RENAISSANCERE HOLDINGS LTD. The following is a discussion and analysis of our results of operations for the three and six months endedJune 30, 2020 and 2019, respectively, as well as our liquidity and capital resources atJune 30, 2020 . This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this filing and the audited consolidated financial statements and notes thereto contained in our Form 10-K for the fiscal year endedDecember 31, 2019 . OnMarch 22, 2019 , we acquiredRenaissanceRe Europe AG (formerly known asTokio Millennium Re AG ) ("RenaissanceRe Europe"),RenaissanceRe (UK) Limited (formerly known asTokio Millennium Re (UK ) Limited) ("RenaissanceReUK "), and their respective subsidiaries (collectively, "TMR"), and our results of operations and financial condition include TMR from the acquisition date. The three months endedJune 30, 2019 , was the first full period that reflected the results of TMR on the Company's results of operations. The following discussion and analysis of our results of operations for the three and six months endedJune 30, 2020 compared to the three and six months endedJune 30, 2019 should be read in that context. Refer to "Note 3. Acquisition of Tokio Millennium Re" in our "Notes to the Consolidated Financial Statements" included in our Form 10-K for the year endedDecember 31, 2019 for additional information with respect to the acquisition of TMR. 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." In this Form 10-Q, references to "RenaissanceRe" refer toRenaissanceRe Holdings Ltd. (the parent company) and references to "we," "us," "our" and the "Company" refer toRenaissanceRe Holdings Ltd. together with its subsidiaries, unless the context requires otherwise. All dollar amounts referred to in this Form 10-Q are inU.S. dollars unless otherwise indicated. Due to rounding, numbers presented in the tables included in this Form 10-Q may not add up precisely to the totals provided. 65 --------------------------------------------------------------------------------
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Page
OVERVIEW 66
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES 68
SUMMARY RESULTS OF OPERATIONS 69
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES 86
Financial Condition 86
Liquidity and Cash Flows 87
Capital Resources 91
Reserve for Claims and Claim Expenses 93
Investments 93
Ratings 95
EFFECTS OF INFLATION 96
OFF-BALANCE SHEET AND SPECIAL PURPOSE ENTITY ARRANGEMENTS 96
CONTRACTUAL OBLIGATIONS 96
CURRENT OUTLOOK 96
OVERVIEW
66
--------------------------------------------------------------------------------
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. We also 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
strategic investments directed at classes of risk other than catastrophe
reinsurance. 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.
To best serve our clients in the places they do business, we have operating
subsidiaries, branches, joint ventures and underwriting platforms around the
world, including DaVinci, Fibonacci Re, Renaissance Reinsurance, Top Layer Re,
Upsilon RFO and Vermeer in Bermuda , Renaissance Reinsurance U.S. in the U.S. ,
Syndicate 1458 in the U.K. and RenaissanceRe Europe in Switzerland , which has
branches in Australia , Bermuda , the U.K. and the U.S. 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. 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 several jurisdictions and may create additional risk
bearing vehicles or enter into additional jurisdictions in the future. In
addition, our differentiated strategy and capabilities 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 Holdings Ltd. ("DaVinciRe"), Medici and
Vermeer; 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. 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
67
--------------------------------------------------------------------------------
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.
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.
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.
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 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.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
Our critical accounting estimates include "Claims and Claim Expense Reserves,"
"Premiums and Related Expenses," "Reinsurance Recoverables," "Fair Value
Measurements and Impairments" and "Income Taxes," and are discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in our Form 10-K for the year ended December 31, 2019 . There have
been no material changes to our critical accounting estimates as disclosed in
our Form 10-K for the year ended December 31, 2019 .
68--------------------------------------------------------------------------------
© Edgar Online, source
