The following is a discussion and analysis of our results of operations for the three and nine months endedSeptember 30, 2020 and 2019, respectively, as well as our liquidity and capital resources atSeptember 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. Subsequently, onAugust 18, 2020 , we sold RenaissanceReUK to an investment vehicle managed byAXA Liabilities Managers , an affiliate of AXA XL. The following discussion and analysis of our results of operations for the three and nine months endedSeptember 30, 2020 compared to the three and nine months endedSeptember 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. 66 --------------------------------------------------------------------------------
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Page OVERVIEW 67 SUMMARY OF CRITICAL ACCOUNTING ESTIMATES 69 SUMMARY RESULTS OF OPERATIONS 70 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES 93 Financial Condition 93 Liquidity and Cash Flows 94 Capital Resources 98 Reserve for Claims and Claim Expenses 100 Investments 101 Ratings 103 EFFECTS OF INFLATION 103 OFF-BALANCE SHEET AND SPECIAL PURPOSE ENTITY ARRANGEMENTS 104 CONTRACTUAL OBLIGATIONS 104 CURRENT OUTLOOK 104
OVERVIEW
67 -------------------------------------------------------------------------------- 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 inBermuda , Renaissance ReinsuranceU.S. in theU.S. , Syndicate 1458 in theU.K. and RenaissanceRe Europe inSwitzerland , which has branches inAustralia ,Bermuda , theU.K. and theU.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, which primarily impact our Property segment, in both the property catastrophe and other property lines of business. 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 ofDaVinciRe 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 inBermuda , 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. 68 -------------------------------------------------------------------------------- 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. 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 formerBermuda -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 endedDecember 31, 2019 . There have been no material changes to our critical accounting estimates as disclosed in our Form 10-K for the year endedDecember 31, 2019 . 69
--------------------------------------------------------------------------------
© Edgar Online, source