Business context and reporting period
RenaissanceRe Holdings Ltd. filed this Form 10-K for the fiscal year ended December 31, 2020. The Bermuda-based company provides property, casualty and specialty reinsurance and insurance, principally through intermediaries, and manages joint ventures and third-party capital. Its reportable segments are Property and Casualty and Specialty. The 2019 comparison includes Tokio Millennium Re (TMR) from its March 22, 2019 acquisition date; RenaissanceRe sold its U.K. run-off subsidiary in August 2020.
Financial performance and condition
Amounts below are U.S. dollars; “bn” means billion and “m” means million.
| Metric | 2020 | 2019 |
|---|---|---|
| Gross premiums written | $5.806bn | $4.808bn |
| Net premiums earned | $3.952bn | $3.338bn |
| Total investment result | $1.175bn | $838.3m |
| Net income | $993.1m | $950.3m |
| Net income available to common shareholders | $731.5m | $712.0m |
| Diluted earnings per common share | $15.31 | $16.29 |
| Combined ratio | 101.9% | 92.3% |
| Net cash provided by operating activities | $1.993bn | $2.137bn |
| Cash and cash equivalents at year-end | $1.737bn | $1.379bn |
| Total investments at year-end | $20.558bn | $17.369bn |
| Debt at year-end | $1.136bn | $1.384bn |
| Shareholders’ equity attributable to RenaissanceRe | $7.560bn | $5.971bn |
- Underwriting produced a $76.5m loss, versus $256.4m of income in 2019. Property earned $11.2m; Casualty and Specialty recorded an $87.5m loss. A combined ratio above 100% indicates an underwriting loss before investment income.
- Net investment income fell to $354.0m from $424.2m, while realized and unrealized investment gains rose to $820.6m from $414.1m. The 2020 investment gains included $226.6m of unrealized gains on the Trupanion investment.
- Year-end claims reserves were $10.381bn, including $7.602bn of IBNR and additional case reserves. Prior-year reserve development was favorable by $183.8m in 2020.
- Book value per common share was $138.46; book value plus accumulated dividends was $160.54, up 16.0% over the year. Return on average common equity was 11.7%, down from 14.1%.
- The fixed-income and short-term investment portfolio had a weighted-average effective yield of 0.9%, down from 2.1%. The company reported a $1.0bn remaining commitment to private equity and other investments.
Material changes versus the prior comparable period
- Gross premiums written increased 20.8%, with Property up 23.4% and Casualty and Specialty up 18.1%. Growth reflected new and expanded business, rate improvements and the TMR acquisition.
- The 2020 weather-related large loss events reduced common-shareholder net income by an estimated $493.6m; COVID-19 losses reduced it by a further $286.6m. Together, these events contributed to the deterioration in underwriting results.
- Despite higher net income, diluted earnings per share declined, reflecting the larger weighted-average share count following the June 2020 equity offering.
- The company raised $1.1bn net through a public share offering and a concurrent $75m private placement to State Farm. It repaid $250m of notes at maturity, redeemed $125m of Series C preference shares and suspended share repurchases after March to preserve capital. It resumed repurchases in early 2021.
- RenaissanceRe sold RenaissanceRe UK, recording a $30.2m pre-tax loss. It also recorded a $6.8m impairment of acquired TMR insurance licenses.
Outlook, management commentary and risks
- Management said January 1, 2021 renewals brought growth across both segments and platforms, with rate increases and attractive opportunities. The company reported fully deploying the $1.1bn raised in 2020 and additional capital raised through joint ventures and managed funds.
- Management expects reinsurance markets to continue hardening in 2021 and intends to pursue additional underwriting opportunities. This is a qualitative outlook; the filing provides no specific earnings or premium guidance.
- COVID-19 claims remain uncertain, particularly business interruption and other exposures whose coverage may be affected by legal, regulatory or judicial developments. Management expects significant industry losses to emerge over time.
- Catastrophe frequency and severity, climate change, social inflation, long-tail casualty reserve uncertainty, retrocession availability and recoverability, and broker concentration are key risks. Three brokers generated 79.6% of 2020 gross premiums written.
- Low interest rates may constrain investment income; market volatility and credit deterioration could affect asset values and counterparties. The holding company depends on subsidiary distributions, which are subject to regulatory and solvency restrictions.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified valuation of IBNR reserves as a critical audit matter.
Important facts for investors to verify
- Track the development and ultimate cost of 2020 catastrophe and COVID-19 losses, including business-interruption claims and recoveries from retrocessionaires.
- Assess reserve adequacy, especially the $7.602bn of IBNR and additional case reserves, the sensitivity disclosures, and whether favorable prior-year development persists.
- Separate recurring underwriting and investment income from volatile realized and unrealized gains, including gains tied to concentrated strategic equity positions.
- Review renewal pricing, risk selection and combined ratios by segment to determine whether premium growth translates into profitable underwriting.
- Monitor broker concentration, reinsurance recoverable quality, regulatory capital and dividend capacity, and the liquidity available at the parent company.
- Consider the effects of the share issuance and subsequent repurchases on per-share results, book value, and capital allocation.