277
100.0%
99.0%
1.0%
—%
—%
—%
—%
December 31,
2016
(in thousands,
except
percentages)
Short term
investments
Fixed maturity
investments
U.S. treasuries
2,635,282
2,617,894
91,905
90,972
524,559
519,069
28.1%
1.0%
5.6%
1.4%
2.0%
2.4%
—
—
2,617,894
90,972
—
—
—
—
120,851
268,519
89,017
40,682
342,108
333,224
3.6%
1.6%
275,624
31,811
14,303
11,486
Corporate
1,868,125
1,877,243
151,147
523,273
492,092
639,363
25,507
137,024
133,300
39,145
951
1,286
1.4%
20.2%
1.5%
3.7%
91,918
45,861
Agency
mortgage-backed
Non-agency
mortgage-backed
Commercial
mortgage-backed
Asset-backed
Total fixed
maturity
investments
Equity
investments
trading
Other
investments
Catastrophe
bonds
Private equity
partnerships
Senior secured
bank loan funds
Hedge funds
Total other
investments
Investments in
other ventures
Total investment
portfolio
471,235
462,493
5.0%
2.9%
—
462,493
—
—
—
—
252,829
258,944
2.7%
4.9%
10,501
20,052
6,768
19,294
198,105
4,224
409,682
187,941
409,747
188,358
4.4%
2.0%
2.6%
2.3%
330,801
168,182
68,959
17,493
7,155
2,683
2,832
—
—
—
—
—
6,920,690
6,891,244
74.0%
2.4% 1,043,738
3,768,485
644,150
567,672
837,468
29,731
100.0%
15.2%
54.7%
9.3%
8.2%
12.2%
0.4%
383,313
4.1%
100.0%
335,209
191,061
22,040
1,495
549,805
100.0%
3.6%
2.1%
0.2%
—%
5.9%
124,227
1.3%
100.0%
—
—%
—
—
—
—
—
—%
—
—%
—
—%
—
—
—
—
—
—%
—
—%
—
—%
—
—
—
—
—
—%
—
—%
—
—%
—
—
—
—
—
—%
—
—%
—
—%
383,313
100.0%
335,209
—
—
—
—
191,061
22,040
1,495
335,209
214,596
61.0%
39.0%
—
—%
124,227
100.0%
$9,316,968
100.0%
$2,397,684
$3,781,571
$ 644,517
$ 568,126
$1,172,926
$ 752,144
100.0%
25.7%
40.6%
6.9%
6.1%
12.6%
8.1%
(1) The credit ratings included in this table are those assigned by S&P. When ratings provided by S&P were not available, ratings from other nationally
recognized rating agencies were used. We have grouped short term investments with an A-1+ and A-1 short term issue credit rating as AAA, short
term investments with A-2 short term issue credit rating as AA and short term investments with an A-3 short term issue credit rating as A.
94
—
—
—
—
—
—
—
—
—
—
Fixed Maturity Investments and Short Term Investments
At December 31, 2016, our fixed maturity investments and short term investment portfolio had a dollar-
weighted average credit quality rating of AA (2015 – AA) and a weighted average effective yield of 2.1%
(2015 – 2.2%). At December 31, 2016, our non-investment grade and not rated fixed maturity investments
totaled $867.2 million or 12.6% of our fixed maturity investments (2015 - $723.6 million or 10.7%,
respectively). In addition, within our other investments category we have funds that invest in non-investment
grade and not rated fixed income securities and non-investment grade cat-linked securities. At
December 31, 2016, the funds that invest in non-investment grade and not rated fixed income securities
and non-investment grade cat-linked securities totaled $357.2 million (2015 – $264.5 million).
At December 31, 2016, we had $1,368.4 million of short term investments (2015 – $1,208.4 million). Short
term investments are managed as part of our investment portfolio and have a maturity of one year or less
when purchased. Short term investments are carried at fair value.
The duration of our fixed maturity investments and short term investments at December 31, 2016 was 2.4
years (2015 – 2.3 years). From time to time, we may reevaluate the duration of our portfolio in light of the
duration of our liabilities and market conditions.
The value of our fixed maturity investments will fluctuate with changes in the interest rate environment and
when changes occur in the overall investment market and in overall economic conditions. Additionally, our
differing asset classes expose us to other risks which could cause a reduction in the value of our
investments. Examples of some of these risks include:
• Changes in the overall interest rate environment can expose us to “prepayment risk” on our mortgage-
backed investments. When interest rates decline, consumers will generally make prepayments on their
mortgages and, as a result, our investments in mortgage-backed securities will be repaid to us more
quickly than we might have originally anticipated. When we receive these prepayments, our
opportunities to reinvest these proceeds back into the investment markets will likely be at reduced
interest rates. Conversely, when interest rates increase, consumers will generally make fewer
prepayments on their mortgages and, as a result, our investments in mortgage-backed securities will be
repaid to us less quickly than we might have originally anticipated. This will increase the duration of our
portfolio, which is disadvantageous to us in a rising interest rate environment.
• Our investments in certain tax-exempt municipal fixed income securities are subject to the risk that the
U.S. Government could limit or materially alter the current tax exemption on these securities and future
new issuances. While the potential reduction or loss of such tax exemption would likely lead to
increased yields on newly issued municipal fixed income securities in the long term, we would also
expect to see a decrease in the fair value of our municipal fixed income securities portfolio in the short
term.
• Our investments in mortgage-backed securities are also subject to default risk. This risk is due in part to
defaults on the underlying securitized mortgages, which would decrease the fair value of the investment
and be disadvantageous to us. Similar risks apply to other asset-backed securities in which we may
invest from time to time.
• Our investments in debt securities of other corporations are exposed to losses from insolvencies of
these corporations, and our investment portfolio can also deteriorate based on reduced credit quality of
these corporations. We are also exposed to the impact of widening credit spreads even if specific
securities are not downgraded.
• Our investments in asset-backed securities are subject to prepayment risks, as noted above, and to the
structural risks of these securities. The structural risks primarily emanate from the priority of each
security in the issuer’s overall capital structure. We are also exposed to the impact of widening credit
spreads.
• Within our other investments category, we have funds that invest in non-investment grade fixed income
securities as well as securities denominated in foreign currencies. These investments expose us to
losses from insolvencies and other credit-related issues. We are also exposed to fluctuations in foreign
exchange rates that may result in realized losses to us if our exposures are not hedged or if our
hedging strategies are not effective and also to widening of credit spreads.
95
The following table summarizes the composition of the fair value of the fixed maturity investments and short
term investments of our top ten corporate issuers at the date indicated.
At December 31, 2016
(in thousands)
Issuer
Goldman Sachs Group Inc.
JP Morgan Chase & Co.
Morgan Stanley
Bank of America Corp.
Wells Fargo & Co.
HSBC Holdings PLC
Royal Bank of Canada
Credit Suisse Group AG
PNC Financial Services Group Inc.
Citigroup Inc.
Total (1)
Total
Short term
investments
Fixed
maturity
investments
$
42,179 $
41,919
40,262
36,056
34,785
21,323
19,404
19,193
18,896
17,777
$
291,794 $
— $
—
—
—
—
—
—
—
—
—
— $
42,179
41,919
40,262
36,056
34,785
21,323
19,404
19,193
18,896
17,777
291,794
(1) Excludes non-U.S. government-backed corporate fixed maturity investments, reverse repurchase agreements and commercial
paper, at fair value.
Equity Investments Trading
The following table summarizes the fair value of equity investments trading:
At December 31,
(in thousands)
Financials
Communications and technology
Industrial, utilities and energy
Consumer
Healthcare
Basic materials
Total
2016
2015
Change
$
275,065 $
193,716 $
36,770
30,303
20,501
17,245
3,429
383,313 $
65,833
51,168
40,918
36,148
6,094
393,877 $
$
81,349
(29,063)
(20,865)
(20,417)
(18,903)
(2,665)
(10,564)
We have a diversified public equity securities mandate with a third party investment manager which
currently comprises a portion of our investments included in equity investments trading. In addition, we
internally manage a number of strategic public equity investments, principally included in the financials
category of our equity investments trading, and at December 31, 2016 included $183.4 million (2015 -
$102.1 million) related to our investment in Essent and $42.8 million (2015 - $26.9 million) related to our
investment in Trupanion. It is possible our equity allocation will increase in the future, and it could, from time
to time, have a material effect on our financial results for the reasonably foreseeable future.
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Other Investments
The table below shows our portfolio of other investments:
At December 31,
(in thousands)
Catastrophe bonds
Private equity partnerships
Senior secured bank loan funds
Hedge funds
Total other investments
2016
2015
Change
$
335,209 $
241,253 $
93,956
191,061
214,848
22,040
1,495
23,231
2,289
(23,787)
(1,191)
(794)
$
549,805 $
481,621 $
68,184
We account for our other investments at fair value in accordance with FASB ASC Topic Financial
Instruments. The fair value of certain of our fund investments, which principally include private equity funds,
senior secured bank loan funds and hedge funds, is recorded on our balance sheet in other investments,
and is generally established on the basis of the net valuation criteria established by the managers of such
investments, if applicable. The net valuation criteria established by the managers of such investments is
established in accordance with the governing documents of such investments. Many of our fund
investments are subject to restrictions on redemptions and sales which are determined by the governing
documents and limit our ability to liquidate these investments in the short term. Certain of our fund
managers, fund administrators, or both, are unable to provide final fund valuations as of our current
reporting date. The typical reporting lag experienced by us to receive a final net asset value report is one
month for hedge funds and senior secured bank loan funds and three months for private equity funds,
although, in the past, in respect of certain of our private equity funds, we have on occasion experienced
delays of up to six months at year end, as the private equity funds typically complete their respective year-
end audits before releasing their final net asset value statements.
In circumstances where there is a reporting lag between the current period end reporting date and the
reporting date of the latest fund valuation, we estimate the fair value of these funds by starting with the prior
month or quarter-end fund valuations, adjusting these valuations for actual capital calls, redemptions or
distributions, as well as the impact of changes in foreign currency exchange rates, and then estimating the
return for the current period. In circumstances in which we estimate the return for the current period, all
information available to us is utilized. This principally includes preliminary estimates reported to us by our
fund managers, obtaining the valuation of underlying portfolio investments where such underlying
investments are publicly traded and therefore have a readily observable price, using information that is
available to us with respect to the underlying investments, reviewing various indices for similar investments
or asset classes, as well as estimating returns based on the results of similar types of investments for which
we have obtained reported results, or other valuation methods, where possible. Actual final fund valuations
may differ, perhaps materially so, from our estimates and these differences are recorded in our consolidated
statement of operations in the period in which they are reported to us, as a change in estimate. Included in
net investment income for the year ended December 31, 2016 is a loss of $3.4 million (2015 - loss of $2.5
million) representing the change in estimate during the period related to the difference between our
estimated net investment income due to the lag in reporting discussed above and the actual amount as
reported in the final net asset values provided by our fund managers.
Our estimate of the fair value of catastrophe bonds is based on quoted market prices, or when such prices
are not available, by reference to broker or underwriter bid indications.
We have committed capital to private equity partnerships and other entities of $794.2 million, of which
$554.7 million has been contributed at December 31, 2016. Our remaining commitments to these funds at
December 31, 2016 totaled $249.4 million. In the future, we may enter into additional commitments in
respect of private equity partnerships or individual portfolio company investment opportunities.
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Investments in Other Ventures, under Equity Method
The table below shows our investments in other ventures, under equity method:
At December 31,
2016
2015
(in thousands, except percentages)
THIG
Investment
$ 50,000
Ownership
%
Investment
25.0% $ 19,286 $ 50,000
Carrying
Value
Ownership
%
25.0% $ 19,155
Carrying
Value
Tower Hill
Tower Hill Re
Tower Hill Signature
Total Tower Hill Companies
Top Layer Re
Other
Total investments in other
ventures, under equity
method
10,000
4,250
500
64,750
65,375
23,923
32.3%
25.0%
25.0%
50.0%
41.8%
21,590
2,903
9,085
52,864
60,360
11,003
10,000
4,250
500
64,750
65,375
23,607
31.3%
25.0%
25.0%
50.0%
43.5%
19,981
4,136
7,315
50,587
68,936
12,828
$ 154,048
$ 124,227 $ 153,732
$ 132,351
Except for Top Layer Re, the equity in earnings of the Tower Hill Companies and our other category of
investments in other ventures are reported one quarter in arrears.
The carrying value of our investments in other ventures, under equity method, individually or in the
aggregate may, and likely will, differ from the realized value we may ultimately attain, perhaps significantly
so.
Effects of Inflation
The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local
economy. The anticipated effects on us are considered in our catastrophe loss models. Our estimates of the
potential effects of inflation are also considered in pricing and in estimating reserves for unpaid claims and
claim expenses. In addition, it is possible that the risk of general economic inflation has increased which
could, among other things, cause claims and claim expenses to increase and also impact the performance
of our investment portfolio. The actual effects of this potential increase in inflation on our results cannot be
accurately known until, among other items, claims are ultimately settled. The onset, duration and severity of
an inflationary period cannot be estimated with precision.
Off-Balance Sheet and Special Purpose Entity Arrangements
At December 31, 2016, we had not entered into any off-balance sheet arrangements, as defined by
Item 303(a)(4) of Regulation S-K.
98
Contractual Obligations
In the normal course of our business, we are a party to a variety of contractual obligations and these are
considered by us when assessing our liquidity requirements.
The table below shows our contractual obligations:
At December 31, 2016
(in thousands)
Long term debt obligations (1)
3.700% Senior Notes due 2025
5.75% Senior Notes due 2020
Series B 7.50% Senior Notes
due 2017
4.750% Senior Notes due 2025
(DaVinciRe)
Total long term debt obligations
Private equity and investment
commitments (2)
Operating lease obligations
Capital lease obligations
Payable for investments
purchased
Reserve for claims and claim
expenses (3)
Total contractual obligations
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
$ 391,564 $
296,043
11,100 $
14,375
22,200 $
28,750
22,200 $ 336,064
—
252,918
257,800
257,800
—
—
—
209,964
1,155,371
7,125
290,400
249,442
249,442
34,551
30,836
7,553
3,017
14,250
65,200
—
13,237
5,200
305,714
305,714
—
14,250
289,368
174,339
510,403
—
8,942
5,322
—
—
4,819
17,297
—
2,848,294
706,843
$ 4,624,208 $ 1,630,429 $ 971,803 $ 782,614 $ 1,239,362
888,166
478,982
774,303
(1)
Includes contractual interest payments.
(2) The private equity and investment commitments do not have a defined contractual commitment date and we have therefore
included them in the less than one year category.
(3) We caution that the information provided above related to estimated future payment dates of our reserves for claims and claim
expenses is not prepared or utilized for internal purposes and we currently do not estimate the future payment dates of claims
and claim expenses. Because of the nature of the coverages we provide, the amount and timing of the cash flows associated with
our policy liabilities will fluctuate, perhaps significantly, and therefore are highly uncertain. We have based our estimates of future
claim payments upon benchmark industry payment patterns, drawing upon available relevant sources of loss and allocated loss
adjustment expense development data. These benchmarks are revised periodically as new trends emerge. We believe that it is
likely that this benchmark data will not be predictive of our future claim payments and that material fluctuations can occur due to
the nature of the losses which we insure and the coverages which we provide.
In certain circumstances, many of our contractual obligations may be accelerated to dates other than those reflected in the table,
due to defaults under the agreements governing those obligations (including pursuant to cross-default provisions in such
agreements) or in connection with certain changes in control of the Company, if applicable. In addition, in connection with any
such default under the agreement governing these obligations, in certain circumstances, these obligations may bear an increased
interest rate or be subject to penalties as a result of such a default.
CURRENT OUTLOOK
Property Exposed Market Developments
Over the past several years, notwithstanding the occurrence of a number of significant loss events,
including Storm Sandy in 2012, one of the most significant insured losses on record, and the increased
frequency of severe weather events from 2013 through 2016 in many high-insurance-penetration regions,
including the Fort McMurray Wildfire, the 2016 Texas Events and Hurricane Matthew, the global property
catastrophe insurance and reinsurance markets have manifested growing, and ultimately record, levels of
industry wide capital held. At the same time, reinsurance demand for many coverages and solutions has not
grown at the pace of this growth in available capital. During the January 2017 property catastrophe
reinsurance renewal season, we believe that supply, principally from traditional market participants and
increasingly complemented by alternative capital providers, more than offset market demand, resulting in a
continued reduction of overall market pricing on a risk-adjusted basis, except for, in general, recent loss
99
impacted treaties and contracts. We continue to expect the supply of capital to outpace any growth of
demand, and we do not expect market developments to shift more favorably in the near term, absent
unusually large, or unforeseen, contingent events.
Accordingly, although our in-force book of business remains attractive to us, with our continuing focus on
underwriting discipline, absent changed conditions, we do not expect to maintain the size of our aggregate
book of property-exposed reinsurance business. While we will strive to maintain a high level of net portfolio
quality, we cannot assure you we will succeed in doing so. In addition, we believe that many of the key
markets we serve are increasingly characterized by large, increasingly sophisticated cedants who are able
to manage large retentions, can access risk transfer capital in expanding forms, and may seek to focus their
reinsurance relationships on a core group of well-capitalized, highly-rated reinsurers who can provide a
complete product suite as well as value added service. In addition to pricing, market conditions are
increasingly impacted by an erosion of terms and conditions, for which we believe the reinsurance market is
being undercompensated or in some instances uncompensated. It is possible that an increasing portion of
the business ceded to the reinsurance market will be priced below levels we find acceptable, or will be
characterized by contractual terms and conditions we do not find to be acceptable, absent the advent of
significant new developments. While we believe we are well positioned to compete for business we find
attractive, these dynamics may introduce or exacerbate challenges in our markets. We may also purchase
additional retrocessional protection to maintain an appropriate risk adjusted level of exposure, although we
cannot assure you we will do so. To the extent we increase our aggregate retrocessional purchases, absent
the occurrence of loss activity covered by such retrocessions, our net income for the period will decrease to
reflect the cost of such cessions, and we cannot assure you we will obtain commensurate value from
factors such as potentially enhanced client acceptance, stability of our ratings, liquidity or otherwise.
Casualty and Specialty Exposed Market Developments
In the markets in which our Casualty and Specialty segment operates, we continue to expect casualty
insurance and reinsurance capacity to remain abundant during 2017. Leading global intermediaries and
other sources have generally reported that the U.S. casualty reinsurance market overall reflects a soft
pricing environment and we believe that prevailing terms and conditions in the casualty market are such
that many programs and treaties do not meet our pricing standards. However, we also believe that pockets
of niche or specialty casualty lines may provide more attractive opportunities for stronger or well-positioned
reinsurers and that we are well positioned to compete for business we do find attractive, with strong ratings,
an expanded product offering, and increased U.S. market presence. For example, market demand for
protection in financial lines, particularly in respect of mortgage reinsurance, has grown in recent periods,
contributing to our recent specialty and casualty growth. However, we cannot assure that these dynamics
will continue or that any overall market increase in demand will indeed materialize. Specific renewal terms
vary widely by insured account and our ability to shape our portfolio to improve its risk and return
characteristics as estimated by us is subject to a range of competitive and commercial factors. Furthermore,
we intend to seek to maintain strong underwriting discipline and in light of prevailing market conditions
cannot provide assurance we will succeed in growing or maintaining our current combined in-force book of
business.
General Economic Conditions
Underlying economic conditions in several of the key markets we serve were generally stable or healthy in
2016. It is possible that some of our core markets, including the U.S., could experience further increases in
economic growth, interest rates and inflation. These developments in turn could affect the markets we serve
in multiple ways, both positively and negatively. However, overall economic performance and future outlook
was impacted by significant geopolitical developments during 2016, including the U.S. federal elections and
Brexit. We expect a period of uncertainty to continue, and that many of the key markets we serve may
continue to be adversely impacted by the financial and fiscal instability of several European jurisdictions and
certain large developing economies, potentially including the impacts of political instability in the Middle
East, Ukraine, Russia; and potentially other jurisdictions. While we believe that in general, the overall
macroeconomic environment might be more favorable in 2017 than in past years, we continue to believe
that meaningful risk remains for continued economic weakness or adverse disruptions in general economic
and financial market conditions. Moreover, future economic growth may be only at a comparably
suppressed rate for a relatively extended period of time. Declining or weak economic conditions could
100
reduce demand for the products sold by us or our customers, or could weaken our overall ability to write
business at risk-adequate rates. In addition, persistent low levels of economic activity could adversely
impact other areas of our financial performance, such as by contributing to unforeseen premium
adjustments, mid-term policy cancellations or commutations, or asset devaluation. Any of the foregoing or
other outcomes of a period of economic weakness could adversely impact our financial position or results of
operations. In addition, during a period of economic weakness, we believe our consolidated credit risk,
reflecting our counterparty dealings with customers, agents, brokers, retrocessionaires, capital providers
and parties associated with our investment portfolio, among others, is likely to be increased. Several of
these risks could materialize, and our financial results could be negatively impacted, even after the end of
any period of economic weakness.
Moreover, we continue to monitor the risk that our principal markets will experience increased inflationary
conditions, which would, among other things, cause costs related to our claims and claim expenses to
increase, and impact the performance of our investment portfolio. The onset, duration and severity of an
inflationary period cannot be estimated with precision.
These economic conditions impact the risk-adjusted attractiveness and absolute returns and yields of our
investment portfolio. In addition, our underwriting activities can be impacted, in particular our specialty and
casualty reinsurance and Lloyd’s portfolios, each of which can be exposed to risks arising from economic
weakness or dislocations, including with respect to a potential increase of claims in directors and officers,
errors and omissions, surety, casualty clash and other lines of business.
The sustained and continuing environment of low interest rates, as compared to past periods, has lowered
the yields at which we invest our assets. However, many market observers have come to forecast the
prospect of higher interest rates, potentially returning to more historical levels over time. Accordingly, as we
invest cash from new premiums written or reinvest the proceeds of invested assets that mature or that we
choose to sell, the yield on our portfolio may be favorably impacted by an increasing interest rate
environment. Although, such an increase in prevailing interest rates can contribute to higher realized and
unrealized losses associated with our currently invested assets in the near term. While it is possible yields
will improve in future periods, we are unable to predict with certainty when conditions will substantially
improve, or the pace of any such improvement.
Legislative and Regulatory Update
In June 2016, U.S. House of Representatives leadership released a Tax Reform Task Force Blueprint
which, among other things, recommended the U.S. move to a consumption or destination-based tax system
and adopt corresponding border adjustments taxing imports. During the first quarter of 2017, the House
Ways and Means Committee has explored adopting the concepts of the Tax Reform Task Force Blueprint
into law. If adopted comprehensively as contemplated by the Tax Reform Task Force Blueprint these
proposals could materially adversely impact the insurance and reinsurance industry and our own results of
operations. In particular, the enactment of such legislation could substantially decrease the exportability of
risk and reduce our access to capital and business as a whole. Such legislation may also result in increased
prices for our products and services, which could cause a decrease in demand for these products and
services. It is also possible that border adjustments could result in retaliatory actions by other countries.
There are many other comprehensive tax reform proposals being discussed in Congress and by the Trump
administration. For example, it is possible that past proposals could return that would limit or deny U.S.
insurers and reinsurers the deduction for reinsurance placed with non-U.S. affiliates. It is also possible that
consideration could be given to past proposals in respect of PFIC rules previously introduced by, at various
times, prior House Ways and Means Chairman Dave Camp or then Senate Finance Committee Chairman
Ron Wyden. In general, such changes, if adopted as drafted, would increase taxation of certain activities
and structures in our industry. Tax reform proposals remain at an early stage and are subject to very
significant uncertainty. At this time we are unable to predict the final form that any legislation would take, or
the ultimate impact on our business and results of operations.
In prior Congressional sessions, Congress has considered a range of potential legislation which would, if
enacted, provide for matters such as the creation of (i) a federal reinsurance catastrophe fund; (ii) a federal
consortium to facilitate qualifying state residual markets and catastrophe funds in securing reinsurance; and
(iii) a federal bond guarantee program for state catastrophe funds in qualifying state residual markets. In
April 2016, Representative David Jolly (R-FL) introduced H.R.4947, the Natural Disaster Reinsurance Act of
101
2016, which would create a federal reinsurance program to cover any losses insured or reinsured by eligible
state programs arising from natural catastrophes, including without limitation losses from floods,
earthquakes, tropical storms, tornadoes, volcanic eruption and, winter storms.
If enacted, this bill, or legislation similar to any of these proposals, would, we believe, likely contribute to the
growth of state entities offering below market priced insurance and reinsurance in a manner adverse to us
and market participants more generally. Such legislation could also encourage cessation, or even reversal,
of reforms and stabilization initiatives that have been enacted in Florida and other catastrophe-exposed
states in recent years. While we believe such legislation will continue to be vigorously opposed, if adopted
these bills would likely diminish the role of private market catastrophe reinsurers and could adversely
impact our financial results, perhaps materially.
In June 2012, Congress passed the Biggert-Waters Bill, which provided for a five-year renewal of the
National Flood Insurance Program (the “NFIP”) and effected substantial reforms in the program. Among
other things, pursuant to this statute, the Federal Emergency Management Agency (“FEMA”) was explicitly
authorized to carry out initiatives to determine the capacity of private insurers, reinsurers, and financial
markets to assume a greater portion of the flood risk exposure in the U.S., and to assess the capacity of the
private reinsurance market to assume some of the program’s risk. In March 2014, the U.S. Congress
passed the Grimm-Waters Act, which amends, delays or defers some of the provisions of Biggert-Waters
Bill. Among other things, the Grimm-Waters Act reverts back to exempting “grandfathered” policies from rate
increases that might otherwise have been applied upon the approval of updated flood maps, introduces
certain caps on the rate of premium increases even where actuarially indicated; eliminates certain
provisions which provided for accelerated rate adequacy on the sale of covered properties; and introduces
policy surcharges of $25 for residences and $250 for commercial properties near-term. We believe that the
passage of the Grimm-Waters Act had an adverse impact on near term prospects for increased U.S. private
flood insurance demand, the stability of the NFIP and the primary insurers that produce policies for the
NFIP or offer private coverages. However, the Grimm-Waters Act did not amend certain features of the
Biggert-Waters Bill which could, over time, support the growth of such demand, albeit at a slower pace and
with greater uncertainty, such as the continuation, subject to annual limits, of some potential premium
increases and the potential continuation of certain reforms relating to commercial properties and to homes
that are not primary residences.
In January 2017, FEMA announced that, acting under authority contemplated by the Biggert-Waters Bill, it
had secured reinsurance protection for the NFIP effective January 1, 2017 through January 1, 2018. Under
the agreement, participating reinsurers agreed to indemnify FEMA for flood claims on an occurrence basis;
the layer is structured to cover 26% of losses between $4 billion and $8 billion. It is possible this program
will continue in future periods and may encourage other U.S. federal programs to explore private market
risk transfer initiatives; however, we cannot assure you that any such developments will in fact occur, or that
if they do transpire we will succeed in participating.
In March 2016, the House Committee on Financial Services unanimously approved H.R. 2901, the Flood
Insurance Market Parity and Modernization Act, which would clarify that flood insurance provided by private
firms satisfies the requirement that homeowners maintain flood coverage on mortgaged properties that are
backed by a federal guarantee and located in a flood zone. The bill also would direct FEMA to consider
policy holders who drop a NFIP policy and then later return to the NFIP as having continuous coverage if
they can demonstrate that a flood insurance policy from a private firm was maintained throughout the
interim period. If ultimately approved by the full Congress, we believe that such legislation could
incrementally contribute to the growth of private residential flood opportunities and the financial stabilization
of the NFIP. However, we cannot assure you that such legislation will indeed be enacted or that such
benefits will be recognized if it is.
In 2007, the state of Florida enhanced the authority of the FHCF to offer coverage at below-market rates
and expanded the ability of the state-sponsored insurer, Citizens, to compete with private insurance
companies, and other companies that cede business to us. This legislation reduced the role of the private
insurance and reinsurance markets in Florida, a key target market of ours. In succeeding years, Florida
legislation has allowed Citizens to increase rates and cut back support for the FHCF. The rate increases
and cut back on coverage by the FHCF and Citizens have supported, over this period, a relatively increased
role for private insurers in Florida, a market in which we have established substantial market share.
102
However, we cannot assure you that this increased role will continue or be maintained, or that adverse new
legislation will not be passed.
Internationally, in the wake of the large natural catastrophes in 2011, a number of proposals have been
introduced to alter the financing of natural catastrophes in several of the markets in which we operate. For
example, the Thailand government has announced it is studying proposals for a natural catastrophe fund,
under which the government would provide coverage for natural disasters in excess of an industry retention
and below a certain limit, after which private reinsurers would continue to participate. The government of the
Philippines has announced that it is considering similar proposals. Indonesia’s financial services authority
has announced a proposal to increase the amount of insurance business placed with domestic reinsurers. A
range of proposals from varying stakeholders have been reported to have been made to alter the current
regimes for insuring flood risk in the U.K. and Australia, and earthquake risk in New Zealand. A number of
these jurisdictions constitute large current or potential future markets for catastrophic coverage. If these
proposals are enacted and reduce market opportunities for our clients or for the reinsurance industry, we
could be adversely impacted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following risk management discussion and the estimated amounts generated from sensitivities
presented are forward-looking statements of market risk assuming certain market conditions occur. Actual
results in the future may differ materially from these estimated results due to, among other things, actual
developments in the global financial markets and changes in the composition of our investment portfolio,
derivatives and product offerings. The results of analysis used by us to assess and mitigate risk should not
be considered projections of future events or losses. See “Note On Forward-Looking Statements” for
additional discussion regarding forward-looking statements included herein.
We are principally exposed to four types of market risk: interest rate risk; foreign currency risk; credit risk;
and equity price risk. Our policies to address these risks in 2016 were not materially different than those
used in 2015.
Our guidelines permit investments in derivative instruments such as futures, forward contracts, options,
swap agreements and other derivative contracts which may be used to assume risk or for hedging
purposes. Refer to “Note 19. Derivative Instruments in our Notes to the Consolidated Financial Statements”
for additional information related to derivatives we have entered into.
Interest Rate Risk
Interest rate risk is the price sensitivity of a security to changes in interest rates. Our investment portfolio
includes fixed maturity investments and short term investments, whose fair values will fluctuate with
changes in interest rates. Our liabilities are accrued at a static rate in accordance with GAAP. However, we
consider our liabilities, namely our net claims and claims expenses, to have an economic exposure to
inflation and interest rate risk. As a result, we are exposed to interest rate risk with respect to our overall net
asset position and more generally from an accounting standpoint since the assets are carried at fair value,
while liabilities are accrued at a static rate.
We may utilize derivative instruments via an interest rate overlay strategy, for example, to manage or
optimize our duration and curve exposures. In addition, we attempt to maintain adequate liquidity in our
fixed maturity investments portfolio to fund operations, pay reinsurance and insurance liabilities and claims
and provide funding for unexpected events.
103
The following tables summarize the aggregate hypothetical increase (decrease) in fair value from an
immediate parallel shift in the treasury yield curve, assuming credit spreads remain constant, reflecting the
use of an immediate time horizon since this presents the worst-case scenario, in our fixed maturity
investment and short term investments portfolio for the years indicated:
At December 31, 2016
(in thousands, except
percentages)
Fair value of fixed maturity
and short term
investments
Net increase (decrease) in
fair value
Percentage change in fair
value
At December 31, 2015
(in thousands, except
percentages)
Fair value of fixed maturity
and short term
investments
Net increase (decrease) in
fair value
Percentage change in fair
value
-100
-50
Base
50
100
Interest Rate Shift in Basis Points
$ 8,468,836
$ 8,363,659
$ 8,259,623
$8,156,725
$8,054,968
$
209,213
$
104,036
$
— $ (102,898)
$ (204,655)
2.5%
1.3%
—%
(1.2)%
(2.5)%
Interest Rate Shift in Basis Points
-100
-50
Base
50
100
$ 8,213,329
$ 8,101,697
$ 7,991,219
$7,881,894
$7,773,723
$
222,110
$
110,478
$
— $ (109,325)
$ (217,496)
2.8%
1.4%
—%
(1.4)%
(2.7)%
As noted above, we use derivative instruments, namely interest rate futures within our portfolio of fixed
maturity investments to manage our exposure to interest rate risk, which can include increasing or
decreasing our exposure to this risk. At December 31, 2016, we had $1,208.3 million of notional long
positions and $727.9 million of notional short positions of primarily Eurodollar, U.S. Treasury and non-U.S.
dollar futures contracts (2015 - $1,012.5 million and $1,115.9 million, respectively). Refer to “Note 19.
Derivative Instruments in our Notes to the Consolidated Financial Statements” for additional information
related to interest rate futures entered into by us. The aggregate hypothetical impact of an immediate
upward parallel shift in the treasury yield curve of 100 basis points would be a decrease in the market value
of our net position in these derivatives of approximately $2.8 million at December 31, 2016. Conversely, the
aggregate hypothetical impact of an immediate downward parallel shift in the treasury yield curve of 100
basis points would be an increase in the market value of our net position in these derivatives of
approximately $4.1 million at December 31, 2016. The foregoing reflects the use of an immediate time
horizon, since this presents the worst-case scenario. Credit spreads are assumed to remain constant in
these hypothetical examples.
Foreign Currency Risk
Our functional currency is the U.S. dollar. We routinely write a portion of our business in currencies other
than U.S. dollars and may, from time to time, experience foreign exchange gains and losses in our
consolidated financial statements. All changes in exchange rates, with the exception of non-monetary
assets and liabilities, are recognized in our consolidated statements of operations. We are primarily
impacted by the foreign currency risk exposures noted below, and may, from time to time, enter into foreign
currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of
non-U.S. dollar denominated assets and liabilities. Refer to “Note 19. Derivative Instruments in our Notes to
the Consolidated Financial Statements” for additional information related to foreign currency forward and
option contracts we have entered into. We may determine to not match a portion of our projected liabilities
in foreign currencies with investments in the same currencies, which would increase our exposure to foreign
currency fluctuations and increase the volatility of our results of operations.
104
Underwriting Operations
Our foreign currency policy with regard to our underwriting operations is generally to hold foreign currency
assets, including cash, investments and receivables that approximate the foreign currency liabilities,
including claims and claim expense reserves and reinsurance balances payable. When necessary, we may
use foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on
the value of non-U.S. dollar denominated assets and liabilities associated with our underwriting operations.
Investment Portfolio
Our investment operations are exposed to currency fluctuations through our investments in non-U.S. dollar
fixed maturity investments, short term investments and other investments. To economically hedge our
exposure to currency fluctuations from these investments, we have entered into foreign currency forward
contracts. In certain instances, we may assume foreign exchange risk as part of our investment strategy.
Unrealized foreign exchange gains or losses arising from non-U.S. dollar investments classified as available
for sale are recorded in accumulated other comprehensive income. Realized and unrealized foreign
exchange gains or losses from the sale of our non-U.S. dollar fixed maturity investments trading and other
investments, and foreign exchange gains or losses associated with our hedging of these non-U.S. dollar
investments are recorded in net foreign exchange (losses) gains in our consolidated statements of
operations. In the future, we may choose to increase our exposure to non-U.S. dollar investments.
The following tables summarize the principal currencies creating foreign exchange risk for us and our net
foreign currency exposures and the impact of a hypothetical 10% change in our net foreign currency
exposure, keeping all other variables constant, as of the dates indicated:
At December 31,
2016
(in thousands, except
for percentages)
Net assets
denominated in
foreign currencies
Net foreign currency
derivatives notional
amounts
Total net foreign
currency exposure
Net foreign currency
exposure as a
percentage of total
shareholders’ equity
attributable to
RenaissanceRe
Impact of a
hypothetical 10%
change in total net
foreign currency
exposure
AUD
CAD
EUR
GBP
JPY
NZD
Other
Total
$ 1,049
$ 42,164
$ (39,844)
$ 18,424
$ (14,248)
$ (23,723)
$ (6,989)
$ (23,167)
(465)
(34,877)
67,662
(16,636)
26,200
22,668
(2,232)
62,320
$
584
$ 7,287
$ 27,818
$ 1,788
$ 11,952
$
(1,055)
$ (9,221)
$
39,153
—%
0.1%
0.6%
—%
0.2%
—%
(0.2)%
0.8%
$
(58)
$
(729)
$ (2,782)
$
(179)
$ (1,195)
$
106
$
922
$
(3,915)
105
At December 31,
2015
(in thousands, except
for percentages)
Net assets
denominated in
foreign currencies
Net foreign currency
derivatives notional
amounts
Total net foreign
currency exposure
Net foreign currency
exposure as a
percentage of total
shareholders’ equity
attributable to
RenaissanceRe
Impact of a
hypothetical 10%
change in total net
foreign currency
exposure
Credit Risk
AUD
CAD
EUR
GBP
JPY
NZD
Other
Total
$ 19,707
$ 20,885
$ (2,861)
$ 27,450
$ (1,789)
$ (59,223)
$ (9,000)
$ (4,831)
(34,766)
(18,583)
(9,659)
(37,107)
(83)
54,150
4,963
(41,085)
$(15,059)
$ 2,302
$(12,520)
$ (9,657)
$ (1,872)
$ (5,073)
$ (4,037)
$ (45,916)
(0.3)%
—%
(0.3)%
(0.2)%
—%
(0.1)%
(0.1)%
(1.0)%
$ 1,506
$
(230)
$ 1,252
$
966
$
187
$
507
$
404
$
4,592
Credit risk relates to the uncertainty of a counterparty’s ability to make timely payments in accordance with
contractual terms of the instrument or contract. We are primarily exposed to direct credit risk within our
portfolios of fixed maturity and short term investments, and through customers and reinsurers in the form of
premiums receivable and reinsurance recoverables, respectively, as discussed below.
Fixed Maturity Investments and Short Term Investments
Credit risk related to our fixed maturity investments and short term investments is the exposure to adverse
changes in the creditworthiness of individual investment holdings, issuers, groups of issuers, industries and
countries. We manage credit risk in our fixed maturity investments and short term investments through the
credit research performed primarily by the investment management service providers and our evaluation of
these investment managers adherence to investment mandates provided to them. The management of
credit risk in the investment portfolio is integrated in our credit risk management governance framework and
the management of credit exposures and concentrations within the investment portfolio are carried out in
accordance with our risk policies, limits and risk concentrations as overseen by the Investment and Risk
Management Committee of our Board of Directors. In the investment portfolio, we review on a regular basis
our asset concentration, credit quality and adherence to credit limit guidelines. At December 31, 2016, our
invested asset portfolio had a dollar weighted average rating of AA (2015 - AA). In addition, we limit the
amount of credit exposure to any one financial institution and, except for U.S. Government securities, none
of our investments exceeded 10% of shareholders’ equity at December 31, 2016.
106
The following table summarizes the ratings of our fixed maturity investments and short term investments
(using ratings assigned by S&P, or Moody’s and/or other rating agencies when S&P ratings were not
available) as a percentage of total fixed maturity investments and short term investments as of the dates
indicated:
At December 31,
2016
2015
AAA
AA
A
BBB
Non-investment grade
Not rated
Total
29.0%
45.8%
7.8%
6.9%
10.1%
0.4%
26.7%
44.8%
9.8%
9.6%
8.6%
0.5%
100.0%
100.0%
We consider the impact of credit spread movements on the fair value of our fixed maturity and short term
investments portfolio. As credit spreads widen, the fair value of our fixed maturity and short term
investments decreases, and vice versa.
The following tables summarize the aggregate hypothetical increase (decrease) in fair value from an
immediate parallel shift in credit spreads, assuming the treasury yield curve remains constant, reflecting the
use of an immediate time horizon since this presents the worst-case scenario, in our fixed maturity
investments and short term investments portfolio for the years indicated:
At December 31, 2016
(in thousands, except
percentages)
Fair value of fixed income
and short term
investments
Net increase (decrease) in
fair value
Percentage change in fair
value
At December 31, 2015
(in thousands, except
percentages)
Fair value of fixed income
and short term
investments
Net increase (decrease) in
fair value
Percentage change in fair
value
Credit Spread Shift in Basis Points
-100
-50
Base
50
100
$ 8,415,929
$ 8,337,776
$ 8,259,623
$8,181,470
$8,103,317
$
156,306
$
78,153
$
— $ (78,153)
$ (156,306)
1.9%
0.9%
—%
(0.9)%
(1.9)%
Credit Spread Shift in Basis Points
-100
-50
Base
50
100
$ 8,164,940
$ 8,078,079
$ 7,991,219
$7,904,359
$7,817,498
$
173,721
$
86,860
$
— $ (86,860)
$ (173,721)
2.2%
1.1%
—%
(1.1)%
(2.2)%
We also employ credit derivatives in our investment portfolio to either assume credit risk or hedge our credit
exposure. At December 31, 2016, we had outstanding credit derivatives of $Nil in notional long positions
and $75.2 million in notional short positions, denominated in U.S. dollars (2015 - $Nil and $46.1 million,
respectively). Refer to “Note 19. Derivative Instruments in our Notes to the Consolidated Financial
Statements” for additional information related to credit derivatives entered into by us. The aggregate
hypothetical market value impact from an immediate upward shift in credit spreads of 100 basis points
would cause a decrease in the market value of our net position in these derivatives of approximately $4.9
107
million at December 31, 2016. Conversely, the aggregate hypothetical market value impact from an
immediate downward shift in credit spreads of 100 basis points would cause an increase in the market
value of our net position in these derivatives of approximately $1.2 million at December 31, 2016. The
foregoing reflects the use of an immediate time horizon, since this presents the worst-case scenario.
Premiums Receivable and Reinsurance Recoverable
Premiums receivable from ceding companies are subject to credit risk. To mitigate credit risk related to
reinsurance premiums receivable, we have established standards for ceding companies and, in most cases,
have a contractual right of offset allowing us to settle claims net of any reinsurance premiums receivable.
We also have reinsurance recoverable amounts from our reinsurers. To mitigate credit risk related to our
reinsurance recoverable amounts, we consider the financial strength of our reinsurers when determining
whether to purchase coverage from them. We generally obtain reinsurance coverage from companies rated
“A-“ or better by S&P unless the obligations are collateralized. We routinely monitor the financial
performance and rating status of all material reinsurers. Refer to “Part II, Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations, Summary of Critical Accounting Estimates,
Reinsurance Recoverables” for additional information with respect to reinsurance recoverable.
Equity Price Risk
Equity price risk is the potential loss arising from changes in the market value of equities. As detailed in the
table below, we are directly exposed to this risk through our investment in equity investments trading which
are traded on nationally recognized stock exchanges; and indirectly exposed to this risk through our
investments in: private equity partnerships whose exit strategies often depend on the equity markets;
certain hedge funds that have net long equity positions; and other ventures, under equity method. The
following table summarizes a hypothetical 10% increase and decline in the carrying value of our equity
investments trading, private equity partnerships, hedge funds and investments in other ventures, under
equity method, holding all other factors constant, at the dates indicated:
At December 31,
(in thousands, except for percentages)
Equity investments trading, at fair value
Private equity investments, at fair value
Investments in other ventures, under equity method
Hedge funds, at fair value
Total carrying value of investments exposed to equity price risk
Impact of a hypothetical 10% increase in the carrying value of investments
exposed to equity price risk
Impact of a hypothetical 10% decrease in the carrying value of
investments exposed to equity price risk
2016
2015
$
383,313 $
393,877
191,061
124,227
1,495
214,848
132,351
2,289
700,096 $
743,365
70,010 $
74,337
(70,010) $
(74,337)
$
$
$
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 15(a) of this Report for the Consolidated Financial Statements of
RenaissanceRe and the Notes thereto, as well as the Schedules to the Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
108
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(b) and 15d-15(b) of the Exchange Act, as of
the end of the period covered by this report. Based upon that evaluation, our management, including our
Chief Executive Officer and Chief Financial Officer, concluded that, at December 31, 2016, our disclosure
controls and procedures were effective to provide reasonable assurance that information required to be
disclosed in Company reports filed or submitted under the Exchange Act is (i) recorded, processed,
summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended. Our internal control over financial reporting was designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles and to reflect management’s
judgments and estimates concerning effects of events and transactions that are accounted for or disclosed.
Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and the
dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in accordance with authorizations of our
management and directors; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could have a material effect on our
financial statements.
There are inherent limitations to the effectiveness of any controls. Our Board of Directors and management,
including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls
and procedures or internal control over financial reporting will prevent all errors and all fraud. Controls, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the controls are met. Further, we believe that the design of controls must reflect appropriate
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in controls, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within RenaissanceRe have been detected.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed our
internal control over financial reporting as of December 31, 2016 using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework (2013). Based on this assessment, management concluded that RenaissanceRe
internal control over financial reporting was effective as of December 31, 2016.
Ernst & Young Ltd., the independent registered public accountants who audited our consolidated financial
statements included in this Form 10-K, audited our internal control over financial reporting as of
December 31, 2016 and their attestation report on our internal control over financial reporting appears
below.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended
December 31, 2016, which were identified in connection with our evaluation required pursuant to Rules
13a-15 or 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
109
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of RenaissanceRe Holdings Ltd.:
We have audited RenaissanceRe Holdings Ltd. and Subsidiaries’ internal control over financial reporting as
of December 31, 2016, based on criteria established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO
criteria). RenaissanceRe Holdings Ltd. and Subsidiaries’ management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, RenaissanceRe Holdings Ltd. and Subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of RenaissanceRe Holdings Ltd. and Subsidiaries
as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive
income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2016 of RenaissanceRe Holdings Ltd. and Subsidiaries and our report dated February 22,
2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young Ltd.
Hamilton, Bermuda
February 22, 2017
ITEM 9B. OTHER INFORMATION
None.
110
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item relating to our directors, executive officers and corporate governance
is incorporated herein by reference to information found in our Proxy Statement for the Annual General
Meeting of Shareholders to be held on May 17, 2017 (our “Proxy Statement”). We intend to file our Proxy
Statement no later than 120 days after the close of the fiscal year.
We have adopted a Code of Ethics within the meaning of Item 406 of Regulation S-K of the Exchange Act
that applies to all of our directors and employees, including our principal executive officer, principal financial
officer, principal accounting officer, controller and other persons performing similar functions. The Code of
Ethics is available free of charge on our website www.renre.com. We will also provide a printed version of
the Code of Ethics to any shareholder who requests it. We intend to disclose any amendments to our Code
of Ethics by posting such information on our website. Any waivers of our Code of Ethics applicable to our
directors, principal executive officer, principal financial officer, principal accounting officer or controller and
other persons who perform similar functions will be disclosed on our website or by filing a Form 8-K, as
required.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item relating to executive compensation is incorporated herein by reference
to information included in our Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The information required by this Item relating to security ownership of certain beneficial owners and
management and securities authorized for issuance under equity compensation plans is incorporated
herein by reference to information included in our Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item relating to certain relationships and related transactions and director
independence is incorporated herein by reference to information included in our Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item relating to principal accountant fees and services is incorporated
herein by reference to information included in our Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
The Consolidated Financial Statements of RenaissanceRe Holdings Ltd. and related Notes thereto are
listed in the accompanying Index to Consolidated Financial Statements and are filed as part of this Form
10-K.
Financial Statement Schedules
The Schedules to the Consolidated Financial Statements of RenaissanceRe Holdings Ltd. are listed in the
accompanying Index to Schedules to Consolidated Financial Statements and are filed as a part of this Form
10-K.
Exhibits
See the Exhibit Index immediately following the Schedules to Consolidated Financial Statements of
RenaissanceRe Holdings Ltd. in this Form 10-K.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
111
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 22, 2017
RENAISSANCERE HOLDINGS LTD.
/s/ Kevin J. O’Donnell
Kevin J. O’Donnell
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
Chief Executive Officer, President and Director
February 22, 2017
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
February 22, 2017
(Principal Financial Officer)
Senior Vice President and Chief Accounting Officer
February 22, 2017
(Principal Accounting Officer)
Non-Executive Chair of the Board of Directors
February 22, 2017
/s/ Kevin J. O’Donnell
Kevin J. O’Donnell
/s/ Robert Qutub
Robert Qutub
/s/ James C. Fraser
James C. Fraser
/s/ James L. Gibbons
James L. Gibbons
/s/ David C. Bushnell
David C. Bushnell
/s/ Brian G. J. Gray
Brian G. J. Gray
Director
Director
/s/ William F. Hagerty IV
William F. Hagerty IV
Director
/s/ Jean D. Hamilton
Jean D. Hamilton
/s/ Henry Klehm, III
Henry Klehm, III
/s/ Ralph B. Levy
Ralph B. Levy
/s/ Carol P. Sanders
Carol P. Sanders
Director
Director
Director
Director
/s/ Anthony M. Santomero Director
Anthony M. Santomero
/s/ Edward J. Zore
Edward J. Zore
Director
112
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
February 22, 2017
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014.
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016,
2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31,
2016, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RENAISSANCERE HOLDINGS LTD.
We have audited the accompanying consolidated balance sheets of RenaissanceRe Holdings Ltd. and
Subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2016. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of RenaissanceRe Holdings Ltd. and Subsidiaries at December 31, 2016 and
2015, and the consolidated results of their operations and their cash flows for each of the three years in the
period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), RenaissanceRe Holdings Ltd.’s internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report
dated February 22, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young Ltd.
Hamilton, Bermuda
February 22, 2017
F-2
RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets
At December 31, 2016 and 2015
(in thousands of United States Dollars, except per share amounts)
Assets
Fixed maturity investments trading, at fair value - amortized cost
$6,920,690 at December 31, 2016 (2015 - $6,825,877) (Notes 5 and 6) $
6,891,244 $
6,765,005
December 31,
2016
December 31,
2015
Fixed maturity investments available for sale, at fair value - amortized
cost $Nil at December 31, 2016 (2015 - $15,943) (Notes 5 and 6)
Short term investments, at fair value (Notes 5 and 6)
Equity investments trading, at fair value (Notes 5 and 6)
Other investments, at fair value (Notes 5 and 6)
Investments in other ventures, under equity method (Note 5)
Total investments
Cash and cash equivalents
Premiums receivable
Prepaid reinsurance premiums (Note 7)
Reinsurance recoverable (Notes 7 and 8)
Accrued investment income
Deferred acquisition costs
Receivable for investments sold
Other assets
Goodwill and other intangible assets (Note 4)
Total assets
Liabilities, Noncontrolling Interests and Shareholders’ Equity
Liabilities
Reserve for claims and claim expenses (Note 8)
Unearned premiums
Debt (Note 9)
Reinsurance balances payable
Payable for investments purchased
Other liabilities
Total liabilities
Commitments and Contingencies (Note 20)
Redeemable noncontrolling interests (Note 10)
Shareholders’ Equity (Note 12)
Preference shares: $1.00 par value – 16,000,000 shares issued and
outstanding at December 31, 2016 (2015 – 16,000,000)
Common shares: $1.00 par value – 41,187,413 shares issued and
outstanding at December 31, 2016 (2015 – 43,701,064)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity attributable to RenaissanceRe
Total liabilities, noncontrolling interests and shareholders’ equity
—
17,813
1,368,379
1,208,401
383,313
549,805
124,227
393,877
481,621
132,351
9,316,968
8,999,068
421,157
987,323
441,260
279,564
38,076
335,325
105,841
175,382
251,186
506,885
778,009
230,671
134,526
39,749
199,380
220,834
181,011
265,154
$ 12,352,082 $ 11,555,287
$
2,848,294 $
2,767,045
1,231,573
948,663
673,983
305,714
301,684
889,102
960,495
523,974
391,378
245,145
6,309,911
5,777,139
1,175,594
1,045,964
400,000
400,000
41,187
216,558
1,133
43,701
507,674
2,108
4,207,699
4,866,577
3,778,701
4,732,184
$ 12,352,082 $ 11,555,287
See accompanying notes to the consolidated financial statements
F-3
RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2016, 2015, and 2014
(in thousands of United States Dollars, except per share amounts)
2016
2015
2014
Revenues
Gross premiums written
Net premiums written (Note 7)
Increase in unearned premiums
Net premiums earned (Note 7)
Net investment income (Note 5)
Net foreign exchange (losses) gains
Equity in earnings of other ventures (Note 5)
Other income (loss)
Net realized and unrealized gains (losses) on investments (Note 5)
Total revenues
Expenses
Net claims and claim expenses incurred (Notes 7 and 8)
Acquisition expenses
Operational expenses
Corporate expenses
Interest expense (Note 9)
Total expenses
Income before taxes
Income tax (expense) benefit (Note 15)
Net income
Net income attributable to redeemable noncontrolling interests (Note
10)
Net income attributable to RenaissanceRe
Dividends on preference shares (Note 12)
Net income available to RenaissanceRe common
shareholders
Net income available to RenaissanceRe common shareholders per
common share – basic (Note 13)
Net income available to RenaissanceRe common shareholders per
common share – diluted (Note 13)
Dividends per common share (Note 12)
$ 2,374,576 $ 2,011,310 $ 1,550,572
$ 1,535,312 $ 1,416,183 $ 1,068,236
(5,820)
1,062,416
124,316
6,260
26,075
(423)
41,433
1,260,077
(15,632)
1,400,551
152,567
(3,051)
20,481
13,472
(68,918)
1,515,102
(131,882)
1,403,430
181,726
(13,788)
963
14,178
141,328
1,727,837
530,831
289,323
197,749
37,402
42,144
1,097,449
630,388
(340)
630,048
(127,086)
502,962
(22,381)
448,238
238,592
219,112
76,514
36,270
1,018,726
496,376
45,866
542,242
197,947
144,476
190,639
22,749
17,402
573,213
686,864
(608)
686,256
(111,050)
431,192
(22,381)
(153,538)
532,718
(22,381)
$
$
$
$
480,581 $
408,811 $
510,337
11.50 $
9.36 $
12.77
11.43 $
1.24 $
9.28 $
1.20 $
12.60
1.16
See accompanying notes to the consolidated financial statements
F-4
RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2016, 2015 and 2014
(in thousands of United States Dollars)
Comprehensive income
Net income
Change in net unrealized gains on investments
Comprehensive income
Net income attributable to redeemable noncontrolling
interests
Comprehensive income attributable to redeemable
noncontrolling interests
2016
2015
2014
$
630,048 $
542,242 $
686,256
(975)
(1,308)
(715)
629,073
540,934
685,541
(127,086)
(111,050)
(153,538)
(127,086)
(111,050)
(153,538)
Comprehensive income attributable to RenaissanceRe
$
501,987 $
429,884 $
532,003
Disclosure regarding net unrealized gains
Total net realized and unrealized holding gains (losses) on
investments
Net realized gains on fixed maturity investments available for
sale
Change in net unrealized gains on investments
$
$
403 $
(982) $
(715)
(1,378)
(326)
(975) $
(1,308) $
—
(715)
See accompanying notes to the consolidated financial statements
F-5
RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2016, 2015 and 2014
(in thousands of United States Dollars)
Preference shares
Balance – January 1
Balance – December 31
Common shares
Balance – January 1
Issuance of shares
Repurchase of shares
Exercise of options and issuance of restricted stock awards
(Notes 12 and 17)
Balance – December 31
Additional paid-in capital
Balance – January 1
Issuance of shares
Repurchase of shares
Change in redeemable noncontrolling interest
Exercise of options and issuance of restricted stock awards
(Notes 12 and 17)
Balance – December 31
Accumulated other comprehensive income
Balance – January 1
Change in net unrealized gains on investments
Balance – December 31
Retained earnings
Balance – January 1
Net income
Net income attributable to redeemable noncontrolling
interests (Note 10)
Repurchase of shares
Dividends on common shares
Dividends on preference shares
Balance – December 31
Total shareholders’ equity
2016
2015
2014
$
400,000 $
400,000 $
400,000
400,000
400,000
400,000
43,701
—
(2,741)
227
41,187
38,442
7,435
(2,473)
297
43,701
507,674
—
—
754,384
43,646
—
(5,355)
151
38,442
—
—
(306,693)
(257,401)
(11,702)
(1,655)
(762)
1,274
17,232
216,558
11,453
507,674
10,428
—
2,108
(975)
1,133
3,416
(1,308)
2,108
4,131
(715)
3,416
3,778,701
3,423,857
3,456,607
630,048
542,242
686,256
(127,086)
(111,050)
—
(51,583)
(22,381)
—
(53,967)
(22,381)
(153,538)
(497,175)
(45,912)
(22,381)
4,207,699
3,778,701
$ 4,866,577 $ 4,732,184 $ 3,865,715
3,423,857
See accompanying notes to the consolidated financial statements
F-6
RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2016, 2015 and 2014
(in thousands of United States Dollars)
Cash flows provided by operating activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization, accretion and depreciation
Equity in undistributed losses (earnings) of other ventures
Net realized and unrealized (gains) losses on investments
Net unrealized (gains) losses included in net investment
income
Net unrealized losses included in other income (loss)
Change in:
Premiums receivable
Prepaid reinsurance premiums
Reinsurance recoverable
Deferred acquisition costs
Reserve for claims and claim expenses
Unearned premiums
Reinsurance balances payable
Other
Net cash provided by operating activities
Cash flows (used in) provided by investing activities
Proceeds from sales and maturities of fixed maturity
investments trading
Purchases of fixed maturity investments trading
Proceeds from sales and maturities of fixed maturity
investments available for sale
Net sales (purchases) of equity investments trading
Net (purchases) sales of short term investments
Net (purchases) sales of other investments
Net (purchases) sales of investments in other ventures
Net sales of other assets
Net purchase of Platinum
Net cash (used in) provided by investing activities
Cash flows used in financing activities
Dividends paid – RenaissanceRe common shares
Dividends paid – preference shares
RenaissanceRe common share repurchases
Issuance of debt
Net third party redeemable noncontrolling interest share
transactions
Net cash used in financing activities
Effect of exchange rate changes on foreign currency cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
2016
2015
2014
$
630,048 $
542,242 $
686,256
29,304
5,504
(141,328)
(11,542)
—
(209,314)
(210,589)
(145,038)
(135,945)
81,249
342,471
150,009
85,000
469,829
18,179
(10,087)
68,918
13,549
426
(105,281)
(128,410)
(64,104)
(89,241)
(43,310)
144,040
64,924
2,892
414,737
47,771
(19,990)
(41,433)
1,393
1,612
34,080
(28,678)
34,331
(28,375)
(151,220)
34,498
161,558
(71,146)
660,657
8,102,514
(8,282,720)
9,481,742
(9,683,068)
7,682,573
(7,639,178)
17,692
184,788
(118,617)
(68,589)
—
400
—
(164,532)
(51,583)
(22,381)
(309,434)
—
8,688
(147,558)
669,116
15,843
(10,150)
4,500
(678,152)
(339,039)
(53,967)
(22,381)
(259,874)
445,589
(2,990)
(386,388)
(4,637)
(85,728)
506,885
421,157 $
(193,032)
(83,665)
(10,732)
(18,699)
525,584
506,885 $
7,088
(20,003)
45,023
59,120
1,030
6,000
—
141,653
(45,912)
(22,381)
(514,678)
—
(111,707)
(694,678)
9,920
117,552
408,032
525,584
See accompanying notes to the consolidated financial statements
F-7
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(unless otherwise noted, amounts in tables expressed in thousands of United States (“U.S.”) dollars, except per share
amounts and percentages)
NOTE 1. ORGANIZATION
RenaissanceRe Holdings Ltd. (“RenaissanceRe”) was formed under the laws of Bermuda on June 7, 1993.
Together with its wholly owned and majority-owned subsidiaries and DaVinciRe (as defined below), which
are collectively referred to herein as the “Company”, RenaissanceRe provides reinsurance and insurance
coverages and related services to a broad range of customers.
• On March 2, 2015, RenaissanceRe completed its acquisition of Platinum Underwriters Holdings, Ltd.
(“Platinum”). As a result of the acquisition, Platinum and its subsidiaries became wholly owned
subsidiaries of RenaissanceRe, including Renaissance Reinsurance U.S. Inc., formerly known as
Platinum Underwriters Reinsurance, Inc. ("Renaissance Reinsurance U.S."). The Company
accounted for the acquisition of Platinum under the acquisition method of accounting in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
Business Combinations and the Company's consolidated results of operations include those of
Platinum from March 2, 2015. Refer to “Note 3. Acquisition of Platinum” for more information.
• Renaissance Reinsurance Ltd. (“Renaissance Reinsurance”), a Bermuda-domiciled reinsurance
company, is the Company’s principal reinsurance subsidiary and provides property and casualty and
specialty reinsurance coverages to insurers and reinsurers on a worldwide basis. Effective October 1,
2016, each of Renaissance Reinsurance Specialty Risks Ltd. (“RenaissanceRe Specialty Risks”) and
Platinum Underwriters Bermuda, Ltd. (“Platinum Bermuda”) merged into Renaissance Reinsurance,
with Renaissance Reinsurance being the sole surviving entity.
• Renaissance Reinsurance U.S. is a reinsurance company domiciled in the state of Maryland that
provides property and casualty and specialty reinsurance coverages to insurers and reinsurers,
primarily in the Americas.
• RenaissanceRe Underwriting Managers U.S. LLC, a specialty reinsurance agency domiciled in the
state of Connecticut, provides specialty treaty reinsurance solutions on both a quota share and
excess of loss basis; and writes business on behalf of RenaissanceRe Specialty U.S. Ltd.
(“RenaissanceRe Specialty U.S.”), a Bermuda-domiciled reinsurer, which operates subject to U.S.
federal income tax, and RenaissanceRe Syndicate 1458 (“Syndicate 1458”).
• Syndicate 1458 is the Company’s Lloyd’s syndicate. RenaissanceRe Corporate Capital (UK) Limited
(“RenaissanceRe CCL”), a wholly owned subsidiary of RenaissanceRe, is Syndicate 1458’s sole
corporate member and RenaissanceRe Syndicate Management Ltd. (“RSML”), a wholly owned
subsidiary of RenaissanceRe, is the managing agent for Syndicate 1458.
• The Company also manages property, casualty and specialty reinsurance business written on behalf
of joint ventures, which principally include Top Layer Reinsurance Ltd. (“Top Layer Re”), recorded
under the equity method of accounting, and DaVinci Reinsurance Ltd. (“DaVinci”). Because the
Company owns a noncontrolling equity interest in, but controls a majority of the outstanding voting
power of DaVinci’s parent, DaVinciRe Holdings Ltd. (“DaVinciRe”), the results of DaVinci and
DaVinciRe are consolidated in the Company’s financial statements. Redeemable noncontrolling
interest – DaVinciRe represents the interests of external parties with respect to the net income and
shareholders’ equity of DaVinciRe. Renaissance Underwriting Managers, Ltd. (“RUM”), a wholly
owned subsidiary, acts as exclusive underwriting manager for these joint ventures in return for fee-
based income and profit participation.
• RenaissanceRe Medici Fund Ltd. (“Medici”) is an exempted fund, incorporated under the laws of
Bermuda. Medici’s objective is to seek to invest substantially all of its assets in various insurance
based investment instruments that have returns primarily tied to property catastrophe risk. Third party
investors have subscribed for the majority of the participating, non-voting common shares of Medici.
Because the Company owns a noncontrolling equity interest in, but controls a majority of the
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outstanding voting power of Medici, the results of Medici are consolidated in the Company’s financial
statements and all significant inter-company transactions have been eliminated. Redeemable
noncontrolling interest - Medici represents the interests of external parties with respect to the net
income and shareholders’ equity of Medici.
• Effective January 1, 2013, the Company formed and launched a managed joint venture, Upsilon RFO
Re Ltd., formerly known as Upsilon Reinsurance II Ltd. (“Upsilon RFO”), a Bermuda domiciled special
purpose insurer (“SPI”), to provide additional capacity to the worldwide aggregate and per-occurrence
primary and retrocessional property catastrophe excess of loss market. Upsilon RFO is considered a
variable interest entity (“VIE”) and the Company is considered the primary beneficiary. As a result,
Upsilon RFO is consolidated by the Company and all significant inter-company transactions have
been eliminated.
• Effective November 13, 2014, the Company incorporated RenaissanceRe Upsilon Fund Ltd. (“Upsilon
Fund”), an exempted Bermuda limited segregated accounts company. Upsilon Fund was formed to
provide a fund structure through which third party investors can invest in reinsurance risk managed by
the Company. As a segregated accounts company, Upsilon Fund is permitted to establish segregated
accounts to invest in and hold identified pools of assets and liabilities. Each pool of assets and
liabilities in each segregated account is structured to be ring-fenced from any claims from the
creditors of Upsilon Fund’s general account and from the creditors of other segregated accounts
within Upsilon Fund. Third party investors purchase redeemable, non-voting preference shares linked
to specific segregated accounts of Upsilon Fund and own 100% of these shares. Upsilon Fund is an
investment company and is considered a VIE. The Company is not considered the primary
beneficiary of Upsilon Fund and, as a result, the Company does not consolidate the financial position
and results of operations of Upsilon Fund.
• Effective November 7, 2016, Fibonacci Reinsurance Ltd. ("Fibonacci Re"), a Bermuda-domiciled SPI,
was formed to provide collateralized capacity to Renaissance Reinsurance and its affiliates. Fibonacci
Re raised capital from third party investors and the Company, via a private placement of participating
notes which are listed on the Bermuda Stock Exchange. Fibonacci Re is considered a VIE. The
Company is not considered the primary beneficiary of Fibonacci Re and, as a result, the Company
does not consolidate the financial position and results of operations of Fibonacci Re.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared on the basis of accounting principles
generally accepted in the United States (“GAAP”). All significant intercompany accounts and transactions
have been eliminated from these statements.
Certain comparative information has been reclassified to conform to the current presentation.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of consolidated financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported and disclosed amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ
materially from those estimates. The major estimates reflected in the Company’s consolidated financial
statements include, but are not limited to, the reserve for claims and claim expenses; reinsurance
recoverables, including allowances for reinsurance recoverables deemed uncollectible; estimates of written
and earned premiums; fair value, including the fair value of investments, financial instruments and
derivatives; impairment charges; and the Company’s deferred tax valuation allowance.
PREMIUMS AND RELATED EXPENSES
Premiums are recognized as income, net of any applicable reinsurance or retrocessional coverage
purchased, over the terms of the related contracts and policies. Premiums written are based on contract
and policy terms and include estimates based on information received from both insureds and ceding
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companies. Subsequent differences arising on such estimates are recorded in the period in which they are
determined. Unearned premiums represent the portion of premiums written that relate to the unexpired
terms of contracts and policies in force. Amounts are computed by pro rata methods based on statistical
data or reports received from ceding companies. Reinstatement premiums are estimated after the
occurrence of a significant loss and are recorded in accordance with the contract terms based upon paid
losses and case reserves. Reinstatement premiums are earned when written.
Acquisition costs are incurred when a contract or policy is issued and only the costs directly related to the
successful acquisition of new and renewal contract or policies are deferred and amortized over the same
period in which the related premiums are earned. Acquisition costs are shown net of commissions and profit
commissions earned on ceded reinsurance, and consist principally of commissions, brokerage and
premium tax expenses incurred at the time a contract or policy is issued. Deferred policy acquisition costs
are limited to their estimated realizable value based on the related unearned premiums. Anticipated claims
and claim expenses, based on historical and current experience, and anticipated investment income related
to those premiums are considered in determining the recoverability of deferred acquisition costs.
CLAIMS AND CLAIM EXPENSES
The reserve for claims and claim expenses includes estimates for unpaid claims and claim expenses on
reported losses as well as an estimate of losses incurred but not reported. The reserve is based on
individual claims, case reserves and other reserve estimates reported by insureds and ceding companies
as well as management estimates of ultimate losses. Inherent in the estimates of ultimate losses are
expected trends in claim severity and frequency and other factors which could vary significantly as claims
are settled. Also, during the past few years, the Company has increased its casualty and specialty
reinsurance businesses, but does not have the benefit of a significant amount of its own historical
experience in certain of these lines of business. Accordingly, the reserving for incurred losses in these lines
of business could be subject to greater variability.
Ultimate losses may vary materially from the amounts provided in the consolidated financial statements.
These estimates are reviewed regularly and, as experience develops and new information becomes known,
the reserves are adjusted as necessary. Such adjustments, if any, are reflected in the consolidated
statements of operations in the period in which they become known and are accounted for as changes in
estimates.
REINSURANCE
Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability
associated with the reinsured policies. For multi-year retrospectively rated contracts, the Company accrues
amounts (either assets or liabilities) that are due to or from assuming companies based on estimated
contract experience. If the Company determines that adjustments to earlier estimates are appropriate, such
adjustments are recorded in the period in which they are determined. Reinsurance recoverables on dual
trigger reinsurance contracts require the Company to estimate its ultimate losses applicable to these
contracts as well as estimate the ultimate amount of insured industry losses that will be reported by the
applicable statistical reporting agency, as per the contract terms. Amounts recoverable from reinsurers are
recorded net of a valuation allowance for estimated uncollectible recoveries.
Assumed and ceded reinsurance contracts that lack a significant transfer of risk are treated as deposits.
Certain assumed and ceded reinsurance contracts that do not meet all of the criteria to be accounted for as
reinsurance in accordance with FASB ASC Topic Financial Services - Insurance have been accounted for at
fair value under the fair value option in accordance with FASB ASC Topic Financial Instruments.
INVESTMENTS, CASH AND CASH EQUIVALENTS
Fixed Maturity Investments
Investments in fixed maturities are classified as trading or available for sale and are reported at fair value.
Investment transactions are recorded on the trade date with balances pending settlement reflected in the
balance sheet as a receivable for investments sold or a payable for investments purchased. Net investment
income includes interest and dividend income together with amortization of market premiums and discounts
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and is net of investment management and custody fees. The amortization of premium and accretion of
discount for fixed maturity securities is computed using the effective yield method. For mortgage-backed
securities and other holdings for which there is prepayment risk, prepayment assumptions are evaluated
quarterly and revised as necessary. Any adjustments required due to the change in effective yields and
maturities are recognized on a prospective basis through yield adjustments. Fair values of investments are
based on quoted market prices, or when such prices are not available, by reference to broker or underwriter
bid indications and/or internal pricing valuation techniques. The net unrealized appreciation or depreciation
on fixed maturity investments trading is included in net realized and unrealized gains (losses) on
investments in the consolidated statements of operations. The net unrealized appreciation or depreciation
on fixed maturity investments available for sale is included in accumulated other comprehensive income.
Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost
method and, for fixed maturity investments available for sale, include adjustments to the cost basis of
investments for declines in value that are considered to be other-than-temporary.
Short Term Investments
Short term investments, which are managed as part of the Company’s investment portfolio and have a
maturity of one year or less when purchased, are carried at fair value. The net unrealized appreciation or
depreciation on short term investments is included in net realized and unrealized gains on investments in
the consolidated statements of operations.
Equity Investments, Classified as Trading
Equity investments are accounted for at fair value in accordance with FASB ASC Topic Financial
Instruments. Fair values are primarily priced by pricing services, reflecting the closing price quoted for the
final trading day of the period. Net investment income includes dividend income and the net realized and
unrealized appreciation or depreciation on equity investments is included in net realized and unrealized
gains (losses) on investments in the consolidated statements of operations.
Other Investments
The Company accounts for its other investments at fair value in accordance with FASB ASC Topic Financial
Instruments with interest, dividend income, income distributions and realized and unrealized gains and
losses included in net investment income. The fair value of certain of the Company’s fund investments,
which principally include private equity funds, senior secured bank loan funds and hedge funds, is recorded
on its balance sheet in other investments, and is generally established on the basis of the net valuation
criteria established by the managers of such investments, if applicable. The net valuation criteria
established by the managers of such investments is established in accordance with the governing
documents of such investments. Certain of the Company’s fund managers, fund administrators, or both, are
unable to provide final fund valuations as of the Company’s current reporting date. The typical reporting lag
experienced by the Company to receive a final net asset value report is one month for hedge funds and
senior secured bank loan funds and three months for private equity funds, although, in the past, in respect
of certain of the Company’s private equity funds, the Company has on occasion experienced delays of up to
six months at year end, as the private equity funds typically complete their respective year-end audits
before releasing their final net asset value statements.
In circumstances where there is a reporting lag between the current period end reporting date and the
reporting date of the latest fund valuation, the Company estimates the fair value of these funds by starting
with the prior month or quarter-end fund valuations, adjusting these valuations for actual capital calls,
redemptions or distributions, as well as the impact of changes in foreign currency exchange rates, and then
estimating the return for the current period. In circumstances in which the Company estimates the return for
the current period, all information available to the Company is utilized. This principally includes preliminary
estimates reported to the Company by its fund managers, obtaining the valuation of underlying portfolio
investments where such underlying investments are publicly traded and therefore have a readily observable
price, using information that is available to the Company with respect to the underlying investments,
reviewing various indices for similar investments or asset classes, as well as estimating returns based on
the results of similar types of investments for which the Company has obtained reported results, or other
valuation methods, where possible. Actual final fund valuations may differ, perhaps materially so, from the
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Company’s estimates and these differences are recorded in the Company’s statement of operations in the
period in which they are reported to the Company as a change in estimate.
The Company’s other investments also include investments in catastrophe bonds which are recorded at fair
value and the fair value is based on broker or underwriter bid indications.
Investments in Other Ventures, Under Equity Method
Investments in which the Company has significant influence over the operating and financial policies of the
investee are classified as investments in other ventures, under equity method, and are accounted for under
the equity method of accounting. Under this method, the Company records its proportionate share of
income or loss from such investments in its results for the period. Any decline in value of investments in
other ventures, under equity method considered by management to be other-than-temporary is charged to
income in the period in which it is determined.
Cash and Cash Equivalents
Cash equivalents include money market instruments with a maturity of ninety days or less when purchased.
STOCK INCENTIVE COMPENSATION
The Company is authorized to issue restricted stock awards and units, performance shares, stock options
and other equity-based awards to its employees and directors. The fair value of the compensation cost is
measured at the grant date and expensed over the period for which the employee is required to provide
services in exchange for the award.
In addition, the Company is authorized to issue cash settled restricted stock units (“CSRSU”) to its
employees. The fair value of CSRSUs is determined using the fair market value of RenaissanceRe common
shares at the end of each reporting period and is expensed over the period for which the employee is
required to provide service in exchange for the award. The fair value of these awards is recorded on the
Company’s consolidated balance sheet as a liability as it is expensed and until the point payment is made
to the employee.
Forfeiture benefits are estimated on a quarterly basis and incorporated in the determination of stock-based
compensation.
DERIVATIVES
The Company enters into derivative instruments such as futures, options, swaps, forward contracts and
other derivative contracts in order to manage its foreign currency exposure, obtain exposure to a particular
financial market, for yield enhancement, or for trading and speculation. The Company accounts for its
derivatives in accordance with FASB ASC Topic Derivatives and Hedging, which requires all derivatives to
be recorded at fair value on the Company’s balance sheet as either assets or liabilities, depending on their
rights or obligations, with changes in fair value reflected in current earnings. The Company does not
currently apply hedge accounting. The fair value of the Company’s derivatives is estimated by reference to
quoted prices or broker quotes, where available, or in the absence of quoted prices or broker quotes, the
use of industry or internal valuation models.
FAIR VALUE
The Company accounts for certain of its assets and liabilities at fair value in accordance with FASB ASC
Topic Fair Value Measurements and Disclosures. The Company recognizes the change in unrealized gains
and losses arising from changes in fair value in its statements of operations, with the exception of changes
in unrealized gains and losses on its fixed maturity investments available for sale, which are recognized as
a component of accumulated other comprehensive income in shareholders’ equity.
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
The Company accounts for business combinations in accordance with FASB ASC Topic Business
Combinations, and goodwill and other intangible assets that arise from business combinations in
accordance with FASB ASC Topic Intangibles – Goodwill and Other. A purchase price that is in excess of
F-12
the fair value of the net assets acquired arising from a business combination is recorded as goodwill, and is
not amortized. Other intangible assets with a finite life are amortized over the estimated useful life of the
asset. Other intangible assets with an indefinite useful life are not amortized.
Goodwill and other indefinite life intangible assets are tested for impairment on an annual basis or more
frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable.
Finite life intangible assets are reviewed for indicators of impairment on an annual basis or more frequently
if events or changes in circumstances indicate that the carrying amount may not be recoverable, and tested
for impairment if appropriate. For purposes of the annual impairment evaluation, goodwill is assigned to the
applicable reporting unit of the acquired entities giving rise to the goodwill. Goodwill and other intangible
assets recorded in connection with investments accounted for under the equity method, are recorded as
“Investments in other ventures, under equity method” on the Company’s consolidated balance sheets.
The Company has established the beginning of the fourth quarter as the date for performing its annual
impairment tests. The Company has the option to first assess qualitative factors to determine whether it is
necessary to perform the quantitative goodwill impairment test. Under this option, the Company would not
be required to calculate the fair value of a reporting unit unless the Company determines, based on its
qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying
amount. If goodwill or other intangible assets are impaired, they are written down to their estimated fair
value with a corresponding expense reflected in the Company’s consolidated statements of operations.
NONCONTROLLING INTERESTS
The Company accounts for redeemable noncontrolling interests in the mezzanine section of the Company’s
consolidated balance sheet in accordance with United States Securities and Exchange Commission
(“SEC”) guidance which is applicable to SEC registrants. The SEC guidance requires shares, not required
to be accounted for in accordance with FASB ASC Topic Distinguishing Liabilities from Equity, and having
redemption features that are not solely within the control of the issuer, to be classified outside of permanent
equity in the mezzanine section of the balance sheet. Because the share classes related to the redeemable
noncontrolling interest portion of the issuer are not considered liabilities in accordance with FASB ASC
Topic Distinguishing Liabilities from Equity and have redemption features that are not solely within the
control of the issuer, the redeemable noncontrolling interests are presented in the mezzanine section on the
Company’s consolidated balance sheet in accordance with the SEC guidance noted above. The SEC
guidance does not impact the accounting for redeemable noncontrolling interest on the consolidated
statements of operations; therefore, the provisions of FASB ASC Topic Consolidation with respect to the
consolidated statements of operations still apply, and net income attributable to redeemable noncontrolling
interests is presented separately in the Company’s consolidated statements of operations.
VARIABLE INTEREST ENTITIES
The Company accounts for VIEs in accordance with FASB ASC Topic Consolidation, which requires the
consolidation of all VIEs by the primary beneficiary, that being the investor that has the power to direct the
activities of the VIE and that will absorb a portion of the VIE’s expected losses or residual returns that could
potentially be significant to the VIE. For VIEs the Company determines it has a variable interest in, it
determines whether it is the primary beneficiary of a VIE by performing an analysis that principally
considers: (i) the VIE’s purpose and design, including the risks the VIE was designed to create and pass
through to its variable interest holders; (ii) the VIE’s capital structure; (iii) the terms between the VIE and its
variable interest holders and other parties involved with the VIE; (iv) which variable interest holders have
the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance;
(v) which variable interest holders have the obligation to absorb losses or the right to receive benefits from
the VIE that could potentially be significant to the VIE; and (vi) related party relationships. The Company
reassesses its initial determination of whether the Company is the primary beneficiary of a VIE upon
changes in facts and circumstances that could potentially alter the Company’s assessment.
EARNINGS PER SHARE
The Company calculates earnings per share in accordance with FASB ASC Topic Earnings per Share.
Basic earnings per share are based on weighted average common shares and exclude any dilutive effects
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of options and restricted stock. Diluted earnings per share assumes the exercise of all dilutive stock options
and restricted stock grants.
The two-class method is used to determine earnings per share based on dividends declared on common
shares and participating securities (i.e., distributed earnings) and participation rights of participating
securities in any undistributed earnings. Each unvested restricted share granted by the Company to its
employees is considered a participating security and the Company uses the two-class method to calculate
its net income available to RenaissanceRe common shareholders per common share – basic and diluted.
FOREIGN EXCHANGE
The Company’s functional currency is the U.S. dollar. Revenues and expenses denominated in foreign
currencies are revalued at the prevailing exchange rate at the transaction date. Monetary assets and
liabilities denominated in foreign currencies are remeasured at exchange rates in effect at the balance
sheet date, which may result in the recognition of exchange gains or losses which are included in the
determination of net income.
TAXATION
Income taxes have been provided for in accordance with the provisions of FASB ASC Topic Income Taxes.
Deferred tax assets and liabilities result from temporary differences between the amounts recorded in the
consolidated financial statements and the tax basis of the Company’s assets and liabilities. Such temporary
differences are primarily due to net operating loss carryforwards and GAAP versus tax basis accounting
differences relating to interest expense, underwriting results, accrued expenses and investments. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more
likely than not that all, or some portion, of the benefits related to deferred tax assets will not be realized.
Uncertain tax positions are also accounted for in accordance with FASB ASC Topic Income Taxes.
Uncertain tax positions must meet a more likely than not recognition threshold to be recognized.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target
Could Be Achieved after the Requisite Service Period
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms
of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
(“ASU 2014-12”). The objective of ASU 2014-12 is to resolve the diverse accounting treatment of share-
based payment awards in situations where an employee would be eligible to vest in the award regardless of
whether the employee is rendering service on the date the performance target is achieved. For example, if
an employee is eligible to retire or otherwise terminate employment before the end of the period in which a
performance target could be achieved and still be eligible to vest in the award, ASU 2014-12 will resolve if
and when the performance target is achieved. ASU 2014-12 became effective for all entities in annual and
interim periods beginning after December 15, 2015. Early adoption was permitted. The Company adopted
ASU 2014-12 effective January 1, 2016, and prospectively applied the amendments in ASU 2014-12 to all
awards granted or modified after the effective date. The adoption of ASU 2014-12 did not have a material
impact on the Company’s consolidated statements of operations and financial position.
Amendments to the Consolidation Analysis
In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis (“ASU
2015-02”). ASU 2015-02 affects reporting entities that are required to evaluate whether they should
consolidate certain legal entities. All legal entities are subject to reevaluation under ASU 2015-02. ASU
2015-02 set forth amendments: modifying the evaluation of whether limited partnerships and similar legal
entities are VIEs; eliminating the presumption that a general partner should consolidate a limited
partnership; affecting the consolidation analysis of reporting entities that are involved with VIEs, particularly
those that have fee arrangement and related party relationships; and providing a scope exception from
consolidation guidance for reporting entities with interests in certain investment funds. ASU 2015-02
became effective for public business entities for fiscal years, and for interim periods within those fiscal
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years, beginning after December 15, 2015. Early adoption was permitted. The Company adopted ASU
2015-02 effective January 1, 2016 and it did not have a material impact on the Company’s consolidated
statements of operations and financial position.
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs
(“ASU 2015-03”). The objective of ASU 2015-03 is to simplify the presentation of debt issuance costs by
requiring debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a
direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The
recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU
2015-03. ASU 2015-03 became effective for public business entities in annual and interim periods
beginning after December 15, 2015 with retroactive application. The Company retrospectively adopted ASU
2015-03 effective January 1, 2016 and the impact on the Company’s consolidated balance sheet at
December 31, 2015 was to reduce each of other assets and debt by $5.6 million, respectively, which
represented the deferred debt issuance costs previously recorded in other assets and reclassified as an
offset to debt. In addition, for the year ended December 31, 2015, corporate expense was reduced by $0.6
million and interest expense was increased by $0.6 million (2014 - $0.2 million and $0.2 million,
respectively) to reclassify the amortization of deferred debt issuance costs from corporate expense to
interest expense. There was no net impact on the Company’s consolidated statements of operations or
financial position as a result of the retrospective adoption of ASU 2015-03.
Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”). ASU 2015-07 removes the
requirement to categorize within the fair value hierarchy all investments for which fair value is measured
using the net asset value per share practical expedient. ASU 2015-07 also removes the requirement to
make certain disclosures for all investments that are eligible to be measured at fair value using the net
asset value per share practical expedient. Rather, those disclosures are limited to investments for which the
entity has elected to measure the fair value using that practical expedient. ASU 2015-07 became effective
for public business entities for fiscal years beginning after December 15, 2015, and interim periods within
those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented.
The retrospective approach requires that an investment for which fair value is measured using the net asset
value per share practical expedient be removed from the fair value hierarchy in all periods presented in an
entity’s financial statements. Earlier application was permitted. The Company retrospectively adopted ASU
2015-07 effective January 1, 2016; since this update is disclosure-related only, it did not have a material
impact on the Company’s statements of operations and financial position.
Disclosures about Short-Duration Contracts
In May 2015, the FASB issued ASU No. 2015-09, Disclosures about Short-Duration Contracts (“ASU
2015-09”). ASU 2015-09 requires insurance entities to disclose for annual reporting periods additional
information about the liability for unpaid claims and claim adjustment expenses, including: (1) incurred and
paid claims development information by accident year, on a net basis, for the number of years for which
claims incurred typically remain outstanding, not exceeding 10 years; (2) a reconciliation of incurred and
paid claims development information to the aggregate carrying amount of the liability for claims and claim
adjustment expenses, with separate disclosure of reinsurance recoverable on unpaid claims for each period
presented in the statement of financial position; (3) for each accident year presented of incurred claims
development information, the total of incurred but not reported liabilities plus expected development on
reported claims including in the liability for unpaid claims and claim adjustment expenses, accompanied by
a description of the reserving methodologies; (4) for each accident year presented of incurred claims
development information, quantitative information about claim frequency accompanied by a qualitative
description of methodologies used for determining claim frequency information; and (5) for all claims, the
average annual percentage payout of incurred claims by age for the same number of accident years
presented in (3) and (4) above. ASU 2015-09 also requires insurance entities to disclose information about
significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and
claim adjustment expenses, including the reasons for the change and the effects on the financial
F-15
statements. In addition, ASU 2015-09 requires insurance entities to disclose for annual and interim reporting
periods a rollforward of the liability for unpaid claims and claim adjustment expenses. ASU 2015-09 is
effective for public business entities in annual periods beginning after December 31, 2015, and interim
periods within annual periods beginning after December 31, 2016. Early adoption was permitted. ASU
2015-09 should be applied retrospectively by providing comparative disclosures for each period presented,
except for those requirements that apply only to the current period. The Company adopted ASU 2015-09
effective December 31, 2016. As this guidance is disclosure-related only, the adoption of this guidance did
not have a material impact on the Company’s consolidated statements of operations and financial position.
Simplifying the Accounting for Measurement-Period Adjustments
In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-
Period Adjustments (“ASU 2015-16”). ASU 2015-16 removes the requirement to retrospectively account for
adjustments made to provisional amounts recognized in a business combination. Rather, those adjustments
are to be recognized by the acquirer in the reporting period in which the adjustment amounts are
determined. A reporting entity is also required to disclose, in the reporting period in which the adjustment
amounts are recorded, the effect on earnings of changes in depreciation, amortization, or other income
effects, as a result of the change to provisional amounts, calculated as if the accounting had been
completed at the acquisition date. In addition, the reporting entity would present on the face of the income
statement or disclose in the notes the amounts that would have been recorded in previous reporting periods
if the adjustment to provisional amounts had been recognized as of the acquisition date. ASU 2015-16 was
effective for public business entities in annual and interim periods beginning after December 15, 2015. ASU
2015-16 should be applied prospectively to adjustments for provisional amounts that occur after the
effective date, with earlier application permitted for financial statements that have not been issued. The
Company adopted ASU 2015-16 effective January 1, 2016 and it did not have a material impact on the
Company’s consolidated statements of operations and financial position.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU
2014-09”). ASU 2014-09 provides comprehensive guidance on the recognition of revenue from customers
arising from the transfer of goods and services. The core principle of the guidance is that an entity should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
ASU 2014-09 also provides guidance on accounting for certain contract costs and will also require new
disclosures. ASU 2014-09 was to be effective for public business entities in annual and interim periods
beginning after December 15, 2016, however in July 2015, the FASB decided to defer by one year the
effective dates of ASU 2014-09, and as a result, ASU 2014-09 will be effective for public business entities in
annual and interim period beginning after December 15, 2017. Early adoption is permitted. The Company is
currently evaluating the impact of this guidance; however, it is not expected to have a material impact on the
Company’s consolidated statements of operations and financial position.
Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets
and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 requires equity investments (except those
accounted for under the equity method of accounting or those that result in the consolidation of the
investee) to be measured at fair value with changes in fair value recognized in net income, simplifies the
impairment assessment of equity investments without readily determinable values by requiring a qualitative
assessment to identify impairment, eliminates the requirement to disclose the methods and significant
assumptions used to estimate the fair value for financial instruments measured at amortized cost, requires
the use of the exit price notion when measuring the fair value of financial instruments for disclosure
purposes, requires separate presentation in other comprehensive income of the portion of the total change
in the fair value of a liability resulting from a change in the instrument-specific credit risk when the
organization has elected to measure the liabilities in accordance with the fair value option, requires the
separate presentation of financial assets and financial liabilities by measurement category and for form of
F-16
financial asset on the balance sheet or the accompanying notes to the financial statements and clarifies that
the reporting organization should evaluate the need for a valuation allowance on a deferred tax asset
related to available for sale securities in combination with the organization’s other deferred tax assets. ASU
2016-01 is effective for public business entities in annual and interim periods beginning after December 15,
2017. Earlier adoption is generally not permitted, except for certain specific provisions of ASU 2016-01. The
Company is currently evaluating the impact of this guidance; however, it is not expected to have a material
impact on the Company’s consolidated statements of operations and financial position.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting (“ASU 2016-09”). ASU 2016-09 was issued to simplify several aspects of the accounting for
share-based payment transactions, including the income tax consequences, classification of awards as
either equity or liabilities, and classification on the statements of cash flows. ASU 2016-09 is effective for
public business entities in annual and interim periods beginning after December 15, 2016. Early adoption is
permitted. The Company is currently evaluating the impact of this guidance; however, it is not expected to
have a material impact on the Company’s consolidated statements of operations and financial position.
NOTE 3. ACQUISITION OF PLATINUM
Overview
On March 2, 2015, RenaissanceRe acquired 100% of the outstanding common shares of Platinum for $76
per Platinum common share, or aggregate consideration of $1.93 billion. In connection with an
intercompany restructuring, effective July 1, 2015, Platinum was merged with RenaissanceRe, with
RenaissanceRe continuing as the surviving company.
Prior to the closing of the acquisition of Platinum, Platinum was a publicly traded company listed on the New
York Stock Exchange and headquartered in Bermuda. Platinum, through its wholly owned subsidiaries,
provided property and casualty reinsurance coverage through reinsurance brokers to insurers and select
reinsurers on a worldwide basis. The Company believes the acquisition of Platinum has benefited the
combined companies’ clients through an expanded product offering and enhanced broker relationships and
it has also accelerated the growth of the Company’s U.S. specialty and casualty reinsurance platform.
The aggregate consideration for the transaction consisted of the issuance of 7.435 million
RenaissanceRe common shares valued at $761.8 million (based on the share price as of March 2, 2015)
and $1.16 billion of cash. The cash consideration was partially funded through a pre-closing dividend from
Platinum of $10.00 per share, or $253.2 million (the “Special Dividend”), RenaissanceRe available funds of
$604.4 million and a short term bridge loan of $300.0 million. On March 24, 2015, RenaissanceRe Finance
Inc. (“RenaissanceRe Finance”), a wholly owned subsidiary of RenaissanceRe, issued $300.0 million of its
3.700% Senior Notes due 2025 (together with cash on hand) to replace the short term bridge loan used to
fund part of the cash consideration. Refer to “Note 9. Debt and Credit Facilities” for additional information
related to the 3.700% Senior Notes due 2025.
In connection with the acquisition of Platinum, RenaissanceRe incurred transaction, integration and
compensation related expenses totaling $2.1 million during 2016 (2015 - $53.5 million). These expenses
have all been reported as a component of corporate expenses.
F-17
Purchase Price
The Company's total purchase price for Platinum at March 2, 2015 was calculated as follows:
Special Dividend
Number of Platinum common shares and Platinum equity awards canceled
in the acquisition of Platinum
Special Dividend per outstanding common share of Platinum and Platinum
equity award
Special Dividend paid to common shareholders of Platinum and holders of
Platinum equity awards
RenaissanceRe common shares
Common shares issued by RenaissanceRe
Common share price of RenaissanceRe as of March 2, 2015
Market value of RenaissanceRe common shares issued by
RenaissanceRe to common shareholders of Platinum and holders of
Platinum equity awards
Platinum common shares
Fair value of Platinum common shares owned by RenaissanceRe and
canceled in connection with the acquisition of Platinum
Cash consideration
Number of Platinum common shares and Platinum equity awards canceled
in the acquisition of Platinum
Platinum common shares owned by RenaissanceRe and canceled in
connection with the acquisition of Platinum
Number of Platinum common shares and Platinum equity awards canceled
in the acquisition of Platinum excluding those owned by RenaissanceRe
and canceled in connection with the acquisition of Platinum
Agreed cash price paid to common shareholders of Platinum and holders of
Platinum equity awards
Cash consideration paid by RenaissanceRe to common shareholders of
Platinum and holders of Platinum equity awards
25,320,312
$
10.00
7,434,561
$
102.47
25,320,312
(169,220)
25,151,092
$
35.96
Total purchase price
Less: Special Dividend paid by Platinum
Net purchase price
$
253,203
761,819
12,950
904,433
1,932,405
(253,203)
$ 1,679,202
Fair Value of Net Assets Acquired and Liabilities Assumed
The purchase price was allocated to the acquired assets and liabilities of Platinum based on estimated fair
values on March 2, 2015, the date the transaction closed, as detailed below. The Company recognized
goodwill of $191.7 million primarily attributable to Platinum’s assembled workforce and synergies expected
to result upon integration of Platinum into the Company’s operations. There were no other adjustments to
carried goodwill during the period ended December 31, 2016 reflected on the Company’s consolidated
balance sheet at December 31, 2016. The Company recognized identifiable finite lived intangible assets
of $75.2 million, which are being amortized over a weighted average period of eight years, identifiable
indefinite lived intangible assets of $8.4 million, and certain other adjustments to the fair values of the
assets acquired, liabilities assumed and shareholders’ equity of Platinum at March 2, 2015 as summarized
in the table below:
F-18
Shareholders’ equity of Platinum prior to Special Dividend
Cash and cash equivalents (Special Dividend on Platinum common
shares and Platinum equity awards)
Adjusted shareholders’ equity of Platinum at March 2, 2015
Adjustments for fair value, by applicable balance sheet caption:
Deferred acquisition costs
Debt
Reserve for claims and claim expenses
Other assets - deferred debt issuance costs
Total adjustments for fair value by applicable balance sheet caption before
tax impact
Other assets - net deferred tax asset related to fair value adjustments
Total adjustments for fair value by applicable balance sheet caption
Adjustments for fair value of the identifiable intangible assets:
Identifiable indefinite lived intangible assets (insurance licenses)
Identifiable finite lived intangible assets (non-contractual relationships,
renewal rights, value of business acquired, trade name, internally
developed and used computer software and covenants not to compete)
Identifiable intangible assets before tax impact
Other liabilities - deferred tax liability on identifiable intangible assets
Total adjustments for fair value of the identifiable intangible assets
Total adjustments for fair value by applicable balance sheet caption and
identifiable intangible assets
Shareholders’ equity of Platinum at fair value
Total net purchase price paid by RenaissanceRe
Excess purchase price over the fair value of net assets acquired assigned
to goodwill
$ 1,737,278
(253,203)
1,484,075
(44,486)
(28,899)
(21,725)
(1,046)
(96,156)
29,069
(67,087)
8,400
75,200
83,600
(13,115)
70,485
3,398
1,487,473
1,679,202
$
191,729
An explanation of the significant fair value adjustments is as follows:
• Deferred acquisition costs - to eliminate Platinum’s deferred acquisition costs;
• Debt - to reflect Platinum’s existing senior notes at fair value using indicative market pricing
obtained from third-party service providers;
• Reserve for claims and claim expenses - to reflect an increase in net claims and claim expenses
due to the addition of a market based risk margin that represented the cost of capital required by a
market participant to assume the net claims and claim expenses of Platinum, partially offset by a
deduction which represents the discount due to the present value calculation of the unpaid claims
and claim expenses based on the expected payout of the net unpaid claims and claim expenses;
• Other assets - to eliminate deferred debt issuance costs related to Platinum’s existing senior notes
and to reflect net deferred tax assets related to fair value adjustments;
•
Identifiable indefinite lived and finite lived intangible assets - to establish the fair value of identifiable
intangible assets related to the acquisition of Platinum described in detail below; and
• Other liabilities - to reflect the deferred tax liability on identifiable intangible assets.
F-19
Identifiable intangible assets at March 2, 2015 and at December 31, 2016, consisted of the following, and
are included in goodwill and other intangible assets on the Company’s consolidated balance sheet:
Key non-contractual relationships
Value of business acquired
Renewal rights
Insurance licenses
Internally developed and used computer software
Other non-contractual relationships
Non-compete agreements
Trade name
Identifiable intangible assets, before amortization, at March 2, 2015
Amortization (from March 2, 2015 through December 31, 2016)
Net identifiable intangible assets at December 31, 2016 related to the
acquisition of Platinum
An explanation of the identifiable intangible assets is as follows:
Economic
Useful Life
10 years
2 years
15 years
Indefinite
2 years
3 years
2.5 years
6 months
$
Amount
30,400
20,200
15,800
8,400
3,500
2,300
1,900
1,100
83,600
(31,873)
$
51,727
• Key non-contractual relationships - these relationships included Platinum’s top four brokers (Aon
plc, Marsh & McLennan Companies, Inc., Willis Group Holdings plc. and Jardine Lloyd Thompson
Group plc.) and consideration was given to the expectation of the renewal of these relationships
and the associated expenses;
• Value of business acquired (“VOBA”) - the expected future losses and expenses associated with
the policies that were in-force as of the closing date of the transaction were estimated and
compared to the future premium remaining expected to be earned. The difference between the risk-
adjusted future loss and expenses, discounted to present value and the unearned premium
reserve, was estimated to be the VOBA;
• Renewal rights - the value of policy renewal rights taking into consideration written premium on
assumed retention ratios and the insurance cash flows and the associated equity cash flows from
these renewal policies over the expected life of the renewals;
•
•
Insurance licenses - the value of insurance licenses acquired providing the ability to write
reinsurance in all 50 states of the U.S. and the District of Columbia;
Internally developed and used computer software - represents the value of internally developed and
used computer software to be utilized by the Company;
• Other non-contractual relationships - these relationships consisted of Platinum’s brokers with the
exception of those previously listed above as key non-contractual relationships and consideration
was given to the expectation of the renewal of these relationships and the associated expenses;
• Non-compete agreements - represent non-compete agreements with key employees of Platinum;
and
• Trade name - represents the value of the Platinum brand acquired.
As part of the allocation of the purchase price, included in the adjustment to other assets in the table above
is a deferred tax asset of $29.1 million related to certain other adjustments to the fair values of the assets
acquired, liabilities assumed and shareholders’ equity, summarized in the table above, which was partially
offset by a deferred tax liability of $13.1 million related to the estimated fair value of the intangible assets
recorded. Other net deferred tax assets recorded primarily relate to differences between financial reporting
and tax basis of the acquired assets and liabilities as of the acquisition date, March 2, 2015. The Company
estimates that none of the goodwill that was recorded will be deductible for income tax purposes.
F-20
Financial Results
FASB ASC Topic Business Combinations prescribes disclosure of the amounts of revenue and earnings of
the acquiree since the acquisition date included in the consolidated statement of operations for the reporting
period. However, the Company believes this disclosure has become impracticable given the acquired
subsidiaries of Platinum have been fully integrated into the Company’s organizational structure through an
internal reorganization, resulting in capital and assets being reallocated throughout the organization. In
addition, reinsurance contracts have been renewed using both previously existing and acquired subsidiaries
and the Company does not discretely manage the Platinum subsidiaries acquired, thereby rendering it
impracticable to accurately estimate the amounts of revenue and earnings of Platinum since March 2, 2015
included in the consolidated statement of operations for the reporting period.
Supplemental Pro Forma Information
Platinum’s results are included in the Company's consolidated financial statements from March 2, 2015
to December 31, 2015 and for the year ended December 31, 2016. As such, the following table presents
unaudited pro forma consolidated financial information for the years ended December 31, 2015 and 2014,
and assumes the acquisition of Platinum occurred on January 1, 2014. The unaudited pro forma
consolidated financial information is provided for informational purposes only and is not necessarily, and
should not be assumed to be, an indication of the results that would have been achieved had the
transaction been completed as of January 1, 2014 or that may be achieved in the future. The unaudited pro
forma consolidated financial information does not give consideration to the impact of possible revenue
enhancements, expense efficiencies, synergies or asset dispositions that may result from the acquisition of
Platinum. In addition, unaudited pro forma consolidated financial information does not include the effects of
costs associated with any restructuring or integration activities resulting from the acquisition of Platinum, as
they are nonrecurring.
Year ended December 31,
Total revenues
Net income available to RenaissanceRe common shareholders
2015
2014
$ 1,593,735 $ 1,872,612
685,735
423,768
Among other adjustments, and in addition to the fair value adjustments and recognition of goodwill and
identifiable intangible assets noted above, other material nonrecurring pro forma adjustments directly
attributable to the acquisition of Platinum principally included certain adjustments to recognize transaction
related costs, align accounting policies, amortize fair value adjustments, amortize identifiable indefinite lived
intangible assets and recognize related tax impacts.
F-21
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows an analysis of goodwill and other intangible assets:
Balance as of December 31, 2014
Gross amount
Accumulated impairment losses and amortization
Acquired during the year
Amortization
Balance as of December 31, 2015
Gross amount
Accumulated impairment losses and amortization
Amortization
Balance as of December 31, 2016
Gross amount
Accumulated impairment losses and amortization
Goodwill and other intangible assets
Goodwill
Other
intangible
assets
Total
$
8,160 $
12,999 $
21,159
(10,958)
(13,257)
(2,299)
5,861
191,729
2,041
83,600
—
(18,077)
199,889
(2,299)
197,590
—
96,599
(29,035)
67,564
(13,968)
7,902
275,329
(18,077)
296,488
(31,334)
265,154
(13,968)
199,889
(2,299)
96,599
(43,003)
296,488
(45,302)
$
197,590 $
53,596 $
251,186
During the first quarter of 2015, the Company recognized goodwill of $191.7 million primarily attributable to
Platinum’s assembled workforce and synergies expected to result upon integration of Platinum into the
Company’s operations. Also during 2015, the Company recognized identifiable finite lived intangible assets
of $75.2 million and identifiable indefinite lived intangible assets of $8.4 million in connection with its
acquisition of Platinum. There were no adjustments to carried goodwill reflected in the above table during
the year ended December 31, 2016. See “Note 3. Acquisition of Platinum” for additional information related
to the Company’s acquisition of Platinum and other intangible assets acquired.
F-22
The following table shows an analysis of goodwill and other intangible assets included in investments in
other ventures, under equity method:
Balance as of December 31, 2014
Gross amount
Goodwill and other intangible assets included
in investments in other
ventures, under equity method
Goodwill
Other
intangible
assets
Total
$
12,318 $
45,400 $
57,718
Accumulated impairment losses and amortization
—
(32,466)
(32,466)
Acquired during the year
Amortization
Impairment losses
Balance as of December 31, 2015
Gross amount
Accumulated impairment losses and amortization
Amortization
Balance as of December 31, 2016
Gross amount
Accumulated impairment losses and amortization
12,318
—
—
(4,500)
12,318
(4,500)
7,818
—
12,934
6,396
(2,900)
(1,094)
51,796
(36,460)
15,336
(3,474)
25,252
6,396
(2,900)
(5,594)
64,114
(40,960)
23,154
(3,474)
12,318
(4,500)
51,796
(39,934)
64,114
(44,434)
$
7,818 $
11,862 $
19,680
During the fourth quarter of 2015, the Company recognized impairment losses in corporate expenses of
$4.5 million and $1.1 million related to goodwill and other intangible assets, respectively, associated with its
investment in a commodity related risk management company. The other intangible assets primarily related
to customer lists. In accordance with the Company’s established accounting policy, the beginning of the
fourth quarter was used as the date for performing the annual impairment test. The Company first assessed
qualitative factors to determine whether it was necessary to perform a quantitative impairment test. Based
on its qualitative assessment, the Company determined it was more likely than not that the fair value of the
goodwill and other intangible assets in question were less than their respective carrying amounts. The
qualitative assessment included the following factors which the Company determined had significantly
deteriorated given specific facts and circumstances: macroeconomic conditions; industry and market
conditions; costs factors; and overall financial performance. In light of the qualitative assessment, the
Company performed a quantitative analysis using a discounted cash flow model and concluded that the full
amount of the goodwill and other intangible assets associated with this equity method investment were
impaired.
F-23
The gross carrying value and accumulated amortization by major category of other intangible assets is
shown below:
At December 31, 2016
Customer relationships and customer lists
Value of business acquired
Licenses
Software
Patents and intellectual property
Covenants not-to-compete
Trademarks and trade names
At December 31, 2015
Customer relationships and customer lists
Value of business acquired
Software
Licenses
Patents and intellectual property
Covenants not-to-compete
Trademarks and trade names
Other intangible assets
Gross
carrying
value
Accumulated
amortization
and
impairment
losses
95,458 $
20,200
10,267
12,230
4,500
4,030
1,710
148,395 $
(42,142) $
(19,527)
—
(11,938)
(4,500)
(3,523)
(1,307)
(82,937) $
Other intangible assets
Gross
carrying
value
Accumulated
amortization
and
impairment
losses
95,458 $
20,200
12,230
10,267
4,500
4,030
1,710
148,395 $
(33,294) $
(13,467)
(10,188)
—
(4,500)
(2,763)
(1,283)
(65,495) $
$
$
$
$
Total
53,316
673
10,267
292
—
507
403
65,458
Total
62,164
6,733
2,042
10,267
—
1,267
427
82,900
The remaining useful life of intangible assets with finite lives ranges from one to 17 years, with a weighted-
average amortization period of 8.5 years. Expected amortization of the other intangible assets, including
other intangible assets recorded in investments in other ventures, under equity method, is shown below:
Other
intangible
assets
included
in
investments
in other
ventures,
under
equity
method
Other
intangibles
$
$
$
8,041 $
5,727
5,446
5,237
4,910
13,968
43,329 $
10,267
53,596 $
2,935 $
2,596
2,427
1,564
702
1,638
11,862 $
—
11,862 $
Total
10,976
8,323
7,873
6,801
5,612
15,606
55,191
10,267
65,458
2017
2018
2019
2020
2021
2022 and thereafter
Total remaining amortization expense
Indefinite lived
Total
F-24
NOTE 5. INVESTMENTS
Fixed Maturity Investments Trading
The following table summarizes the fair value of fixed maturity investments trading:
U.S. treasuries
Agencies
Municipal
Non-U.S. government (Sovereign debt)
Non-U.S. government-backed corporate
Corporate
Agency mortgage-backed
Non-agency mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity investments trading
December 31,
2016
December 31,
2015
$ 2,617,894 $ 2,064,944
137,976
583,282
334,981
138,994
2,055,323
504,368
262,235
554,625
128,277
$ 6,891,244 $ 6,765,005
90,972
519,069
333,224
133,300
1,877,243
462,493
258,944
409,747
188,358
Contractual maturities of fixed maturity investments trading are described in the following table. Expected
maturities will differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
At December 31, 2016
Due in less than one year
Due after one through five years
Due after five through ten years
Due after ten years
Mortgage-backed
Asset-backed
Total
Amortized
Cost
Fair Value
$ 485,939 $ 483,642
3,927,373
3,900,915
1,024,285
1,028,249
161,405
158,896
1,133,746
1,131,184
187,942
188,358
$ 6,920,690 $ 6,891,244
F-25
Fixed Maturity Investments Available For Sale
The Company did not have any fixed maturity investments available for sale at December 31, 2016 and at
December 31, 2015, the Company did not have any fixed maturity investments available for sale in an
unrealized loss position.
The following table summarizes the amortized cost, fair value and related unrealized gains and losses and
non-credit other-than-temporary impairments of fixed maturity investments available for sale at December
31, 2015:
Included in Accumulated
Other Comprehensive Income
Amortized
Cost
Gross
Gross
Unrealized
Unrealized
Gains
Losses
Fair Value
Non-Credit
Other-Than-
Temporary
Impairments
(1)
$
143 $
7 $
7,005
6,578
2,217
1,523
293
47
— $
—
—
—
150 $
8,528
6,871
2,264
$
15,943 $
1,870 $
— $
17,813 $
—
550
—
—
550
At December 31, 2015
Agency mortgage-backed
Non-agency mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity investments
available for sale
(1) Represents the non-credit component of other-than-temporary impairments recognized in accumulated other comprehensive
income adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment
measurement date.
Equity Investments Trading
The following table summarizes the fair value of equity investments trading:
Financials
Communications and technology
Industrial, utilities and energy
Consumer
Healthcare
Basic materials
Total
Pledged Investments
December 31,
2016
December 31,
2015
$
275,065 $
36,770
30,303
20,501
17,245
3,429
383,313 $
$
193,716
65,833
51,168
40,918
36,148
6,094
393,877
At December 31, 2016, $2.7 billion of cash and investments at fair value were on deposit with, or in trust
accounts for the benefit of, various counterparties, including with respect to the Company’s standby letter of
credit facility and bilateral letter of credit facility (2015 - $2.5 billion). Of this amount, $842.6 million is on
deposit with, or in trust accounts for the benefit of, U.S. state regulatory authorities (2015 - $664.6 million).
Reverse Repurchase Agreements
At December 31, 2016, the Company held $78.7 million (2015 - $26.2 million) of reverse repurchase
agreements. These loans are fully collateralized, are generally outstanding for a short period of time and
are presented on a gross basis as part of short term investments on the Company’s consolidated balance
sheets. The required collateral for these loans typically include high-quality, readily marketable instruments
at a minimum amount of 102% of the loan principal. Upon maturity, the Company receives principal and
interest income.
F-26
Net Investment Income
The components of net investment income are as follows:
Year ended December 31,
Fixed maturity investments
Short term investments
Equity investments
Other investments
Private equity investments
Other
Cash and cash equivalents
Investment expenses
Net investment income
2016
160,661 $
2015
134,800 $
2014
100,855
$
5,127
4,235
1,227
8,346
944
3,450
6,155
20,181
788
197,147
(15,421)
9,455
12,472
467
166,767
(14,200)
18,974
11,037
395
135,655
(11,339)
$
181,726 $
152,567 $
124,316
Net Realized and Unrealized Gains (Losses) on Investments
Net realized and unrealized gains (losses) on investments are as follows:
Year ended December 31,
Gross realized gains
Gross realized losses
Net realized gains (losses) on fixed maturity investments
Net unrealized gains (losses) on fixed maturity investments
trading
Net realized and unrealized (losses) gains on investments-
related derivatives
Net realized gains on equity investments trading
Net unrealized gains (losses) on equity investments trading
2016
72,739 $
2015
50,488 $
2014
45,568
$
(38,315)
34,424
(53,630)
(3,142)
(14,868)
30,700
26,954
(64,908)
19,680
(15,414)
14,190
81,174
5,443
16,348
(22,659)
(30,931)
10,908
11,076
41,433
Net realized and unrealized gains (losses) on investments
$
141,328 $
(68,918) $
Other Investments
The table below shows the fair value of the Company’s portfolio of other investments:
At December 31,
Catastrophe bonds
Private equity partnerships
Senior secured bank loan funds
Hedge funds
Total other investments
2016
335,209 $
$
191,061
22,040
1,495
2015
241,253
214,848
23,231
2,289
$
549,805 $
481,621
Interest income, income distributions and net realized and unrealized gains on other investments are
included in net investment income and totaled $26.3 million (2015 – $21.9 million, 2014 – $30.0 million) of
which $11.5 million related to net unrealized gains (2015 – gains of $10.4 million, 2014 – gains of $17.7
million). Included in net investment income for 2016 is a loss of $3.4 million (2015 - $2.5 million, 2014 - $0.6
million) representing the change in estimate during the period related to the difference between the
Company’s estimated fair value due to the lag in reporting, as discussed in “Note 2. Significant Accounting
Policies,” and the actual amount as reported in the final net asset values provided by the Company’s fund
managers.
F-27
The Company has committed capital to private equity partnerships and other entities of $794.2 million, of
which $554.7 million has been contributed at December 31, 2016. The Company’s remaining commitments
to these funds at December 31, 2016 totaled $249.4 million. In the future, the Company may enter into
additional commitments in respect of private equity partnerships or individual portfolio company investment
opportunities.
Investments in Other Ventures, under Equity Method
The table below shows the Company’s portfolio of investments in other ventures, under equity method:
At December 31,
THIG
Tower Hill
Tower Hill Re
Tower Hill Signature
Total Tower Hill Companies
Top Layer Re
Other
Total investments in other
ventures, under equity
method
2016
2015
Investment
$ 50,000
Ownership
%
Investment
25.0% $ 19,286 $ 50,000
Carrying
Value
Ownership
%
25.0% $ 19,155
Carrying
Value
10,000
4,250
500
64,750
65,375
23,923
32.3%
25.0%
25.0%
50.0%
41.8%
21,590
2,903
9,085
52,864
60,360
11,003
10,000
4,250
500
64,750
65,375
23,607
31.3%
25.0%
25.0%
50.0%
43.5%
19,981
4,136
7,315
50,587
68,936
12,828
$ 154,048
$ 124,227 $ 153,732
$ 132,351
On July 1, 2008, the Company invested $50.0 million in Tower Hill Insurance Group, LLC (“THIG”)
representing a 25.0% equity ownership. Included in the purchase price was $40.0 million of other
intangibles and $7.8 million of goodwill, which, in accordance with generally accepted accounting principles,
are recorded as “Investments in other ventures, under equity method” rather than “Goodwill and other
intangibles” on the Company’s consolidated balance sheet.
The Company originally invested $13.1 million in Top Layer Re, representing a 50.0% ownership. In
December 2010, March 2011 and December 2011, primarily as a result of net claims and claim expenses
incurred by Top Layer Re with respect to the September 2010 New Zealand Earthquake, the February 2011
New Zealand Earthquake and the Tohoku Earthquake and Tsunami, respectively, the Company invested an
additional $13.8 million, $20.5 million and $18.0 million, respectively, in Top Layer Re, maintaining the
Company’s 50.0% ownership interest.
The table below shows the Company’s equity in earnings of other ventures, under equity method:
Year ended December 31,
Tower Hill Companies
Top Layer Re
Other
Total equity in earnings of other ventures
2016
10,379 $
2015
13,116 $
2014
18,376
(8,576)
(840)
8,026
(661)
10,411
(2,712)
963 $
20,481 $
26,075
$
$
During 2016, the Company received $9.4 million of dividends from its investments in other ventures, under
equity method (2015 – $13.3 million, 2014 – $10.3 million). Losses from the Company’s investments in
other ventures, under equity method, net of dividends and distributions received, were $5.5 million at
December 31, 2016 (2015 - earnings of $10.1 million). Except for Top Layer Re, the equity in earnings of
the Company’s investments in other ventures are reported one quarter in arrears.
F-28
NOTE 6. FAIR VALUE MEASUREMENTS
The use of fair value to measure certain assets and liabilities with resulting unrealized gains or losses is
pervasive within the Company’s consolidated financial statements. Fair value is defined under accounting
guidance currently applicable to the Company to be the price that would be received upon the sale of an
asset or paid to transfer a liability in an orderly transaction between open market participants at the
measurement date. The Company recognizes the change in unrealized gains and losses arising from
changes in fair value in its consolidated statements of operations, with the exception of changes in
unrealized gains and losses on its fixed maturity investments available for sale, which are recognized as a
component of accumulated other comprehensive income in shareholders’ equity.
FASB ASC Topic Fair Value Measurements and Disclosures prescribes a fair value hierarchy that prioritizes
the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and
the lowest priority to valuation techniques that use at least one significant input that is unobservable (Level
3). The three levels of the fair value hierarchy are described below:
• Fair values determined by Level 1 inputs utilize unadjusted quoted prices obtained from active
markets for identical assets or liabilities for which the Company has access. The fair value is
determined by multiplying the quoted price by the quantity held by the Company;
• Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted
prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are
observable for the asset or liability, such as interest rates and yield curves that are observable at
commonly quoted intervals, broker quotes and certain pricing indices; and
• Level 3 inputs are based all or in part on significant unobservable inputs for the asset or liability, and
include situations where there is little, if any, market activity for the asset or liability. In these cases,
significant management assumptions can be used to establish management’s best estimate of the
assumptions used by other market participants in determining the fair value of the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its
entirety falls has been determined based on the lowest level input that is significant to the fair value
measurement of the asset or liability. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and the Company considers factors specific to
the asset or liability.
In order to determine if a market is active or inactive for a security, the Company considers a number of factors,
including, but not limited to, the spread between what a seller is asking for a security and what a buyer is
bidding for the same security, the volume of trading activity for the security in question, the price of the security
compared to its par value (for fixed maturity investments), and other factors that may be indicative of market
activity.
There have been no material changes in the Company’s valuation techniques, nor have there been any
transfers between Level 1 and Level 2, or Level 2 and Level 3 during the period represented by these
consolidated financial statements.
F-29
Below is a summary of the assets and liabilities that are measured at fair value on a recurring basis and
also represents the carrying amount on the Company’s consolidated balance sheets:
At December 31, 2016
Fixed maturity investments
U.S. treasuries
Agencies
Municipal
Non-U.S. government (Sovereign debt)
Non-U.S. government-backed corporate
Corporate
Agency mortgage-backed
Non-agency mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity investments
Short term investments
Equity investments trading
Other investments
Catastrophe bonds
Private equity partnerships (1)
Senior secured bank loan funds (1)
Hedge funds (1)
Total other investments
Other assets and (liabilities)
Assumed and ceded (re)insurance contracts (2)
Derivatives (3)
Other
Total other assets and (liabilities)
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$ 2,617,894 $ 2,617,894 $
— $
90,972
519,069
333,224
133,300
—
—
—
—
90,972
519,069
333,224
133,300
1,877,243
— 1,877,243
462,493
258,944
409,747
188,358
—
—
—
—
462,493
258,944
409,747
188,358
6,891,244
2,617,894
4,273,350
1,368,379
— 1,368,379
383,313
383,313
—
335,209
191,061
22,040
1,495
549,805
(13,004)
(8,922)
(13,105)
(35,031)
335,209
—
—
—
335,209
—
—
—
—
—
—
—
(13,004)
(646)
—
(646)
(8,276)
(13,105)
(21,381)
—
—
(13,004)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 9,157,710 $ 3,000,561 $ 5,955,557 $
(13,004)
(1) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient
have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit
reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
(2)
Included in assumed and ceded (re)insurance contracts at December 31, 2016 are $4.4 million and $17.4 million of other assets
and other liabilities, respectively.
(3) See “Note 19. Derivative Instruments” for additional information related to the fair value, by type of contract, of derivatives entered
into by the Company.
F-30
At December 31, 2015
Fixed maturity investments
U.S. treasuries
Agencies
Municipal
Non-U.S. government (Sovereign debt)
Non-U.S. government-backed corporate
Corporate
Agency mortgage-backed
Non-agency mortgage-backed
Commercial mortgage-backed
Asset-backed
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$ 2,064,944 $ 2,064,944 $
— $
137,976
583,282
334,981
138,994
—
—
—
—
137,976
583,282
334,981
138,994
—
—
—
—
—
2,055,323
— 2,047,705
7,618
504,518
270,763
561,496
130,541
—
—
—
—
504,518
270,763
561,496
130,541
—
—
—
—
Total fixed maturity investments
6,782,818
2,064,944
4,710,256
7,618
Short term investments
Equity investments trading
Other investments
Catastrophe bonds
Private equity partnerships (1)
Senior secured bank loan fund (1)
Hedge funds (1)
Total other investments
Other assets and (liabilities)
Assumed and ceded (re)insurance contracts (2)
Derivatives (3)
Other
Total other assets and (liabilities)
1,208,401
— 1,208,401
393,877
393,877
—
241,253
214,848
23,231
2,289
481,621
(5,899)
1,486
(12,320)
(16,733)
—
—
—
—
—
—
(1,234)
—
(1,234)
241,253
—
—
—
241,253
—
2,720
(12,320)
(9,600)
—
—
—
—
—
—
—
(5,899)
—
—
(5,899)
$ 8,849,984 $ 2,457,587 $ 6,150,310 $
1,719
(1) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient
have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit
reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
(2)
Included in assumed and ceded (re)insurance contracts at December 31, 2015 are $3.5 million and $9.4 million of other assets
and other liabilities, respectively.
(2) See “Note 19. Derivative Instruments” for additional information related to the fair value by type of contract, of derivatives entered
into by the Company.
Level 1 and Level 2 Assets and Liabilities Measured at Fair Value
Fixed Maturity Investments
Fixed maturity investments included in Level 1 consist of the Company’s investments in U.S. treasuries.
Fixed maturity investments included in Level 2 are agencies, municipal, non-U.S. government, non-U.S.
government-backed corporate, corporate, agency mortgage-backed, non-agency mortgage-backed,
commercial mortgage-backed and asset-backed.
The Company’s fixed maturity investments are primarily priced using pricing services, such as index
providers and pricing vendors, as well as broker quotations. In general, the pricing vendors provide pricing
for a high volume of liquid securities that are actively traded. For securities that do not trade on an
F-31
exchange, the pricing services generally utilize market data and other observable inputs in matrix pricing
models to determine month end prices. Observable inputs include benchmark yields, reported trades,
broker-dealer quotes, issuer spreads, bids, offers, reference data and industry and economic events. Index
pricing generally relies on market traders as the primary source for pricing; however, models are also
utilized to provide prices for all index eligible securities. The models use a variety of observable inputs such
as benchmark yields, transactional data, dealer runs, broker-dealer quotes and corporate actions. Prices
are generally verified using third party data. Securities which are priced by an index provider are generally
included in the index.
In general, broker-dealers value securities through their trading desks based on observable inputs. The
methodologies include mapping securities based on trade data, bids or offers, observed spreads, and
performance on newly issued securities. Broker-dealers also determine valuations by observing secondary
trading of similar securities. Prices obtained from broker quotations are considered non-binding, however
they are based on observable inputs and by observing secondary trading of similar securities obtained from
active, non-distressed markets.
The Company considers these Level 2 inputs as they are corroborated with other market observable inputs.
The techniques generally used to determine the fair value of the Company’s fixed maturity investments are
detailed below by asset class.
U.S. treasuries
Level 1 - At December 31, 2016, the Company’s U.S. treasuries fixed maturity investments were primarily
priced by pricing services and had a weighted average effective yield of 1.4% and a weighted average
credit quality of AA (2015 - 1.3% and AA, respectively). When pricing these securities, the pricing services
utilize daily data from many real time market sources, including active broker dealers. Certain data sources
are regularly reviewed for accuracy to attempt to ensure the most reliable price source is used for each
issue and maturity date.
Agencies
Level 2 - At December 31, 2016, the Company’s agency fixed maturity investments had a weighted average
effective yield of 2.0% and a weighted average credit quality of AA (2015 - 1.7% and AA, respectively). The
issuers of the Company’s agency fixed maturity investments primarily consist of the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. Fixed maturity
investments included in agencies are primarily priced by pricing services. When evaluating these securities,
the pricing services gather information from market sources and integrate other observations from markets
and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information
including actual trade volumes, when available. The fair value of each security is individually computed
using analytical models which incorporate option adjusted spreads and other daily interest rate data.
Municipal
Level 2 - At December 31, 2016, the Company’s municipal fixed maturity investments had a weighted
average effective yield of 2.4% and a weighted average credit quality of AA (2015 - 2.0% and AA,
respectively). The Company’s municipal fixed maturity investments are primarily priced by pricing services.
When evaluating these securities, the pricing services gather information regarding the security from third
party sources such as trustees, paying agents or issuers. Evaluations are updated by obtaining broker
dealer quotes and other market information including actual trade volumes, when available. The pricing
services also consider the specific terms and conditions of the securities, including any specific features
which may influence risk. In certain instances, securities are individually evaluated using a spread over
widely accepted market benchmarks.
Non-U.S. government (Sovereign debt)
Level 2 - At December 31, 2016, the Company’s non-U.S. government fixed maturity investments had a
weighted average effective yield of 1.6% and a weighted average credit quality of AAA (2015 - 1.4% and
AA, respectively). The issuers of securities in this sector are non-U.S. governments and their respective
agencies as well as supranational organizations. Securities held in these sectors are primarily priced by
pricing services that employ proprietary discounted cash flow models to value the securities. Key
F-32
quantitative inputs for these models are daily observed benchmark curves for treasury, swap and high
issuance credits. The pricing services then apply a credit spread for each security which is developed by in-
depth and real time market analysis. For securities in which trade volume is low, the pricing services utilize
data from more frequently traded securities with similar attributes. These models may also be
supplemented by daily market and credit research for international markets.
Non-U.S. government-backed corporate
Level 2 - At December 31, 2016, the Company’s non-U.S. government-backed corporate fixed maturity
investments had a weighted average effective yield of 1.5% and a weighted average credit quality of AAA
(2015 - 1.3% and AA, respectively). Non-U.S. government-backed fixed maturity investments are primarily
priced by pricing services that employ proprietary discounted cash flow models to value the securities. Key
quantitative inputs for these models are daily observed benchmark curves for treasury, swap and high
issuance credits. The pricing services then apply a credit spread to the respective curve for each security
which is developed by in-depth and real time market analysis. For securities in which trade volume is low,
the pricing services utilize data from more frequently traded securities with similar attributes. These models
may also be supplemented by daily market and credit research for international markets.
Corporate
Level 2 - At December 31, 2016, the Company’s corporate fixed maturity investments principally consisted
of U.S. and international corporations and had a weighted average effective yield of 3.7% and a weighted
average credit quality of BBB (2015 - 3.8% and BBB, respectively). The Company’s corporate fixed maturity
investments are primarily priced by pricing services. When evaluating these securities, the pricing services
gather information from market sources regarding the issuer of the security and obtain credit data, as well
as other observations, from markets and sector news. Evaluations are updated by obtaining broker dealer
quotes and other market information including actual trade volumes, when available. The pricing services
also consider the specific terms and conditions of the securities, including any specific features which may
influence risk. In certain instances, securities are individually evaluated using a spread which is added to
the U.S. treasury curve or a security specific swap curve as appropriate.
Agency mortgage-backed
Level 2 - At December 31, 2016, the Company’s agency mortgage-backed fixed maturity investments
included agency residential mortgage-backed securities with a weighted average effective yield of 2.9%, a
weighted average credit quality of AA and a weighted average life of 6.9 years (2015 - 2.7%, AA and 6.1
years, respectively). The Company’s agency mortgage-backed fixed maturity investments are primarily
priced by pricing services using a mortgage pool specific model which utilizes daily inputs from the active to
be announced market which is very liquid, as well as the U.S. treasury market. The model also utilizes
additional information, such as the weighted average maturity, weighted average coupon and other
available pool level data which is provided by the sponsoring agency. Valuations are also corroborated with
daily active market quotes.
Non-agency mortgage-backed
Level 2 - The Company’s non-agency mortgage-backed fixed maturity investments include non-agency
prime residential mortgage-backed and non-agency Alt-A fixed maturity investments. The Company has no
fixed maturity investments that were classified as sub-prime held at the time of purchase in its fixed maturity
investments portfolio. At December 31, 2016, the Company’s non-agency prime residential mortgage-
backed fixed maturity investments had a weighted average effective yield of 4.3%, a weighted average
credit quality of BBB, and a weighted average life of 5.1 years (2015 - 3.8%, non-investment grade and 4.3
years, respectively). The Company’s non-agency Alt-A fixed maturity investments held at December 31,
2016 had a weighted average effective yield of 5.2%, a weighted average credit quality of non-investment
grade and a weighted average life of 6.0 years (2015 - 4.7%, non-investment grade and 5.4 years,
respectively). Securities held in these sectors are primarily priced by pricing services using an option
adjusted spread model or other relevant models, which principally utilize inputs including benchmark yields,
available trade information or broker quotes, and issuer spreads. The pricing services also review collateral
prepayment speeds, loss severity and delinquencies among other collateral performance indicators for the
securities valuation, when applicable.
F-33
Commercial mortgage-backed
Level 2 - At December 31, 2016, the Company’s commercial mortgage-backed fixed maturity investments
had a weighted average effective yield of 2.6%, a weighted average credit quality of AAA, and a weighted
average life of 3.9 years (2015 - 2.9%, AAA and 3.7 years, respectively). Securities held in these sectors
are primarily priced by pricing services. The pricing services apply dealer quotes and other available trade
information such as bids and offers, prepayment speeds which may be adjusted for the underlying collateral
or current price data, the U.S. treasury curve and swap curve as well as cash settlement. The pricing
services discount the expected cash flows for each security held in this sector using a spread adjusted
benchmark yield based on the characteristics of the security.
Asset-backed
Level 2 - At December 31, 2016, the Company’s asset-backed fixed maturity investments had a weighted
average effective yield of 2.3%, a weighted average credit quality of AAA and a weighted average life of 2.6
years (2015 - 2.1%, AAA and 2.5 years, respectively). The underlying collateral for the Company’s asset-
backed fixed maturity investments primarily consists of student loans, credit card receivables, auto loans
and other receivables. Securities held in these sectors are primarily priced by pricing services. The pricing
services apply dealer quotes and other available trade information such as bids and offers, prepayment
speeds which may be adjusted for the underlying collateral or current price data, the U.S. treasury curve
and swap curve as well as cash settlement. The pricing services determine the expected cash flows for
each security held in this sector using historical prepayment and default projections for the underlying
collateral and current market data. In addition, a spread is applied to the relevant benchmark and used to
discount the cash flows noted above to determine the fair value of the securities held in this sector.
Short Term Investments
Level 2 - At December 31, 2016, the Company’s short term investments had a weighted average effective
yield of 0.7% and a weighted average credit quality of AAA (2015 - 0.4% and AAA, respectively). The fair
value of the Company’s portfolio of short term investments is generally determined using amortized cost
which approximates fair value and, in certain cases, in a manner similar to the Company’s fixed maturity
investments noted above.
Equity Investments, Classified as Trading
Level 1 - The fair value of the Company’s portfolio of equity investments, classified as trading is primarily
priced by pricing services, reflecting the closing price quoted for the final trading day of the period. When
pricing these securities, the pricing services utilize daily data from many real time market sources, including
applicable securities exchanges. All data sources are regularly reviewed for accuracy to attempt to ensure
the most reliable price source was used for each security.
Other investments
Catastrophe bonds
Level 2 - The Company’s other investments include investments in catastrophe bonds which are recorded
at fair value based on broker or underwriter bid indications.
Other assets and liabilities
Derivatives
Level 1 and Level 2 - Other assets and liabilities include certain derivatives entered into by the Company.
The fair value of these transactions includes certain exchange traded futures contracts which are
considered Level 1, and foreign currency contracts and certain credit derivatives, determined using
standard industry valuation models and considered Level 2, as the inputs to the valuation model are based
on observable market inputs. For credit derivatives, these inputs include credit spreads, credit ratings of the
underlying referenced security, the risk free rate and the contract term. For foreign currency contracts, these
inputs include spot rates and interest rate curves.
F-34
Other
Level 2 - The liabilities measured at fair value and included in Level 2 at December 31, 2016 of $13.1
million are comprised of cash settled restricted stock units (“CSRSU”) that form part of the Company’s
compensation program. The fair value of the Company’s CSRSUs is determined using observable
exchange traded prices for the Company’s common shares.
Level 3 Assets and Liabilities Measured at Fair Value
Below is a summary of quantitative information regarding the significant observable and unobservable
inputs (Level 3) used in determining the fair value of assets and liabilities measured at fair value on a
recurring basis:
December 31, 2016
Other assets and (liabilities)
Fair Value
(Level 3)
Valuation
Technique
Unobservable (U)
and Observable (O)
Inputs
Low
High
Weighted
Average
or Actual
Assumed and ceded (re)
insurance contracts
$
(574)
Internal
valuation model
Bond price (U)
$ 100.82
$ 103.58
$ 102.29
Assumed and ceded (re)
insurance contracts
(12,430)
Internal
valuation model
Net undiscounted
cash flows (U)
Liquidity discount (U)
Expected loss ratio
(U)
Net acquisition
expense ratio (O)
n/a
n/a
n/a
n/a
n/a
1.3 %
n/a
$(12,396)
n/a
n/a
35.2 %
(20.7)%
Contract period (O)
2.0 years
4.7 years
4.5 years
Discount rate (U)
n/a
n/a
1.9 %
Total other assets and
(liabilities)
$ (13,004)
Fixed Maturity Investments
Corporate
Level 3 - Previously included in the Company’s corporate fixed maturity investments was an investment in
the preferred equity of an insurance holding company. The Company measured the fair value of this
investment using a discounted cash flow model and sold this investment during the year ended
December 31, 2016 as detailed in the fixed maturity investments trading column in the rollforward table
below.
Other assets and liabilities
Assumed and ceded (re)insurance contracts
Level 3 - At December 31, 2016 the Company had a $0.6 million net liability related to an assumed
reinsurance contract accounted for at fair value, with the fair value obtained through the use of an internal
valuation model. The inputs to the internal valuation model are principally based on indicative pricing
obtained from independent brokers and pricing vendors for similarly structured marketable securities. The
most significant unobservable inputs include prices for similar marketable securities and a liquidity premium.
The Company considers the prices for similar securities to be unobservable, as there is little, if any market
activity for these similar assets. In addition, the Company has estimated a liquidity premium that would be
required if the Company attempted to effectively exit its position by executing a short sale of these
securities. Generally, an increase in the prices for similar marketable securities or a decrease in the liquidity
premium would result in an increase in the expected profit and ultimate fair value of this assumed
reinsurance contract.
Level 3 - At December 31, 2016 the Company had a $12.4 million net liability related to assumed and ceded
(re)insurance contracts accounted for at fair value, with the fair value obtained through the use of an
F-35
internal valuation model. The inputs to the internal valuation model are principally based on proprietary data
as observable market inputs are generally not available. The most significant unobservable inputs include
the assumed and ceded expected net cash flows related to the contracts, including the expected premium,
acquisition expenses and losses; the expected loss ratio and the relevant discount rate used to present
value the net cash flows. The contract period and acquisition expense ratio are considered observable
inputs as each is defined in the contract. The negative acquisition expense ratio used to determine the fair
value of the contracts at December 31, 2016 is the result of override commissions on the contracts being
higher than the gross acquisition expenses. Generally, an increase in the net expected cash flows and
expected term of the contract and a decrease in the discount rate, expected loss ratio or acquisition
expense ratio, would result in an increase in the expected profit and ultimate fair value of these assumed
and ceded (re)insurance contracts.
Below is a reconciliation of the beginning and ending balances, for the periods shown, of assets and
liabilities measured at fair value on a recurring basis using Level 3 inputs. Interest and dividend income are
included in net investment income and are excluded from the reconciliation.
Balance - January 1, 2015
Total unrealized (losses) gains
Included in net investment income
Included in other income (loss)
Total realized gains
Included in other income (loss)
Total foreign exchange gains
Purchases
Sales
Settlements
Balance - December 31, 2015
Change in unrealized gains for the period included in
earnings for assets held at the end of the period included in
net investment income
Change in unrealized losses for the period included in
earnings for assets held at the end of the period included in
other loss
$
$
$
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Fixed maturity
investments
trading
Other assets
and
(liabilities)
Total
$
15,660 $
(8,934) $
6,726
(542)
—
—
—
—
—
(7,500)
183
(426)
(359)
(426)
6,628
7
80,996
(84,353)
—
6,628
7
80,996
(84,353)
(7,500)
7,618 $
(5,899) $
1,719
(359) $
— $
(359)
— $
(426) $
(426)
Balance - January 1, 2016
Total unrealized losses
Included in net investment income
Total realized gains
Included in other income (loss)
Purchases
Settlements
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
Fixed maturity
investments
trading
Other assets
and
(liabilities)
Total
$
7,618 $
(5,899) $
1,719
(118)
—
(118)
—
—
(7,500)
6,339
(13,444)
—
6,339
(13,444)
(7,500)
Balance - December 31, 2016
$
— $
(13,004) $
(13,004)
F-36
Financial Instruments Disclosed, But Not Carried, at Fair Value
The Company uses various financial instruments in the normal course of its business. The Company’s
insurance contracts are excluded from the fair value of financial instruments accounting guidance, unless
the Company elects the fair value option, and therefore, are not included in the amounts discussed herein.
The carrying values of cash and cash equivalents, accrued investment income, receivables for investments
sold, certain other assets, payables for investments purchased, certain other liabilities, and other financial
instruments not included herein approximated their fair values.
Debt
Included on the Company’s consolidated balance sheet at December 31, 2016 were debt obligations of
$948.7 million (December 31, 2015 - $960.5 million). At December 31, 2016, the fair value of the
Company’s debt obligations was $964.8 million (December 31, 2015 – $973.3 million).
The fair value of the Company’s debt obligations is determined using indicative market pricing obtained
from third-party service providers, which the Company considers Level 2 in the fair value hierarchy. There
have been no changes during the period in the Company’s valuation technique used to determine the fair
value of the Company’s debt obligations. Refer to “Note 9. Debt and Credit Facilities” for additional
information related to the Company’s debt obligations.
The Fair Value Option for Financial Assets and Financial Liabilities
The Company has elected to account for certain financial assets and financial liabilities at fair value using
the guidance under FASB ASC Topic Financial Instruments as the Company believes it represents the most
meaningful measurement basis for these assets and liabilities. Below is a summary of the balances the
Company has elected to account for at fair value:
Other investments
Other assets
Other liabilities
2016
549,805 $
4,379 $
17,383 $
2015
481,621
3,463
9,362
$
$
$
Included in net investment income for 2016 was net unrealized gains of $11.5 million related to the changes
in fair value of other investments (2015 – gains of $10.4 million, 2014 – gains of $17.7 million). Included in
other income (loss) for 2016 were net unrealized gains of $Nil related to the changes in the fair value of
other assets and liabilities (2015 – losses of $0.4 million, 2014 – $Nil).
Measuring the Fair Value of Other Investments Using Net Asset Valuations
The table below shows the Company’s portfolio of other investments measured using net asset valuations
as a practical expedient:
At December 31, 2016
Private equity partnerships
$
Senior secured bank loan funds
Fair Value
191,061 $
Unfunded
Commitments
223,636
25,806
22,040
1,495
Hedge funds
Total other investments
measured using net asset
valuations
$
214,596 $
249,442
Redemption
Frequency
See below
Redemption
Notice Period
(Minimum
Days)
See below
Redemption
Notice Period
(Maximum
Days)
See below
See below
See below
See below
— See below
See below
See below
Private equity partnerships – The Company’s investments in private equity partnerships included alternative
asset limited partnerships (or similar corporate structures) that invest in certain private equity asset classes
including U.S. and global leveraged buyouts; mezzanine investments; distressed securities; real estate; and
oil, gas and power. The Company generally has no right to redeem its interest in any of these private equity
partnerships in advance of dissolution of the applicable private equity partnership. Instead, the nature of
F-37
these investments is that distributions are received by the Company in connection with the liquidation of the
underlying assets of the respective private equity partnership. It is estimated that the majority of the
underlying assets of the limited partnerships would liquidate over 7 to 10 years from inception of the
respective limited partnership.
Senior secured bank loan funds – At December 31, 2016 the Company had $22.0 million invested in closed
end funds which invests primarily in loans. The Company has no right to redeem its investment in these
funds. It is estimated that the majority of the underlying assets in these closed end funds would liquidate
over 4 to 5 years from inception of the fund.
Hedge funds – The Company invests in hedge funds that pursue multiple strategies. The Company’s
investments in hedge funds at December 31, 2016 were $1.5 million of “side pocket” investments which are
not redeemable at the option of the shareholder. The Company will retain its interest in the side pocket
investments until the underlying investments attributable to such side pockets are liquidated, realized or
deemed realized at the discretion of the fund manager.
NOTE 7. REINSURANCE
The Company purchases reinsurance and other protection to manage its risk portfolio and to reduce its
exposure to large losses. The Company currently has in place contracts that provide for recovery of a
portion of certain claims and claim expenses, generally in excess of various retentions or on a proportional
basis. In addition to loss recoveries, certain of the Company’s ceded reinsurance contracts provide for
payments of additional premiums, for reinstatement premiums and for lost no-claims bonuses, which are
incurred when losses are ceded to the respective reinsurance contracts. The Company remains liable to the
extent that any reinsurance company fails to meet its obligations.
The following table sets forth the effect of reinsurance and retrocessional activity on premiums written and
earned and on net claims and claim expenses incurred:
Year ended December 31,
Premiums written
Direct
Assumed
Ceded
Net premiums written
Premiums earned
Direct
Assumed
Ceded
Net premiums earned
Claims and claim expenses
Gross claims and claim expenses incurred
Claims and claim expenses recovered
Net claims and claim expenses incurred
2016
2015
2014
$
208,282 $
130,681 $
76,511
2,166,294
1,880,629
1,474,061
(839,264)
(595,127)
(482,336)
$ 1,535,312 $ 1,416,183 $ 1,068,236
$
157,112 $
98,182 $
66,027
1,874,993
1,769,088
1,450,047
(628,675)
(466,719)
(453,658)
$ 1,403,430 $ 1,400,551 $ 1,062,416
$
$
710,651 $
544,972 $
228,581
(179,820)
(96,734)
(30,634)
530,831 $
448,238 $
197,947
The reinsurers with the three largest balances accounted for 27.1%, 19.9% and 7.7%, respectively, of the
Company’s reinsurance recoverable balance at December 31, 2016 (2015 - 21.5%, 13.8% and 13.1%,
respectively). The valuation allowance recorded against reinsurance recoverable was $4.2 million at
December 31, 2016 (2015 - $1.6 million). The three largest company-specific components of the valuation
allowance represented 27.1%, 17.9% and 5.6%, respectively, of the Company’s total valuation allowance at
December 31, 2016 (2015 - 22.7%, 8.3% and 3.2%, respectively).
F-38
NOTE 8. RESERVE FOR CLAIMS AND CLAIM EXPENSES
General Description
The Company believes the most significant accounting judgment made by management is its estimate of
claims and claim expense reserves. Claims and claim expense reserves represent estimates, including
actuarial and statistical projections at a given point in time, of the ultimate settlement and administration
costs for unpaid claims and claim expenses arising from the insurance and reinsurance contracts the
Company sells. The Company establishes its claims and claim expense reserves by taking claims reported
to the Company by insureds and ceding companies, but which have not yet been paid (“case reserves”),
adding estimates for the anticipated cost of claims incurred but not yet reported to the Company, or incurred
but not enough reported to the Company (collectively referred to as “IBNR”) and, if deemed necessary,
adding costs for additional case reserves which represent the Company’s estimates for claims related to
specific contracts previously reported to the Company which it believes may not be adequately estimated by
the client as of that date, or adequately covered in the application of IBNR.
On March 2, 2015 the Company acquired Platinum and the transaction was accounted under the
acquisition method of accounting in accordance with FASB ASC Topic Business Combinations. Total
consideration paid was allocated among acquired assets and assumed liabilities based on their fair values,
including Platinum’s claims and claim expense reserves, which totaled $1.4 billion at March 2, 2015, and
consisted of $179.7 million and $1.2 billion included in the Company’s Property and Casualty and Specialty
segments, respectively. These claims and claim expense reserves are subject to the reserving
methodologies for each respective line of business as described below.
The following table summarizes the Company’s claims and claim expense reserves by segment, allocated
between case reserves, additional case reserves and IBNR:
At December 31, 2016
Property
Casualty and Specialty
Other
Total
At December 31, 2015
Property
Casualty and Specialty
Other
Total
Case
Reserves
Additional
Case Reserves
$
214,954 $
186,308 $
IBNR
226,512 $
Total
627,774
591,705
6,935
105,419
1,498,002
2,195,126
—
18,459
25,394
$
813,594 $
291,727 $ 1,742,973 $ 2,848,294
$
298,687 $
165,838 $
241,676 $
706,201
553,574
2,071
129,866
1,349,726
2,033,166
—
25,607
27,678
$
854,332 $
295,704 $ 1,617,009 $ 2,767,045
F-39
Activity in the liability for unpaid claims and claim expenses is summarized as follows:
Year ended December 31,
Net reserves as of January 1
Net incurred related to:
Current year
Prior years
Total net incurred
Net paid related to:
Current year
Prior years
Total net paid
Amounts acquired (1)
Foreign exchange
Net reserves as of December 31
Reinsurance recoverable as of December 31
2016
2015
$ 2,632,519 $ 1,345,816 $ 1,462,705
2014
694,957
610,685
341,745
(164,126)
(162,447)
(143,798)
530,831
448,238
197,947
83,015
506,279
589,294
95,747
425,565
521,312
— 1,394,117
39,830
241,286
281,116
—
(5,326)
(34,340)
(33,720)
2,568,730
2,632,519
1,345,816
279,564
134,526
66,694
Gross reserves as of December 31
$ 2,848,294 $ 2,767,045 $ 1,412,510
(1) Represents the fair value of Platinum's reserve for claims and claim expenses and reinsurance recoverable acquired at March 2,
2015.
The Company’s reserving methodology for each line of business uses a loss reserving process that
calculates a point estimate for its ultimate settlement and administration costs for claims and claim
expenses. The Company does not calculate a range of estimates and does not discount any of its reserves
for claims and claim expenses. The Company uses this point estimate, along with paid claims and case
reserves, to record its best estimate of additional case reserves and IBNR in its consolidated financial
statements. Under GAAP, the Company is not permitted to establish estimates for catastrophe claims and
claim expense reserves until an event occurs that gives rise to a loss.
Reserving for reinsurance claims involves other uncertainties, such as the dependence on information from
ceding companies, the time lag inherent in reporting information from the primary insurer to the Company or
to the Company’s ceding companies, and differing reserving practices among ceding companies. The
information received from ceding companies is typically in the form of bordereaux, broker notifications of
loss and/or discussions with ceding companies or their brokers. This information may be received on a
monthly, quarterly or transactional basis and normally includes paid claims and estimates of case reserves.
The Company sometimes also receives an estimate or provision for IBNR. This information is often updated
and adjusted from time to time during the loss settlement period as new data or facts in respect of initial
claims, client accounts, industry or event trends may be reported or emerge in addition to changes in
applicable statutory and case laws.
The Company’s estimates of losses from large events are based on factors including currently available
information derived from claims information from certain customers and brokers, industry assessments of
losses from the events, proprietary models, and the terms and conditions of the Company’s contracts. The
uncertainty of the Company’s estimates for large events is also impacted by the preliminary nature of the
information available, the magnitude and relative infrequency of the events, the expected duration of the
respective claims development period, inadequacies in the data provided to the relevant date by industry
participants and the potential for further reporting lags or insufficiencies; and in certain large events,
significant uncertainty as to the form of the claims and legal issues, under the relevant terms of insurance
and reinsurance contracts. In addition, a significant portion of the net claims and claim expenses associated
with certain large events can be concentrated with a few large clients and therefore the loss estimates for
these events may vary significantly based on the claims experience of those clients. The contingent nature
of business interruption and other exposures will also impact losses in a meaningful way, which may give
rise to significant complexity in respect of claims handling, claims adjustment and other coverage issues,
over time. Given the magnitude of certain events, there can be meaningful uncertainty regarding total
covered losses for the insurance industry and, accordingly, several of the key assumptions underlying the
F-40
Company's loss estimates. Loss reserve estimation in respect of the Company's retrocessional contracts
poses further challenges compared to directly assumed reinsurance. In addition, the Company’s actual net
losses from these events may increase if the Company’s reinsurers or other obligors fail to meet their
obligations.
Because of the inherent uncertainties discussed above, the Company has developed a reserving
philosophy that attempts to incorporate prudent assumptions and estimates, and the Company has
generally experienced favorable net development on prior accident years net claims and claim expenses in
the last several years. However, there is no assurance that this favorable development on prior accident
years net claims and claim expenses will occur in future periods.
The Company establishes a provision for unallocated loss adjustment expenses ("ULAE") when the related
reserve for claims and claim expenses is established. ULAE are expenses that cannot be associated with a
specific claim but are related to claims paid or in the process of settlement, such as internal costs of the
claims function, and are included in the reserve for claims and claim expenses. The determination of the
ULAE provision is subject to judgment.
The Company reevaluates its actuarial reserving techniques on a periodic basis. Typically, the quarterly
review procedures include reviewing paid and reported claims in the most recent reporting period, reviewing
the development of paid and reported claims from prior periods, and reviewing the Company’s overall
experience by underwriting year and in the aggregate. The Company monitors its expected ultimate claims
and claim expense ratios and expected claims reporting assumptions on a quarterly basis and compares
them to its actual experience. These actuarial assumptions are generally reviewed annually, based on input
from the Company’s actuaries, underwriters, claims personnel and finance professionals, although
adjustments may be made more frequently if needed. Assumption changes are made to adjust for changes
in the pricing and terms of coverage the Company provides, changes in industry results for similar business,
as well as its actual experience to the extent the Company has enough data to rely on its own experience. If
the Company determines that adjustments to an earlier estimate are appropriate, such adjustments are
recorded in the period in which they are identified.
Incurred and Paid Claims Development and Reserving Methodology
The information provided herein about incurred and paid accident year claims development for the years
ended prior to December 31, 2016 on a consolidated basis and by segment is presented as supplementary
information. The Company has applied a retrospective approach with respect to its acquisition of Platinum,
presenting all relevant historical information for all periods presented. In addition, included in the incurred
claims and claim expenses and cumulated paid claims and claim expenses tables below is a reconciling
item that represents the unamortized balance of fair value adjustments recorded in connection with the
acquisition of Platinum to reflect an increase in net claims and claim expenses due to the addition of a
market based risk margin that represented the cost of capital required by a market participant to assume
the net claims and claim expenses of Platinum.
For incurred and paid accident year claims denominated in foreign currency, the Company has used the
current year-end balance sheet foreign exchange rate for all periods provided, thereby eliminating the
effects of changes in foreign currency translation rates from the incurred and paid accident year claims
development information included in the tables below.
F-41
The following table details the Company’s consolidated incurred claims and claim expenses and cumulative
paid claims and claim expenses as of December 31, 2016, net of reinsurance, as well as IBNR plus ACR
included within the net incurred claims amounts.
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
At
December
31, 2016
IBNR
and ACR
$ 1,113,667
$1,025,247
$ 958,206
$ 911,337
$ 868,747
$ 806,487
$ 778,185
$ 766,845
$ 774,396
$
770,219
$
67,726
—
—
—
—
—
—
—
—
—
1,469,251
1,429,241
1,408,748
1,390,282
1,317,055
1,294,396
1,272,298
1,262,048
1,247,506
—
—
—
—
—
—
—
—
704,560
639,182
622,181
582,725
557,623
536,393
527,374
522,566
—
—
—
—
—
—
—
988,403
946,271
898,572
867,523
864,328
854,924
863,129
— 1,611,509
1,533,946
1,454,063
1,377,450
1,349,227
1,314,451
—
—
—
—
—
—
—
—
—
—
862,333
767,534
705,316
679,446
651,764
—
—
—
—
614,066
552,965
504,401
465,948
—
—
—
657,958
613,360
600,956
—
—
635,553
620,623
—
675,378
48,658
30,006
79,809
113,383
132,561
127,969
155,602
343,935
542,083
$ 7,732,540
$ 1,641,732
Cumulative paid claims and claim expenses, net of reinsurance
For the year ended December 31,
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
$
91,877
$ 281,119
$ 371,280
$ 469,657
$ 541,511
$ 588,997
$ 613,200
$ 638,348
$ 657,017
$
682,644
—
—
—
—
—
—
—
—
—
275,968
591,482
797,242
937,678
1,013,041
1,060,160
1,090,977
1,118,434
1,140,094
—
—
—
—
—
—
—
—
96,378
267,983
319,313
363,190
395,580
434,257
455,919
462,192
—
—
—
—
—
—
—
126,401
309,807
425,914
495,847
549,898
620,545
709,672
—
—
—
—
—
—
249,556
522,071
861,359
1,013,577
1,101,596
1,145,239
—
—
—
—
—
165,581
265,612
356,102
415,911
459,269
—
—
—
—
86,344
177,423
240,046
283,707
—
—
—
110,863
199,632
268,806
—
—
95,712
192,864
—
79,422
$ 5,423,909
Outstanding liabilities from accident year 2006 and prior, net of reinsurance
226,695
Accident
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Accident
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Claims and claim expenses, net of reinsurance, from the Company's former Bermuda-based insurance operations
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum
Adjustment for unallocated claim expenses
2,114
20,256
11,034
Liability for claims and claim expenses, net of reinsurance
$ 2,568,730
Property Segment
Within the Property segment, the Company principally writes property catastrophe excess of loss
reinsurance contracts to insure insurance and reinsurance companies against natural and man-made
catastrophes. Under these contracts, the Company indemnifies an insurer or reinsurer when its aggregate
paid claims and claim expenses from a single occurrence of a covered peril exceeds the attachment point
specified in the contract, up to an amount per loss specified in the contract. The Company's most significant
exposure is to losses from hurricanes, earthquakes and other windstorms, although the Company is also
exposed to claims arising from other catastrophes, such as tsunamis, winter storms, freezes, floods, fires,
tornadoes, explosions and acts of terrorism. The Company's predominant exposure under such coverage is
to property damage. However, other risks, including business interruption and other non-property losses,
may also be covered under the Company's catastrophe contracts when arising from a covered peril. The
Company's coverages are offered on either a worldwide basis or are limited to selected geographic areas.
F-42
Coverage can also vary from “all property” perils to limited coverage on selected perils, such as “earthquake
only” coverage. The Company also enters into retrocessional contracts that provide property catastrophe
coverage to other reinsurers or retrocedants. This coverage is generally in the form of excess of loss
retrocessional contracts and may cover all perils and exposures on a worldwide basis or be limited in scope
to selected geographic areas, perils and/or exposures. The exposures the Company assumes from
retrocessional business can change within a contract term as the underwriters of a retrocedant may alter
their book of business after the retrocessional coverage has been bound. The Company also offers dual
trigger reinsurance contracts which require the Company to pay claims based on claims incurred by
insurers and reinsurers in addition to the estimate of insured industry losses as reported by referenced
statistical reporting agencies.
Also included in the Property segment is property per risk, property (re)insurance, binding facilities and
regional U.S. multi-line reinsurance. The Company's predominant exposure under such coverage is to
property damage. However, other risks, including business interruption and other non-property losses, may
also be covered when arising from a covered peril. The Company's coverages are offered on either a
worldwide basis or are limited to selected geographic areas. The exposures assumed from retrocessional
business can change within a contract term as the underwriters of a retrocedant may alter their book of
business after the retrocessional coverage has been bound. The Company offers these products principally
through proportional coverage. In a proportional reinsurance arrangement (also referred to as quota share
reinsurance or pro rata reinsurance), the reinsurer shares a proportional part of the original premiums and
losses of the reinsured.
Claims and claim expenses in the Company's Property segment are generally characterized by loss events
of low frequency and high severity. Initial reporting of paid and incurred claims in general, tends to be
relatively prompt. The Company considers this business “short-tail” as compared to the reporting of claims
for “long-tail” products, which tends to be slower. However, the timing of claims payment and reporting also
varies depending on various factors, including: whether the claims arise under reinsurance of primary
insurance companies or reinsurance of other reinsurance companies; the nature of the events (e.g.,
hurricanes, earthquakes or terrorism); the geographic area involved; post-event inflation which may cause
the cost to repair damaged property to increase significantly from current estimates, or for property claims
to remain open for a longer period of time, due to limitations on the supply of building materials, labor and
other resources; complex policy coverage and other legal issues; and the quality of each client’s claims
management and reserving practices. Management’s judgments regarding these factors are reflected in the
Company's reserve for claims and claim expenses.
Reserving for most of the Company's Property segment generally does not involve the use of traditional
actuarial techniques. Rather, claims and claim expense reserves are estimated by management after a
catastrophe occurs by completing an in-depth analysis of the individual contracts which may potentially be
impacted by the catastrophic event. The in-depth analysis generally involves: 1) estimating the size of
insured industry losses from the catastrophic event; 2) reviewing reinsurance contract portfolios to identify
contracts which are exposed to the catastrophic event; 3) reviewing information reported by customers and
brokers; 4) discussing the event with customers and brokers; and 5) estimating the ultimate expected cost
to settle all claims and administrative costs arising from the catastrophic event on a contract-by-contract
basis and in aggregate for the event. Once an event has occurred, during the then current reporting period,
the Company records its best estimate of the ultimate expected cost to settle all claims arising from the
event. The Company's estimate of claims and claim expense reserves is then determined by deducting
cumulative paid losses from its estimate of the ultimate expected loss for an event. The Company’s
estimate of IBNR is determined by deducting cumulative paid losses, case reserves and additional case
reserves from its estimate of the ultimate expected loss for an event. Once the Company receives a notice
of loss or payment request under a catastrophe reinsurance contract, it is generally able to process and pay
such claims promptly.
Because the events from which claims arise under policies written within the Property segment are typically
prominent, public occurrences such as hurricanes and earthquakes, the Company is often able to use
independent reports as part of its loss reserve estimation process. The Company also reviews catastrophe
bulletins published by various statistical reporting agencies to assist in determining the size of the industry
loss, although these reports may not be available for some time after an event.
F-43
For smaller events including localized severe weather events such as windstorms, hail, ice, snow, flooding,
freezing and tornadoes, which are not necessarily prominent, public occurrences, the Company initially
places greater reliance on catastrophe bulletins published by statistical reporting agencies to assist in
determining what events occurred during the reporting period than the Company does for large events. This
includes reviewing catastrophe bulletins published by Property Claim Services (“PCS”) for U.S.
catastrophes. The Company sets its initial estimates of reserves for claims and claim expenses for these
smaller events based on a combination of its historical market share for these types of losses and the
estimate of the total insured industry property losses as reported by statistical reporting agencies, although
management may make significant adjustments based on the Company's current exposure to the
geographic region involved as well as the size of the loss and the peril involved. This approach
supplements the Company's approach for estimating losses for larger catastrophes, which as discussed
above, includes discussions with brokers and ceding companies and reviewing individual contracts
impacted by the event. Approximately one year from the date of loss for these small events, the Company
typically estimates IBNR for these events by using the paid Bornhuetter-Ferguson actuarial method. The
loss development factors for the paid Bornhuetter-Ferguson actuarial method are selected based on a
review of the Company's historical experience and these factors are reviewed at least annually. There were
no significant changes to the Company's paid loss development factors over the last three years.
In general, reserves for the Company's more recent reinsured catastrophic events are subject to greater
uncertainty and, therefore, greater potential variability, and are likely to experience material changes from
one period to the next. This is due to the uncertainty as to the size of the industry losses from the event,
uncertainty as to which contracts have been exposed to the catastrophic event, uncertainty due to complex
legal and coverage issues that can arise out of large or complex catastrophic events, and uncertainty as to
the magnitude of claims incurred by the Company's customers. As the Company's claims age, more
information becomes available and the Company believes its estimates become more certain.
F-44
The following table details the Company’s Property segment incurred claims and claim expenses and
cumulative paid claims and claim expenses as of December 31, 2016, net of reinsurance, as well as IBNR
plus ACR included within the net incurred claims amounts.
Accident
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Accident
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
At
December
31, 2016
IBNR
and ACR
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
$ 387,866
$ 309,228
$ 250,975
$ 246,823
$ 234,120
$ 213,228
$ 206,168
$ 199,792
$ 198,666
$
199,383
$
851,049
752,349
752,501
748,918
715,285
700,312
691,030
683,658
684,281
218,607
163,124
144,352
138,131
134,013
134,722
134,059
134,359
605,753
557,062
522,678
527,126
545,333
549,097
558,982
— 1,230,463
1,153,960
1,103,441
1,056,822
1,036,122
1,007,368
436,244
343,561
310,842
293,136
275,504
223,542
192,681
170,629
149,197
—
—
—
—
—
—
—
—
—
—
—
—
—
—
182,518
153,770
146,689
224,669
192,593
—
—
—
—
—
—
251,774
178,466
$ 3,600,130
$
395,680
397
919
411
35,715
48,082
38,243
15,879
14,820
62,748
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Cumulative paid claims and claim expenses, net of reinsurance
For the year ended December 31,
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
$
45,530
$ 150,938
$ 172,512
$ 187,998
$ 190,603
$ 194,327
$ 197,533
$ 197,735
$ 198,654
$
199,893
—
—
—
—
—
—
—
—
—
247,162
391,008
538,944
628,673
661,664
675,595
679,303
681,131
682,539
—
—
—
—
—
—
—
—
56,065
99,400
113,279
120,839
126,433
130,858
131,823
132,731
—
—
—
—
—
—
—
91,585
211,124
289,918
332,275
367,495
393,497
469,028
—
—
—
—
—
—
201,650
409,111
716,364
838,968
896,001
921,820
—
—
—
—
—
100,044
144,861
188,744
208,115
218,060
—
—
—
—
48,550
91,436
115,043
125,744
—
—
—
55,101
95,758
118,304
—
—
62,173
108,173
—
47,480
$ 3,023,772
Outstanding liabilities from accident year 2006 and prior, net of reinsurance
Adjustment for unallocated claim expenses
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum
3,865
2,394
1,419
Liability for claims and claim expenses, net of reinsurance
$
584,036
Casualty and Specialty Segment
The Company offers its casualty and specialty reinsurance products principally on a proportional basis, and
it also provides excess of loss coverage. The Company offers casualty and specialty reinsurance products
to insurance and reinsurance companies and provides coverage for specific geographic regions or on a
worldwide basis. Principally all of the business is reinsurance, although from time to time, the Company
writes direct insurance business.
As with the Company's Property segment, its Casualty and Specialty segment reinsurance contracts can
include coverage for relatively large limits or exposures. As a result of the foregoing, the Company's
casualty and specialty reinsurance business can be subject to significant claims volatility. In periods of low
F-45
claims frequency or severity, the Company's results will generally be favorably impacted while in periods of
high claims frequency or severity the Company's results will generally be negatively impacted.
More recently, the Company has accepted a wider range of proportional risks, facilitating the Company's
efforts to expand its product offerings. In addition, on March 2, 2015 the Company acquired Platinum and
recorded $1.4 billion of claims and claim expense reserves related to the acquisition, of which $1.2 billion
was recorded in the Casualty and Specialty segment, with the balance recorded in the Company's Property
segment. While the Company remains focused on underwriting discipline, and seeks to remain focused on
opportunities amenable to stochastic representation and supported by strong data and analytics, the
Company's expanded casualty and specialty product suite and the addition of the claims and claim expense
reserves acquired through the Platinum transaction, may pose new, unmodelled or unforeseen risks for
which the Company may not be adequately compensated and may also result in a higher level of attritional
claims and claim expenses and the potential for reserve development, either adverse or favorable.
The Company's processes and methodologies in respect of loss estimation for the coverages offered
through its Casualty and Specialty segment differ from those used for its Property segment. For example,
the Company's casualty and specialty coverages are more likely to be impacted by factors such as long-
term inflation and changes in the social and legal environment, which the Company believes gives rise to
greater uncertainty in its reserves for claims and claim expenses. Moreover, in many lines of business the
Company does not have the benefit of a significant amount of its own historical experience and may have
little or no related corporate reserving history in many of its newer or growing lines of business. The
Company believes this makes its Casualty and Specialty segment reserving subject to greater uncertainty
than its Property segment.
The Company calculates multiple point estimates for claims and claim expense reserves using a variety of
actuarial reserving techniques for many, but not all, of its classes of business for each underwriting year
within the Casualty and Specialty segment. The Company does not believe that these multiple point
estimates are, or should be considered a range. Rather, the Company considers each class of business
and determines the most appropriate point estimate for each underwriting year based on the characteristics
of the particular class including: (1) loss development patterns derived from historical data; (2) the credibility
of the selected loss development pattern; (3) the stability of the loss development patterns; (4) how
developed the underwriting year is; and (5) the observed loss development of other underwriting years for
the same class. The Company also considers other relevant factors, including: (1) historical ultimate loss
ratios; (2) the presence of individual large losses; and (3) known occurrences that have not yet resulted in
reported losses. The Company makes determinations of the most appropriate point estimate of loss for
each class based on an evaluation of relevant information and do not ascribe any particular portion of the
estimate to a particular factor or consideration. In addition, the Company believes that a review of individual
contract information improves the loss estimates for some classes of business.
When developing claims and claims expense reserves for the Company's Casualty and Specialty segment,
it considers several actuarial techniques such as the expected loss ratio method, the Bornhuetter-Ferguson
actuarial method and the paid and reported chain ladder actuarial method.
For classes of business and underwriting years where the Company has limited historical claims
experience, estimates of ultimate losses that are not related to a specific event are generally initially
determined based on the loss ratio method applied to each underwriting year and to each class of business.
Unless the Company has credible claims experience or unfavorable development, it generally selects an
ultimate loss based on its initial view of the loss. The selected ultimate losses are determined by multiplying
the initial expected loss ratio by the earned premium. The initial expected loss ratios are key inputs that
involve management judgment and are based on a variety of factors, including: (1) contract by contract
expected loss ratios developed during the Company’s pricing process; (2) historical loss ratios and
combined ratios adjusted for rate change and trend; and (3) industry benchmarks for similar business.
These judgments take into account management’s view of past, current and future factors that may
influence ultimate losses, including: (1) market conditions; (2) changes in the business underwritten; (3)
changes in timing of the emergence of claims; and (4) other factors that may influence ultimate loss ratios
and losses.
The determination of when reported losses are sufficient and credible to warrant selection of an ultimate
loss ratio different from the initial expected loss ratios also requires judgment. The Company generally
makes adjustments for reported loss experience indicating unfavorable variances from initial expected loss
F-46
ratios sooner than reported loss experience indicating favorable variances. This is because the reporting of
losses in excess of expectations tends to have greater credibility than an absence or lower than expected
level of reported losses. Over time, as a greater number of claims are reported and the credibility of
reported losses improves, actuarial estimates of IBNR are typically based on the Bornhuetter-Ferguson
actuarial method or the reported chain ladder actuarial method.
The Bornhuetter-Ferguson method allows for greater weight to be applied to expected results in periods
where little or no actual experience is available, and, hence, is less susceptible to the potential pitfall of
being excessively swayed by one year or one quarter of actual paid and/or reported loss data, compared to
the chain ladder actuarial method. The Bornhuetter-Ferguson method uses initial expected loss ratio
expectations to the extent that the expected paid or reported losses are zero, and it assumes that past
experience is not fully representative of the future. As the Company’s reserves for claims and claim
expenses age, and actual claims experience becomes available, this method places less weight on
expected experience and places more weight on actual experience. This experience, which represents the
difference between expected reported claims and actual reported claims, is reflected in the respective
reporting period as a change in estimate. The utilization of the Bornhuetter-Ferguson method requires the
Company to estimate an expected ultimate claims and claim expense ratio and select an expected loss
reporting pattern. The Company selects its estimates of the expected ultimate claims and claim expense
ratios as described above and selects its expected loss reporting patterns by utilizing actuarial analysis,
including management’s judgment, and historical patterns of paid losses and reporting of case reserves to
the Company, as well as industry loss development patterns. The estimated expected claims and claim
expense ratio may be modified to the extent that reported losses at a given point in time differ from what
would be expected based on the selected loss reporting pattern.
The reported chain ladder actuarial method utilizes actual reported losses and a loss development pattern
to determine an estimate of ultimate losses that is independent of the initial expected ultimate loss ratio and
earned premium. The Company believes this technique is most appropriate when there are a large number
of reported losses with significant statistical credibility and a relatively stable loss development pattern.
Information that may cause future loss development patterns to differ from historical loss development
patterns is considered and reflected in the Company’s selected loss development patterns as appropriate.
For certain reinsurance contracts, historical loss development patterns may be developed from ceding
company data or other sources.
In addition, certain casualty and specialty coverages may be impacted by natural and man-made
catastrophes. The Company estimates reserves for claim and claim expenses for these losses after the
event giving rise to these losses occurs, following a process that is similar to its Property segment
described above.
F-47
The following table details the Company’s Casualty and Specialty segment incurred claims and claim
expenses and cumulative paid claims and claim expenses as of December 31, 2016, net of reinsurance, as
well as IBNR plus ACR included within the net incurred claims amounts.
Accident
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Accident
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
At
December
31, 2016
IBNR
and ACR
$ 725,801
$ 716,019
$ 707,231
$ 664,514
$ 634,627
$ 593,259
$ 572,017
$ 567,053
$ 575,730
$
570,836
$
67,329
618,202
676,892
656,247
641,364
601,770
594,084
581,268
578,390
563,225
485,953
476,058
477,829
444,594
423,610
401,671
393,315
388,207
382,650
389,209
375,894
340,397
318,995
305,827
304,147
381,046
379,986
350,622
320,628
313,105
307,083
426,089
423,973
394,474
386,310
376,260
47,739
29,595
44,094
65,301
94,318
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
390,524
360,284
333,772
316,751
112,090
—
—
—
475,440
459,590
454,267
140,782
—
—
410,884
428,030
281,187
—
423,604
363,617
$ 4,132,410
$ 1,246,052
Cumulative paid claims and claim expenses, net of reinsurance
For the year ended December 31,
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
$
46,347
$ 130,181
$ 198,768
$ 281,659
$ 350,908
$ 394,670
$ 415,667
$ 440,613
$ 458,363
$
482,751
—
—
—
—
—
—
—
—
—
28,806
200,474
258,298
309,005
351,377
384,565
411,674
437,303
457,555
—
—
—
—
—
—
—
—
40,313
168,583
206,034
242,351
269,147
303,399
324,096
329,461
—
—
—
—
—
—
—
34,816
98,683
135,996
163,572
182,403
227,048
240,644
—
—
—
—
—
—
47,906
112,960
144,995
174,609
205,595
223,419
—
—
—
—
—
65,537
120,751
167,358
207,796
241,209
—
—
—
—
37,794
85,987
125,003
157,963
—
—
—
55,762
103,874
150,502
—
—
33,539
—
84,691
31,942
$ 2,400,137
Outstanding liabilities from accident year 2006 and prior, net of reinsurance
222,830
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum
Adjustment for unallocated claim expenses
17,862
9,615
Liability for claims and claim expenses, net of reinsurance
$ 1,982,580
Prior Year Development of the Reserve for Net Claims and Claim Expenses
The Company’s estimates of claims and claim expense reserves are not precise in that, among other
things, they are based on predictions of future developments and estimates of future trends and other
variable factors. Some, but not all, of the Company’s reserves are further subject to the uncertainty inherent
in actuarial methodologies and estimates. Because a reserve estimate is simply an insurer’s estimate at a
point in time of its ultimate liability, and because there are numerous factors that affect reserves and claims
payments that cannot be determined with certainty in advance, the Company’s ultimate payments will vary,
perhaps materially, from its estimates of reserves. If the Company determines in a subsequent period that
adjustments to its previously established reserves are appropriate, such adjustments are recorded in the
period in which they are identified. On a net basis, the Company’s cumulative favorable or unfavorable
F-48
development is generally reduced by offsetting changes in its reinsurance recoverables, as well as changes
to loss related premiums such as reinstatement premiums and redeemable noncontrolling interest for
changes in claims and claim expenses that impact DaVinciRe, all of which generally move in the opposite
direction to changes in the Company’s ultimate claims and claim expenses.
As detailed in the tables and discussion detail below, changes to prior year estimated claims reserves
increased the Company’s net income by $164.1 million during the year ended December 31, 2016, (2015 -
$162.4 million, 2014 - $143.8 million), excluding the consideration of changes in reinstatement, adjustment
or other premium changes, profit commissions, redeemable noncontrolling interest - DaVinciRe and income
tax.
The following table details the Company’s prior year development by segment of its liability for unpaid
claims and claim expenses:
Year ended December 31,
Property
Casualty and Specialty
Other
2016
$ (104,876) $
(58,140)
(1,110)
2015
(93,786) $
(67,791)
(870)
2014
(87,258)
(50,403)
(6,137)
Total favorable development of prior accident years net
claims and claim expenses
$ (164,126) $ (162,447) $ (143,798)
F-49
Property Segment
The following table details the development of the Company’s liability for unpaid claims and claim expenses
for its Property segment, allocated between large and small catastrophe net claims and claim expenses and
attritional net claims and claim expenses, included in the other line item:
Year ended December 31,
Catastrophe net claims and claim expenses
Large catastrophe events
Thailand Floods (2011)
Tohoku Earthquake and Tsunami (2011)
New Zealand Earthquake (2011)
2011 International Events
Storm Sandy (2012)
April and May U.S. Tornadoes (2011)
New Zealand Earthquake (2010)
Other
Total large catastrophe events
Small catastrophe events
U.S. PCS 13/14 Wind and Thunderstorm (2013)
Tianjin Explosion (2015)
U.S. PCS 15 Wind and Thunderstorm (2013)
U.S. PCS 81 Wind and Thunderstorm (2015)
U.S. PCS 70 and 73 Wind and Thunderstorm (2012)
U.S. PCS 24 Wind and Thunderstorm (2013)
European Floods (2013)
Other
Total small catastrophe events
Total catastrophe net claims and claim expenses
Actuarial assumption changes
2016
2015
2014
(Favorable)
adverse
development
(Favorable)
adverse
development
(Favorable)
adverse
development
$
(15,131) $
(18,823) $
(11,754)
(7,314)
1,987
(20,458)
(10,849)
(4,213)
6,904
(5,310)
(33,926)
(6,286)
(5,686)
(5,648)
(5,098)
(3,772)
(229)
(40)
(44,191)
(70,950)
(104,876)
—
(5,313)
22,754
(1,382)
(12,503)
(10,190)
1,095
(11,300)
(34,280)
(5,408)
(3,088)
(20,250)
(24,232)
(14,272)
24,692
(23,947)
(58,009)
(1,882)
(4,239)
—
418
—
(1,220)
(809)
(2,466)
(52,046)
(58,005)
(92,285)
(1,501)
—
2,400
—
13,362
(6,712)
(8,496)
(25,564)
(29,249)
(87,258)
—
Total net favorable development of prior accident years net
claims and claim expenses
$ (104,876) $
(93,786) $
(87,258)
The net favorable development of prior accident years net claims and claim expenses within the Company’s
Property segment in 2016 of $104.9 million was principally driven by favorable development of $15.1 million
from the 2011 Thailand Floods, $10.8 million from Storm Sandy in 2012, $7.3 million from the 2011 Tohoku
Earthquake and Tsunami, and $5.7 million related to the 2015 Tianjin Explosion, partially offset by adverse
development of $6.9 million related to the 2010 New Zealand Earthquake, each principally the result of
changes in estimated ultimate losses for each respective event. Included in the favorable development of
prior accident years net claims and claim expenses related to small catastrophe events were a number of
wind and thunderstorm events, primarily from the 2012, 2013 and 2015 accident years totaling $21.0
million, each principally the result of changes in estimated ultimate losses for each respective event, with
the remainder due to a number of other large and small catastrophe events related to lines of business
where the Company principally estimates net claims and claim expenses using traditional actuarial
methods.
The favorable development of prior accident years net claims and claim expenses within the Company’s
Property segment in 2015 of $93.8 million was comprised of $34.3 million and $58.0 million related to large
and small catastrophe events, respectively. Included in the favorable development of prior accident years
F-50
net claims and claim expenses related to large catastrophe events was $12.5 million related to Storm
Sandy and $10.2 million related to the April and May 2011 U.S. Tornadoes, each principally the result of
changes in the Company’s estimated ultimate loss for each respective event. In addition, the Company
experienced $69.3 million of favorable development related to a number of other large and small
catastrophe events related to lines of business where the Company principally estimates net claims and
claim expenses using traditional actuarial methods. Net favorable development of prior accident years net
claims and claim expenses related to the 2011 New Zealand Earthquake, the 2011 Thailand Floods and the
2011 Tohoku Earthquake and Tsunami (collectively the “2011 International Events”) was $1.4 million and
included reductions in reported losses on the 2011 Thailand Floods and Tohoku Earthquake and Tsunami,
offset by a net increase in reported losses on the 2011 New Zealand Earthquake, with each respective
movement principally driven by the same counterparties re-allocating losses between the 2011 International
Events.
The favorable development of prior accident years net claims and claim expenses within the Company’s
Property segment in 2014 of $87.3 million was comprised of $58.0 million and $29.2 million related to large
and small catastrophe events, respectively. Included in the favorable development of prior accident years
net claims and claim expenses related to large catastrophe events was $24.2 million, $14.3 million and
$11.8 million related to Storm Sandy, the 2011 April and May U.S. Tornadoes and the 2011 Thailand Floods,
partially offset by adverse development of $24.7 million related to the 2010 New Zealand Earthquake, each
principally the result of changes in estimated ultimate losses for each respective event. Included in the
favorable development of prior accident years net claims and claim expenses related to small catastrophe
events was $8.5 million and $6.7 million related to the 2013 European Floods and a 2013 U.S. wind and
thunderstorm event, respectively, partially offset by adverse development of $13.4 million related to certain
2012 U.S. wind and thunderstorm events, each principally the result of changes in estimated ultimate losses
for each respective event. In addition, the Company’s Property segment experienced $51.4 million of
favorable development related to a number of other large and small catastrophe events.
Casualty and Specialty Segment
The following table details the development of the Company’s liability for unpaid claims and claim expenses
for its Casualty and Specialty segment:
Year ended December 31,
Actuarial methods - actual reported claims less than
expected claims
Actuarial assumption changes
2016
2015
2014
(Favorable)
adverse
development
(Favorable)
adverse
development
(Favorable)
adverse
development
$
(52,601) $
(72,551) $
(50,403)
(5,539)
4,760
—
Total favorable development of prior accident years net
claims and claim expenses
$
(58,140) $
(67,791) $
(50,403)
The favorable development of prior accident years net claims and claim expenses within the Company’s
Casualty and Specialty segment in 2016 of $58.1 million was driven by $52.6 million related to the
application of the Company’s formulaic actuarial reserving methodology with attritional net claims and claim
expenses reported coming in lower than expected on prior accident years events and $5.5 million of
favorable development associated with actuarial assumption changes.
The favorable development of prior accident years net claims and claim expenses within the Company’s
Casualty and Specialty segment in 2015 of $67.8 million was driven by $72.6 million related to the
application of the Company’s formulaic actuarial reserving methodology with attritional net claims and claim
expenses reported coming in lower than expected on prior accident years events, partially offset by adverse
development of $4.8 million associated with actuarial assumption changes.
The favorable development of prior accident years net claims and claim expenses within the Company’s
Casualty and Specialty segment in 2014 of $50.4 million was driven by the application of the Company’s
formulaic actuarial reserving methodology with attritional net claims and claim expenses reported coming in
lower than expected on prior accident years events. There were no actuarial reserving assumption changes
in 2014.
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Other
The following table details the development of the Company’s liability for unpaid claims and claim expenses
for its Other category:
Year ended December 31,
2016
2015
2014
Other
(Favorable)
adverse
development
$
(Favorable)
adverse
development
(Favorable)
adverse
development
(1,110) $
(870) $
(6,137)
The Company’s Other category experienced net favorable development on prior accident years net claims
and claim expense of $1.1 million in 2016 (2015 - $0.9 million; 2014 - $6.1 million). The net favorable
development on prior accident years of $6.1 million in 2014 was principally the result of a reduction in the
estimated ultimate losses on a proportional property contract.
Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Reserve for Claims
and Claim Expenses
The reconciliation of the net incurred and paid claims development tables to the reserve for claims and
claim expenses in the consolidated balance sheet is as follows:
At December 31, 2016
Net reserve for claims and claim expenses
Property
Casualty and Specialty
Other
Total net reserve for claims and claim expenses
Reinsurance recoverable
Property
Casualty and Specialty
Other
Total reinsurance recoverable
Total gross reserve for claims and claim expenses
Historical Claims Duration
$
584,036
1,982,580
2,114
2,568,730
$
43,738
212,546
23,280
279,564
$ 2,848,294
The following is unaudited supplementary information about average historical claims duration by segment:
Average annual percentage payout of incurred claims by age, net of reinsurance (number of years)
1
2
3
4
5
6
7
8
9
10
26.5% 23.7% 20.9% 10.2% 5.0% 2.9% 5.3% 0.3% 0.3% 0.6%
10.2% 19.3% 11.1% 10.6% 8.8% 8.1% 4.5% 3.7% 3.4% 4.3%
At December 31, 2016
Property
Casualty and
Specialty
Claims Frequency
Each of the Company’s reportable segments are broadly considered to be assumed reinsurance, where
multiple claims are often aggregated, perhaps multiple times through retrocessional reinsurance, before
ultimately being ceded to the Company. In addition, the nature, size, terms and conditions of contracts
entered into by the Company changes from one accident year to the next and the quantum of contractual or
policy limits, and accordingly the potential amount of claims and claim expenses associated with a reported
claim, can range from nominal, to significant. These factors can impact the amount and timing of the claims
and claim expenses to be recorded and accordingly, developing claim frequency information is highly
subjective and is not prepared or utilized for internal purposes. In addition, the Company does not have
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direct access to claim frequency information underlying certain of its proportional contracts given the nature
of that business. As a result, the Company does not believe providing claim frequency information is
practicable as it relates to its proportional contracts.
Notwithstanding the factors noted above, the Company has developed claims frequency information
associated with its excess of loss reinsurance contracts. As each accident year develops, the Company
would expect the cumulative number of reported claims to increase in certain of its excess of loss
reinsurance contracts, most notably in its Casualty and Specialty segment. In determining claims frequency
for its excess of loss reinsurance contracts, the Company has made the following assumptions:
• Claims below the insured layer of a contract are excluded;
•
•
If an insured loss event results in claims associated with a number of layers of a contract, the
Company would consider this to be a single claim; and
If an insured loss event results in claims associated with a number of the Company's operating
subsidiaries, the Company considers each operating subsidiary to have a reported claim.
The following table details the Company's cumulative number of reported claims for its excess of loss
reinsurance contracts allocated by segment:
At December 31, 2016
Cumulative number of reported claims
Accident Year
2007
Property
2008
2009
2010
2011
2012
2013
2014
2015
2016
Casualty and Specialty
1,388
1,368
1,082
1,030
1,356
1,253
1,187
1,353
988
365
908
1,350
742
781
1,178
667
622
523
555
548
Assumed Reinsurance Contracts Classified As Deposit Contracts
Net claims and claim expenses incurred were reduced by $0.2 million during 2016 (2015 – $0.3 million,
2014 – $0.3 million) related to income earned on assumed reinsurance contracts that were classified as
deposit contracts with underwriting risk only. Other income was increased by $6.2 million during 2016 (2015
– other income increased by $6.2 million, 2014 – other loss decreased by $0.1 million) related to premiums
and losses incurred on assumed reinsurance contracts that were classified as deposit contracts with timing
risk only. Aggregate deposit liabilities of $25.7 million are included in reinsurance balances payable at
December 31, 2016 (2015 – $32.3 million) and aggregate deposit assets of $Nil are included in other assets
at December 31, 2016 (2015 – $Nil) associated with these contracts.
F-53
NOTE 9. DEBT AND CREDIT FACILITIES
Debt Obligations
A summary of the Company’s debt obligations on its consolidated balance sheets is set forth below:
3.700% Senior Notes due 2025
5.75% Senior Notes due 2020
Series B 7.50% Senior Notes due 2017
4.750% Senior Notes due 2025 (DaVinciRe)
December 31, 2016
December 31, 2015
Fair Value
$
$
291,750 $
270,875
257,500
144,675
964,800 $
Carrying
Value
296,948 $
248,941
255,352
147,422
948,663 $
Fair Value
287,100 $
270,000
267,500
148,742
973,342 $
Carrying
Value
296,577
248,610
268,196
147,112
960,495
3.700% Senior Notes due 2025 of RenaissanceRe Finance
On March 24, 2015, RenaissanceRe Finance issued $300.0 million of its 3.700% Senior Notes due April 1,
2025, with interest on the notes payable on April 1 and October 1 of each year. The notes are fully and
unconditionally guaranteed by RenaissanceRe and may be redeemed by RenaissanceRe Finance prior to
maturity, subject to the payment of a “make-whole” premium if the notes are redeemed prior to January 1,
2025. The notes contain various covenants, including limitations on mergers and consolidations, and
restrictions as to the disposition of, and the placing of liens on, stock of designated subsidiaries.
The net proceeds from the offering of the notes (together with cash on hand) were applied by
RenaissanceRe to repay in full a $300.0 million bridge loan that Barclays Bank PLC provided to
RenaissanceRe on February 25, 2015 in order to finance a portion of the cash consideration paid by
RenaissanceRe in connection with the acquisition of Platinum. Refer to “Note 3. Acquisition of Platinum” for
additional information related to the cash consideration paid by RenaissanceRe in connection with the
acquisition of Platinum.
5.75% Senior Notes due 2020 of RenRe North America Holdings Inc. (“RRNAH”) and RenaissanceRe
Finance
On March 17, 2010, RenRe North America Holdings Inc. (“RRNAH”) issued $250.0 million of its 5.75%
Senior Notes due March 15, 2020 (the “RRNAH Notes”), with interest on the notes payable on March 15
and September 15 of each year. RenaissanceRe Finance became a co-obligor of the notes as of July 3,
2015. The notes, which are senior obligations, are fully and unconditionally guaranteed by RenaissanceRe
and may be redeemed prior to maturity, subject to the payment of a “make-whole” premium. The notes
contain various covenants, including limitations on mergers and consolidations, and restrictions as to the
disposition of, and the placing of liens on, stock of designated subsidiaries.
Series B 7.50% Notes due 2017 of Platinum Underwriters Finance, Inc.
On November 2, 2005, Platinum Underwriters Finance, Inc. (“Platinum Finance”) issued $250.0 million in
aggregate principal amount of its Series B 7.50% Notes due June 1, 2017 (the “Platinum Finance Notes”).
Interest on the Platinum Finance Notes is payable on June 1 and December 1 of each year. The Platinum
Finance Notes, which are senior obligations, are fully and unconditionally guaranteed by RenaissanceRe,
and may be redeemed by Platinum Finance prior to maturity, subject to the payment of a “make-whole”
premium. The Platinum Finance Notes contain various covenants, including limitations on mergers and
consolidations, and restrictions as to the disposition of, and the placing of liens on, the stock of designated
subsidiaries.
DaVinciRe Senior Notes
On May 4, 2015, DaVinciRe issued $150.0 million of its 4.750% Senior Notes due May 1, 2025, with
interest on the notes payable on May 1 and November 1, commencing with November 1, 2015 (the
“DaVinciRe Senior Notes”). The DaVinciRe Senior Notes, which are senior obligations, may be redeemed
F-54
prior to maturity, subject to the payment of a “make-whole” premium if the notes are redeemed before
February 1, 2025. The DaVinciRe Senior Notes contain various covenants including restrictions as to the
disposition of, and the placing of liens on, the stock of designated subsidiaries, limitations on mergers,
amalgamations and consolidations, limitations on third party investor redemptions, a leverage covenant and
a covenant to maintain certain ratings. The net proceeds from this offering were used to repay, in full,
$100.0 million outstanding under the loan agreement, dated as of March 30, 2011, between DaVinciRe and
RenaissanceRe, and the remainder of the net proceeds may be used to repurchase DaVinciRe shares or
for general corporate purposes.
Credit Facilities
The outstanding amounts issued or drawn under each of the Company’s significant credit facilities is set
forth below:
At December 31, 2016
RenaissanceRe Revolving Credit Facility
Uncommitted Standby Letter of Credit Facility with Wells Fargo
Uncommitted Standby Letter of Credit Facility with NAB
Bilateral Letter of Credit Facility with Citibank Europe
Funds at Lloyd’s Letter of Credit Facilities
Renaissance Reinsurance FAL Facility
Total credit facilities in U.S. dollars
Funds at Lloyd’s Letter of Credit Facilities
Renaissance Reinsurance FAL Facility
Specialty Risks FAL Facility
Total credit facilities in British Pounds
RenaissanceRe Revolving Credit Facility
Issued or
Drawn
$
—
140,829
4,855
244,909
380,000
$
770,593
£
£
90,000
10,000
100,000
On May 15, 2015, RenaissanceRe entered into an amended and restated credit agreement (the “Revolving
Credit Agreement”) with various banks, financial institutions and Wells Fargo Bank, National Association
(“Wells Fargo”) as administrative agent, which amended and restated the credit agreement, dated as of
May 17, 2012, as amended. The Revolving Credit Agreement provides for a revolving commitment to
RenaissanceRe of $250.0 million. RenaissanceRe has the right, subject to satisfying certain conditions, to
increase the size of the facility to $350.0 million. Amounts borrowed under the Revolving Credit Agreement
bear interest at a rate selected by RenaissanceRe equal to the Base Rate or LIBOR (each as defined in the
Revolving Credit Agreement) plus a margin, as more fully set forth in the Revolving Credit Agreement. At
December 31, 2016, RenaissanceRe had $Nil outstanding under the Revolving Credit Agreement.
The Revolving Credit Agreement contains representations, warranties and covenants customary for bank
loan facilities of this type, including limits on the ability of RenaissanceRe and its subsidiaries to merge,
consolidate, sell a substantial amount of assets, incur liens and declare or pay dividends under certain
circumstances. The Revolving Credit Agreement also contains certain financial covenants which generally
provide that the ratio of consolidated debt to capital shall not exceed 0.35:1 and that the consolidated net
worth of RenaissanceRe shall equal or exceed approximately $2.9 billion. The net worth requirement is
recalculated effective as of the end of each fiscal year.
If certain events of default occur, in some circumstances the lenders’ obligations to make loans may be
terminated and the outstanding obligations of RenaissanceRe under the Revolving Credit Agreement may
be accelerated. The scheduled commitment maturity date of the Revolving Credit Agreement is May 15,
2020.
F-55
RRNAH, RenaissanceRe Finance, and Platinum Finance guarantee RenaissanceRe’s obligations under the
Revolving Credit Agreement. Subject to certain exceptions, additional subsidiaries of RenaissanceRe are
required to become guarantors if such subsidiaries issue or incur certain types of indebtedness.
Uncommitted Standby Letter of Credit Facility with Wells Fargo Bank, National Association
Renaissance Reinsurance, DaVinci and Renaissance Reinsurance U.S. (collectively, the “Applicants”) and
RenaissanceRe are parties to a Standby Letter of Credit Agreement, as amended (the “Standby Letter of
Credit Agreement”) with Wells Fargo which provides for a secured, uncommitted facility under which letters
of credit may be issued from time to time for the respective accounts of the Applicants. RenaissanceRe has
unconditionally guaranteed the payment obligations of the Applicants, other than DaVinci.
The Standby Letter of Credit Agreement contains representations, warranties and covenants that are
customary for facilities of this type. At all times during which it is a party to the Standby Letter of Credit
Agreement, each Applicant is required to pledge to Wells Fargo eligible collateral having a value
(determined as provided in such agreement) that equals or exceeds the aggregate face amount of the
outstanding letters of credit issued for its account plus all of such Applicant’s payment and reimbursement
obligations in respect of such letters of credit. In the case of an event of default, Wells Fargo may exercise
certain remedies, including conversion of collateral of a defaulting Applicant into cash.
On May 15, 2015, all amounts outstanding under the Third Amended and Restated Credit Agreement, dated
as of April 9, 2014, among Platinum, the subsidiaries of Platinum party thereto, the lenders party thereto,
and Wells Fargo, as administrative agent were repaid and satisfied in full, the facility was terminated and all
letters of credit that were issued and outstanding under the facility were transferred over to, and are now
governed by the terms and conditions of, the Standby Letter of Credit Agreement.
Effective October 12, 2016, in connection with the merger of RenaissanceRe Specialty Risks and Platinum
Bermuda into Renaissance Reinsurance, Renaissance Reinsurance assumed all of the obligations of
RenaissanceRe Specialty Risks and Platinum Bermuda under the Standby Letter of Credit Agreement.
At December 31, 2016, the Applicants had $140.8 million of letters of credit outstanding under the Standby
Letter of Credit Agreement.
National Australia Bank Limited Standby Letter of Credit Agreement
Effective as of May 19, 2015, Renaissance Reinsurance, RenaissanceRe Specialty Risks, DaVinci and
Platinum Bermuda (collectively, the “NAB Facility Applicants”) and RenaissanceRe entered into a Standby
Letter of Credit Agreement (the “NAB Standby Letter of Credit Agreement”) with National Australia Bank
Limited (“NAB”). The NAB Standby Letter of Credit Agreement provides for a secured, uncommitted facility
under which letters of credit may be issued from time to time for the respective accounts of the NAB Facility
Applicants in multiple currencies. RenaissanceRe has unconditionally guaranteed the payment obligations
of the NAB Facility Applicants, other than DaVinci.
The NAB Standby Letter of Credit Agreement contains representations, warranties and covenants that are
customary for facilities of this type. At all times during which it is a party to the NAB Standby Letter of Credit
Agreement, each NAB Facility Applicant is required to pledge to NAB eligible collateral having a value
(determined as provided in such agreement) that equals or exceeds the aggregate stated amount of the
letters of credit issued thereunder for its account, plus all of its reimbursement and payment obligations
under the NAB Standby Letter of Credit Agreement. In the case of an event of default under the NAB
Standby Letter of Credit Agreement, NAB may exercise certain remedies, including conversion of collateral
of a defaulting NAB Facility Applicant into cash.
Concurrently with the effectiveness of the NAB Standby Letter of Credit Agreement, all amounts outstanding
under the Facility Agreement, dated as of July 31, 2012, among Platinum Bermuda, Platinum, the lenders
party thereto and NAB, as agent for the finance parties were repaid and satisfied in full, the facility was
terminated and all letters of credit that were issued and outstanding under the facility were transferred over
to, and are now governed by the terms and conditions of, the NAB Standby Letter of Credit Agreement.
Effective October 3, 2016, in connection with the merger of RenaissanceRe Specialty Risks and Platinum
Bermuda into Renaissance Reinsurance, Renaissance Reinsurance assumed all of the obligations of
RenaissanceRe Specialty Risks and Platinum Bermuda under the NAB Standby Letter of Credit Agreement.
F-56
At December 31, 2016, the NAB Facility Applicants had $4.9 million outstanding under the NAB Standby
Letter of Credit Agreement.
Bilateral Letter of Credit Facility with Citibank Europe
Pursuant to the facility letter, dated September 17, 2010, as amended, among Citibank Europe plc (“CEP”)
and certain subsidiaries and affiliates of RenaissanceRe (the “Facility Letter”), CEP has established a letter
of credit facility (the “Bilateral Facility”) under which CEP provides a commitment to issue letters of credit for
the account of one or more of the Bilateral Facility Participants (as defined below) and their respective
subsidiaries in multiple currencies. The “Bilateral Facility Participants” include Renaissance Reinsurance,
DaVinci, RenaissanceRe Specialty Risks, Renaissance Reinsurance of Europe, RenaissanceRe Specialty
U.S., Platinum Bermuda and Renaissance Reinsurance U.S. The aggregate commitment amount is $300.0
million, subject to a combined sublimit of $25.0 million for letters of credit issued for the accounts of
Platinum Bermuda and Renaissance Reinsurance U.S.
Effective March 31, 2015, the principal agreements evidencing the bilateral letter of credit facility that had
previously been in place among CEP, Platinum Bermuda and Renaissance Reinsurance U.S. (the
“Platinum/CEP Bilateral Facility”) were terminated. In addition, effective March 31, 2015, certain letters of
credit issued on behalf of Platinum Bermuda and Renaissance Reinsurance U.S. under the Platinum/CEP
Bilateral Facility were deemed to be letters of credit issued under, and governed by the terms of, the
Bilateral Facility.
The Bilateral Facility is scheduled to expire on December 31, 2018. At all times during which it is a party to
the Bilateral Facility, each Bilateral Facility Participant is obligated to pledge to CEP securities with a value
(determined as provided in such facility) that equals or exceeds the aggregate face amount of its then-
outstanding letters of credit. In the case of an event of default under the Bilateral Facility with respect to a
Bilateral Facility Participant, CEP may exercise certain remedies, including terminating its commitment to
such Bilateral Facility Participant and taking certain actions with respect to the collateral pledged by such
Bilateral Facility Participant (including the sale thereof). In the Facility Letter, each Bilateral Facility
Participant makes representations and warranties that are customary for facilities of this type and agrees
that it will comply with certain informational and other undertakings, including those regarding the delivery of
quarterly and annual financial statements.
Effective October 1, 2016, in connection with the merger of RenaissanceRe Specialty Risks and Platinum
Bermuda into Renaissance Reinsurance, Renaissance Reinsurance assumed all of the obligations of
RenaissanceRe Specialty Risks and Platinum Bermuda under the Bilateral Facility.
At December 31, 2016, $244.9 million aggregate face amount of letters of credit was outstanding and,
subject to the sublimits described above, $55.1 million remained unused and available to the Bilateral
Facility Participants under the Bilateral Facility.
Funds at Lloyd’s Letter of Credit Facilities
Effective November 23, 2015, Renaissance Reinsurance entered into a letter of credit facility with Bank of
Montreal (“BMO”), CEP and ING Bank N.V. (“ING”) as lenders (the “Renaissance Reinsurance FAL
Facility”), evidenced by a letter of credit reimbursement agreement (the “Reimbursement Agreement”),
which provides for the issuance by the lenders of two letters of credit to support the business written by
Syndicate 1458. Effective May 31, 2016, the Funds at Lloyd’s letters of credit issued for the account of
Renaissance Reinsurance were increased from $360.0 million and £85.0 million to $380.0 million and £90.0
million, respectively. The Renaissance Reinsurance FAL Facility and the letters of credit issued thereunder
replaced the letter of credit facility established to support Syndicate 1458 by Renaissance Reinsurance with
CEP on April 29, 2009, pursuant to an Insurance Letters of Credit Master Agreement and related
agreements, and the two letters of credit previously issued thereunder.
At all times during the term of the Renaissance Reinsurance FAL Facility, Renaissance Reinsurance is
obligated to pledge to the lenders certain eligible securities with a collateral value (determined as provided
in the Reimbursement Agreement) that, until a Full Collateralization Event (as defined in the
Reimbursement Agreement) occurs, is at Renaissance Reinsurance’s election, either (i) greater than or
equal to 100% of the aggregate amount of its then-outstanding letters of credit or (ii) greater than or equal
to 60% but less than 100% of the aggregate amount of its then-outstanding letters of credit. Upon the
F-57
occurrence of a Full Collateralization Event, Renaissance Reinsurance is obligated to collateralize the
Renaissance Reinsurance FAL Facility at 100%. Effective as of November 8, 2016, the latest date upon
which Renaissance Reinsurance will become obligated to collateralize the Facility at 100% was extended to
December 31, 2017 from December 31, 2016.
In the Reimbursement Agreement, Renaissance Reinsurance makes representations and warranties that
are customary for facilities of this type and agrees that it will comply with certain informational undertakings
and other covenants, including maintaining a minimum net worth. In the case of an event of default under
the Renaissance Reinsurance FAL Facility, the lenders may exercise certain remedies, including declaring
all outstanding obligations of Renaissance Reinsurance under the Reimbursement Agreement and related
credit documents due and payable and taking certain actions with respect to the collateral pledged by
Renaissance Reinsurance (including the sale thereof).
At December 31, 2016, letters of credit issued by CEP under the Renaissance Reinsurance FAL Facility
were outstanding in the face amount of $380.0 million and £90.0 million, respectively.
Effective November 24, 2014, RenaissanceRe Specialty Risks and CEP entered into a letter of credit facility
(the “Specialty Risks FAL Facility”), evidenced by a Master Agreement (the “Specialty Risks Master
Agreement”), and a related Pledge Agreement (the “Specialty Risks Pledge Agreement”), which provide for
the issuance and renewal by CEP for the account of RenaissanceRe Specialty Risks of letters of credit that
are used to support business written by Syndicate 1458. Effective October 1, 2016, in connection with the
merger of RenaissanceRe Specialty Risks and Platinum Bermuda into Renaissance Reinsurance,
Renaissance Reinsurance assumed all of the obligations of RenaissanceRe Specialty Risks and Platinum
Bermuda under the Specialty Risks FAL Facility. At all times during the term of the Specialty Risks FAL
Facility, RenaissanceRe Specialty Risks has agreed to pledge to CEP certain qualifying securities with a
value (determined as provided in the Specialty Risks Pledge Agreement) equal to the aggregate face
amount of the then-outstanding letters of credit. The Specialty Risks Master Agreement and the Specialty
Risks Pledge Agreement contain representations, warranties and covenants that are customary for facilities
of this type. At December 31, 2016, letters of credit issued by CEP under the Specialty Risks FAL Facility
were outstanding in the face amount of £10.0 million.
Top Layer Re
Renaissance Reinsurance is party to a collateralized letter of credit and reimbursement agreement in the
amount of $37.5 million that supports the Company’s Top Layer Re joint venture. Renaissance Reinsurance
is obligated to make a mandatory capital contribution of up to $50.0 million in the event that a loss reduces
Top Layer Re’s capital below a specified level.
Interest Paid and Scheduled Debt Maturity
Interest paid on the Company’s debt totaled $54.0 million for 2016 (2015 – $40.8 million, 2014 – $17.2
million).
The following table sets forth the scheduled maturity of the Company’s aggregate amount of its debt
obligation reflected on its consolidated balance sheet at December 31, 2016:
2017
2018
2019
2020
2021
After 2021
Unamortized fair value adjustments
Unamortized discount on debt issuance
F-58
$
$
250,000
—
—
250,000
—
450,000
5,352
(6,689)
948,663
NOTE 10. NONCONTROLLING INTERESTS
A summary of the Company’s redeemable noncontrolling interests on its consolidated balance sheets is set
forth below:
Redeemable noncontrolling interest - DaVinciRe
Redeemable noncontrolling interest - Medici
Redeemable noncontrolling interests
December 31,
2016
994,458 $
December 31,
2015
930,955
$
181,136
115,009
$ 1,175,594 $ 1,045,964
A summary of the Company’s redeemable noncontrolling interests on its consolidated statements of
operations is set forth below:
Redeemable noncontrolling interest - DaVinciRe
2016
118,748 $
2015
106,399 $
2014
149,817
$
Redeemable noncontrolling interest - Medici
8,338
4,651
3,721
Net income attributable to redeemable noncontrolling
interests
$
127,086 $
111,050 $
153,538
Redeemable Noncontrolling Interest – DaVinciRe
In October 2001, the Company formed DaVinciRe and DaVinci with other equity investors. RenaissanceRe
owns a noncontrolling economic interest in DaVinciRe; however, because RenaissanceRe controls a
majority of DaVinciRe’s outstanding voting rights, the consolidated financial statements of DaVinciRe are
included in the consolidated financial statements of the Company. The portion of DaVinciRe’s earnings
owned by third parties is recorded in the consolidated statements of operations as net income attributable to
redeemable noncontrolling interests. The Company’s noncontrolling economic ownership in DaVinciRe was
24.0% at December 31, 2016 (2015 - 26.3%).
DaVinciRe shareholders are party to a shareholders agreement which provides DaVinciRe shareholders,
excluding RenaissanceRe, with certain redemption rights that enable each shareholder to notify DaVinciRe
of such shareholder’s desire for DaVinciRe to repurchase up to half of such shareholder’s initial aggregate
number of shares held, subject to certain limitations, such as limiting the aggregate of all share repurchase
requests to 25% of DaVinciRe’s capital in any given year and satisfying all applicable regulatory
requirements. If total shareholder requests exceed 25% of DaVinciRe’s capital, the number of shares
repurchased will be reduced among the requesting shareholders pro-rata, based on the amounts desired to
be repurchased. Shareholders desiring to have DaVinci repurchase their shares must notify DaVinciRe
before March 1 of each year. The repurchase price will be based on GAAP book value as of the end of the
year in which the shareholder notice is given, and the repurchase will be effective as of January 1 of the
following year. The repurchase price is generally subject to a true-up for potential development on
outstanding loss reserves after settlement of all claims relating to the applicable years.
2015
During January 2015, DaVinciRe redeemed a portion of its outstanding shares from certain existing
DaVinciRe shareholders, including the RenaissanceRe. The net redemption as a result of these
transactions was $225.0 million. In connection with the redemption, DaVinciRe retained a $22.5 million
holdback. The Company’s noncontrolling economic ownership in DaVinciRe subsequent to these
transactions was 26.3%, effective January 1, 2015.
2016
During January 2016, DaVinciRe redeemed a portion of its outstanding shares from certain existing
DaVinciRe shareholders, including RenaissanceRe, while new DaVinciRe shareholders purchased shares
in DaVinciRe from RenaissanceRe. The net redemption as a result of these transactions was $100.0
million. In connection with the redemption, DaVinciRe retained a $10.0 million holdback. The Company’s
noncontrolling economic ownership in DaVinciRe subsequent to these transactions was 24.0%, effective
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January 1, 2016. The Company expects its noncontrolling economic ownership in DaVinciRe to fluctuate
over time.
See “Note 23. Subsequent Events” for additional information related to DaVinciRe shareholder transactions
which occurred subsequent to December 31, 2016.
The activity in redeemable noncontrolling interest – DaVinciRe is detailed in the table below:
Balance – January 1
Redemption of shares from redeemable noncontrolling interest
Sale of shares to redeemable noncontrolling interest
Net income attributable to redeemable noncontrolling interest
Balance – December 31
2016
930,955 $ 1,037,306
2015
$
(98,285)
(212,750)
43,040
118,748
—
106,399
$
994,458 $
930,955
Redeemable Noncontrolling Interest - Medici
Medici is an exempted company incorporated under the laws of Bermuda and its objective is to seek to
invest substantially all of its assets in various insurance-based investment instruments that have returns
primarily tied to property catastrophe risk. RenaissanceRe owns a noncontrolling economic interest in
Medici; however, because RenaissanceRe controls all of Medici’s outstanding voting rights, the financial
statements of Medici are included in the consolidated financial statements of the Company. The portion of
Medici’s earnings owned by third parties is recorded in the consolidated statements of operations as net
income attributable to redeemable noncontrolling interests. Any shareholder may redeem all or any portion
of its shares as of the last day of any calendar month, upon at least 30 calendar days’ prior irrevocable
written notice to Medici.
2015
During 2015, third-party investors subscribed for $36.1 million and redeemed $20.1 million of the
participating, non-voting common shares of Medici. As a result of these net subscriptions, the Company’s
noncontrolling economic ownership in Medici was 46.1%, effective December 31, 2015.
2016
During the year ended December 31, 2016, third-party investors subscribed for $79.5 million and redeemed
$21.7 million of the participating, non-voting common shares of Medici. As a result of these net
subscriptions, the Company’s noncontrolling economic ownership in Medici was 36.5% at December 31,
2016. The Company expects its noncontrolling economic ownership in Medici to fluctuate over time.
See “Note 23. Subsequent Events” for additional information related to Medici transactions which occurred
subsequent to December 31, 2016.
The activity in redeemable noncontrolling interest – Medici is detailed in the table below:
Balance – January 1
Redemption of shares from redeemable noncontrolling interest
Sale of shares to redeemable noncontrolling interest
Net income attributable to redeemable noncontrolling interest
Balance – December 31
2016
115,009 $
2015
94,402
$
(21,729)
(20,117)
79,518
8,338
36,073
4,651
$
181,136 $
115,009
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NOTE 11. VARIABLE INTEREST ENTITIES
Upsilon RFO
Effective January 1, 2013, the Company formed and launched Upsilon RFO, a managed joint venture, and
a Bermuda domiciled SPI, to provide additional capacity to the worldwide aggregate and per-occurrence
primary and retrocessional property catastrophe excess of loss market.
The shareholders (other than the Class A shareholder) participate in substantially all of the profits or losses
of Upsilon RFO while their shares remain outstanding. The shareholders (other than the Class A
shareholder) indemnify Upsilon RFO against losses relating to insurance risk and therefore these shares
have been accounted for as prospective reinsurance under FASB ASC Topic Financial Services -
Insurance.
Upsilon RFO is considered a VIE as it has insufficient equity capital to finance its activities without
additional financial support. The Company is the primary beneficiary of Upsilon RFO as it: (i) has the power
over the activities that most significantly impact the economic performance of Upsilon RFO and (ii) has the
obligation to absorb expected losses and the right to receive expected benefits that could be significant to
Upsilon RFO, in accordance with the accounting guidance. As a result, the Company consolidates Upsilon
RFO and all significant inter-company transactions have been eliminated. Other than its equity investment
in Upsilon RFO, the Company has not provided financial or other support to Upsilon RFO that it was not
contractually required to provide.
2015
During 2015, Upsilon RFO returned capital to all of the investors who participated in risks incepting during
2014, including the Company. The total amount of capital returned was $420.2 million, including $132.3
million to the Company.
In conjunction with risks incepting during 2015, $153.7 million of Upsilon RFO non-voting preference shares
were issued to unaffiliated third-party investors through their investment in Upsilon Fund. Additionally,
$42.5 million of the non-voting preference shares were issued to the Company, representing a 21.7%
participation in the risks assumed by Upsilon RFO incepting during 2015. At December 31, 2015, the
Company’s consolidated total assets included $135.7 million of capital raised from third party investors and
received by Upsilon RFO prior to December 31, 2014 for risks incepted during the first quarter of 2015.
2016
During 2016, Upsilon RFO returned $242.5 million of capital to its investors, including $59.8 million to the
Company. In addition, during 2016, $166.6 million of Upsilon RFO non-voting preference shares were
issued to existing investors therein, including $55.2 million to the Company. At December 31, 2016, the
Company’s participation in the risks assumed by Upsilon RFO was 28.8%.
At December 31, 2016, the Company’s consolidated balance sheet included total assets and total liabilities
of Upsilon RFO of $193.0 million and $193.0 million, respectively (2015 - $250.6 million and $250.5 million,
respectively).
See “Note 23. Subsequent Events” for additional information related to Upsilon RFO transactions which
occurred subsequent to December 31, 2016.
Mona Lisa Re Ltd. (“Mona Lisa Re”)
On March 14, 2013, Mona Lisa Re was licensed as a Bermuda domiciled SPI to provide reinsurance
capacity to subsidiaries of RenaissanceRe, namely Renaissance Reinsurance and DaVinci, through
reinsurance agreements which will be collateralized and funded by Mona Lisa Re through the issuance of
one or more series of principal-at-risk variable rate notes to third-party investors.
Upon issuance of a series of notes by Mona Lisa Re, all of the proceeds from the issuance were deposited
into collateral accounts, separated by series, to fund any potential obligation under the reinsurance
agreements entered into with Renaissance Reinsurance and/or DaVinci underlying such series of notes.
The outstanding principal amount of each series of notes generally will be returned to holders of such notes
upon the expiration of the risk period underlying such notes, unless an event occurs which causes a loss
F-61
under the applicable series of notes, in which case the amount returned will be reduced by such
noteholder’s pro rata share of such loss, as specified in the applicable governing documents of such notes.
In addition, holders of such notes are generally entitled to interest payments, payable quarterly, as
determined by the applicable governing documents of each series of notes.
The Company concluded that Mona Lisa Re meets the definition of a VIE as it does not have sufficient
equity capital to finance its activities. The Company evaluated its relationship with Mona Lisa Re and
concluded it does not have a variable interest in Mona Lisa Re. As a result, the financial position and results
of operations of Mona Lisa Re are not consolidated by the Company. The Company has not provided
financial or other support to Mona Lisa Re that it was not contractually required to provide.
At December 31, 2016, the total assets and total liabilities of Mona Lisa Re were $184.2 million and $184.2
million, respectively (2015 - $184.0 million and $184.0 million, respectively).
The only transactions related to Mona Lisa Re that are recorded in the Company’s consolidated financial
statements are the ceded reinsurance agreements entered into by Renaissance Reinsurance and DaVinci
which are accounted for as prospective reinsurance under FASB ASC Topic Financial Services - Insurance.
Renaissance Reinsurance and DaVinci have together entered into ceded reinsurance contracts with Mona
Lisa Re with gross premiums ceded of $7.4 million and $5.1 million, respectively, during 2016 (2015 - $7.3
million and $5.0 million, respectively). In addition, Renaissance Reinsurance and DaVinci recognized ceded
premiums earned related to the ceded reinsurance contracts with Mona Lisa Re of $7.3 million and $5.0
million, respectively, during 2016 (2015 - $7.3 million and $5.0 million, respectively).
Fibonacci Re
Effective November 7, 2016, Fibonacci Re, a Bermuda-domiciled SPI, was formed to provide collateralized
capacity to Renaissance Reinsurance and its affiliates. Fibonacci Re raised capital from third party
investors and the Company via a private placement of participating notes that are listed on the Bermuda
Stock Exchange. Under the terms of this arrangement, RUM receives an origination and structuring fee.
Upon issuance of a series of notes by Fibonacci Re, all of the proceeds from the issuance are deposited
into collateral accounts, separated by series, to fund any potential obligation under the reinsurance
agreements entered into with Renaissance Reinsurance underlying such series of notes. The outstanding
principal amount of each series of notes generally will be returned to holders of such notes upon the
expiration of the risk period underlying such notes, unless an event occurs which causes a loss under the
applicable series of notes, in which case the amount returned will be reduced by such noteholder’s pro rata
share of such loss, as specified in the applicable governing documents of such notes. In addition, holders of
such notes are generally entitled to interest payments, payable quarterly, as determined by the applicable
governing documents of each series of notes.
The Company concluded that Fibonacci Re meets the definition of a VIE as it does not have sufficient
equity capital to finance its activities. The Company evaluated its relationship with Fibonacci Re and
concluded it is not the primary beneficiary of Fibonacci Re as it does not have power over the activities that
most significantly impact the economic performance of Fibonacci Re. As a result, the Company does not
consolidate the financial position or results of operations of Fibonacci Re.
The only transactions related to Fibonacci Re that will be recorded in the Company’s consolidated financial
statements will be the ceded reinsurance agreements entered into by Renaissance Reinsurance that are
accounted for as prospective reinsurance under FASB ASC Topic Financial Services - Insurance, and the
fair value of the participating notes owned by the Company. There were no material balances included in
the financial statements of Fibonacci Re at December 31, 2016. Other than its investment in the
participating notes of Fibonacci Re, the Company has not provided financial or other support to Fibonacci
Re that it was not contractually required to provide.
See “Note 23. Subsequent Events” for additional information related to Fibonacci Re transactions which
occurred subsequent to December 31, 2016.
F-62
NOTE 12. SHAREHOLDERS’ EQUITY
Authorized Capital
The aggregate authorized capital of RenaissanceRe is 325 million shares consisting of 225 million common
shares and 100 million preference shares. The following table is a summary of changes in common shares
issued and outstanding:
Year ended December 31,
(thousands of shares)
Issued and outstanding shares – January 1
Issuance of shares
Repurchase of shares
Exercise of options and issuance of restricted stock awards
Issued and outstanding shares – December 31
2016
2015
2014
43,701
—
(2,741)
227
41,187
38,442
7,435
(2,473)
297
43,701
43,646
—
(5,355)
151
38,442
Dividends
The Board of Directors of RenaissanceRe declared a dividend of $0.31 per common share to common
shareholders of record on March 15, 2016, June 15, 2016, September 15, 2016 and December 15, 2016,
respectively, and RenaissanceRe paid a dividend of $0.31 per common share to common shareholders on
March 31, 2016, June 30, 2016, September 30, 2016 and December 30, 2016, respectively. Dividends
declared and paid on common shares amounted to $1.24 per common share for 2016 (2015 - $1.20, 2014 -
$1.16), or $51.6 million on all common shares outstanding (2015 - $54.0 million, 2014 - $45.9 million).
During 2016, RenaissanceRe declared and paid $22.4 million in preference share dividends (2015 - $22.4
million, 2014 - $22.4 million).
Share Repurchases
The Company’s share repurchase program may be effected from time to time, depending on market
conditions and other factors, through open market purchases and privately negotiated transactions. On
August 2, 2016, RenaissanceRe’s Board of Directors approved a renewal of the authorized share
repurchase program to an aggregate amount of $500.0 million. Unless terminated earlier by resolution of
RenaissanceRe’s Board of Directors, the program will expire when the Company has repurchased the full
value of the shares authorized. The Company’s decision to repurchase common shares will depend on,
among other matters, the market price of the common shares and the capital requirements of the Company.
During 2016, the Company repurchased an aggregate of 2.7 million shares in open market transactions at
an aggregate cost of $309.4 million, and at an average share price of $112.87. At December 31, 2016,
$500.0 million remained available for repurchase under the Board authorized share repurchase program.
See “Note 23. Subsequent Events” for additional information related to share repurchases subsequent to
December 31, 2016 and an increase in the Company’s authorized share repurchase program.
Preference Shares
In March 2004, RenaissanceRe raised $250.0 million through the issuance of 10 million Series C
Preference Shares at $25 per share and in May 2013, RenaissanceRe raised $275.0 million through the
issuance of 11 million Series E Preference Shares at $25 per share. On June 27, 2013, RenaissanceRe
redeemed 5 million Series C Preference Shares for $125.0 million plus accrued and unpaid dividends
thereon. Following the redemption, 5 million Series C Preference Shares remain outstanding.
The Series E Preference Shares and the remaining Series C Preference Shares may be redeemed at $25
per share plus certain dividends at RenaissanceRe’s option on or after June 1, 2018 and March 23, 2009,
respectively. Dividends on the Series C Preference Shares are cumulative from the date of original
issuance and are payable quarterly in arrears at 6.08% per annum, when, if, and as declared by the Board
of Directors. Dividends on the Series E Preference Shares are payable from the date of original issuance on
a non-cumulative basis, only when, as and if declared by the Board of Directors, quarterly in arrears at
5.375% per annum. Unless certain dividend payments are made on the preference shares, RenaissanceRe
F-63
will be restricted from paying any dividends on its common shares. The preference shares have no stated
maturity and are not convertible into any other securities of RenaissanceRe. Generally, the preference
shares have no voting rights. Whenever dividends payable on the preference shares are in arrears (whether
or not such dividends have been earned or declared) in an amount equivalent to dividends for six full
dividend periods (whether or not consecutive), the holders of the preference shares, voting as a single class
regardless of class or series, will have the right to elect two directors to the Board of Directors of
RenaissanceRe.
NOTE 13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
Year ended December 31,
(thousands of shares)
Numerator:
2016
2015
2014
Net income available to RenaissanceRe common
shareholders
$ 480,581 $ 408,811 $ 510,337
Amount allocated to participating common shareholders (1)
(5,666)
(4,721)
(6,760)
Net income allocated to RenaissanceRe common
shareholders
Denominator:
Denominator for basic income per RenaissanceRe
common share - weighted average common shares
Per common share equivalents of employee stock options
and performance shares
Denominator for diluted income per RenaissanceRe
common share - adjusted weighted average common
shares and assumed conversions
Basic income per RenaissanceRe common share
Diluted income per RenaissanceRe common share
$ 474,915 $ 404,090 $ 503,577
41,314
43,157
39,425
245
369
543
41,559
43,526
$
$
11.50 $
11.43 $
9.36 $
9.28 $
39,968
12.77
12.60
(1) Represents earnings attributable to holders of unvested restricted shares issued under the Company’s 2001 Stock Incentive Plan,
2010 Performance-Based Equity Incentive Plan, 2016 Long-Term Incentive Plan and to the Company’s non-employee directors.
NOTE 14. RELATED PARTY TRANSACTIONS AND MAJOR CUSTOMERS
The Company has equity interests in the Tower Hill Companies as described in “Note 5. Investments”. The
Company has entered into reinsurance arrangements with certain subsidiaries and affiliates of Tower Hill
and has also entered into reinsurance arrangements with respect to business produced by the Tower Hill
Companies. For 2016, the Company recorded $32.8 million (2015 - $32.2 million, 2014 - $40.0 million) of
gross premium written assumed from Tower Hill and its subsidiaries and affiliates. Gross premiums earned
totaled $32.3 million (2015 - $35.8 million, 2014 - $41.9 million) and expenses incurred were $3.8 million
(2015 - $4.1 million, 2014 - $4.7 million) for 2016. The Company had a net related outstanding receivable
balance of $14.2 million as of December 31, 2016 (2015 - $14.3 million). During 2016, the Company
recovered net claims and claim expenses of $1.5 million (2015 - assumed net claims and claim expenses of
$1.6 million, 2014 - assumed net claims and claim expenses of $3.6 million) and, as of December 31, 2016,
had a net reserve for claims and claim expenses of $36.8 million (2015 - $38.2 million). In addition, the
Company received distributions of $9.0 million from THIG during 2016 (2015 - $13.1 million).
During 2016, the Company received distributions from Top Layer Re of $Nil (2015 - $Nil, 2014 - $Nil), and
recorded a management fee of $2.6 million (2015 - $2.6 million, 2014 - $2.8 million). The management fee
reimburses the Company for services it provides to Top Layer Re.
During 2016, the Company received 80.8% of its gross premiums written (2015 - 81.5%, 2014 - 87.2%)
from three brokers. Subsidiaries and affiliates of AON, Marsh, and Willis Towers Watson accounted for
approximately 46.4%, 23.6% and 10.8%, respectively, of gross premiums written in 2016 (2015 - 48.1%,
21.7% and 11.7%, respectively, 2014 - 51.5%, 21.5% and 14.2%, respectively).
F-64
NOTE 15. TAXATION
Under current Bermuda law, RenaissanceRe and its Bermuda subsidiaries are not subject to any income or
capital gains taxes. In the event that such taxes are imposed, RenaissanceRe and its Bermuda subsidiaries
would be exempted from any such tax until March 2035 pursuant to the Bermuda Exempted Undertakings
Tax Protection Act 1966, and Amended Acts of 1987 and 2011, respectively.
RenaissanceRe Finance and its subsidiaries are subject to income taxes imposed by U.S. federal and state
authorities and file a consolidated U.S. federal income tax return. Should the U.S. subsidiaries pay a
dividend to RenaissanceRe, withholding taxes would apply to the extent of current year or accumulated
earnings and profits at an expected tax rate of 5.0%. The Company also has operations in Ireland, the U.K.,
and Singapore which are subject to income taxes imposed by the respective jurisdictions in which they
operate. Withholding taxes would not be expected to apply to dividends paid to RenaissanceRe from its
subsidiaries in Ireland, the U.K., and Singapore.
The following is a summary of the Company’s income (loss) before taxes allocated between domestic and
foreign operations:
Year ended December 31,
Domestic
Bermuda
Foreign
U.K.
U.S.
Ireland
Singapore
2016
2015
2014
$
652,758 $
511,114 $
701,476
(24,278)
(1,236)
964
2,180
(22,712)
12,523
188
(4,737)
(3,166)
(10,977)
1,549
(2,018)
Income before taxes
$
630,388 $
496,376 $
686,864
Income tax (expense) benefit is comprised as follows:
Year ended December 31, 2016
Total income tax (expense) benefit
Year ended December 31, 2015
Total income tax (expense) benefit
Year ended December 31, 2014
Total income tax (expense) benefit
Current
Deferred
Total
(2,090) $
1,750 $
(340)
(3,471) $
49,337 $
45,866
(699) $
91 $
(608)
$
$
$
The Company’s expected income tax provision computed on pre-tax income at the weighted average tax
rate has been calculated as the sum of the pre-tax income in each jurisdiction multiplied by that
jurisdiction’s applicable statutory tax rate. Statutory tax rates of 0.0%, 35.0%, 12.5%, 20.0% and 17.0%
have been used for Bermuda, the U.S., Ireland, the U.K. and Singapore, respectively.
The Company’s effective income tax rate, which it calculates as income tax expense divided by net income
before taxes, may fluctuate significantly from period to period depending on the geographic distribution of
pre-tax net income (loss) in any given period between different jurisdictions with comparatively higher tax
rates and those with comparatively lower tax rates. The geographic distribution of pre-tax net income (loss)
can vary significantly between periods due to, but not limited to, the following factors: the business mix of
net premiums written and earned; the geographic location, the size and the nature of net claims and claim
expenses incurred; the amount and geographic location of operating expenses, net investment income, net
realized and unrealized gains (losses) on investments; outstanding debt and related interest expense; and
the amount of specific adjustments to determine the income tax basis in each of the Company’s operating
jurisdictions. In addition, a significant portion of the Company’s gross and net premiums are currently
written and earned in Bermuda, which does not have a corporate income tax, including the majority of the
Company’s catastrophe business, which can result in significant volatility to its pre-tax net income (loss) in
any given period.
F-65
A reconciliation of the difference between the provision for income taxes and the expected tax provision at
the weighted average tax rate is as follows:
Year ended December 31,
Expected income tax benefit
Tax exempt income
Transaction costs
Change in valuation allowance
Non-taxable foreign exchange (losses) gains
Withholding tax
Other
Income tax (expense) benefit
2016
2015
2014
$
$
4,856 $
4,487
(131)
(924)
(1,126)
(2,578)
(4,924)
(340) $
1,011 $
4,939
3,654
43,808
(1,897)
(3,036)
(2,613)
45,866 $
4,725
671
—
(5,554)
885
(327)
(1,008)
(608)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are presented below:
At December 31,
Deferred tax assets
Tax loss and credit carryforwards
Reserve for claims and claim expenses
Deferred interest expense
Accrued expenses
Unearned premiums
Deferred underwriting results
Deferred tax liabilities
Deferred acquisition expenses
Amortization and depreciation
Deferred underwriting results
Investments
Net deferred tax asset before valuation allowance
Valuation allowance
Net deferred tax asset
2016
2015
51,620 $
26,265
18,408
9,386
7,496
—
113,175
40,512
29,833
18,901
15,730
8,946
421
114,343
(7,485)
(3,605)
(2,964)
(223)
(14,277)
98,898
(18,776)
80,122 $
(10,741)
(5,899)
—
(1,479)
(18,119)
96,224
(17,852)
78,372
$
$
During 2016, the Company recorded a net increase to the valuation allowance of $0.9 million (2015 –
decrease of $43.8 million, 2014 – increase of $5.6 million). The Company’s net deferred tax asset primarily
relates to net operating loss carryforwards and GAAP versus tax basis accounting differences relating to
reserves for claims and claim expenses, deferred interest expense, accrued expenses, unearned
premiums, deferred underwriting results, deferred acquisition expenses, amortization and depreciation and
investments. The Company’s valuation allowance assessment is based on all available information
including projections of future GAAP taxable income from each tax-paying component in each tax
jurisdiction. Losses incurred within the U.S. tax-paying subsidiaries in the fourth quarter of 2011 were
significant enough to result in a cumulative GAAP taxable loss at the U.S. tax-paying subsidiaries for the
three year period ended December 31, 2011. The Company concluded that a valuation allowance was
required from 2011 through the period ended December 31, 2014 based on the relevant evidence during
that time period, primarily that the Company remained in a cumulative GAAP taxable loss position for this
period, among other facts. As of December 31, 2014, the U.S. valuation allowance was $48.5 million. In the
first quarter of 2015, as a result of expected profits in the U.S. based operations due principally to the
Platinum acquisition, the Company determined it was more likely than not it would be able to recover a
substantial portion of the U.S. net deferred tax asset and thus reduced the U.S. valuation allowance from
$48.5 million to $1.0 million. Factors that led to this determination included the combined cumulative GAAP
F-66
taxable income position of the Company’s U.S.-based operations (including the entities acquired) along with
the future expected profits of the combined operations.
A valuation allowance has been provided against deferred tax assets in Ireland, the U.K., and Singapore.
These deferred tax assets relate primarily to net operating loss carryforwards.
In the U.S., the Company has net operating loss carryforwards of $91.4 million. Under applicable law, the
U.S. net operating loss carryforwards will begin to expire in 2031. In the U.K., Ireland and Singapore, the
Company has net operating loss carryforwards of $90.9 million, $10.4 million and $7.6 million, respectively.
Under applicable law, the U.K., Irish and Singapore net operating losses can be carried forward for an
indefinite period.
The Company had a net refund for U.S. federal, Irish, U.K. and Singapore income taxes of $1.1 million for
the year ended 2016 (2015 – net payment of $10.3 million, 2014 – net payment of $1.1 million).
The Company has unrecognized tax benefits of $Nil as of December 31, 2016 (2015 – $Nil). Interest and
penalties related to unrecognized tax benefits would be recognized in income tax expense. At
December 31, 2016, interest and penalties accrued on unrecognized tax benefits were $Nil (2015 – $Nil).
Income tax returns filed for tax years 2013 through 2015, 2012 through 2015, 2015, and 2012 through
2015, are open for examination by the IRS, Irish tax authorities, U.K. tax authorities, and Singapore tax
authorities, respectively. The Company does not expect the resolution of these open years to have a
significant impact on its results from operations and financial condition.
NOTE 16. SEGMENT REPORTING
The Company continually monitors and reviews its segment reporting structure in accordance with
authoritative guidance to determine whether any changes have occurred that would impact its reportable
segments. As a result of the evolution of the Company following its acquisition of Platinum, the integration of
Platinum’s activities within the Company, the growth of the Company’s casualty and specialty lines of
business, the current management structure including recent management changes and current
underwriting platforms, the Company has changed its reportable segments to “Property” and “Casualty and
Specialty”. Comparative segment reporting information has been reclassified to conform to the current
presentation, however the change in reportable segments had no impact on the Company’s historical
consolidated financial positions, results of operations or cash flows, as previously reported.
The Company’s reportable segments are defined as follows: (1) Property, which is comprised of
catastrophe and other property reinsurance and insurance written on behalf of the Company’s operating
subsidiaries and certain joint ventures managed by the Company’s ventures unit, and (2) Casualty and
Specialty, which is comprised of casualty and specialty reinsurance and insurance written on behalf of the
Company’s operating subsidiaries and certain joint ventures managed by the Company’s ventures unit. In
addition to its reportable segments, the Company has an Other category, which primarily includes its
strategic investments, investments unit, corporate expenses, capital servicing costs, noncontrolling
interests, certain expenses related to the acquisition of Platinum, and the remnants of its former Bermuda-
based insurance operations.
The Company’s Property segment is managed by the Chief Underwriting Officer - Property and the
Casualty and Specialty segment is managed by the Chief Underwriting Officer - Casualty and Specialty.
Each of the Chief Underwriting Officer - Property and Chief Underwriting Officer - Casualty and Specialty
operate under the direction of the Company’s Group Chief Underwriting Officer, who in turn reports to the
Company’s President and Chief Executive Officer.
The underwriting results of Platinum are included in the Company’s Property and Casualty and Specialty
segments from March 2, 2015, as appropriate.
The Company does not manage its assets by segment; accordingly, net investment income and total assets
are not allocated to the segments.
F-67
A summary of the significant components of the Company’s revenues and expenses is as follows:
Year ended December 31, 2016
Gross premiums written
Net premiums written
Net premiums earned
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income
Net investment income
Net foreign exchange losses
Equity in earnings of other ventures
Other income
Net realized and unrealized gains on investments
Corporate expenses
Interest expense
Income before taxes and redeemable noncontrolling interests
Income tax expense
Net income attributable to redeemable noncontrolling interests
Dividends on preference shares
Net income available to RenaissanceRe common
shareholders
Property
Casualty and
Specialty
$ 1,111,263
$ 1,263,313
$
$
725,321
720,951
151,545
97,594
108,642
$
$
809,848
682,337
380,396
191,729
88,984
Other
Total
$
$
$
— $ 2,374,576
143
142
$ 1,535,312
$ 1,403,430
(1,110)
—
123
$
363,170
$
21,228
$
1,129
181,726
(13,788)
963
14,178
141,328
(37,402)
(42,144)
(340)
530,831
289,323
197,749
385,527
181,726
(13,788)
963
14,178
141,328
(37,402)
(42,144)
630,388
(340)
(127,086)
(127,086)
(22,381)
(22,381)
$
480,581
Net claims and claim expenses incurred – current accident year $
256,421
$
438,536
Net claims and claim expenses incurred – prior accident years
(104,876)
(58,140)
Net claims and claim expenses incurred – total
$
151,545
$
380,396
$
$
— $
694,957
(1,110)
(164,126)
(1,110)
$
530,831
Net claims and claim expense ratio – current accident year
Net claims and claim expense ratio – prior accident years
Net claims and claim expense ratio – calendar year
Underwriting expense ratio
Combined ratio
35.6 %
(14.6)%
21.0 %
28.6 %
49.6 %
64.3 %
(8.6)%
55.7 %
41.2 %
96.9 %
49.5 %
(11.7)%
37.8 %
34.7 %
72.5 %
F-68
Year ended December 31, 2015
Gross premiums written
Net premiums written
Net premiums earned
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income
Net investment income
Net foreign exchange losses
Equity in earnings of other ventures
Other income
Net realized and unrealized losses on investments
Corporate expenses
Interest expense
Income before taxes and redeemable noncontrolling interests
Income tax benefit
Net income attributable to redeemable noncontrolling interests
Dividends on preference shares
Net income available to RenaissanceRe common
shareholders
Property
$ 1,072,159
$
$
726,145
805,985
128,290
94,249
118,666
Casualty and
Specialty
$
$
$
939,241
690,086
594,614
320,818
144,095
100,180
$
$
$
$
464,780
$
29,521
$
Other
Total
(90)
(48)
(48)
(870)
248
266
308
152,567
(3,051)
20,481
13,472
(68,918)
(76,514)
(36,270)
45,866
$ 2,011,310
$ 1,416,183
$ 1,400,551
448,238
238,592
219,112
494,609
152,567
(3,051)
20,481
13,472
(68,918)
(76,514)
(36,270)
496,376
45,866
(111,050)
(111,050)
(22,381)
(22,381)
$
408,811
Net claims and claim expenses incurred – current accident year $
222,076
$
388,609
Net claims and claim expenses incurred – prior accident years
(93,786)
(67,791)
Net claims and claim expenses incurred – total
$
128,290
$
320,818
$
$
— $
610,685
(870)
(870)
(162,447)
$
448,238
Net claims and claim expense ratio – current accident year
Net claims and claim expense ratio – prior accident years
Net claims and claim expense ratio – calendar year
Underwriting expense ratio
Combined ratio
27.6 %
(11.7)%
15.9 %
26.4 %
42.3 %
65.4 %
(11.4)%
54.0 %
41.0 %
95.0 %
43.6 %
(11.6)%
32.0 %
32.7 %
64.7 %
F-69
Year ended December 31, 2014
Gross premiums written
Net premiums written
Net premiums earned
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income
Net investment income
Net foreign exchange gains
Equity in earnings of other ventures
Other loss
Net realized and unrealized gains on investments
Corporate expenses
Interest expense
Income before taxes and redeemable noncontrolling interests
Income tax expense
Net income attributable to redeemable noncontrolling interests
Dividends on preference shares
Net income available to RenaissanceRe common
shareholders
Property
$ 1,074,890
$
$
662,552
698,416
16,643
66,262
117,943
Casualty and
Specialty
$
$
$
475,373
405,340
363,632
187,441
84,762
72,393
Other
Total
$
$
$
309
344
368
$ 1,550,572
$ 1,068,236
$ 1,062,416
(6,137)
(6,548)
303
$
497,568
$
19,036
$
12,750
124,316
6,260
26,075
(423)
41,433
(22,749)
(17,402)
(608)
197,947
144,476
190,639
529,354
124,316
6,260
26,075
(423)
41,433
(22,749)
(17,402)
686,864
(608)
(153,538)
(153,538)
(22,381)
(22,381)
$
510,337
Net claims and claim expenses incurred – current accident year $
103,901
$
237,844
Net claims and claim expenses incurred – prior accident years
(87,258)
(50,403)
Net claims and claim expenses incurred – total
$
16,643
$
187,441
$
$
— $
341,745
(6,137)
(143,798)
(6,137)
$
197,947
Net claims and claim expense ratio – current accident year
Net claims and claim expense ratio – prior accident years
Net claims and claim expense ratio – calendar year
Underwriting expense ratio
Combined ratio
14.9 %
(12.5)%
2.4 %
26.4 %
28.8 %
65.4 %
(13.9)%
51.5 %
43.3 %
94.8 %
32.2 %
(13.6)%
18.6 %
31.6 %
50.2 %
F-70
The following is a summary of the Company’s gross premiums written allocated to the territory of coverage
exposure:
Year ended December 31,
Property
U.S. and Caribbean
Worldwide
Worldwide (excluding U.S.) (1)
Japan
Europe
Australia and New Zealand
Other
Total Property
Casualty and Specialty
U.S. and Caribbean
Worldwide
Worldwide (excluding U.S.) (1)
Europe
Australia and New Zealand
Other
Total Casualty and Specialty
Other category
Total gross premiums written
2016
2015
2014
$
743,226 $
210,168
55,043
44,536
37,611
13,729
6,950
1,111,263
671,887 $
234,801
76,370
32,830
32,973
15,869
7,429
1,072,159
635,069
210,441
137,466
33,967
33,115
22,746
2,086
1,074,890
757,052
471,301
13,840
5,541
5,073
10,506
1,263,313
—
228,062
226,652
6,946
238
7,865
5,610
475,373
309
$ 2,374,576 $ 2,011,310 $ 1,550,572
522,778
320,452
87,597
936
1,627
5,851
939,241
(90)
(1) The category “Worldwide (excluding U.S.)” consists of contracts that cover more than one geographic region (other than the
U.S.).
NOTE 17. STOCK INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS
Stock Incentive Compensation Plans and Awards
The Company is authorized to issue restricted stock awards and units, performance shares, stock options
and other equity-based awards to its employees and directors pursuant to various stock incentive
compensation plans.
On May 16, 2016, the Company’s shareholders approved the Company’s 2016 Long-Term Incentive Plan
(the “2016 Long-Term Incentive Plan”). Pursuant to the 2016 Long-Term Incentive Plan, the Company is
authorized to issue up to 1,625,000 common shares plus the number of shares that were subject to awards
outstanding under the Company’s 2001 Stock Incentive Plan, as amended (the “2001 Stock Incentive Plan”)
and the Company’s 2010 Performance-Based Equity Incentive Plan, as amended (the “2010 Performance
Plan”) as of the effective date of the 2016 Long-Term Incentive Plan that are forfeited, canceled, settled in
cash, or otherwise terminated without delivery after the effective date. The 2016 Long-Term Incentive Plan
permits the grant of stock options, restricted stock, restricted stock units, performance awards (including
cash-based performance awards) and other share-based awards to employees, officers, non-employee
directors and consultants or advisors of the Company and its affiliates.
The 2001 Stock Incentive Plan, which permitted the grant of stock options, restricted stock awards and
other share-based awards to employees of RenaissanceRe and its subsidiaries, expired in accordance with
its terms on February 6, 2016 and no additional awards may be made under this plan. The 2010
Performance Plan, pursuant to which the Company granted performance shares, was terminated on May
16, 2016 upon approval of the 2016 Long-Term Incentive Plan, and no additional awards will be made
under this plan. The terms and conditions of outstanding awards granted under the 2001 Share Incentive
Plan and the 2010 Performance Plan were not affected by the respective expiration and termination of
these plans.
F-71
In 2010, the Company instituted a cash settled restricted stock unit (“CSRSU”) plan, the 2010 Restricted
Stock Unit Plan, which allowed for the issuance of equity awards in the form of CSRSUs. In November
2016, the 2010 Restricted Stock Plan was terminated and replaced with a new cash settled restricted stock
unit plan, the 2016 Restricted Stock Unit Plan. The terms and conditions of CSRSU awards outstanding
under the 2010 Restricted Stock Unit Plan at the time of termination were not affected, but no additional
awards will be made under the 2010 Restricted Stock Unit Plan.
The Company’s 2004 Stock Option Incentive Plan (the “Premium Option Plan”) was terminated on
August 15, 2007 with respect to future option grants. Options outstanding at the time of the termination
remained outstanding and unmodified until they expired. The Premium Option Plan expired on May 20,
2014 and at December 31, 2014, 2015 and 2016, there were no options outstanding under the Premium
Option Plan.
Options
The Company has not granted stock options since 2008. Outstanding stock options were granted pursuant
to the 2001 Stock Incentive Plan and allow for the purchase of RenaissanceRe common shares at a price
that is equal to, or not less than, the fair market value of RenaissanceRe common shares as of the effective
grant date. Options generally vested over four years and expire 10 years from the date of grant.
Restricted Stock Awards
Restricted stock awards granted periodically under the 2001 Stock Incentive Plan and the 2016 Long-Term
Incentive Plan generally vest ratably over a four year period. The Company has also granted restricted
stock awards to non-employee directors, which generally vest ratably over a three year period.
Performance Shares
Performance share awards made periodically to certain of the Company’s executive officers pursuant to the
2010 Performance Plan, 2001 Share Incentive Plan and 2016 Long-Term Incentive Plan are subject to
vesting conditions based on both continued service and the attainment of pre-established performance
goals. If performance goals are achieved, the performance shares will vest up to a maximum of 250% of
target. Grants under this plan generally cliff vest at the end of a three year vesting period based on the
attainment of annual performance goals over the vesting period. The performance shares have a market
condition, which is the Company’s total shareholder return relative to its peer group. Total shareholder
return is based on the average closing share price over the 20 trading days preceding and including the
start and end of the annual performance period.
In 2012 and 2013, the Chief Executive Officer received certain special equity awards relating to promotions,
which included grants of performance shares which vest over a period of four years, but otherwise have
similar terms to other performance share awards.
Cash Settled Restricted Stock Units
CSRSUs are liability awards with fair value measurement based on the fair market value of the Company’s
common shares at the end of each reporting period. CSRSUs granted periodically by the Board of Directors
pursuant to the 2010 Restricted Stock Unit Plan and 2016 Restricted Stock Unit Plan generally vest ratably
over four years.
F-72
Valuation Assumptions
Performance Shares
The fair value of performance shares is measured on the date of grant using a Monte Carlo simulation
model which requires certain of the same inputs underlying the Black-Scholes methodology, that being:
share price; expected volatility; expected term; expected dividend yield; and risk-free interest rates. The
following are the weighted average-assumptions used to estimate the fair value for all performance shares
issued in each respective year.
Year ended December 31,
Expected volatility (1)
Expected term (in years)
Expected dividend yield
Risk-free interest rate (1)
Performance Shares
2016
2015
14.3% - 14.7% 14.3% - 14.4%
n/a
n/a
n/a
n/a
0.38% - 1.18% 0.07% - 1.02%
(1) The expected volatility and risk-free interest rate applied are specific to each tranche of performance shares.
Expected volatility: The expected volatility is estimated by the Company based on RenaissanceRe’s
historical stock volatility.
Expected term: The expected term is not applicable as the length of the performance periods are fixed and
not subject to future employee behavior. Each tranche of the performance shares has a one year period
during which performance is measured.
Expected dividend yield: The expected dividend yield is not applicable to performance shares as dividends
are paid at the end of the vesting period and do not affect the value of the performance shares.
Risk-free interest rate: The risk free rate is estimated based on the yield on a U.S. treasury zero-coupon
issued with a remaining term equal to the vesting period of the performance shares.
The total cost of the performance shares is determined on the grant date based on the fair value calculated
by the Monte Carlo simulation model. The Company recognizes cost equal to fair value per performance
share multiplied by the target number of performance shares on the grant date. The cost is then amortized
as an expense over the requisite service period net of estimated service-based forfeitures. When estimating
forfeitures, the Company considers its historical forfeitures as well as expectations about employee
behavior. For 2016, the Company used a 0% forfeiture rate for performance shares (2015 - 0%).
Restricted Stock Awards
The fair value of restricted stock awards is determined based on the fair market value of RenaissanceRe
common shares on the grant date. The estimated fair value of restricted stock awards, net of estimated
forfeitures, is amortized as an expense over the requisite service period net of estimated service-based
forfeitures. When estimating forfeitures, the Company considers its historical forfeitures as well as
expectations about employee behavior. For 2016, the Company used a 0% forfeiture rate for restricted
stock awards (2015 - 0%).
Cash Settled Restricted Stock Units
CSRSUs are revalued at the end of each quarterly reporting period based on the then fair market value of
RenaissanceRe’s common shares. The total cost is adjusted each quarter for unvested CSRSUs to reflect
the current share price, and this total cost is amortized as an expense over the requisite service period, net
of estimated forfeitures. When estimating forfeitures, the Company considers its historical forfeitures as well
as expectations about employee behavior. For 2016, the Company used a 13% forfeiture rate for its
CSRSUs (2015 - 13%).
F-73
Summary of Stock Compensation Activity
The following is a summary of activity under the Company’s stock compensation plans.
Options
Weighted
options
outstanding
Weighted
average
exercise
price
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
Range of
exercise prices
Balance, December 31, 2013
828,092
$ 48.77
2.9
$ 40,221
$37.51 - $59.66
Options granted
Options forfeited
Options expired
Options exercised
—
—
—
—
—
—
(60,262)
49.52
$
2,900
—
Balance, December 31, 2014
767,830
$ 48.71
2.0
$ 37,246
$37.51 - $59.66
Options granted
Options forfeited
Options expired
Options exercised
—
—
—
—
—
—
(359,618)
45.09
$ 21,205
—
Balance, December 31, 2015
408,212
$ 51.90
1.6
$ 25,020
$42.66 - $59.66
Options granted
Options forfeited
Options expired
Options exercised
Balance, December 31, 2016
Total options exercisable at
December 31, 2016
Premium Option Plan Awards
—
—
—
—
—
—
—
(201,417) $ 50.59
$ 14,806
206,795
$ 53.17
0.9
$ 17,174
$50.71 - $59.66
206,795
$ 53.17
0.9
$ 17,174
$50.71 - $59.66
Balance, December 31, 2013
572,000
$ 73.62
$ 13,567
$73.06 - $74.24
Weighted
options
outstanding
Weighted
average
exercise
price
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
Range of
exercise
prices
Options granted
Options forfeited
Options expired
Options exercised
Balance, December 31, 2014
Options granted
Options forfeited
Options expired
Options exercised
Balance, December 31, 2015
Options granted
Options forfeited
Options expired
Options exercised
Balance, December 31, 2016
Total options exercisable at
December 31, 2016
—
—
—
—
—
—
(572,000)
73.62
13,414
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
— $
— $
F-74
$
— $
—
—
$
— $
—
0.0
0.0
$
$
—
— $
— $
—
—
Cash Settled Restricted Stock Units
Nonvested at December 31, 2013
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2014
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2015
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2016
Performance Shares
Nonvested at December 31, 2013
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2014
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2015
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2016
Number of
shares
394,145
119,382
(159,094)
(16,110)
338,323
160,817
(144,440)
(28,622)
326,078
135,119
(133,278)
(19,575)
308,344
Number of
shares (1)
Weighted
average
grant-date
fair value
359,543 $
102,668 $
—
(213,639)
248,572 $
103,024 $
—
(121,325)
230,271 $
77,045 $
(58,032) $
(37,903)
211,381 $
30.55
46.45
39.62
44.98
41.40
48.31
38.80
44.63
(1) For performance shares, the number of shares is stated at the maximum number that can be attained if the performance
conditions are fully met. Forfeitures represent shares forfeited due to vesting below the maximum attainable as a result of the
Company not fully meeting the performance conditions.
F-75
Restricted Stock Awards
Nonvested at December 31,
2013
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31,
2014
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31,
2015
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31,
2016
Employee
restricted stock awards
Non-employee director
restricted stock awards
Total
restricted stock awards
Weighted
average
grant
date fair
value
Weighted
average
grant
date fair
value
Number of
shares
Weighted
average
grant
date fair
value
Number of
shares
Number of
shares
569,492 $ 76.11
95.79
215,054
73.74
(332,725)
55.80
(99)
451,722 $ 87.29
102.17
195,337
82.75
(168,019)
—
—
479,040 $ 94.95
112.41
179,003
93.98
(255,873)
—
—
31,486 $ 78.57
95.06
14,455
74.96
(15,886)
—
—
30,055 $ 88.41
102.90
14,575
86.37
(17,744)
—
—
26,886 $ 97.61
114.71
14,727
96.83
(16,068)
—
—
600,978 $ 76.24
95.74
229,509
73.79
(348,611)
55.80
(99)
481,777 $ 87.36
102.22
209,912
83.10
(185,763)
—
—
505,926 $ 95.09
112.59
193,730
94.15
(271,941)
—
—
402,170 $ 103.34
25,545 $ 107.95
427,715 $ 103.61
There were 1,762,185 shares available for issuance under the 2016 Long-Term Incentive Plan at
December 31, 2016 and no shares available for issuance under the 2001 Stock Incentive Plan or 2010
Performance Share Plan at December 31, 2016.
The aggregate fair value of restricted stock awards, performance shares and CSRSUs vested during 2016
was $54.5 million (2015 – $34.0 million, 2014 – $48.7 million). Cash in the amount of $Nil was received
from employees as a result of employee stock option exercises during 2016 (2015 – $0.1 million, 2014 –
$0.5 million). In connection with share vestings and option exercises, there was no excess windfall tax
benefit realized by the Company due to its net operating loss position in the taxable jurisdictions in which it
operates. RenaissanceRe issues new shares upon the exercise of an option.
The total stock compensation expense recognized in the Company’s consolidated statements of operations
during 2016 was $47.4 million (2015 – $38.3 million, 2014 – $37.6 million). As of December 31, 2016, there
was $28.9 million of total unrecognized compensation cost related to restricted stock awards, $28.9 million
related to CSRSUs and $3.4 million related to performance shares, which will be recognized, on a weighted
average basis, during the next 1.6, 1.7 and 1.6 years, respectively.
All of the Company’s employees are eligible for defined contribution pension plans. Contributions are
primarily based upon a percentage of eligible compensation. The Company contributed $4.0 million to its
defined contribution pension plans in 2016 (2015 – $4.3 million, 2014 – $3.6 million).
F-76
NOTE 18. STATUTORY REQUIREMENTS
The Company’s (re)insurance operations are subject to insurance laws and regulations in the jurisdictions in
which they operate, the most significant of which currently include Bermuda, the U.S. and the U.K. These
regulations include certain restrictions on the amount of dividends or other distributions, such as loans or
cash advances, available to shareholders without prior approval of the respective regulatory authorities.
Group Supervision
The Bermuda Monetary Authority (“BMA”) is the group supervisor of the Company. Under the Insurance Act
1978, amendments thereto and related regulations of Bermuda (collectively, the “Insurance Act”), the
Company shall ensure that it can meet its minimum solvency margin (“MSM”), defined as the minimum
amount by which the value of the assets of the Company must exceed the value of its liabilities, the breach
of which represents an unacceptable level of risk and triggers the strongest supervisory actions.
In addition, the Company is required to maintain capital at a level equal to its enhanced capital requirement
(“ECR”) which is established by reference to the Bermuda Solvency Capital Requirement (the “BSCR”)
model. The BSCR is a mathematical model designed to give the BMA robust methods for determining an
insurer’s capital adequacy. The ECR is equal to the greater of the MSM or required capital calculated by
reference to the BSCR. Effective January 1, 2016, the BMA embedded the Economic Balance Sheet
(“EBS”) framework in the Bermuda legislative and regulatory regime. This modified the reporting
requirements applicable to commercial insurers and insurance groups. Under the EBS framework, the BMA
prescribes the use of financial statements prepared in accordance with GAAP as the basis on which
statutory financial statements are prepared, and those statutory financial statements form the starting basis
for the EBS. The ECR is then calculated based on the EBS, as opposed to the statutory financial
statements on which it was previously based.
The BMA expects the Company to operate at or above a target level capital (“TCL”) which is set at 120% of
the ECR, the breach of which may trigger additional reporting requirements or other enhanced
oversight. The Company is currently completing its 2016 group BSCR, which must be filed with the BMA on
or before May 31, 2017, and at this time, the Company believes it will exceed the target level of required
economic statutory capital.
The actual statutory capital and surplus, required minimum statutory capital and surplus and restricted net
assets of the Company’s regulated insurance operations in its most significant regulatory jurisdictions are
detailed below:
At December 31,
Actual statutory
capital and
surplus
Required
statutory
capital and
surplus
Restricted net
assets
Bermuda (1)
U.S.
U.K. (2) (3)
2016
2015
2016
2015
2016
2015
$ 4,212,787 $ 4,878,811 $
523,340 $
521,522 $
491,213 $
485,256
807,108
1,782,778
221,023
219,164
491,213
485,256
1,779,319
838,633
324,567
321,362
—
—
(1) Required statutory capital and surplus of the Company's Bermuda-domiciled insurance subsidiaries is calculated as the greater of
the MSM and the ECR, with the ECR being equal to the higher of each insurer's MSM or required capital calculated by reference
to the BSCR. The Company's Bermuda-domiciled insurance subsidiaries’ BSCR for the year ended December 31, 2016 will not
be filed with the BMA until April 30, 2017. Therefore, at December 31, 2016, actual capital and surplus is based on the relevant
insurer’s statutory financial statements and required statutory capital and surplus is based on the MSM of all relevant insurers.
Required capital and surplus presented above at December 31, 2015 reflects the higher of the MSM and ECR for all relevant
insurers, as described above.
(2) With respect to actual and required statutory capital and surplus, and as described below, underwriting capacity of a member of
Lloyd’s must be supported by providing a deposit in the form of cash, securities or letters of credit, which are referred to as Funds
at Lloyd’s (“FAL”). FAL is determined by Lloyd’s and is based on Syndicate 1458’s solvency and capital requirements as
calculated through its internal model.
(3) Syndicate 1458 is capitalized by its FAL, with the related assets not held on its balance sheet. As such, restricted net assets is not
applicable to Syndicate 1458; however, the Company can make an application to obtain approval from Lloyd’s to have funds
released to RenaissanceRe from Syndicate 1458, subject to passing a Lloyd’s release test.
F-77
Statutory net income of the Company’s regulated insurance operations in its most significant regulatory
jurisdictions are detailed below:
Year ended December 31, 2016
Year ended December 31, 2015
Year ended December 31, 2014
Statutory Net Income
Bermuda
U.S. (1)
$
625,371 $
43,292 $
355,132
623,931
58,752
—
U.K.
28,007
1,627
24,433
(1) Prior to the Company’s acquisition of Platinum on March 2, 2015, the Company did not have any U.S.-domiciled insurance
subsidiaries.
The difference between statutory financial statements and statements prepared in accordance with GAAP
varies by jurisdiction; however, the primary difference is that for the Company’s regulated entities the
statutory financial statements do not reflect goodwill and intangible assets. Also, in the U.S., fixed maturity
investments are generally recorded at amortized cost and deferred income tax is charged directly to
equity. In the U.S. and the U.K., deferred acquisition costs are generally not reflected in the statutory
financial statements. None of the Company’s insurance subsidiaries used permitted practices that
prevented the trigger of a regulatory event during the years ended December 31, 2016, 2015 and 2014.
Dividend Restrictions of RenaissanceRe
As a Bermuda-domiciled holding company, RenaissanceRe has limited operations of its own and its assets
consist primarily of investments in subsidiaries, and to a degree, cash and securities. Accordingly,
RenaissanceRe’s future cash flows largely depend on the availability of dividends or other statutorily
permissible payments from subsidiaries. The ability to pay such dividends is limited by the applicable laws
and regulations of the various countries and states in which these subsidiaries operate, including, among
others, Bermuda, the U.S., the U.K. and Ireland. RenaissanceRe’s ability to pay dividends and distribute
capital to shareholders is limited by the Bermuda Companies Act 1981, insofar as after the payment,
RenaissanceRe must still be able to pay its liabilities as they come due and the realizable value of its assets
must be greater than its liabilities. At December 31, 2016, $1.4 billion of RenaissanceRe’s retained earnings
would be unrestricted and available for payment of dividends or distribution to shareholders of
RenaissanceRe.
Bermuda-Domiciled Insurance Entities
Under the Insurance Act, certain subsidiaries of RenaissanceRe are required to prepare and file statutory
financial statements. Effective January 1, 2016, the BMA prescribed the use of financial statements
prepared in accordance with GAAP as the basis on which the statutory financial statements are prepared,
subject to the application of certain prudential filters. These statutory financial statements are used to
prepare the EBS. In addition, Bermuda insurance subsidiaries of RenaissanceRe are required to maintain
certain measures of solvency and liquidity and file a BSCR return.
Class 3B and Class 4 Insurers
Under the Insurance Act, RenaissanceRe Specialty U.S. is defined as a Class 3B insurer, and Renaissance
Reinsurance and DaVinci are classified as Class 4 insurers, and therefore must maintain statutory
economic capital at a level equal to its ECR which is the greater of its MSM and the required capital
calculated by reference to the BSCR.
Class 3B and Class 4 insurers are prohibited from declaring or paying any dividends if in breach of the
required minimum solvency margin or minimum liquidity ratio (the “Relevant Margins”) or if the declaration
or payment of such dividend would cause the insurer to fail to meet the Relevant Margins. Where an insurer
fails to meet its Relevant Margins on the last day of any financial year, it is prohibited from declaring or
paying any dividends during the next financial year without the prior approval of the BMA. Further, Class 3B
and Class 4 insurers are prohibited from declaring or paying in any financial year dividends of more than
25% of its total statutory capital and surplus (as shown on its previous financial year’s statutory balance
sheet) unless it files (at least seven days before payment of such dividends) with the BMA an affidavit
stating that it will continue to meet its Relevant Margins. Class 3B and Class 4 insurers must obtain the
F-78
BMA’s prior approval for a reduction by 15% or more of the total statutory capital as set forth in its previous
year’s financial statements. These restrictions on declaring or paying dividends and distributions under the
Insurance Act are in addition to the solvency requirements under the Bermuda Companies Act 1981 which
apply to all Bermuda companies. In addition, an insurer engaged in general business is also required to
maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities.
The Company is currently completing its 2016 Bermuda-domiciled statutory filings for Renaissance
Reinsurance, DaVinci and RenaissanceRe Specialty U.S., which must be filed with the BMA on or before
April 30, 2017, and at this time, the Company believes each of Renaissance Reinsurance, DaVinci and
RenaissanceRe Specialty U.S. will exceed the target level of required statutory economic capital.
As a result of the acquisition of Platinum and the potential for organizational and capital changes,
Renaissance Reinsurance and RenaissanceRe Specialty Risks each received a request from the BMA, on
February 24, 2015 and March 27, 2015, respectively, to obtain written approval prior to paying dividends or
returning capital to RenaissanceRe during 2015. Subsequent to these requests and through December 31,
2015, Renaissance Reinsurance and RenaissanceRe Specialty Risks returned capital, which included
dividends declared and return of capital, of $245.0 million and $680.0 million, respectively.
Effective October 1, 2016, each of RenaissanceRe Specialty Risks and Platinum Bermuda merged into
Renaissance Reinsurance, with Renaissance Reinsurance being the sole surviving entity. As part of the
merger, Renaissance Reinsurance applied for, and effective November 18, 2016 received, approval from
the BMA to reduce its statutory capital by $500.0 million through a return of capital. The return of capital
was completed prior to December 31, 2016.
For the year ended December 31, 2015, Renaissance Reinsurance submitted applications to the BMA, and
received approval, to exempt it from recording and recognizing certain third party guarantees as statutory
liabilities and corresponding reductions of statutory capital and surplus for purposes of filing its statutory
financial statements. The maximum monetary impact of including the third party guarantees in Renaissance
Reinsurance’s statutory financial statements at December 31, 2015 would have been an increase to
statutory liabilities $390.4 million, and a corresponding decrease to statutory capital and surplus. If these
amounts were included in Renaissance Reinsurance’s statutory financial statements, Renaissance
Reinsurance would have still exceeded the required measures of solvency and liquidity, and the target level
of required statutory capital, as discussed above. During 2016, certain of these guarantees ceased to exist
as a result of the merger of RenaissanceRe Specialty Risks into Renaissance Reinsurance. In addition,
under the new statutory reporting regime in effect for the year ended December 31, 2016, as described
above, applications to the BMA in respect of such guarantees are no longer required. Instead, such
guarantees are valued based on the expected present value of future cash flows required to settle the
contingent liability over the lifetime of that contingent liability, using the basic risk-free interest rate.
SPIs
Under the Insurance Act, Upsilon RFO is considered an SPI. See “Note 11. Variable Interest Entities” for
additional information related to Upsilon RFO. Unlike other (re)insurers, such as the Class 3B and Class 4
insurers discussed above, SPIs are fully funded to meet their (re)insurance obligations and are not exposed
to insolvency, therefore the application and supervision processes are streamlined to facilitate the
transparent structure. Further, the BMA has the discretion to modify such insurer’s reporting requirements
under the Insurance Act. Like other (re)insurers, the principal representative of an SPI has a duty to inform
the BMA in relation to solvency matters, where applicable. Upsilon RFO applied for and received a direction
from the BMA, which, subject to specified conditions, modifies its filing requirements in respect of statutory
financial statements for the year ended December 31, 2016.
U.S.-Domiciled Insurance Entities
The Company has a U.S.-domiciled insurance subsidiary, Renaissance Reinsurance U.S., which was
acquired on March 2, 2015 and is subject to statutory accounting principles as defined by the National
Association of Insurance Commissioners (the “NAIC”). The NAIC uses a risk-based capital ("RBC") model
to monitor and regulate the solvency of licensed life, health, and property and casualty insurance and
reinsurance companies. Renaissance Reinsurance U.S. is domiciled in Maryland, which has adopted the
NAIC's model law.
F-79
Laws and regulations in the U.S. establish minimum capital adequacy levels and grant regulators the
authority to take specific actions based on the level of impairment. For Renaissance Reinsurance U.S., this
amount is the Company Action Level (“CAL”) based on the RBC model of the NAIC and represents the first
level at which regulatory action is triggered.
Under Maryland insurance law, Renaissance Reinsurance U.S. must notify the Maryland Insurance
Commissioner (the "Commissioner") within five business days after the declaration of any dividend or
distribution, other than an extraordinary dividend or extraordinary distribution, and notify the Commissioner
at least ten days prior to the payment or distribution thereof. The Commissioner has the right to prevent
payment of such a dividend or such a distribution if the Commissioner determines, in the Commissioner's
discretion, that after the payment thereof, the policyholders' surplus of Renaissance Reinsurance U.S.
would be inadequate or could cause Renaissance Reinsurance U.S. to be in a hazardous financial
condition. Renaissance Reinsurance U.S. must give at least 30 days prior notice to the Commissioner
before paying an extraordinary dividend or making an extraordinary distribution from other than earned
surplus. Extraordinary dividends and extraordinary distributions are dividends or distributions which,
together with any other dividends and distributions paid during the immediately preceding twelve-month
period, would exceed the lesser of:
•
•
10% of the insurer's statutory policyholders' surplus (as determined under statutory accounting
principles) as of December 31 of the prior year; or
the insurer's net investment income excluding realized capital gains (as determined under statutory
accounting principles) for the twelve-month period ending on December 31 of the prior year and pro
rata distributions of any class of the insurer's securities, plus any amounts of net investment income
(subject to the foregoing exclusions) in the three calendar years prior to the preceding year which
have not been distributed.
During 2017, Renaissance Reinsurance U.S. will have ordinary dividend capacity of $25.4 million (2016 -
$26.0 million).
State insurance laws and regulations require Renaissance Reinsurance U.S. to file statutory basis financial
statements with insurance regulators in each state where it is licensed, authorized or accredited to do
business. The operations of Renaissance Reinsurance U.S. are subject to examination by those state
insurance regulators at any time. The Company is currently completing the 2016 statutory basis financial
statements for Renaissance Reinsurance U.S., which must be filed with the NAIC, on or before March 1,
2017. At this time, the Company believes Renaissance Reinsurance U.S. will exceed the CAL.
U.K.-Domiciled Syndicate 1458
RenaissanceRe CCL and Syndicate 1458 are subject to oversight by the Council of Lloyd’s. RSML is
authorized by the U.K.’s Prudential Regulation Authority and regulated by the Financial Conduct Authority
under the Financial Services and Markets Act 2000. Underwriting capacity of a member of Lloyd’s must be
supported by providing a deposit in the form of cash, securities or letters of credit, which are referred to as
FAL. This amount is determined by Lloyd’s and is based on Syndicate 1458’s solvency and capital
requirement as calculated through its internal model. In addition, if the FAL are not sufficient to cover all
losses, the Lloyd’s Central Fund provides an additional level of security for policyholders.
Multi-Beneficiary Reinsurance Trusts
Each of Renaissance Reinsurance and DaVinci was approved as a Trusteed Reinsurer in the state of New
York and established a multi-beneficiary reinsurance trust (“MBRT”) to collateralize its (re)insurance
liabilities associated with U.S. domiciled cedants. The MBRTs are subject to the rules and regulations of the
state of New York and the respective deed of trust, including but not limited to certain minimum capital
funding requirements, investment guidelines, capital distribution restrictions and regulatory reporting
requirements. Assets held under trust at December 31, 2016 with respect to the MBRTs totaled $673.2
million and $136.7 million for Renaissance Reinsurance and DaVinci, respectively (2015 – $505.0 million
and $135.3 million, respectively), compared to the minimum amount required under U.S. state regulations
of $608.3 million and $90.4 million, respectively (2015 – $378.8 million and $100.1 million, respectively).
F-80
Multi-Beneficiary Reduced Collateral Reinsurance Trusts
Each of Renaissance Reinsurance and DaVinci has been approved as an “eligible reinsurer” in the state of
Florida, and are authorized to provide reduced collateral equal to 20% and 50%, respectively, of their net
outstanding insurance liabilities to Florida-domiciled insurers. Each of Renaissance Reinsurance and
DaVinci has established a multi-beneficiary reduced collateral reinsurance trust (“RCT”) to collateralize its
(re)insurance liabilities associated with Florida-domiciled cedants. Because the RCTs were established in
New York, they are subject to the rules and regulations of the state of New York including but not limited to
certain minimum capital funding requirements, investment guidelines, capital distribution restrictions and
regulatory reporting requirements. Assets held under trust at December 31, 2016 with respect to the RCTs
totaled $39.5 million and $19.1 million for Renaissance Reinsurance and DaVinci, respectively (2015 -
$41.7 million and $18.9 million, respectively), compared to the minimum amount required under U.S. state
regulations of $14.9 million and $14.1 million, respectively (2015 - $15.2 million and $10.4 million,
respectively).
NOTE 19. DERIVATIVE INSTRUMENTS
The Company enters into derivative instruments such as futures, options, swaps, forward contracts and
other derivative contracts primarily to manage its foreign currency exposure, obtain exposure to a particular
financial market, for yield enhancement, or for trading and speculation. The Company’s derivative
instruments are generally traded under International Swaps and Derivatives Association master
agreements, which establish the terms of the transactions entered into with the Company’s derivative
counterparties. In the event one party becomes insolvent or otherwise defaults on its obligations, a master
agreement generally permits the non-defaulting party to accelerate and terminate all outstanding
transactions and net the transactions’ marked-to-market values so that a single sum in a single currency will
be owed by, or owed to, the non-defaulting party. Effectively, this contractual close-out netting reduces
credit exposure from gross to net exposure. Where the Company has entered into master netting
agreements with counterparties, or the Company has the legal and contractual right to offset positions, the
derivative positions are generally netted by counterparty and are reported accordingly in other assets and
other liabilities.
F-81
The tables below show the gross and net amounts of recognized derivative assets and liabilities at fair
value, including the location on the consolidated balance sheets of the Company’s principal derivative
instruments:
Derivative Assets
Gross
Amounts of
Recognized
Assets
Gross
Amounts
Offset in the
Balance
Sheet
Net
Amounts of
Assets
Presented in
the Balance
Sheet
$
1,384
1,235 $
774
621
—
447
149
774
174
At December 31, 2016
Interest rate futures
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
Credit default swaps
Total
1,429
4,208 $
23
1,705 $
1,406
2,503
$
Balance
Sheet
Location
Other
assets
Other
assets
Other
assets
Other
assets
Collateral
Net Amount
$
— $
—
—
—
$
— $
149
774
174
1,406
2,503
Derivative Liabilities
Gross
Amounts of
Recognized
Liabilities
Gross
Amounts
Offset in the
Balance
Sheet
Net
Amounts of
Liabilities
Presented in
the Balance
Sheet
$
2,030
1,235 $
795
10,550
766
397
447
10,153
319
At December 31, 2016
Interest rate futures
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
Credit default swaps
Total
181
13,527 $
$
23
2,102 $
158
11,425
Balance
Sheet
Location
Other
liabilities
Other
liabilities
Other
liabilities
Other
liabilities
Collateral
Pledged
Net Amount
$
789 $
6
—
—
—
10,153
319
158
$
789 $
10,636
(1) Contracts used to manage foreign currency risks in underwriting and non-investment operations.
(2) Contracts used to manage foreign currency risks in investment operations.
F-82
Derivative Assets
At December 31, 2015
Gross
Amounts of
Recognized
Assets
Gross
Amounts
Offset in the
Balance
Sheet
Net
Amounts of
Assets
Presented in
the Balance
Sheet
Interest rate futures
$
1,059
937 $
122
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
4,645
1,007
82
599
4,563
408
Credit default swaps
Total
257
6,968 $
44
1,662 $
213
5,306
$
Balance
Sheet
Location
Other
assets
Other
assets
Other
assets
Other
assets
Collateral
Net Amount
$
— $
122
—
—
—
4,563
408
213
$
— $
5,306
Derivative Liabilities
At December 31, 2015
Gross
Amounts of
Recognized
Liabilities
Gross
Amounts
Offset in the
Balance
Sheet
Net
Amounts of
Liabilities
Presented in
the Balance
Sheet
Interest rate futures
$
2,293
937 $
1,356
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
1,891
806
81
599
1,810
207
Credit default swaps
Total
491
5,481 $
44
1,661 $
447
3,820
$
Balance
Sheet
Location
Other
liabilities
Other
liabilities
Other
liabilities
Other
liabilities
Collateral
Pledged
Net Amount
$
1,356 $
—
—
—
447
1,810
207
—
$
1,803 $
2,017
(1) Contracts used to manage foreign currency risks in underwriting and non-investment operations.
(2) Contracts used to manage foreign currency risks in investment operations.
Refer to “Note 5. Investments” for information on reverse repurchase agreements.
F-83
The location and amount of the gain (loss) recognized in the Company’s consolidated statements of
operations related to its principal derivative instruments are shown in the following table:
Year ended December 31,
2016
2015
2014
Location of gain (loss)
recognized on derivatives
Amount of gain (loss) recognized on
derivatives
Interest rate futures
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
Credit default swaps
Weather contract
Total
Net realized and unrealized
gains (losses) on
investments
Net foreign exchange
(losses) gains
Net foreign exchange
(losses) gains
Net realized and unrealized
gains (losses) on
investments
Net realized and unrealized
gains (losses) on
investments
$
(17,379) $
5,573 $
(32,713)
(6,937)
(1,943)
4,457
(1,591)
8,862
12,623
1,965
(313)
328
—
183
1,454
$
(23,942) $
12,362 $
(13,851)
(1) Contracts used to manage foreign currency risks in underwriting and non-investment operations.
(2) Contracts used to manage foreign currency risks in investment operations.
The Company is not aware of the existence of any credit-risk related contingent features that it believes
would be triggered in its derivative instruments that are in a net liability position at December 31, 2016.
Interest Rate Futures
The Company uses interest rate futures within its portfolio of fixed maturity investments to manage its
exposure to interest rate risk, which may result in increasing or decreasing its exposure to this risk. At
December 31, 2016, the Company had $1,208.3 million of notional long positions and $727.9 million of
notional short positions of primarily Eurodollar, U.S. treasury and non-U.S. dollar futures contracts (2015 –
$1,012.5 million and $1,115.9 million, respectively). The fair value of these derivatives is determined using
exchange traded prices.
Foreign Currency Derivatives
The Company’s functional currency is the U.S. dollar. The Company writes a portion of its business in
currencies other than U.S. dollars and may, from time to time, experience foreign exchange gains and
losses in the Company’s consolidated financial statements. All changes in exchange rates, with the
exception of non-monetary assets and liabilities, are recognized in the Company’s consolidated statements
of operations.
Underwriting Operations Related Foreign Currency Contracts
The Company’s foreign currency policy with regard to its underwriting operations is generally to hold foreign
currency assets, including cash, investments and receivables that approximate the foreign currency
liabilities, including claims and claim expense reserves and reinsurance balances payable. When
necessary, the Company may use foreign currency forward and option contracts to minimize the effect of
fluctuating foreign currencies on the value of non-U.S. dollar denominated assets and liabilities associated
with its underwriting operations. The fair value of the Company’s underwriting operations related foreign
currency contracts is determined using indicative pricing obtained from counterparties or broker quotes. At
December 31, 2016, the Company had outstanding underwriting related foreign currency contracts of
$184.2 million in notional long positions and $91.4 million in notional short positions, denominated in U.S.
dollars (2015 – $172.4 million and $101.5 million, respectively).
F-84
Investment Portfolio Related Foreign Currency Forward Contracts
The Company’s investment operations are exposed to currency fluctuations through its investments in non-
U.S. dollar fixed maturity investments, short term investments and other investments. From time to time, the
Company may employ foreign currency forward contracts in its investment portfolio to either assume foreign
currency risk or to economically hedge its exposure to currency fluctuations from these investments. The
fair value of the Company’s investment portfolio related foreign currency forward contracts is determined
using an interpolated rate based on closing forward market rates. At December 31, 2016, the Company had
outstanding investment portfolio related foreign currency contracts of $26.9 million in notional long positions
and $57.3 million in notional short positions, denominated in U.S. dollars (2015 – $31.3 million and $143.4
million, respectively).
Credit Derivatives
The Company’s exposure to credit risk is primarily due to its fixed maturity investments, short term
investments, premiums receivable and reinsurance recoverable. From time to time, the Company
purchases credit derivatives to hedge its exposures in the insurance industry, and to assist in managing the
credit risk associated with ceded reinsurance. The Company also employs credit derivatives in its
investment portfolio to either assume credit risk or hedge its credit exposure. The fair value of credit
derivatives is determined using industry valuation models, broker bid indications or internal pricing valuation
techniques. The fair value of these credit derivatives can change based on a variety of factors including
changes in credit spreads, default rates and recovery rates, the correlation of credit risk between the
referenced credit and the counterparty, and market rate inputs such as interest rates. At December 31,
2016, the Company had outstanding credit derivatives of $Nil in notional long positions and $75.2 million in
notional short positions, denominated in U.S. dollars (2015 – $Nil and $46.1 million, respectively).
Weather Contract
The Company, from time to time, transacts in certain derivative-based risk management products that
address weather-related risks. The fair value of these contracts is determined through the use of an internal
valuation model with the inputs to the internal valuation model based on proprietary data as observable
market inputs are not available. The most significant unobservable input is the potential payment that would
become due to a counterparty following the occurrence of a triggering event as reported by an external
agency. Generally, the Company’s portfolio of such derivatives is relatively small and such derivatives are
frequently seasonal in nature. During 2015, the Company settled an outstanding weather contract with an
insurance company and at December 31, 2016 and 2015, did not have any outstanding weather contract
positions.
NOTE 20. COMMITMENTS, CONTINGENCIES AND OTHER ITEMS
CONCENTRATION OF CREDIT RISK
Instruments which potentially subject the Company to concentration of credit risk consist principally of
investments, including the Company’s equity method investments, cash, premiums receivable and
reinsurance balances. The Company limits the amount of credit exposure to any one financial institution
and, except for U.S. Government securities, none of the Company’s investments exceeded 10% of
shareholders’ equity at December 31, 2016. See “Note 7. Reinsurance”, for information with respect to
reinsurance recoverable.
EMPLOYMENT AGREEMENTS
The Board of Directors has authorized the execution of employment agreements between the Company
and certain officers. These agreements provide for, among other things, severance payments under certain
circumstances, as well as accelerated vesting of options and certain restricted stock grants, upon a change
in control, as defined in the employment agreements and the Company’s stock incentive plans.
F-85
LETTERS OF CREDIT AND OTHER COMMITMENTS
At December 31, 2016, the Company’s banks have issued letters of credit of $894.2 million in favor of
certain ceding companies, including the Renaissance Reinsurance FAL Facility and Specialty Risks FAL
Facility, each noted below. In connection with the Company’s Top Layer Re joint venture, Renaissance
Reinsurance has committed $37.5 million of collateral to support a letter of credit and is obligated to make a
mandatory capital contribution of up to $50.0 million in the event that a loss reduces Top Layer Re’s capital
and surplus below a specified level. The letters of credit are secured by cash and investments of similar
amounts.
At December 31, 2016, letters of credit in the amounts of $380.0 million and £90.0 million were issued
pursuant to the Renaissance Reinsurance FAL Facility and £10.0 million issued pursuant to the Specialty
Risks FAL Facility.
See “Note 9. Debt and Credit Facilities” for additional information related to the Company’s debt and credit
facilities.
PRIVATE EQUITY AND INVESTMENT COMMITMENTS
The Company has committed capital to private equity partnerships and other entities of $794.2 million, of
which $554.7 million has been contributed at December 31, 2016. The Company’s remaining commitments
to these funds at December 31, 2016 totaled $249.4 million. These commitments do not have a defined
contractual commitment date.
INDEMNIFICATIONS AND WARRANTIES
In the ordinary course of its business, the Company may enter into contracts or agreements that contain
indemnifications or warranties. Future events could occur that lead to the execution of these provisions
against the Company. Based on past experience, management currently believes that the likelihood of such
an event is remote.
OPERATING AND CAPITAL LEASES
The Company leases office space under operating leases which expire at various dates through 2023.
Future minimum lease payments under existing operating leases are expected to be as follows:
2017
2018
2019
2020
2021
After 2021
$
Minimum
lease
payments
7,553
7,078
6,159
4,634
4,308
4,819
Future minimum lease payments under existing operating leases
$
34,551
F-86
The Company’s capital leases primarily relate to office space in Bermuda with an initial lease term of 20
years, ending in 2028, and a bargain renewal option for an additional 30 years. The future minimum lease
payments of the Company’s capital leases are detailed below, and relate principally to the transaction noted
above, excluding the bargain renewal option.
2017
2018
2019
2020
2021
After 2021
Future minimum lease payments under existing capital leases
Minimum
lease
payments
$
$
3,017
2,539
2,661
2,661
2,661
17,297
30,836
FOREIGN TO FOREIGN RETROCESSIONS
During the fourth quarter of 2015, the Company recognized a recovery and corresponding reduction to
acquisition expenses in its Property segment of $7.7 million associated with the December 2015 decision by
the IRS to revoke its position that federal excise tax applies on foreign to foreign retrocessions.
LITIGATION
The Company and its subsidiaries are subject to lawsuits and regulatory actions in the normal course of
business that do not arise from or directly relate to claims on reinsurance treaties or contracts or direct
surplus lines insurance policies. In the Company’s industry, business litigation may involve allegations of
underwriting or claims-handling errors or misconduct, disputes relating to the scope of, or compliance with,
the terms of delegated underwriting agreements, employment claims, regulatory actions or disputes arising
from the Company’s business ventures. The Company’s operating subsidiaries are subject to claims
litigation involving, among other things, disputed interpretations of policy coverages. Generally, the
Company’s direct surplus lines insurance operations are subject to greater frequency and diversity of claims
and claims-related litigation than its reinsurance operations and, in some jurisdictions, may be subject to
direct actions by allegedly injured persons or entities seeking damages from policyholders. These lawsuits,
involving or arising out of claims on policies issued by the Company’s subsidiaries which are typical to the
insurance industry in general and in the normal course of business, are considered in its claims and claim
expense reserves which are discussed in “Note 8. Reserve for Claims and Claim Expenses”. In addition,
the Company may from time to time engage in litigation or arbitration related to its claims for payment in
respect of ceded reinsurance, including disputes that challenge the Company’s ability to enforce its
underwriting intent. Such matters could result, directly or indirectly, in providers of protection not meeting
their obligations to the Company or not doing so on a timely basis. The Company may also be subject to
other disputes from time to time, relating to operational or other matters distinct from insurance or
reinsurance claims. Any litigation or arbitration, or regulatory process, contains an element of uncertainty,
and the value of an exposure or a gain contingency related to a dispute is difficult to estimate accordingly.
Currently, the Company believes that no individual litigation or arbitration to which it is presently a party is
likely to have a material adverse effect on its financial condition, business or operations.
F-87
NOTE 21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Revenues
Gross premiums written
Net premiums written
(Increase) decrease in unearned
premiums
Net premiums earned
Net investment income
Net foreign exchange (losses)
gains
Equity in earnings (losses) of other
ventures
Other income
Net realized and unrealized gains
(losses) on investments
Total revenues
Expenses
Net claims and claim expenses
incurred
Acquisition costs
Operational expenses
Corporate expenses
Interest expense
Total expenses
Income before taxes
Quarter Ended
March 31,
Quarter Ended
June 30,
Quarter Ended
September 30,
Quarter Ended
December 31,
2016
2015
2016
2015
2016
2015
2016
2015
$ 862,133
$ 643,578
$759,128
$ 661,997
$ 430,224
$369,642
$ 323,091
$336,093
$ 511,675
$ 404,035
$519,916
$ 508,677
$ 284,222
$266,820
$ 219,499
$236,651
(158,069)
(107,275)
(168,514)
(128,849)
62,299
95,568
132,402
124,924
353,606
296,760
351,402
379,828
346,521
362,388
351,901
361,575
28,863
39,707
54,124
38,604
51,423
28,338
47,316
45,918
(1,692)
(3,130)
(690)
(1,740)
(5,986)
616
(5,420)
1,203
1,611
4,079
5,295
1,539
6,022
2,654
6,160
1,427
(11,630)
2,268
5,730
2,306
4,960
5,177
3,296
8,200
61,653
41,749
69,772
(26,712)
59,870
(41,138)
(49,967)
(42,817)
448,120
381,920
483,284
397,567
442,466
358,240
353,967
377,375
126,605
65,592
56,235
8,225
10,538
267,195
180,925
76,853
43,401
45,621
45,533
5,316
167,750
169,344
112,575
100,028
123,901
102,013
69,005
51,073
5,752
10,536
61,666
54,673
12,868
9,862
80,580
40,493
11,537
10,536
78,126
54,518
7,322
10,542
74,146
49,948
11,888
10,534
55,399
64,300
10,791
10,550
216,724
304,116
308,413
255,721
250,536
270,417
243,053
165,196
179,168
89,154
186,745
107,704
83,550
134,322
Income tax (expense) benefit
(2,744)
47,904
(6,612)
1,842
1,316
4,573
7,700
(8,453)
Net income
178,181
213,100
172,556
90,996
188,061
112,277
91,250
125,869
Net income attributable to
redeemable noncontrolling
interests
Net income available to
RenaissanceRe
(44,591)
(39,662)
(30,635)
(12,167)
(35,641)
(31,153)
(16,219)
(28,068)
133,590
173,438
141,921
78,829
152,420
81,124
75,031
97,801
Dividends on preference shares
(5,595)
(5,595)
(5,596)
(5,596)
(5,595)
(5,595)
(5,595)
(5,595)
Net income available to
RenaissanceRe common
shareholders
Net income available to
RenaissanceRe common
shareholders per common share –
basic
Net income available to
RenaissanceRe common
shareholders per common share –
diluted
$ 127,995
$ 167,843
$136,325
$ 73,233
$ 146,825
$ 75,529
$ 69,436
$ 92,206
$
2.97
$
4.18
$
3.23
$
1.60
$
3.58
$
1.68
$
1.70
$
2.11
$
2.95
$
4.14
$
3.22
$
1.59
$
3.56
$
1.66
$
1.69
$
2.09
Average shares outstanding – basic
Average shares outstanding – diluted
42,577
42,912
39,631
40,021
41,693
41,885
45,303
45,657
40,513
40,733
44,564
44,913
40,474
40,707
43,131
43,513
NOTE 22. CONDENSED CONSOLIDATING FINANCIAL INFORMATION PROVIDED IN CONNECTION
WITH OUTSTANDING DEBT OF SUBSIDIARIES
The following tables present condensed consolidating balance sheets at December 31, 2016 and 2015,
condensed consolidating statements of operations, condensed consolidating statements of comprehensive
income and condensed consolidating statements of cash flows for the three months and year ended
December 31, 2016, 2015 and 2014, respectively. Each of RRNAH, Platinum Finance and RenaissanceRe
Finance is a 100% owned subsidiary of RenaissanceRe. For additional information related to the terms of
the Company’s outstanding debt securities, see “Note 9. Debt and Credit Facilities”.
F-88
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
Platinum
Underwriters
Finance, Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
Condensed
Consolidating
Balance Sheet at
December 31, 2016
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Assets
Total investments
$
387,274
$
119,163
$
267,556
$
45,027
$
8,497,948
$
— $
9,316,968
Cash and cash
equivalents
Investments in
subsidiaries
Due from
subsidiaries and
affiliates
Premiums receivable
Prepaid reinsurance
premiums
Reinsurance
recoverable
Accrued investment
income
Deferred acquisition
costs
Receivable for
investments sold
Other assets
Goodwill and other
intangible assets
7,067
162
6,671
9,397
397,860
—
421,157
4,074,769
34,761
843,089
1,165,413
7,413
91,892
—
—
—
105
—
136
—
—
—
289
—
2
—
—
—
—
551
—
99
—
—
—
—
106
—
45
410,757
37,204
4,689
127,572
—
—
987,323
441,260
279,564
37,025
335,325
105,559
118,098
(6,118,032)
(99,305)
—
—
—
—
—
—
(522,938)
—
—
987,323
441,260
279,564
38,076
335,325
105,841
175,382
130,407
—
—
—
120,779
—
251,186
Total assets
$
5,017,928
$
283,473
$
1,122,655
$
1,347,560
$
11,320,741
$
(6,740,275) $
12,352,082
Liabilities,
Noncontrolling
Interests and
Shareholders’
Equity
Liabilities
Reserve for claims
and claim
expenses
$
Unearned premiums
Debt
Amounts due to
subsidiaries and
affiliates
Reinsurance
balances payable
Payable for
investments
purchased
Other liabilities
Total liabilities
Redeemable
noncontrolling
interests
Shareholders’
Equity
Total
shareholders’
equity
Total liabilities,
noncontrolling
interests and
shareholders’
equity
— $
—
117,000
14,644
—
—
— $
—
—
42
—
—
19,707
151,351
10,544
10,586
— $
—
255,352
— $
2,848,294
$
— $
2,848,294
—
545,889
1,231,573
147,422
—
(117,000)
1,231,573
948,663
123
96,061
—
(110,870)
—
—
—
—
255,475
—
—
13,350
655,300
673,983
305,714
270,610
5,477,596
—
—
(12,527)
(240,397)
673,983
305,714
301,684
6,309,911
—
—
—
—
1,175,594
—
1,175,594
4,866,577
272,887
867,180
692,260
4,667,551
(6,499,878)
4,866,577
$
5,017,928
$
283,473
$
1,122,655
$
1,347,560
$
11,320,741
$
(6,740,275) $
12,352,082
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-89
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
Platinum
Underwriters
Finance, Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
Condensed
Consolidating
Balance Sheet at
December 31, 2015
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Assets
Total investments
$
349,892
$
127,087
$
205,777
$
— $
8,316,312
$
— $
8,999,068
Cash and cash
equivalents
Investments in
subsidiaries
Due from
subsidiaries and
affiliates
Premiums receivable
Prepaid reinsurance
premiums
Reinsurance
recoverable
Accrued investment
income
Deferred acquisition
costs
Receivable for
investments sold
Other assets
Goodwill and other
intangible assets
10,185
5,908
7,103
677
483,012
—
506,885
3,902,519
48,754
867,909
1,185,736
81,282
69,739
—
—
—
—
—
—
1,253
169
—
26
—
1
390,302
29,532
—
—
—
—
348
—
68,537
12,852
—
—
—
—
—
—
—
115,456
—
—
778,009
230,671
134,526
37,979
199,380
152,270
124,215
(6,004,918)
(151,021)
—
—
—
—
—
—
(491,346)
—
—
778,009
230,671
134,526
39,749
199,380
220,834
181,011
137,064
—
—
—
128,090
—
265,154
Total assets
$
4,872,523
$
281,190
$
1,162,526
$
1,301,869
$
10,584,464
$
(6,647,285) $
11,555,287
Liabilities,
Redeemable
Noncontrolling
Interest and
Shareholders’
Equity
Liabilities
Reserve for claims
and claim
expenses
$
Unearned premiums
Debt
Amounts due to
subsidiaries and
affiliates
Reinsurance
balances payable
Payable for
investments
purchased
Other liabilities
Total liabilities
Redeemable
noncontrolling
interests
Shareholders’
Equity
Total
shareholders’
equity
Total liabilities,
redeemable
noncontrolling
interest and
shareholders’
equity
— $
—
117,000
— $
—
—
— $
—
268,196
— $
2,767,045
$
— $
2,767,045
—
545,187
889,102
147,112
—
(117,000)
889,102
960,495
2,641
202
—
999
19,699
140,339
—
6
1,148
1,356
204
—
25
6,620
275,045
68,204
—
(71,251)
—
—
—
—
523,974
390,348
222,320
—
—
(4,642)
523,974
391,378
245,145
613,391
4,939,901
(192,893)
5,777,139
—
—
—
—
1,045,964
—
1,045,964
4,732,184
279,834
887,481
688,478
4,598,599
(6,454,392)
4,732,184
$
4,872,523
$
281,190
$
1,162,526
$
1,301,869
$
10,584,464
$
(6,647,285) $
11,555,287
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-90
Condensed
Consolidating
Statement of
Operations for
the year ended
December 31, 2016
Revenues
Net premiums
earned
Net investment
income
Net foreign
exchange
losses
Equity in earnings
of other
ventures
Other (loss)
income
Net realized and
unrealized gains
on investments
Total revenues
Expenses
Net claims and
claim expenses
incurred
Acquisition
expenses
Operational
expenses
Corporate
expenses
Interest expense
Total expenses
(Loss) income before
equity in net
income of
subsidiaries and
taxes
Equity in net income
of subsidiaries
Income (loss) before
taxes
Income tax
(expense) benefit
Net income
Net income
attributable to
redeemable
noncontrolling
interests
Net income
attributable to
RenaissanceRe
Dividends on
preference shares
Net income
attributable to
RenaissanceRe
common
shareholders
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Platinum
Underwriters
Finance, Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
$
— $
— $
— $
— $
1,403,430
$
— $
1,403,430
24,178
1,852
3,989
569
175,407
(24,269)
181,726
(2)
—
(772)
—
—
—
—
—
—
4,151
27,555
4,659
6,511
8,193
12,182
—
—
—
—
13,716
(112)
26,848
562
41,126
203
—
91
—
—
296
—
5,906
6,202
—
—
—
46
615
—
—
22,152
7
26,176
48,335
(13,786)
963
14,950
124,279
1,705,243
530,831
289,323
—
—
—
—
(24,269)
(13,788)
963
14,178
141,328
1,727,837
—
—
530,831
289,323
176,041
(14,344)
197,749
10,344
10,062
—
(562)
37,402
42,144
1,016,601
(14,906)
1,097,449
(13,571)
6,420
5,980
(47,720)
688,642
(9,363)
630,388
516,533
3,857
25,073
38,628
—
(584,091)
—
502,962
10,277
31,053
(9,092)
688,642
(593,454)
630,388
—
502,962
(2,275)
8,002
(1,462)
29,591
11,014
1,922
(7,617)
681,025
—
(593,454)
(340)
630,048
—
—
—
—
(127,086)
—
(127,086)
502,962
8,002
29,591
1,922
553,939
(593,454)
502,962
(22,381)
—
—
—
—
—
(22,381)
$
480,581
$
8,002
$
29,591
$
1,922
$
553,939
$
(593,454) $
480,581
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor, Subsidiary Guarantor and Subsidiary Issuer consolidating adjustments.
F-91
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Platinum
Underwriters
Finance, Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
Condensed
Consolidating
Statement of
Comprehensive
Income for year
ended December
31, 2016
Comprehensive
income
Net income
$
502,962
$
8,002
$
29,591
$
1,922
$
681,025
$
(593,454) $
630,048
Change in net
unrealized
gains on
investments
Comprehensive
income
Net income
attributable to
redeemable
noncontrolling
interests
Comprehensive
income
attributable to
redeemable
noncontrolling
interests
Comprehensive
income
attributable to
RenaissanceRe
—
—
—
—
(975)
—
(975)
502,962
8,002
29,591
1,922
680,050
(593,454)
629,073
—
—
—
—
—
—
—
(127,086)
—
(127,086)
—
(127,086)
—
(127,086)
$
502,962
$
8,002
$
29,591
$
1,922
$
552,964
$
(593,454) $
501,987
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor, Subsidiary Guarantor and Subsidiary Issuer consolidating adjustments.
F-92
Condensed
Consolidating
Statement of
Operations for
the year ended
December 31, 2015
Revenues
Net premiums
earned
Net investment
income
Net foreign
exchange gains
(losses)
Equity in earnings
of other
ventures
Other income
Net realized and
unrealized
(losses) gains
on investments
Total revenues
Expenses
Net claims and
claim expenses
incurred
Acquisition
expenses
Operational
expenses
Corporate
expenses
Interest expense
Total expenses
(Loss) income before
equity in net
income of
subsidiaries and
taxes
Equity in net income
of subsidiaries
Income (loss) before
taxes
Income tax benefit
Net income
Net income
attributable to
redeemable
noncontrolling
interests
Net income
attributable to
RenaissanceRe
Dividends on
preference shares
Net income
available to
RenaissanceRe
common
shareholders
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Platinum
Underwriters
Finance, Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
$
— $
— $
— $
— $
1,400,551
$
— $
1,400,551
15,391
1,251
4,063
996
144,642
(13,776)
152,567
—
—
—
—
996
—
—
4
—
663
—
—
—
—
—
—
(2,080)
13,978
566
1,817
(2,600)
1,463
—
—
—
—
4,249
4,561
40,808
1,255
46,312
312
7,233
12,106
—
—
3
3
4,922
4,928
(3,055)
20,481
13,472
—
—
(663)
(3,051)
20,481
13,472
(64,804)
—
(68,918)
1,511,287
(14,439)
1,515,102
448,238
238,592
2,503
207,802
—
16,179
18,682
35,391
7,677
937,700
—
—
(6)
—
(996)
(1,002)
448,238
238,592
219,112
76,514
36,270
1,018,726
(32,334)
(10,289)
(3,465)
(17,686)
573,587
(13,437)
496,376
463,526
5,493
35,329
431,192
—
431,192
(4,796)
32,005
27,209
31,864
1,985
33,849
72,925
55,239
6,190
61,429
—
(577,273)
—
573,587
5,686
579,273
(590,710)
—
(590,710)
496,376
45,866
542,242
—
—
—
—
(111,050)
—
(111,050)
431,192
27,209
33,849
61,429
468,223
(590,710)
431,192
(22,381)
—
—
—
—
—
(22,381)
$
408,811
$
27,209
$
33,849
$
61,429
$
468,223
$
(590,710) $
408,811
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-93
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Platinum
Underwriters
Finance, Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
Condensed
Consolidating
Statement of
Comprehensive
Income for the year
ended December
31, 2015
Comprehensive
income
Net income
$
431,192
$
27,209
$
33,849
$
61,429
$
579,273
$
(590,710) $
542,242
Change in net
unrealized
gains on
investments
Comprehensive
income
Net income
attributable to
redeemable
noncontrolling
interests
Comprehensive
income
attributable to
redeemable
noncontrolling
interests
Comprehensive
income available
to RenaissanceRe $
—
—
—
—
(1,308)
—
(1,308)
431,192
27,209
33,849
61,429
577,965
(590,710)
540,934
—
—
—
—
—
—
—
(111,050)
—
(111,050)
—
(111,050)
—
(111,050)
431,192
$
27,209
$
33,849
$
61,429
$
466,915
$
(590,710) $
429,884
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-94
Condensed Consolidating Statement of
Operations
for the year ended December 31, 2014
Revenues
Net premiums earned
Net investment income
Net foreign exchange (losses) gains
Equity in earnings of other ventures
Other loss
Net realized and unrealized gains on
investments
Total revenues
Expenses
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Corporate expenses
Interest expense
Total expenses
(Loss) income before equity in net earnings
of subsidiaries and taxes
Equity in net earnings of subsidiaries
Income (loss) before taxes
Income tax benefit (expense)
Net income (loss)
Net income attributable to redeemable
noncontrolling interests
Net income (loss) attributable to
RenaissanceRe
Dividends on preference shares
Net income (loss) available
(attributable) to RenaissanceRe
common shareholders
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
RenRe North
America
Holdings Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
$
— $
— $
1,062,416
$
— $
1,062,416
2,706
(13)
—
—
83
2,776
—
—
(4,890)
20,787
—
15,897
(13,121)
545,839
532,718
—
532,718
—
532,718
(22,381)
1,765
—
—
(7)
9,069
10,827
—
—
7,004
238
14,467
21,709
(10,882)
6,491
(4,391)
4,064
(327)
—
(327)
—
123,582
6,273
26,075
(416)
32,281
1,250,211
197,947
144,476
188,857
1,724
2,935
535,939
714,272
—
714,272
(4,672)
709,600
(3,737)
—
—
—
—
(3,737)
—
—
(332)
—
—
(332)
(3,405)
(552,330)
(555,735)
—
(555,735)
124,316
6,260
26,075
(423)
41,433
1,260,077
197,947
144,476
190,639
22,749
17,402
573,213
686,864
—
686,864
(608)
686,256
(153,538)
—
(153,538)
556,062
(555,735)
—
—
532,718
(22,381)
$
510,337
$
(327) $
556,062
$
(555,735) $
510,337
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
Condensed Consolidating Statement of
Comprehensive Income (Loss) for the
year ended December 31, 2014
Comprehensive income (loss)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
RenRe North
America
Holdings Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
Net income (loss)
$
532,718
$
(327) $
709,600
$
(555,735) $
686,256
Change in net unrealized gains on
investments
Comprehensive income (loss)
Net income attributable to redeemable
noncontrolling interests
Comprehensive income attributable to
redeemable noncontrolling interests
Comprehensive income (loss) attributable to
RenaissanceRe
—
532,718
—
—
—
(327)
—
—
(715)
708,885
(153,538)
(153,538)
—
(555,735)
—
—
(715)
685,541
(153,538)
(153,538)
$
532,718
$
(327) $
555,347
$
(555,735) $
532,003
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-95
Condensed Consolidating Statement
of Cash Flows for the year ended
December 31, 2016
Cash flows (used in) provided by
operating activities
Net cash (used in) provided by
operating activities
Cash flows provided by (used in)
investing activities
Proceeds from sales and maturities of
fixed maturity investments trading
Purchases of fixed maturity
investments trading
Proceeds from sales and maturities of
fixed maturity investments
available for sale
Net (purchases) sales of equity
investments trading
Net (purchases) sales of short term
investments
Net purchases of other investments
Net sales of other assets
Dividends and return of capital from
subsidiaries
Contributions to subsidiaries
Due to (from) subsidiary
Net cash provided by (used in)
investing activities
Cash flows used in financing
activities
Dividends paid – RenaissanceRe
common shares
Dividends paid – preference shares
RenaissanceRe common share
repurchases
Net third party redeemable
noncontrolling interest share
transactions
Net cash used in financing
activities
Effect of exchange rate changes on
foreign currency cash
Net (decrease) increase in cash and
cash equivalents
Cash and cash equivalents,
beginning of period
Cash and cash equivalents, end of
period
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Platinum
Underwriters
Finance, Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
RenaissanceRe
Consolidated
$
(18,452) $
1,477
$
(14,501) $
(34,607) $
535,912
$
469,829
314,568
69,941
145,082
(336,345)
(123,046)
(291,053)
—
—
—
—
(2,389)
193,022
(111,814)
67,684
(32,901)
—
—
617,239
(108,674)
—
—
2,900
—
—
—
—
—
23,758
(22,313)
(81)
—
—
—
—
—
—
—
13,125
—
30,202
7,572,923
8,102,514
(7,532,276)
(8,282,720)
17,692
17,692
(5,845)
184,788
(41,586)
(68,589)
400
(633,264)
108,674
(31,566)
(118,617)
(68,589)
400
—
—
—
398,732
(7,223)
14,069
43,327
(613,437)
(164,532)
(51,583)
(22,381)
(309,434)
—
(383,398)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(51,583)
(22,381)
(309,434)
(2,990)
(2,990)
(2,990)
(386,388)
(4,637)
(4,637)
(3,118)
(5,746)
(432)
10,185
5,908
7,103
8,720
677
(85,152)
(85,728)
483,012
506,885
$
7,067
$
162
$
6,671
$
9,397
$
397,860
$
421,157
(1)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
F-96
Condensed Consolidating Statement
of Cash Flows for the year ended
December 31, 2015
Cash flows (used in) provided by
operating activities
Net cash (used in) provided by
operating activities
Cash flows provided by (used in)
investing activities
Proceeds from sales and maturities of
fixed maturity investments trading
Purchases of fixed maturity
investments trading
Proceeds from sales and maturities of
fixed maturity investments
available for sale
Net sales (purchases) of equity
investments trading
Net (purchases) sales of short term
investments
Net sales of other investments
Net purchases of investments in other
ventures
Net sales of other assets
Dividends and return of capital from
subsidiaries
Contributions to subsidiaries
Due to (from) subsidiaries
Net purchase of Platinum
Net cash provided by (used in)
investing activities
Cash flows (used in) provided by
financing activities
Dividends paid – RenaissanceRe
common shares
Dividends paid – preference shares
RenaissanceRe common share
repurchases
Net issuance of debt
Net third party redeemable
noncontrolling interest share
transactions
Effect of exchange rate changes on
foreign currency cash
Net increase (decrease) in cash and
cash equivalents
Cash and cash equivalents,
beginning of period
Cash and cash equivalents, end of
period
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Platinum
Underwriters
Finance, Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
RenaissanceRe
Consolidated
$
(39,213) $
(9,201) $
(6,830) $
(17,871) $
487,852
$
414,737
—
—
63,824
49,807
45,087
(161,183)
(59,040)
—
—
—
33,693
(269,244)
(116,461)
(63,305)
238,177
—
—
—
—
—
—
1,584,624
180,000
(294,733)
(8,550)
207,996
(118,529)
(904,433)
—
—
—
—
65,000
(66,753)
129
1,537
—
—
—
—
—
—
—
—
9,323,024
9,481,742
(9,462,845)
(9,683,068)
8,688
8,688
87,993
(147,558)
610,705
15,843
(10,150)
4,500
87,553
(1,917,177)
(185,000)
(183,405)
—
555,036
93,809
224,744
669,116
15,843
(10,150)
4,500
—
—
—
(678,152)
379,634
14,076
13,933
(280,852)
(465,830)
(339,039)
(53,967)
(22,381)
(259,874)
—
—
—
4,199
5,986
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,875
1,033
7,103
—
—
—
—
—
—
—
299,400
146,189
(53,967)
(22,381)
(259,874)
445,589
—
(193,032)
(193,032)
299,400
(46,843)
(83,665)
—
677
—
(10,732)
(10,732)
(35,553)
(18,699)
518,565
525,584
$
10,185
$
5,908
$
7,103
$
677
$
483,012
$
506,885
Net cash (used in) provided by
financing activities
(336,222)
(1) Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
F-97
Condensed Consolidating Statement of Cash Flows
for the year ended December 31, 2014
Cash flows provided by (used in) operating activities
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
RenRe North
America
Holdings Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
RenaissanceRe
Consolidated
Net cash provided by (used in) operating activities
$
429
$
(18,114) $
678,342
$
660,657
Cash flows provided by (used in) investing activities
Proceeds from sales and maturities of fixed maturity
investments trading
Purchases of fixed maturity investments trading
Proceeds from sales and maturities of fixed maturity
investments available for sale
Net sales (purchases) of equity investments trading
Net sales (purchases) of short term investments
Net sales of other investments
Net sales of investments in other ventures
Net sales of other assets
Dividends and return of capital from subsidiaries
Contributions to subsidiaries
Due to (from) subsidiary
Net cash provided by (used in) investing activities
Cash flows used in financing activities
Dividends paid – RenaissanceRe common shares
Dividends paid – preference shares
RenaissanceRe common share repurchases
Net third party redeemable noncontrolling interest share
transactions
Net cash used in financing activities
Effect of exchange rate changes on foreign currency cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
88,273
(88,341)
—
—
73,717
—
—
—
1,259,224
(759,456)
6,315
579,732
(45,912)
(22,381)
(514,678)
—
(582,971)
—
(2,810)
8,796
20,487
(14,969)
—
13,761
225
—
—
—
11,204
(1,949)
(13,639)
15,120
—
—
—
—
—
—
(2,994)
4,027
7,573,813
(7,535,868)
7,682,573
(7,639,178)
7,088
(33,764)
(28,919)
59,120
1,030
6,000
(1,270,428)
761,405
7,324
(453,199)
—
—
—
(111,707)
(111,707)
9,920
123,356
395,209
7,088
(20,003)
45,023
59,120
1,030
6,000
—
—
—
141,653
(45,912)
(22,381)
(514,678)
(111,707)
(694,678)
9,920
117,552
408,032
525,584
Cash and cash equivalents, end of year
$
5,986
$
1,033
$
518,565
$
(1)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
F-98
NOTE 23. SUBSEQUENT EVENTS
During January 2017, DaVinciRe redeemed $75.0 million of its outstanding shares from certain existing
DaVinciRe shareholders, including RenaissanceRe. In connection with the redemption, DaVinciRe retained
a $15.0 million holdback. In addition, RenaissanceRe sold an aggregate of $24.0 million of its shares in
DaVinciRe to an existing shareholder and a new shareholder. The Company’s noncontrolling economic
ownership in DaVinciRe subsequent to these transactions was 22.6%, effective January 1, 2017.
During January 2017, Upsilon RFO returned $41.8 million of capital to its investors, including $9.5 million to
the Company. In addition, $134.1 million of Upsilon RFO non-voting preference shares were issued to
existing investors, including $9.5 million to the Company. During February 2017, an existing third party
investor purchased $7.5 million of Upsilon RFO non-voting preference shares from the Company. Effective
February 1, 2017, the Company’s participation in the risks assumed by Upsilon RFO was 16.6%.
Effective with the risk period incepting on January 1, 2017, Fibonacci Re raised $140.0 million of capital
from third party investors and the Company, via participating notes which are listed on the Bermuda Stock
Exchange. Effective February 1, 2017, the Company’s net retained economic ownership interest in
Fibonacci Re was 7.2%.
Subsequent to December 31, 2016 and through the period ended February 17, 2017, third-party investors
subscribed for and redeemed an aggregate of $25.9 million and $1.5 million, respectively, of the
participating, non-voting common shares of Medici. In addition, the Company subscribed for and redeemed
an aggregate of $10.2 million and $10.0 million, respectively, of the participating, non-voting common
shares of Medici. As a result of these net subscriptions, the Company’s noncontrolling economic ownership
in Medici was 33.7%, effective February 1, 2017.
Subsequent to December 31, 2016 and through the period ended February 17, 2017, the Company
repurchased 281 thousand common shares in open market transactions at an aggregate cost of $40.0
million and at an average share price of $142.40.
On February 22, 2017, RenaissanceRe’s Board of Directors approved an increase in the authorized share
repurchase program to an aggregate amount of $500.0 million. Unless terminated earlier by resolution of
RenaissanceRe’s Board of Directors, the program will expire when the Company has repurchased the full
value of the shares authorized.
F-99
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
INDEX TO SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm on Schedules . . . . . . . . . . . . . . . . . . . .
I . Summary of Investments other than Investments in Related Parties . . . . . . . . . . . . . . . . . . . .
II . Condensed Financial Information of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
III Supplementary Insurance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV Supplemental Schedule of Reinsurance Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VI Supplementary Insurance Information Concerning Property-Casualty Insurance Operations. .
Schedules other than those listed above are omitted for the reason that they are not applicable.
Page
S-2
S-3
S-4
S-7
S-8
S-8
S-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RENAISSANCERE HOLDINGS LTD.
We have audited the consolidated financial statements of RenaissanceRe Holdings Ltd. as of
December 31, 2016 and 2015, and for each of the three years in the period ended December 31, 2016, and
have issued our report thereon dated February 22, 2017 (included elsewhere in this Annual Report on Form
10-K). Our audits also included the financial statement schedules listed in Item 15(a)(2) of this Annual
Report on Form 10-K for the year ended December 31, 2016. These schedules are the responsibility of the
Company’s management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Ernst & Young Ltd.
Hamilton, Bermuda
February 22, 2017
S-2
SCHEDULE I
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(THOUSANDS OF UNITED STATES DOLLARS)
December 31, 2016
Amortized
Cost or Cost
Fair Value
Amount at
which shown
in the
Balance Sheet
91,905
524,559
342,108
137,024
1,868,125
471,235
252,829
409,682
187,941
$ 6,920,690
$ 2,635,282 $ 2,617,894 $ 2,617,894
90,972
519,069
333,224
133,300
1,877,243
462,493
258,944
409,747
188,358
6,891,244
1,368,379
383,313
549,805
124,227
$ 9,316,968 $ 9,316,968
90,972
519,069
333,224
133,300
1,877,243
462,493
258,944
409,747
188,358
6,891,244
1,368,379
383,313
549,805
124,227
Type of investment:
Fixed maturity investments
U.S. treasuries
Agencies
Municipal
Non-U.S. government (Sovereign debt)
Non-U.S. government-backed corporate
Corporate
Agency mortgage-backed
Non-agency mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity investments
Short term investments
Equity investments
Other investments
Investments in other ventures, under equity method
Total investments
S-3
SCHEDULE II
RENAISSANCERE HOLDINGS LTD.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENAISSANCERE HOLDINGS LTD.
BALANCE SHEETS
AT DECEMBER 31, 2016 AND 2015
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS)
At December 31,
2016
2015
$
22,119 $
96,441
365,155
7,067
253,451
10,185
4,074,769
3,902,519
7,413
—
105
136
410,757
130,407
19,168
62,114
1,253
26
390,302
137,064
$ 5,017,928 $ 4,872,523
$
117,000 $
117,000
14,644
—
19,707
151,351
2,641
999
19,699
140,339
400,000
400,000
41,187
216,558
1,133
43,701
507,674
2,108
4,207,699
3,778,701
4,866,577
4,732,184
$ 5,017,928 $ 4,872,523
Assets
Fixed maturity investments trading, at fair value - amortized cost $22,402 at
December 31, 2016 (2015 - $96,957)
Short term investments, at fair value
Cash and cash equivalents
Investments in subsidiaries
Due from subsidiaries
Dividends due from subsidiaries
Accrued investment income
Receivable for investments sold
Other assets
Goodwill and other intangible assets
Total assets
Liabilities and Shareholders’ Equity
Liabilities
Notes and bank loans payable
Due to subsidiaries
Payable for investments purchased
Other liabilities
Total liabilities
Shareholders’ Equity
Preference shares: $1.00 par value – 16,000,000 shares issued and
outstanding at December 31, 2016 (2015 – 16,000,000)
Common shares: $1.00 par value – 41,187,413 shares issued and
outstanding at December 31, 2016 (2015 – 43,701,064)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
S-4
RENAISSANCERE HOLDINGS LTD.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT – CONTINUED
SCHEDULE II
RENAISSANCERE HOLDINGS LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS)
Revenues
Net investment income
Net foreign exchange (losses) gains
Other (loss) income
Net realized and unrealized gains (losses) on investments
Total revenues
Expenses
Interest expense
Operational expenses
Corporate expenses
Total expenses
Loss before equity in net income of subsidiaries
Equity in net income of subsidiaries
Net income
Dividends on preference shares
Year ended December 31,
2016
2015
2014
$
24,178 $
15,391 $
2,706
(2)
(772)
4,151
27,555
562
13,716
26,848
41,126
(13,571)
516,533
502,962
(22,381)
4
663
(2,080)
13,978
1,255
4,249
40,808
46,312
(32,334)
463,526
431,192
(22,381)
(13)
—
83
2,776
—
(4,890)
20,787
15,897
(13,121)
545,839
532,718
(22,381)
Net income available to RenaissanceRe common
shareholders
$
480,581 $
408,811 $
510,337
RENAISSANCERE HOLDINGS LTD.
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS)
Comprehensive income
Net income
Comprehensive income attributable to RenaissanceRe
$
$
502,962 $
431,192 $
532,718
502,962 $
431,192 $
532,718
Year ended December 31,
2016
2015
2014
S-5
RENAISSANCERE HOLDINGS LTD.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT – CONTINUED
SCHEDULE II
RENAISSANCERE HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS)
Cash flows used in operating activities:
Net income
Less: equity in net income of subsidiaries
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
Net realized and unrealized (gains) losses on investments
Other
Net cash (used in) provided by operating activities
Cash flows provided by investing activities:
Proceeds from maturities and sales of fixed maturity investments
trading
Purchases of fixed maturity investments trading
Net (purchases) sales of short term investments
Dividends and return of capital from subsidiaries
Contributions to subsidiaries
Due to (from) subsidiary
Net purchase of Platinum
Net cash provided by investing activities
Cash flows used in financing activities:
Dividends paid – RenaissanceRe common shares
Dividends paid – preference shares
RenaissanceRe common share repurchases
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Year ended December 31,
2016
2015
2014
$
502,962
$
431,192
$
532,718
(516,533)
(463,526)
(545,839)
(13,571)
(32,334)
(13,121)
(4,151)
(730)
2,080
(8,959)
(18,452)
(39,213)
314,568
(336,345)
(111,814)
63,824
(161,183)
(116,461)
(83)
13,633
429
88,273
(88,341)
73,717
617,239
1,584,624
1,259,224
(108,674)
(294,733)
(759,456)
23,758
—
398,732
(51,583)
(22,381)
(309,434)
(383,398)
(3,118)
10,185
207,996
(904,433)
379,634
(53,967)
(22,381)
(259,874)
(336,222)
4,199
5,986
$
7,067
$
10,185
$
6,315
—
579,732
(45,912)
(22,381)
(514,678)
(582,971)
(2,810)
8,796
5,986
S-6
SCHEDULE III
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(THOUSANDS OF UNITED STATES DOLLARS)
December 31, 2016
Year ended December 31, 2016
Future
Policy
Benefits,
Losses,
Claims
and
Loss
Expenses
Deferred
Policy
Acquisition
Costs
Unearned
Premiums
Premium
Revenue
Net
Investment
Income
Benefits,
Claims,
Losses
and
Settlement
Expenses
Amortization
of Deferred
Policy
Acquisition
Costs
Other
Operating
Expenses
Net
Written
Premiums
Property
$
46,938
$ 627,774
$ 289,080
$ 720,951
$
— $
151,545
$
97,594
$ 108,642
$ 725,321
Casualty and
Specialty
Other
Total
288,387
2,195,126
942,493
682,337
—
380,396
191,729
88,984
809,848
—
25,394
—
142
181,726
(1,110)
—
123
143
$
335,325
$2,848,294
$1,231,573
$1,403,430
$
181,726
$
530,831
$
289,323
$ 197,749
$1,535,312
December 31, 2015
Year ended December 31, 2015
Future
Policy
Benefits,
Losses,
Claims
and
Loss
Expenses
Deferred
Policy
Acquisition
Costs
Unearned
Premiums
Premium
Revenue
Net
Investment
Income
Benefits,
Claims,
Losses
and
Settlement
Expenses
Amortization
of Deferred
Policy
Acquisition
Costs
Other
Operating
Expenses
Net
Written
Premiums
Property
$
39,763
$ 706,199
$ 272,050
$ 805,985
$
— $
128,290
$
94,249
$ 118,666
$ 726,145
Casualty and
Specialty
Other
Total
159,617
2,033,168
617,052
594,614
—
320,818
144,095
100,180
690,086
—
27,678
—
(48)
152,567
(870)
248
266
(48)
$
199,380
$2,767,045
$ 889,102
$1,400,551
$
152,567
$
448,238
$
238,592
$ 219,112
$1,416,183
December 31, 2014
Year ended December 31, 2014
Future
Policy
Benefits,
Losses,
Claims
and
Loss
Expenses
Deferred
Policy
Acquisition
Costs
Unearned
Premiums
Premium
Revenue
Net
Investment
Income
Benefits,
Claims,
Losses
and
Settlement
Expenses
Amortization
of Deferred
Policy
Acquisition
Costs
Other
Operating
Expenses
Net
Written
Premiums
Property
$
41,161
$ 634,725
$ 280,238
$ 698,416
$
— $
16,643
$
66,262
$ 117,943
$ 662,552
Casualty and
Specialty
Other
Total
68,898
736,099
232,148
363,632
—
187,441
—
41,686
—
368
124,316
(6,137)
84,762
(6,548)
72,393
405,340
303
344
$
110,059
$1,412,510
$ 512,386
$1,062,416
$
124,316
$
197,947
$
144,476
$ 190,639
$1,068,236
S-7
SCHEDULE IV
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF REINSURANCE PREMIUMS
(THOUSANDS OF UNITED STATES DOLLARS)
Year ended December 31, 2016
Property and liability premiums
earned
Year ended December 31, 2015
Property and liability premiums
earned
Year ended December 31, 2014
Property and liability premiums
earned
Gross
Amounts
Ceded to
Other
Companies
Assumed
From Other
Companies
Net Amount
Percentage
of Amount
Assumed
to Net
$ 157,112 $ 628,675 $ 1,874,993 $1,403,430
134%
$
98,182 $ 466,719 $ 1,769,088 $1,400,551
126%
$
66,027 $ 453,658 $ 1,450,047 $1,062,416
136%
SCHEDULE VI
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
(THOUSANDS OF UNITED STATES DOLLARS)
Deferred
Policy
Acquisition
Costs
Reserves for
Unpaid
Claims
and Claim
Adjustment
Expenses
Discount, if
any,
Deducted
Unearned
Premiums
Earned
Premiums
Net
Investment
Income
Affiliation with Registrant
Consolidated Subsidiaries
Year ended December 31, 2016
$ 335,325
$ 2,848,294
Year ended December 31, 2015
$ 199,380
$ 2,767,045
Year ended December 31, 2014
$ 110,059
$ 1,412,510
$
$
$
— $1,231,573
$1,403,430
$ 181,726
— $ 889,102
$1,400,551
$ 152,567
— $ 512,386
$1,062,416
$ 124,316
Affiliation with Registrant
Consolidated Subsidiaries
Claims and Claim
Adjustment Expenses
Incurred Related to
Current
Year
Prior Year
Amortization
of Deferred
Policy
Acquisition
Costs
Paid
Claims
and Claim
Adjustment
Expenses
Net
Premiums
Written
Year ended December 31, 2016
$ 694,957
$ (164,126) $
289,323
$ 589,294
$1,535,312
Year ended December 31, 2015
$ 610,685
$ (162,447) $
238,592
$ 521,312
$1,416,183
Year ended December 31, 2014
$ 341,745
$ (143,798) $
144,476
$ 281,116
$1,068,236
S-8
Exhibit
Number Description
EXHIBIT INDEX
2.1
3.1
3.2
3.3
3.4
4.1
4.2
Agreement and Plan of Merger, dated as of November 23, 2014, by and among RenaissanceRe
Holdings Ltd., Port Holdings Ltd. and Platinum Underwriters Holdings, Ltd., including the exhibits
thereto. (23)
Memorandum of Association. (1)
Amended and Restated Bye-Laws. (2)
Memorandum of Increase in Share Capital of RenaissanceRe Holdings Ltd. (3)
Specimen Common Share certificate. (1)
Certificate of Designation, Preferences and Rights of 6.08% Series C Preference Shares. (4)
Certificate of Designation, Preferences and Rights of 5.375% Series E Preference Shares. (5)
4.2(a)
Form of Stock Certificate Evidencing the 5.375% Series E Preference Shares. (5)
4.3
4.3(a)
4.3(b)
Senior Indenture, dated as of March 17, 2010, among RenRe North America Holdings Inc., as
issuer, RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust Companies
America, as trustee. (6)
First Supplemental Indenture, dated as of March 17, 2010, among RenRe North America
Holdings Inc., as issuer, RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust
Companies America, as trustee. (6)
Senior Debt Securities Guarantee Agreement, dated as of March 17, 2010, between
RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust Companies America, as
guarantee trustee. (6)
4.3(c) Waiver Agreement, dated as of January 21, 2011, by and among RenRe North America
4.3(d)
4.4
4.4(a)
4.4(b)
4.4(c)
4.4(d)
4.4(e)
4.5
Holdings Inc., RenaissanceRe Holdings Ltd. and Deutsche Bank Trust Company Americas, as
trustee. (7)
Second Supplemental Indenture, dated as of July 3, 2015, among RenRe North America
Holdings, Inc., as issuer, RenaissanceRe Holdings Ltd., as guarantor, RenaissanceRe Finance
Inc., as co-obligor, and Deutsche Bank Trust Companies America, as trustee. (29)
Indenture, dated as of May 26, 2005, among Platinum Underwriters Finance, Inc., as issuer,
Platinum Underwriters Holdings, Ltd., as guarantor, and JPMorgan Chase Bank, N.A., as trustee.
(32)
Second Supplemental Indenture, dated as of November 2, 2005, among Platinum Underwriters
Finance, Inc., as issuer, Platinum Underwriters Holdings, Ltd., as guarantor, and JPMorgan
Chase Bank, N.A., as trustee. (33)
Third Supplemental Indenture, dated as of March 3, 2015, among Platinum Underwriters Finance,
Inc., as issuer, Platinum Underwriters Holdings, Ltd., as guarantor, RenaissanceRe Holdings Ltd.,
as parent guarantor, and The Bank of New York Mellon Trust Company (as successor in interest
to JPMorgan Chase Bank, N.A.), as trustee. (26)
Fourth Supplemental Indenture, dated as of July 1, 2015, among Platinum Underwriters Finance,
Inc., as issuer, Platinum Underwriters Holdings, Ltd., as guarantor, RenaissanceRe Holdings Ltd.,
as parent guarantor, and The Bank of New York Mellon Trust Company (as successor in interest
to JPMorgan Chase Bank, N.A.), as trustee. (29)
Guarantee, dated as of March 3, 2015, executed by RenaissanceRe for the benefit of the holders
of Platinum Underwriters Finance, Inc.’s Series B 7.50% Notes due June 1, 2017. (26)
Exchange and Registration Rights Agreement, dated as of May 26, 2005, among Platinum
Underwriters Holdings, Ltd., Platinum Underwriters Finance, Inc. and Goldman, Sachs & Co. (32)
Senior Indenture, dated as of March 24, 2015, among RenaissanceRe Finance Inc., as issuer,
RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust Company Americas, as
trustee. (27)
i
4.5(a)
4.5(b)
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
First Supplemental Indenture, dated as of March 24, 2015, among RenaissanceRe Finance Inc.,
as issuer, RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust Company
Americas, as trustee. (27)
Senior Debt Securities Guarantee Agreement, dated as of March 24, 2015, between
RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust Company Americas, as
guarantee trustee. (27)
Further Amended and Restated Employment Agreement, dated as of July 22, 2016, by and
between RenaissanceRe Holdings Ltd. and Kevin J. O'Donnell. (39)
Legacy Form of Further Amended and Restated Employment Agreement for Named Executive
Officers (other than our Chief Executive Officer). (39)**
Form of Employment Agreement for Named Executive Officers (other than our Chief Executive
Officer). (39)***
Letter agreement, dated July 6, 2016, between Ian Branagan and RenaissanceRe Holdings Ltd.
regarding secondment to the U.K. (39)
Letter agreement, dated April 11, 2013, between Ian Branagan and RenaissanceRe Holdings Ltd.
regarding secondment to the U.K. (39)
Employment Agreement, dated as of October 23, 2013, by and between RenaissanceRe
Holdings Ltd. and Jeffrey D. Kelly. (11)
Separation, Consulting, and Release Agreement, dated as of July 22, 2016, by and between
RenaissanceRe Holdings Ltd. and Jeffrey D. Kelly. (39)
10.8*
RenaissanceRe Holdings Ltd. 2016 Long-Term Incentive Plan. (38)
10.8(a)* Form of Director Restricted Stock Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-
Term Incentive Plan. (39)
10.8(b)* Form of Restricted Stock Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-Term
Incentive Plan. (39)
10.8(c)* Form of Performance Share Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-Term
Incentive Plan (for awards made in 2016). (39)
10.8(d)* Form of Performance Share Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-Term
Incentive Plan.
10.9*
RenaissanceRe Holdings Ltd. 2016 Restricted Stock Unit Plan. (41)
10.9(a)* Form of Restricted Stock Unit Agreement pursuant to which restricted stock unit grants are made
under the RenaissanceRe Holdings Ltd. 2016 Restricted Stock Unit Plan. (41)
10.10* RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (15)
10.10(a)* Amendment No. 1 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (16)
10.10(b)* Amendment No. 2 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (16)
10.10(c)* Amendment No. 3 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (8)
10.10(d)* Amendment No. 4 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (13)
10.10(e)* Amendment No. 5 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (17)
10.10(f)* Amendment No. 6 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (11)
10.10(g)* UK Schedule to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (8)
10.10(h)* UK Sub-Plan to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (8)
10.10(i)* Form of Option Grant Notice and Agreement pursuant to which option grants were made under
the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (19)
10.10(j)* Form of Restricted Stock Grant Notice and Agreement pursuant to which restricted stock grants
were made under the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (19)
10.10(k)* Form of Performance-Based Restricted Stock Grant Notice and Agreement pursuant to which
performance-based restricted stock grants were made under the RenaissanceRe Holdings Ltd.
2001 Stock Incentive Plan. (36)
10.11* RenaissanceRe Holdings Ltd. 2010 Restricted Stock Unit Plan. (14)
ii
10.11(a)* Form of Restricted Stock Unit Agreement, pursuant to which restricted stock unit grants were
made under the RenaissanceRe Holdings Ltd. 2010 Restricted Stock Unit Plan. (14)
10.12* RenaissanceRe Holdings Ltd. 2010 Performance-Based Equity Incentive Plan. (13)
10.12(a)* Amendment No. 1 to the RenaissanceRe Holdings Ltd. 2010 Performance-Based Equity
Incentive Plan. (24)
10.12(b)* Form of Letter Agreement with the Named Executive Officers Regarding Performance Share
Awards. (18)
10.12(d)* Form of Performance-Based Restricted Stock Grant Notice and Agreement pursuant to which
performance-based restricted stock awards were made under the RenaissanceRe Holdings Ltd.
2010 Performance-Based Equity Incentive Plan. (24)
10.13*
Form of Tax Reimbursement Waiver Letter with the Named Executive Officers. (20)
10.14*
10.15*
10.16*
Form of Agreement Regarding Use of Aircraft Interest by and between RenaissanceRe Holdings
Ltd. and Certain Executive Officers of RenaissanceRe Holdings Ltd. (12)
Form of Director Retention Agreement, dated as of November 8, 2002, entered into by each of
the non-employee directors of RenaissanceRe Holdings Ltd. (21)
Form of Director Shares Grant Notice and Agreement pursuant to which restricted stock grants
were made to non-employee directors on March 1, 2016. (39)
10.17* Non-Employee Director Compensation Summary. (37)
10.18
Third Amended and Restated Credit Agreement, dated as of April 9, 2014, among Platinum
Underwriters Holdings, Ltd., Platinum Underwriters Bermuda, Ltd., Platinum Underwriters
Reinsurance, Inc., Platinum Underwriters Finance, Inc., the Lenders party thereto, ING Bank N.V.
and National Australian Bank Limited, as Documentation Agents, U.S. Bank National Association,
as Syndication Agent, and Wells Fargo Bank, National Association, as Administrative Agent. (34)
10.18(a) Consent and Amendment to Credit Agreement, dated as of March 2, 2015, by and among
Platinum Underwriters Holdings, Ltd., certain subsidiaries of Platinum Underwriters Holdings, Ltd.
party thereto, Wells Fargo Bank, National Association, as administrative agent, and the lenders
party thereto. (26)
10.18(b) Guaranty, dated as of March 2, 2015, entered into by RenaissanceRe Holdings Ltd. for the
benefit of Wells Fargo Bank, National Association, as administrative agent, and the other lenders
referred to therein. (26)
10.19
10.20
Credit Agreement, dated as of February 25, 2015, by and between RenaissanceRe Holdings Ltd.,
as borrower, and Barclays Bank PLC, as lender. (25)
Amendment and Restatement Agreement, dated July 2, 2013, relating to a Facility Agreement
dated July 31, 2012 for Platinum Underwriters Bermuda, Ltd. made between Platinum
Underwriters Holdings, Ltd., Platinum Underwriters Bermuda, Ltd., National Australia Bank
Limited and ING Bank N.V. (35)
10.20(a) Consent and Amendment to Facility Agreement, dated as of March 2, 2015, by and among
Platinum Underwriters Bermuda, Ltd., Platinum Underwriters Holdings, Ltd., National Australia
Bank Limited, as agent, security agent and a lender, and ING Bank, N.V., as a lender. (26)
10.20(b) Guaranty, dated as of March 2, 2015, entered into by RenaissanceRe Holdings Ltd. for the
benefit of National Australia Bank Limited, as agent, security agent and a lender, and ING Bank,
N.V., as a lender. (26)
10.21
Amended and Restated Credit Agreement, dated as of May 15, 2015, among RenaissanceRe
Holdings Ltd., as borrower, various financial institutions parties thereto, as lenders, Wells Fargo
Bank, National Association, as administrative agent for the lenders, Citibank, N.A., as syndication
agent, and Wells Fargo Securities, LLC and Citigroup Global Markets Inc., as joint lead arrangers
and joint lead bookrunners. (28)
10.21(a) Guaranty Agreement, dated as of May 15, 2015, by and among RenRe North America Holdings
Inc., RenaissanceRe Finance Inc., Platinum Underwriters Holdings, Ltd., Platinum Underwriters
Finance, Inc. and Wells Fargo Bank, National Association, as Administrative Agent. (28)
iii
10.22
Standby Letter of Credit Agreement, dated as of December 23, 2014, by and among Renaissance
Reinsurance Ltd., RenaissanceRe Specialty Risks Ltd., DaVinci Reinsurance Ltd.,
RenaissanceRe Holdings Ltd., as Guarantor, and Wells Fargo Bank, National Association. (22)
10.22(a) First Amendment to Standby Letter of Credit Agreement, dated as of May 15, 2015, by and
among Platinum Underwriters Bermuda, Ltd., Renaissance Reinsurance U.S. Inc., Renaissance
Reinsurance Ltd., RenaissanceRe Specialty Risks Ltd., DaVinci Reinsurance Ltd.,
RenaissanceRe Holdings Ltd., as Guarantor, and Wells Fargo Bank, National Association. (28)
10.23
Facility Letter, dated September 17, 2010, from Citibank Europe PLC to Renaissance
Reinsurance Ltd., DaVinci Reinsurance Ltd. and Glencoe Insurance Ltd. (9)
10.23(a) Amendment to Facility Letter, dated October 1, 2013, by and among Citibank Europe PLC,
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd., RenaissanceRe Specialty Risks Ltd.,
Renaissance Reinsurance of Europe and RenaissanceRe Specialty U.S. Ltd. (10)
10.23(b) Amendment to Facility Letter, dated December 23, 2014, by and among Citibank Europe PLC,
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd., RenaissanceRe Specialty Risks Ltd.,
Renaissance Reinsurance of Europe and RenaissanceRe Specialty U.S. Ltd. (36)
10.23(c) Amendment to Facility Letter, dated March 31, 2015, by and among Citibank Europe PLC,
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd., RenaissanceRe Specialty Risks Ltd.,
Renaissance Reinsurance of Europe, RenaissanceRe Specialty U.S. Ltd., Platinum Underwriters
Bermuda, Ltd. and Platinum Underwriters Reinsurance, Inc. (36)
10.23(d) Amendment to Facility Letter, dated December 30, 2015, by and among Citibank Europe PLC,
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd., RenaissanceRe Specialty Risks Ltd.,
Renaissance Reinsurance of Europe, RenaissanceRe Specialty U.S. Ltd., Platinum Underwriters
Bermuda, Ltd. and Renaissance Reinsurance U.S. Inc. (31)
10.23(e) Amendment to Facility Letter, dated January 14, 2016, by and among Citibank Europe PLC,
10.23(f)
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd., RenaissanceRe Specialty Risks Ltd.,
Renaissance Reinsurance of Europe, RenaissanceRe Specialty U.S. Ltd., Platinum Underwriters
Bermuda, Ltd. and Renaissance Reinsurance U.S. Inc. (36)
Insurance Letters of Credit - Master Agreement, dated September 17, 2010, between
Renaissance Reinsurance Ltd. and Citibank Europe PLC. DaVinci Reinsurance Ltd., Glencoe
Insurance Ltd., Renaissance Reinsurance of Europe, Renaissance Specialty U.S. Ltd., Platinum
Underwriters Bermuda, Ltd. and Renaissance Reinsurance U.S. Inc. each entered into an
agreement with Citibank Europe PLC that is identical to the foregoing agreement, except with
respect to party names and dates. (9)
10.23(g) Termination of Master Agreements, Control Agreements and Pledge Agreements, dated October
1, 2016, between Renaissance Reinsurance Ltd. and Citibank Europe PLC. (40)
10.23(h) Amendment to Facility Letter, dated December 31, 2016, by and among Citibank Europe plc,
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd., Renaissance Reinsurance of Europe,
RenaissanceRe Specialty U.S. Ltd. and Renaissance Reinsurance U.S. Inc. (43)
10.24
Master Reimbursement Agreement, dated as of November 24, 2014, by and between
RenaissanceRe Specialty Risks Ltd. and Citibank Europe PLC. (24)
10.24(a) Pledge Agreement, dated as of November 24, 2014 by and among RenaissanceRe Specialty
Risks Ltd. and Citibank Europe PLC. (24)
10.24(b) Omnibus Amendment Agreement, dated October 1, 2016, between Renaissance Reinsurance
Ltd., Citibank Europe PLC and Bank of New York Mellon. (40)
10.25
Letter of Credit Reimbursement Agreement, dated as of November 23, 2015, by and among
Renaissance Reinsurance Ltd., as Borrower, various lenders, Bank of Montreal, as
Documentation Agent, Citibank Europe plc, as Collateral Agent, and ING Bank N.V., London
Branch, as Letter of Credit Agent. (30)
10.25(a) First Amendment to Letter of Credit Reimbursement Agreement, dated as of December 10, 2015,
among Renaissance Reinsurance Ltd., as Borrower, various lenders party to the Letter of Credit
Reimbursement Agreement dated as of November 23, 2015, Bank of Montreal, as Documentation
Agent, Citibank Europe PLC, as Collateral Agent, and ING Bank N.V., London Branch, as Letter
of Credit Agent. (36)
iv
10.25(b) Second Amendment to Letter of Credit Reimbursement Agreement, dated as of May 20, 2016,
among Renaissance Reinsurance Ltd., as Borrower, various lenders party to the Letter of Credit
Reimbursement Agreement, dated as of November 23, 2015, Bank of Montreal, as
Documentation Agent, Citibank Europe plc, as Collateral Agent, and ING Bank N.V., London
Branch, as Letter of Credit Agent. (39)
10.25(c) Third Amendment to Letter of Credit Reimbursement Agreement, dated as of November 8, 2016,
by and among Renaissance Reinsurance Ltd., various lenders party to the Letter of Credit
Reimbursement Agreement, dated as of November 23, 2015, Bank of Montreal, as
Documentation Agent, Citibank Europe plc, as Collateral Agent, and ING Bank N.V., London
Branch, as Letter of Credit Agent. (41)
10.26
Standby Letter of Credit Agreement, dated as of May 19, 2015, by and among National Australia
Bank Limited, New York Branch, Renaissance Reinsurance Ltd., RenaissanceRe Specialty Risks
Ltd., DaVinci Reinsurance Ltd., Platinum Underwriters Bermuda, Ltd. and RenaissanceRe
Holdings Ltd., as Guarantor. (28)
10.27 Waiver, dated as of November 15, 2016, by and between RenaissanceRe Holdings Ltd. and
21.1
23.1
31.1
31.2
32.1
32.2
BlackRock, Inc. (42)
List of Subsidiaries of the Registrant.
Consent of Ernst & Young Ltd.
Certification of Kevin J. O’Donnell, Chief Executive Officer of RenaissanceRe Holdings Ltd.,
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
amended.
Certification of Robert Qutub, Chief Financial Officer of RenaissanceRe Holdings Ltd., pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
Certification of Kevin J. O’Donnell, Chief Executive Officer of RenaissanceRe Holdings Ltd.,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification of Robert Qutub, Chief Financial Officer of RenaissanceRe Holdings Ltd., pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
*
**
***
(1)
(2)
(3)
(4)
(5)
(6)
Represents management contract or compensatory plan or arrangement.
Applicable to Stephen H. Weinstein and Ian D. Branagan.
Applicable to Ross A. Curtis and Robert Qutub.
Incorporated by reference to the Registration Statement on Form S-1 of RenaissanceRe Holdings
Ltd. (Registration No. 33-70008) which was declared effective by the SEC on July 26, 1995.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended June 30, 2002, filed with the SEC on August 14, 2002.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended March 31, 1998, filed with the SEC on May 14, 1998 (SEC File Number
000-26512).
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on March 18, 2004.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on May 28, 2013.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on March 18, 2010.
v
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on January 24, 2011.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended March 31, 2009, filed with the SEC on May 1, 2009.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on September 23, 2010.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on October 4, 2013.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended September 30, 2013, filed with the SEC on November 6, 2013.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Annual Report on Form 10-K for the
year ended December 31, 2012, filed with the SEC on February 22, 2013.
Incorporated by reference to RenaissanceRe Holdings Ltd.'s Definitive Proxy Statement filed with
the SEC on April 8, 2010.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Annual Report on Form 10-K for the
year ended December 31, 2009, filed with the SEC on February 19, 2010.
Incorporated by reference to Exhibit 99.2 to the Registration Statement on Form S-8 (Registration
No. 333-90758) dated June 19, 2002.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended March 31, 2007, filed with the SEC on May 2, 2007.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on August 13, 2010.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q,
filed with the SEC on April 29, 2010.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended September 30, 2004, filed with the SEC on November 9, 2004.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Annual Report on Form 10-K for the
year ended December 31, 2011, filed with the SEC on February 23, 2012.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Annual Report on Form 10-K for the
year ended December 31, 2002, filed with the SEC on March 31, 2003 (SEC File Number
001-14428).
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on December 30, 2014.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on November 26, 2014.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Annual Report on Form 10-K for the
year ended December 31, 2014, filed with the SEC on February 20, 2015.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on March 2, 2015.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on March 6, 2015.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on March 25, 2015.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on May 21, 2015.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on July 8, 2015.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on November 25, 2015.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on December 31, 2015.
vi
(32)
(33)
(34)
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(43)
Incorporated by reference from Platinum Underwriters Holdings, Ltd.'s Current Report on Form 8-
K, filed with the SEC on May 27, 2005.
Incorporated by reference from Platinum Underwriters Holdings, Ltd.'s Current Report on Form 8-
K, filed with the SEC on November 3, 2005.
Incorporated by reference from Platinum Underwriters Holdings, Ltd.'s Current Report on Form 8-
K filed with the SEC on April 10, 2014.
Incorporated by reference from Platinum Underwriters Holdings, Ltd.'s Current Report on Form 8-
K filed with the SEC on July 3, 2013.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Annual Report on Form 10-K for the
year ended December 31, 2015, filed with the SEC on February 19, 2016.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended March 31, 2016, filed with the SEC on April 28, 2016.
Incorporated by reference to Appendix A to RenaissanceRe Holdings Ltd.’s Definitive Proxy
Statement on Schedule 14A filed with the SEC on April 1, 2016.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended June 30, 2016, filed with the SEC on July 27, 2016.
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Quarterly Report on Form 10-Q for
the period ended September 30, 2016, filed with the SEC on November 2, 2016.
Incorporated by reference to RenaissanceRe Holdings Ltd.'s Current Report on Form 8-K filed
with the SEC on November 10, 2016.
Incorporated by reference to RenaissanceRe Holdings Ltd.'s Current Report on Form 8-K filed
with the SEC on November 18, 2016.
Incorporated by reference to RenaissanceRe Holdings Ltd.'s Current Report on Form 8-K filed
with the SEC on January 5, 2017.
vii
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Office Locations
Leadership Team
RenaissanceRe Holdings Ltd. and Subsidiaries
RenaissanceRe Holdings Ltd. and Subsidiaries
James C. Fraser
Senior Vice President and
Chief Accounting Officer
RenaissanceRe Holdings Ltd.
David E. Marra
Senior Vice President and
Chief Underwriting Officer
– Casualty and Specialty
RenaissanceRe Holdings Ltd.
President
Renaissance Reinsurance U.S. Inc.
Justin D. O’Keefe
Senior Vice President and
Chief Underwriting Officer
– Property
RenaissanceRe Holdings Ltd.
Jonathan D. A. Paradine
Principal Officer
Singapore Branch
Renaissance Reinsurance Ltd.
DaVinci Reinsurance Ltd.
Stephen H. Weinstein
Senior Vice President,
Chief Compliance Officer,
Group General Counsel
and Corporate Secretary
RenaissanceRe Holdings Ltd.
Kevin J. O’Donnell
President and
Chief Executive Officer
RenaissanceRe Holdings Ltd.
Robert Qutub
Executive Vice President
and Chief Financial Officer
RenaissanceRe Holdings Ltd.
Ian D. Branagan
Senior Vice President
and Group Chief Risk Officer
RenaissanceRe Holdings Ltd.
Sean G. Brosnan
Senior Vice President and
Chief Investment Officer
RenaissanceRe Holdings Ltd.
Ross A. Curtis
Senior Vice President and
Group Chief Underwriting Officer
RenaissanceRe Holdings Ltd.
Bryan Dalton
Senior Vice President and
Active Underwriter
RenaissanceRe Syndicate 1458
Aditya K. Dutt
President
Renaissance Underwriting
Managers, Ltd.
Senior Vice President and
Treasurer
RenaissanceRe Holdings Ltd.
Bermuda
Headquarters
Renaissance House
12 Crow Lane
Pembroke HM 19
Bermuda
Tel: +1 441 295 4513
London
125 Old Broad Street
London, EC2N 1AR
United Kingdom
Tel: +44 (0)20 7283 2646
Dublin
4th and 5th Floors
Hardwicke House
Upper Hatch Street
Dublin 2, Ireland
Tel: +353 1 678 7388
Singapore
50 Collyer Quay
OUE Bayfront #12-02
Singapore 049321
Tel: +65 6572 8866
USA
New York
140 Broadway, Suite 4200
New York, New York 10005
Tel: +1 212 238 9600
Chicago
1901 N. Roselle Rd. Suite 340
Schaumburg, IL 60195
Tel: +1 847 310 5960
Connecticut
Two Stamford Plaza
281 Tresser Blvd., 15th Floor
Stamford, CT 06901
Tel: +1 203 900 1200
North Carolina
WeatherPredict Consulting Inc.
3128 Highwoods Boulevard
Suite 230
Raleigh, NC 27604
Tel: +1 919 876 3633
Rhode Island
WeatherPredict Consulting Inc.
26 South County Commons Way
Unit A7
South Kingstown, RI 02879
Tel: +1 401 788 9031
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Contents
Financial Highlights
Letter to Shareholders
Message from the Chair
Comments on Regulation G
Form 10-K
Office Locations
Leadership Team
Board of Directors,
Financial and Investor Information
1
2
6
7
9
Last Page
Last Page
Inside
Back Cover
Board of Directors
Financial and Investor Information
RenaissanceRe Holdings Ltd.
RenaissanceRe Holdings Ltd. and Subsidiaries
James L. Gibbons
Non-Executive Chair
RenaissanceRe Holdings Ltd.
Kevin J. O’Donnell
President and Chief Executive Officer
RenaissanceRe Holdings Ltd.
David C. Bushnell
Retired Chief Administrative Officer
Citigroup Inc.
Brian G. J. Gray
Former Group Chief Underwriting Officer
Swiss Reinsurance Company Ltd.
William F. Hagerty IV
Founder and Former Managing Director
Hagerty Peterson & Company LLC
Jean D. Hamilton
Private Investor
Independent Consultant
Henry Klehm III
Partner
Jones Day
Ralph B. Levy
Retired Senior Partner
King & Spalding LLP
Carol P. Sanders
Former Chief Financial Officer
Sentry Insurance a Mutual Company
Anthony M. Santomero
Former President
Federal Reserve Bank of Philadelphia
Edward J. Zore
Retired Chairman and Chief Executive Officer
The Northwestern Mutual Life Insurance Company
All stocks used in this report are FSC® certified.
Printed at a zero-discharge facility using soy-based inks.
Please recycle this publication.
General Information About the Company
For the Company’s Annual Report, press releases, Forms 10-K and
10-Q or other filings, please visit our website: renre.com
Or Contact:
Kekst and Company, 437 Madison Avenue,
19th Floor, New York, NY 10022
Tel: +1 212 521 4800
Investor Inquiries Should be Directed to:
Investor Relations, RenaissanceRe Holdings Ltd.
Tel: +1 441 295 4513 E-mail: investorrelations@renre.com
Additional Requests Can be Directed to:
The Corporate Secretary, RenaissanceRe Holdings Ltd.
Tel: +1 441 295 4513 E-mail: secretary@renre.com
Stock Information
The Company’s stock is listed on The New York Stock Exchange
under the symbol ‘RNR’.
The following table sets forth, for the period indicated, the high and low
closing prices per share of our common shares as reported in composite
New York Stock Exchange trading.
Price Range of Common Shares
Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016
2015
High
Low
High
Low
$120.59 $107.47 $104.72
$93.89
121.38
107.27
105.96
99.20
122.97
114.34
108.79
99.35
137.21
117.36
116.10
104.78
Certifications
The Chief Executive Officer and Chief Financial Officer have certified
in writing to the Securities and Exchange Commission (the “SEC”) as
to the integrity of the Company’s financial statements included in this
Annual Report and in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2016 filed with the SEC and as to
the effectiveness of the Company’s disclosure controls and procedures
and internal control over financial reporting.
The certifications are filed as Exhibits 31.1, 31.2, 32.1 and 32.2
to our Form 10-K. Our Chief Executive Officer has certified to the
New York Stock Exchange in 2016 that he was not aware of any
violation by the Company of the New York Stock Exchange corporate
governance listing standards.
Independent Registered Public Accounting Firm
Ernst & Young Ltd., Hamilton, Bermuda
Registrar and Transfer Agent
Computershare
Tel: +1 800 522 6645 or +1 201 680 6578
Shareholder website
www.computershare.com/investor
Shareholder online inquiries
https://www-us.computershare.com/investor/Contact
Shareholder correspondence should be mailed to:
Computershare
P.O. BOX 30170
College Station, TX 77845-3170
Overnight correspondence should be sent to:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77842
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2016 Annual Report
RenaissanceRe
Holdings Ltd.
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RenaissanceRe Holdings Ltd.
Renaissance House
12 Crow Lane
Pembroke HM 19
Bermuda
Tel: +1 441 295 4513
renre.com
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