RenaissanceRe Holdings Ltd. — Q2 2020 Form 10-Q
Business context and reporting period. Bermuda-based global property, casualty and specialty reinsurer and insurer. This unaudited filing covers the three and six months ended June 30, 2020; dollar amounts below are USD millions unless stated otherwise. Comparisons with 2019 are affected by the March 2019 acquisition of Tokio Millennium Re (TMR), which was included in results from its acquisition date. Interim results may not indicate full-year performance.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Gross premiums written | $1,701.9 | $1,476.9 | $3,727.6 | $3,041.2 |
| Net premiums earned | $1,010.1 | $911.5 | $1,923.2 | $1,461.5 |
| Underwriting income | $217.1 | $170.8 | $281.2 | $324.9 |
| Combined ratio | 78.5% | 81.3% | 85.4% | 77.8% |
| Net investment income | $89.3 | $118.6 | $188.8 | $200.7 |
| Net realized and unrealized investment gains | $448.4 | $191.2 | $337.7 | $361.3 |
| Net income attributable to RenaissanceRe common shareholders | $575.8 | $367.9 | $493.9 | $641.6 |
| Diluted earnings per common share | $12.63 | $8.35 | $11.02 | $14.81 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $857.0 | $784.0 |
Financial position and liquidity
- At June 30, total investments were $19,723.6 million, cash and cash equivalents $1,185.8 million, total assets $30,479.8 million, and total liabilities $19,745.5 million.
- Debt was $1,135.2 million, down from $1,384.1 million at year-end 2019, following repayment at maturity of $250 million of 5.75% notes. The revolving credit facility had no amounts drawn. Letters of credit issued or drawn under listed facilities totaled $987.1 million.
- First-half cash decreased $193.2 million to $1,185.8 million. Investing activities used $1,727.6 million; financing activities provided $677.6 million.
- The June common-share offering and concurrent State Farm private placement generated $1.1 billion net proceeds. Shareholders’ equity attributable to RenaissanceRe was $7,347.2 million, up from $5,971.4 million at year-end 2019.
Material changes and management commentary
- Q2 improvement, weaker first half: Q2 common-share earnings rose to $575.8 million from $367.9 million, aided by higher underwriting income and $448.4 million of investment gains. For the first half, common-share earnings fell to $493.9 million from $641.6 million, while underwriting income declined and combined ratio worsened.
- Premium growth: Q2 gross premiums written increased 15.2%; first-half premiums rose 22.6%. Management cited existing relationships, new opportunities, rate improvements and TMR business. TMR makes the year-over-year comparison less like-for-like.
- Segment underwriting: Q2 Property produced $200.6 million underwriting income and a 59.1% combined ratio; Casualty and Specialty produced $16.5 million and a 96.8% ratio. For the first half, Property earned $347.8 million, while Casualty and Specialty recorded a $66.7 million underwriting loss and a 106.6% combined ratio.
- COVID-19: The company recorded $103.8 million of Casualty and Specialty claims in Q1, principally estimated incurred-but-not-reported event contingency and event-based casualty exposures. Additional Q2 pandemic claims were not significant, but ultimate exposure remains uncertain and further industry losses are expected to emerge. Potential coverage disputes, legislative or regulatory action, recession and counterparty stress are risks.
- Investments: Q2 investment gains reflected market recovery and gains in fixed maturity and equity portfolios. Management cautioned that first-half performance included mark-to-market gains and that future losses, particularly in equities and lower-rated corporate credit, are possible. Lower interest rates are also reducing investment income and reinvestment yields.
- Outlook: Management sees a hardening reinsurance market and opportunities to deploy capital, with equity-offering proceeds expected to support 2021 renewals and general corporate purposes. It gave no specific earnings, premium-growth or combined-ratio guidance. Management also noted possible reduced retrocessional capacity, inflation and social-inflation pressures, climate exposures, and uncertain demand amid economic weakness.
- Other notable items: Share repurchases were suspended in March to preserve capital; none were made in Q2. The sale of run-off subsidiary RenaissanceRe UK received regulatory approval July 17 and was expected to close in Q3 2020. Hurricane Hanna made landfall July 25; the company did not expect significant or material losses but noted meaningful uncertainty.
Most important facts for investors to verify
- How COVID-19 claims develop beyond the $103.8 million recognized in Q1, including coverage litigation and potential new exposures.
- Whether casualty and specialty underwriting returns to profitability after its first-half 106.6% combined ratio, and whether Property loss trends and reserve development remain controlled.
- How much Q2 earnings and book-value growth depended on investment marks, and how the portfolio performs under lower yields, credit deterioration or renewed market volatility.
- Whether the anticipated hard-market opportunities translate into adequately priced business, and how much capital is deployed at 2021 renewals versus retained for liquidity.
- Final purchase price and closing of the RenaissanceRe UK sale, and any consequential effects on earnings, capital or reserves.