2018 Annual Report
RenaissanceRe
Holdings Ltd.
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
8
9
11
Last Page
Last Page
Inside
Back Cover
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 (loss) available (attributable) to RenaissanceRe common shareholders
2018
2017
2016
$
$
3,310,427
2,797,540
2,374,576
197,276
(244,770)
480,581
Operating income (loss) available (attributable) to RenaissanceRe common shareholders (1)
$
366,595
(332,300)
342,253
Total assets
Total shareholders’ equity
Per common share amounts
$ 18,676,196
15,226,131
12,352,082
$
5,045,080
4,391,375
4,866,577
Net income (loss) available (attributable) to RenaissanceRe common shareholders
per common share – diluted
$
4.91
(6.15)
11.43
Operating income (loss) available (attributable) to RenaissanceRe common shareholders
per common share – diluted (1)
Book value per common share
Tangible book value per common share (1)
Tangible book value per common share plus accumulated dividends (1)
Dividends per common share
$
9.17
$ 104.13
$
97.85
(8.35)
99.72
93.23
$ 117.17
111.23
$
1.32
1.28
8.10
108.45
101.87
118.59
1.24
Ratios
Return on average common equity
Operating return on average common equity (1)
Net claims and claim expense ratio
Underwriting expense ratio
Combined ratio
%
%
%
%
%
4.7
8.8
56.7
30.9
87.6
(5.7)
(7.7)
108.4
29.5
137.9
11.0
7.9
37.8
34.7
72.5
(1) Represents a non-GAAP financial measure, which is reconciled in the Comments on Regulation G on pages 9 and 10.
Financial Strength Ratings (1)
Renaissance Reinsurance Ltd. (2)
DaVinci Reinsurance Ltd. (2)
Renaissance Reinsurance U.S. Inc. (2)
RenaissanceRe Specialty U.S. Ltd. (2)
Renaissance Reinsurance of Europe Unlimited Company (2)
Top Layer Reinsurance Ltd. (2)
Vermeer Reinsurance Ltd. (2)
RenaissanceRe Syndicate 1458
Lloyd’s Overall Market Rating (3)
RenaissanceRe Holdings Ltd. (4)
(1) As of March 6, 2019.
A.M. Best
S&P
Moody’s
Fitch
A+
A
A+
A+
A+
A+
A
–
A
A+
A+
A+
A+
A+
AA
–
–
A+
Very Strong
Very Strong
A1
A3
–
–
–
–
–
–
–
–
A+
–
–
–
–
–
–
–
AA-
–
(2) The A.M. Best, S&P, Moody’s and Fitch ratings for the 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.
(3) The A.M. Best, S&P and Fitch ratings for the Lloyd’s Overall Market Rating represent RenaissanceRe Syndicate 1458’s financial strength rating.
(4) The A.M. Best rating for RenaissanceRe Holdings Ltd. refers to the Enterprise Risk Management (ERM) A.M. Best score within A.M. Best’s credit ratings methodology.
The S&P rating for RenaissanceRe Holdings Ltd. represents the rating on its ERM practices.
1
Letter to Shareholders
By Kevin O’Donnell
President and Chief Executive Officer
Each entity in the Integrated
System has a separate and
defined purpose and strategic
advantage, which maximizes
our ability to match the most
desirable risk with the most
efficient capital.
2
Dear Shareholders,
In so many ways, 2018 was one of our strongest years
to date. Our performance was the result of solid execution,
continued investment in strategic imperatives and, in another
active year for natural catastrophes around the world,
application of our Gross-to-Net Strategy and Integrated
System. We furthered our lead as the preferred market
for reinsurance buyers, and solidified our recognition as
the best underwriter by brokers, customers, investors
and partners. At the same time, we crossed a significant
milestone, exceeding $3 billion of gross premiums written.
I. Our Performance in 2018
Financial Performance
In 2018, we reported net income available to RenaissanceRe
common shareholders of $197 million and operating income
available to RenaissanceRe common shareholders of $367
million. Our book value per common share increased by
4.4% and our tangible book value per common share,
plus change in accumulated dividends, increased by 6.4%.
For the full year, our return on average common equity
was 4.7% and our operating return on average common
equity was 8.8%.
Throughout the year, we found several meaningful
opportunities to invest in our business, and consequently
we did not repurchase any of our common shares. Since
our formation, however, we have consistently demonstrated
good stewardship of our shareholders’ capital, returning over
$3.5 billion in share buybacks and $1 billion in common
share dividends. In 2019, we raised our quarterly dividend
for the 24th consecutive year in a row.
2018 Losses
Once again, we were reminded that ours is a volatile
business, with industry-wide insured catastrophe losses
approaching $80 billion. Our results in 2018 benefited from
solid underwriting, smart portfolio construction and decades
of experience. Additionally, our strong emphasis on a robust
Gross-to-Net Strategy reflected our philosophy that it is
better to make slightly less money in good years to ensure
we are prepared for active ones.
RenaissanceRe Holdings Ltd. 2018 Annual Report
An important consideration impacting any reinsurer’s
performance is the development of significant losses.
When losses big or small occur, we rely on, and expect, our
customers to manage their claims appropriately. Continuing
adverse loss development, however, has compounded the
impact of back-to-back large loss years. Most notably,
industry losses associated with 2017’s Hurricane Irma
continue to grow well over a year following the event,
raising significant questions about the long-term health
of the Florida market. Absent some large-scale changes
to this market, I anticipate its role in our portfolio will continue
to diminish. Thankfully, we have preferred access to the best
insurance companies in Florida, who have been good partners
with us over the years, and with whom we hope to continue
to do business in the future.
Gross-to-Net Strategy
In 2018, our Gross-to-Net Strategy was a critical factor
in our outperformance. While losses were not as severe
as those in 2017, the difference between our gross and
net positions was still substantial, resulting in our ceding
approximately 70% of the gross losses from the year’s
catastrophic events. Several years ago, I said there is a
cost for doing the right thing. So, while retro purchases
may look expensive when there are no losses, it is in years
like 2018 where we can reap substantial benefits.
The Gross-to-Net Strategy underpins our corporate strategy
in several important ways. Rather than merely assuming
business, we construct portfolios of risk. While starting
with attractive risk is necessary, it is not sufficient. We
need to thoroughly understand the risk characteristics
of the assumed business and combine these individual
risks into portfolios we design to meet defined capital
requirements. These portfolios are then matched with the
most appropriate capital, which could include using our
rated balance sheets, vehicles we manage for our partners,
traditional retrocessional covers (for both ourselves and
our partners), or insurance linked securities such as cat
bonds. Our Gross-to-Net Strategy may also encompass
more innovative routes, such as structured reinsurance
products with long-term partners and various aspects
of our Integrated System.
The remaining net position is consequently more capital
efficient, and therefore more profitable, allowing us to
maximize our return on equity. The advantages to our
shareholders are significant and our risk partners receive
a well-underwritten portfolio that provides them with the
benefits of adding diversifying risk to their often much
larger portfolios. Less obvious, but equally important,
our Gross-to-Net Strategy enables us to provide consistent,
efficiently-priced protection to our customers, year after
year, regardless of market cycles.
The Integrated System
In addition to our Gross-to-Net Strategy, I frequently discuss
the importance of our Integrated System as one of the many
unique components of our corporate strategy. I believe
our Integrated System critically distinguishes us from our
competitors, creates shareholder value and explains our
strong long-term performance. As such, I would like to take
a little time to explain an important aspect of it in more detail.
If you recall, last year in my letter to shareholders, I discussed
the concept of Pareto optimality. A closely related concept
is the Pareto efficient frontier, which is the theoretical curve
that represents the optimal set of tradeoffs a company
can make between different operating parameters. On the
Pareto efficient frontier, you cannot improve one parameter
without worsening another. It is the point where there are
no free lunches, and a company is operating as efficiently
as possible given its chosen tradeoffs between activities to
deliver a unique mix of value.
Our Integrated System seeks Pareto outcomes by employing
multiple balance sheets and funds which occupy different
positions on the Pareto efficient frontier, each designed to
provide a different, and optimal, mix of value to our customers.
Each entity in the Integrated System has a separate and
defined purpose and strategic advantage, which maximizes our
ability to match the most desirable risk with the most efficient
capital. Defining the purpose and benefit of each entity is
critical, as it provides the allocation framework and allows us
to manage the conflicts inherent in having multiple sources
of capital from diverse partners.
3
Letter to Shareholders (continued)
A good example of the Integrated System is our newest
joint venture balance sheet, Vermeer Re, which we manage
for PGGM, a leading Dutch pension fund. Vermeer Re will
write risk-remote, and therefore capital intensive, U.S.
property business. The portfolio we plan to construct for
Vermeer Re would be capital consumptive on our existing
vehicles, so this addition to our platform fills a gap in our
offering and brings a new and more efficient product to
our customers. Given our decades of experience, we are
capable of effectively structuring vehicles. Once we identified
this opportunity, we were able to bring additional, efficient
coverage to our customers while making high-quality risk
available to an important partner.
Taking a step back to the beginning, the foundation for
the Integrated System is our original balance sheet —
Renaissance Reinsurance Ltd., which we refer to as “RRL”.
RRL is our flagship, rated balance sheet, and is the largest
balance sheet for our risk. Every other entity we formed was
created to solve a problem more effectively than RRL could.
For example, one of the first additions to our Integrated
System was Top Layer Re in 1999, our joint venture with
State Farm. We had access to international, risk-remote,
property catastrophe risk that was attractive, but capital
consumptive on RRL’s balance sheet, which made it a less
efficient solution for our customers’ needs. This business,
however, was diversifying against U.S. risk, and thus ideal
for a partner like State Farm. So, we created Top Layer Re,
with a majority of the capital provided by State Farm in the
efficient form of a $3.9 billion stop-loss agreement.
balance sheet such as RRL. We had access to a deep pool
of this risk and are recognized experts in underwriting it, so
in 2013 we formed Upsilon, a collateralized balance sheet.
Upsilon, as an unrated vehicle, posts a dollar of collateral for
every dollar of limit provided, and therefore occupies a very
different position on the efficient frontier from a rated
balance sheet, providing desirable risk to ILS capital and a
greater supply of efficient protection to our customers.
We also have several wholly owned, rated balance sheets,
the largest of which are our Lloyds’ Syndicate 1458 and
Renaissance Reinsurance U.S. Inc. For certain lines of business,
we needed to be closer to the customer. Syndicate 1458 and
Renaissance Reinsurance U.S. helped us accomplish that goal.
The Lloyds’ market is licensed in over 100 countries around the
world and has great access to business that requires a market
presence. Similarly, Renaissance Reinsurance U.S. is licensed
or authorized in all 50 states.
Over the years, we formed several other ventures occupying
unique positions on the Pareto efficient frontier. Having
served their purpose, they were retired. Many of these were
created to fulfill a short-term need, and thus their winding
down was the expected conclusion to their limited life cycles.
The combination of owned balance sheets and both short-
term and long-term managed vehicles allows us to nimbly
respond to opportunities and solve more customer problems.
Importantly, we never compromise on our underwriting
or the discipline required to service each mandate with
precision, transparency and a deft ability to manage
increasingly complicated conflicts.
DaVinci Re is another good example. We formed this balance
sheet because we had access to more desirable risk than
our RRL balance sheet could efficiently assume, as it was not
sufficiently diversifying against RRL’s existing book. Additionally,
market capacity was constrained and DaVinci Re supplied
new, diversifying capital to this desirable risk, while providing
a separate, rated balance sheet to our customers.
It is a similar case with Upsilon. Certain types of business,
such as worldwide aggregate retro, provide broad coverage
and therefore are capital consumptive against a rated
Fees and the Integrated System
One of the benefits of our Integrated System is it allows
us to earn fees for bridging the gap between risk and capital.
The starting point for raising capital and creating entities,
however, is always to meet customer needs. We believe the
industry yardstick of assets under management as a measure
of success is misplaced and can lead to unintended, and
potentially deleterious, outcomes. Our vehicles are structured
to deliver efficient capital in order to service customers, not
to maximize assets under management or fees. So for us,
fees are a serendipitous outcome of using our Integrated
System to benefit our customers.
4
RenaissanceRe Holdings Ltd. 2018 Annual Report
Total fee income was about $90 million in 2018, which is up
over a third year-on-year. The true earning power of this
business is likely higher, given that the catastrophe losses
experienced in both 2017 and 2018 reduced our fee income.
This is significant for several reasons. First, this is risk-free
income against which we do not need to hold capital, which
boosts not only our bottom line, but also our return on
equity. Second, these vehicles benefit from the underwriting
work we already undertake for our wholly owned balance
sheets. Since we only need to underwrite a risk once, we can
leverage a pre-existing risk curve against many sources of
capital. Undoubtedly, there are some marginal costs related
to running our fee generating businesses, but these are
relatively small. So, not only do we generate a material
amount of fee income, but much of it goes straight to
our bottom line.
Third-Party Capital & the Price of Risk
While we believe third-party capital is an important
component of our business, due to the inherent risk of
conflicts of interest, I believe this capital needs to be
intermediated by strong underwriting. Strong underwriting
is critical because it helps answer the question, “What
is the correct price of risk?” As important as the answer
to this question is, it is a priori unknowable, and ex post
facto unactionable.
The best and simplest definition of “risk” I have seen is from
Elroy Dimson of the London Business School — “Risk means
more things can happen than will happen.” So, to best
understand risk, we build stochastic models that generate
probability distributions of outcomes from very good (no loss)
to very bad (total loss), and we use these distributions to
estimate the price necessary for us to assume a given
risk. This pricing process requires us, as underwriters, to
determine a final distribution that best represents the set of
outcomes that can happen. I highlight this because many
market participants have focused solely on expected loss,
or mean of the distribution, both of which are fancy ways of
saying “the average”. This is a single number, which we
believe is insufficient to understand, much less price, the
assumed risk. It is the equivalent of saying, “Many very
different things can happen, so let’s take the average and
assume that is what will happen.” In our business, you almost
never get the average.
As an example closer to home, assume we are in a world
where an underwriter has a choice between two contracts.
Each contract has a limit of $100, premium of $2 and
expected (average) loss of 1%. In reinsurance terms, each
contract has a 50% loss ratio, meaning on average $1 is
earned every year. Using only this expected loss statistic,
these contracts are indistinguishable. However, with more
information about the shape of the risk distribution for each
contract, we see they are, in fact, very different.
Assume contract 1 has no standard deviation, so every year
you collect $2 in premium and pay $1 in loss. Contract 2,
on the other hand, has two possible outcomes. The first
outcome is 99% chance of no loss, so you keep the $2
premium most of the time. The second outcome is a 1%
chance that you lose $100, which is what we call tail risk,
the risk of extreme outcomes. So, both contracts still make
$1 per year on average, but, I think with this additional
information, a good underwriter would select contract 1
with its guarantee of making $1. In addition, in order to
responsibly write contract 2, the underwriter must hold at
least $100 in capital, because she never knows when the
bad year will happen and must be able to settle the potential
for a total loss at any time.
Obviously, this is a simplified view of the world, but it does
highlight that understanding the full distribution of potential
outcomes, especially the tail risk, is required to appropriately
price and underwrite risk, and defaulting to a single
measurement is never a good idea. Due to the growing
recognition of the importance of underwriting in the
third-party capital market, we are increasingly seeing
more sophisticated diligence conducted by investors in order
to assess the underwriting expertise of their managers.
Ultimately, I expect the market to migrate to the hybrid model
of rated and collateralized capacity we pioneered with
our Integrated System. The benefits of the hybrid model
are increasingly recognized, and provide us a significant
competitive advantage.
5
Letter to Shareholders (continued)
Enhancing Relationships with Key Partners
State Farm
We had a successful year in 2018, building and enhancing
relationships with important partners. For example, State
Farm agreed to take a substantial equity position, investing
$250 million in our common shares. Our association with
State Farm stretches back decades. They are founding
investors in our joint ventures Top Layer Re and DaVinci Re.
This most recent investment establishes them as one of our
largest shareholders. Going forward, we believe partnering
with the strongest companies in the value chain, like State
Farm, will be of increasing importance.
TMR Acquisition
One of our most significant strategic achievements for 2018
was our agreement to acquire Tokio Marine’s reinsurance
business — Tokio Millennium Re, or TMR. Acquisitions are
rare for us, with our last one being Platinum Underwriters
Holdings Ltd. in 2015. Given our industry reputation, we
have been approached to acquire businesses in the past,
but, due to the strength of our culture and insistence
on strong enterprise risk management, we prefer building
businesses from the bottom up. Occasionally though, we
have the opportunity to acquire a good business at a
competitive price.
The TMR transaction accelerates our strategy by providing
greater penetration into the reinsurance market at a time
when desirable risk remains scarce, while also permitting
us to offer more comprehensive solutions to a larger
number of customers. This transaction also enhances
our relationship with Tokio Marine, a key partner since
1994. As of this writing, we had not yet closed the TMR
transaction, but, if TMR’s tangible book value is unchanged
from June 30, 2018, we expect to pay a total of about $1.5
billion in cash (including a pre-closing dividend) and stock,
or slightly over TMR’s tangible book value. We still have work
to do in order to realize these benefits, but I feel confident
that we have the best team in the business and that TMR
will make it even stronger.
II. Looking Forward
Virtual Insurance Enterprises
A critical aspect of our strategy is using our skills to
support our partners’ efforts. In the future, we believe
this partnership model will mark its apex in what we
call “Virtual Insurance Enterprises,” where specialists who
are best-in-breed in complementary zones of expertise
partner to successfully bridge an evolving value chain.
A key implication of these Virtual Insurance Enterprises
is the recognition there will be more than one winner
in any future state, and it will not be possible for one
organization to successfully occupy all the links in the value
chain. Our competitive advantages lie in creating and pricing
portfolios, and sourcing the most efficient capital to back
them. Understanding this, we believe we can best maximize
shareholder value by focusing on our competitive advantages
and bringing them to market in an industry-leading way.
Our identity is quite simply, “To be the best underwriter.”
We know who we are and what we are good at; consequently,
we consistently strive to be the preferred market for matching
desirable risk with efficient capital. Put bluntly, if underwriting
is no longer valuable, we are no longer valuable. Thankfully,
we have always been able to add value through underwriting
and believe we always will. We have a strong record
of being a good partner, and I believe we will best
maximize shareholder value in the future by focusing on
our strengths and sourcing our risk through partnerships
with successful insurers, thereby building Virtual Insurance
Enterprises that are more effective and efficient than any
actual insurance enterprise.
Market of the Future
I believe, in order to remain relevant, the insurance market
must mature, with the most significant advancements
focused in two areas. First, the supply chain must become
more efficient. Second, providers of risk capital must
manage the frictional cost of matching risk and capital
more efficiently. From our perspective, we have spent the
last five years focusing on the second of these imperatives,
working diligently to increase our ability to efficiently match
risk with capital. We recognized, as our market matured and
6
became more competitive, we needed to reduce the cost
of our capital. We accomplished this by moving quickly to
increase both our scale and our investment and capital
leverage. By doing so, we returned these efficiencies to our
equity investors through higher margins. We find continuing
success in this effort. Over the previous five years, we more
than doubled our gross premiums written while growing
shareholders’ equity approximately 30% and holding the
sum of operational and corporate expenses flat.
We expect our operational and capital leverage will continue
to improve moving forward and adding the TMR portfolio
will allow us to continue to leverage our platforms. While I
am delighted with our performance to date, I note, even with
the expected contribution of the TMR deal to increased
efficiency, you should not expect us to continue to improve
at the same pace. We believe we are at a point where our
existing resources are constrained, and any continued future
growth will require an expanded expense base. Our goal,
however, is to grow premium faster than expenses.
Why did we choose to focus on our operational efficiency
rather than on supply chain efficiency? Primarily for
two reasons:
First, we retain greater control over both the process and
the benefit of the efficiencies of an improved platform,
which is permanent to us. Others may also close the gap
to become more efficient operationally, but that simply
reduces our alpha to the market; it does not reduce the
benefit accrued to our shareholders.
Second, we believe focusing on the supply chain is
less advantageous for us over the long run. Changes
that improve the efficiency of the supply chain are likely
to become transparent to competitors, and quickly adopted
by all market participants, especially if they do not involve
any countervailing tradeoffs. Consequently, any benefit
will eventually be mutualized, with fleeting advantages
to a first mover. Supply chain efficiencies are ultimately
competed away, and typically inure to the long-term
benefit of the consumer.
RenaissanceRe Holdings Ltd. 2018 Annual Report
Board Evolution
We recently announced the nomination of Cynthia Trudell
to our Board of Directors. Cynthia will be a great addition
and brings a wealth of experience as a chief executive
and leader of organizational talent. Cynthia’s expertise
and proven experience in Board leadership will contribute
significantly to our stewardship of the organization on behalf
of all of our shareholders.
We also announced the planned retirement of Edward J. Zore
at the end of his term in May 2019, after nearly a decade
of service. Ed’s industry experience, investment acumen
and general wise counsel have been invaluable to me
and my team. I would like to thank Ed for his many years
of distinguished service.
In Closing
2018 was a difficult year for the industry; however, we
outperformed across the board, both financially and
strategically. Once again, we benefited from our industry-
leading ability to construct efficient portfolios of risk through
superior underwriting and the application of our Gross-to-Net
Strategy and Integrated System. In 2019, we face the
challenges of successfully integrating TMR while continuing
to grow the business and maximizing shareholder value, but I
believe we will rise to that challenge, just as we did in 2018.
Sincerely,
Kevin J. O’Donnell
President and Chief Executive Officer
7
Message from the Chair
RenaissanceRe’s mission is, and has consistently been, to
produce superior returns for our shareholders over the long term.
We do this by being a trusted, long-term partner to our customers
for assessing and managing risk, delivering responsive solutions
and keeping our promises. The principal mission of your Board of
Directors is to oversee management’s development and execution
of a sound strategic plan, consistent with RenaissanceRe’s
mission and values. In many ways 2018 reflected the rewards
and continuing promise of your Company’s strategy, as
RenaissanceRe delivered what the Board believes to be
extraordinary financial results in the context of large industry
losses; extended our value proposition and leading market
position with clients and partners worldwide; and grew our
operations significantly with new market offerings and through
expansion of our existing, market leading franchises. In addition,
we took a significant step to further accelerate our strategy
with the announced acquisition of Tokio Millennium Re, the
reinsurance operations of Tokio Marine Holdings, Inc. These
achievements are summarized for you in this year’s letter from
our Chief Executive Officer, Kevin O’Donnell.
The value propositions, execution capabilities and risk
management discipline of insurers and reinsurers are tested by
years of elevated industry losses, such as what we have seen
in 2018 and 2017. In the view of the Board, RenaissanceRe
more than passed these tests. The Company kept its promises
to clients and partners, extended its market reach and
presence, and generated strong net returns despite large
loss events. As in 2017, investments made over time to
support our industry leading portfolio construction, build
and deploy new and enhanced risk management tools, and
execute our Gross-to-Net Strategy bore fruit in 2018. Not
every year will pose challenges of this level, but the Board will
remain committed to the development and execution of the
Company’s strategic plan, including oversight of management’s
business plans and risk management framework.
The Board is also mindful that, against 2018’s unusually busy
backdrop, the RenaissanceRe team pursued potential growth
opportunities with discipline, culminating in our successful
bid for Tokio Millennium Re. The Board’s oversight of this
process was vigorous and robust. We share management’s
confidence that the transaction will accelerate our existing
strategy, and that our strategy keeps us well positioned to
produce superior long-term financial results. In addition,
we join the executive team in welcoming our future
colleagues from Tokio Millennium Re to our organization,
and in expressing our appreciation of our long-term and
expanded relationship with Tokio Marine Holdings.
The Board is also pleased to welcome State Farm Mutual
Automobile Insurance Company to our shareholder base,
extending the long-standing relationship between our
two firms. State Farm’s investment further enhances our
8
decades-old relationship, benefiting both franchises,
the markets we respectively serve, and our shareholders.
Following the closing of our acquisition of Tokio Millennium
Re, we anticipate that we will continue to have the very
strong capital and liquidity position you have come to expect
from RenaissanceRe.
While our philosophy remains consistent, your Board’s
composition evolves over time as we consider the skills
and experiences that best suit your Company’s future needs
and as the circumstances of individual directors change.
This year, our distinguished colleague Ed Zore announced
his plans to retire from your Board after three full terms
as a director. Ed served with distinction on each of our
committees, bringing both his extraordinary business acumen
and his passion for and wisdom in respect of corporate
governance. Ed was an outstanding advisor and sounding
board for both Kevin and me, and we join every member of
the Board in wishing Ed all the best in his retirement.
To succeed Ed, the Board is delighted to unanimously
nominate Ms. Cynthia Trudell to serve you as an independent
director. Cynthia’s remarkable career spans high-performance
tenures in chief executive roles and as a leader of organizational
talent, which is a perfect suite of experience for RenaissanceRe
as we prepare to meaningfully expand our headcount,
operating platform and geographic presence. Moreover,
Cynthia brings to us an extensive background in governance,
including in the financial risk bearing sector and in industries
confronting change. We look forward to welcoming Cynthia
in conjunction with our May 2019 shareholder meeting.
I also wish, once again, to thank our shareholders and
stakeholders who participated over the past year in our
continual engagement process. We appreciate your
investment in RenaissanceRe, and overseeing management’s
communications with, disclosure to, and engagement with
you is a priority for the Board. Your engagement supports
our ongoing efforts to attract, retain and appropriately incent
what your Board believes to be the best team in our industry,
and to continue to build the confidence and support of our
clients and investors.
Kevin’s letter demonstrates how RenaissanceRe’s strategy,
unique culture, distinctive capabilities and values let us thrive
amidst the challenges of 2018, and how these attributes and
our strategy position us to succeed in an exciting future. Rest
assured that our commitment to overseeing these plans and
this remarkable franchise on your behalf will continue as well.
Sincerely,
James L. Gibbons
Non-Executive Chair
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 (loss) available (attributable) 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 (loss) available (attributable) to RenaissanceRe common shareholders” as used herein differs from “net income (loss)
available (attributable) 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, and the associated income tax expense or
benefit, and the exclusion of the write-down of a portion of the Company’s deferred tax asset as a result of the reduction in the U.S.
corporate tax rate from 35% to 21% effective January 1, 2018 pursuant to the Tax Cuts and Jobs Act of 2017 (the “Tax Bill”), which
was enacted on December 21, 2017. The Company’s management believes that “operating income (loss) available (attributable)
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 associated income tax expense or benefit of those fluctuations, and the
non-recurring impact of the write-down of a portion of the Company’s deferred tax assets as a result of the Tax Bill. The Company
also uses “operating income (loss) available (attributable) to RenaissanceRe common shareholders” to calculate “operating income
(loss) available (attributable) to RenaissanceRe common shareholders per common share – diluted” and “operating return on average
common equity – annualized”. The following is a reconciliation of: 1) net income (loss) available (attributable) to RenaissanceRe
common shareholders to operating income (loss) available (attributable) to RenaissanceRe common shareholders; 2) net income
(loss) available (attributable) to RenaissanceRe common shareholders per common share – diluted to operating income (loss)
available (attributable) to RenaissanceRe common shareholders per common share – diluted; and 3) return on average common
equity – annualized to operating return on average common equity – annualized:
(in thousands of United States dollars, except per
share amounts and percentages)
Year Ended December 31,
2018
2017
2016
Net income (loss) available (attributable) to RenaissanceRe common shareholders
$197,276
$(244,770)
$480,581
Adjustment for net realized and unrealized losses (gains) on investments
Adjustment for deferred tax asset write-down (1)
Adjustment for income tax (benefit) expense (2)
175,069
-
(5,750)
(135,822)
36,705
11,587
(141,328)
-
3,000
Operating income (loss) available (attributable) to RenaissanceRe common shareholders
$366,595
$ (332,300)
$342,253
Net income (loss) available (attributable) to RenaissanceRe common shareholders per common share - diluted $ 4.91
$ (6.15)
$ 11.43
Adjustment for net realized and unrealized losses (gains) on investments
Adjustment for deferred tax asset write-down (1)
Adjustment for income tax (benefit) expense (2)
4.40
-
(0.14)
(3.41)
0.92
0.29
(3.40)
-
0.07
Operating income (loss) available (attributable) to RenaissanceRe common shareholders
per common share - diluted
$ 9.17
$ (8.35)
$ 8.10
Return on average common equity
Adjustment for net realized and unrealized losses (gains) on investments
Adjustment for deferred tax asset write-down (1)
Adjustment for income tax (benefit) expense (2)
Operating return on average common equity
4.7%
4.2%
-
(0.1%)
8.8%
(5.7%)
(3.2%)
0.9%
0.3%
(7.7%)
(1) Adjustment for deferred tax asset write-down represents the write-down of a portion of the Company’s deferred tax asset as a result of the reduction in the U.S.
corporate tax rate from 35% to 21% effective January 1, 2018 pursuant to the Tax Bill, which was enacted on December 22, 2017.
(2) Adjustment for income tax (benefit) expense represents the income tax (benefit) expense associated with the adjustment for net realized and unrealized losses
(gains) on investments. The income tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors.
11.0%
(3.2%)
-
0.1%
7.9%
9
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 common share. “Tangible book value per common share plus accumulated dividends” is defined
as book value per common share excluding goodwill and intangible assets per common share, plus accumulated dividends. The
Company believes book value per common share to be the most directly comparable GAAP measure to “tangible book value
per common share” and “tangible book value per common share plus accumulated dividends,” respectively. 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,
2018
2017
2016
$104.13
$ 99.72
$108.45
(6.28)
97.85
19.32
(6.49)
93.23
18.00
(6.58)
101.87
16.72
Tangible book value per common share plus accumulated dividends
$117.17
$111.23
$118.59
Change in book value per common share
Change in tangible book value per common share plus change in accumulated dividends
4.4%
6.4%
(8.0%)
(7.2%)
9.4%
11.4%
(1) For 2018, 2017 and 2016, goodwill and other intangibles includes $27.7 million, $16.7 million and $19.7 million, respectively, of goodwill and other intangibles included in
investments in other ventures, under equity method.
10
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, 2018
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
Depositary Shares, each representing a 1/1,000th interest in a Series F 5.750%
Name of each exchange on which registered
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
Preference Share, Par Value $1.00 per share
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 every Interactive Data File required to be submitted
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 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
, Emerging growth company
, Non-accelerated filer
, Accelerated filer
,
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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, 2018 was $4,752.5 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 4, 2019 was 42,207,390.
Portions of the registrant’s definitive proxy statement for the 2019 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
Page
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3
3
36
56
56
56
57
58
58
60
61
110
115
115
116
118
118
118
118
MANAGEMENT AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . .
118
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 . . . . . . . .
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118
118
118
125
126
F-1
S-1
NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the year ended December 31, 2018 (this “Form 10-K”) of
RenaissanceRe Holdings Ltd. (the “Company” or “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 failure to obtain regulatory approvals or satisfy other conditions to completion of the proposed
TMR Stock Purchase (as defined herein);
• risks that the TMR Stock Purchase disrupts or distracts from current plans and operations;
• the ability to recognize the benefits of the TMR Stock Purchase;
• the amount of the costs, fees, expenses and charges related to the TMR Stock Purchase;
• 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;
• collection on claimed retrocessional coverage, and new retrocessional reinsurance being available on
acceptable terms and providing the coverage that we intended to obtain;
• the effects of United States (“U.S.”) tax reform legislation and possible future tax reform legislation
and regulations, including 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 success of any of our acquisitions or strategic investments, including our ability to manage our
operations as our product and geographical diversity increases;
1
• our ability to retain our key senior officers and to attract or retain the executives and employees
necessary to manage our business;
• 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 determine the impairments taken on our investments;
• 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 industries;
• 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;
• 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;
• consolidation of competitors, customers and insurance and reinsurance brokers;
• 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;
• other political, regulatory or industry initiatives adversely impacting us;
• our ability to comply with sanctions and foreign corrupt practices laws with respect to our international
operations;
• 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 Organisation 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 accounting rules that may impact financial results irrespective of
business 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
In this Form 10-K, references to “RenaissanceRe” refer to RenaissanceRe Holdings Ltd. (the parent
company) and references to “we,” “us,” “our” and the “Company” refer to RenaissanceRe Holdings Ltd.
together with its subsidiaries, unless the context requires otherwise.
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.
Due to rounding, numbers presented in the tables included in this Form 10-K may not add up precisely to
the totals provided.
OVERVIEW
RenaissanceRe is a global provider of reinsurance and insurance. We provide property, casualty and
specialty reinsurance and certain insurance solutions to customers, principally through intermediaries.
Established in 1993, we have offices in Bermuda, Ireland, Singapore, Switzerland, the United Kingdom (the
“U.K.”), and the U.S. Our operating subsidiaries include Renaissance Reinsurance, Renaissance
Reinsurance U.S. Inc. (“Renaissance Reinsurance U.S.”), RenaissanceRe Specialty U.S. Ltd.
(“RenaissanceRe Specialty U.S.”), Renaissance Reinsurance of Europe Unlimited Company (“Renaissance
Reinsurance of Europe”) and our 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”), Upsilon RFO Re Ltd. (“Upsilon RFO”), DaVinci Reinsurance Ltd. (“DaVinci”), Vermeer
Reinsurance Ltd. (“Vermeer”) and Fibonacci Reinsurance Ltd. ("Fibonacci Re"). 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.
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 acquisitions, 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, Upsilon RFO and Vermeer in Bermuda, Renaissance Reinsurance U.S. in the U.S., and
Syndicate 1458 in the U.K. We write property and casualty and specialty reinsurance through our wholly
owned operating subsidiaries, joint ventures and Syndicate 1458 and certain insurance products primarily
3
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
losses occurring around the world. We view our 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.
We continually explore appropriate and efficient ways to address the risk needs of our clients and the
impact of various regulatory and legislative changes on our operations. We have created and managed,
and continue to manage, multiple capital vehicles across a number of jurisdictions and may create
additional risk bearing vehicles or enter into additional jurisdictions in the future. In addition, our
differentiated strategy and capability position us to pursue bespoke or large solutions for clients, which may
be non-recurring. This, and other factors including the timing of contract inception, could result in significant
volatility of premiums in both our Property and Casualty and Specialty segments. As our product and
geographical diversity increases, we may be exposed to new risks, uncertainties and sources of volatility.
ACQUISTION OF TOKIO MILLENNIUM RE AND STATE FARM STOCK PURCHASE
Acquisition of Tokio Millennium Re
On October 30, 2018, we entered into the a Stock Purchase Agreement by and among the Company, Tokio
Marine & Nichido Fire Insurance Co. Ltd. (“Tokio”) and, with respect to certain sections only, Tokio Marine
Holdings, Inc. (the “TMR Stock Purchase Agreement”), pursuant to which we agreed, subject to the terms
and conditions therein, to cause our wholly owned subsidiary RenaissanceRe Specialty Holdings (UK)
Limited to purchase all of the share capital of Tokio Millennium Re AG, Tokio Millennium Re (UK) Limited
and their subsidiaries (collectively, the “TMR Group Entities”) (the “TMR Stock Purchase”). The TMR Group
Entities comprise the treaty reinsurance business of Tokio Marine Holdings, Inc., including its third party
capital management fronting business. The TMR Stock Purchase is expected to close in the first half of
2019, subject to the closing conditions set forth in the TMR Stock Purchase Agreement, including the
receipt of required regulatory approvals. If consummated, the transaction would add a large portfolio of
reinsurance risk to our own portfolio, currently representing approximately $1.3 billion of incremental
reinsurance premium. Following the closing, we anticipate re-underwriting this portfolio over time, and
currently estimate that, in light of our existing risk appetite, we will target approximately $700.0 million of
gross reinsurance premiums. We will continue to evaluate the TMR Group Entities’ operations in the period
prior to closing, and it is possible that our analysis or views will evolve. We cannot assure you that the
current cedants or other business partners of the TMR Group Entities will renew their business with us, and
renewal of the current TMR Group Entities portfolio is not a condition to closing of the TMR Stock Purchase.
Moreover, in the near to medium term we expect operational expenses to increase as we undertake the
process of integrating the TMR Group Entities and their operations into our own after the closing. See
“Note 20. Acquisition of Tokio Millennium Re” for additional information regarding the TMR Stock Purchase.
State Farm Stock Purchase
On December 20, 2018, we issued 1,947,496 of our common shares to State Farm Mutual Automobile
Insurance Company (“State Farm”) in exchange for $250.0 million in a private placement pursuant to an
Investment Agreement we entered into with State Farm on October 30, 2018.
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 and flexible 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
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
costs, noncontrolling interests, certain expenses related to acquisitions and the remnants of our former
Bermuda-based insurance operations.
For the year ended December 31, 2018, our Property and Casualty and Specialty segments accounted for
53.2% and 46.8%, 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.”
5
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
2018
2017
2016
$ 1,760,926 $ 1,440,437 $ 1,111,263
1,263,313
1,357,110
—
(7)
$ 3,310,427 $ 2,797,540 $ 2,374,576
1,549,501
—
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. 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, as 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, 2018
(in thousands)
Excess of loss
Proportional
Delegated authority
Total gross premiums written
Year ended December 31, 2017
Excess of loss
Proportional
Delegated authority
Total gross premiums written
Year ended December 31, 2016
Excess of loss
Proportional
Delegated authority
Total gross premiums written
Property
Casualty and
Specialty
Other
Total
$1,473,381
220,458
67,087
$1,760,926
$ 366,635
965,141
217,725
$1,549,501
$1,192,980
195,473
51,984
$1,440,437
$ 262,415
894,810
199,885
$1,357,110
$ 932,725
148,555
29,983
$1,111,263
$ 218,816
900,819
143,678
$1,263,313
$
$
$
$
$
$
— $1,840,016
1,185,599
—
—
284,812
— $3,310,427
(7)
—
—
(7)
$1,455,388
1,090,283
251,869
$2,797,540
— $1,151,541
1,049,374
—
173,661
—
— $2,374,576
6
Property Segment
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. 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
2018
2017
2016
$ 1,349,324 $ 1,104,450 $
884,361
226,902
$ 1,760,926 $ 1,440,437 $ 1,111,263
335,987
411,602
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.
As noted above, our excess of loss property contracts generally cover all natural perils, and 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.
7
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. Principally all of
the business is reinsurance, however our book of insurance business has been increasing in recent
periods, and may continue to do so. The following table shows gross premiums written in our Casualty and
Specialty segment allocated by class of business:
Year ended December 31,
(in thousands)
Professional liability (1)
General casualty (2)
Financial lines (3)
Other (4)
Total Casualty and Specialty segment gross premiums
written
2018
2017
2016
$
485,851 $
453,097
352,902
257,651
452,310 $
417,880
303,800
183,120
377,580
327,939
413,068
144,726
$ 1,549,501 $ 1,357,110 $ 1,263,313
(1)
(2)
(3)
(4)
Includes directors and officers, medical malpractice, and professional indemnity.
Includes automobile liability, casualty clash, employer’s liability, umbrella or excess casualty, workers’ compensation and general
liability
Includes financial guaranty, mortgage guaranty, political risk, surety and trade credit.
Includes accident and health, agriculture, aviation, cyber, energy, marine, satellite and terrorism. Lines of business such as
regional multi-line and whole account may have characteristics of various other classes of business, and are allocated
accordingly.
In recent years, we have expanded our Casualty and Specialty segment operations through organic growth
initiatives and acquisitions, 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. We seek 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. 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.
8
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 acquisitions, capital servicing
costs and noncontrolling interests; and (4) the remnants of our former Bermuda-based insurance
operations.
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 49.7% of our gross premiums written for the year ended December 31, 2018. 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
Japan
Europe
Worldwide (excluding U.S.) (1)
Australia and New Zealand
Other
2018
2017
2016
Gross
Premiums
Written
Percentage
of Gross
Premiums
Written
Gross
Premiums
Written
Percentage
of Gross
Premiums
Written
Gross
Premiums
Written
Percentage
of Gross
Premiums
Written
$
978,063
29.4% $
954,269
34.1 % $
743,226
31.3%
464,311
71,601
144,857
66,872
19,273
15,949
14.0%
305,915
10.9 %
210,168
2.2%
4.4%
2.0%
0.6%
0.5%
49,821
49,486
48,182
14,151
18,613
1.8 %
1.8 %
1.7 %
0.5 %
0.7 %
44,536
37,611
55,043
13,729
6,950
8.9%
1.9%
1.6%
2.3%
0.6%
0.3%
Total Property Segment
1,760,926
53.1%
1,440,437
51.5 %
1,111,263
46.9%
Casualty and Specialty Segment
Worldwide
U.S. and Caribbean
Europe
Worldwide (excluding U.S.) (1)
Australia and New Zealand
Other
776,976
667,125
15,296
31,734
3,667
54,703
23.4%
20.2%
0.5%
1.0%
0.1%
1.7%
686,253
622,757
9,752
10,104
4,141
24,103
24.5 %
22.3 %
0.3 %
0.4 %
0.1 %
0.9 %
581,972
646,381
5,541
13,840
5,073
10,506
Total Casualty and Specialty Segment
1,549,501
46.9%
1,357,110
48.5 %
1,263,313
Other category
—
—%
(7)
— %
—
Total gross premiums written
$ 3,310,427
100.0% $ 2,797,540
100.0 % $ 2,374,576
24.5%
27.2%
0.2%
0.6%
0.2%
0.4%
53.1%
—%
100.0%
(1) The category “Worldwide (excluding U.S.)” consists of contracts that cover more than one geographic region (other than the
U.S.).
9
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.
Managed Joint Ventures
We actively manage a number of 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, Langhorne (comprised of Langhorne
Holdings LLC (“Langhorne Holdings”) and Langhorne Partners LLC (“Langhorne Partners”)(collectively,
“Langhorne”)), Medici, Upsilon RFO, RenaissanceRe Upsilon Fund Ltd. (“Upsilon Fund”), Vermeer 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 Langhorne,
Medici and Upsilon Fund.
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. DaVinciRe is managed by RUM in return for a management fee and
performance based incentive fee. Our noncontrolling economic ownership in DaVinciRe was 22.1% at
December 31, 2018 (2017 - 22.1%).
We expect our noncontrolling economic ownership in DaVinciRe to fluctuate over time.
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 and 50% by Renaissance Reinsurance. State Farm provides
$3.9 billion of stop loss reinsurance coverage to Top Layer Re. Top Layer Re is managed by RUM in return
for a management fee. 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. Medici is managed by RenaissanceRe Fund Management Ltd.
in return for a management fee. Our economic ownership in Medici was 16.6% at December 31, 2018
(2017 - 26.8%).
Upsilon RFO
In 2013, we formed 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
10
retrocessional property catastrophe excess of loss market. Upsilon RFO 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 RFO is considered a variable interest entity (“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 that we were not contractually required to provide.
Upsilon Fund
We incorporated Upsilon Fund, an exempted Bermuda limited segregated accounts company, in 2014.
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 that we were not contractually required to provide.
Currently, Upsilon Fund is invested in Upsilon RFO and Medici.
Vermeer
Effective December 17, 2018, we formed Vermeer, an exempted Bermuda reinsurer, with PGGM, a Dutch
pension fund manager. Vermeer provides capacity focused on risk remote layers in the U.S. property
catastrophe market. Vermeer is managed by RUM in return for a management fee. We maintain majority
voting control of Vermeer, while PGGM retains economic benefits. Vermeer is considered a VIE, as it has
voting rights that are not proportional to its participating rights and we are the primary beneficiary. As a
result, we consolidate Vermeer and all significant inter-company transactions have been eliminated. The
portion of Vermeer’s earnings owned by third parties is recorded in the consolidated statements of
operations as net income attributable to redeemable noncontrolling interests. We have not provided any
financial or other support to Vermeer that we were not contractually required to provide.
Fibonacci Re
In 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
private placements 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.
Langhorne
Effective December 22, 2017, we closed an initiative with Reinsurance Group of America, Incorporated to
source third party capital to support reinsurers targeting large in-force life and annuity blocks. Langhorne
Holdings is a company that owns and manages certain reinsurance entities within Langhorne. Langhorne
Partners is the general partner for Langhorne and the entity which manages the third-party investors
investing into Langhorne Holdings in return for a management and performance based incentive fee. We
concluded that Langhorne Holdings meets the definition of a VIE. We are not the primary beneficiary of
Langhorne Holdings and as a result, we do not consolidate the financial position or results of operations of
Langhorne Holdings. We concluded that Langhorne Partners was not a VIE. We account for our
11
investments in Langhorne Holdings and Langhorne Partners under the equity method of accounting, one
quarter in arrears. We anticipate that our investment in Langhorne will increase, perhaps materially, as in-
force life and annuity blocks of businesses are written. Other than our current and committed future equity
investment in Langhorne, we have not provided financial or other support to Langhorne 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 may be directed at
classes of risk other than catastrophe reinsurance, and at times may also be directed at non-insurance
risks, such as Insurtech opportunities. 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. For example, in 2018 we acquired a minority shareholding in Catalina Holdings
(Bermuda) Ltd, a long-term consolidator in the non-life insurance/reinsurance run-off sector, which is
accounted for at fair value and is included in other investments. Other examples of strategic investments
include our investments in Bluegrass Insurance Management, LLC, Tower Hill Claims Service, LLC, Tower
Hill Holdings, Inc., Tower Hill Insurance Group, LLC, Tower Hill Insurance Managers, LLC, Tower Hill Re
Holdings, Inc., Tower Hill Select Insurance Holdings, Inc., Tower Hill Signature Insurance Holdings, Inc. and
Tomoka Re Holdings, Inc. (collectively, the “Tower Hill Companies”), which are accounted for under the
equity method of accounting. We also have investments in Essent Group Ltd. and Trupanion Inc., which are
accounted for at fair value and are included in other investments.
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.
Our ventures business unit 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.
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.
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
12
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 and the (re)insurance industry continues to experience consolidation, 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, AXA XL, Axis Capital Holdings Limited, Chubb Limited, Everest Re Group, Ltd., Fidelis Insurance
Holdings Limited (“Fidelis”), Hamilton Re Ltd. (“Hamilton Re”), PartnerRe Ltd., Sompo International
(formerly known as Endurance Specialty Holdings Ltd.) and Third Point Reinsurance Ltd. (“Third Point”), 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. In conjunction with pricing models that we run outside of REMS©, the
REMS© framework encompasses and facilitates risk capture, 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
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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. Over the last five years, we have continued to develop our casualty and specialty modeling tools and
capabilities in line with our business needs. With the acquisition of Platinum Underwriters Holdings, Ltd.
(“Platinum”) and the expertise added since then, we believe our tools are now state of the art and fully
embedded in our underwriting processes.
We generally utilize a multiple model approach when evaluating a proposed transaction, combining both
probabilistic and deterministic techniques. We combine the analyses generated by REMS© with other
information and other model inputs 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,
driven either by new hazard science and understanding or by experience of loss events. For example, the
movement in cedant loss estimates seen across the market in the months following Hurricane Irma
prompted us to perform, in conjunction with several partner companies, a detailed review of the nature of
the claims made as a result of that event. In addition, we have reviewed the prevalence of “assignment of
benefits”, or “AOB” activity in underlying claims as well as the impact of loss adjusting expenses and the
costs associated with any litigation. This process is informing a change in our view of reinsurance risk in
certain parts of the state of Florida based on the observed behavioral norms. More generally our team of
scientists at Weather Predict Consulting Inc. (“Weather Predict”) have been tracking the impact of climate
and expanding urban development in both tornado/hail and wildfire risk over the last several years. The
recent history of California wildfire events, and particularly the extreme outbreaks during 2017 and 2018,
are being used to validate, and where necessary inform, our representation of this risk.
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.
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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.
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
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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
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
described below.
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
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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.
• 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, Group General Counsel and 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. 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. Rating 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.
In addition, S&P and A.M. Best assess 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” from each of these agencies, which is the highest ERM score assigned.
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.
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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
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 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 7. 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 investments, 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 4. 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.
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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.
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 2018, three brokerage firms accounted for 75.2% 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, 2018
AON
Marsh
Willis Towers Watson
Total of largest brokers
All others
Total
EMPLOYEES
Property
Casualty and
Specialty
Total
42.7%
29.1%
7.2%
79.0%
21.0%
38.4%
19.5%
12.9%
70.8%
29.2%
40.7%
24.6%
9.9%
75.2%
24.8%
100.0%
100.0%
100.0%
At February 4, 2019, we employed 411 people worldwide (February 2, 2018 - 384, February 17, 2017 -
376). Our overall headcount is expected to increase as a result of the TMR Stock Purchase.
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 business and support functions utilize information systems that provide critical services to both our
employees and our customers. 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©. We use off-site, secure data centers in
North America and Europe for most of our core applications, but our use of cloud-based services is
increasing as the security and reliability of these services improves.
Information security and privacy are important concerns, with an escalating cyber-threat environment and
evolving regulatory requirements driving continued investment in this area. Our information security
program is designed around the National Institute of Standards and Technology (“NIST”) cybersecurity
framework, upon which many cybersecurity regulations are modeled. In 2017, the New York Department of
Financial Services’ Cybersecurity Requirements for Financial Services Companies (the “NYDFS
Cybersecurity Regulation”), which sets minimum cybersecurity standards for financial institutions, insurers
and certain other companies supervised by the NYDFS and to which we are subject, became effective. In
addition, the National Association of Insurance Commissioners’ (the “NAIC”) adopted the Insurance Data
Security Model Law, which closely resembles the NYDFS Cybersecurity Regulation and will be considered
by states for adoption. These and other cybersecurity regulations impose significant new regulatory
requirements intended to protect the confidentiality, integrity and availability of information systems. Our
program is designed to comply with all applicable cybersecurity regulatory requirements and we continue to
evaluate and assess our compliance in the changing regulatory environment.
We protect our information systems with physical, electronic and software safeguards considered
appropriate by our management. In addition, we perform regular security penetration test scenarios and
provide regular security risk staff education awareness sessions in order to evaluate our preparedness and
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to enhance both our system’s and our users’ ability to identify, protect from, detect, respond to and recover
from such an incident. Despite these efforts, computer viruses, hackers, employee misuse or misconduct
and other internal or external hazards could expose our data systems to security breaches, cyber-attacks or
other disruptions.
We have implemented disaster recovery and business continuity plans for our operations which are
regularly tested with respect to our business-critical infrastructure and systems. We employ data backup
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 and remotely 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, Ireland and
Switzerland. 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. Upon
completion of the TMR Stock Purchase, we will become subject to increased regulation in various
jurisdictions, including the U.K., Switzerland and the U.S., including the insurance holding company laws of
New York, the domestic state of Tokio Millennium Re AG (US Branch), a United States branch of Tokio
Millennium Re AG.
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, RenaissanceRe Specialty U.S. and Vermeer, which are registered as Class 3B general business
insurers, 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.
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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.
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
statutory economic capital and surplus 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 economic 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
system”. 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
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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.
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. For so long as shares of RenaissanceRe are listed on the NYSE or another
recognized stock exchange, the Insurance Act requires that the BMA be notified in writing within 45 days of
any person becoming, or ceasing to be, a controller. A controller includes the managing director or 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 their intention to
effect a material change within the meaning of the Insurance Act, and shall not take any steps to give effect
to a material change unless, before the end of notice period unless they have been notified by the BMA in
writing that it has no objection to such change or the period has lapsed without the BMA issuing a notice of
objection.
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 and in calculating the
operational risk charge applicable in accordance with the insurer's BSCR model or approved internal model.
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.
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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 statutory economic capital and surplus to an amount that is equal to or exceeds the value
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 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.
Economic Substance Act. In December 2018, the Economic Substance Act 2018 (the “ESA”) came into
effect in Bermuda. Under the provisions of the ESA, every Bermuda registered entity engaged in a “relevant
activity” must satisfy economic substance requirements by maintaining a substantial economic presence in
Bermuda. Under the ESA, insurance or holding entity activities (both as defined in the ESA and Economic
Substance Regulations 2018) are relevant activities. To the extent that the ESA applies to any of our entities
registered in Bermuda, we will be required to demonstrate compliance with economic substance
requirements by filing an annual economic substance declaration with the Registrar of Companies in
Bermuda.
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
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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 an additional 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 adjustment expense and unearned premium reserves, 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 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
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 any person seeking to acquire control of a Maryland-domestic insurer or of an
entity that directly or indirectly controls a Maryland-domestic insurer, including its holding company, to file a
statement with the Maryland Insurance Administration at least 60 days before the proposed acquisition of
control. The transaction seeking to acquire control cannot be made unless, within 60 days after the
statement is filed with the Maryland Insurance Administration, or within any extension of that period, the
Maryland Insurance Administration approves, or does not disapprove, the transaction. 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 statements 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 U.S. licensed companies. We timely filed our enterprise risk reports with the Maryland Insurance
Administration for 2017 and 2018.
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Effective for 2018, Maryland adopted the Risk Management and Own Risk Solvency Assessment Act (the
“RMORSA Act”) based on the NAIC Own Risk Solvency Assessment Model Act. The RMORSA Act requires
Renaissance Reinsurance U.S. to: (i) maintain a risk management framework for identifying, assessing,
monitoring, managing, and reporting its material and relevant risks; (ii) complete an Own Risk Solvency
Assessment (“ORSA”) at least once each year and at any time there is a significant change to the risk
profile of Renaissance Reinsurance U.S. or its holding company system; and (iii) submit an ORSA summary
report to the Maryland Insurance Administration at least once each year. The obligation to maintain a risk
management framework may be satisfied if the RenaissanceRe group maintains a risk management
framework that applies to the operations of Renaissance Reinsurance U.S. and the ORSA obligation may
be satisfied if the RenaissanceRe group completes an ORSA in accordance with the requirements of the
RMORSA Act.
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 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 non-admitted alien reinsurers to provide collateral equal to one hundred percent of
their reinsurance obligations to U.S. ceding insurers in order for the U.S. ceding insurers to obtain full credit
for reinsurance. However, most states have adopted credit for reinsurance laws and regulations based on
NAIC model law and regulation amendments that permit U.S. ceding insurers to take full credit for
reinsurance when a “certified” reinsurer posts reduced collateral amounts. U.S. states are required to adopt
the NAIC model law and regulation amendments permitting reduced collateral for certified reinsurers as an
NAIC accreditation requirement by January 1, 2019. Under these credit for reinsurance laws and
regulations, qualifying alien reinsurers may reduce their 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 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 and regulations may accept such qualification in assessing reinsurers for
certification. Florida has approved Renaissance Reinsurance and DaVinci for collateral reduction. As noted
below, EU-domiciled reinsurers will be subject to the provisions of the US-EU Covered Agreement (defined
below) that require states to remove reinsurance collateral requirements for qualifying EU reinsurers as of
the US-EU Covered Agreement’s implementation date.
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
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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 and repeal of the insurance
company antitrust exemption from the McCarran Ferguson Act. 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 non-bank financial company as “systemically
significant” if its material financial distress could threaten the financial stability of the U.S. As of December
31, 2018, there were no non-bank financial companies designated as systemically significant by the FSOC.
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. In November 2017, the U.S. Department of the Treasury
(“Treasury”) issued a report recommending certain changes to the FSOC’s process for designating non-
bank financial companies as systemically significant in order to make the designation process more
rigorous, clear, and transparent. Any suggested changes ultimately adopted by the FSOC would be
implemented by FSOC directly, rather than through legislation.
The Dodd-Frank Act also created the Federal Insurance Office (“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 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 (“covered agreements”). In January 2017, Treasury and the USTR negotiated a covered
agreement with the EU regarding the prudential regulation of insurance and reinsurance (the “US-EU
Covered Agreement”), which was signed in September 2017. Each party has begun the process of
completing its internal requirements and procedures (such as amending or promulgating appropriate
statutes and regulations) in order for the US-EU Covered Agreement to enter into force. The NAIC is
working on proposed amendments to the Amended Credit for Reinsurance Model Act and Model Regulation
in order to satisfy the substantive and timing requirements of the US-EU Covered Agreement. In addition to
removing the reinsurance collateral obligations for EU reinsurers as required by the US-EU Covered
Agreement, the proposed NAIC amendments would also provide a means by which reinsurers domiciled in
other qualifying non-U.S. jurisdictions as well as reinsurers domiciled in qualifying states can achieve
equivalent reinsurance collateral status for reinsurance contracts with U.S. insurers.
The US-EU Covered Agreement addresses three areas of prudential insurance and reinsurance
supervision: reinsurance, group supervision and the exchange of information between the U.S. and EU.
Under the US-EU Covered Agreement, reinsurance collateral requirements will no longer apply to qualifying
EU reinsurers that sell reinsurance to the U.S. market, and U.S. reinsurers operating in the EU market will
no longer be subject to “local presence” requirements. The US-EU Covered Agreement also establishes
group supervision practices that apply only to U.S. and EU insurance groups operating in both territories.
For instance, the US-EU Covered Agreement provides that U.S. insurance groups with operations in the EU
will be supervised at the worldwide level only by U.S. insurance regulators, and precludes EU insurance
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supervisors from exercising solvency and capital requirements over the worldwide operations of U.S.
insurers.
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”).
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.
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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
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
28
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 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.
Switzerland Regulation
We have established branches of Renaissance Reinsurance and DaVinci in Zurich, Switzerland (the “Swiss
Branches”). The reinsurance operations of branch offices of foreign reinsurers are not regulated by The
Swiss Financial Market Supervisory Authority. We do not currently consider the activities of the Swiss
Branches to be material to us.
RenaissanceRe Services of Switzerland AG, our Zurich-based service company, was established as a stock
corporation in Switzerland on June 15, 2017. It is registered with the Commercial Register of Zurich is
subject to Chapter 26 of the Swiss Code of Obligations.
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
29
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.
Bordereaux
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 contract is considered bound, and the (re)insurer
responsible for the risks of the contract, when both parties agree to the
terms and conditions set forth in the contract.
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.
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.
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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
Delegated authority
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.
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.
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Excess of loss reinsurance or
insurance
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.
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.
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
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.
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Loss; losses
Loss reserve
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.
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.
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.
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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
Risks
Solvency II
Specialty lines
Statutory accounting
principles
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.
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.
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.
Stop loss
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.
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Submission
Surplus lines insurance
Syndicate
Treaty
Underwriting
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.
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.
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.
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. 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.
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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 and premium volatility 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.
Risks of volatility in our financial results are also exacerbated by the fact that the premiums in both our
Property and Casualty and Specialty segments are prone to significant volatility due to factors including the
timing of contract inception and our differentiated strategy and capability, which position us to pursue
bespoke or large solutions for clients, which may be non-recurring.
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. For example, our significant gross and net reserves associated with the large catastrophe
events in 2017 and 2018 remain subject to significant uncertainty. As these and other events mature, losses
are paid and information emerges, we expect our reserves may change, perhaps materially.
Accordingly, we may underestimate the exposures we are assuming and our results of operations 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
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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 amount of capital required to support the
ratings.
A ratings downgrade or other negative ratings action could adversely affect our ability to compete with other
reinsurers and insurers, as well as the marketability of our product offerings, our access to and cost of
borrowing and our ability to write new business, 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 or we could incur higher borrowing
costs on our credit facilities.
In addition, many reinsurance contracts contain provisions permitting cedants to, among other things,
cancel coverage pro rata or require the reinsurer to post collateral for all or a portion of its obligations if the
reinsurer is downgraded below a certain rating level. It is increasingly common for our reinsurance
agreements to contain such terms. Whether a cedant would exercise any of these rights could depend on
various factors, such as the reason for and extent of such downgrade, the prevailing market conditions and
the pricing and availability of replacement reinsurance coverage. We cannot predict to what extent these
contractual rights would be exercised, if at all, or what effect this would have on our financial condition or
future operations, but the effect could be material.
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. The trend towards increased severity and frequency of weather related natural disasters and
catastrophes which we believe arises in part from changes in climate conditions, coupled with currently
projected demographic trends in catastrophe-exposed regions, contributes to factors which we believe
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 these catastrophe-exposed regions.
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, wildfires 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, or other assets in our investment portfolio, could also be adversely impacted by climate change.
Retrocessional reinsurance may become unavailable on acceptable terms, or may not provide the
coverage we intended to obtain, or we may not be able to collect on claimed retrocessional
coverage.
As part of our risk management, we buy reinsurance for our own account, which is known as “retrocessional
reinsurance.” The reinsurance we purchase is generally subject to annual renewal. From time to time,
market conditions have limited or prevented insurers and reinsurers from obtaining retrocessional
reinsurance. Accordingly, we may not be able to renew our current retrocessional reinsurance
arrangements or obtain desired amounts of new or replacement coverage. In addition, even if we are able
to obtain such retrocessional reinsurance, we may not be able to negotiate terms that we consider
appropriate or acceptable from entities with satisfactory creditworthiness or collect on claimed
retrocessional coverage. 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. We have significant
37
reinsurance recoverables associated with the large catastrophe events of 2017 and 2018 and, generally, we
believe that the “willingness to pay” of some reinsurers and retrocessionaires is declining. Therefore, 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.
Recently enacted U.S. tax reform legislation, as well as possible future tax reform legislation and
regulations, could reduce our access to capital, decrease demand for our products and services,
impact our shareholders or investors in our joint ventures or other entities we manage or otherwise
adversely affect us.
U.S. tax reform legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Bill”), was signed
into law on December 22, 2017. The Tax Bill amends a range of U.S. federal tax rules applicable to
individuals, businesses and international taxation, including, among other things, by altering the current
taxation of insurance premiums ceded from a United States domestic corporation to any non-U.S. affiliate.
For example, the Tax Bill includes a new base erosion anti-avoidance tax (the “BEAT”) that would have
substantially altered the taxation of affiliate reinsurance between our operating affiliates which are subject to
U.S. taxation and our non-U.S. affiliates which are not. We believe those transactions would have become
economically unfeasible under the BEAT and terminated them as of the 2017 year end. While these
transactions were not significant for us, on an industry-wide basis for specific market participants the
impacts could be more material, and it is possible that over time the BEAT may result in increased prices for
certain reinsurance or insurance products, which could cause a decrease in demand for these products and
services due to limitations on the available resources of our clients or their underlying insureds.
The Tax Bill increased the likelihood that we or our non-U.S. subsidiaries or joint ventures managed by us
will be deemed a “controlled foreign corporation” (“CFC”) within the meaning of the Internal Revenue Code
for U.S. federal tax purposes. Specifically, the Tax Bill expands the definition of “U.S. shareholder” for CFC
purposes to include U.S. persons who own 10% or more of the value of a foreign corporation’s shares,
rather than only looking to voting power held. As a result, the “voting cut-back” provisions included in our
Amended and Restated Bye-laws that limit the voting power of any shareholder to 9.9% of the total voting
power of our capital stock will be ineffective in avoiding “U.S. shareholder” status for U.S. persons who own
10% or more of the value of our shares. The Tax Bill also expands certain attribution rules for stock
ownership in a way that would cause foreign subsidiaries in a foreign parented group that includes at least
one U.S. subsidiary to be treated as CFCs. In the event a corporation is characterized as a CFC, any “U.S.
shareholder” of the CFC is required to include its pro rata share of certain insurance and related investment
income in income for a taxable year, even if such income is not distributed. In addition, U.S. tax exempt
entities subject to the unrelated business taxable income (“UBTI”) rules that own 10% or more of the value
of our non-U.S. subsidiaries or joint ventures managed by us that are characterized as CFCs may
recognize UBTI with respect to such investment.
In addition to changes in the CFC rules, the Tax Bill contains modifications to certain provisions relating to
passive foreign investment company (“PFIC”) status that could, for example, discourage U.S. persons from
investing in our joint ventures or other entities we manage. The Tax Bill makes it more difficult for a non-U.S.
insurance company to avoid PFIC status under an exception for certain non-U.S. insurance companies
engaged in the active conduct of an insurance business. The Tax Bill limits this exception to a non-U.S.
insurance company that would be taxable as an insurance company if it were a U.S. corporation and that
maintains insurance liabilities of more than 25% of such company’s assets for a taxable year (or maintains
reserves that at least equal 10% of its assets and it satisfies a facts and circumstances test that requires a
showing that the failure to exceed the 25% threshold is due to run-off or rating agency circumstances).
While we believe that our non-U.S. insurance subsidiaries should satisfy this reserve test and we do not
expect to be a PFIC for the foreseeable future, we cannot assure you that this will continue to be the case in
future years, and there is a significant risk that joint venture entities managed by us may not satisfy the
reserve test.
The IRS has been considering other changes to the PFIC rules for several years. In 2015, the IRS issued
proposed regulations intended to clarify the application of this insurance company exception to the
classification of a non-U.S. insurer as a PFIC. These proposed regulations provide that a non-U.S. insurer
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will qualify for the insurance company exception only if, among other things, the non-U.S. insurer’s officers
and employees perform its substantial managerial and operational activities. This proposed regulation will
not be effective until adopted in final form.
We are unable to predict all of the ultimate impacts of the Tax Bill and other proposed tax reform regulations
and legislation on our business and results of operations. It is possible the IRS will construe the intent of the
Tax Bill as having been to reduce or eliminate certain perceived tax advantages of companies (including
insurance companies) that have legal domiciles outside the U.S., and its interpretation, enforcement actions
or regulatory changes could increase the impact of the Tax Bill beyond prevailing current assessments or
our own estimates. Further, it is possible that other legislation could be introduced and enacted in the future
that would have an adverse impact on us. These events and trends towards more punitive taxation of cross
border transactions could in the future materially adversely impact the insurance and reinsurance industry
and our own results of operations by increasing taxation of certain activities and structures in our industry.
Accordingly, we cannot reliably estimate what the potential impact of any such changes could be to us or
our non-U.S. subsidiaries or joint ventures managed by us and our and their respective sources of capital,
investors or the market generally, however, it is possible these changes could materially adversely impact
our results of operations.
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 a
one-way right to claim 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. Additionally, significant
uncertainty may arise from the attribution of potentially insured losses proximately or indirectly related to the
2017 and 2018 California wildfires.
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,
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.
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A 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 may
be 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 current reinsurance underwriting market is
in a prolonged soft market phase, but that it 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,
customers and retrocessionaires.
We believe our exposure to counterparty credit risk has increased in recent years. 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 no 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
may not be 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 of December 31, 2018, we had reinsurance
recoverables of $2.4 billion, and our failure to collect even a small portion of these recoverables, or a
meaningful delay in the collection of recoverables as to which our own underlying obligations are due, could
negatively affect our results of operations and financial condition, perhaps materially.
During periods 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 may increase, perhaps materially so.
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
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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, and 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 laws or regulations, or otherwise.
If the IRS were to contend successfully that we or one or more of our Bermuda subsidiaries is engaged in a
trade or business in the U.S., each entity engaged in a U.S. trade or business 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 or one or more of our Bermuda subsidiaries 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.
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 (such as our pending acquisition of the TMR Group Entities) 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. As provided in more detail below under “Risks
Related to the TMR Stock Purchase,” we face significant challenges in combining our operations with the
operations of the TMR Group, and we may not be able to accomplish this integration process smoothly or
successfully, which would reduce the anticipated benefits of the TMR Stock Purchase.
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
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
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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.
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 other investments, including but not limited to private
equity investments, 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. Our investment
portfolio also includes securities with a longer duration, which may be more susceptible to certain of these
risks.
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 investments,
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
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
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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.
As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers’
Association (“BBA”) member banks entered into settlements with certain regulators and law enforcement
agencies with respect to the alleged manipulation of LIBOR. Actions by the BBA, regulators or law
enforcement agencies as a result of these or future events, may result in changes to the manner in which
LIBOR is determined. Potential changes, or uncertainty related to such potential changes may adversely
affect the market for LIBOR-based securities. In addition, changes or reforms to the determination or
supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which
could have an adverse impact on the market for LIBOR-based securities.
In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase
out the use of LIBOR by the end of 2021, which may affect us adversely. If LIBOR ceases to exist, we may
need to renegotiate the terms of certain of our capital securities and credit instruments, which utilize LIBOR
as a factor in determining the interest rate, to replace LIBOR with the new standard that is established.
There is currently no definitive information regarding the future utilization of LIBOR or of any particular
replacement rate. As such, the potential effect of any such event on our cost of capital and net investment
income cannot yet be determined.
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 Program Reauthorization Act of 2007 (“TRIPRA”), which 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, expires on
December 31, 2020. 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.
Publicly reported instances of cyber security threats and incidents have increased over recent periods, and
we may be subject to heightened cyber-related risks. Our business depends 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. 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 believe we have implemented appropriate 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.
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We protect our information systems with physical and electronic safeguards as well as backup systems
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.
Although we attempt to keep personal, confidential, and proprietary information confidential, we may be
impacted by third parties who may not have or use appropriate controls to protect such information.
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 disaster or every scenario which might arise in respect of a 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.
The cybersecurity regulatory environment is evolving, and it is possible that the costs to us of and the
resources required for complying with new or developing regulatory requirements will increase. For
example, the NYDFS Cybersecurity Regulation imposes pre-breach cybersecurity obligations with which
certain of our subsidiaries are required to comply. We may be required to comply with other cybersecurity
requirements upon completion of the TMR Stock Purchase. It is also 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. We routinely evaluate potential investments and
strategic transactions, but there can be no assurance we will successfully consummate any such
transaction, or that a consummated transaction will succeed financially or strategically. 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. Our
pending acquisition of the TMR Group Entities will further concentrate our strategy on reinsurance. 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.
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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, management may determine that impairments are needed in
future periods and any such impairment will be recorded in the period in which it occurs, which could
materially impact our financial position or results of operations. Historical trends may not be indicative of
future impairments.
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. We believe the risks of inflation across our key markets is increasing. 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.
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. In addition, it is possible that delegated authority counterparties or other
counterparties authorized to bind policies on our behalf will fail to fully comply with regulatory requirements,
such as those relating to sanctions, or the standards we impose in light of our own underwriting and
reputational risk tolerance. 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.
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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, in general, redeem their interests in our joint ventures at
certain points in time, 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 alteration 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 may magnify these risks over time. Our pending acquisition of the TMR Group
Entities and significant third party capital management operations my further complicate our foreign
currency operational needs and risk.
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.
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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
subsidiaries, result in increased costs 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, and 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
47
these obligations. Regulatory restrictions on the payment of dividends under Bermuda law and various U.S.
laws regulate 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.
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. These provisions may 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:
•
•
•
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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 the 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 the growth, creation 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.
From time to time, the state of Florida has enacted legislation altering the size and the terms and operations
of the FHCF and Citizens. For example, in 2007 legislation expanded 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. Much of the impact of the 2007 legislation was
repealed over time. In January of 2019, a bill was filed for introduction in the Florida House of
Representatives, titled House Bill 561, which would, among other things, lower the FHCF’s aggregate
retention by about $2.1 billion; reduce the first limit provided by the FHCF from $17 billion to $7 billion;
implement a second event or season limit of a $7 billion; implement additional coverage options for Florida
domestic insurers to consider when choosing their specific FHCF limit; eliminate the FHCF cash build up
factor at times when the FHCF’s cash balance exceeds $7 billion; and permit appropriation of all of the
FHCF’s investment income for mitigation. At this time, we can not assess the likelihood of this proposed
legislation or other related legislation passing, or the precise impacts to us, our clients or the market should
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any such legislation be adopted. Because we are one of the largest providers of catastrophe-exposed
coverage globally and in Florida, adverse legislation such as the 2007 bill, or the weakened financial
position of Florida insurers which resulted in 2007 and could result from future legislation or other
occurrences, may have a greater adverse impact on us than it would on other reinsurance market
participants. In addition, 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 prior Florida
legislation, the current proposal or otherwise, that would 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.
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 operations.
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, pension funds, endowments, investment banks, investment managers, exchanges, hedge
funds and other capital markets participants have been 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 compete 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.
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 states, including Maryland , have enacted laws
that increase state regulation of insurance and reinsurance companies and holding companies. Moreover,
50
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.
Our business is subject to certain laws and regulations relating to sanctions and foreign corrupt
practices, the violation of which could adversely affect our operations.
We must comply with all applicable economic sanctions and anti-bribery laws and regulations of the U.S.
and other jurisdictions. U.S. laws and regulations that may be applicable to us in certain circumstances
include the economic trade sanctions laws and regulations administered by the U.S. Treasury Department’s
Office of Foreign Assets Control as well as certain laws administered by the U.S. Department of State. The
sanctions laws and regulations of non-U.S. jurisdictions in which we operate may differ to some degree
from those of the U.S. and these differences may additionally expose us to sanctions violations. In addition,
we are subject to the Foreign Corrupt Practices Act and other anti-bribery laws that generally prohibit
corrupt payments or improper gifts to non-U.S. governments or officials. Although we have policies and
controls in place that are designed to ensure compliance with these laws and regulations, it is possible that
an employee or intermediary could fail to comply with applicable laws and regulations. In such event, we
could be exposed to civil penalties, criminal penalties and other sanctions, including fines or other punitive
actions. In addition, such violations could damage our business and/or our reputation. Such criminal or civil
sanctions, penalties, other sanctions, and damage to our business and/or reputation could adversely affect
our financial condition and results of operations.
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 and potentially renegotiate or
terminate existing bilateral and multilateral trade arrangements, 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
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
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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 to the OECD or whether such changes will subject us to additional taxes. The EU has
initiated its own measures along similar lines. In December 2017, the EU identified certain jurisdictions
(including Bermuda) which it considered had a tax system that facilitated offshore structuring by attracting
profits without commensurate economic activity. In order to avoid EU “blacklisting”, Bermuda introduced
new economic substance legislation in December 2018, which came into force on January 1, 2019. Based
on the EU guidelines, the legislation requires Bermuda companies to be locally managed and directed, to
carry on their core income generating activities in Bermuda and to have an adequate level of local full time
qualified employees, local accommodation and local expenditure. There is no experience yet as to how the
Bermuda authorities will interpret and enforce these new rules and, accordingly, we are not able to predict
their impact on our operations and net income.
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. 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 implemented 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 implementation of country-by-country reporting has reduced the
likelihood that Bermuda would appear on a “black-list”, some uncertainty remains. The other actions
proposed in the BEPS report include an examination of the definition of a “permanent establishment” and
the rules for attributing profit to a permanent establishment, tightening up transfer pricing rules to ensure
that outcomes are in line with value creation, neutralizing the effect of hybrid financial instruments and
limiting the deductibility of interest costs of tax purposes. 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 to determine the terms of the U.K.’s withdrawal from the EU and its future
relationship with the EU are ongoing. 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. To
mitigate against the risks of Brexit we will utilize the Lloyd’s Brussels Subsidiary through RSML. The Lloyd's
Brussels Subsidiary is authorized and regulated by the National Bank of Belgium and regulated by the
Financial Services and Markets Authority. The Lloyd’s Brussels Subsidiary will write all non-life risks from
EEA countries from January 1, 2019.
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In addition, uncertainties related to Brexit 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.
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.”
Risks Related to the TMR Stock Purchase
Failure to complete the TMR Stock Purchase could negatively impact our future business and
financial results, and could adversely impact our ability to execute our strategy.
The TMR Stock Purchase Agreement contains a number of conditions precedent that must be satisfied or
waived prior to the completion of the TMR Stock Purchase, including the receipt of regulatory approvals in
multiple jurisdictions. There are no assurances that all of the conditions to the TMR Stock Purchase will be
so satisfied or waived. If the conditions to the TMR Stock Purchase are not satisfied or waived, then we
may be unable to complete the TMR Stock Purchase.
Additionally, in approving the TMR Stock Purchase Agreement and the transactions contemplated thereby,
our board of directors considered a number of factors and potential benefits, including its belief that the
TMR Stock Purchase will further our strategy to produce superior returns for our shareholders over the
long-term by pursuing market leadership in segments where leadership is derived from superior
underwriting. If the TMR Stock Purchase is not completed, neither we nor our shareholders will realize
these and other anticipated benefits of the TMR Stock Purchase. Moreover, we would have nevertheless
incurred substantial fees and costs, such as legal, accounting and financial advisor fees, and the loss of
management time and resources.
The TMR Group Entities will be exposed to underwriting and other business risks during the period
that the TMR Group Entities’ business continues to be operated independently from us.
Until completion of the TMR Stock Purchase, we and the TMR Group Entities will operate independently
from one another in accordance with each of our distinct underwriting guidelines, investment policies,
referral processes, authority levels and risk management policies and practices. As a result, during this
period, the TMR Group Entities may assume risks that we would not have assumed for ourselves, accept
premiums that, in our judgment, do not adequately compensate it for the risks assumed, make investment
decisions that would not adhere to our investment policies or otherwise make business decisions or take on
exposure that, while consistent with the TMR Group Entities’ general business approach and practices, are
53
not the same as ours. While the TMR Stock Purchase Agreement contains informational obligations and
various negative and affirmative covenants on management’s behavior and ability to bind the TMR Group
Entities, we cannot assure you such mechanisms will suffice to prohibit actions which could diminish the
value of the TMR Group Entities. Significant delays in completing the TMR Stock Purchase will materially
increase the risk that the TMR Group Entities will operate their business in a manner that differs from how
the business would have been conducted by us.
Risks Related to RenaissanceRe Following the TMR Stock Purchase
The integration of RenaissanceRe and the TMR Group Entities following the TMR Stock Purchase
may present significant challenges and costs.
We may face significant challenges, including technical, accounting and other challenges, in combining our
operations and that of the TMR Group Entities’. We entered into the TMR Stock Purchase Agreement
because we believe that the TMR Stock Purchase will be beneficial to us and our shareholders and
accelerate our existing strategy. Achieving the anticipated benefits of the TMR Stock Purchase will depend
in part upon whether we will be successful in integrating the TMR Group Entities’ businesses in a timely and
efficient manner. We may not be able to accomplish this integration process smoothly or successfully, and
we may incur unanticipated costs in connection with obtaining regulatory consents and approvals required
to complete the TMR Stock Purchase, which could also adversely affect our ability to integrate the
operations of the TMR Group Entities’ into RenaissanceRe or could reduce the anticipated benefits of the
TMR Stock Purchase.
Any of the following items could adversely affect the combined company’s ability to maintain relationships
with customers, brokers, employees and other constituencies or our ability to achieve the anticipated
benefits of the TMR Stock Purchase or could otherwise adversely affect our business and financial results
after the TMR Stock Purchase:
•
•
•
•
•
•
•
•
•
delays in the integration of management teams, strategies, operations, products and services;
diversion of the attention of management as a result of the TMR Stock Purchase;
differences in business backgrounds, corporate cultures and management philosophies that may delay
successful integration;
the inability to retain key employees;
the inability to establish and maintain integrated risk management systems, underwriting methodologies
and controls, which could give rise to excess accumulation or aggregation of risks, underreporting or
underrepresentation of exposures or other adverse consequences;
the inability to create and enforce uniform financial, compliance and operating controls, procedures,
policies and information systems;
complexities associated with managing the TMR Group Entities’ operating units as a component of
RenaissanceRe, including the challenge of integrating complex systems, technology, networks and
other assets of the TMR Group Entities into those of RenaissanceRe in a seamless manner that
minimizes any adverse impact on customers, brokers, employees and other constituencies;
potential unknown liabilities and unforeseen increased expenses or delays associated with the TMR
Stock Purchase, including one-time cash costs to integrate the TMR Group Entities beyond current
estimates; and
the disruption of, or the loss of momentum in, the combined company’s ongoing businesses or
inconsistencies in standards, controls, procedures and policies.
In addition, we will incur integration and restructuring costs following the completion of the TMR Stock
Purchase as we integrate the businesses of the TMR Group Entities. Although we expect that the
realization of efficiencies related to the integration of the businesses will offset incremental transaction,
integration and restructuring costs over time, we cannot give any assurance that this net benefit will be
achieved at any time in the future, if at all.
54
Our future results will suffer if we do not effectively manage our expanded operations following the
TMR Stock Purchase.
Following completion of the TMR Stock Purchase, we may continue to expand our operations, and our
future success depends, in part, upon our ability to manage our expansion opportunities, which pose
numerous risks and uncertainties, including the need to integrate the operations and business of the TMR
Group Entities into our existing business in an efficient and timely manner, to combine systems and
management controls and to integrate relationships with customers, vendors and business partners.
The market price of our common shares may decline in the future as a result of the sale of shares
issued to Tokio Marine & Nichido Fire Insurance Co., Ltd. (“TMNF”) and State Farm in connection
with the TMR Stock Purchase and the State Farm Stock Purchase or due to other factors.
We have issued $250.0 million of our common shares to State Farm in connection with the State Farm
Stock Purchase, and anticipate issuing approximately $250.0 million of our common shares to TMNF in
connection with the TMR Stock Purchase. Following a 12-month “lock-up” period, each of TMNF and State
Farm may seek to sell our common shares held by them. Our current shareholders may also seek to sell
our common shares held by them following, or in anticipation of, consummation of the TMR Stock Purchase
and the State Farm Stock Purchase, or in reaction to these announcements or the consummation of these
transactions. These sales (or the perception that these sales may occur), coupled with the increase in the
outstanding number of our common shares, may affect the market for, and the market price of, our common
shares in an adverse manner.
The market price of our common shares may also decline in the future as a result of the TMR Stock
Purchase for a number of other reasons, including:
•
•
•
•
the unsuccessful integration of the TMR Group Entities into RenaissanceRe;
our failure to achieve the anticipated benefits of the TMR Stock Purchase, including financial results, as
rapidly as or to the extent anticipated;
decreases in our financial results before or after the closing of the TMR Stock Purchase;
as described below, any failure to maintain our financial strength, claims-paying and enterprise-wide
risk management ratings as a result of the TMR Stock Purchase; or
•
general market or economic conditions unrelated to our performance.
These factors are, to some extent, beyond our control.
The completion of the TMR Stock Purchase and the post-acquisition integration process may
subject us to liabilities that currently cannot be estimated.
We have incurred significant transaction and integration costs in connection with our planned acquisition of
the TMR Group Entities, and, if we succeed in consummating the TMR Stock Purchase, we will incur
additional costs and expenses. These costs relate to matters including investment banking fees; legal,
actuarial and other professional fees; employee severance and sign-on costs, regulatory filing fees; and a
range of other matters. Moreover, the TMR Stock Purchase and post-merger integration process may give
rise to unexpected liabilities and costs, including financing costs and costs associated with the defense and
resolution of possible litigation or other claims. Unexpected delays in completing the TMR Stock Purchase
or in connection with the post-acquisition integration process may significantly increase our aggregate
related costs and expenses.
Following the TMR Stock Purchase, we will become subject to certain laws and regulations
applicable to the TMR Group Entities’ business to which we would not otherwise have been subject.
The TMR Group Entities are subject to the requirements of certain regulatory agencies and bodies, to which
our operations are not currently subject. Following the TMR Stock Purchase, the operations of the TMR
Group Entities will continue as part of the surviving company and, accordingly, we will become subject to
the laws and regulations applicable to such operations. It is difficult to predict or quantify the additional costs
to us that may result from complying with the additive regulatory requirements imposed by the regulatory
agencies with oversight authority over the operations to be acquired in the TMR Stock Purchase.
55
The TMR Group Entities’ counterparties to contracts and arrangements may acquire certain rights
upon the TMR Stock Purchase, which could negatively affect us following the TMR Stock Purchase.
In analyzing the value of the TMR Group Entities, we ascribed value to the revenue streams and renewal
prospects of certain of the TMR Group Entities’ in-force portfolio of business. The TMR Group Entities and
its operating subsidiaries are parties to numerous contracts, agreements, licenses, permits, authorizations
and other arrangements that contain provisions giving counterparties certain rights (including, in some
cases, termination rights) upon a “change in control” of the TMR Group Entities or their subsidiaries. The
definition of “change in control” varies from contract to contract, ranging from a narrow to a broad definition,
and in some cases, the “change in control” provisions may be implicated by the TMR Stock Purchase. If
such “change in control” provisions are triggered as a result of the TMR Stock Purchase, a wide range of
consequences may result, including the possibility that cedants will have the right to cancel and commute a
contract, or the requirement that the TMR Group Entities return unearned premiums, net of commissions, or
post certain collateral requirements.
Whether a counterparty would have any of these or other rights in connection with the TMR Stock Purchase
depends upon the language of its agreement with the TMR Group Entities or its applicable subsidiaries.
Whether a counterparty exercises any cancellation rights it has would depend on, among other factors,
such counterparty’s views with respect to our business reputation and financial strength following the TMR
Stock Purchase, the extent to which such counterparty currently has reinsurance coverage with our
affiliates, prevailing market conditions, the pricing and availability of replacement reinsurance coverage and
our ratings following the TMR Stock Purchase. We cannot currently predict the extent to which such
cancellation rights would be triggered or exercised, if at all.
In addition to the risk outlined above, many of these reinsurance contracts, as well as most of our
reinsurance and insurance contracts, renew annually, and so whether or not they may be terminated
following the TMR Stock Purchase, reinsurance cedants or policyholders may choose not to renew these
contracts with us following the TMR Stock Purchase.
Termination of in-force contracts or failure to renew reinsurance or insurance agreements and policies by
contractual counterparties could adversely affect the benefits to be received by us from the TMR Group
Entities’ contractual arrangements. If the benefits from these arrangements are less than expected,
including as a result of these arrangements being terminated, determined to be unenforceable, in whole or
in part, or the counterparties to such arrangements failing to satisfy their obligations thereunder, the benefits
of the TMR Stock Purchase to us may be significantly less than anticipated.
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, Singapore and Switzerland. 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, including in connection with the TMR Stock Purchase. 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
56
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.
57
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.” On February 4, 2019, there were 114
holders of record of our common shares.
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, 2013 and ending December 31, 2018, assuming $100 was invested on
December 31, 2013. 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,
2014 through December 31, 2018. As depicted in the graph below, during this period, the cumulative return
was (1) 44.8% on our common shares; (2) 50.3% for the S&P 500; and (3) 71.1% for the S&P P&C.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
58
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 November 10,
2017, our Board of Directors approved a renewal of our authorized share repurchase program to an
aggregate amount of up to $500.0 million. Unless terminated earlier by our 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, 2018, and
also includes other shares purchased, which represents common shares surrendered by employees 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)
— $
—
1,360
4,508
5,868
$
$
$
124.85
133.58
131.56
— $
1,360
4,508
5,868
$
$
$
—
124.85
133.58
131.56
— $
— $
— $
— $
$
500.0
—
—
—
— $
—
—
—
500.0
Beginning dollar amount
available to be
repurchased
October 1 - 31, 2018
November 1 - 30, 2018
December 1 - 31, 2018
Total
During 2018, we did not repurchase any of our common shares. 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.
59
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, 2018. 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,
2018
2017
2016
2015
2014
(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 (losses) gains on
investments
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income (loss)
Net income (loss)
Net income (loss) available (attributable) to
RenaissanceRe common shareholders
Net income (loss) available (attributable) 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
$ 3,310,427
2,131,902
1,976,129
261,866
$ 2,797,540
1,871,325
1,717,575
222,209
$ 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
(175,069)
135,822
1,120,018
432,989
178,267
244,855
268,917
1,861,428
346,892
160,778
(651,523)
(354,671)
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
197,276
(244,770)
480,581
408,811
510,337
4.91
1.32
(6.15)
1.28
11.43
1.24
9.28
1.20
12.60
1.16
39,755
39,854
41,559
43,526
39,968
4.7%
87.6%
(5.7)%
137.9 %
11.0%
72.5%
9.8%
64.7%
14.9%
50.2%
2018
2017
2016
2015
2014
$11,885,747
18,676,196
6,076,271
1,716,021
991,127
25,853
650,000
$ 9,503,439
15,226,131
5,080,408
1,477,609
989,623
26,387
400,000
$ 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
5,045,080
4,391,375
4,866,577
4,732,184
3,865,715
42,207
104.13
19.32
123.45
40,024
99.72
18.00
117.72
$
$
41,187
108.45
16.72
125.17
$
$
43,701
99.13
15.48
114.61
$
$
38,442
90.15
14.28
104.43
$
$
$
$
Change in book value per common share plus
change in accumulated dividends
5.7%
(6.9)%
10.7%
11.3%
13.7%
60
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 2018 compared to 2017 and 2017
compared to 2016, respectively. The following also includes a discussion of our liquidity and capital
resources at December 31, 2018. 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 provide property, casualty and
specialty reinsurance and certain insurance solutions to customers, principally through intermediaries.
Established in 1993, we have offices in Bermuda, Ireland, Singapore, Switzerland, the U.K., and the U.S.
Our operating subsidiaries include Renaissance Reinsurance, RenaissanceRe Specialty U.S., Renaissance
Reinsurance U.S., Renaissance Reinsurance of Europe and Syndicate 1458. We also underwrite
reinsurance on behalf of joint ventures, including Top Layer Re, Upsilon RFO, DaVinci, Vermeer and
Fibonacci Re. In addition, through Medici, we invest in various insurance based investment instruments that
have returns primarily tied to property catastrophe risk.
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 acquisitions, 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, Upsilon RFO and Vermeer in Bermuda, Renaissance Reinsurance U.S. in the U.S., and
Syndicate 1458 in the U.K. 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.
61
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 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.
We continually explore appropriate and efficient ways to address the risk needs of our clients and the
impact of various regulatory and legislative changes on our operations. We have created and managed,
and continue to manage, multiple capital vehicles across a number of jurisdictions and may create
additional risk bearing vehicles or enter into additional jurisdictions in the future. In addition, our
differentiated strategy and capability position us to pursue bespoke or large solutions for clients, which may
be non-recurring. This, and other factors including the timing of contract inception, could result in significant
volatility of premiums in both our Property and Casualty and Specialty segments. 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,
Vermeer 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, notwithstanding the impact of the write-down of a portion of our deferred tax
asset in the fourth quarter of 2017 associated with the adoption of the Tax Bill. 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.
62
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
related to specific contracts which we believe may not be adequately estimated by the client as of that date,
or adequately covered in the application of IBNR.
We will account for the acquisition of the TMR Group Entities, which is expected to close in the first half of
2019, under the acquisition method of accounting in accordance with FASB ASC Topic Business
Combinations, under which the total consideration paid will be allocated among acquired assets and
assumed liabilities based on the fair values of the assets acquired and liabilities assumed. Upon acquisition,
the TMR Group Entities’ assets and liabilities, including the TMR Group Entities’ claim and claim expense
reserves, will be consolidated by RenaissanceRe.
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, 2018
(in thousands)
Property
Casualty and Specialty
Other
Total
At December 31, 2017
(in thousands)
Property
Casualty and Specialty
Other
Total
Case
Reserves
Additional
Case Reserves
IBNR
Total
$
690,718 $ 1,308,307 $ 1,087,229 $ 3,086,254
2,985,393
771,537
4,624
1,458
$ 1,463,713 $ 1,425,184 $ 3,187,374 $ 6,076,271
2,096,979
3,166
116,877
—
$
696,285 $
689,962
6,605
893,583 $ 2,486,390
2,575,492
18,526
$ 1,392,852 $ 1,021,445 $ 2,666,111 $ 5,080,408
896,522 $
124,923
—
1,760,607
11,921
63
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
Foreign exchange
Net reserves as of December 31
Reinsurance recoverable as of December 31
Gross reserves as of December 31
2018
2017
2016
$ 3,493,778 $ 2,568,730 $ 2,632,519
1,390,767
(270,749)
1,120,018
1,902,424
(40,996)
1,861,428
694,957
(164,126)
530,831
391,061
503,708
894,769
(14,977)
3,704,050
2,372,221
83,015
450,527
506,279
524,298
589,294
974,825
(5,326)
38,445
2,568,730
3,493,778
279,564
1,586,630
$ 6,076,271 $ 5,080,408 $ 2,848,294
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
2018
2017
2016
(Favorable)
adverse
development
$ (221,290) $
(49,262)
(197)
(Favorable)
adverse
development
(Favorable)
adverse
development
(45,596) $ (104,876)
(58,140)
(1,110)
6,183
(1,583)
$ (270,749) $
(40,996) $ (164,126)
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
64
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 7. 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.
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, 2018 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.
65
The following table details our Property segment incurred claims and claim expenses, net of reinsurance, as
of December 31, 2018.
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$ 219,979
$ 164,369
$ 145,207
$ 138,747
$ 134,490
$ 135,245
$ 134,539
$ 134,811
$ 134,355
$
134,876
—
—
—
—
—
—
—
—
—
609,380
561,524
526,928
531,199
550,980
554,733
564,345
566,475
555,642
— 1,264,374
1,192,868
1,141,403
1,091,415
1,070,957
1,040,721
1,036,663
1,033,601
—
—
—
—
—
—
—
—
—
—
—
—
—
—
437,940
344,487
311,648
293,873
275,910
264,532
257,246
—
—
—
—
—
—
227,268
196,729
174,335
152,715
141,197
137,660
—
—
—
—
—
183,249
154,469
147,138
142,864
142,457
—
—
—
—
226,039
195,164
176,159
167,916
—
—
—
252,556
254,151
241,296
— 1,342,161
1,167,013
—
—
718,266
$ 4,555,973
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 2011 accident year
have developed favorably by $230.8 million, which is 18.3% better than our initial estimates of incurred
claims and claim expenses for the 2011 accident year estimated as of December 31, 2011. This was largely
driven by reductions in estimated ultimate claims and claim expenses associated with a number of large
catastrophe events that occurred in 2011, including the Tohoku Earthquake, a number of large tornadoes in
the U.S., the Australian Floods, Hurricane Irene and the Thailand Floods. 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, 2018 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
66
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,
2018
$ 3,401,044 $
3,086,254
$ Impact of
Change
Reserve for
Claims
and Claim
Expenses
at
December 31,
2018
314,790
—
2,911,835
(174,419)
% Impact of
Change
on Reserve for
Claims
and Claim
Expenses
at
December 31,
2018
5.2 %
— %
(2.9)%
% Impact of
Change on Net
Income for
the Year Ended
December 31,
2018
(117.1)%
— %
64.9 %
% Impact of
Change on
Shareholders’
Equity at
December 31,
2018
(6.2)%
— %
3.5 %
(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
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, 2018 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
67
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, 2018.
(in thousands)
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$ 479,421
$ 470,031
$ 471,808
$ 438,538
$ 417,569
$ 395,631
$ 387,184
$ 382,077
$ 385,230
$
386,863
—
—
—
—
—
—
—
—
—
382,996
389,460
375,980
340,465
318,979
305,784
304,096
300,054
299,490
—
—
—
—
—
—
—
—
382,194
381,062
351,692
321,471
313,955
307,899
297,405
303,844
—
—
—
—
—
—
—
427,341
425,617
395,823
387,532
377,527
391,350
409,458
—
—
—
—
—
—
392,146
362,017
338,054
319,555
305,114
295,703
—
—
—
—
—
477,587
459,317
454,589
439,609
416,162
—
—
—
—
413,112
432,538
453,052
422,675
—
—
—
427,483
430,606
425,157
—
—
553,215
564,282
—
649,147
$ 4,172,781
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
2013 accident year from the initial estimates. This decrease was principally driven by actual reported and
paid net claims and claim expenses associated with the 2013 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 places weight on 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 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
68
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 2011 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, 2018 of a reasonable range of possible
outcomes in the actuarial assumptions used to estimate our December 31, 2018 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 impact on net income and shareholders’ equity assumes no increase or decrease in
reinsurance recoveries, loss related premium or redeemable noncontrolling interest – DaVinciRe.
Casualty and Specialty Claims and Claim Expense Reserve Sensitivity Analysis
$ Impact of
Change
on Reserves
for
Claims and
Claim
Expenses at
December 31,
2018
% Impact of
Change
on Reserve
for
Claims and
Claim
Expenses at
December 31,
2018
% Impact of
Change on
Net Income
for the Year
Ended
December 31,
2018
% Impact of
Change on
Shareholders’
Equity at
December 31,
2018
$
364,293
6.0 %
(135.5)%
(7.2)%
209,698
3.5 %
(78.0)%
(4.2)%
76,341
1.3 %
(28.4)%
(1.5)%
140,541
2.3 %
(52.3)%
(2.8)%
—
— %
— %
— %
(121,234)
(2.0)%
45.1 %
2.4 %
(83,211)
(1.4)%
30.9 %
1.6 %
(209,698)
(3.5)%
78.0 %
4.2 %
(318,808)
(5.2)%
118.6 %
6.3 %
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
69
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 $4.6 million at December 31, 2018 (2017 - $18.5 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.
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
70
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
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. At December 31, 2018, our
reinsurance recoverable balance was $2.4 billion (2017 - $1.6 billion). Of this amount, 60.8% is fully
collateralized by our reinsurers, 38.0% is recoverable from reinsurers rated A- or higher by major rating
agencies and 1.2% is recoverable from reinsurers rated lower than A- by major rating agencies (2017 -
54.5%, 44.5% and 1.0%, respectively). The increase in our reinsurance recoverable balance during 2018
was principally related to the 2018 Large Loss Events (as defined herein). Similarly, the increase during
2017 was primarily the result of reinsurance recoverables related to Hurricanes Harvey, Irma and Maria and
the Mexico City Earthquake (the “Q3 2017 Catastrophe Events”), the wildfires in California during the fourth
quarter of 2017 (the “Q4 2017 California Wildfires”) and losses associated with aggregate loss contracts
(the “2017 Aggregate Losses” and collectively with the Q3 2017 Catastrophe Events and the Q4 2017
California Wildfires, the “2017 Large Loss Events”). The reinsurers with the three largest balances
accounted for 15.5%, 6.7% and 6.5%, respectively, of our reinsurance recoverable balance at
December 31, 2018 (2017 - 10.4%, 7.5% and 7.3%, respectively). The valuation allowance recorded
against reinsurance recoverable was $9.0 million at December 31, 2018 (2017 - $7.0 million). The three
largest company-specific components of the valuation allowance represented 16.2%, 14.8% and 12.3%,
respectively, of our total valuation allowance at December 31, 2018 (2017 - 11.1%, 9.2% and 8.4%,
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.
71
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, 2018, we classified $59.5 million and $13.3 million of our assets and liabilities,
respectively, at fair value on a recurring basis using Level 3 inputs. This represented 0.3% and 0.1% 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
is determined based on the lowest level input that is significant to the fair value measurement of the asset
or liability.
Refer to “Note 5. 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, subject to impairment. 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 are
being amortized over their estimated useful lives from the date of acquisition, 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.
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. Goodwill resulting from
72
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). Goodwill is assigned to the applicable
reporting unit of the acquired entities giving rise to the goodwill and other intangible assets.
We anticipate we will account for the acquisition of the TMR Group Entities under the acquisition method of
accounting in accordance with ASC Topic Business Combinations, under which the total consideration paid
will be allocated among acquired assets and assumed liabilities based on the fair values of the assets
acquired and liabilities assumed. We anticipate that the purchase price paid will exceed the fair values of
the net assets acquired, perhaps significantly so, and the excess will be accounted for as goodwill.
Intangible assets with definite lives will be amortized over their estimated useful lives. Goodwill resulting
from the acquisition of the TMR Group Entities will not be amortized but instead will be tested for
impairment at least annually, as outlined below (more frequently, if certain indicators are present). In the
event that 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.
We assess 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, we assess qualitative factors to determine if events or
circumstances exist that would lead us to conclude that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If we determine that it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount, then we do not perform a quantitative evaluation.
Should we determine that a quantitative analysis is required, we will first determine the fair value of the
reporting unit and compare that with the carrying value, including goodwill. If the fair value of the reporting
unit exceeds its carrying amount, then goodwill is not considered impaired and no further analysis is
required. If the carrying amount of a reporting unit exceeds its fair value, we then proceed to determine the
amount of the impairment charge, if any. There are 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, 2018, 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 (2017 - $197.6 million) and $39.8 million of other intangible assets (2017 -
$45.6 million). Impairment charges related to these balances were $Nil during the year ended
December 31, 2018 (2017 - $Nil, 2016 - $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.
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, 2018, we had $115.2 million (2017 -
$102.0 million) in investments in other ventures, under equity method on our consolidated balance sheets,
including $10.6 million of goodwill and $17.1 million of other intangible assets (2017 – $7.8 million and $8.9
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.
73
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, 2018, we recorded $Nil (2017 - $Nil, 2016 - $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 3. 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 finance charges, 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.
As a result of the reduction in the U.S. corporate tax rate from 35% to 21% effective January 1, 2018
pursuant to the Tax Bill, which was enacted on December 22, 2017, the Company recorded a $36.7 million
write-down of its deferred tax asset during the fourth quarter of 2017.
At December 31, 2018, our net deferred tax asset (prior to our valuation allowance) and valuation allowance
were $99.9 million (2017 - $86.7 million) and $35.3 million (2017 - $30.0 million), respectively (see “Note 14.
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. The majority of the valuation allowance relates to a substantial portion of our deferred tax
assets in our Ireland, U.K., and Singapore operations as these operations have produced historical GAAP
taxable losses, among other facts. A small valuation allowance also continues to be recorded against finite
lived tax carryforwards in our U.S. operations.
We have unrecognized tax benefits of $Nil as of December 31, 2018 (2017 - $Nil). Interest and penalties
related to unrecognized tax benefits, would be recognized in income tax expense. At December 31, 2018,
interest and penalties accrued on unrecognized tax benefits were $Nil (2017 - $Nil). Income tax returns filed
for tax years 2015 through 2017, 2014 through 2017, 2017, 2014 through 2017, and 2017, are open for
examination by the IRS, Irish tax authorities, U.K. tax authorities, Singapore and Switzerland 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.
74
SUMMARY OF RESULTS OF OPERATIONS
Year ended December 31,
2018
2017
2016
(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 (loss)
Net investment income
Net realized and unrealized (losses) gains on
investments
Change in net unrealized gains on fixed maturity
investments available for sale
Total investment result
Net income (loss)
Net income (loss) available (attributable) to
RenaissanceRe common shareholders
Net income (loss) available (attributable) to
RenaissanceRe common shareholders per common
share – diluted
Dividends per common share
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
Return on average common equity
$ 3,310,427
$ 2,797,540
$ 2,374,576
$ 2,131,902
$ 1,871,325
$ 1,535,312
$ 1,976,129
$ 1,717,575
$ 1,403,430
1,120,018
1,861,428
432,989
178,267
244,855
346,892
160,778
$ (651,523)
261,866
$
222,209
(175,069)
135,822
—
—
86,797
$
358,031
268,917
$ (354,671)
197,276
$ (244,770)
4.91
1.32
$
$
(6.15)
1.28
$
$
$
$
$
$
$
530,831
289,323
197,749
385,527
181,726
141,328
(1,870)
321,184
630,048
480,581
11.43
1.24
$
$
$
$
$
$
$
70.4 %
110.8 %
49.5 %
(13.7)%
56.7 %
30.9 %
87.6 %
4.7 %
(2.4)%
108.4 %
29.5 %
137.9 %
(5.7)%
(11.7)%
37.8 %
34.7 %
72.5 %
11.0 %
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,
2018
104.13
$
19.32
$
123.45
$
$
December 31,
2017
99.72
18.00
December 31,
2016
108.45
$
16.72
117.72
$
125.17
5.7 %
(6.9)%
10.7 %
Balance sheet highlights
Total assets
Total shareholders’ equity attributable to
RenaissanceRe
December 31,
2018
$18,676,196
December 31,
2017
$15,226,131
December 31,
2016
$12,352,082
$ 5,045,080
$ 4,391,375
$ 4,866,577
75
Results of operations for 2018 compared to 2017.
Net income available to RenaissanceRe common shareholders was $197.3 million in 2018, compared to a
net loss attributable to RenaissanceRe common shareholders of $244.8 million in 2017, an increase of
$442.0 million. As a result of our net income available to RenaissanceRe common shareholders in 2018, we
generated an annualized return on average common equity of 4.7% and our book value per common share
increased from $99.72 at December 31, 2017 to $104.13 at December 31, 2018, a 5.7% increase, after
considering the change in accumulated dividends paid to our common shareholders.
The most significant events affecting our financial performance during 2018, on a comparative basis to
2017, include:
•
Impact of Catastrophe Events - we had a net negative impact on our net income available to
RenaissanceRe common shareholders of $216.1 million from the Q3 2018 Catastrophe Events, the Q4
2018 Catastrophe Events, and the 2018 Aggregate Losses (each as defined herein and collectively, the
“2018 Large Loss Events”), partially offset by a net positive impact of $129.8 million resulting from
decreases in the estimates of the net negative impact of the 2017 Large Loss Events , compared to a
net negative impact of $720.2 million associated with the 2017 Large Loss Events recorded in 2017;
• Underwriting Results - we generated underwriting income of $244.9 million and had a combined ratio of
87.6% in 2018, compared to an underwriting loss of $651.5 million and a combined ratio of 137.9%, in
2017. Our underwriting income in 2018 was comprised of $262.1 million of underwriting income in our
Property segment, partially offset by a $17.0 million underwriting loss in our Casualty and Specialty
segment.
Included in our underwriting results for 2018 were the 2018 Large Loss Events, which had a net
negative impact on our underwriting result of $340.2 million and added 18.6 percentage points to the
combined ratio, partially offset by changes in the estimates of the 2017 Large Loss Events, which had a
positive impact on the underwriting result of $157.8 million and reduced the combined ratio by 8.0
percentage points. In addition, as a result of the Q4 2018 California Wildfires, the Company’s
underwriting result was negatively impacted by certain casualty liability exposures within the Casualty
and Specialty segment. In comparison, in 2017 the underwriting result experienced a net negative
impact of $989.2 million, or an increase in the combined ratio of 59.4 percentage points, associated
with the 2017 Large Loss Events;
• Non-recurring Reinsurance Transactions - our results for 2018 include certain large, non-recurring
reinsurance transactions, which are reflected in our Property segment and increased net premiums
earned by $72.3 million and contributed $56.2 million to our net income available to RenaissanceRe
common shareholders. While we expect these transactions to be non-recurring, we believe they reflect
our differentiated strategy, our capability to provide bespoke or large solutions for our clients and our
continued focus on serving our clients with unique coverages;
• Gross Premiums Written - our gross premiums written increased by $512.9 million, or 18.3%, to $3.3
billion in 2018, compared to 2017, driven primarily by increases of $320.5 million in the Property
segment and $192.4 million in the Casualty and Specialty segment. Included in gross premiums written
in 2018 were $94.5 million of reinstatement premiums written associated with the 2018 Large Loss
Events and changes in the estimates of the 2017 Large Loss Events, and $102.3 million of gross
premiums written associated with a large, non-recurring reinsurance transaction, each principally within
the Property segment. Included in the gross premiums written in 2017 were $180.2 million of
reinstatement premiums written associated with the 2017 Large Loss Events;
•
Investment Results - our total investment result, which includes the sum of net investment income and
net realized and unrealized gains and losses on investments, was $86.8 million in 2018, compared to
$358.0 million in 2017, a decrease of $271.2 million. The decrease was primarily driven by net realized
and unrealized losses on investments of $175.1 million in 2018, compared to net realized and
unrealized gains on investments of $135.8 million in 2017. The net realized and unrealized losses on
investments in 2018 were driven by net realized and unrealized losses on the fixed maturity
investments portfolio, and net realized and unrealized losses on the equity investments trading portfolio.
Partially offsetting these items was higher net investment income from our portfolios of fixed maturity
investments trading and short term investments, primarily driven by higher average invested assets and
the impact of interest rate increases during recent periods; and
76
• Net Income Attributable to Redeemable Noncontrolling Interests - our net income attributable to
redeemable noncontrolling interests was $41.6 million in 2018, compared to a net loss attributable to
redeemable noncontrolling interests of $132.3 million in 2017. The increase was principally due to
DaVinciRe generating underwriting income in 2018 compared to significant underwriting losses in 2017.
Our ownership in DaVinciRe was 22.1% at both December 31, 2018 and December 31, 2017.
Results of operations for 2017 compared to 2016.
Net loss attributable to RenaissanceRe common shareholders was $244.8 million in 2017, compared to net
income available to RenaissanceRe common shareholders of $480.6 million in 2016, a decrease of $725.4
million. As a result of our net loss attributable to RenaissanceRe common shareholders in 2017, our
annualized return on average common equity was negative 5.7% and our book value per common share
decreased from $108.45 at December 31, 2016 to $99.72 at December 31, 2017, a 6.9% decrease, after
considering the change in accumulated dividends paid to our common shareholders, and the impact of
repurchasing an aggregate of 1.3 million common shares in open market transactions.
The most significant events affecting our financial performance during 2017, on a comparative basis to
2016, include:
• Underwriting Loss - Primarily as a result of 2017 Large Loss Events, we incurred an underwriting loss of
$651.5 million and a combined ratio of 137.9% in 2017, compared to generating underwriting income of
$385.5 million and a combined ratio of 72.5%, respectively, in 2016. Our underwriting loss in 2017 was
comprised of an underwriting loss of $574.9 million in our Property segment, and an underwriting loss
of $78.2 million in our Casualty and Specialty segment.
The 2017 Large Loss Events resulted in $959.8 million of underwriting losses in our Property segment,
or 110.5 percentage points on its combined ratio in 2017, and $29.4 million of underwriting losses in our
Casualty and Specialty segment, or 3.7 percentage points on its combined ratio in 2017. See below for
additional information regarding the net negative impact of the 2017 Large Loss Events. Our
underwriting results are discussed in additional detail below in “Underwriting Results by Segment”;
• Income Tax Expense - we recognized $26.5 million of income tax expense in 2017, compared to $0.3
million in 2016, representing a $26.1 million increase in income tax expense. The increase in income
tax expense was principally driven by a write-down of a portion of our deferred tax asset during the
fourth quarter of 2017 of $36.7 million as a result of the reduction in the U.S. corporate tax rate from
35% to 21% effective January 1, 2018 pursuant to the Tax Bill, which was enacted on December 22,
2017. Partially offsetting this income tax expense was an income tax benefit associated with pre-tax
GAAP losses in our U.S.-based operations primarily due to underwriting losses associated with 2017
Large Loss Events, compared to pre-tax GAAP income in our U.S.-based operations in 2016; partially
offset by
• Net Loss Attributable to Redeemable Noncontrolling Interests - our net loss attributable to redeemable
noncontrolling interests was $132.3 million in 2017, compared to net income attributable to redeemable
noncontrolling interests of $127.1 million in 2016. The decrease was principally due to significant
underwriting losses associated with the 2017 Large Loss Events incurred by DaVinciRe, and a
decrease in our ownership in DaVinciRe to 22.1% at December 31, 2017, compared to 24.0% at
December 31, 2016; and
• Investment Results - our total investment result, which includes the sum of net investment income, net
realized and unrealized gains on investments, and the change in net unrealized gains on fixed maturity
investments available for sale, was $358.0 million in 2017, compared to $321.2 million in 2016, an
increase of $36.8 million. Our fixed maturity investment portfolio generated higher net investment
income during 2017, compared to 2016, principally driven by higher average invested assets and the
impact of interest rate increases during the current year. In addition, our portfolio of other investments
experienced higher returns during 2017, compared to 2016, principally driven by our private equity
investments. We also experienced a $24.2 million increase in net realized and unrealized gains on
equity investments trading driven by positive returns in the global equity markets, combined with the
strong performance of a number of our equity positions.
77
Net Negative Impact
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. Our estimates of net negative impact are based on a review of our potential exposures, preliminary
discussions with certain counterparties and catastrophe modeling techniques. Our actual net negative
impact, both individually and in the aggregate, will vary from these estimates, perhaps materially. Changes
in these estimates will be recorded in the period in which they occur.
Meaningful uncertainty remains regarding the estimates, and the nature and extent of the losses,
associated with Typhoons Jebi, Mangkhut and Trami, Hurricane Florence and the wildfires in California
during the third quarter of 2018 (collectively, the Q3 2018 Catastrophe Events”), Hurricane Michael and the
wildfires in California during the fourth quarter of 2018 (the “Q4 2018 California Wildfires” and, together with
Hurricane Michael, the “Q4 2018 Catastrophe Events”) driven by the magnitude and recent occurrence of
each event, relatively limited claims data received to date, the contingent nature of business interruption
and other exposures, potential uncertainties relating to reinsurance recoveries and other factors inherent in
loss estimation, among other things.
The financial data below provides additional information detailing the net negative impact of the Q3 2018
Catastrophe Events, the Q4 2018 Catastrophe Events and certain losses associated with aggregate loss
contracts (the “2018 Aggregate Losses”) and the net positive impact of changes in estimates of the net
negative impact of the 2017 Large Loss Events on our consolidated financial statements in 2018.
Year ended December 31, 2018
(in thousands, except percentages)
(Increase) decrease in net claims
and claims expenses incurred
Net reinstatement premiums
earned
Lost (earned) profit commissions
Net (negative) positive impact on
underwriting result
Redeemable noncontrolling
interest - DaVinciRe
Net (negative) positive impact on
net income available to
RenaissanceRe common
shareholders
Percentage point impact on
consolidated combined ratio
Net (negative) positive impact on
Property segment underwriting
result
Net (negative) positive impact on
Casualty and Specialty segment
underwriting result (4)
Net (negative) positive impact on
underwriting result
Q3 2018
Catastrophe
Events (1)
Q4 2018
Catastrophe
Events (2)
2018
Aggregate
Losses
Total 2018
Large Loss
Events
Changes in
Estimates
of the 2017
Large Loss
Events (3)
Total
$
(152,672) $
(232,702) $
(54,818) $
(440,192) $
187,484
$
(252,708)
26,956
2,279
59,660
11,971
2
(900)
86,618
13,350
(18,376)
(11,355)
68,242
1,995
(123,437)
(161,071)
(55,716)
(340,224)
157,753
(182,471)
20,815
87,245
16,035
124,095
(27,983)
96,112
$
(102,622) $
(73,826) $
(39,681) $
(216,129) $
129,770
$
(86,359)
6.5
8.8
2.8
18.6
(8.0)
10.0
$
(121,875) $
(161,071) $
(55,716) $
(338,662) $
145,724
$
(192,938)
(1,562)
—
—
(1,562)
12,029
10,467
$
(123,437) $
(161,071) $
(55,716) $
(340,224) $
157,753
$
(182,471)
(1) Q3 2018 Catastrophe Events includes Typhoons Jebi, Mangkhut and Trami, Hurricane Florence and the wildfires in California
during the third quarter of 2018.
(2) Q4 2018 Catastrophe Events includes Hurricane Michael and the wildfires in California during the fourth quarter of 2018.
(3) An initial estimate of the net negative impact of the 2017 Large Loss Events was recorded in our consolidated financial
statements during 2017. The amounts noted in the table above reflect changes in the estimates of the net negative impact of the
2017 Large Loss Events recorded in 2018.
(4) Impact on Casualty and Specialty segment result includes loss estimates from catastrophe exposed contracts within certain
specialty lines of business (i.e., energy, marine, and regional multi-line business). Amounts shown for the Q4 2018 Catastrophe
Events, which includes the Q4 2018 California Wildfires, do not reflect impacts from certain casualty liability exposures within the
Casualty and Specialty segment associated with the Q4 2018 California Wildfires, as different actuarial techniques are used to
estimate losses related to such exposures.
78
The financial data below provides additional details regarding the net negative impact of the 2017 Large
Loss Events on our consolidated financial statements in 2017.
Year ended December 31, 2017
(in thousands, except percentages)
Net claims and claim expenses incurred
Net reinstatement premiums earned
Earned profit commissions
Net negative impact on underwriting result
Redeemable noncontrolling interest - DaVinciRe
Net negative impact
Percentage point impact on consolidated combined ratio
Net negative impact on Property segment underwriting result
Net negative impact on Casualty and Specialty segment underwriting result
Net negative impact on underwriting result
2017 Large
Loss Events
(1)
$
(1,166,295)
145,154
31,944
(989,197)
268,952
(720,245)
59.4
(959,762)
(29,435)
(989,197)
$
$
$
(1) 2017 Large Loss Events includes Hurricanes Harvey, Irma and Maria and the Mexico City Earthquake, the wildfires in California
during the fourth quarter of 2017 and losses associated with aggregate loss contracts.
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 (loss)
2018
2017
2016
$1,760,926
$1,440,437
$1,111,263
$1,055,188
$ 978,014
$ 725,321
$1,050,831
$ 931,070
$ 720,951
497,895
177,912
112,954
1,297,985
113,816
94,194
151,545
97,594
108,642
$ 262,070
$ (574,925)
$ 363,170
Net claims and claim expenses incurred – current accident
year
$ 719,185
$1,343,581
$ 256,421
Net claims and claim expenses incurred – prior
accident years
(221,290)
(45,596)
(104,876)
Net claims and claim expenses incurred – total
$ 497,895
$1,297,985
$ 151,545
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
68.4 %
(21.0)%
47.4 %
27.7 %
75.1 %
144.3 %
(4.9)%
139.4 %
22.3 %
161.7 %
35.6 %
(14.6)%
21.0 %
28.6 %
49.6 %
79
Property Gross Premiums Written
In 2018, our Property segment gross premiums written increased by $320.5 million, or 22.2%, to $1.8
billion, compared to $1.4 billion in 2017.
Gross premiums written in the catastrophe class of business were $1.3 billion in 2018, an increase of
$244.9 million, or 22.2%, compared to 2017. Included in the catastrophe class of business in 2018 were
$102.3 million of gross premiums written associated with large, non-recurring reinsurance transactions and
$95.5 million of reinstatement premiums written primarily associated with the 2018 Large Loss Events and
changes in the estimates of the net negative impact of the 2017 Large Loss Events. In comparison, 2017
included $172.4 million of reinstatement premiums written associated with the 2017 Large Loss Events.
Excluding the reinstatement premiums written in each period associated with the respective catastrophe
events, gross premiums written in the catastrophe class of business would have increased $321.8 million,
or 34.5%, which was primarily a result of expanded participation on existing transactions and certain new
transactions we believe have comparably attractive risk-return attributes, including the large, non-recurring
reinsurance transactions noted above.
Gross premiums written in the other property class of business were $411.6 million in 2018, an increase of
$75.6 million, or 22.5%, compared to 2017. The increase in gross premiums written in the other property
class of business was primarily driven by growth across our underwriting platforms, both from existing
relationships and through new opportunities we believe have comparably attractive risk-return attributes.
In 2017, our Property segment gross premiums written increased by $329.2 million, or 29.6%, to $1.4
billion, compared to $1.1 billion in 2016. Included in gross premiums written in the Property segment in
2017 were $175.1 million of reinstatement premiums written primarily associated with the 2017 Large Loss
Events, compared to 2016 which included $21.4 million of reinstatement premiums written 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.
Gross premiums written in the catastrophe class of business were $1.1 billion in 2017, an increase of
$220.1 million, or 24.9%, compared to 2016. Included in gross premiums written in the catastrophe class of
business in 2017 were $172.4 million of reinstatement premiums written primarily associated with the 2017
Large Loss Events, compared to 2016 which included $21.4 million of reinstatement premiums written
associated with the Fort McMurray Wildfire, 2016 Texas Events and Hurricane Matthew. Overall, market
conditions remained challenging during 2017 in the catastrophe class of business. However, we were able
to increase our participation on a select number of transactions we believe have comparably attractive risk-
return attributes and enter into certain new contracts following the occurrence of certain large events in the
third quarter of 2017, while continuing to exercise underwriting discipline given prevailing market terms and
conditions. Certain of these contracts were for partial periods of an original exposure period.
Gross premiums written in the other property class of business were $336.0 million in 2017, an increase of
$109.1 million, or 48.1%, compared to 2016. The increase in gross premiums written in the other property
class of business were driven in large part by proportional and delegated authority business where we were
able to increase our participation on a select number of transactions and enter into certain new transactions
we believe have comparably attractive risk-return attributes.
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.
Property Ceded Premiums Written
Year ended December 31,
(in thousands)
2018
2017
2016
Ceded premiums written - Property
$
705,738 $
462,423 $
385,942
Ceded premiums written in our Property segment increased by $243.3 million, to $705.7 million, in 2018,
compared to $462.4 million in 2017. The increase in ceded premiums written was principally due to a
80
significant portion of the increase in gross premiums written in the catastrophe class of business noted
above being ceded through our managed joint venture, Upsilon RFO, combined with increased purchases
of retrocessional reinsurance as part of the management of our risk portfolio.
Ceded premiums written in our Property segment increased $76.5 million to $462.4 million in 2017,
compared to $385.9 million in 2016, primarily reflecting increased purchases of retrocessional reinsurance
as part of the management of our risk portfolio and $32.8 million of ceded reinstatement premiums written
associated with the 2017 Large Loss Events.
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 purchases of retrocessional reinsurance if we find the pricing and
terms of such coverages attractive.
Property Underwriting Results
Our Property segment generated underwriting income of $262.1 million in 2018, compared to an
underwriting loss of $574.9 million in 2017, an improvement of $837.0 million. In 2018, our Property
segment generated a net claims and claim expense ratio of 47.4%, an underwriting expense ratio of 27.7%
and a combined ratio of 75.1%, compared to 139.4%, 22.3% and 161.7%, respectively, in 2017.
Principally impacting the Property segment underwriting result and combined ratio in 2018 were the 2018
Large Loss Events, which resulted in a net negative impact on the underwriting result of $338.7 million, and
a corresponding increase in the combined ratio of 37.4 percentage points. This was partially offset by a net
positive impact on the underwriting result associated with changes in the estimates of the net negative
impact on the underwriting result of the 2017 Large Loss Events of $145.7 million, and a corresponding
decrease in the combined ratio of 14.0 percentage points. In comparison, 2017 was impacted by the 2017
Large Loss Events which resulted in a net negative impact on the underwriting result of $959.8 million and
added 110.5 percentage points to the Property segment combined ratio.
Primarily as a result of changes in the estimates of the net negative impact of the 2017 Large Loss Events
noted above, the Property segment experienced net favorable development on prior accident years net
claims and claim expenses of $221.3 million, or 21.0 percentage points, during 2018, compared to $45.6
million, or 4.9 percentage points, in 2017. See “Part II, Item 7. Summary of Critical Accounting Estimates,
Claims and Claim Expense Reserves” and “Note 7. 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.
Our Property segment incurred an underwriting loss of $574.9 million in 2017, compared to generating
underwriting income of $363.2 million in 2016, a decrease of $938.1 million. In 2017, our Property segment
generated a net claims and claim expense ratio of 139.4%, an underwriting expense ratio of 22.3% and a
combined ratio of 161.7%, compared to 21.0%, 28.6% and 49.6%, respectively, in 2016.
Principally impacting our Property segment underwriting result and combined ratio in 2017 were the 2017
Large Loss Events, which resulted in an underwriting loss of $959.8 million and added 110.5 percentage
points to the combined ratio. The underwriting result and combined ratio in 2016 were impacted by the 2016
Texas Events, the Fort McMurray Wildfire and Hurricane Matthew, which resulted in $101.0 million of
underwriting losses and added 17.9 percentage points to our Property segment combined ratio. Partially
offsetting the impact of the 2017 Large Loss Events was a 6.3 percentage point decrease in the
underwriting expense ratio, from 28.6% in 2016 to 22.3% in 2017, driven in part by a decrease in operating
expenses reflecting lower compensation expenses, combined with an increase in net premiums earned
driven in large part by the reinstatement premiums written noted above.
Our Property segment experienced favorable development on prior accident years net claims and claim
expenses of $45.6 million, or 4.9 percentage points, in 2017, compared to $104.9 million, or 14.6
percentage points, in 2016. See “Part II, Item 7. Summary of Critical Accounting Estimates, Claims and
Claim Expense Reserves” and “Note 7. Reserve for Claims and Claim Expenses in our Notes to the
81
Consolidated Financial Statements” for additional discussion of our reserving techniques and prior year
development of net claims and claim expenses.
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 (loss) income
2018
2017
2016
$1,549,501
$ 1,357,110
$1,263,313
$1,076,714
$ 925,298
$
$
893,307
$ 809,848
786,501
$ 682,337
622,320
255,079
64,883
565,026
233,077
66,548
380,396
191,729
88,984
$ (16,984)
$
(78,150)
$
21,228
Net claims and claim expenses incurred – current accident
year
Net claims and claim expenses incurred – prior accident
years
$ 671,582
$
558,843
$ 438,536
(49,262)
6,183
(58,140)
Net claims and claim expenses incurred – total
$ 622,320
$
565,026
$ 380,396
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
72.6 %
(5.3)%
67.3 %
34.5 %
71.1%
0.7%
71.8%
38.1%
101.8 %
109.9%
64.3 %
(8.6)%
55.7 %
41.2 %
96.9 %
Casualty and Specialty Gross Premiums Written – In 2018, our Casualty and Specialty segment gross
premiums written increased by $192.4 million, or 14.2%, to $1.5 billion, compared to $1.4 billion in 2017.
The increase was principally due to selective growth from new business opportunities across various
classes of business in our Casualty and Specialty segment. Much of this growth is a result of our
differentiated strategy to provide bespoke customer solutions, which may be non-recurring.
In 2017, our Casualty and Specialty segment gross premiums written increased $93.8 million, or 7.4%, to
$1.4 billion, compared to $1.3 billion in 2016. The $93.8 million increase was principally due to selective
growth from existing business and private placements within certain of our casualty lines of business,
partially offset by a decrease in financial lines of business primarily as a result of a large, in-force multi-year
mortgage reinsurance contract written in 2016, that did not reoccur in 2017. Financial lines of business, and
more specifically, mortgage reinsurance, are prone to significant gross premiums written volatility and can
be influenced by a small number of relatively large transactions.
Our relative mix of business between proportional business and excess of loss business has fluctuated in
the past and will likely continue to do so 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 being 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.
82
Casualty and Specialty Ceded Premiums Written
Year ended December 31,
(in thousands)
2018
2017
2016
Ceded premiums written - Casualty and Specialty
$
472,787 $
463,803 $
453,465
Ceded premiums written in our Casualty and Specialty segment increased by $9.0 million, to $472.8 million,
in 2018, compared to $463.8 million in 2017, primarily resulting from increases in gross premiums written
subject to our retrocessional quota share reinsurance programs utilized as part of the management of our
risk portfolio.
Ceded premiums written in our Casualty and Specialty segment increased $10.3 million, to $463.8 million,
in 2017, compared to $453.5 million in 2016, primarily as a result of increased gross premiums written
subject to our retrocessional quota share reinsurance programs utilized as part of the management of our
risk portfolio.
As in our Property segment, the buying of ceded reinsurance in our Casualty and Specialty segment is
based on market opportunities and is not based on placing a specific reinsurance program each year.
Casualty and Specialty Underwriting Results
Our Casualty and Specialty segment incurred an underwriting loss of $17.0 million in 2018, compared to an
underwriting loss of $78.2 million in 2017. In 2018, our Casualty and Specialty segment generated a net
claims and claim expense ratio of 67.3%, an underwriting expense ratio of 34.5% and a combined ratio of
101.8%, compared to 71.8%, 38.1% and 109.9%, respectively, in 2017.
The decrease in our Casualty and Specialty segment’s combined ratio was driven by decreases of 4.5
percentage points in the net claims and claim expense ratio and and 3.6 percentage points in the
underwriting expense ratio in 2018, compared to 2017.
The decrease in our Casualty and Specialty segment net claims and claim expense ratio was
principally due to favorable development of prior accident year losses of $49.3 million, or 5.3
percentage points during 2018, as compared to net adverse development of $6.2 million, or 0.7
percentage points, in 2017. The net favorable development during 2018 was principally driven by
reported losses coming in lower than expected compared to 2017, which experienced adverse
development associated with the decrease in the Ogden Rate during the period. See “Part II, Item 7.
Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” and “Note 7. 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.
The underwriting expense ratio in our Casualty and Specialty segment decreased 3.6 percentage points to
34.5% in 2018, compared to 38.1% in 2017, due to decreases in both the net acquisition ratio and the
operating expense ratio, with the latter being due to improved operating leverage .
Our Casualty and Specialty segment incurred an underwriting loss of $78.2 million in 2017, compared to
underwriting income of $21.2 million in 2016. In 2017, our Casualty and Specialty segment generated a
combined ratio of 109.9%, compared to 96.9% in 2016. The increase in the Casualty and Specialty
segment’s combined ratio was driven by a 16.1 percentage point increase in the net claims and claim
expense ratio, from 55.7% in 2016 to 71.8% in 2017. Offsetting the increase in the net claims and claim
expenses ratio was a 3.1 percentage point decrease in the underwriting expense ratio, from 41.2% in 2016
to 38.1% in 2017, driven in part by a decrease in operating expenses reflecting lower compensation
expenses, combined with an increase in net premiums earned as we selectively grew the business.
Current accident year net claims and claim expenses in the Casualty and Specialty segment were primarily
impacted by net claims and claim expenses from the 2017 Large Loss Events, combined with higher
attritional net claims and claim expenses.
Our Casualty and Specialty segment experienced adverse development on prior accident years net claims
and claim expenses of $6.2 million, or 0.7 percentage points, during 2017, compared to favorable
development of $58.1 million, or 8.6 percentage points, in 2016. See “Part II, Item 7. Summary of Critical
Accounting Estimates, Claims and Claim Expense Reserves” and “Note 7. Reserve for Claims and Claim
83
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.
Fee Income
Year ended December 31,
(in thousands)
Management fee income
Joint ventures
Managed funds
Structured reinsurance products
Total management fee income
Performance fee income
Joint ventures
Managed funds
Structured reinsurance products
Total performance fee income (1)
Total fee income
2018
2017
2016
$
26,387
$
15,358
$
19,919
11,462
33,312
71,161
3,659
31,177
50,194
2,381
28,643
50,943
$
15,093
$
9,429
$
19,429
62
3,580
18,735
$
89,896
$
197
4,719
14,345
64,539
1,758
30,231
51,418
$
102,361
(1) Performance fees are based on the performance of the individual vehicles and/or product, and could be negative in any given
quarter when large losses occur, which can result in the reversal of previously accrued performance fees.
Total fee income is earned through third-party capital management as well as various joint ventures and
certain structured retrocession agreements to which we are a party. Joint ventures include DaVinciRe, Top
Layer Re, Vermeer and certain entities investing in Langhorne. Managed funds include Upsilon Fund and
Medici. Structured reinsurance products include Fibonacci Re, as well as certain other reinsurance
contracts which transfer risk to capital.
In 2018, total fee income increased $25.4 million, to $89.9 million, compared to $64.5 million in 2017,
primarily driven by an increase in the dollar value of capital being managed. In addition, certain of our joint
ventures, namely DaVinciRe, were significantly more profitable in 2018 compared to 2017.
In 2017, total fee income decreased $37.8 million, to $64.5 million, compared to $102.4 million in 2016,
primarily the result of higher net claims and claims expenses experienced by our joint venture related
vehicles during 2017, compared to 2016, which reduced our performance fee income.
84
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
2018
2017
2016
$
211,973 $
179,624 $
33,571
4,474
11,082
3,628
477
22,475
3,810
276,780
(14,914)
261,866 $
33,999
8,067
1,196
237,596
(15,387)
222,209 $
$
160,661
5,127
4,235
6,155
20,181
788
197,147
(15,421)
181,726
Net investment income was $261.9 million in 2018, compared to $222.2 million in 2017, an increase of
$39.7 million. Impacting our net investment income for 2018 were higher average invested assets in our
fixed maturity and short term investment portfolios, combined with the impact of interest rate increases
during recent periods. In addition, our catastrophe bonds, which are included in other investments,
experienced an increase in net investment income as these investments benefited from higher interest rates
and higher invested assets, and were less impacted by the catastrophe events in 2018, compared to 2017.
Partially offsetting these items were lower returns in our portfolio of private equity investments in 2018
compared to 2017.
Net investment income was $222.2 million in 2017, compared to $181.7 million in 2016, an increase of
$40.5 million. Impacting our net investment income for 2017 were improved returns in our portfolio of private
equity investments and higher net investment income in our portfolio of fixed maturity investments primarily
driven by higher average invested assets, partially offset by lower unrealized gains in our other investment
portfolio, specifically our catastrophe bond portfolio, which was impacted by a number of large catastrophe
events occurring in 2017.
Low interest rates in preceding periods lowered the yields at which assets were invested relative to
historical levels. In more recent periods, increases in interest rates should have a positive impact on future
investment income.
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 losses of $8.3 million in 2018, and
net unrealized gains of $24.7 million and $11.5 million in 2017 and 2016, respectively.
85
Net Realized and Unrealized (Losses) Gains on Investments
Year ended December 31,
(in thousands)
Gross realized gains
Gross realized losses
Net realized (losses) gains on fixed maturity investments
Net unrealized (losses) gains on fixed maturity
investments trading
Net realized and unrealized (losses) gains on
investments-related derivatives
Net realized gains on equity investments trading
Net unrealized (losses) gains on equity investments
trading
Net realized and unrealized (losses) gains on
investments
2018
2017
2016
$
21,284 $
49,121 $
72,739
(91,098)
(69,814)
(38,832)
10,289
(38,315)
34,424
(57,310)
8,479
26,954
(8,784)
27,739
(2,490)
80,027
(15,414)
14,190
(66,900)
39,517
81,174
$
(175,069) $
135,822 $
141,328
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 losses on investments were $175.1 million in 2018, compared to net realized
and unrealized gains of $135.8 million in 2017, a decrease of $310.9 million. Principally impacting our net
realized and unrealized losses on investments in 2018 were:
•
•
net realized and unrealized losses on our fixed maturity investments trading of $127.1 million in
2018, compared to net realized and unrealized gains of $18.8 million in 2017, a decrease of $145.9
million, principally driven by an upward shift in the interest rate yield curve and a widening of credit
spreads during 2018, compared to a tightening of credit spreads and a decrease in interest rates at
the longer end of the yield curve in 2017; and
net realized and unrealized losses on equity investments trading of $39.2 million in 2018, compared
to net realized and unrealized gains of $119.5 million in 2017, a decrease of $158.7 million,
principally driven by lower returns on certain of our larger equity positions during 2018.
Net realized and unrealized gains on investments were $135.8 million in 2017, compared to $141.3 million
in 2016, a decrease of $5.5 million. Included in our net realized and unrealized gains on investments were:
•
•
•
net realized and unrealized gains on equity investments trading of $119.5 million in 2017, compared
to $95.4 million in 2016, an improvement of $24.2 million, principally driven by positive returns in
the global equity markets, combined with the strong performance of a number of our equity
positions in 2017;
net realized and unrealized gains on our fixed maturity investments trading of $18.8 million in 2017,
compared to $61.4 million in 2016. The $42.6 million decrease was principally the result of lower
unrealized gains driven by an upward shift of the front end of the yield curve in 2017, compared to
2016 which experienced a more modest upward shift in the yield curve; and
net realized and unrealized losses on certain investments-related derivatives of $2.5 million in
2017, compared to losses of $15.4 million in 2016, an improvement of $12.9 million, primarily due
to the yield curve movements noted above.
86
Net Foreign Exchange (Losses) Gains
Year ended December 31,
(in thousands)
2018
2017
2016
Total foreign exchange (losses) gains
$
(12,428) $
10,628 $
(13,788)
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 in those currencies. 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 18. 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.
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
2018
2017
2016
$
$
9,605 $
8,852
17
18,474 $
(1,647) $
9,851
(174)
8,030 $
10,379
(8,576)
(840)
963
Equity in earnings of other ventures primarily represents our pro-rata share of the net income from our
investments in Top Layer Re and the Tower Hill Companies, 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 $18.5 million in 2018, compared to $8.0 million in 2017, an
increase of $10.4 million, principally driven by improved profitability of the Tower Hill Companies.
Equity in earnings of other ventures was $8.0 million in 2017, compared to $1.0 million in 2016, an increase
of $7.1 million. The increase in equity in earnings of other ventures was driven in part by Top Layer Re,
which returned to profitability in 2017 following the activity of 2016 as described below. Partially offsetting
the equity in earnings from Top Layer Re was equity in losses of the Tower Hill Companies of $1.6 million in
2017, compared to earnings of $10.4 million in 2016, a decrease of $12.0 million, principally due to losses
associated with certain catastrophe events occurring in 2017 impacting the profitability of the Tower Hill
Companies.
Other Income
Year ended December 31,
2018
2017
2016
(in thousands)
Assumed and ceded reinsurance contracts accounted for
as derivatives and deposits
Other
Total other income
$
$
4,807 $
8,655 $
14,246
1,162
760
(68)
5,969 $
9,415 $
14,178
In 2018, we generated other income of $6.0 million, compared to $9.4 million in 2017, a decrease of $3.4
million, driven by a reduction in our assumed and ceded reinsurance contracts accounted for as derivatives
and deposits.
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In 2017, we generated other income of $9.4 million, compared to $14.2 million in 2016, a decrease of $4.8
million, driven by a reduction in assumed and ceded reinsurance contracts accounted for as derivatives and
deposits.
Corporate Expenses
Year ended December 31,
(in thousands)
Total corporate expenses
2018
2017
2016
$
33,983 $
18,572 $
37,402
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, as well as
costs incurred in connection with the TMR Stock Purchase. From time to time, we may revise the allocation
of certain expenses between corporate and operating expenses to better reflect the characteristic of the
underlying expense.
Corporate expenses increased $15.4 million, to $34.0 million, in 2018, compared to $18.6 million in 2017,
principally as a result of changes in the allocation of operating and corporate expenses to better reflect the
nature of those expenses. In addition, during 2018, we incurred $3.4 million of costs in connection with the
TMR Stock Purchase, which we expect to close in the first half of 2019.
Corporate expenses decreased $18.8 million, to $18.6 million, in 2017, compared to $37.4 million in 2016,
primarily reflecting $15.4 million of expenses related to executive departures recorded in 2016 that did not
reoccur in 2017.
Interest Expense and Preferred Share Dividends
Year ended December 31,
(in thousands)
Interest expense
2018
2017
2016
$250.0 million Series B 7.50% Senior Notes due 2017
$
— $
7,813 $
$250.0 million 5.75% Senior Notes due 2020
$300.0 million 3.700% Senior Notes due 2025
$300.0 million 3.450% Senior Notes due 2027
$150.0 million 4.750% Senior Notes due 2025
(DaVinciRe)
Other
Total interest expense
Preferred share dividends
$125.0 million 6.08% Series C Preference Shares
$275.0 million 5.375% Series E Preference Shares
$250.0 million 5.575% Series F Preference Shares
Total preferred share dividends
14,375
11,100
10,350
7,125
4,119
47,069
7,600
14,781
7,707
30,088
14,375
11,100
5,482
7,125
(1,702)
44,193
7,600
14,781
—
22,381
Total interest expense and preferred share dividends
$
77,157 $
66,574 $
18,750
14,375
11,100
—
7,125
(9,206)
42,144
7,600
14,781
—
22,381
64,525
Interest expense increased $2.9 million to $47.1 million in 2018, compared to $44.2 million in 2017,
primarily driven by:
•
additional interest expense due to twelve months of interest expense in 2018 on the $300.0 million
of 3.450% Senior Notes due 2027 issued in June 2017, compared to seven months of interest
expense on these notes in 2017.
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Interest expense increased $2.0 million to $44.2 million in 2017, compared to $42.1 million in 2016,
primarily driven by:
•
•
•
additional interest expense due to the June 2017 issuance of $300.0 million of 3.450% Senior
Notes due 2027, resulting in seven months of interest expense in 2017, compared to none in 2016;
partially offset by
lower interest expense due to the June 1, 2017 repayment in full at maturity of $250.0 million of
Series B 7.50% Senior Notes due 2017 assumed in connection with the acquisition of Platinum,
resulting in five months of interest expense incurred during 2017, compared to a full year of interest
expense incurred on these notes in 2016; and
lower amortization of net fair value adjustments of $5.4 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 increased by $7.7 million to $30.1 million in 2018, compared to $22.4 million in
2017, primarily driven by dividends on the $250.0 million of 5.750% Series F Preference Shares issued in
June 2018.
Preferred share dividends were flat at $22.4 million in each of 2017 and 2016.
Income Tax Benefit (Expense)
Year ended December 31,
(in thousands)
Income tax benefit (expense)
2018
2017
2016
$
6,302 $
(26,487) $
(340)
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.
In 2018, we recognized an income tax benefit of $6.3 million, compared to an income tax expense of $26.5
million in 2017. The income tax benefit in 2018 was principally driven by pre-tax GAAP losses in our U.S.-
based operations associated with the 2018 Large Loss Events and unrealized losses on our investment
portfolio, compared to pre-tax GAAP losses in our U.S.-based operations, offset by the impact of a $36.7
million increase in income tax expense due to the write-down of a portion of our deferred tax asset during
2017, as a result of the reduction in the U.S. corporate tax rate pursuant to the Tax Bill, which was enacted
on December 22, 2017.
In 2017, we recognized an income tax expense of $26.5 million, compared to $0.3 million in 2016,
principally driven by the write-down of a portion of our deferred tax asset as a result of the reduction in the
U.S. corporate tax rate pursuant to the Tax Bill described above. Partially offsetting this income tax expense
was an income tax benefit associated with pre-tax GAAP losses in our U.S.-based operations primarily due
to underwriting losses associated with the 2017 Large Loss Events, compared to pre-tax GAAP income in
our U.S.-based operations in 2016.
At December 31, 2018, our U.S. tax-paying subsidiaries had a net deferred tax asset (after valuation
allowance) of $64.7 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
$35.3 million and $30.0 million at December 31, 2018 and 2017, respectively.
Our effective income tax rate, which we calculate as income tax benefit (expense) divided by income or loss
before taxes, may fluctuate significantly from period to period depending on the geographic distribution of
pre-tax income or 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 income or 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 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
89
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 or 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 TMR Stock Purchase. 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.
Generally, the preponderance of our revenue and pre-tax income or loss is generated by our domestic (i.e.,
Bermuda) operations, in the form of underwriting income or loss and net investment income or loss, rather
than our foreign operations. However, the geographic distribution of pre-tax income or loss 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, 2018 and 2016 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. For 2017,
our domestic operations generated an underwriting loss due to the significant catastrophe loss activity
during the year and the underwriting loss in our domestic operations was significantly greater than the
underwriting loss that was generated by our foreign operations.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests
Year ended December 31,
(in thousands)
Net (income) loss attributable to redeemable
noncontrolling interests
2018
2017
2016
$
(41,553) $
132,282 $
(127,086)
Our net income attributable to redeemable noncontrolling interests was $41.6 million in 2018, compared to
a net loss attributable to redeemable noncontrolling interests of $132.3 million in 2017, a change of $173.8
million, principally due to DaVinciRe generating underwriting income in 2018, compared to significant
underwriting losses in 2017 driven by the 2017 Large Loss Events. Our ownership of DaVinciRe was 22.1%
at both December 31, 2018 and December 31, 2017.
Our net loss attributable to redeemable noncontrolling interests was $132.3 million in 2017, compared to net
income attributable to redeemable noncontrolling interests of $127.1 million in 2016. The $259.4 million
change was principally due to underwriting losses associated with the 2017 Large Loss Events incurred by
DaVinciRe and a decrease in our ownership of DaVinciRe to 22.1% at December 31, 2017, compared to
24.0% at December 31, 2016.
We expect our noncontrolling economic ownership in DaVinciRe to fluctuate over time. See “Note 9.
Noncontrolling Interests” in our “Notes to Consolidated Financial Statements” for additional information
regarding DaVinciRe.
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 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
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governing our and our principal operating subsidiaries’ ability to pay dividends are discussed in detail in
“Part I, Item 1. Regulation” and “Note 17. Statutory Requirements in our Notes to the Consolidated Financial
Statements”.
In the aggregate, our principal 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.
During 2018 and 2017 we experienced significant losses from the 2018 Large Loss Events and 2017 Large
Loss Events, respectively, and as we would expect following events of this magnitude, it was necessary for
RenaissanceRe to contribute capital to certain of its principal operating subsidiaries to ensure they were
able to maintain levels of capital adequacy and liquidity in compliance with various laws and regulations,
support rating agency capital requirements, pay valid claims quickly and be adequately capitalized to
pursue business opportunities as they arise. As a result, during 2018 net capital contributions by
RenaissanceRe to our principal operating subsidiaries, net of dividends and return of capital received by
RenaissanceRe from our principal operating subsidiaries, were $69.0 million (2017 - $242.3 million). We
believe RenaissanceRe and our principal operating subsidiaries continue to be adequately capitalized
following these events.
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 currently completing our 2018 group BSCR, which must be filed with the BMA on or
before May 31, 2019, and at this time, we believe we will exceed the target level of required economic
statutory capital. Our 2017 group BSCR exceeded the target level of required statutory capital.
Class 3A, 3B and 4 insurers and insurance groups are also required to prepare and publish an 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 or
insurance group. We received approval from the BMA to file a consolidated group FCR, inclusive of our
Bermuda-domiciled insurance subsidiaries and Top Layer Re. Our most recent FCR was filed with the BMA
in advance of the June 30, 2018 deadline, and is available on our website.
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, 2018, we believe
the statutory capital and surplus of our Bermuda insurance subsidiaries exceeded the minimum amount
required to be maintained under Bermuda law.
Under the Insurance Act, RenaissanceRe Specialty U.S. and Vermeer are defined as Class 3B insurers,
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 2018 BSCR
for Renaissance Reinsurance, RenaissanceRe Specialty U.S. and DaVinci must be filed with the BMA
before April 30, 2019; at this time, we believe each company will exceed the minimum amount required to
be maintained under Bermuda law. In addition, audited annual financial statements prepared in accordance
with GAAP for each of Renaissance Reinsurance, RenaissanceRe Specialty U.S., DaVinci and Vermeer
must be filed prior to April 30 of each year with the BMA, if applicable, and are available free of charge on
the BMA’s website.
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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, 2018, the FAL required to support the underwriting activities at Lloyd’s through Syndicate
1458 was £427.5 million (December 31, 2017 - £405.8 million). Actual FAL posted for Syndicate 1458 at
December 31, 2018 by RenaissanceRe CCL was £481.0 million, supported by a $180.0 million letter of
credit and a $339.7 million deposit of cash and fixed maturity securities. See “Note 8. Debt and Credit
Facilities” in our “Notes to the Consolidated Financial Statements” for additional information related to this
letter of credit facility.
U.S. Subsidiaries
Renaissance Reinsurance U.S. is domiciled in Maryland, which has adopted the NAIC's model law that
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,
2018, we believe 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 2019, Renaissance Reinsurance U.S. has an ordinary dividend capacity of $31.2 million (2018 -
$24.1 million).
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 planned acquisition of the TMR Group
Entities 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.
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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 thus
provides a source of liquidity. Because we are a “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.
Cash Flows
Year ended December 31,
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (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
2018
2017
2016
$ 1,221,701 $ 1,025,787 $
484,772
(2,536,613)
(122,434)
1,066,340
(5,098)
(253,670)
1,361,592
28,860
8,222
940,435
421,157
(164,532)
(401,331)
(4,637)
(85,728)
506,885
Cash and cash equivalents, end of period
$ 1,107,922 $ 1,361,592 $
421,157
2018
During 2018, our cash and cash equivalents decreased by $253.7 million, to $1.1 billion at December 31,
2018, compared to $1.4 billion at December 31, 2017.
Cash flows provided by operating activities. Cash flows provided by operating activities during 2018 were
$1.2 billion, compared to $1.0 billion during 2017. Cash flows provided by operating activities during 2018
were primarily the result of certain adjustments to reconcile our net income of $268.9 million to net cash
provided by operating activities, including:
•
an increase in reserve for claims and claim expenses of $995.9 million as a result of claims and
claims expenses incurred of $2.6 billion during 2018 principally driven by the 2018 Large Loss
Events, partially offset by claims payments of $1.6 billion primarily associated with the 2017 Large
Loss Events;
93
•
•
•
•
•
•
•
an increase in reinsurance balances payable of $913.0 million principally driven by the issuance of
non-voting preference shares to investors in Upsilon RFO, following capital being deployed in the
vehicle, which are accounted for as prospective reinsurance and included in reinsurance balances
payable on our consolidated balance sheet. See “Note 10. Variable Interest Entities” for additional
information related to Upsilon RFO’s non-voting preference shares;
an increase in unearned premiums of $238.4 million due to the timing of renewals and the increase
in gross premiums written in 2018, compared to 2017; partially offset by
an increase in reinsurance recoverable of $785.6 million primarily resulting from the increase in net
claims and claim expenses principally driven by the 2018 Large Loss Events, noted above, as we
continue to execute our gross-to-net strategy;
a decrease in other operating cash flows of $223.3 million primarily associated with movements in
subscriptions received in advance associated with the issuance of Upsilon RFO’s non-voting
preference shares effective January 1, 2019 and 2018. See “Note 10. Variable Interest Entities” and
“Note. 23 Subsequent Events” in our Notes to the Consolidated Financial Statements for additional
information related to Upsilon RFO’s non-voting preference shares;
increases in premiums receivable and deferred acquisition costs of $232.6 million and $50.1 million,
respectively, due to the timing of payments of our gross premiums written and amortization of
deferred acquisition costs, respectively;
net realized and unrealized losses on investments of $175.1 million principally related to our fixed
maturity investments portfolio which experienced an upward shift in the interest rate yield curve and
a widening of credit spreads during 2018, and our equity investments trading portfolio which was
impacted by lower returns on certain of our larger equity positions during 2018; and
an increase of $82.6 million in our prepaid reinsurance premiums due to ceded premiums written
associated renewals in 2018.
Cash flows used in investing activities. During 2018, our cash flows used in investing activities were $2.5
billion, principally reflecting net purchases of short term, fixed maturity and other investments of $1.4 billion,
$904.4 million and $199.5 million, respectively. The net purchase of short term and fixed maturity
investments was funded in part by the capital received from investors in Upsilon RFO and Vermeer, and the
proceeds from the issuance of our 5.750% Series F Preference Shares and the issuance of $250.0 million
of our common shares to State Farm, each as discussed below. In addition, we increased our allocation to
other investments during 2018.
Cash flows provided by financing activities. Our cash flows provided by financing activities in 2018 were
$1.1 billion, and were principally the result of:
net inflows of $665.7 million related to a net contribution of capital from third-party shareholders,
primarily related to the creation of Vermeer, which was initially capitalized with $600.0 million of
participating, non-voting common shares;
net inflows of $241.4 million associated with the issuance of $250.0 million of Depositary Shares
(each representing a 1/1000th interest in a share of our 5.750% Series F Preference Shares), net of
expenses;
net inflows of $250.0 million associated with the issuance of 1,947,496 of our common shares to
State Farm; partially offset by
dividends paid on our common and preference shares of $52.8 million and $30.1 million,
respectively.
•
•
•
•
2017
During 2017, our cash and cash equivalents increased $940.4 million, to $1.4 billion at December 31, 2017,
compared to $421.2 million at December 31, 2016.
Cash flows provided by operating activities. Cash flows provided by operating activities during 2017 were
$1.0 billion, compared to cash flows provided by operating activities of $484.8 million during 2016. Cash
94
flows provided by operating activities during 2017 were primarily the result of certain adjustments to
reconcile our net loss of $354.7 million to net cash provided by operating activities, including:
•
•
•
•
•
•
an increase in our reserve for claims and claim expenses of $2.2 billion as a result of claims and
claims expenses incurred of $3.4 billion, partially offset by claims payments of $1.2 billion, each
largely driven by the 2017 Large Loss Events;
a corresponding increase of $1.3 billion in our reinsurance recoverable given the increase in net
claims and claim expenses noted above and recoverables associated with the 2017 Large Loss
Events;
an increase in other operating cash flows of $518.1 million primarily reflecting $602.4 million of
subscriptions received in advance of the issuance of Upsilon RFO’s non-voting preference shares
effective January 1, 2018, which were recorded in other liabilities at December 31, 2017. See “Note
10. Variable Interest Entities” for additional information related to Upsilon RFO;
an increase in unearned premiums of $246.0 million due to the timing of renewals and a $315.1
million increase in reinsurance balances payable due to the timing of payments of our premiums
ceded;
decreases in premiums receivable and deferred acquisition costs of $317.3 million and $91.2
million, respectively, due to the timing of payments of our gross premiums written and amortization
of deferred acquisition costs, respectively; and
an decrease of $92.3 million in our prepaid reinsurance premiums due to ceded premiums written
associated renewals in 2017.
Cash flows used in investing activities. During 2017, our cash flows used in investing activities were $122.4
million, principally reflecting net purchases of fixed maturity investments of $602.9 million, partially offset by
net sales of short term investments and equity investments trading of $364.0 million and $115.8 million,
respectively.
Cash flows provided by financing activities. Our cash flows provided by financing activities in 2017 were
$28.9 million, and were principally the result of:
•
•
•
•
•
net inflows of $295.9 million associated with the issuance of $300.0 million of our 3.450% Senior
Notes due July 1, 2027, net of underwriting discount;
net inflows of $260.5 million related to net capital contributions from third-party shareholders,
principally in DaVinciRe and Medici; partially offset by
the repayment in full at maturity of the aggregate principal amount of $250.0 million of our Series B
7.50% Senior Notes due 2017 assumed in connection with the acquisition of Platinum and originally
issued by Platinum Underwriters Finance, Inc.;
the settlement of $188.6 million of common share repurchases; and
dividends paid on our common and preferred shares of $51.4 million and $22.4 million, respectively.
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.
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Our total shareholders’ equity attributable to RenaissanceRe and debt is as follows:
At December
31, 2018
At December
31, 2017
Change
$ 4,395,080 $ 3,991,375 $
403,705
650,000
400,000
(in thousands)
Common shareholders’ equity
Preference shares
Total shareholders’ equity attributable to RenaissanceRe
5,045,080
4,391,375
3.450% Senior Notes due 2027
3.700% Senior Notes due 2025
5.750% Senior Notes due 2020
4.750% Senior Notes due 2025 (DaVinciRe) (1)
RenaissanceRe revolving credit facility – unborrowed
Total debt
295,797
297,688
249,602
148,040
500,000
295,303
297,318
249,272
147,730
250,000
1,491,127
1,239,623
250,000
653,705
494
370
330
310
250,000
251,504
Total shareholders’ equity attributable to RenaissanceRe
and debt
$ 6,536,207 $ 5,630,998 $
905,209
(1) RenaissanceRe owns a noncontrolling economic interest in its joint venture DaVinciRe. 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 RenaissanceRe. However, RenaissanceRe does not guarantee or provide credit support for
DaVinciRe and RenaissanceRe’s financial exposure to DaVinciRe is limited to its investment in DaVinciRe’s shares and
counterparty credit risk arising from reinsurance transactions.
During 2018, our total shareholders’ equity attributable to RenaissanceRe and debt increased by $905.2
million, to $6.5 billion.
Our shareholders’ equity attributable to RenaissanceRe increased $653.7 million during 2018 principally as
a result of:
•
•
•
our comprehensive income attributable to RenaissanceRe of $225.7 million;
raising $250.0 million from the issuance of 10,000,000 Depositary Shares (each representing a
1/1,000th interest in a share of our 5.750% Series F Preference Shares);
raising $250.0 million from the issuance of 1,947,496 of our common shares in connection with the
State Farm Stock Purchase; and partially offset by
•
$52.8 million and $30.1 million of dividends on our common and preference shares, respectively.
Credit Facilities
The outstanding amounts drawn under each of our significant credit facilities is set forth below:
At December 31, 2018
(in thousands)
RenaissanceRe Revolving Credit Facility (1)
Uncommitted Standby Letter of Credit Facility with Wells Fargo
Bilateral Letter of Credit Facility with Citibank Europe
Renaissance Reinsurance FAL Facility
Total credit facilities in U.S. dollars
Specialty Risks FAL Facility (1)
Total credit facilities in pound sterling
Issued or
Drawn
$
—
86,861
243,696
180,000
$
510,557
—
—
£
(1) At December 31, 2018, no amounts were issued or drawn under these facilities.
Refer to “Note 8. Debt and Credit Facilities in our Notes to the Consolidated Financial Statements” for
additional information related to our debt and credit facilities and “Note 11. Shareholders’ Equity in our
96
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
Refer to “Note 17. 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 9. Noncontrolling Interests in our Notes to the Consolidated Financial Statements” for
additional information related to redeemable noncontrolling interest - DaVinciRe.
Impact of TMR Stock Purchase on Liquidity and Capital Resources
The TMR Stock Purchase is expected to close in the first half of 2019, subject to the closing conditions set
forth in the TMR Stock Purchase Agreement, including receipt of required regulatory approvals. There can
be no assurance that the TMR Stock Purchase will occur.
The aggregate consideration for the transaction is expected to be approximately $1.4 billion, comprised of
cash consideration, a pre-closing dividend and the issuance of common shares, each in an amount to be
determined as set forth in the TMR Stock Purchase Agreement. We anticipate funding the cash
consideration to be paid by RenaissanceRe from available cash resources and the liquidation of certain of
our fixed maturity investments trading.
We incurred $3.4 million of corporate expenses associated with the TMR Stock Purchase in 2018 and
expect to incur additional costs and expenses associated with the TMR Stock Purchase in 2019. These
additional one-time costs may be significant, and it is possible that our ultimate costs will exceed our current
estimates.
Following the close of the transaction, we anticipate that our operating subsidiaries will have adequate
capital resources and sufficient cash flows to meet their expected claims payments and operational
expenses and to provide dividend payments to RenaissanceRe and that we will have adequate capital
resources, or 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.
See “Note 20. Acquisition of Tokio Millennium Re” for additional information regarding the TMR Stock
Purchase.
Ratings
Financial strength ratings are an important factor in evaluating and establishing 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 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.
97
The financial strength ratings of our principal operating subsidiaries and joint ventures and the ERM ratings
of RenaissanceRe as of February 4, 2019 are presented below.
A.M. Best
S&P
Moody’s
Fitch
Renaissance Reinsurance (1)
DaVinci (1)
Renaissance Reinsurance U.S. (1)
RenaissanceRe Specialty U.S. (1)
Renaissance Reinsurance of Europe (1)
Top Layer Re (1)
Vermeer Reinsurance Ltd. (1)
Syndicate 1458
Lloyd’s Overall Market Rating (2)
A+
A
A+
A+
A+
A+
A
—
A
A+
A+
A+
A+
A+
AA
—
—
A+
RenaissanceRe (3)
Very Strong
Very Strong
A1
A3
—
—
—
—
—
—
—
—
A+
—
—
—
—
—
—
—
AA-
—
(1) The A.M. Best, S&P, Moody's and Fitch ratings for the 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 Syndicate 1458’s financial strength rating.
(3) The A.M. Best rating for RenaissanceRe refers to the ERM A.M. Best score within A.M. Best’s credit ratings methodology. The
S&P rating for RenaissanceRe represents the rating on its ERM practices.
A.M. Best. On March 1, 2018, A.M. Best upgraded the financial strength ratings of Renaissance
Reinsurance U.S. and RenaissanceRe Specialty U.S. to “A+” from “A”. The outlook for these ratings is
stable. A.M. Best also affirmed the financial strength ratings of Renaissance Reinsurance and Renaissance
Reinsurance of Europe and revised the outlooks for these ratings to stable from negative and affirmed the
financial strength rating of DaVinci with a stable outlook. On November 2, 2018, subsequent to the
announcement of the TMR Stock Purchase, A.M. Best placed the financial strength ratings of Renaissance
Reinsurance, DaVinci, Renaissance Reinsurance U.S., RenaissanceRe Specialty U.S. and Renaissance
Reinsurance of Europe under review with developing implications pending completion of the TMR Stock
Purchase. In addition, on December 18, 2018, A.M. Best assigned a financial strength rating of A to
Vermeer. “A+” is the second highest designation of A.M. Best’s 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.
S&P. On February 28, 2018, S&P lowered the financial strength ratings of Renaissance Reinsurance,
DaVinci, Renaissance Reinsurance of Europe, Renaissance Reinsurance U.S. and RenaissanceRe
Specialty U.S to “A+” with a stable outlook from “AA-“ with a negative outlook. S&P attributed the
downgrade to negative market pressures despite the Company’s strong market position. On October 31,
2018, following the announcement of the TMR Stock Purchase, S&P affirmed these financial strength
ratings, but put the ratings on negative outlook reflecting risks associated with the transaction. 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.
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.
98
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.
On July 25, 2018, Moody’s affirmed its insurance financial strength rating of “A1” for RenaissanceRe and on
August 7, 2018, Moody’s affirmed its insurance financial strength rating of ”A3” for DaVinci, each with a
stable outlook. Moody’s believes that insurance companies rated “A1” and “A3” offer good financial security.
Fitch. Fitch’s issuer financial strength ratings provide an assessment of the financial strength of an
insurance organization. On November 1, 2018, Fitch affirmed its insurer financial strength rating of
Renaissance Reinsurance at “A+”, with a stable outlook. Fitch believes that insurance companies rated “A+”
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.
Lloyd’s Overall Market Rating
A.M. Best, S&P and Fitch have each assigned a 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 IBNR and, if deemed necessary, adding costs for
additional case reserves. Additional case reserves 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 setting of IBNR.
Our reserving techniques, assumptions and processes differ among our Property and Casualty and
Specialty segments. Refer to “Note 7. 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.
99
Investments
The table below shows our invested assets:
At December 31,
(in thousands, except percentages)
U.S. treasuries
Agencies
Municipal
Non-U.S. government
Non-U.S. government-backed corporate
Corporate
Agency mortgage-backed
Non-agency mortgage-backed
Commercial mortgage-backed
Asset-backed
2018
2017
Change
$ 3,331,411
174,883
6,854
279,818
160,063
28.0% $ 3,168,763
33.3% $ 162,648
1.5%
0.1%
2.4%
1.3%
47,646
509,802
287,660
163,651
0.5%
127,237
5.4% (502,948)
3.0%
1.7%
2,450,244
20.6% 2,063,459
21.7%
817,880
278,680
282,294
306,743
6.8%
2.4%
2.4%
2.6%
500,456
300,331
202,062
182,725
5.3%
3.1%
2.1%
2.0%
(7,842)
(3,588)
386,785
317,424
(21,651)
80,232
124,018
Total fixed maturity investments, at fair
value
8,088,870
68.1% 7,426,555
78.1%
662,315
Short term investments, at fair value
2,586,520
21.8%
Equity investments trading, at fair value
Other investments, at fair value
310,252
784,933
2.6%
6.5%
991,863
388,254
594,793
10.4% 1,594,657
4.1%
6.3%
(78,002)
190,140
Total managed investment portfolio
11,770,575
99.0% 9,401,465
98.9% 2,369,110
Investments in other ventures, under
equity method
Total investments
115,172
1.0%
101,974
1.1%
13,198
$11,885,747
100.0% $ 9,503,439
100.0% $2,382,308
At December 31, 2018, we held investments totaling $11.9 billion, compared to $9.5 billion at December 31,
2017. 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 4. Investments and Note 5. Fair Value Measurements in our Notes to the Consolidated Financial
Statements” for additional information regarding our investments and the fair value measurement of our
investments, respectively.
As the reinsurance coverages we sell include substantial protection for damages resulting from natural and
man-made catastrophes, as well as for potentially large casualty and specialty exposures, we expect from
time to time to become liable for substantial claim payments on 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 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. During the second quarter of
2018, we reduced our allocation to municipal fixed maturity investments and invested the proceeds in
certain other sectors of fixed maturity and short term investments that we believe will provide a higher net
after-tax yield to maturity, however, we cannot assure you of this. 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 investments, senior secured bank loan
funds and hedge funds). At December 31, 2018, our portfolio of equity investments trading totaled $310.3
million, or 2.6%, of our total investments (2017 - $388.3 million or 4.1%). Our portfolio of other investments
totaled $784.9 million, or 6.5%, of our total investments (2017 - $594.8 million or 6.3%).
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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
Yield to
Maturity
AAA
AA
A
BBB
Non-
Investment
Grade
Not Rated
Credit Rating (1)
December 31,
2018
(in thousands,
except
percentages)
Short term
Agencies
Municipal
Non-U.S.
Non-U.S.
government-
backed
corporate
Corporate
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
investments
Senior secured
bank loan
funds
Hedge funds
Total other
investments
Investments in
other
ventures
Total investment
portfolio
investments
$2,586,520
$ 2,586,520
21.8%
2.1% $2,579,900
$
2,541
$
553
$
1,511
$
751
$
1,264
100.0%
99.8%
0.1%
—%
0.1%
—%
—%
Fixed maturity
investments
U.S. treasuries
3,336,969
3,331,411
175,185
174,883
6,070
6,854
28.0%
1.5%
0.1%
2.5%
3.0%
4.8%
—
—
—
3,331,411
174,883
1,044
—
—
4,546
government
284,965
279,818
2.4%
2.7%
207,103
61,233
8,216
—
—
504
—
—
—
—
3,266
—
—
760
—
—
160,286
160,063
2,513,434
2,450,244
1.3%
20.6%
2.8%
4.9%
55,843
41,668
49,635
54,188
397
—
197,653
854,801
607,745
719,459
28,918
825,365
817,880
6.8%
3.5%
262
817,618
—
—
—
—
266,705
278,680
2.4%
4.7%
18,521
12,485
3,890
11,216
177,969
54,599
284,495
310,488
282,294
306,743
2.4%
2.6%
3.6%
4.3%
214,161
232,199
57,704
41,641
895
1,669
9,534
29,429
—
—
—
1,805
8,163,962
8,088,870
68.1%
3.5%
769,757
4,745,307
928,205
658,825
900,694
86,082
100.0%
9.5%
58.7%
11.5%
8.1%
11.1%
1.1%
310,252
2.6%
100.0%
516,571
242,647
14,482
11,233
784,933
100.0%
4.3%
2.0%
0.1%
0.1%
6.5%
115,172
1.0%
100.0%
—
—%
—
—
—
—
—
—%
—
—%
—
—%
—
—
—
—
—
—%
—
—%
—
—%
—
—
—
—
—
—%
—
—%
—
—%
—
—%
310,252
100.0%
—
—
—
—
—
516,571
—
—
—
—
242,647
14,482
11,233
516,571
268,362
—%
65.8%
34.2%
—
—%
—
—%
115,172
100.0%
$11,885,747
100.0%
$3,349,657
$4,747,848
$ 928,758
$ 660,336
$1,418,016
$ 781,132
100.0%
28.2%
39.9%
7.8%
5.6%
11.9%
6.6%
(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. The Company has grouped short term investments with an A-1+ and A-1 short term issue credit rating as
AAA, short term investments with an A-2 short term issue credit rating as AA and short term investments with an A-3 short term issue credit rating as
A.
Fixed Maturity Investments and Short Term Investments
At December 31, 2018, our fixed maturity investments and short term investment portfolio had a dollar-
weighted average credit quality rating of AA (2017 – AA-) and a weighted average effective yield of 3.2%
(2017 – 2.5%). At December 31, 2018, our non-investment grade and not rated fixed maturity investments
totaled $1.0 billion or 12.2% of our fixed maturity investments (2017 - $1.0 billion or 13.5%, respectively). In
addition, within our other investments category we have funds that invest in non-investment grade and not
101
rated fixed income securities and non-investment grade cat-linked securities. At December 31, 2018, the
funds that invest in non-investment grade and not rated fixed income securities and non-investment grade
cat-linked securities totaled $531.1 million (2017 – $398.0 million).
At December 31, 2018, we had $2.6 billion of short term investments (2017 – $1.0 billion). 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 increase in our allocation to short term
investments at December 31, 2018, compared to December 31, 2017, is principally driven by the additional
invested assets in certain of our third-party vehicles that limits investment allocation to shorter term
securities.
The duration of our fixed maturity investments and short term investments at December 31, 2018 was 2.1
years (2017 - 2.5 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 shorter duration of our fixed maturity investments and
short term investments at December 31, 2018, compared to December 31, 2017, is principally the result of
the increase in the allocation to short term investments noted above.
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 and also to widening of credit spreads. 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.
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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 December 31, 2018
(in thousands)
Issuer
JP Morgan Chase & Co.
Goldman Sachs Group Inc.
Bank of America Corp.
Morgan Stanley
Wells Fargo & Co.
HSBC Holdings PLC
Banco Santander, S.A.
Citigroup Inc.
UBS Group AG
Barclays P.L.C
Total (1)
Total
Short term
investments
Fixed
maturity
investments
$
61,983 $
53,330
51,889
48,966
36,443
32,551
27,701
27,190
26,177
24,694
$
390,924 $
— $
—
—
—
—
—
—
—
—
—
— $
61,983
53,330
51,889
48,966
36,443
32,551
27,701
27,190
26,177
24,694
390,924
(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
2018
2017
Change
$
200,357 $
253,543 $
42,333
24,520
20,639
18,925
3,478
310,252 $
49,526
34,325
24,779
21,364
4,717
388,254 $
$
(53,186)
(7,193)
(9,805)
(4,140)
(2,439)
(1,239)
(78,002)
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 can
also strategically invest in certain more concentrated public equity positions internally, primarily through our
ventures business unit. 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.
103
Other Investments
The table below shows our portfolio of other investments:
At December 31,
(in thousands)
Catastrophe bonds
Private equity investments
Senior secured bank loan funds
Hedge funds
Total other investments
2018
2017
Change
$
516,571 $
380,475 $
136,096
242,647
14,482
11,233
196,220
17,574
524
46,427
(3,092)
10,709
$
784,933 $
594,793 $
190,140
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
investments, senior secured bank loan funds and hedge funds, is recorded on our consolidated 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.
Some of our fund managers and fund administrators are unable to provide final fund valuations as of our
current reporting date. We typically experience a reporting lag to receive a final net asset value report of
one month for our hedge funds and senior secured bank loan funds and three months for private equity
investments, although we have occasionally experienced delays of up to six months at year end, as the
private equity investments typically complete their 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, and 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 using 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, and 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 2018 is income of $0.3 million (2017 - income of $1.9 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. Refer to “Note 5. Fair Value
Measurements” in our “Notes to the Consolidated Financial Statements” for additional information regarding
the fair value of measurement of our investments.
We have committed capital to private equity investments, other investments and investments in other
ventures of $1.2 billion, of which $686.4 million has been contributed at December 31, 2018. Our remaining
commitments to these investments at December 31, 2018 totaled $470.8 million. In the future, we may
enter into additional commitments in respect of private equity investments 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,
(in thousands, except percentages)
Total Tower Hill Companies
Top Layer Re
Other
Total investments in other
ventures, under equity
method
2018
Ownership
%
24.9%
50.0%
30.6%
Investment
64,750
65,375
35,862
Carrying
Value
38,241
46,562
30,369
Investment
64,750
65,375
13,650
2017
Ownership
%
26.3%
50.0%
40.4%
Carrying
Value
42,167
50,211
9,596
$ 165,987
$ 115,172 $ 143,775
$ 101,974
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. We consider the anticipated effects on us 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, 2018, we had not entered into any off-balance sheet arrangements, as defined in
Item 303(a)(4) of Regulation S-K.
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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. In certain circumstances, our contractual
obligations may be accelerated 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, for example. In addition, in certain circumstances, in the event of a default these obligations
may bear an increased interest rate or be subject to penalties.
The table below shows our contractual obligations:
At December 31, 2018
(in thousands)
Long term debt obligations (1)
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
3.450% Senior Notes due 2027
3.700% Senior Notes due 2025
$ 387,965 $
369,364
10,350 $
11,100
5.750% Senior Notes due 2020
267,293
14,375
20,700 $
20,700 $ 336,215
4.750% Senior Notes due 2025
(DaVinciRe) (1)
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 (4)
(1)
Includes contractual interest payments.
195,714
1,220,336
7,125
42,950
470,754
470,754
23,418
28,959
7,137
3,331
22,200
252,918
14,250
310,068
—
10,228
6,672
22,200
313,864
—
—
14,250
57,150
160,089
810,168
—
5,755
6,166
—
—
298
12,790
—
380,332
380,332
—
6,076,271
1,397,542
1,883,644
$ 8,200,070 $ 2,666,623 $ 2,210,612 $ 1,102,037 $ 2,220,798
1,032,966
1,762,119
(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) 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 on
available relevant sources of loss and allocated loss adjustment expense development data and benchmark industry payment
patterns. 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.
(4)
In connection with the TMR Stock Purchase, we expect certain of the obligations to increase as we will consolidate the TMR
Group Entities’ assets and liabilities, including the TMR Group Entities’ claim and claim expense reserves.
CURRENT OUTLOOK
Property Exposed Market Developments
In 2018, the insurance and reinsurance markets were impacted by large loss events including Typhoons
Jebi, Mangkut and Trami, Hurricanes Florence and Michael in the U.S., wildfires in the state of California,
and numerous other events around the world. We currently estimate that these events gave rise to more
than $80 billion of industry-wide insured losses. These significant 2018 events follow a number of significant
natural disasters in 2017, including Hurricanes Harvey, Irma and Maria, the Mexico City Earthquake in the
third quarter of 2017, and the wildfires in many areas of California. Given the nature and breadth of these
events, the associated losses have affected an unusually large number of regions, and, accordingly,
insureds, reinsurance lines and reinsurers. In addition, the ultimate scale of the losses, loss estimation,
length of payout periods, social inflation risk and other factors continue to be uncertain for these loss
events, both for the individual events and in the aggregate. In addition, in 2018 the insurance industry
experienced significant ongoing adverse development on the 2017 Large Loss Events, most notably
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Hurricane Irma. We estimate that, by itself, the industry’s 2018 adverse development on Hurricane Irma
would have been one of the largest events of 2018 on an insured loss basis.
Partly as a result of the 2017 Large Loss Events and the subsequent overall adverse development from
them, industry conditions improved broadly in the 2018 renewal season, albeit at the lower end of our
expectations, facilitating growth in existing operations and presenting opportunities to deploy additional third
party capital. Broadly, the January 2019 renewal season was generally stable, at the lower end of reported
market expectations in light of the significant loss activity. Generally, loss affected programs and lines have
seen the most improvement in terms and conditions, but other property-exposed coverages have also
exhibited beneficial changes, particularly retrocessional coverages. We believe it is possible that the 2018
Large Loss Events may contribute to overall market dynamics that could continue to sustain the modestly
positive rate impacts that were seen following the 2017 Large Loss Events, or could forestall negative
trends. Moreover, both the large loss events and other market dynamics helped drive demand for complex,
holistic product coverages, for which we believe we have competitive advantages. However, at this time we
cannot know with certainty whether any such positive developments will transpire or be sustained, or the
degree to which we will continue to benefit from them.
We expect that over time reinsurance demand for many coverages and solutions will continue to lag the
pace of growth in available capital and we believe we are well positioned to benefit from these
developments as shown, for example, in our efforts to optimize our gross-to-net portfolio. However, we
believe it is possible that in 2019 capital supply from alternative capital providers may not, for the first time
in some time, continue to grow. In any case, over the medium and longer term, we anticipate the market will
be characterized by an ample supply of capital, including third party capital, notwithstanding the significant
impacts of the 2017 Large Loss Events and 2018 Large Loss Events.
Furthermore, cedants in many of the key markets we serve are large and increasingly sophisticated. They
may be able to manage large and growing retentions, 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. While we believe we are well
positioned to compete for business we find attractive, these dynamics may limit the degree to which the
market sustains favorable improvements in the near-term or continue to introduce or exacerbate long-term
challenges in our markets.
Casualty and Specialty Exposed Market Developments
The markets in which our Casualty and Specialty segment operate generally experienced favorable rate
trends and stable terms and conditions in 2018. While we have mostly observed favorable conditions for
accounts that exhibited elevated loss emergence or underlying rate deterioration, we estimate that the
favorable market trends have extended more broadly. We continue to expect casualty insurance and
reinsurance capacity to remain generally abundant during 2019, and estimate that, overall, the casualty and
specialty market was relatively stable at the January 2019 renewal. In the near term, we believe that current
pricing trends exhibited during the year are likely to continue, with terms and conditions for loss-affected
lines of business, such as the liability exposures impacted by the California wildfires, continuing to show
moderate improvement and certain other areas of the casualty and specialty market potentially maintaining
less pronounced but positive adjustments. Moreover, we believe that pockets of casualty and specialty lines
may provide attractive opportunities for stronger or well-positioned reinsurers and that, given our strong
ratings, expanded product offerings, and increased U.S. market presence, we are well positioned to
compete for business that we find attractive, such as the large, bespoke coverages we have structured and
provided for the California wildfire liability market. We plan to continue to seek unique or differentiated
opportunities to provide coverage on large programs open only to us or select markets. However, these
opportunities arise sporadically, and we cannot assure that we will retain these programs or obtain new
programs of this nature in the future.
Relatedly, specific renewal terms vary widely by insured account and our ability to shape our portfolio to
improve its estimated risk and return characteristics is subject to a range of competitive and commercial
factors. We cannot assure you that these positive dynamics will be sustained, or that we will participate fully
in improving terms. We intend to seek to maintain strong underwriting discipline and, in light of prevailing
market conditions, cannot provide assurance that we will succeed in growing or maintaining our current
combined in-force book of business.
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General Economic Conditions
Underlying economic conditions in several of the key markets we serve remained generally stable or
improved in 2018, with our core markets, including the U.S., experiencing economic growth amidst
moderate increases in prevailing interest rates. This economic growth contributes positively to demand for
our coverages and services, particularly in jurisdictions with high insurance penetration and the potential for
risk concentration.
We continue to believe that meaningful risk remains for political and economic uncertainty, economic
weakness or adverse disruptions in general economic and financial market conditions. Moreover, any future
economic growth may be at a comparatively suppressed rate for a relatively extended period of time.
Declining or weak economic conditions could reduce demand for the products sold by us or our customers,
impact the risk-adjusted attractiveness and absolute returns and yields of our investment portfolio, or
weaken our overall ability to write business at risk-adequate rates. Persistent low levels of economic activity
could also adversely impact other areas of our financial performance, by contributing to unforeseen
premium adjustments, mid-term policy cancellations or commutations or asset devaluation, among other
things. In addition, it is possible that increasing uncertainties related to cross-border trade will diminish
economic growth for specific sectors which drive the insurance market disproportionately. Our specialty and
casualty reinsurance and Lloyd’s portfolios in particular could 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. In addition, 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 higher during a period of economic weakness. Any of the foregoing or other outcomes of a
period of economic weakness could adversely impact our financial position or results of operations.
The sustained environment of low interest rates in recent years lowered the yields at which we invest our
assets relative to longer-term historical levels. More recently, we have seen increases in interest rates, and
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 the increasing interest rate
environment. However, such an increase in prevailing interest rates could 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.
We continue to monitor the risk that our principal markets will experience increased inflationary conditions
and believe this risk is increasing. Inflationary conditions would cause costs related to our claims and claim
expenses to increase and impact the performance of our investment portfolio, among other things. The
onset, duration and severity of an inflationary period cannot be estimated with precision.
Legislative and Regulatory Update
The Tax Bill was signed into law on December 22, 2017. The Tax Bill amends a range of U.S. federal tax
rules applicable to individuals, businesses and international taxation, including, among other things, altering
the current taxation of insurance premiums ceded from a United States domestic corporation to any non-
U.S. affiliate. The Tax Bill and future regulatory actions pertaining to it could adversely impact the insurance
and reinsurance industry and our own results of operations by increasing taxation of certain activities and
structures in our industry. We are unable to predict all of the ultimate impacts of the Tax Bill and other
proposed tax reform regulations and legislation on our business and results of operations. While we
continue to estimate that the near term economic impact of the Tax Bill to us will be minimal, uncertainty
regarding the impact of the Tax Bill remains, as a result of factors including future regulatory and rulemaking
processes, the prospects of additional corrective or supplemental legislation, potential trade or other
litigation and other factors. Further, it is possible that other legislation could be introduced and enacted in
the future that would have an adverse impact on us.
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, H.R.4947, the Natural Disaster Reinsurance Act of 2016, which would create a federal
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reinsurance program to cover any losses insured or reinsured by eligible state programs arising from
natural catastrophes, including losses from floods, earthquakes, tropical storms, tornadoes, volcanic
eruption and winter storms, was introduced. 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 the state of 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, among other things, authorized the Federal
Emergency Management Agency (“FEMA”) 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.
Commencing in January 2017, FEMA has, acting under authority contemplated by the Biggert-Waters Bill,
secured annual reinsurance protection for the NFIP. Most recently, in January 2018, FEMA announced that
it had renewed its reinsurance program to provide for $1.32 billion of protection in respect of 2019, covering
14% of NFIP’s losses between $4 billion and $6 billion, 25.6% of its losses between $6 billion and $8 billion,
and 26.6% of its losses between $8 billion and $10 billion. In addition, NFIP has procured an additional
$500 million of private market protection via the FloodSmart Re $500 million Series 2018-1 Notes. It is
possible this program will continue and potentially expand 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.
The statutory authorization for the operation and continuation of the NFIP has expired and received a series
of short term extensions. Most recently, in December 2018, NFIP’s authorization was extended to May 31,
2019. Legislative language under consideration in the House of Representatives 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. In January 2019,
the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency issued rules requiring
lenders to accept private flood insurance policies that have coverage at least as comprehensive as that
offered by NFIP, and providing a framework to evaluate alternative flood coverage. Congress is also
considering legislative language that would direct FEMA to consider policy holders who discontinue an 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. To the extent these laws,
rules and regulations are adopted and enforced, they could incrementally contribute to the growth of private
residential flood opportunities and the financial stabilization of the NFIP. However, reauthorization of the
NFIP remains subject to meaningful uncertainty; and whether a successful reauthorization would continue
market-enhancing reforms is significantly uncertain. Accordingly, we cannot assure you that legislation to
reform the NFIP will indeed be enacted or that the private market for residential flood protection will be
enhanced if it is.
In recent years, market conditions for insurance in the state of Florida have been significantly impacted by
the increasingly prevalent utilization of a practice referred to as “assignment of benefits,” or “AOB”. We
currently estimate that the impacts of AOB will contribute adversely to the ultimate economic losses borne
by the insurance market in light of recent large Florida loss events, including Hurricane Michael, perhaps
significantly. An AOB is an instrument executed by a primary policyholder that is deemed to permit certain
third parties, such as water extraction companies, roofers, or plumbers, to “stand in the shoes” of the
insured and seek direct payments from the policyholder’s insurance company. According to the Florida
Office of Insurance Regulation (the “OIR”), while there were 405 AOB lawsuits relating to water and glass
matters across Florida in 2006, that number rose to 36,601 in 2017 and 34,289 in 2018. Moreover,
according to the OIR, claims with an AOB have a much higher degree of severity than claims without one.
For example, in 2018 the OIR estimated that between 2015 and 2017, the frequency of water claims rose
by 44% and the severity of water claims rose by 18%. Similarly, litigation data submitted to the Florida
Department of Financial Services show that the number of AOB lawsuits filed against all Florida property
insurers rose from 4,613 in 2013 to 17,421 in 2018, a 270% increase.
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While we cannot precisely estimate the adverse impact AOB practices will have in respect of the large
losses in 2017 and 2018, we do believe that usage of AOBs contributes significantly to loss trends in
Florida. Accordingly, these ongoing challenges relating to abuse of AOB has impacted our own risk
selection criteria with respect to Florida exposures, reducing the number of programs we believe are
submitted at attractive risk-adjusted terms. We actively review our underwriting criteria, and expect that, in
the absence of reform, these trends may further affect our decisions in respect of allocating capital to
Florida. While both private companies and the OIR are exploring non-statutory means to mitigate these
issues, legislative reforms proposed over the last several years have not been enacted. We believe that a
continuation of these trends will likely weaken or potentially impair primary insurance companies, reduce
both demand for and availability of reinsurance and discourage the strengthening of the private insurance
market that we believe had otherwise been evident in Florida. Such trends would adversely impact the
Florida market and many of the companies we seek to serve.
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 2018 were not materially different than those
used in 2017.
Upon consummation of the TMR Stock Purchase, the TMR Group Entities’ assets and liabilities will be
consolidated with RenaissanceRe and subject to our existing policies for addressing the markets risks
noted herein. As a result of the potential acquisition of the TMR Group Entities, we anticipate increased
exposure to each of these market risks, resulting from an increase in the geographic scope of our
operations and in the size of our investment portfolio. We do not currently anticipate significant changes in
how those exposures are managed in future reporting periods based upon what is known or expected to be
in effect in future reporting periods, including the potential acquisition of the TMR Group Entities.
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 18. 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
economic 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.
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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, 2018
-100
-50
Base
50
100
Interest Rate Shift in Basis Points
(in thousands, except
percentages)
Fair value of fixed
maturity and short
term investments
Net increase
(decrease) in fair
value
Percentage change in
fair value
$ 10,877,855
$ 10,777,893
$ 10,675,390
$10,571,175
$10,466,211
$
202,465
$
102,503
$
— $ (104,215)
$ (209,179)
1.9%
1.0%
—%
(1.0)%
(2.0)%
At December 31, 2017
-100
-50
Base
50
100
Interest Rate Shift in Basis Points
(in thousands, except
percentages)
Fair value of fixed
maturity and short
term investments
Net increase
(decrease) in fair
value
Percentage change in
fair value
$ 8,630,509
$ 8,524,138
$ 8,418,418
$ 8,313,350
$ 8,208,934
$
212,091
$
105,720
$
— $ (105,068)
$ (209,484)
2.5%
1.3%
—%
(1.2)%
(2.5)%
As noted above, we use derivative instruments, namely interest rate futures and swaps 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, 2018, we had $1.9 billion of notional long positions
and $545.8 million of notional short positions of primarily Eurodollar, U.S. Treasury and non-U.S. dollar
futures contracts (2017 - $1.5 billion and $801.1 million, respectively). At December 31, 2018, we had $78.4
million of notional positions paying a fixed rate and $32.1 million receiving a fixed rate denominated in U.S.
dollar swap contracts (2017 - $40.3 million and $Nil, respectively). Refer to “Note 18. Derivative Instruments
in our Notes to the Consolidated Financial Statements” for additional information related to interest rate
futures and swaps entered into by us.
At December 31, 2018, 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
interest rate futures of approximately $11.3 million and an increase in the market value of our net position in
interest rate swaps of approximately $0.1 million. Conversely, at December 31, 2018, 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 interest rate futures of approximately $10.3
million and a decrease in the market value of our net position in interest rate swaps of approximately $0.1
million. 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
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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 18. 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.
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,
2018
(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
$ (7,428)
$ 57,425
$190,573
$ (94,769)
$(233,041)
$ (15,495)
$(36,968)
$(139,703)
(2,360)
(54,656)
(136,404)
98,195
163,909
16,413
10,030
95,127
$ (9,788)
$ 2,769
$ 54,169
$ 3,426
$ (69,132)
$
918
$(26,938)
$ (44,576)
(0.2)%
0.1%
1.1%
0.1%
(1.4)%
—%
(0.5)%
(0.9)%
$
979
$
(277)
$ (5,417)
$
(343)
$
6,913
$
(92)
$ 2,694
$
4,458
112
At December 31,
2017
(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
$ (5,519)
$ 50,546
$ (62,778)
$ (61,928)
$ (16,762)
$ (24,114)
$ (8,266)
$ (128,821)
(1,577)
(32,792)
94,981
75,226
24,468
22,749
(382)
182,673
$ (7,096)
$ 17,754
$ 32,203
$ 13,298
$
7,706
$ (1,365)
$ (8,648)
$
53,852
(0.2)%
0.4%
0.7%
0.3%
0.2%
— %
(0.2)%
1.2%
$
710
$ (1,775)
$ (3,220)
$ (1,330)
$
(771)
$
137
$
865
$
(5,385)
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 and market risk associated with changes in credit spreads.
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, 2018, our
fixed maturity investments and short term investment portfolio had a dollar-weighted average credit quality
rating of AA (2017 - AA-). In addition, we limit the amount of credit exposure to any one financial institution
and, except for U.S. Government securities and money market securities, none of our investments
exceeded 10% of shareholders’ equity at December 31, 2018.
113
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,
2018
2017
AAA
AA
A
BBB
Non-investment grade
Not rated
Total
31.4%
44.5%
8.7%
6.2%
8.4%
0.8%
20.2%
51.9%
9.7%
6.2%
11.4%
0.6%
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, 2018
-100
-50
Base
50
100
Credit Spread Shift in Basis Points
(in thousands, except
percentages)
Fair value of fixed
income and short
term investments
Net increase
(decrease) in fair
value
Percentage change
in fair value
$ 10,804,654
$ 10,750,213
$ 10,675,390
$10,589,321
$10,503,252
$
129,264
$
74,823
$
— $
(86,069)
$ (172,138)
1.2%
0.7%
—%
(0.8)%
(1.6)%
At December 31, 2017
-100
-50
Base
50
100
Credit Spread Shift in Basis Points
(in thousands, except
percentages)
Fair value of fixed
income and short
term investments
Net increase
(decrease) in fair
value
Percentage change
in fair value
$ 8,511,410
$ 8,476,539
$ 8,418,418
$ 8,344,261
$ 8,270,104
$
92,992
$
58,121
$
— $
(74,157)
$ (148,314)
1.1%
0.7%
—%
(0.9)%
(1.8)%
We also employ credit derivatives in our investment portfolio to either assume credit risk or hedge our credit
exposure. At December 31, 2018, we had outstanding credit derivatives of $1.0 million in notional long
positions (short credit) and $126.2 million in notional short positions (long credit), denominated in U.S.
dollars (2017 - $1.0 million and $18.8 million, respectively). Refer to “Note 18. Derivative Instruments in our
Notes to the Consolidated Financial Statements” for additional information related to credit derivatives
114
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 $5.5 million at December 31, 2018. 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 $5.0 million at
December 31, 2018. For an immediate downward shift in credit spreads, we do not allow credit spreads to
go negative in calculating the impact. 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: (1) private equity investments whose exit strategies often depend on the equity markets; (2)
certain hedge funds that have net long equity positions; and (3) other ventures, under equity method. We
may use equity derivatives in our investment portfolio to either assume equity risk or hedge our equity
exposure. The following table summarizes a hypothetical 10% increase and decline in the carrying value of
our equity investments trading, private equity investments, 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
2018
2017
$
310,252 $
388,254
242,647
115,172
11,233
196,220
101,974
524
679,304 $
686,972
67,930 $
68,697
(67,930) $
(68,697)
$
$
$
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 15 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.
115
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, 2018, 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, 2018 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’s
internal control over financial reporting was effective as of December 31, 2018.
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, 2018 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, 2018, 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.
116
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of RenaissanceRe Holdings Ltd.
Opinion on Internal Control over Financial Reporting
We have audited RenaissanceRe Holdings Ltd. and Subsidiaries’ internal control over financial reporting as
of December 31, 2018, 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). In our opinion, RenaissanceRe Holdings Ltd. and Subsidiaries (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2018, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated balance sheets of RenaissanceRe Holdings Ltd. and
Subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of operations,
comprehensive (loss) income, changes in shareholders’ equity and cash flows for each of the three years in
the period ended December 31, 2018 and the related notes of the Company and our report dated
February 7, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s 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 are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young Ltd.
Hamilton, Bermuda
February 7, 2019
117
ITEM 9B. OTHER INFORMATION
None.
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 14, 2019 (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.
118
Exhibit Index
Exhibit
Number Description
2.1
Stock Purchase Agreement, dated as of October 30, 2018, by and among Tokio Marine & Nichido
Fire Insurance Co., Ltd., Tokio Marine Holdings, Inc., and RenaissanceRe Holdings Ltd., including
the exhibits thereto. (42)
3.1
3.2
3.3
3.4
4.1
4.2
Memorandum of Association. (P) (1)
Amended and Restated Bye-Laws. (2)
Memorandum of Increase in Share Capital of RenaissanceRe Holdings Ltd. (3)
Specimen Common Share certificate. (P) (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)
Certificate of Designation, Preferences and Rights of 5.750% Series F Preference Shares. (41)
Form of Stock Certificate Evidencing the 5.750% Series F Preference Shares. (41)
Deposit Agreement, dated June 18, 2018, among RenaissanceRe Holdings Ltd.,
Computershare, Inc. and Computershare Trust Company, N.A. (41)
4.3(c)
Form of Depositary Receipt. (41)
4.4
4.4(a)
4.4(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)
4.4(c) Waiver Agreement, dated as of January 21, 2011, by and among RenRe North America
4.4(d)
4.5
4.5(a)
4.5(b)
4.6
4.6(a)
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. (25)
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. (23)
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. (23)
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. (23)
Senior Indenture, dated as of June 29, 2017, among RenaissanceRe Finance Inc., as issuer,
RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust Company Americas, as
trustee. (36)
First Supplemental Indenture, dated as of June 29, 2017, among RenaissanceRe Finance Inc.,
as issuer, RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust Company
Americas, as trustee. (36)
119
4.6(b) Senior Debt Securities Guarantee Agreement, dated as of June 29, 2017, between
RenaissanceRe Holdings Ltd., as guarantor, and Deutsche Bank Trust Company Americas, as
guarantee trustee. (36)
Further Amended and Restated Employment Agreement, dated as of July 22, 2016, by and
between RenaissanceRe Holdings Ltd. and Kevin J. O’Donnell. (29)
Legacy Form of Further Amended and Restated Employment Agreement for Named Executive
Officers (other than our Chief Executive Officer). (29)**
Form of Employment Agreement for Named Executive Officers (other than our Chief Executive
Officer). (29)***
Letter agreement, dated July 6, 2016, between Ian Branagan and RenaissanceRe Holdings Ltd.
regarding secondment to the U.K. (29)
Letter agreement, dated April 11, 2013, between Ian Branagan and RenaissanceRe Holdings Ltd.
regarding secondment to the U.K. (29)
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
RenaissanceRe Holdings Ltd. 2016 Long-Term Incentive Plan. (39)
10.6(a)* Form of Director Restricted Stock Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-
Term Incentive Plan. (29)
10.6(b)* Form of Restricted Stock Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-Term
Incentive Plan. (29)
10.6(c)* Form of Performance Share Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-Term
Incentive Plan (for awards made in 2016). (38)
10.6(d)* Form of Performance Share Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-Term
Incentive Plan (for awards made in 2017 and March 2018). (34)
10.6(e)* Form of Performance Share Agreement under the RenaissanceRe Holdings Ltd. 2016 Long-Term
Incentive Plan (for awards made in May 2018 and later). (40)
10.7
RenaissanceRe Holdings Ltd. Deferred Cash Award Plan. (37)
10.7(a) Form of Deferred Cash Award Agreement pursuant to which Deferred Cash Awards are granted
under the RenaissanceRe Holdings Ltd. Deferred Cash Award Plan. (37)
10.8*
RenaissanceRe Holdings Ltd. 2016 Restricted Stock Unit Plan. (40)
10.8(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. (31)
10.9*
RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (15)
10.9(a)* Amendment No. 1 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (16)
10.9(b)* Amendment No. 2 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (16)
10.9(c)* Amendment No. 3 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (8)
10.9(d)* Amendment No. 4 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (13)
10.9(e)* Amendment No. 5 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (17)
10.9(f)* Amendment No. 6 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (11)
10.9(g)* UK Schedule to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (8)
10.9(h)* UK Sub-Plan to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (8)
10.9(i)* Form of Option Grant Notice and Agreement pursuant to which option grants were made under
the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan. (18)
10.9(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. (18)
10.9(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. (28)
10.10* RenaissanceRe Holdings Ltd. 2010 Restricted Stock Unit Plan. (14)
10.10(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)
120
10.11* RenaissanceRe Holdings Ltd. 2010 Performance-Based Equity Incentive Plan. (13)
10.11(a)* Amendment No. 1 to the RenaissanceRe Holdings Ltd. 2010 Performance-Based Equity
Incentive Plan. (22)
10.11(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. (22)
10.12*
Form of Tax Reimbursement Waiver Letter with the Named Executive Officers. (19)
10.13*
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. (20)
Form of Director Shares Grant Notice and Agreement pursuant to which restricted stock grants
were made to non-employee directors on March 1, 2016. (29)
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. (21)
10.16(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. (24)
10.17
Facility Letter, dated September 17, 2010, from Citibank Europe PLC to Renaissance
Reinsurance Ltd., DaVinci Reinsurance Ltd. and Glencoe Insurance Ltd. (9)
10.17(a) 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)
10.17(b) Amendment to Facility Letter, dated July 14, 2011, by and among Citibank Europe plc,
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd and Glencoe Insurance Ltd.
10.17(c) 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)
10.17(d) 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. (28)
10.17(e) 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. (28)
10.17(f) 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. (27)
10.17(g) Amendment to Facility Letter, dated January 14, 2016, 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. (28)
10.17(h) Termination of Master Agreements, Control Agreements and Pledge Agreements, dated October
1, 2016, between Renaissance Reinsurance Ltd. and Citibank Europe PLC. (30)
121
10.17(i) 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. (33)
10.17(j) Amendment to Facility Letter, dated December 29, 2017, by and among Citibank Europe plc,
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd., Renaissance Reinsurance of Europe
Unlimited Company, RenaissanceRe Specialty U.S. Ltd. and Renaissance Reinsurance U.S. Inc.
(38)
10.17(k) Amendment to Facility Letter, dated December 29, 2017, by and among Citibank Europe plc,
Renaissance Reinsurance Ltd., DaVinci Reinsurance Ltd., Renaissance Reinsurance of Europe
Unlimited Company, RenaissanceRe Specialty U.S. Ltd. and Renaissance Reinsurance U.S. Inc.
(45)
Master Reimbursement Agreement, dated as of November 24, 2014, by and between
RenaissanceRe Specialty Risks Ltd. and Citibank Europe PLC. (22)
10.18
10.18(a) Pledge Agreement, dated as of November 24, 2014 by and among RenaissanceRe Specialty
Risks Ltd. and Citibank Europe PLC. (22)
10.18(b) Omnibus Amendment Agreement, dated October 1, 2016, between Renaissance Reinsurance
Ltd., Citibank Europe PLC and Bank of New York Mellon. (30)
10.18(c) First Amendment to Pledge Agreement, dated as of November 22, 2016, between Citibank
10.19
Europe plc and Renaissance Reinsurance Ltd.
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. (26)
10.19(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. (14)
10.19(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. (29)
10.19(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. (31)
10.19(d) Fourth Amendment to Letter of Credit Reimbursement Agreement, dated as of May 25, 2017, 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. (35)
10.19(e) Fifth Amendment to Letter of Credit Reimbursement Agreement dated as of November 8, 2017 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. (37)
10.19(f) Sixth Amendment to Letter of Credit Reimbursement Agreement, dated as of November 5, 2018,
by and among Renaissance Reinsurance Ltd. and each of Bank of Montreal, as documentation
agent, Bank of Montreal, London Branch, as a lender, Citibank Europe plc, as a lender and as
collateral agent, and ING Bank N.V., London Branch, as a lender and as letter of credit agent.
(43)
122
10.20
Second Amended and Restated Credit Agreement, dated as of November 9, 2018, by and among
RenaissanceRe Holdings Ltd., Renaissance Reinsurance Ltd., RenaissanceRe Specialty U.S.
Ltd., Renaissance Reinsurance U.S. Inc., various banks and financial institutions parties thereto,
and Wells Fargo Bank, National Association, as Fronting Bank, LC Administrator and
Administrative Agent for the Lenders. (44)
10.20(a) Guaranty Agreement, dated as of November 9, 2018, by and among RenRe North America
Holdings Inc., RenaissanceRe Finance Inc. and Wells Fargo Bank, National Association, as
Administrative Agent. (44)
10.21 Waiver, dated as of November 15, 2016, by and between RenaissanceRe Holdings Ltd. and
BlackRock, Inc. (32)
10.22 Waiver, dated as of May 11, 2018, by and between RenaissanceRe Holdings Ltd. and The
Vanguard Group, Inc. (40)
10.23
10.24
10.25
21.1
23.1
31.1
31.2
32.1
32.2
Investment Agreement, dated as of October 30, 2018, by and between RenaissanceRe Holdings
Ltd. And State Farm Mutual Automobile Insurance Company, including the exhibits thereto. (42)
Registration Rights Agreement, dated October 30, 2018, by and between RenaissanceRe
Holdings Ltd. and Tokio Marine & Nichido Fire Insurance Co. Ltd. (42)
Registration Rights Agreement, dated October 30, 2018, by and between RenaissanceRe
Holdings Ltd. and State Farm Mutual Automobile Insurance Co. Ltd. (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)
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 Exhibit 3.1 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.
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.
123
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
Incorporated by reference to RenaissanceRe Holdings Ltd.’s Current Report on Form 8-K, filed
with the SEC on March 18, 2010.
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.
Amendment No. 4 to the RenaissanceRe Holdings Ltd. 2001 Stock Incentive Plan is incorporated
by reference to Appendix B to RenaissanceRe Holdings Ltd.'s Definitive Proxy Statement filed
with the SEC on April 8, 2010. The RenaissanceRe Holdings Ltd. 2010 Performance-Based
Equity Incentive Plan is incorporated by reference to Appendix A 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, 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 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 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.
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.
124
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(43)
(44)
(45)
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.
Incorporated by reference to RenaissanceRe Holding Ltd’s Annual Report on Form 10-K for the
year ended December 31, 2016, filed with the SEC on February 23, 2017.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on May 26, 2017.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on June 29, 2017.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on November 13, 2017.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on January 3, 2018.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Annual Report on Form 10-K for the
year ended December 31, 2017, filed with the SEC on February 9, 2018.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on May 16, 2018.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on June 19, 2018.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on November 5, 2018.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on November 9, 2018.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on November 14, 2018.
Incorporated by reference to RenaissanceRe Holding Ltd.’s Current Report on Form 8-K filed with
the SEC on January 3, 2019.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
125
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 7, 2019
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 7, 2019
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
February 7, 2019
(Principal Financial Officer)
Senior Vice President and Chief Accounting Officer
February 7, 2019
(Principal Accounting Officer)
Non-Executive Chair of the Board of Directors
February 7, 2019
/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
/s/ Jean D. Hamilton
Jean D. Hamilton
/s/ Duncan P. Hennes
Duncan P. Hennes
/s/ Henry Klehm, III
Henry Klehm, III
/s/ Valerie Rahmani
Valerie Rahmani
/s/ Carol P. Sanders
Carol P. Sanders
Director
Director
Director
Director
Director
Director
Director
/s/ Anthony M. Santomero Director
Anthony M. Santomero
/s/ Edward J. Zore
Edward J. Zore
Director
126
February 7, 2019
February 7, 2019
February 7, 2019
February 7, 2019
February 7, 2019
February 7, 2019
February 7, 2019
February 7, 2019
February 7, 2019
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 31, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017 and 2016.
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31,
2018, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31,
2018, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 Shareholders and the Board of Directors of RenaissanceRe Holdings Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of RenaissanceRe Holdings Ltd. and
Subsidiaries (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of
operations, comprehensive (loss) income, changes in shareholders’ equity and cash flows for each of the
three years in the period ended December 31, 2018, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at December 31, 2018 and 2017,
and the consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2018, 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) (PCAOB), the Company's internal control over financial reporting as of December 31,
2018, 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 7, 2019, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ Ernst & Young Ltd.
We have served as the Company’s auditor since 1993.
Hamilton, Bermuda
February 7, 2019
F-2
RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets
At December 31, 2018 and 2017
(in thousands of United States Dollars, except share and per share amounts)
Assets
Fixed maturity investments trading, at fair value - amortized cost
$8,163,962 at December 31, 2018 (2017 - $7,434,870) (Notes 4 and 5) $
8,088,870 $
7,426,555
December 31,
2018
December 31,
2017
Short term investments, at fair value (Notes 4 and 5)
Equity investments trading, at fair value (Notes 4 and 5)
Other investments, at fair value (Notes 4 and 5)
Investments in other ventures, under equity method (Note 4)
Total investments
Cash and cash equivalents
Premiums receivable
Prepaid reinsurance premiums (Note 6)
Reinsurance recoverable (Notes 6 and 7)
Accrued investment income
Deferred acquisition costs
Receivable for investments sold
Other assets
Goodwill and other intangible assets (Note 3)
Total assets
Liabilities, Noncontrolling Interests and Shareholders’ Equity
Liabilities
Reserve for claims and claim expenses (Note 7)
Unearned premiums
Debt (Note 8)
Reinsurance balances payable
Payable for investments purchased
Other liabilities
Total liabilities
Commitments and Contingencies (Note 19)
Redeemable noncontrolling interests (Note 9)
Shareholders’ Equity (Note 11)
Preference shares: $1.00 par value – 16,010,000 shares issued and
outstanding at December 31, 2018 (2017 – 16,000,000)
Common shares: $1.00 par value – 42,207,390 shares issued and
outstanding at December 31, 2018 (2017 – 40,023,789)
Additional paid-in capital
Accumulated other comprehensive (loss) income
Retained earnings
Total shareholders’ equity attributable to RenaissanceRe
Total liabilities, noncontrolling interests and shareholders’ equity
2,586,520
310,252
784,933
115,172
11,885,747
1,107,922
1,537,188
616,185
991,863
388,254
594,793
101,974
9,503,439
1,361,592
1,304,622
533,546
2,372,221
1,586,630
51,311
476,661
256,416
135,127
237,418
42,235
426,551
103,145
121,226
243,145
$ 18,676,196 $ 15,226,131
$
6,076,271 $
5,080,408
1,716,021
1,477,609
991,127
1,902,056
380,332
513,609
989,623
989,090
208,749
792,771
11,579,416
9,538,250
2,051,700
1,296,506
650,000
400,000
42,207
296,099
(1,433)
40,024
37,355
224
4,058,207
5,045,080
3,913,772
4,391,375
$ 18,676,196 $ 15,226,131
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, 2018, 2017, and 2016
(in thousands of United States Dollars, except per share amounts)
2018
2017
2016
Revenues
Gross premiums written
Net premiums written (Note 6)
Increase in unearned premiums
Net premiums earned (Note 6)
Net investment income (Note 4)
Net foreign exchange (losses) gains
Equity in earnings of other ventures (Note 4)
Other income
Net realized and unrealized (losses) gains on investments (Note
4)
Total revenues
Expenses
Net claims and claim expenses incurred (Notes 6 and 7)
Acquisition expenses
Operational expenses
Corporate expenses
Interest expense (Note 8)
Total expenses
Income (loss) before taxes
Income tax benefit (expense) (Note 14)
Net income (loss)
Net (income) loss attributable to redeemable noncontrolling
interests (Note 9)
Net income (loss) attributable to RenaissanceRe
Dividends on preference shares (Note 11)
$ 3,310,427 $ 2,797,540 $ 2,374,576
$ 2,131,902 $ 1,871,325 $ 1,535,312
(131,882)
1,403,430
181,726
(13,788)
963
14,178
(155,773)
1,976,129
261,866
(12,428)
18,474
5,969
(153,750)
1,717,575
222,209
10,628
8,030
9,415
(175,069)
2,074,941
135,822
2,103,679
141,328
1,727,837
1,120,018
432,989
178,267
33,983
47,069
1,812,326
262,615
6,302
268,917
(41,553)
227,364
(30,088)
1,861,428
346,892
160,778
18,572
44,193
2,431,863
(328,184)
(26,487)
(354,671)
132,282
(222,389)
(22,381)
530,831
289,323
197,749
37,402
42,144
1,097,449
630,388
(340)
630,048
(127,086)
502,962
(22,381)
Net income (loss) available (attributable) to RenaissanceRe
common shareholders
Net income (loss) available (attributable) to RenaissanceRe
common shareholders per common share – basic (Note 12)
Net income (loss) available (attributable) to RenaissanceRe
common shareholders per common share – diluted (Note 12)
$
$
$
197,276 $
(244,770) $
480,581
4.91 $
(6.15) $
11.50
4.91 $
(6.15) $
11.43
See accompanying notes to the consolidated financial statements
F-4
RenaissanceRe Holdings Ltd. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31, 2018, 2017 and 2016
(in thousands of United States Dollars)
Comprehensive income (loss)
Net income (loss)
2018
2017
2016
$
268,917 $ (354,671) $
630,048
Change in net unrealized (losses) gains on investments
(1,657)
(909)
(975)
Comprehensive income (loss)
267,260
(355,580)
629,073
Net (income) loss attributable to redeemable noncontrolling
interests
Comprehensive (income) loss attributable to redeemable
noncontrolling interests
(41,553)
132,282
(127,086)
(41,553)
132,282
(127,086)
Comprehensive income (loss) attributable to RenaissanceRe $
225,707 $ (223,298) $
501,987
Disclosure regarding net unrealized (losses) gains
Total net realized and unrealized holding (losses) gains on
investments
Net realized losses on fixed maturity investments available for
sale
Change in net unrealized (losses) gains on investments
$
$
(1,657) $
(909) $
403
—
—
(1,657) $
(909) $
(1,378)
(975)
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, 2018, 2017 and 2016
(in thousands of United States Dollars)
Preference shares
Balance – January 1
Issuance of shares (Note 11)
Balance – December 31
Common shares
Balance – January 1
Issuance of shares (Note 11)
Repurchase of shares
Exercise of options and issuance of restricted stock awards
(Notes 12 and 16)
Balance – December 31
Additional paid-in capital
Balance – January 1
Issuance of shares (Note 11)
Repurchase of shares
Offering expenses
Change in redeemable noncontrolling interest
Exercise of options and issuance of restricted stock awards
(Notes 12 and 16)
Balance – December 31
Accumulated other comprehensive (loss) income
Balance – January 1
Change in net unrealized (losses) gains on investments
Balance – December 31
Retained earnings
Balance – January 1
2018
2017
2016
$
400,000 $
400,000 $
400,000
250,000
650,000
—
—
400,000
400,000
40,024
1,947
—
236
42,207
41,187
43,701
—
—
(1,322)
(2,741)
159
40,024
227
41,187
37,355
248,053
216,558
507,674
—
—
—
(187,269)
(306,693)
(8,552)
837
—
119
—
(1,655)
18,406
296,099
7,947
37,355
17,232
216,558
224
(1,657)
(1,433)
1,133
(909)
224
2,108
(975)
1,133
3,913,772
4,207,699
3,778,701
Cumulative effect of adoption of ASU 2016-09 (Note 2)
—
2,213
—
Net income (loss)
268,917
(354,671)
630,048
Net (income) loss attributable to redeemable noncontrolling
interests (Note 9)
Dividends on common shares
Dividends on preference shares
Balance – December 31
Total shareholders’ equity
(41,553)
(52,841)
(30,088)
132,282
(127,086)
(51,370)
(22,381)
(51,583)
(22,381)
4,058,207
3,913,772
$ 5,045,080 $ 4,391,375 $ 4,866,577
4,207,699
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, 2018, 2017 and 2016
(in thousands of United States Dollars)
Cash flows provided by operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Amortization, accretion and depreciation
Equity in undistributed (earnings) losses of other ventures
Net realized and unrealized losses (gains) on investments
Net unrealized losses (gains) included in net investment
income
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 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 of equity investments trading
Net (purchases) sales of short term investments
Net purchases of other investments
Net purchases of investments in other ventures
Return of investment from investment in other ventures
Net sales of other assets
Net cash used in investing activities
Cash flows provided by (used in) financing activities
Dividends paid – RenaissanceRe common shares
Dividends paid – preference shares
RenaissanceRe common share repurchases
RenaissanceRe common share issuance
Issuance of debt, net of expenses
Repayment of debt
Issuance of preference shares, net of expenses
Net third party redeemable noncontrolling interest share
transactions
Taxes paid on withholding shares
Net cash provided by (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
2018
2017
2016
$
268,917 $
(354,671) $
630,048
123
(3,772)
175,069
31,242
6,295
(135,822)
29,304
5,504
(141,328)
8,309
(24,737)
(11,542)
(232,566)
(82,639)
(785,591)
(50,110)
995,863
238,412
912,966
(223,280)
1,221,701
(317,299)
(92,286)
(1,307,066)
(91,226)
2,232,114
246,036
315,107
518,100
1,025,787
(209,314)
(210,589)
(145,038)
(135,945)
81,249
342,471
150,009
99,943
484,772
11,585,576
(12,489,972)
9,490,669
(10,093,532)
8,102,514
(8,282,720)
—
14,156
(1,436,389)
(199,475)
(21,473)
8,464
2,500
(2,536,613)
(52,841)
(30,088)
—
250,000
—
—
241,448
665,683
(7,862)
1,066,340
(5,098)
(253,670)
1,361,592
—
115,837
364,011
(19,419)
—
20,000
—
(122,434)
(51,370)
(22,381)
(188,591)
—
295,866
(250,000)
—
260,475
(15,139)
28,860
8,222
940,435
421,157
$ 1,107,922 $ 1,361,592 $
17,692
184,788
(118,617)
(68,589)
—
—
400
(164,532)
(51,583)
(22,381)
(309,434)
—
—
—
—
(2,990)
(14,943)
(401,331)
(4,637)
(85,728)
506,885
421,157
Supplemental disclosure of cash flow information
Income taxes paid (refunded)
Interest paid
$
$
341 $
45,623 $
343 $
44,171 $
(1,118)
53,977
See accompanying notes to the consolidated financial statements
F-7
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018
(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 property, casualty and
specialty reinsurance and certain insurance solutions to customers.
• Renaissance Reinsurance Ltd. (“Renaissance Reinsurance”), a Bermuda-domiciled reinsurance
company, is the Company’s principal reinsurance subsidiary and provides property, 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. Inc. (“Renaissance Reinsurance U.S.”) is a reinsurance company
domiciled in the state of Maryland that provides property, 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 consolidated financial statements and all significant
intercompany transactions have been eliminated. 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 of
RenaissanceRe, 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 a portion of the participating, non-voting common shares of Medici.
Because the Company owns a noncontrolling equity interest in, but controls a majority of the
outstanding voting power of Medici’s parent, RenaissanceRe Fund Holdings Ltd. (“Fund Holdings”),
the results of Medici and Fund Holdings are consolidated in the Company’s consolidated 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.
• Upsilon RFO Re Ltd., formerly known as Upsilon Reinsurance II Ltd. (“Upsilon RFO”), a Bermuda
domiciled special purpose insurer (“SPI”), is a managed joint venture formed by the Company
F-8
primarily 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.
• RenaissanceRe Upsilon Fund Ltd. (“Upsilon Fund”), an exempted Bermuda segregated accounts
company was formed by the Company 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 raises capital from third party investors and the Company, via private placements 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.
• Effective December 22, 2017, the Company and Reinsurance Group of America, Incorporated closed
an initiative (“Langhorne”) to source third party capital to support reinsurers targeting large in-force life
and annuity blocks. Langhorne Holdings LLC (“Langhorne Holdings”) is a company that owns and
manages certain reinsurance entities within Langhorne. Langhorne Partners LLC (“Langhorne
Partners”) is the general partner for Langhorne and the entity which manages the third-party investors
investing into Langhorne Holdings. The Company concluded that Langhorne Holdings meets the
definition of a VIE. The Company is not the primary beneficiary of Langhorne Holdings and as a
result, the Company does not consolidate the financial position or results of operations of Langhorne
Holdings. The Company concluded that Langhorne Partners is not a VIE. The Company will account
for its investments in Langhorne Holdings and Langhorne Partners under the equity method of
accounting, one quarter in arrears.
• Effective December 17, 2018, the Company formed Vermeer Reinsurance Ltd. (“Vermeer”), an
exempted Bermuda reinsurer, with PGGM, a Dutch pension fund manager. Vermeer provides
capacity focused on risk remote layers in the U.S. property catastrophe market. Vermeer is managed
by RUM in return for a management fee. The Company maintains a majority voting control of
Vermeer, while PGGM retains economic benefits. Vermeer is considered a VIE, as it has voting rights
that are not proportional to its participating rights and the Company is the primary beneficiary. As a
result, the Company consolidates Vermeer and all significant inter-company transactions have been
eliminated. The Company does not currently expect its voting or economic interest in Vermeer to
fluctuate.
• On October 30, 2018, the Company entered into a Stock Purchase Agreement by and among the
Company, Tokio Marine & Nichido Fire Insurance Co. Ltd. (“Tokio”) and, with respect to certain
sections only, Tokio Marine Holdings, Inc. (the “TMR Stock Purchase Agreement”), pursuant to which
the Company agreed, subject to the terms and conditions therein, to cause its wholly owned
subsidiary RenaissanceRe Specialty Holdings (UK) Limited to purchase all of the share capital of
Tokio Millennium Re AG (“TMR AG”), Tokio Millennium Re (UK) Limited (“TMR UK” and, together with
TMR AG and their respective subsidiaries, the “TMR Group Entities”) (the “TMR Stock Purchase”).
The TMR Stock Purchase is expected to close in the first half of 2019, subject to the closing
conditions set forth in the TMR Stock Purchase Agreement, including the receipt of required
regulatory approvals. Refer to “Note 20. Acquisition of Tokio Millennium Re” for additional information
regarding the TMR Stock Purchase.
F-9
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
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.
F-10
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 Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“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
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
F-11
losses included in net investment income. The fair value of certain of the Company’s fund investments,
which principally include private equity investments, 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 investments, although, in the past, in
respect of certain of the Company’s private equity investments, the Company has on occasion experienced
delays of up to six months at year end, as the private equity investments 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
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.
The Company has elected to recognize forfeitures as they occur rather than estimating service-based
forfeitures over the requisite service period.
F-12
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
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
F-13
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
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
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, treatment of forfeitures,
F-14
classification of awards as either equity or liabilities, and the classification of taxes paid on the statements of
cash flows. ASU 2016-09 became effective for the Company in annual and interim periods beginning after
December 15, 2016. The cumulative effect of the adoption of ASU 2016-09 was a $2.2 million increase to
opening retained earnings as of January 1, 2017.
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 had also required 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 is effective for public business entities in
annual and interim periods beginning after December 15, 2017. ASU 2014-09 notably excludes the
accounting for insurance contracts, leases, financial instruments and guarantees. As a result, the
Company’s implementation efforts primarily focused on other income and operational expenses on its
consolidated statements of operations. The adoption of ASU 2014-09 did not 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 form of
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. The adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated
statements of operations and financial position.
Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash
Payments (“ASU 2016-15”). ASU 2016-15 clarifies the classification of receipts and payments in the
statement of cash flows. ASU 2016-15 provides guidance related to (1) settlement and payment of zero
coupon debt instruments, (2) contingent consideration, (3) proceeds from settlement of insurance claims,
(4) proceeds from settlement of corporate and bank owned life insurance policies, (5) distributions from
equity method investees, (6) cash receipts from beneficial interests obtained by a transferor, and (7) general
guidelines for cash receipts and payments that have more than one aspect of classification. ASU 2016-15 is
effective for public business entities for annual periods beginning after December 15, 2017, and interim
periods within those fiscal years. The adoption of ASU 2016-15 resulted in the reclassification of $20.0
million of cash inflows from cash flows provided by operating activities, to cash flows used in investing
activities for 2017. This amount related to a return of investment associated with the Company’s investment
in Top Layer Reinsurance Ltd, recorded under the equity method of accounting.
F-15
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires
lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as
operating leases under previous guidance. ASU 2016-02 is effective for public business entities for annual
and interim periods beginning after December 15, 2018. Early application 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.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). ASU 2016-13 modifies the recognition of credit losses by replacing the incurred loss
impairment methodology with a methodology that reflects expected credit losses and requires consideration
of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13
is applicable to financial assets such as loans, debt securities, trade receivables, off-balance sheet credit
exposures, reinsurance receivables, and other financial assets that have the contractual right to receive
cash. The measurement of expected credit losses is based on relevant information about past events,
including historical experience, current conditions, and reasonable and supportable forecasts that affect the
collectability of the reported amount. The Company's invested assets are measured at fair value through net
income, and therefore those invested assets would not be impacted by the adoption of ASU 2016-13. The
Company has other financial assets, such as reinsurance recoverables, that could be impacted by the
adoption of ASU 2016-13. ASU 2016-13 is effective for public business entities that are SEC filers for
annual and interim periods beginning after December 15, 2019. 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.
Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory
(“ASU 2016-16”). ASU 2016-16 requires entities to recognize the income tax consequences of intra-entity
transfers of assets other than inventory when the transfers occur; this is a change from current guidance
which prohibits the recognition of current and deferred income taxes until the underlying assets have been
sold to outside entities. ASU 2016-16 is effective for public business entities for annual and interim periods
beginning after December 15, 2018. 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.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU
2017-04”). Among other things, ASU 2017-04 requires the following: (1) the elimination of step two of the
goodwill impairment test; entities will no longer utilize the implied fair value of their assets and liabilities for
purposes of testing goodwill for impairment, (2) the quantitative portion of the goodwill impairment test will
be performed by comparing the fair value of a reporting unit with its carrying amount; an impairment charge
is to be recognized for the excess of carrying amount over fair value, but only to the extent of the amount of
goodwill allocated to that reporting unit, and (3) foreign currency translation adjustments are not to be
allocated to a reporting unit from an entity’s accumulated other comprehensive income; the reporting unit’s
carrying amount should include only the currently translated balances of the assets and liabilities assigned
to the reporting unit. ASU 2017-04 is effective for public business entities that are SEC filers for annual
periods, or any interim goodwill impairment tests in annual periods, beginning after December 15, 2019.
Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. 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.
F-16
NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table shows an analysis of goodwill and other intangible assets:
Balance as of December 31, 2016
Gross amount
Goodwill and other intangible assets
Goodwill
Other
intangible
assets
Total
$
199,889 $
96,599 $
296,488
Accumulated impairment losses and amortization
(2,299)
(43,003)
Amortization
Balance as of December 31, 2017
Gross amount
Accumulated impairment losses and amortization
Amortization
Balance as of December 31, 2018
Gross amount
Accumulated impairment losses and amortization
197,590
—
199,889
(2,299)
197,590
—
53,596
(8,041)
96,599
(51,044)
45,555
(5,727)
(45,302)
251,186
(8,041)
296,488
(53,343)
243,145
(5,727)
199,889
(2,299)
96,599
(56,771)
296,488
(59,070)
$
197,590 $
39,828 $
237,418
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, 2016
Gross amount
Accumulated impairment losses and amortization
Amortization
Balance as of December 31, 2017
Gross amount
Accumulated impairment losses and amortization
Acquired during the year
Amortization
Balance as of December 31, 2018
Gross amount
Accumulated impairment losses and amortization
Goodwill and other intangible assets included
in investments in other
ventures, under equity method
Goodwill
Other
intangible
assets
Total
$
12,318 $
51,796 $
64,114
(4,500)
7,818
—
12,318
(4,500)
7,818
2,780
—
(39,934)
(44,434)
11,862
(2,946)
19,680
(2,946)
51,796
(42,880)
8,916
11,108
(2,886)
64,114
(47,380)
16,734
13,888
(2,886)
15,098
(4,500)
62,904
(45,766)
78,002
(50,266)
$
10,598 $
17,138 $
27,736
On March 23, 2018, the Company made an equity investment in TWFG Holding Company LLC (“TWFG”)
and the transaction was accounted under the equity method of accounting. Total consideration paid was
allocated to the Company’s proportionate share of the net assets of TWFG, other identifiable intangible
assets and goodwill. In connection with the acquisition of TWFG, the Company recognized identifiable finite
F-17
lived intangible assets of $2.0 million and identifiable indefinite lived intangible assets of $9.1 million. In
addition, the Company recognized goodwill of $2.8 million.
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 not 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 not significantly deteriorated
given specific facts and circumstances: macroeconomic conditions; industry and market conditions; costs
factors; and overall financial performance. The Company also performed a quantitative analysis using a
discounted cash flow model and concluded that the full amount of the goodwill and other intangible assets
were not impaired. Other than the goodwill and other intangible assets acquired during the year as noted
above and normal course amortization of intangible assets, in accordance with the Company’s established
accounting policy, there were no adjustments to carried goodwill and other intangible assets during the year
ended December 31, 2018.
The gross carrying value and accumulated amortization by major category of other intangible assets is
shown below:
At December 31, 2018
Customer relationships and customer lists
Value of business acquired
Software
Licenses
Patents and intellectual property
Covenants not-to-compete
Trademarks and trade names
At December 31, 2017
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
97,419 $
20,200
12,230
19,414
4,500
4,030
1,710
(60,221) $
(20,200)
(12,230)
—
(4,500)
(4,030)
(1,356)
$
159,503 $ (102,537) $
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 $
(51,633) $
(20,200)
(12,230)
—
(4,500)
(4,030)
(1,331)
(93,924) $
Total
37,198
—
—
19,414
—
—
354
56,966
Total
43,825
—
—
10,267
—
—
379
54,471
F-18
The remaining useful life of intangible assets with finite lives ranges from 2 to 15 years, with a weighted-
average amortization period of 6.6 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
$
$
5,446 $
5,237
4,910
4,522
4,093
5,353
29,561
10,267
39,828 $
2,815 $
1,955
1,095
1,095
631
400
7,991
9,147
17,138 $
Total
8,261
7,192
6,005
5,617
4,724
5,753
37,552
19,414
56,966
2019
2020
2021
2022
2023
2024 and thereafter
Total remaining amortization expense
Indefinite lived
Total
NOTE 4. 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
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,
2018
December 31,
2017
$ 3,331,411 $ 3,168,763
47,646
509,802
287,660
163,651
2,063,459
500,456
300,331
202,062
182,725
$ 8,088,870 $ 7,426,555
174,883
6,854
279,818
160,063
2,450,244
817,880
278,680
282,294
306,743
F-19
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, 2018
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
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
Amortized
Cost
Fair Value
$ 511,932 $ 507,728
4,799,196
4,762,712
1,086,697
1,056,087
79,084
76,746
1,376,565
1,378,854
310,488
306,743
$ 8,163,962 $ 8,088,870
December 31,
2018
December 31,
2017
$
200,357 $
42,333
24,520
20,639
18,925
3,478
310,252 $
$
253,543
49,526
34,325
24,779
21,364
4,717
388,254
At December 31, 2018, $5.7 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 letter of credit
facilities (2017 - $4.4 billion). Of this amount, $2.0 billion is on deposit with, or in trust accounts for the
benefit of, U.S. state regulatory authorities (2017 - $1.7 billion).
Reverse Repurchase Agreements
At December 31, 2018, the Company held $3.7 million (2017 - $30.0 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 includes 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-20
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
2018
211,973 $
2017
179,624 $
2016
160,661
$
33,571
4,474
11,082
3,628
5,127
4,235
477
22,475
3,810
276,780
(14,914)
33,999
8,067
1,196
237,596
(15,387)
6,155
20,181
788
197,147
(15,421)
$
261,866 $
222,209 $
181,726
Net Realized and Unrealized (Losses) Gains on Investments
Net realized and unrealized (losses) gains on investments are as follows:
Year ended December 31,
Gross realized gains
Gross realized losses
Net realized (losses) gains on fixed maturity investments
Net unrealized (losses) gains on fixed maturity investments
trading
Net realized and unrealized losses on investments-related
derivatives
Net realized gains on equity investments trading sold during
the period
Net unrealized (losses) gains on equity investments trading
still held at reporting date
Net realized and unrealized (losses) gains on equity
investments trading
2018
21,284 $
2017
49,121 $
2016
72,739
$
(91,098)
(69,814)
(38,832)
10,289
(38,315)
34,424
(57,310)
8,479
26,954
(8,784)
(2,490)
(15,414)
27,739
80,027
14,190
(66,900)
39,517
81,174
(39,161)
119,544
95,364
Net realized and unrealized (losses) gains on investments
$ (175,069) $
135,822 $
141,328
Other Investments
The table below shows the fair value of the Company’s portfolio of other investments:
At December 31,
Catastrophe bonds
Private equity investments
Senior secured bank loan funds
Hedge funds
Total other investments
2018
516,571 $
$
242,647
14,482
11,233
2017
380,475
196,220
17,574
524
$
784,933 $
594,793
Interest income, income distributions and net realized and unrealized gains on other investments are
included in net investment income and totaled $23.0 million (2017 – $42.1 million, 2016 – $26.3 million) of
which $8.3 million related to net unrealized losses (2017 – gains of $24.7 million, 2016 – gains of $11.5
million). Included in net investment income for 2018 is income of $0.3 million (2017 - $1.9 million, 2016 -
$3.4 million) representing the change in estimate during the period related to the difference between the
F-21
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.
The Company has committed capital to private equity investments, other investments and investments in
other ventures of $1.2 billion, of which $686.4 million has been contributed at December 31, 2018. The
Company’s remaining commitments to these investments at December 31, 2018 totaled $470.8 million. In
the future, the Company may enter into additional commitments in respect of private equity investments 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,
Tower Hill Companies
Top Layer Re
Other
Total investments in other
ventures, under equity
method
2018
Ownership
%
24.9%
50.0%
30.6%
Investment
64,750
65,375
35,862
Carrying
Value
38,241
46,562
30,369
Investment
64,750
65,375
13,650
2017
Ownership
%
26.3%
50.0%
40.4%
Carrying
Value
42,167
50,211
9,596
$ 165,987
$ 115,172 $ 143,775
$ 101,974
On July 1, 2008, the Company invested $50.0 million in Tower Hill Insurance Group, LLC (included in the
Tower Hill Companies in the table above) 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
2018
2017
$
9,605 $
(1,647) $
8,852
17
9,851
(174)
Total equity in earnings of other ventures
$
18,474 $
8,030 $
2016
10,379
(8,576)
(840)
963
During 2018, the Company received $26.1 million of distributions from its investments in other ventures,
under equity method (2017 – $29.7 million, 2016 – $9.4 million). Earnings from the Company’s investments
in other ventures, under equity method, net of distributions received, were $3.8 million at December 31,
2018 (2017 - losses of $6.3 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-22
NOTE 5. 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.
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-23
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, 2018
Fixed maturity investments
U.S. treasuries
Agencies
Municipal
Non-U.S. government
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 investments (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)
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)
$ 3,331,411 $ 3,331,411 $
— $
174,883
6,854
279,818
160,063
—
—
—
—
174,883
6,854
279,818
160,063
2,450,244
— 2,450,244
817,880
278,680
282,294
306,743
—
—
—
—
817,880
278,680
282,294
306,743
8,088,870
3,331,411
4,757,459
2,586,520
— 2,586,520
310,252
310,252
—
516,571
242,647
14,482
11,233
784,933
(8,359)
12,399
4,040
—
—
—
—
—
—
484
484
516,571
—
—
—
516,571
54,545
—
(8,359)
11,915
11,915
—
(8,359)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,545
—
—
$11,774,615 $ 3,642,147 $ 7,872,465 $
46,186
(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, 2018 was $5.0 million and $13.3 million of other assets
and other liabilities, respectively.
(3) See “Note 18. Derivative Instruments” for additional information related to the fair value, by type of contract, of derivatives entered
into by the Company.
F-24
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
At December 31, 2017
Fixed maturity investments
U.S. treasuries
Agencies
Municipal
Non-U.S. government
Non-U.S. government-backed corporate
Corporate
Agency mortgage-backed
Non-agency mortgage-backed
Commercial mortgage-backed
Asset-backed
$ 3,168,763 $ 3,168,763 $
— $
47,646
509,802
287,660
163,651
—
—
—
—
47,646
509,802
287,660
163,651
2,063,459
— 2,063,459
500,456
300,331
202,062
182,725
—
—
—
—
500,456
300,331
202,062
182,725
Total fixed maturity investments
7,426,555
3,168,763
4,257,792
Short term investments
Equity investments trading
Other investments
Catastrophe bonds
Private equity investments (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)
Total other assets and (liabilities)
991,863
388,254
380,475
196,220
17,574
524
594,793
(2,952)
4,636
1,684
—
991,863
388,254
—
—
—
—
—
—
—
(45)
(45)
380,475
—
—
—
380,475
—
4,681
4,681
$ 9,403,149 $ 3,556,972 $ 5,634,811 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,952)
—
(2,952)
(2,952)
(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, 2017 was $2.5 million and $5.5 million of other assets
and other liabilities, respectively.
(2) See “Note 18. 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
exchange, the pricing services generally utilize market data and other observable inputs in matrix pricing
F-25
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 broker quotations to be 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, 2018, the Company’s U.S. treasuries fixed maturity investments were primarily
priced by pricing services and had a weighted average yield to maturity of 2.5% and a weighted average
credit quality of AA (2017 - 1.9% 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, 2018, the Company’s agency fixed maturity investments had a weighted average
yield to maturity of 3.0% and a weighted average credit quality of AA (2017 - 2.1% 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, 2018, the Company’s municipal fixed maturity investments had a weighted
average yield to maturity of 4.8% and a weighted average credit quality of A (2017 - 2.2% 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
Level 2 - At December 31, 2018, the Company’s non-U.S. government fixed maturity investments had a
weighted average yield to maturity of 2.7% and a weighted average credit quality of AAA (2017 - 2.0% and
AAA, 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
quantitative inputs for these models are daily observed benchmark curves for treasury, swap and high
F-26
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, 2018, the Company’s non-U.S. government-backed corporate fixed maturity
investments had a weighted average yield to maturity of 2.8% and a weighted average credit quality of AA
(2017 - 2.3% 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, 2018, the Company’s corporate fixed maturity investments principally consisted
of U.S. and international corporations and had a weighted average yield to maturity of 4.9% and a weighted
average credit quality of BBB (2017 - 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, 2018, the Company’s agency mortgage-backed fixed maturity investments
included agency residential mortgage-backed securities with a weighted average yield to maturity of 3.5%,
a weighted average credit quality of AA and a weighted average life of 7.1 years (2017 - 3.0%, AA and 6.4
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, non-agency Alt-A and other non-agency residential mortgage-backed securities. At December 31,
2018, the Company’s non-agency prime residential mortgage-backed fixed maturity investments had a
weighted average yield to maturity of 4.4%, a weighted average credit quality of non-investment grade, and
a weighted average life of 4.7 years (2017 - 3.7%, BBB and 5.1 years, respectively). The Company’s non-
agency Alt-A fixed maturity investments held at December 31, 2018 had a weighted average yield to
maturity of 4.7%, a weighted average credit quality of non-investment grade and a weighted average life of
6.3 years (2017 - 3.7%, non-investment grade and 6.2 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-27
Commercial mortgage-backed
Level 2 - At December 31, 2018, the Company’s commercial mortgage-backed fixed maturity investments
had a weighted average yield to maturity of 3.6%, a weighted average credit quality of AAA, and a weighted
average life of 5.0 years (2017 - 2.9%, AAA and 4.5 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, 2018, the Company’s asset-backed fixed maturity investments had a weighted
average yield to maturity of 4.3%, a weighted average credit quality of AAA and a weighted average life of
3.2 years (2017 - 2.8%, AAA and 3.0 years, respectively). The underlying collateral for the Company’s
asset-backed fixed maturity investments primarily consists of bank loans, 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, 2018, the Company’s short term investments had a weighted average yield to
maturity of 2.1% and a weighted average credit quality of AAA (2017 - 1.4% 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-28
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, 2018
Fair Value
(Level 3)
Valuation
Technique
Unobservable
Inputs
Low
High
Weighted
Average
or Actual
Other investments
Private equity investments
$
54,545
Total other investments
54,545
Internal
valuation model
Discount rate
16.8%
29.6%
23.2%
Other assets and (liabilities)
Assumed and ceded
(re)insurance contracts
550
Internal
valuation model
Bond price
$ 100.74
$ 107.82
$ 104.66
Assumed and ceded
(re)insurance contracts
(8,909)
Internal
valuation model
Total other assets and
(liabilities)
$
$
(8,359)
46,186
Liquidity discount
Net undiscounted
cash flows
Expected loss ratio
Discount rate
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1.3%
$ (10,528)
36.1%
2.5%
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, 2018
Total realized and unrealized gains
Included in other income
Purchases
Settlements
Other
investments
$
Other assets
and
(liabilities)
Total
— $
(2,952) $
(2,952)
—
54,545
—
2,901
(9,291)
983
2,901
45,254
983
Balance - December 31, 2018
$
54,545 $
(8,359) $
46,186
Balance - January 1, 2017
Total realized and unrealized gains
Included in other income
Purchases
Settlements
Balance - December 31, 2017
Other investments
Private equity investment
Other assets
and
(liabilities)
$
(13,004)
3,761
354
5,937
$
(2,952)
Level 3 - At December 31, 2018, the Company’s other investments included a $54.5 million private equity
investment which is recorded at fair value, with the fair value obtained through the use of an internal
F-29
valuation model. The Company measured the fair value of this investment using multiples of net tangible
book value of the underlying entity. The significant unobservable inputs used in the fair value measurement
of this investment are discount rates applied to each of the net tangible book value multiples used in the
internal valuation model. These unobservable inputs in isolation can cause significant increases or
decreases in fair value. The discount rates are applied to each of the comparable net tangible book value
multiples which are used to determine fair value. The comparable net tangible book value multiples are
observable and based on the trading multiples of public industry peers of the underlying entity as well as
multiples observed in precedent merger and acquisition transactions in the underlying entity’s sector.
Generally, an increase in the discount rate would result in a decrease in the fair value of this private equity
investment.
Other assets and liabilities
Assumed and ceded (re)insurance contracts
Level 3 - At December 31, 2018, the Company had a $0.6 million net asset 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, 2018, the Company had a $8.9 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
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 an observable
input as each is defined in the contract. 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.
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, 2018 were debt obligations of
$991.1 million (2017 - $989.6 million). At December 31, 2018, the fair value of the Company’s debt
obligations was $974.7 million (2017 – $1,018.2 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 8. Debt and Credit Facilities” for additional
information related to the Company’s debt obligations.
F-30
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
2018
784,933 $
4,968 $
13,327 $
2017
594,793
2,542
5,494
$
$
$
Included in net investment income for 2018 was net unrealized losses of $8.3 million related to the changes
in fair value of other investments (2017 – gains of $24.7 million, 2016 – gains of $11.5 million). Included in
other income for 2018 were net unrealized gains of $Nil related to the changes in the fair value of other
assets and liabilities (2017 – $Nil, 2016 – $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, 2018
Private equity investments
$
Senior secured bank loan funds
Fair Value
188,102 $
Unfunded
Commitments
393,700
20,121
14,482
11,233
Hedge funds
Total other investments
measured using net asset
valuations
$
213,817 $
413,821
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 investments – A significant portion of the Company’s investments in private equity
investments include 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 investments in advance of dissolution of the applicable private equity
investment. Instead, the nature of these investments is that distributions are received by the Company in
connection with the liquidation of the underlying assets of the respective private equity investment. 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, 2018 the Company had $14.5 million invested in closed
end funds which invest 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 applicable fund.
Hedge funds – At December 31, 2018, the Company had $11.2 million of investments in hedge funds that
pursue multiple strategies. This included an investment of $11.0 million in a fund primarily focused on global
credit opportunities which is redeemable at the option of the shareholder. The remainder of the Company’s
hedge fund investments consisted of so called “side pocket” investments which are not redeemable at the
option of the shareholder.
F-31
NOTE 6. 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 reinsurer 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
2018
2017
2016
$
337,587 $
290,730 $
208,282
2,972,840
2,506,810
2,166,294
(1,178,525)
(926,215)
(839,264)
$ 2,131,902 $ 1,871,325 $ 1,535,312
$
292,219 $
244,285 $
157,112
2,779,796
2,307,219
1,874,993
(1,095,886)
(833,929)
(628,675)
$ 1,976,129 $ 1,717,575 $ 1,403,430
$ 2,578,536 $ 3,420,388 $
710,651
(1,458,518)
(1,558,960)
(179,820)
$ 1,120,018 $ 1,861,428 $
530,831
At December 31, 2018, the Company’s reinsurance recoverable balance was $2.4 billion (2017 - $1.6
billion). Of this amount, 60.8% is fully collateralized by our reinsurers, 38.0% is recoverable from reinsurers
rated A- or higher by major rating agencies and 1.2% is recoverable from reinsurers rated lower than A- by
major rating agencies (2017 - 54.5%, 44.5% and 1.0%, respectively). The reinsurers with the three largest
balances accounted for 15.5%, 6.7% and 6.5%, respectively, of the Company’s reinsurance recoverable
balance at December 31, 2018 (2017 - 10.4%, 7.5% and 7.3%, respectively). The valuation allowance
recorded against reinsurance recoverable was $9.0 million at December 31, 2018 (2017 - $7.0 million). The
three largest company-specific components of the valuation allowance represented 16.2%, 14.8% and
12.3%, respectively, of the Company’s total valuation allowance at December 31, 2018 (2017 - 11.1%, 9.2%
and 8.4%, respectively).
F-32
NOTE 7. 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 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 the Company’s Property and Casualty and Specialty
segments, respectively.
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, 2018
Property
Casualty and Specialty
Other
Total
At December 31, 2017
Property
Casualty and Specialty
Other
Total
Case
Reserves
Additional
Case Reserves
IBNR
Total
$
690,718 $ 1,308,307 $ 1,087,229 $ 3,086,254
771,537
1,458
116,877
2,096,979
2,985,393
—
3,166
4,624
$ 1,463,713 $ 1,425,184 $ 3,187,374 $ 6,076,271
$
696,285 $
896,522 $
893,583 $ 2,486,390
689,962
6,605
124,923
1,760,607
2,575,492
—
11,921
18,526
$ 1,392,852 $ 1,021,445 $ 2,666,111 $ 5,080,408
F-33
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
Foreign exchange
Net reserves as of December 31
Reinsurance recoverable as of December 31
Gross reserves as of December 31
2018
2017
$ 3,493,778 $ 2,568,730 $ 2,632,519
2016
1,390,767
1,902,424
694,957
(270,749)
(40,996)
(164,126)
1,120,018
1,861,428
530,831
391,061
503,708
894,769
(14,977)
450,527
524,298
974,825
38,445
83,015
506,279
589,294
(5,326)
3,704,050
3,493,778
2,568,730
2,372,221
1,586,630
279,564
$ 6,076,271 $ 5,080,408 $ 2,848,294
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
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
F-34
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, 2018 on a consolidated basis and by segment is presented as supplementary
information. The Company 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 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-35
The following table details the Company’s consolidated incurred claims and claim expenses and cumulative
paid claims and claim expenses as of December 31, 2018, 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,
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
At
December
31, 2018
IBNR
and ACR
$ 699,400
$ 634,400
$ 617,015
$ 577,285
$ 552,059
$ 530,876
$ 521,723
$ 516,888
$ 519,585
$
521,739
$
17,510
—
—
—
—
—
—
—
—
—
992,376
950,984
902,908
871,664
869,959
860,517
868,441
866,529
855,132
— 1,646,568
1,573,930
1,493,095
1,412,886
1,384,912
1,348,620
1,334,068
1,337,445
—
—
—
—
—
—
—
—
—
—
—
—
—
—
865,281
770,104
707,471
681,405
653,437
655,882
666,704
—
—
—
—
—
—
619,414
558,746
512,389
472,270
446,311
433,363
—
—
—
—
—
660,836
613,786
601,727
582,473
558,619
—
—
—
—
639,151
627,702
629,211
590,591
—
—
—
680,039
684,757
666,453
— 1,895,376
1,731,295
—
—
1,367,413
52,575
76,002
52,680
46,050
117,354
136,328
241,938
828,815
923,976
$ 8,728,754
$ 2,493,228
Cumulative paid claims and claim expenses, net of reinsurance
For the year ended December 31,
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
$
96,462
$ 269,714
$ 321,506
$ 365,731
$ 398,452
$ 437,232
$ 458,920
$ 465,244
$ 472,679
$
481,632
—
—
—
—
—
—
—
—
—
128,276
315,357
431,562
500,974
555,252
626,094
715,191
741,629
758,762
—
—
—
—
—
—
—
—
260,326
540,985
889,387
1,043,763
1,133,013
1,176,892
1,203,998
1,222,512
—
—
—
—
—
—
—
166,564
266,980
357,821
417,628
461,035
525,736
551,846
—
—
—
—
—
—
86,998
179,709
243,544
289,144
326,807
348,436
—
—
—
—
—
111,067
200,830
268,871
317,901
357,894
—
—
—
—
95,862
193,965
287,522
362,419
—
—
—
79,577
217,746
324,224
—
—
450,034
548,619
—
389,492
$ 5,345,836
Outstanding liabilities from accident year 2008 and prior, net of reinsurance
286,863
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
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
368
28,956
4,945
Liability for claims and claim expenses, net of reinsurance
$ 3,704,050
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-36
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 valid
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-37
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. 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-38
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, 2018, net of reinsurance, as well as IBNR
plus ACR included within the net incurred claims amounts.
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
At
December
31, 2018
IBNR
and ACR
$ 219,979
$ 164,369
$ 145,207
$ 138,747
$ 134,490
$ 135,245
$ 134,539
$ 134,811
$ 134,355
$
134,876
$
74
609,380
561,524
526,928
531,199
550,980
554,733
564,345
566,475
555,642
— 1,264,374
1,192,868
1,141,403
1,091,415
1,070,957
1,040,721
1,036,663
1,033,601
437,940
344,487
311,648
293,873
275,910
264,532
257,246
227,268
196,729
174,335
152,715
141,197
137,660
183,249
154,469
147,138
142,864
142,457
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
226,039
195,164
176,159
167,916
252,556
254,151
241,296
—
—
—
—
—
—
—
— 1,342,161
1,167,013
454,395
—
—
718,266
336,082
$ 4,555,973
$
976,849
33,429
46,427
16,299
1,971
4,689
19,347
64,136
Cumulative paid claims and claim expenses, net of reinsurance
For the year ended December 31,
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
$
56,142
$ 101,124
$ 115,459
$ 123,281
$ 129,204
$ 133,750
$ 134,770
$ 135,721
$ 135,729
$
136,329
—
—
—
—
—
—
—
—
—
93,423
216,504
295,243
337,060
372,499
398,691
474,179
483,738
497,547
—
—
—
—
—
—
—
—
212,259
427,501
743,745
868,489
926,747
952,780
966,304
971,324
—
—
—
—
—
—
—
100,057
145,098
189,199
208,653
218,638
230,839
233,647
—
—
—
—
—
—
49,032
93,041
117,642
128,631
132,822
134,044
—
—
—
—
—
55,090
96,074
118,768
123,790
126,897
—
—
—
—
62,169
108,679
127,509
138,283
—
—
—
47,491
119,260
155,917
—
—
411,961
443,130
—
354,616
$ 3,191,734
Outstanding liabilities from accident year 2008 and prior, net of reinsurance
Adjustment for unallocated claim expenses
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum
4,222
4,028
636
Liability for claims and claim expenses, net of reinsurance
$ 1,373,125
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 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, the Company's casualty and specialty
reinsurance business can be subject to significant claims volatility. In periods of low claims frequency or
F-39
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. 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, 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
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
F-40
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 the initial expected loss ratio to
estimate IBNR, 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 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-41
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, 2018, net of reinsurance, as
well as IBNR plus ACR included within the net incurred claims amounts.
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Accident
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Incurred claims and claim expenses, net of reinsurance
For the year ended December 31,
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
At
December
31, 2018
IBNR
and ACR
$ 479,421
$ 470,031
$ 471,808
$ 438,538
$ 417,569
$ 395,631
$ 387,184
$ 382,077
$ 385,230
$
386,863
$
17,436
382,996
389,460
375,980
340,465
318,979
305,784
304,096
300,054
299,490
382,194
381,062
351,692
321,471
313,955
307,899
297,405
303,844
427,341
425,617
395,823
387,532
377,527
391,350
409,458
392,146
362,017
338,054
319,555
305,114
295,703
19,146
29,575
36,381
44,079
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
477,587
459,317
454,589
439,609
416,162
112,665
—
—
—
—
413,112
432,538
453,052
422,675
116,981
—
—
—
427,483
430,606
425,157
177,802
—
—
553,215
564,282
374,420
—
649,147
587,894
$ 4,172,781
$ 1,516,379
Cumulative paid claims and claim expenses, net of reinsurance
For the year ended December 31,
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
(unaudited)
$
40,320
$ 168,590
$ 206,047
$ 242,450
$ 269,248
$ 303,482
$ 324,150
$ 329,523
$ 336,950
$
345,303
—
—
—
—
—
—
—
—
—
34,853
98,853
136,319
163,914
182,753
227,403
241,012
257,891
261,215
—
—
—
—
—
—
—
—
48,067
113,484
145,642
175,274
206,266
224,112
237,694
251,188
—
—
—
—
—
—
—
66,507
121,882
168,622
208,975
242,397
294,897
318,199
—
—
—
—
—
—
37,966
86,668
125,902
160,513
193,985
214,392
—
—
—
—
—
55,977
104,756
150,103
194,111
230,997
—
—
—
—
33,693
85,286
160,013
224,136
—
—
—
32,086
98,486
168,307
—
—
38,073
105,489
—
34,876
$ 2,154,102
Outstanding liabilities from accident year 2008 and prior, net of reinsurance
282,641
Unamortized fair value adjustments recorded in connection with the acquisition of Platinum
Adjustment for unallocated claim expenses
24,928
4,309
Liability for claims and claim expenses, net of reinsurance
$ 2,330,557
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-42
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.
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,
2018
2017
2016
Property
Casualty and Specialty
Other
(Favorable)
adverse
development
$ (221,290) $
(49,262)
(197)
(Favorable)
adverse
development
(Favorable)
adverse
development
(45,596) $ (104,876)
(58,140)
(1,110)
6,183
(1,583)
Total favorable development of prior accident years net
claims and claim expenses
$ (270,749) $
(40,996) $ (164,126)
Changes to prior year estimated claims reserves increased the Company’s net income by $270.7 million
during 2018 (2017 - decreased the Company’s net loss by $41.0 million, 2016 - increased the Company’s
net income by $164.1 million), excluding the consideration of changes in reinstatement, adjustment or other
premium changes, profit commissions, redeemable noncontrolling interest - DaVinciRe and income tax.
Property Segment
The following tables and discussion detail 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
2017 Large Loss Events
Other
Total large catastrophe events
Small catastrophe events and attritional loss movements
Other small catastrophe events and attritional loss movements
Total small catastrophe events and attritional loss movements
Total catastrophe and attritional net claims and claim expenses
Actuarial assumption changes
2018
(Favorable)
adverse
development
$ (172,512)
(9,517)
(182,029)
(33,579)
(33,579)
(215,608)
(5,682)
Total net favorable development of prior accident years net claims and claim expenses
$ (221,290)
The net favorable development of prior accident years net claims and claim expenses within the Company’s
Property segment in 2018 of $221.3 million was comprised of net favorable development of $182.0 million
related to large catastrophe events, net favorable development of $33.6 million related to small catastrophe
events and attritional loss movements and $5.7 million of net favorable development associated with
actuarial assumption changes. Included in net favorable development of prior accident years net claims and
claim expenses from large events was $172.5 million of net decreases in the estimated ultimate losses
associated with Hurricanes Harvey, Irma and Maria, the Mexico City Earthquake, the wildfires in California
during the fourth quarter of 2017 and certain losses associated with aggregate loss contracts (collectively,
the “2017 Large Loss Events”). The Company’s Property segment also experienced net favorable
development of $33.6 million associated with a number of other small catastrophe events as well as
F-43
attritional loss movements related to lines of business where the Company principally estimates net claims
and claim expenses using traditional actuarial methods.
Year ended December 31,
Catastrophe net claims and claim expenses
Large catastrophe events
Storm Sandy (2012)
April and May U.S. Tornadoes (2011)
New Zealand Earthquake (2010)
New Zealand Earthquake (2011)
Other
Total large catastrophe events
Small catastrophe events and attritional loss movements
Tianjin Explosion (2015)
Fort McMurray Wildfire (2016)
Other small catastrophe events and attritional loss movements
Total small catastrophe events and attritional loss movements
Total catastrophe and attritional net claims and claim expenses
Actuarial assumption changes
2017
(Favorable)
adverse
development
$
(4,395)
(4,177)
4,061
5,807
(8,936)
(7,640)
(8,002)
(6,364)
(24,432)
(38,798)
(46,438)
842
Total net favorable development of prior accident years net claims and claim expenses
$
(45,596)
The net favorable development of prior accident years net claims and claim expenses within the Company’s
Property segment in 2017 of $45.6 million was comprised of net favorable development of $7.6 million
related to large catastrophe events, net favorable development of $38.8 million related to small catastrophe
events and attritional loss movements and $0.8 million of adverse development associated with actuarial
assumption changes. Included in net favorable development of prior accident years net claims and claim
expenses from large events was a number of relatively small net decreases in the estimated ultimate losses
associated with a number of events from prior accident years. Included in net favorable development of
prior accident years net claims and claims expenses from small events and attritional loss movements was
a reduction in the estimated ultimate losses associated with a number of small catastrophes and attritional
loss movements of $24.4 million, the 2015 Tianjin Explosion of $8.0 million and the 2016 Fort McMurray
Wildfire of $6.4 million.
F-44
Year ended December 31,
Catastrophe net claims and claim expenses
Large catastrophe events
Thailand Floods (2011)
Storm Sandy (2012)
Tohoku Earthquake and Tsunami (2011)
New Zealand Earthquake (2011)
New Zealand Earthquake (2010)
Other
Total large catastrophe events
Small catastrophe events and attritional loss movements
Tianjin Explosion (2015)
Other small catastrophe events and attritional loss movements
Total small catastrophe events and attritional loss movements
Total catastrophe and attritional net claims and claim expenses
2016
(Favorable)
adverse
development
$
(15,131)
(10,849)
(7,314)
1,987
6,904
(9,523)
(33,926)
(5,686)
(65,264)
(70,950)
(104,876)
Total net favorable development of prior accident years net claims and claim expenses
$ (104,876)
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 $33.9 million and $71.0 million related
to large catastrophe events and small catastrophe events and attritional loss movements, respectively.
Included in the net favorable development of prior accident years net claims and claim expenses associated
with large catastrophes was 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, partially
offset by adverse development of $6.9 million and $2.0 million related to the 2010 and 2011 New Zealand
Earthquakes, respectively, 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 and attritional loss movements were a number of wind and
thunderstorm events, primarily from the 2013 and 2015 accident years, and $5.7 million associated with the
2015 Tianjin Explosion, 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.
F-45
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
Ogden Rate change
Actuarial assumption changes
2018
2017
2016
(Favorable)
adverse
development
(Favorable)
adverse
development
(Favorable)
adverse
development
$
(41,476) $
(24,836) $
(52,601)
—
(7,786)
33,481
(2,462)
—
(5,539)
Total (favorable) adverse development of prior accident
years net claims and claim expenses
$
(49,262) $
6,183 $
(58,140)
The net favorable development of prior accident years net claims and claim expenses within the Company’s
Casualty and Specialty segment in 2018 of $49.3 million was driven by reported losses generally coming in
lower than expected on attritional net claims and claim expenses and certain assumption changes across a
number of lines of business.
The net adverse development of prior accident years net claims and claim expenses within the Company’s
Casualty and Specialty segment in 2017 of $6.2 million was driven by $33.5 million of adverse development
associated with the change in the discount rate used to calculate lump sum awards in U.K. bodily injury
cases (the “Ogden Rate”), from 2.5%, to minus 0.75%. Notwithstanding the impact of the Ogden Rate
change was $24.8 million of net favorable development in 2017 related to actual reported losses coming in
lower than expected on attritional net claims and claim expenses across a number of lines of business and
$2.5 million of net favorable development associated with actuarial assumption changes.
The net 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 net
favorable development associated with actuarial assumption changes.
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,
2018
2017
2016
Other
(Favorable)
adverse
development
$
(Favorable)
adverse
development
(Favorable)
adverse
development
(197) $
(1,583) $
(1,110)
The Company’s Other category experienced net favorable development on prior accident years net claims
and claim expenses of $0.2 million in 2018 (2017 - $1.6 million; 2016 - $1.1 million).
F-46
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, 2018
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
$ 1,373,125
2,330,557
368
3,704,050
$ 1,713,129
654,836
4,256
2,372,221
$ 6,076,271
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
31.7% 17.3% 20.8% 9.1% 5.2% 3.3% 4.7% 0.9% 2.0% 0.4%
10.1% 16.9% 12.9% 10.9% 8.5% 10.0% 5.1% 3.6% 1.6% 2.2%
At December 31, 2018
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
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.
F-47
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, 2018
Cumulative number of reported claims
Accident Year
2009
Property
2010
2011
2012
2013
2014
2015
2016
2017
2018
Casualty and Specialty
1,132
1,081
1,411
1,448
1,557
2,040
1,992
1,650
1,028
277
743
787
1,186
679
629
553
606
845
1,812
1,014
Assumed Reinsurance Contracts Classified As Deposit Contracts
Net claims and claim expenses incurred were reduced by $0.2 million during 2018 (2017 – $0.2 million,
2016 – $0.2 million) related to income earned on assumed reinsurance contracts that were classified as
deposit contracts with underwriting risk only. Other income was increased by $11.2 million during 2018
(2017 – $3.7 million, 2016 – $6.2 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 $10.3
million are included in reinsurance balances payable at December 31, 2018 (2017 – $21.7 million) and
aggregate deposit assets of $Nil are included in other assets at December 31, 2018 (2017 – $Nil)
associated with these contracts.
NOTE 8. DEBT AND CREDIT FACILITIES
Debt Obligations
A summary of the Company’s debt obligations on its consolidated balance sheets is set forth below:
December 31, 2018
December 31, 2017
3.450% Senior Notes due 2027
3.700% Senior Notes due 2025
5.750% Senior Notes due 2020
4.750% Senior Notes due 2025 (DaVinciRe) (1)
Fair Value
$
$
283,680 $
292,557
255,938
142,539
974,714 $
Fair Value
Carrying
Value
295,797 $
297,688
249,602
148,040
991,127 $ 1,018,235 $
294,654 $
302,781
263,750
157,050
Carrying
Value
295,303
297,318
249,272
147,730
989,623
(1) RenaissanceRe owns a noncontrolling economic interest in its joint venture DaVinciRe. 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 RenaissanceRe. However, RenaissanceRe does not guarantee or provide credit support for
DaVinciRe and RenaissanceRe’s financial exposure to DaVinciRe is limited to its investment in DaVinciRe’s shares and
counterparty credit risk arising from reinsurance transactions.
3.450% Senior Notes due 2027 of RenaissanceRe Finance
On June 29, 2017, RenaissanceRe Finance issued $300.0 million of its 3.450% Senior Notes due July 1,
2027, with interest on the notes payable on July 1 and January 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 April 1,
F-48
2027. 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.
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.
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”).
On June 1, 2017, the Platinum Finance Notes matured and the Company repaid the aggregate principal
amount of $250.0 million plus applicable accrued interest in full. Platinum Finance was subsequently
dissolved on November 30, 2017. Interest on the Platinum Finance Notes was payable on June 1 and
December 1 of each year. The Platinum Finance Notes, which were senior obligations, were fully and
unconditionally guaranteed by RenaissanceRe, and were redeemable by Platinum Finance prior to maturity,
subject to the payment of a “make-whole” premium. The Platinum Finance Notes contained 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
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.
F-49
Credit Facilities
The outstanding amounts issued or drawn under each of the Company’s significant credit facilities is set
forth below:
At December 31, 2018
RenaissanceRe Revolving Credit Facility (1)
Uncommitted Standby Letter of Credit Facility with Wells Fargo
Bilateral Letter of Credit Facility with Citibank Europe
Renaissance Reinsurance FAL Facility
Total credit facilities in U.S. dollars
Specialty Risks FAL Facility (1)
Total credit facilities in pound sterling
(1) At December 31, 2018, no amounts were issued or drawn under these facilities.
RenaissanceRe Revolving Credit Facility
Issued or
Drawn
—
86,861
243,696
180,000
510,557
—
—
$
$
£
£
On November 9, 2018, RenaissanceRe, Renaissance Reinsurance, RenaissanceRe Specialty U.S. and
Renaissance Reinsurance U.S. (collectively with RenaissanceRe, the “Account Parties”) entered into a
second 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 15, 2015. The Revolving Credit
Agreement provides for a revolving commitment to RenaissanceRe of $500.0 million. RenaissanceRe has
the right, subject to satisfying certain conditions, to increase the size of the facility to $750.0 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. In addition to revolving loans, the
Revolving Credit Agreement provides that the entire facility will also be available for the issuance of standby
letters of credit, subject to the terms and conditions set forth therein. Swingline Loans (as defined in the
Credit Agreement) are capped at $50.0 million for each of the Swingline Lenders (as defined in the Credit
Agreement). At December 31, 2018, 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 November
9, 2023.
RRNAH and RenaissanceRe 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
F-50
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.
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, 2018, the Applicants had $86.9 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 March 23, 2018, the Company terminated the Standby Letter of Credit Agreement, dated as
of May 19, 2015, among National Australia Bank Limited (“NAB”) and Renaissance Reinsurance,
RenaissanceRe Specialty Risks, DaVinci and Platinum Bermuda (collectively, the “NAB Facility Applicants”)
(the “NAB Standby Letter of Credit Agreement”). The NAB Standby Letter of Credit Agreement provided for
a secured, uncommitted facility under which letters of credit were issued from time to time for the respective
accounts of the NAB Facility Applicants in multiple currencies. RenaissanceRe unconditionally guaranteed
the payment obligations of the NAB Facility Applicants, other than DaVinci.
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” currently include Renaissance
Reinsurance, DaVinci, Renaissance Reinsurance of Europe, RenaissanceRe Specialty U.S. and
Renaissance Reinsurance U.S. The aggregate commitment amount is $300.0 million, subject to a sublimit
of $25.0 million for letters of credit issued for the account of Renaissance Reinsurance U.S.
The Bilateral Facility is scheduled to expire on December 31, 2020. 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, 2018, $243.7 million aggregate face amount of letters of credit was outstanding and,
subject to the sublimits described above, $56.3 million remained unused and available to the Bilateral
Facility Participants under the Bilateral Facility.
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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 letters of credit to support 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, and effective as of May 25, 2017, the stated amount of the $380.0 million letter of credit was
reduced to $180.0 million and the £90.0 million letter of credit was cancelled.
Renaissance Reinsurance may request that the Renaissance Reinsurance FAL Facility be amended to
increase the stated amount of the letter of credit, or issue a new letter or credit denominated in British
Pounds, in an aggregate amount for all such increases or issuances not to exceed $150.0 million or the
equivalent thereof.
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
occurrence of a Full Collateralization Event, Renaissance Reinsurance is obligated to collateralize the
Renaissance Reinsurance FAL Facility at 100%. The latest date upon which Renaissance Reinsurance will
become obligated to collateralize the Facility at 100% is December 31, 2019.
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, 2018, the face amount of the outstanding letter of credit issued by CEP under the
Renaissance Reinsurance FAL Facility was $180.0 million.
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 provided 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 RenaissanceRe Specialty Risks and 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 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, 2018, letters of credit issued by CEP under the Specialty Risks FAL Facility
were outstanding in the face amount of £nil.
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.
F-52
Scheduled Debt Maturity
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, 2018:
2019
2020
2021
2022
2023
After 2023
Unamortized discount and debt issuance expenses
$
$
—
250,000
—
—
—
750,000
(8,873)
991,127
NOTE 9. 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 interest - Vermeer
Redeemable noncontrolling interests
December 31,
2018
December 31,
2017
$ 1,034,946 $ 1,011,659
416,765
599,989
284,847
—
$ 2,051,700 $ 1,296,506
A summary of the Company’s redeemable noncontrolling interests on its consolidated statements of
operations is set forth below:
Redeemable noncontrolling interest - DaVinciRe
Redeemable noncontrolling interest - Medici
Redeemable noncontrolling interest - Vermeer
2018
27,638 $ (134,860) $
2017
2016
118,748
$
13,926
(11)
2,578
—
8,338
—
Net income (loss) attributable to redeemable noncontrolling
interests
$
41,553 $ (132,282) $
127,086
Redeemable Noncontrolling Interest – DaVinciRe
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 22.1% at December 31, 2018 (2017 - 22.1%).
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
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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.
2017
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 $7.5 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 July 2017, RenaissanceRe purchased $12.0 million of DaVinciRe’s outstanding shares from an
existing third-party shareholder. The Company’s noncontrolling economic ownership in DaVinciRe
subsequent to these transactions was 23.5%, effective July 1, 2017.
Effective October 1, 2017, DaVinciRe completed an equity capital raise of $248.6 million from third-party
investors and RenaissanceRe. In addition, RenaissanceRe sold an aggregate of $49.7 million of its shares
in DaVinciRe to third-party investors. The Company’s noncontrolling economic ownership in DaVinciRe
subsequent to these transactions was 22.1%, effective October 1, 2017.
The Company expects its noncontrolling economic ownership in DaVinciRe to fluctuate over time.
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 (loss) attributable to redeemable noncontrolling interest
Balance – December 31
2018
$ 1,011,659 $
(4,351)
—
2017
994,458
(80,058)
232,119
27,638
(134,860)
$ 1,034,946 $ 1,011,659
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.
2017
During 2017, third-party investors subscribed for $149.2 million and redeemed $48.0 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 26.8%, effective December 31, 2017.
2018
During 2018, third-party investors subscribed for $208.5 million and redeemed $90.5 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 16.6% at December 31, 2018.
The Company expects its noncontrolling economic ownership in Medici to fluctuate over time.
F-54
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
2018
284,847 $
$
(90,490)
208,482
13,926
2017
181,136
(48,049)
149,182
2,578
$
416,765 $
284,847
Redeemable Noncontrolling Interest – Vermeer
Vermeer is an exempted Bermuda reinsurer that provides capacity focused on risk remote layers in the U.S.
property catastrophe market. Vermeer is managed by RUM in return for a management fee. The Company
maintains majority voting control of Vermeer, while PGGM retains economic benefits. The Company
concluded that Vermeer is a VIE as it has voting rights that are not proportional to its participating rights,
and the Company is the primary beneficiary. As a result, the Company consolidates Vermeer and all
significant inter-company transactions have been eliminated. The portion of Vermeer’s earnings owned by
third parties is recorded in the consolidated statements of operations as net income attributable to
redeemable noncontrolling interests. The Company has not provided any financial or other support to
Vermeer that it was not contractually required to provide.
2018
During 2018, a third-party investor subscribed for $600.0 million of the participating, non-voting common
shares of Vermeer and the Company subscribed $1 thousand for all of the voting, non-participating shares
of Vermeer.
The activity in redeemable noncontrolling interest – Vermeer is detailed in the table below:
Balance – January 1
Sale of shares to redeemable noncontrolling interest
Net loss attributable to redeemable noncontrolling interest
Balance – December 31
NOTE 10. VARIABLE INTEREST ENTITIES
Upsilon RFO
2018
2017
$
— $
600,000
(11)
$
599,989 $
—
—
—
—
Upsilon RFO is a managed joint venture and a Bermuda domiciled SPI that was formed by the Company
primarily to provide additional capacity to the worldwide aggregate and per-occurrence 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 has the power
over the activities that most significantly impact the economic performance of Upsilon RFO and 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
F-55
in Upsilon RFO, the Company has not provided financial or other support to Upsilon RFO that it was not
contractually required to provide.
2017
During 2017, Upsilon RFO returned $84.3 million of capital to its investors, including $33.0 million to the
Company. In addition, during 2017, $180.6 million of Upsilon RFO non-voting preference shares were
issued to existing investors therein, including $27.2 million to the Company, and an existing third-party
investor purchased $7.5 million of Upsilon RFO non-voting preference shares from the Company. At
December 31, 2016, the Company’s participation in the risks assumed by Upsilon RFO was 20.8%.
2018
During 2018, $856.7 million of Upsilon RFO non-voting preference shares were issued to existing investors,
including $109.8 million to the Company. At December 31, 2018, the Company’s participation in the risks
assumed by Upsilon RFO was 14.0%.
Payments for certain of the shares issued during 2018 were received by the Company prior to January 1,
2018 were included in other liabilities on the Company’s consolidated balance sheet at December 31, 2017,
and in other operating cash flows on the Company’s consolidated statements of cash flows for 2017. During
2018, in connection with the issuance of the non-voting preference shares of Upsilon RFO, other liabilities
were reduced by this amount, and reinsurance balances payable were increased by an offsetting amount,
with corresponding impacts to other operating cash flows and the change in reinsurance balances payable
on the Company consolidated statements of cash flows for the year ended December 31, 2018.
At December 31, 2018, the Company’s consolidated balance sheet included total assets and total liabilities
of Upsilon RFO of $2.2 billion and $2.2 billion, respectively (December 31, 2017 - $1.2 billion and $1.2
billion, respectively).
See “Note 23. Subsequent Events” for additional information related to Upsilon RFO’s non-voting
preference shares subsequent to December 31, 2018.
Mona Lisa Re Ltd. (“Mona Lisa Re”)
Mona Lisa Re is 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
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.
On July 6, 2018, all remaining outstanding series of notes issued by Mona Lisa Re were redeemed and the
proceeds were returned to the holders of such notes. At December 31, 2018, the total assets and total
liabilities of Mona Lisa Re were $41 thousand and $41 thousand, respectively (2017 - $25.9 million and
$25.9 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
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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 $0.2 million and $0.2 million, respectively, during 2018 (2017 - $0.4
million and $0.4 million, respectively). In addition, Renaissance Reinsurance and DaVinci recognized ceded
premiums earned related to the ceded reinsurance contracts with Mona Lisa Re of $0.2 million and $0.2
million, respectively, during 2018 (2017 - $4.1 million and $2.9 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.
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 is expected to 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 is expected to 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. RUM receives an origination
and structuring fee in connection with the formation and operation of Fibonacci Re.
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. 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.
The fair value of the Company’s investment in the participating notes of Fibonacci Re is included in other
investments. Net of third-party investors, the fair value of the Company’s investment in Fibonacci Re was
$6.0 million at December 31, 2018 (2017 - $14.1 million).
Renaissance Reinsurance entered into ceded reinsurance contracts with Fibonacci Re with ceded
premiums of $9.1 million and ceded premiums earned of $10.0 million during 2018 (2017 - $9.0 million and
$8.2 million, respectively).
Langhorne
Effective December 22, 2017, the Company and Reinsurance Group of America, Incorporated closed
Langhorne, an initiative to source third party capital to support reinsurers targeting large in-force life and
annuity blocks. In connection with Langhorne, as of December 31, 2018 the Company has invested $1.3
million in Langhorne Holdings (2017 - $0.6 million), a company that owns and manages certain reinsurance
entities within Langhorne. In addition, as of December 31, 2018 the Company had invested $0.1 million in
Langhorne Partners (2017 - $Nil), the general partner for Langhorne and the entity which manages the
third-party investors investing into Langhorne Holdings.
The Company concluded that Langhorne Holdings meets the definition of a VIE as the voting rights are not
proportional with the obligations to absorb losses and rights to receive residual returns. The Company
evaluated its relationship with Langhorne Holdings and concluded it is not the primary beneficiary of
Langhorne Holdings, as it does not have power over the activities that most significantly impact the
economic performance of Langhorne Holdings. As a result, the Company does not consolidate the financial
position or results of operations of Langhorne Holdings. The Company separately evaluated Langhorne
F-57
Partners and concluded that it was not a VIE. The Company accounts for its investments in Langhorne
Holdings and Langhorne Partners under the equity method of accounting, one quarter in arrears.
The Company anticipates that its absolute investment in Langhorne will increase, perhaps materially, as in-
force life and annuity blocks of businesses are written. The Company expects its absolute and relative
ownership in Langhorne Partners to remain stable. Other than its current and committed future equity
investment in Langhorne, the Company has not provided financial or other support to Langhorne that it was
not contractually required to provide.
Vermeer
Vermeer is an exempted Bermuda reinsurer that provides capacity focused on risk remote layers in the U.S.
property catastrophe market. Vermeer is considered a VIE as it has voting rights that are not proportional to
its participating rights. The Company is the primary beneficiary of Vermeer as it has the power over the
activities that most significantly impact the economic performance of Vermeer and has the obligation to
absorb expected losses and the right to receive expected benefits that could be significant to Vermeer, in
accordance with the accounting guidance. The portion of Vermeer’s earnings owned by third parties is
recorded in the consolidated statements of operations as net income attributable to redeemable
noncontrolling interests. Refer to “Note 9. Noncontrolling Interests” for additional information regarding
Vermeer. Other than the Company’s minimal equity investment, it has not provided any financial or other
support to Vermeer that it was not contractually required to provide.
At December 31, 2018, the Company’s consolidated balance sheet included total assets and total liabilities
of Vermeer of $600.4 million and $0.4 million, respectively. In addition, the Company’s consolidated balance
sheet included redeemable noncontrolling interests associated with Vermeer of $600.0 million at
December 31, 2018.
NOTE 11. 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
2018
2017
2016
40,024
1,947
—
236
42,207
41,187
43,701
—
(1,322)
159
40,024
—
(2,741)
227
41,187
Dividends
The Board of Directors of RenaissanceRe declared dividends, payable to common shareholders of record
on each of March 15, 2018, June 15, 2018, September 14, 2018 and December 14, 2018, of $0.33 per
common share, and the Company paid the dividends on March 29, 2018, June 29, 2018, September 28,
2018 and December 31, 2018, respectively. The declaration and payment of dividends on the Company’s
common shares are subject to the discretion of the Company’s Board of Directors and depend on the
Company’s financial condition, general business conditions, legal, contractual and regulatory restrictions
regarding the payment of dividends by the Company and its subsidiaries and other factors which the Board
of Directors may consider to be relevant.
The Board of Directors approved the payment of quarterly dividends on the Series C 6.08% Preference
Shares, Series E 5.375% Preference Shares and 5.750% Series F Preference Shares to preference
shareholders of record in the amounts and on the quarterly record dates and dividend payment dates set
forth in the prospectus supplement and Certificate of Designation for the applicable series of preference
F-58
shares, unless and until further action is taken by the Board of Directors. The dividend payment dates for
the preference shares will be the first day of March, June, September and December of each year (or if this
date is not a business day, on the business day immediately following this date). The record dates for the
preference share dividends are one day prior to the dividend payment dates. The amount of the dividend on
the Series C 6.08% Preference Shares is an amount per share equal to 6.08% of the liquidation preference
per annum (the equivalent to $1.52 per share per annum, or $0.38 per share per quarter). The amount of
the dividend on the Series E 5.375% Preference Shares is an amount per share equal to 5.375% of the
liquidation preference per annum (the equivalent to $1.34375 per share per annum, or $0.3359375 per
share per quarter). The amount of the dividend on the 5.750% Series F Preference Shares is an amount
per share equal to 5.750% of the liquidation preference per annum (the equivalent to $1,437.50 per 5.750%
Series F Preference Share per annum, or $359.375 per 5.750% Series F Preference Share per quarter, or
$1.4375 per Depositary Share per annum, or $0.359375 per Depositary Share per quarter).
During 2018, the Company paid $30.1 million in preference share dividends (2017 - $22.4 million, 2016 -
$22.4 million) and $52.8 million in common share dividends (2017 - $51.4 million, 2016 - $51.6 million).
Common Shares
On December 20, 2018, we issued 1,947,496 common shares of the Company to State Farm Mutual
Automobile Insurance Company (“State Farm”) in exchange for $250.0 million in a private placement
pursuant to an Investment Agreement between the Company and State Farm entered into on October 30,
2018.
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. In June 2018,
RenaissanceRe raised $250.0 million through the issuance of 10,000 Series F Preference Shares at
$25,000 share (equivalent to 10,000,000 Depositary Shares, each of which represents a 1/1,000th interest
in a Series F Preference Share).
The Series E Preference Shares and the remaining Series C Preference Shares may be redeemed at $25
per share plus declared and unpaid dividends at RenaissanceRe’s option on or after June 1, 2018 and
March 23, 2009, respectively. The Series F Preference Shares may be redeemed at $25,000 per share
(equivalent to $25 per Depositary Share), plus declared and unpaid dividends, at RenaissanceRe’s option
on or after June 30, 2023, provided that no redemption may occur prior to June 30, 2028 unless certain
redemption requirements are met.
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. Dividends on the Series F Preference Shares are payable on a non-cumulative basis, only when,
as and if declared by the Board of Directors, quarterly in arrears at 5.750% per annum. Unless certain
dividend payments are made on the preference shares, RenaissanceRe will be restricted from paying any
dividends on its common shares. As stated above, the Board of Directors approved the payment of
quarterly dividends on the Series C Preference Shares, Series E Preference Shares and Series F
Preference Shares in the amounts and on the quarterly record dates and dividend payment dates set forth
in the prospectus supplement and Certificate of Designation for the applicable series of preference shares,
unless and until further action is taken by the Board of Directors.
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.
F-59
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
November 10, 2017, RenaissanceRe’s Board of Directors approved a renewal of its authorized share
repurchase program for an aggregate amount of up to $500.0 million. Unless terminated earlier by
RenaissanceRe’s Board of Directors, the program will expire when the Company has repurchased the full
value of the common 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 2018, the Company did not repurchase any of its common shares. At December 31,
2018, $500.0 million remained available for repurchase under the share repurchase program.
NOTE 12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
Year ended December 31,
(common shares in thousands)
Numerator:
2018
2017
2016
Net income (loss) available (attributable) to RenaissanceRe
common shareholders
$ 197,276 $ (244,770) $ 480,581
Amount allocated to participating common shareholders (1)
(2,121)
(457)
(5,666)
Net income (loss) allocated to RenaissanceRe common
shareholders
Denominator:
$ 195,155 $ (245,227) $ 474,915
Denominator for basic income (loss) per RenaissanceRe
common share - weighted average common shares
Per common share equivalents of employee stock options
and performance shares
Denominator for diluted income (loss) per RenaissanceRe
common share - adjusted weighted average common
shares and assumed conversions
Net income (loss) available (attributable) to RenaissanceRe
common shareholders per common share – basic
Net income (loss) available (attributable) to RenaissanceRe
common shareholders per common share – diluted
$
$
39,732
39,854
41,314
23
—
245
39,755
39,854
41,559
4.91 $
(6.15) $
11.50
4.91 $
(6.15) $
11.43
(1) Represents earnings attributable to holders of unvested restricted shares issued pursuant to 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 13. RELATED PARTY TRANSACTIONS AND MAJOR CUSTOMERS
The Company has equity interests in the Tower Hill Companies as described in “Note 4. 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 2018, the Company recorded $45.5 million (2017 - $39.1 million, 2016 - $32.8 million) of
gross premium written assumed from the Tower Hill Companies and its subsidiaries and affiliates. Gross
premiums earned totaled $43.8 million (2017 - $35.7 million, 2016 - $32.3 million) and expenses incurred
were $7.1 million (2017 - $5.1 million, 2016 - $3.8 million) for 2018. The Company had a net related
outstanding receivable balance of $19.3 million as of December 31, 2018 (2017 - receivable of $14.1
million). During 2018, the Company assumed net claims and claim expenses of $111.2 million (2017 -
assumed net claims and claim expenses of $94.4 million, 2016 - assumed net claims and claim expenses of
$1.5 million) and, as of December 31, 2018, had a net reserve for claims and claim expenses of $98.8
million (2017 - $65.3 million). In addition, the Company received distributions of $12.1 million from the
Tower Hill Companies during 2018 (2017 - $8.3 million, 2016 - $9.0 million).
F-60
During 2018, the Company received distributions from Top Layer Re of $4.0 million (2017 - $20.0 million,
2016 - $Nil), and recorded a management fee of $2.7 million (2017 - $2.7 million, 2016 - $2.6 million). The
management fee reimburses the Company for services it provides to Top Layer Re.
During 2018, the Company received 75.2% of its gross premiums written (2017 - 76.4%, 2016 - 80.8%)
from three brokers. Subsidiaries and affiliates of AON, Marsh, and Willis Towers Watson accounted for
40.7%, 24.6% and 9.9%, respectively, of gross premiums written in 2018 (2017 - 42.8%, 23.8% and 9.8%,
respectively, 2016 - 46.4%, 23.6% and 10.8%, respectively).
NOTE 14. 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.,
Singapore and Switzerland 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., Singapore and Switzerland.
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.S.
U.K.
Singapore
Ireland
Switzerland
2018
2017
2016
$
349,959 $ (262,827) $
652,758
(56,261)
(28,574)
(3,226)
551
166
(11,897)
(41,656)
(12,421)
617
—
(1,236)
(24,278)
2,180
964
—
Income (loss) before taxes
$
262,615 $ (328,184) $
630,388
Income tax benefit (expense) is comprised as follows:
Year ended December 31, 2018
Total income tax (expense) benefit
Year ended December 31, 2017
Total income tax expense
Year ended December 31, 2016
Total income tax (expense) benefit
Current
Deferred
Total
(1,668) $
7,970 $
6,302
(844) $
(25,643) $
(26,487)
(2,090) $
1,750 $
(340)
$
$
$
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%, 21.0%, 12.5%, 19.0%, 17.0% and
21.2% have been used for Bermuda, the U.S., Ireland, the U.K., Singapore and Switzerland, 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)
F-61
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.
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
Non-taxable foreign exchange gains (losses)
Effect of change in tax rate
U.S. base erosion and anti-abuse tax
Withholding tax
Transfer pricing
Change in valuation allowance
Other
Income tax benefit (expense)
2018
17,697 $
944
586
(708)
(1,271)
(1,831)
(2,481)
(5,255)
(1,379)
6,302 $
2017
14,216 $
3,794
2,574
(38,083)
—
(216)
(11)
(11,718)
2,957
(26,487) $
2016
4,856
4,487
(1,126)
(1,421)
—
(2,578)
27
(924)
(3,661)
(340)
$
$
As a result of the reduction in the U.S. corporate tax rate from 35% to 21% effective January 1, 2018
pursuant to the Tax Cuts and Jobs Act of 2017, the Company recorded a partial write-down of its U.S.
deferred tax asset of $36.7 million in 2017. This adjustment is included in effect of change in tax rate in the
table above.
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 finance charges
Unearned premiums
Investments
Accrued expenses
Deferred underwriting results
Deferred tax liabilities
Deferred acquisition expenses
Amortization and depreciation
Investments
Net deferred tax asset before valuation allowance
Valuation allowance
Net deferred tax asset
2018
2017
60,395 $
17,345
14,646
10,108
4,427
4,292
3,514
114,727
(11,801)
(2,992)
—
(14,793)
99,934
(35,271)
64,663 $
62,643
13,992
11,320
9,436
—
2,641
3,407
103,439
(12,343)
(3,340)
(1,047)
(16,730)
86,709
(30,016)
56,693
$
$
The Company’s net deferred tax asset is included in other assets on its consolidated balance sheets.
F-62
During 2018, the Company recorded a net increase to the valuation allowance of $5.3 million (2017 –
increase of $11.2 million, 2016 – increase of $0.9 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 finance charges, 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.
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 2018, the valuation
allowance with respect to the Company’s U.K. operations increased by $4.0 million.
In the U.S., the Company has net operating loss carryforwards of $164.2 million. Under applicable law, the
U.S. net operating loss carryforwards will begin to expire in 2031. The Company has net operating loss
carryforwards of $114.4 million in the U.K., $21.7 million in Singapore and $4.8 million in Ireland. Under
applicable law, the U.K., Singapore and Irish net operating losses can be carried forward for an indefinite
period.
The Company had a net payment for U.S. federal, Irish, U.K., Singapore and Switzerland income taxes of
$0.3 million for the year ended 2018 (2017 – net payment of $0.3 million, 2016 – net refund of $1.1 million).
The Company has unrecognized tax benefits of $Nil as of December 31, 2018 (2017 – $Nil). Interest and
penalties related to unrecognized tax benefits would be recognized in income tax expense. At
December 31, 2018, interest and penalties accrued on unrecognized tax benefits were $Nil (2017 – $Nil).
Income tax returns filed for tax years 2015 through 2017, 2014 through 2017, 2017, 2014 through 2017,
and 2017, are open for examination by the IRS, Irish tax authorities, U.K. tax authorities, Singapore and
Switzerland 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 15. SEGMENT REPORTING
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
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 whom 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 Company does not manage its assets by segment; accordingly, net investment income and total assets
are not allocated to the segments.
F-63
A summary of the significant components of the Company’s revenues and expenses by segment is as
follows:
Year ended December 31, 2018
Gross premiums written
Net premiums written
Net premiums earned
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting income (loss)
Net investment income
Net foreign exchange losses
Equity in earnings of other ventures
Other income
Property
Casualty and
Specialty
$ 1,760,926
$ 1,549,501
$ 1,055,188
$ 1,076,714
$ 1,050,831
$
925,298
$
$
$
497,895
177,912
112,954
622,320
255,079
64,883
$
262,070
$
(16,984)
$
Other
Total
— $ 3,310,427
— $ 2,131,902
— $ 1,976,129
(197)
1,120,018
(2)
430
(231)
261,866
(12,428)
18,474
5,969
432,989
178,267
244,855
261,866
(12,428)
18,474
5,969
Net realized and unrealized losses on investments
(175,069)
(175,069)
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
(33,983)
(47,069)
6,302
(41,553)
(30,088)
(33,983)
(47,069)
262,615
6,302
(41,553)
(30,088)
$
197,276
Net claims and claim expenses incurred – current accident year $
719,185
$
671,582
Net claims and claim expenses incurred – prior accident years
(221,290)
(49,262)
Net claims and claim expenses incurred – total
$
497,895
$
622,320
$
$
— $ 1,390,767
(197)
(270,749)
(197)
$ 1,120,018
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
68.4 %
(21.0)%
47.4 %
27.7 %
75.1 %
72.6 %
(5.3)%
67.3 %
34.5 %
101.8 %
70.4 %
(13.7)%
56.7 %
30.9 %
87.6 %
F-64
Year ended December 31, 2017
Gross premiums written
Net premiums written
Net premiums earned
Net claims and claim expenses incurred
Acquisition expenses
Operational expenses
Underwriting (loss) income
Net investment income
Net foreign exchange gains
Equity in earnings of other ventures
Other income
Net realized and unrealized gains on investments
Corporate expenses
Interest expense
Loss before taxes and noncontrolling interests
Income tax expense
Net loss attributable to noncontrolling interests
Dividends on preference shares
Property
Casualty and
Specialty
$ 1,440,437
$ 1,357,110
$
$
978,014
931,070
1,297,985
113,816
94,194
$
$
893,307
786,501
565,026
233,077
66,548
$
$
$
Other
Total
(7)
$ 2,797,540
4
4
$ 1,871,325
$ 1,717,575
(1,583)
1,861,428
(1)
36
346,892
160,778
$ (574,925)
$
(78,150)
$
1,552
(651,523)
222,209
10,628
8,030
9,415
135,822
(18,572)
(44,193)
(26,487)
132,282
(22,381)
222,209
10,628
8,030
9,415
135,822
(18,572)
(44,193)
(328,184)
(26,487)
132,282
(22,381)
Net loss attributable to RenaissanceRe common shareholders
$ (244,770)
Net claims and claim expenses incurred – current accident year $ 1,343,581
Net claims and claim expenses incurred – prior accident years
(45,596)
Net claims and claim expenses incurred – total
$ 1,297,985
$
$
558,843
6,183
565,026
$
$
— $ 1,902,424
(1,583)
(40,996)
(1,583)
$ 1,861,428
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
144.3 %
(4.9)%
139.4 %
22.3 %
161.7 %
71.1%
0.7%
71.8%
38.1%
109.9%
110.8 %
(2.4)%
108.4 %
29.5 %
137.9 %
F-65
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 noncontrolling interests
Income tax expense
Net income attributable to 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-66
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
Europe
Japan
Worldwide (excluding U.S.) (1)
Australia and New Zealand
Other
Total Property
Casualty and Specialty
Worldwide
U.S. and Caribbean
Worldwide (excluding U.S.) (1)
Europe
Australia and New Zealand
Other
Total Casualty and Specialty
Other category
Total gross premiums written
2018
2017
2016
$
978,063 $
464,311
144,857
71,601
66,872
19,273
15,949
1,760,926
954,269 $
305,915
49,486
49,821
48,182
14,151
18,613
1,440,437
743,226
210,168
37,611
44,536
55,043
13,729
6,950
1,111,263
776,976
667,125
31,734
15,296
3,667
54,703
1,549,501
—
581,972
646,381
13,840
5,541
5,073
10,506
1,263,313
—
$ 3,310,427 $ 2,797,540 $ 2,374,576
686,253
622,757
10,104
9,752
4,141
24,103
1,357,110
(7)
(1) The category “Worldwide (excluding U.S.)” consists of contracts that cover more than one geographic region (other than the
U.S.).
NOTE 16. STOCK INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS
Stock Incentive Compensation Plans and Awards
The Company is authorized to issue restricted stock awards, restricted stock units, performance share
awards, stock options and other share-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 restricted stock awards, restricted stock units, performance share awards (including
cash-based performance awards), stock options 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 share awards, 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-67
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.
Stock Options
The Company has not granted stock options since 2008. Stock options were granted pursuant to the 2001
Stock Incentive Plan and allowed for the purchase of RenaissanceRe common shares at a price that was
equal to, or not less than, the fair market value of RenaissanceRe common shares as of the effective grant
date. Stock options generally vested over four years and expired 10 years from the grant date.
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 Share Awards
Performance share awards have been granted 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.
Outstanding performance share awards 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 share awards will vest up to a maximum of 250% of target. Performance share awards
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 share awards granted prior to May 2018 have a market
condition, which is the Company’s total shareholder return relative to its peer group. The performance share
awards granted in May 2018 have a performance condition, which is the percentage change in the
Company’s tangible book value per common share plus accumulated dividends, or, in the event of a change
in control, a market condition, which is the Company’s total shareholder return relative to its peer group.
Total shareholder return is calculated in accordance with the terms of the applicable award agreement and
is generally based on the average closing share price over the 20 trading days preceding and including the
start and end of the annual performance period. The percentage change in tangible book value per share
plus accumulated dividends is calculated in accordance with the terms of the applicable award agreement.
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 pursuant to the 2010
Restricted Stock Unit Plan and 2016 Restricted Stock Unit Plan generally vest ratably over four years.
F-68
Valuation Assumptions
Performance Share Awards Granted Prior to May 2018
The fair value of performance share awards granted prior to May 2018 is measured on the grant date using
a Monte Carlo simulation model which requires the following inputs: 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 share awards 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 Share Awards
2018
15.8%
n/a
n/a
2017
14.3%
n/a
n/a
1.85% - 2.36% 0.93% - 1.69%
(1) The expected volatility and risk-free interest rate applied are specific to each tranche of performance share awards.
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 share awards has a one year
period during which performance is measured.
Expected dividend yield: The expected dividend yield is not applicable to performance share awards 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 share awards.
For performance share awards granted before May 2018, the total cost of the performance share awards 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 award multiplied by the target number
of performance share awards on the grant date. The cost is then amortized as an expense over the
requisite service period. The Company has elected to recognize forfeitures as they occurred rather than
estimating service-based forfeitures over the requisite service period.
Performance Share Awards Granted as of May 2018
For performance share awards granted as of May 2018, the performance metric relates to the percentage
change in tangible book value per share plus accumulated dividends which is classified as a performance
condition under ASC 718. As a result, the fair value of the performance share awards is determined based
on the fair market value of RenaissanceRe’s common shares on the grant date. The estimated fair value of
performance share awards is amortized as an expense over the requisite service period.
Restricted Stock Awards
The fair value of restricted stock awards is determined based on the fair market value of RenaissanceRe’s
common shares on the grant date. The estimated fair value of restricted stock awards is amortized as an
expense over the requisite service period. The Company has elected to recognize forfeitures as they
occurred rather than estimating service-based forfeitures over the requisite service period.
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. The
Company has elected to recognize forfeitures as they occurred rather than estimating service-based
forfeitures over the requisite service period.
F-69
Summary of Stock Compensation Activity
The following is a summary of activity under the Company’s stock compensation plans.
Stock Options
Weighted
options
outstanding
Weighted
average
exercise
price
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
Range of
exercise prices
Balance, December 31, 2015
408,212
$ 51.90
1.6
$ 25,020
$42.66 - $59.66
Options granted
Options forfeited
Options expired
Options exercised
—
—
—
—
—
—
(201,417)
50.59
$ 14,806
—
—
Balance, December 31, 2016
206,795
$ 53.17
0.9
$ 17,174
$50.71 - $59.66
Options granted
Options forfeited
Options expired
Options exercised
—
—
—
—
—
—
(174,794)
53.04
$ 15,945
Balance, December 31, 2017
32,001
$ 53.86
0.2
$
2,295
Options granted
Options forfeited
Options expired
Options exercised
Balance, December 31, 2018
Total options exercisable at
December 31, 2018
—
—
—
—
—
—
(32,001) $ 53.86
— $
— $
—
—
$
$
$
0.0
0.0
2,320
$
— $
— $
—
—
53.86
—
—
—
—
F-70
Cash Settled Restricted Stock Units
Nonvested at December 31, 2015
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2016
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2017
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2018
Performance Share Awards
Nonvested at December 31, 2015
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2016
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2017
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31, 2018
Number of
shares
326,078
135,119
(133,278)
(19,575)
308,344
98,067
(122,088)
(21,993)
262,330
—
(108,344)
(7,069)
146,917
Number of
shares (1)
Weighted
average
grant-date
fair value
230,271 $
77,045 $
(58,032) $
(37,903)
211,381 $
64,947 $
(62,499) $
(46,156)
167,673 $
83,475 $
(16,456) $
(82,241)
152,451 $
41.40
48.31
38.30
44.63
65.27
43.51
53.11
60.69
53.79
57.21
(1) For performance share awards, 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-71
Restricted Stock Awards
Nonvested at December 31,
2015
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31,
2016
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31,
2017
Awards granted
Awards vested
Awards forfeited
Nonvested at December 31,
2018
Employee
restricted stock awards
Non-employee director
restricted stock awards
Total
restricted stock awards
Weighted
average
grant
date fair
value
Number of
shares
Weighted
average
grant
date fair
value
Number of
shares
Weighted
average
grant
date fair
value
Number of
shares
479,040 $ 94.95
112.41
179,003
93.98
(255,873)
—
—
402,170 $ 103.34
148.66
116,345
100.17
(185,478)
—
—
333,037 $ 120.93
132.70
255,799
112.70
(139,454)
134.38
(1,642)
26,886 $ 97.61
114.71
14,727
96.83
(16,068)
—
—
25,545 $ 107.95
150.05
12,193
110.66
(17,612)
—
—
505,926 $ 95.09
112.59
193,730
94.15
(271,941)
—
—
427,715 $ 103.61
148.79
128,538
101.08
(203,090)
—
—
20,126 $ 131.09
127.29
12,169
123.59
(9,761)
—
—
353,163 $ 121.51
132.79
267,968
113.41
(149,215)
134.38
(1,642)
447,740 $ 130.37
22,534 $ 132.29
470,274 $ 130.46
There were 1.6 million shares available for issuance under the 2016 Long-Term Incentive Plan at
December 31, 2018 and no shares available for issuance under the 2001 Stock Incentive Plan or 2010
Performance Share Plan at December 31, 2018.
The aggregate fair value of restricted stock awards, performance share awards and CSRSUs vested during
2018 was $37.2 million (2017 – $56.9 million, 2016 – $54.5 million). Cash in the amount of $Nil was
received from employees as a result of employee stock option exercises during 2018 (2017 – $Nil, 2016 –
$Nil). 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 2018 was $35.7 million (2017 – $37.2 million, 2016 – $47.4 million). As of December 31, 2018, there
was $43.2 million of total unrecognized compensation cost related to restricted stock awards, $11.2 million
related to CSRSUs and $4.8 million related to performance share awards, which will be recognized, on a
weighted average basis, during the next 1.8, 1.3 and 1.7 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 $4.1 million to its
defined contribution pension plans in 2018 (2017 – $4.4 million, 2016 – $4.0 million).
NOTE 17. 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 prescribed
F-72
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 statutory economic capital and surplus at a level equal to
or in excess of 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. The EBS is an input to the BSCR which determines the Company’s ECR. The EBS regime
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 BMA has established a target capital level (“TCL”) which is set at 120% of the ECR. While the
Company is not required to maintain statutory economic capital and surplus at this level, it serves as an
early warning tool for the BMA, and failure to meet the TCL may result in additional reporting requirements
or increased regulatory oversight. The Company is currently completing its 2018 group BSCR, which must
be filed with the BMA on or before May 31, 2019, and at this time, the Company believes it will exceed the
target level of required statutory economic capital and surplus.
The statutory economic capital and surplus, required minimum statutory capital and surplus and
unrestricted net assets of the Company’s regulated insurance operations in its most significant regulatory
jurisdictions are detailed below:
At December 31,
Statutory
economic
capital and
surplus
Required
statutory
capital and
surplus
Unrestricted net
assets
Bermuda (1)
U.S.
U.K. (2) (3)
2018
2017
2018
2017
2018
2017
$ 4,256,830 $ 4,155,368 $
502,803 $
523,384 $
519,689 $
527,325
950,915
836,181
306,628
306,375
519,689
527,325
931,387
790,177
31,228
24,109
—
—
(1) The Company's Bermuda-domiciled insurance subsidiaries’ capital and surplus is based on the relevant insurer’s statutory
financial statements and required statutory capital and surplus is based on the MSM.
(2) With respect to statutory capital and surplus 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, unrestricted 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.
Statutory net income (loss) of the Company’s regulated insurance operations in its most significant
regulatory jurisdictions are detailed below:
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
Statutory Net Income (Loss)
Bermuda
$
326,386 $
U.S.
25,851 $
(334,142)
625,371
(3,627)
43,292
U.K.
(6,692)
(57,050)
28,007
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
F-73
statutory financial statements generally 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, 2018, 2017 and 2016.
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 both before and 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.
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. and Vermeer are defined as Class 3B insurers,
and Renaissance Reinsurance and DaVinci are classified as Class 4 insurers, and therefore must maintain
statutory economic capital and surplus at a level at least 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
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 2018 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, 2019, 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. Vermeer
applied for and received an exemption from the BMA with respect to filing its 2018 Bermuda-domiciled
statutory filings.
SPIs
Under the Insurance Act, Upsilon RFO is considered an SPI. See “Note 10. 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
F-74
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, modified its filing requirements in respect of statutory
financial statements for the year ended December 31, 2018 and 2017.
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.
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. Based on Maryland’s adoption of the
RBC model of the NAIC, the first level at which action is required is Company Action Level (“CAL”) RBC. If
Renaissance Reinsurance U.S.’s total adjusted capital is less than CAL RBC (but greater than Regulatory
Action Level (“RAL”) RBC), then Renaissance Reinsurance U.S. must file an RBC plan with the Maryland
Insurance Commissioner (the "Commissioner"). If Renaissance Reinsurance U.S.’s total adjusted capital is
less than RAL RBC, then the Commissioner must take certain regulatory actions.
Under Maryland insurance law, Renaissance Reinsurance U.S. must notify 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. 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 paid out as dividends.
At December 31, 2018, Renaissance Reinsurance U.S. had an ordinary dividend capacity of $31.2 million
which can be paid in 2019.
Renaissance Reinsurance U.S. is required to file statutory basis financial statements with the Maryland
Insurance Administration, as its domestic regulator, with the NAIC and with insurance regulators in certain
other states 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 2018 statutory basis financial statements for Renaissance Reinsurance U.S.,
which must be filed with the NAIC, on or before March 1, 2019. 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
F-75
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 discretionary 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, 2018 with respect to the MBRTs totaled $1.2 billion
and $385.8 million for Renaissance Reinsurance and DaVinci, respectively (2017 – $1.2 billion and $377.0
million, respectively), compared to the minimum amount required under U.S. state regulations of $1.1 billion
and $356.9 million, respectively (2017 – $1.1 billion and $326.9 million, respectively).
Multi-Beneficiary Reduced Collateral Reinsurance Trusts
Each of Renaissance Reinsurance and DaVinci has been approved as a “certified reinsurer” eligible for
collateral reduction in Connecticut, Delaware, Florida, Indiana, Maryland and New York, and are authorized
to provide reduced collateral equal to 20% and 50%, respectively, of their net outstanding insurance
liabilities to insurers domiciled in each of those states. Each of Renaissance Reinsurance and DaVinci has
established a multi-beneficiary reduced collateral reinsurance trust (“RCT”) to collateralize its (re)insurance
liabilities associated with cedants domiciled in those states. 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, 2018 with respect to the RCTs
totaled $50.3 million and $63.2 million for Renaissance Reinsurance and DaVinci, respectively (2017 -
$49.4 million and $62.0 million, respectively), compared to the minimum amount required under U.S. state
regulations of $36.8 million and $26.9 million, respectively (2017 - $39.7 million and $46.0 million,
respectively).
NOTE 18. DERIVATIVE INSTRUMENTS
From time to time, the Company may enter 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 can be exchange traded or over-the-counter, with over-the-counter
derivatives 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 a 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-76
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
At December 31, 2018
Gross
Amounts of
Recognized
Assets
Gross
Amounts
Offset in the
Balance
Sheet
Net
Amounts of
Assets
Presented in
the Balance
Sheet
Interest rate futures
$
2,361
1,660 $
Interest rate swaps
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
Total
860
—
16,459
2,260
14,199
3,194
$
22,874 $
71
3,991 $
3,123
18,883
701
860
Balance
Sheet
Location
Other
assets
Other
assets
Other
assets
Other
assets
Collateral
Net Amount
$
— $
—
—
—
701
860
14,199
3,123
$
— $
18,883
Derivative Liabilities
At December 31, 2018
Gross
Amounts of
Recognized
Liabilities
Gross
Amounts
Offset in the
Balance
Sheet
Net
Amounts of
Liabilities
Presented in
the Balance
Sheet
Interest rate futures
$
1,887
1,670 $
Interest rate swaps
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
506
4,154
72
—
—
71
217
506
4,154
1
Credit default swaps
Total
1,606
8,225 $
—
1,741 $
1,606
6,484
$
Balance
Sheet
Location
Other
liabilities
Other
liabilities
Other
liabilities
Other
liabilities
Other
liabilities
Collateral
Pledged
Net Amount
$
217 $
254
—
—
1,605
—
252
4,154
1
1
$
2,076 $
4,408
(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-77
Derivative Assets
At December 31, 2017
Gross
Amounts of
Recognized
Assets
Gross
Amounts
Offset in the
Balance
Sheet
Net
Amounts of
Assets
Presented in
the Balance
Sheet
Interest rate futures
$
Interest rate swaps
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
684
424
3,865
39
Credit default swaps
Total
1,518
6,530 $
$
524 $
—
358
11
—
893 $
160
424
3,507
28
1,518
5,637
Balance
Sheet
Location
Other
assets
Other
assets
Other
assets
Other
assets
Other
assets
Collateral
Net Amount
$
— $
—
—
—
—
$
— $
160
424
3,507
28
1,518
5,637
Derivative Liabilities
At December 31, 2017
Gross
Amounts of
Recognized
Liabilities
Gross
Amounts
Offset in the
Balance
Sheet
Net
Amounts of
Liabilities
Presented in
the Balance
Sheet
Interest rate futures
$
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
729
670
115
Credit default swaps
Total
22
1,536 $
$
524 $
—
11
—
535 $
205
670
104
22
1,001
Balance
Sheet
Location
Other
liabilities
Other
liabilities
Other
liabilities
Other
liabilities
Collateral
Pledged
Net Amount
$
205 $
—
—
22
$
227 $
—
670
104
—
774
(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 4. Investments” for information on reverse repurchase agreements.
F-78
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,
2018
2017
2016
Location of gain (loss)
recognized on derivatives
Amount of gain (loss) recognized on
derivatives
Interest rate futures
Interest rate swaps
Foreign currency forward
contracts (1)
Foreign currency forward
contracts (2)
Credit default swaps
Total
Net realized and unrealized
(losses) gains on
investments
Net realized and unrealized
(losses) gains on
investments
Net foreign exchange
(losses) gains
Net foreign exchange
(losses) gains
Net realized and unrealized
(losses) gains on
investments
$
(5,594) $
(3,252) $
(17,379)
(84)
436
—
3,840
5,736
9,628
(6,937)
(916)
(1,591)
(3,106)
326
1,965
$
792 $
6,222 $
(23,942)
(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, 2018.
Interest Rate Derivatives
The Company uses interest rate futures and swaps 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.
Interest Rate Futures
The fair value of interest rate futures is determined using exchange traded prices. At December 31, 2018,
the Company had $1.9 billion of notional long positions and $545.8 million of notional short positions of
primarily Eurodollar, U.S. treasury and non-U.S. dollar futures contracts (2017 – $1.5 billion and $801.1
million, respectively).
Interest Rate Swaps
The fair value of interest rate swaps is determined using the relevant exchange traded price where available
or a discounted cash flow model based on the terms of the contract and inputs, including, where applicable,
observable yield curves. At December 31, 2018, the Company had $78.4 million of notional positions paying
a fixed rate and $32.1 million receiving a fixed rate denominated in U.S. dollar swap contracts (2017 - $40.3
million and $Nil, respectively).
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
F-79
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, 2018, the Company had outstanding underwriting related foreign currency contracts of
$354.1 million in notional long positions and $601.2 million in notional short positions, denominated in U.S.
dollars (2017 – $215.4 million and $44.2 million, respectively).
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, 2018, the Company had
outstanding investment portfolio related foreign currency contracts of $121.3 million in notional long
positions and $42.9 million in notional short positions, denominated in U.S. dollars (2017 – $16.6 million and
$5.1 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 may
purchase 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,
2018, the Company had outstanding credit derivatives of $1.0 million in notional positions to hedge credit
risk and $126.2 million in notional positions to assume credit risk, denominated in U.S. dollars (2017 – $1.0
million and $18.8 million, respectively).
NOTE 19. 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 and money market securities, none of the Company’s investments
exceeded 10% of shareholders’ equity at December 31, 2018. See “Note 6. 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.
LETTERS OF CREDIT AND OTHER COMMITMENTS
At December 31, 2018, the Company’s banks have issued letters of credit of $510.6 million in favor of
certain ceding companies. 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
F-80
and surplus below a specified level. The letters of credit are secured by cash and investments of similar
amounts.
See “Note 8. 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 investments, other investments and investments in
other ventures of $1.2 billion, of which $686.4 million has been contributed at December 31, 2018. The
Company’s remaining commitments to these investments at December 31, 2018 totaled $470.8 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 2027.
Future minimum lease payments under existing operating leases are expected to be as follows:
2019
2020
2021
2022
2023
After 2023
$
Minimum
lease
payments
7,137
5,294
4,934
4,225
1,530
298
Future minimum lease payments under existing operating leases
$
23,418
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.
2019
2020
2021
2022
2023
After 2023
Future minimum lease payments under existing capital leases
F-81
Minimum
lease
payments
$
$
3,331
3,336
3,336
3,336
2,830
12,790
28,959
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 loss and loss
expense reserves which are discussed in “Note 7. 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.
ACQUISITION OF TOKIO MILLENNIUM RE
See “Note 20. Acquisition of Tokio Millennium Re” for information related to the obligations of the Company
with respect to the TMR Stock Purchase.
F-82
NOTE 20. ACQUISITION OF TOKIO MILLENNIUM RE
Pursuant to the TMR Stock Purchase Agreement, the aggregate consideration for the TMR Stock Purchase
consists of: (i) an amount in cash equal to the product of (x) the closing tangible book value of the TMR
Group Entities (calculated as set forth in the TMR Stock Purchase Agreement) prior to taking into account
the pre-closing dividend (if any) (as described in the paragraph below) and the amounts payable to Tokio at
the closing under the Reserve Development Agreement and Third Party Capital Agreement (as defined in
the TMR Stock Purchase Agreement) (the “ADC/TPC Amount”) and (y) 1.02, less an amount equal to the
sum of (1) the amount of the pre-closing dividend (if any), and (2) the ADC/TPC Amount, plus solely in the
event the 30 trading day volume-weighted average closing RenaissanceRe share price (the “Closing
RenaissanceRe Share Price”) is less than or equal to $128.37 (the “Signing RenaissanceRe Share Price”),
the amount by which (A) $250.0 million exceeds (B) the product of (I) the RenaissanceRe Share Amount
(as defined below) and (II) the Closing RenaissanceRe Share Price; and (ii) a number of common shares of
the Company equal to (a) if the Closing RenaissanceRe Share Price is less than or equal to the Signing
RenaissanceRe Share Price, an amount equal to the quotient obtained by dividing (1) $250.0 million by
(2) the Signing RenaissanceRe Share Price, or (b) if the Signing RenaissanceRe Share Price is less than
the Closing RenaissanceRe Share Price, an amount equal to the quotient obtained by dividing (1) $250.0
million by (2) the Closing RenaissanceRe Share Price, in either case of clause (a) or (b), rounded down to
the nearest whole number (the “RenaissanceRe Share Amount”).
Under the terms of the TMR Stock Purchase Agreement, Tokio will use its reasonable best efforts to cause
TMR AG and/or TMR UK to, subject to regulatory approvals, pay to Tokio, prior to closing, one or more
dividends in an aggregate amount equal to $275.0 million (or a lesser amount as mutually agreed by the
Company and Tokio), provided that Tokio shall use its reasonable best efforts to maximize the amount of
such dividend in an amount up to $500.0 million (or a lesser amount as mutually agreed by the Company
and Tokio).
In connection with the TMR Stock Purchase Agreement, Tokio, TMR AG and TMR UK have agreed to enter
into a Reserve Development Agreement at the closing whereby TMR AG and TMR UK will agree to cede to
Tokio, and Tokio will agree to indemnify and reimburse TMR AG and TMR UK for, substantially all of TMR
AG and TMR UK’s adverse development on stated reserves at time of Closing including unearned premium
reserves, subject to the terms and conditions of the Reserve Development Agreement.
The TMR Stock Purchase is expected to close in the first half of 2019, subject to the closing conditions
described above and contained in the TMR Stock Purchase Agreement.
F-83
NOTE 21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarter Ended
March 31,
Quarter Ended
June 30,
Quarter Ended
September 30,
Quarter Ended
December 31,
2018
2017
2018
2017
2018
2017
2018
2017
Revenues
Gross premiums written
$1,159,652
$ 922,090
$977,343
$ 827,415
$ 625,677
$ 640,269
$ 547,755
$407,766
Net premiums written
(Increase) decrease in
unearned premiums
Net premiums earned
Net investment income
Net foreign exchange gains
(losses)
Equity in earnings (losses) of
other ventures
Other (loss) income
Net realized and unrealized
(losses) gains on
investments
Total revenues
Expenses
Net claims and claim expenses
incurred
Acquisition costs
Operational expenses
Corporate expenses
Interest expense
Total expenses
$ 663,044
$ 544,136
$604,509
$ 555,745
$ 453,255
$ 483,221
$ 411,094
$288,223
(222,762)
(178,091)
(175,124)
(173,480)
78,594
64,571
163,519
133,250
440,282
366,045
429,385
382,265
531,849
547,792
574,613
421,473
56,476
54,325
71,356
54,163
80,696
40,257
53,338
73,464
3,757
8,165
(10,687)
3,109
(4,566)
(156)
(932)
(490)
857
(1,242)
(1,507)
1,665
5,826
1,225
5,543
2,392
7,648
497
1,794
2,996
4,143
5,489
2,200
2,362
(82,144)
43,373
(17,901)
58,113
13,630
42,052
(88,654)
(7,716)
417,986
472,066
479,204
505,585
629,754
634,735
547,997
491,293
171,703
193,081
60,167
142,587
410,510
1,221,696
477,638
304,064
97,711
41,272
6,733
11,767
83,282
47,283
5,286
10,526
105,052
37,543
8,301
11,768
329,186
339,458
222,831
88,251
41,766
4,636
10,091
287,331
218,254
109,761
40,593
6,841
11,769
76,761
42,537
4,413
11,799
120,465
58,859
12,108
11,765
98,598
29,192
4,237
11,777
579,474
1,357,206
680,835
447,868
50,280
(722,471)
(132,838)
43,425
Income (loss) before taxes
88,800
132,608
256,373
Income tax benefit (expense)
3,407
(334)
(4,506)
(3,904)
(1,451)
18,977
8,852
(41,226)
Net income (loss)
92,207
132,274
251,867
214,350
48,829
(703,494)
(123,986)
2,199
Net (income) loss attributable
to redeemable
noncontrolling interests
Net income (loss) available
(attributable) to
RenaissanceRe
Dividends on preference
shares
Net income (loss) available
(attributable) to
RenaissanceRe common
shareholders
Net income (loss) available
(attributable) to
RenaissanceRe common
shareholders per common
share – basic
Net income (loss) available
(attributable) to
RenaissanceRe common
shareholders per common
share – diluted
Average shares outstanding –
basic
Average shares outstanding –
diluted
(29,899)
(34,327)
(54,483)
(37,612)
(6,440)
204,277
49,269
(56)
62,308
97,947
197,384
176,738
42,389
(499,217)
(74,717)
2,143
(5,595)
(5,595)
(5,596)
(5,596)
(9,708)
(5,595)
(9,189)
(5,595)
$
56,713
$ 92,352
$191,788
$ 171,142
$ 32,681
$ (504,812)
$ (83,906)
$ (3,452)
$
1.42
$
2.26
$
4.78
$
4.25
$
0.82
$
(12.75)
$
(2.10)
$
(0.09)
$
1.42
$
2.25
$
4.78
$
4.24
$
0.82
$
(12.75)
$
(2.10)
$
(0.09)
39,552
40,408
39,641
39,937
39,624
39,591
40,111
39,478
39,599
40,623
39,654
40,024
39,637
39,591
40,111
39,478
F-84
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, 2018 and 2017,
condensed consolidating statements of operations, condensed consolidating statements of comprehensive
income (loss) and condensed consolidating statements of cash flows for the years ended December 31,
2018, 2017 and 2016, respectively. Each of RRNAH and RenaissanceRe Finance is a 100% owned
subsidiary of RenaissanceRe. On June 1, 2017, the Platinum Finance Notes matured and the Company
repaid the aggregate principal amount plus applicable accrued interest in full. Platinum Finance was
subsequently dissolved on November 30, 2017. Prior to the liquidation of Platinum Finance, it was a 100%
owned subsidiary of RenaissanceRe. For additional information related to the terms of the Company’s
outstanding debt securities, see “Note 8. Debt and Credit Facilities”.
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
$
313,360
$
77,842
$
28,885
$
11,465,660
$
— $
11,885,747
Condensed Consolidating Balance
Sheet at December 31, 2018
Assets
Total investments
Cash and cash equivalents
Investments in subsidiaries
3,534
4,414,475
3,350
58,458
Due from subsidiaries and affiliates
57,039
101,579
Premiums receivable
Prepaid reinsurance premiums
Reinsurance recoverable
Accrued investment income
Deferred acquisition costs
Receivable for investments sold
Other assets
Goodwill and other intangible assets
—
—
—
1,046
—
203
458,842
120,476
—
—
—
310
—
23,885
22,571
—
9,604
1,091,434
—
1,107,922
1,215,663
—
—
—
—
127
—
—
—
—
(5,688,596)
(158,618)
1,537,188
616,185
2,372,221
49,828
476,661
232,328
—
—
—
—
—
—
313,636
(1,403,636)
743,714
—
116,942
—
—
—
1,537,188
616,185
2,372,221
51,311
476,661
256,416
135,127
237,418
Total assets
$
5,368,975
$
287,995
$
1,567,915
$
16,554,811
$
(5,103,500) $
18,676,196
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
— $
—
300,000
6,453
—
—
17,442
323,895
—
— $
— $
6,076,271
$
— $
6,076,271
—
—
217
—
24
5,362
5,603
—
—
843,086
102,243
—
—
13,918
959,247
—
1,716,021
148,041
—
(300,000)
—
(108,913)
1,716,021
991,127
—
1,902,056
380,332
513,609
—
—
(5,535)
(414,448)
11,579,416
—
2,051,700
1,902,056
380,308
482,422
10,705,119
2,051,700
Total shareholders’ equity
5,045,080
282,392
608,668
3,797,992
(4,689,052)
5,045,080
Total liabilities, noncontrolling
interests and shareholders’
equity
$
5,368,975
$
287,995
$
1,567,915
$
16,554,811
$
(5,103,500) $
18,676,196
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-85
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
$
225,266
$
129,732
$
31,255
$
9,117,186
$
— $
9,503,439
1,469
1,345,328
—
1,361,592
14,656
4,105,760
4,602
—
—
—
405
—
135
139
36,140
91,891
—
—
—
428
—
51
1,141,733
—
—
—
—
82
—
8
433,468
124,960
21,342
—
430,481
—
—
—
(5,283,633)
(96,493)
1,304,622
533,546
1,586,630
41,320
426,551
102,951
76,703
118,185
—
—
—
—
—
—
(840,768)
—
—
—
1,304,622
533,546
1,586,630
42,235
426,551
103,145
121,226
243,145
Condensed Consolidating Balance
Sheet at December 31, 2017
Assets
Total investments
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
Total assets
$
4,909,252
$
279,723
$
1,605,028
$
14,653,022
$
(6,220,894) $
15,226,131
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
— $
—
417,000
82,579
—
—
18,298
517,877
—
— $
— $
5,080,408
$
— $
5,080,408
—
—
54
—
—
1,053
1,107
—
—
841,892
92,794
—
—
14,117
948,803
—
1,477,609
147,731
—
(417,000)
—
(175,427)
989,090
208,749
764,432
8,668,019
1,296,506
—
—
(5,129)
(597,556)
—
1,477,609
989,623
—
989,090
208,749
792,771
9,538,250
1,296,506
Total shareholders’ equity
4,391,375
278,616
656,225
4,688,497
(5,623,338)
4,391,375
Total liabilities, redeemable
noncontrolling interest and
shareholders’ equity
$
4,909,252
$
279,723
$
1,605,028
$
14,653,022
$
(6,220,894) $
15,226,131
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-86
Condensed Consolidating
Statement of Operations for
the year ended December 31, 2018
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
$
— $
— $
— $
1,976,129
$
— $
1,976,129
Revenues
Net premiums earned
Net investment income
Net foreign exchange losses
Equity in earnings of other ventures
Other income
Net realized and unrealized gains
(losses) 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 (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
24,791
2,193
(3)
—
—
633
25,421
—
—
7,679
25,190
5,683
38,552
—
—
—
(4,360)
(2,167)
—
—
110
—
—
110
(13,131)
(2,277)
240,495
227,364
—
227,364
—
227,364
(30,088)
5,631
3,354
582
3,936
—
3,936
—
6,219
—
3,065
—
(329)
8,955
—
—
34,534
7
37,019
71,560
(62,605)
9,091
(53,514)
6,119
(47,395)
261,192
(12,425)
15,409
5,969
(171,013)
2,075,261
1,120,018
432,989
164,605
3,103
4,367
(32,529)
—
—
—
—
261,866
(12,428)
18,474
5,969
(175,069)
(32,529)
2,074,941
—
—
(28,661)
5,683
—
1,120,018
432,989
178,267
33,983
47,069
1,725,082
(22,978)
1,812,326
350,179
—
350,179
(399)
(9,551)
(255,217)
(264,768)
—
349,780
(264,768)
262,615
—
262,615
6,302
268,917
—
(41,553)
—
(41,553)
(47,395)
308,227
(264,768)
—
—
—
227,364
(30,088)
197,276
$
197,276
$
3,936
$
(47,395) $
308,227
$
(264,768) $
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor, Subsidiary Guarantor and Subsidiary Issuer consolidating adjustments.
Condensed Consolidating
Statement of Comprehensive
Income (Loss) for the year ended
December 31, 2018
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
Comprehensive income (loss)
RenRe
North
America
Holdings
Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
Consolidating
Adjustments
(2)
RenaissanceRe
Consolidated
Net income (loss)
$
227,364
$
3,936
$
(47,395) $
349,780
$
(264,768) $
268,917
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)
available (attributable) to
RenaissanceRe
—
227,364
—
3,936
—
(47,395)
(1,657)
348,123
—
(264,768)
—
—
—
—
—
—
(41,553)
(41,553)
—
—
(1,657)
267,260
(41,553)
(41,553)
$
227,364
$
3,936
$
(47,395) $
306,570
$
(264,768) $
225,707
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor, Subsidiary Guarantor and Subsidiary Issuer consolidating adjustments.
F-87
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
$
— $
— $
— $
— $
1,717,575
$
— $
1,717,575
23,109
1,947
1,373
3,090
219,490
(26,800)
222,209
(1)
—
—
—
—
—
—
—
—
—
10,629
(223)
—
8,253
9,415
(1,357)
21,751
9,621
11,568
4,916
6,289
(479)
2,388
123,121
2,088,483
—
—
—
—
(26,800)
10,628
8,030
9,415
135,822
2,103,679
—
—
11,314
18,546
1,572
31,432
—
—
103
—
—
103
—
—
85
—
2,461
2,546
—
—
26,063
—
31,657
57,720
1,861,428
346,892
—
—
1,861,428
346,892
141,572
(18,359)
160,778
26
10,075
2,359,993
—
(1,572)
(19,931)
18,572
44,193
2,431,863
(9,681)
11,465
3,743
(55,332)
(271,510)
(6,869)
(328,184)
(212,708)
756
28,028
9,298
—
174,626
—
(222,389)
12,221
31,771
(46,034)
(271,510)
167,757
(328,184)
Condensed
Consolidating
Statement of
Operations for the
year ended
December 31, 2017
Revenues
Net premiums
earned
Net investment
income
Net foreign
exchange
(losses) gains
Equity in (losses)
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 (loss)
income of
subsidiaries and
taxes
Equity in net (loss)
income of
subsidiaries
(Loss) income before
taxes
Income tax
(expense) benefit
Net (loss) income
(222,389)
—
(18,147)
(5,926)
(1,175)
30,596
7,163
(38,871)
(14,328)
(285,838)
—
167,757
(26,487)
(354,671)
Net loss attributable
to redeemable
noncontrolling
interests
Net (loss) income
attributable to
RenaissanceRe
Dividends on
preference shares
Net (loss) income
(attributable)
available to
RenaissanceRe
common
shareholders
—
—
—
—
132,282
—
132,282
(222,389)
(5,926)
30,596
(38,871)
(153,556)
167,757
(222,389)
(22,381)
—
—
—
—
—
(22,381)
$
(244,770) $
(5,926) $
30,596
$
(38,871) $
(153,556) $
167,757
$
(244,770)
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-88
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
(Loss) Income for
the year ended
December 31, 2017
Comprehensive
(loss) income
Net (loss) income
$
(222,389) $
(5,926) $
30,596
$
(38,871) $
(285,838) $
167,757
$
(354,671)
Change in net
unrealized
gains on
investments
Comprehensive
(loss) income
Net loss
attributable to
redeemable
noncontrolling
interests
Comprehensive
loss
attributable to
redeemable
noncontrolling
interests
Comprehensive
(loss) income
(attributable)
available to
RenaissanceRe
—
—
—
—
(909)
—
(909)
(222,389)
(5,926)
30,596
(38,871)
(286,747)
167,757
(355,580)
—
—
—
—
—
—
—
132,282
—
132,282
—
132,282
—
132,282
$
(222,389) $
(5,926) $
30,596
$
(38,871) $
(154,465) $
167,757
$
(223,298)
(1)
(2)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
Includes Parent Guarantor and Subsidiary Issuer consolidating adjustments.
F-89
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
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
$
— $
— $
— $
— $
1,403,430
$
— $
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 and Subsidiary Issuer consolidating adjustments.
F-90
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, 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 and Subsidiary Issuer consolidating adjustments.
F-91
Condensed Consolidating Statement of Cash
Flows for the year ended December 31, 2018
Cash flows (used in) provided by operating
activities
Net cash (used in) provided by operating
activities
Cash flows used in investing activities
Proceeds from sales and maturities of fixed maturity
investments trading
Purchases of fixed maturity investments trading
Net (purchases) sales of equity investments trading
Net sales (purchases) of short term investments
Net purchases of other investments
Net purchases of investments in other ventures
Return of investment from investment in other
ventures
Net sales of other assets
Dividends and return of capital from subsidiaries
Contributions to subsidiaries
Due (from) to subsidiary
Net cash used in investing activities
Cash flows provided by financing activities
Dividends paid – RenaissanceRe common shares
Dividends paid – preference shares
RenaissanceRe common share issuance
Issuance of preference shares, net of expenses
Net third party redeemable noncontrolling interest
share transactions
Taxes paid on withholding shares
Net cash provided by 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
RenaissanceRe
Holdings Ltd.
(Parent
Guarantor)
RenRe North
America
Holdings Inc.
(Subsidiary
Issuer)
RenaissanceRe
Finance, Inc.
(Subsidiary
Issuer)
Other
RenaissanceRe
Holdings Ltd.
Subsidiaries
and
Eliminations
(Non-guarantor
Subsidiaries)
(1)
RenaissanceRe
Consolidated
$
(9,659) $
6,315
$
62,645
$
1,162,400
$
1,221,701
384,818
(520,935)
—
48,600
—
—
—
—
672,098
(785,785)
(200,916)
(402,120)
(52,841)
(30,088)
250,000
241,448
—
(7,862)
400,657
—
(11,122)
14,656
97,272
(72,292)
(1,308)
(404)
—
—
—
—
—
(16,847)
(9,525)
(3,104)
—
—
—
—
—
—
—
—
56,518
11,046,968
11,585,576
(55,932)
(11,840,813)
(12,489,972)
—
455
—
—
—
—
—
(65,000)
9,449
15,464
14,156
(1,485,040)
(1,436,389)
(199,475)
(21,473)
8,464
2,500
(672,098)
867,632
200,992
(199,475)
(21,473)
8,464
2,500
—
—
—
(54,510)
(2,076,879)
(2,536,613)
—
—
—
—
—
—
—
—
—
—
—
—
665,683
—
(52,841)
(30,088)
250,000
241,448
665,683
(7,862)
665,683
1,066,340
(5,098)
(5,098)
3,211
139
8,135
1,469
(253,894)
1,345,328
(253,670)
1,361,592
Cash and cash equivalents, end of period
$
3,534
$
3,350
$
9,604
$
1,091,434
$
1,107,922
(1)
Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
F-92
Condensed Consolidating Statement
of Cash Flows for the year ended
December 31, 2017
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
Net (purchases) sales of equity
investments trading
Net sales (purchases) of short term
investments
Net purchases of other investments
Return of investment from investment
in other ventures
Dividends and return of capital from
subsidiaries
Contributions to subsidiaries
Due to (from) subsidiaries
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
Issuance of debt, net of expenses
Repayment of debt
Net third party redeemable
noncontrolling interest share
transactions
Taxes paid on withholding shares
Net cash (used in) provided by
financing activities
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
$
(4,109) $
(8,253) $
(2,272) $
(347,890) $
1,388,311
$
1,025,787
261,601
100,248
289,741
288,900
8,550,179
9,490,669
(344,463)
(99,568)
(143,991)
(275,778)
(9,229,732)
(10,093,532)
—
(1,752)
85,324
243,571
—
—
478,496
(669,672)
319,646
114
—
—
9,175
—
13
41,299
—
—
—
(26,649)
(123)
—
(493)
—
—
41,866
(9,890)
(509)
32,265
115,837
79,520
(19,419)
364,011
(19,419)
20,000
20,000
(529,537)
706,211
(319,027)
—
—
—
289,179
8,230
245,601
44,096
(709,540)
(122,434)
(51,370)
(22,381)
(188,591)
—
—
—
(15,139)
(277,481)
—
7,589
7,067
—
—
—
—
—
—
—
—
—
(23)
162
—
—
—
—
(250,000)
—
—
—
—
—
295,866
—
—
—
—
—
—
—
—
260,475
—
(250,000)
295,866
260,475
—
—
8,222
(51,370)
(22,381)
(188,591)
295,866
(250,000)
260,475
(15,139)
28,860
8,222
(6,671)
(7,928)
947,468
940,435
6,671
9,397
397,860
421,157
$
14,656
$
139
$
— $
1,469
$
1,345,328
$
1,361,592
(1) Includes all other subsidiaries of RenaissanceRe Holdings Ltd. and eliminations.
F-93
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
Taxes paid on withholding shares
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
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
$
(3,509) $
1,477
$
(14,501) $
(34,607) $
535,912
$
484,772
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)
—
(14,943)
(398,341)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,990)
—
(51,583)
(22,381)
(309,434)
(2,990)
(14,943)
(2,990)
(401,331)
(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-94
NOTE 23. SUBSEQUENT EVENTS
Effective January 1, 2019, Upsilon RFO issued $456.8 million of non-voting preference shares to investors,
including $100.0 million to the Company. Of the total amount, $400.0 million was received by the Company
prior to December 31, 2018. At December 31, 2018, $300.0 million, representing the amount received from
investors other than the Company prior to December 31, 2018, is included in other liabilities on the
Company’s consolidated balance sheet, and also included in other operating cash flows on the Company’s
consolidated statements of cash flows for the year ended December 31, 2018. Effective January 1, 2019,
the Company’s participation in the risks assumed by Upsilon RFO was 16.9%.
F-95
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 Shareholders and the Board of Directors of RenaissanceRe Holdings Ltd.
Opinion on the Financial Statements
We have audited the consolidated financial statements of RenaissanceRe Holdings Ltd. and Subsidiaries
(the Company) as of December 31, 2018 and 2017, and for each of the three years in the period ended
December 31, 2018, and have issued our report thereon dated February 7, 2019 (included elsewhere in this
Annual Report on Form 10-K). Our audits of the consolidated financial statements included the financial
statement schedules listed in Item 15 of this Annual Report on Form 10-K (the “schedules”). These
schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s schedules, based on our audits.
In our opinion, the schedules present fairly, in all material respects, the information set forth therein when
considered in conjunction with the consolidated.
/s/ Ernst & Young Ltd.
Hamilton, Bermuda
February 7, 2019
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, 2018
Amortized
Cost or Cost
Fair Value
Amount at
which shown
in the
Balance Sheet
175,185
6,070
284,965
160,286
2,513,434
825,365
266,705
284,495
310,488
$ 8,163,962
$ 3,336,969 $ 3,331,411 $ 3,331,411
174,883
6,854
279,818
160,063
2,450,244
817,880
278,680
282,294
306,743
8,088,870
2,586,520
310,252
784,933
115,172
$11,885,747 $11,885,747
174,883
6,854
279,818
160,063
2,450,244
817,880
278,680
282,294
306,743
8,088,870
2,586,520
310,252
784,933
115,172
Type of investment:
Fixed maturity investments
U.S. treasuries
Agencies
Municipal
Non-U.S. government
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, 2018 AND 2017
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS)
Assets
Fixed maturity investments trading, at fair value - amortized cost $238,989 at
December 31, 2018 (2017 - $104,521)
Short term investments, at fair value
Cash and cash equivalents
Investments in subsidiaries
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
Other liabilities
Total liabilities
Shareholders’ Equity
Preference shares: $1.00 par value – 16,010,000 shares issued and
outstanding at December 31, 2018 (2017 – 16,000,000)
Common shares: $1.00 par value – 42,207,390 shares issued and
outstanding at December 31, 2018 (2017 – 40,023,789)
Additional paid-in capital
Accumulated other comprehensive (loss) income
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
At December 31,
2018
2017
$
240,443 $
103,638
72,917
3,534
121,628
14,656
4,414,475
4,105,760
57,039
1,046
203
458,842
120,476
4,602
405
135
433,468
124,960
$ 5,368,975 $ 4,909,252
$
300,000 $
417,000
6,453
17,442
82,579
18,298
323,895
517,877
650,000
400,000
42,207
296,099
(1,433)
40,024
37,355
224
4,058,207
3,913,772
5,045,080
4,391,375
$ 5,368,975 $ 4,909,252
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, 2018, 2017 AND 2016
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS)
Revenues
Net investment income
Net foreign exchange losses
Other loss
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 (loss) of subsidiaries
Equity in net income (loss) of subsidiaries
Net income (loss)
Dividends on preference shares
Net income (loss) available (attributable) to
RenaissanceRe common shareholders
Year ended December 31,
2018
2017
2016
$
24,791 $
23,109 $
24,178
(3)
—
633
25,421
5,683
7,679
25,190
38,552
(13,131)
240,495
227,364
(30,088)
(1)
—
(1,357)
21,751
1,572
11,314
18,546
31,432
(9,681)
(212,708)
(222,389)
(22,381)
(2)
(772)
4,151
27,555
562
13,716
26,848
41,126
(13,571)
516,533
502,962
(22,381)
$
197,276 $
(244,770) $
480,581
RENAISSANCERE HOLDINGS LTD.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS)
Comprehensive income (loss)
Net income (loss)
Comprehensive income (loss) available (attributable) to
RenaissanceRe
$
$
227,364 $
(222,389) $
502,962
227,364 $
(222,389) $
502,962
Year ended December 31,
2018
2017
2016
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, 2018, 2017 AND 2016
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS)
Year ended December 31,
2018
2017
2016
$
227,364
$
(222,389) $
502,962
(240,495)
(13,131)
212,708
(9,681)
(516,533)
(13,571)
(633)
4,105
(9,659)
1,357
4,215
(4,109)
(4,151)
14,213
(3,509)
384,818
261,601
(520,935)
(344,463)
314,568
(336,345)
(111,814)
617,239
243,571
478,496
(669,672)
(108,674)
319,646
289,179
23,758
398,732
(52,841)
(30,088)
(51,370)
(22,381)
(51,583)
(22,381)
—
(188,591)
(309,434)
48,600
672,098
(785,785)
(200,916)
(402,120)
250,000
241,448
(7,862)
400,657
(11,122)
14,656
—
—
—
—
(15,139)
(14,943)
(277,481)
(398,341)
7,589
7,067
(3,118)
10,185
7,067
$
3,534
$
14,656
$
Cash flows used in operating activities:
Net income (loss)
Less: equity in net (income) loss of subsidiaries
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Net realized and unrealized (gains) losses on investments
Other
Net cash used in operating activities
Cash flows (used in) provided by investing activities:
Proceeds from maturities and sales of fixed maturity investments
trading
Purchases of fixed maturity investments trading
Net sales (purchases) of short term investments
Dividends and return of capital from subsidiaries
Contributions to subsidiaries
Due to (from) subsidiary
Net cash (used in) provided by investing activities
Cash flows provided by (used in) financing activities:
Dividends paid – RenaissanceRe common shares
Dividends paid – preference shares
RenaissanceRe common share repurchases
RenaissanceRe common share issuance
Issuance of preference shares, net of expenses
Taxes paid on withholding shares
Net cash provided by (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
S-6
SCHEDULE III
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(THOUSANDS OF UNITED STATES DOLLARS)
December 31, 2018
Year ended December 31, 2018
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
$
66,656
$3,086,254
$ 379,943
$1,050,831
$
— $
497,895
$
177,912
$ 112,954
$1,055,188
Casualty and
Specialty
Other
Total
410,005
2,985,393
1,336,078
925,298
—
622,320
255,079
64,883
1,076,714
—
4,624
—
—
261,866
(197)
(2)
430
—
$
476,661
$6,076,271
$1,716,021
$1,976,129
$
261,866
$ 1,120,018
$
432,989
$ 178,267
$2,131,902
December 31, 2017
Year ended December 31, 2017
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
$
63,583
$2,486,390
$ 347,032
$ 931,070
$
— $ 1,297,985
$
113,816
$
94,194
$ 978,014
Casualty and
Specialty
Other
Total
362,968
2,575,492
1,130,577
786,501
—
565,026
233,077
66,548
893,307
—
18,526
—
4
222,209
(1,583)
(1)
36
4
$
426,551
$5,080,408
$1,477,609
$1,717,575
$
222,209
$ 1,861,428
$
346,892
$ 160,778
$1,871,325
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
S-7
SCHEDULE IV
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF REINSURANCE PREMIUMS
(THOUSANDS OF UNITED STATES DOLLARS)
Year ended December 31, 2018
Property and liability premiums
earned
Year ended December 31, 2017
Property and liability premiums
earned
Year ended December 31, 2016
Property and liability premiums
earned
Gross
Amounts
Ceded to
Other
Companies
Assumed
From Other
Companies
Net Amount
Percentage
of Amount
Assumed
to Net
$ 292,219 $1,095,886 $ 2,779,796 $1,976,129
141%
$ 244,285 $ 833,929 $ 2,307,219 $1,717,575
134%
$ 157,112 $ 628,675 $ 1,874,993 $1,403,430
134%
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, 2018
$ 476,661
$ 6,076,271
Year ended December 31, 2017
$ 426,551
$ 5,080,408
Year ended December 31, 2016
$ 335,325
$ 2,848,294
$
$
$
— $1,716,021
$1,976,129
$ 261,866
— $1,477,609
$1,717,575
$ 222,209
— $1,231,573
$1,403,430
$ 181,726
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, 2018
$1,390,767
$ (270,749) $
432,989
$ 894,769
$2,131,902
Year ended December 31, 2017
$1,902,424
$
(40,996) $
346,892
$ 974,825
$1,871,325
Year ended December 31, 2016
$ 694,957
$ (164,126) $
289,323
$ 589,294
$1,535,312
S-8
Office Locations
Leadership Team
RenaissanceRe Holdings Ltd. and Subsidiaries
RenaissanceRe Holdings Ltd. and Subsidiaries
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.
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
Chief Executive
– Singapore Branch
Renaissance Reinsurance Ltd.
DaVinci Reinsurance Ltd.
Senior Vice President
RenaissanceRe Holdings Ltd.
Stephen H. Weinstein
Senior Vice President,
Chief Compliance Officer,
Group General Counsel
and Corporate Secretary
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
Zurich
Dufourstrasse 101
CH-8008 Zurich, Switzerland
Tel: +41 (0)44 385 8051
USA
New York
140 Broadway, Suite 4200
New York, New York 10005
Tel: +1 212 238 9600
Chicago
200 North Martingale Road
Suite 510
Schaumburg, Il 60173, USA
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
Leadership Team
Board of Directors
Financial and Investor Information
RenaissanceRe Holdings Ltd. and Subsidiaries
RenaissanceRe Holdings Ltd.
RenaissanceRe Holdings Ltd. and Subsidiaries
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 CNC
437 Madison Avenue, 37th 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 common shares are listed on The New York Stock
Exchange under the symbol ‘RNR’.
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, 2018 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 2018 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: +1 866 245 5019
Shareholder website
www.computershare.com/investor
Shareholder online inquiries
https://www-us.computershare.com/investor/Contact
Shareholder correspondence should be mailed to:
Computershare
PO Box 505000
Louisville, KY 40233-5000
Tel: +1 866 245 5019
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.
Jean D. Hamilton
Private Investor
Independent Consultant
Duncan P. Hennes
Partner and Co-Founder
Atrevida Partners, LLC
Henry Klehm III
Partner
Jones Day
Valerie Rahmani
Former Chief Executive Officer
Damballa, Inc.
Carol P. Sanders
Former Chief Financial Officer
Sentry Insurance a Mutual Company
Anthony M. Santomero
Former President
Federal Reserve Bank of Philadelphia
Cynthia Trudell*
Former Chief Human Resources Officer
PepsiCo, Inc.
Edward J. Zore*
Retired Chairman and Chief Executive Officer
The Northwestern Mutual Life Insurance Company
* Mr. Zore will retire from the Board in conjunction with the
Company’s Annual General Meeting of Shareholders in
May 2019 and Ms. Trudell has been nominated to fill the
vacancy that will be created by his retirement.
All stocks used in this report are FSC certified.
Printed at a zero-discharge facility using soy-based inks.
Please recycle this publication.
RenaissanceRe Holdings Ltd.
Renaissance House
12 Crow Lane
Pembroke HM 19
Bermuda
Tel: +1 441 295 4513
renre.com