Business context and reporting period
RenaissanceRe Holdings Ltd. is a Bermuda-based provider of property, casualty and specialty reinsurance and insurance. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2019, compared with the corresponding 2018 periods. Results include Tokio Millennium Re (TMR) only from its March 22, 2019 acquisition date, limiting comparability with 2018.
Financial performance and position
Amounts below are in millions of U.S. dollars, except per-share data and ratios.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenues | $1,051.1 | $629.8 | $3,096.6 | $1,526.9 |
| Net premiums written | $704.1 | $453.3 | $2,656.1 | $1,720.8 |
| Net premiums earned | $906.7 | $531.8 | $2,368.3 | $1,401.5 |
| Net investment income | $113.8 | $80.7 | $311.1 | $208.5 |
| Net realized and unrealized investment gains (losses) | $31.9 | $13.6 | $396.6 | $(86.4) |
| Net income | $107.9 | $48.8 | $909.9 | $392.9 |
| Net income available to common shareholders | $36.7 | $32.7 | $678.3 | $281.2 |
| Diluted earnings per common share | $0.83 | $0.82 | $15.57 | $7.02 |
| Combined ratio | 100.4% | 105.5% | 86.4% | 76.7% |
Q3 underwriting loss was $3.4 million, versus a $29.0 million loss a year earlier. The nine-month underwriting result was income of $321.6 million, slightly below $327.2 million in 2018. A combined ratio below 100% indicates underwriting profit before investment income.
At September 30, 2019, total assets were $25.64 billion, including $16.95 billion of investments and $871.3 million of cash. Claims reserves were $8.60 billion; debt was $1.38 billion; shareholders’ equity attributable to RenaissanceRe was $5.95 billion. Cash was down from $1.11 billion at year-end 2018, while debt rose from $991.1 million. The company reported operating cash flow of $1.26 billion, investing cash outflow of $2.34 billion and financing cash inflow of $833.0 million for the nine months.
Common shareholders’ book value per share was $120.07 at quarter-end. Including accumulated dividends, it was $140.41, up 16.3% from year-end 2018. The quarterly common dividend was $0.34 per share.
Material changes versus prior periods
- Gross premiums written rose 37.6% in Q3 and 41.2% year to date. Growth reflected TMR, existing relationships and new business; the acquisition makes direct year-over-year comparisons less comparable.
- Investment results were a major driver of year-to-date earnings: investment gains of $396.6 million in 2019 compared with losses of $86.4 million in 2018. Management attributed much of the swing to falling interest rates and higher gains on fixed maturities and investment-related derivatives.
- Q3 catastrophe losses reduced common-shareholder income by an estimated $154.9 million, broadly similar to the $151.9 million Q3 2018 impact. The events added 20.6 percentage points to the 2019 quarterly combined ratio, versus 34.4 points in 2018.
- Prior-year reserve development was $14.5 million favorable for the first nine months, versus $197.0 million favorable in 2018. 2019 included $5.0 million adverse development in Property, offset by $19.7 million favorable development in Casualty and Specialty.
- Income attributable to redeemable noncontrolling interests rose to $204.1 million year to date from $90.8 million, reducing the portion of consolidated net income attributable to RenaissanceRe shareholders.
Outlook, commentary and risks
The filing provides no formal earnings or revenue guidance. Management described generally stable 2019 renewal conditions, with improved terms on loss-affected business and some property-exposed and retrocessional coverages. It intends to allocate relatively more capital to assumed retrocessional business, U.S. excess and surplus lines and other property business, while maintaining underwriting discipline. Management cautioned that recent rate increases may not offset exposure growth, social inflation and climate- and demographic-related risks, and that favorable market trends may not persist.
As a subsequent event, the company estimated Typhoon Hagibis would reduce common-shareholder income by approximately $175 million in Q4 2019. This preliminary estimate is subject to significant uncertainty. The filing also noted potential Q4 losses from California wildfires and North Texas tornadoes, for which an accurate estimate was not yet available.
The March 2019 TMR acquisition had net purchase price of approximately $1.06 billion after a $500 million special dividend to Tokio; the reported aggregate consideration was approximately $1.56 billion. The company recorded $44 million of related corporate expenses during the first nine months, including transaction and integration costs. It issued $400 million of 3.6% senior notes due 2029; proceeds partly repaid a $200 million revolving-credit draw used to fund the acquisition.
Key risks include catastrophe frequency and severity, uncertainty in claims reserves and reinsurance recoveries, investment-market and interest-rate movements, foreign exchange, counterparty credit, social inflation, climate exposure, competition, regulation and taxation. The company reported no material change in its previously disclosed risk factors or legal proceedings. It stated that statutory capital at relevant regulated entities exceeded applicable minimums. At quarter-end, $7.1 billion of cash and investments were pledged or held in trust, and unfunded investment commitments totaled $418.2 million.
Important facts for investors to verify
- How much of premium, revenue and earnings growth is attributable to TMR, and how acquisition integration affects ongoing expenses and underwriting results.
- The development of Q3 catastrophe estimates, especially the preliminary Hagibis estimate and the still-unquantified wildfire exposure.
- Whether reserve assumptions remain adequate, given the much smaller favorable prior-year development than in 2018 and the company’s large IBNR balance.
- The sustainability of investment gains and net investment income, particularly if interest rates, equity markets or alternative-investment valuations reverse.
- Liquidity and capital availability after pledged assets, regulatory restrictions on subsidiary dividends, debt obligations and unfunded investment commitments.
- The extent to which rate improvements, retrocession capacity and management’s planned capital allocation translate into risk-adjusted underwriting returns.