RenaissanceRe Holdings Ltd. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The filing was signed November 2, 2023. RenaissanceRe provides global property, casualty and specialty reinsurance and insurance, with Property and Casualty and Specialty reportable segments.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net premiums earned | $1.756B | $1.767B | $5.222B | $4.710B |
| Total revenues | $1.836B | $1.287B | $5.894B | $3.030B |
| Net income (loss) | $416.5M | ($1.189B) | $1.632B | ($1.853B) |
| Net income (loss) attributable to RenaissanceRe common shareholders | $194.0M | ($825.3M) | $949.1M | ($1.545B) |
| Diluted earnings (loss) per common share | $3.80 | ($19.27) | $20.13 | ($35.84) |
| Net investment income | $329.1M | $157.8M | $876.1M | $348.7M |
| Net realized and unrealized investment gains (losses) | ($228.1M) | ($641.5M) | ($171.4M) | ($1.969B) |
| Underwriting income (loss) | $385.8M | ($683.1M) | $1.106B | ($166.5M) |
| Combined ratio | 78.0% | 138.7% | 78.8% | 103.6% |
| Operating cash flow | Not separately presented for the quarter | $1.399B | $870.5M |
Financial position and liquidity
- At September 30, total assets were $40.84B, total liabilities $27.59B, redeemable noncontrolling interests $5.66B, and RenaissanceRe-attributable shareholders’ equity $7.59B.
- Cash and cash equivalents were $1.196B; total investments were $25.97B. Debt was $1.883B, up from $1.170B at year-end 2022, primarily reflecting the issuance of $750M of 5.75% senior notes due 2033.
- For the first nine months, investing activities used $3.509B and financing activities provided $2.104B; cash increased $1.5M overall. Financing included $1.352B net proceeds from a common-share offering and $740.6M net proceeds from the notes offering.
- Management said it expects operating cash receipts to meet liquidity needs over the next 12 months and reported compliance with debt covenants. It also noted liquidity and cash flows can fluctuate materially with catastrophe claims and market conditions.
- Book value per common share was $133.63 at September 30, versus $104.65 at December 31, 2022. Including accumulated dividends, the measure was $159.77, up 28.8% over that period.
Changes and drivers versus the comparable period
- Underwriting improved sharply as catastrophe losses were lower than in Q3 2022, when Hurricane Ian and other weather losses heavily affected results. Q3 2023 large-loss events reduced underwriting income by an estimated $97.7M and added 5.7 points to the consolidated combined ratio; the corresponding Q3 2022 losses reduced underwriting results by $977.4M.
- Property led underwriting performance: Q3 Property underwriting income was $356.0M, with a 53.2% combined ratio, versus a $722.6M loss and 186.0% ratio a year earlier. Casualty and Specialty produced $29.8M of underwriting income and a 97.0% ratio, compared with $39.5M and 95.7%.
- Investment income rose on higher average invested assets and yields. Investment losses remained negative, but were substantially less than in 2022, when rising rates drove significant mark-to-market losses.
- Premiums were mixed: Q3 gross premiums written declined 27.1% to $1.618B; net premiums written declined 22.0% to $1.421B. Management attributed the declines largely to lower reinstatement premiums, non-recurring prior-year credit deals and active portfolio management. For the nine months, net premiums written increased slightly to $5.881B while gross premiums written fell 7.4%.
- Favorable prior-year reserve development was $294.8M for the nine months, compared with $92.7M in the prior-year period; management cited better-than-expected loss emergence. Reserve estimates remain judgmental and may differ materially from ultimate payments.
Outlook, significant events and risks
- Validus acquisition: Closed November 1, 2023, after the reporting date. Consideration was $2.985B: $2.735B cash and 1,322,541 RenaissanceRe common shares valued at approximately $250M. The company funded the cash component with available cash, investment liquidations and proceeds raised earlier through equity and debt offerings. Purchase accounting estimates were incomplete at filing; the company said required business-combination disclosures were impracticable at that time.
- Management views Validus as strategically additive and expects it to be immediately accretive, but expressly described these statements as goals, not projections. Integration, retention of personnel and customers, systems and process combination, and the completeness of due diligence are identified risks. The acquired reserves are subject to an arrangement under which AIG retains 95% of risk and reward from development of in-force reserves.
- Management described the reinsurance market as favorable, citing rate increases in certain lines, limited new industry capital, and expected demand at January 1 renewals. It reported no numerical earnings or premium guidance. Management also said it expects to remain disciplined in underwriting and sees growth opportunities across the portfolio.
- Hurricane Otis affected Mexico in October 2023. The company said it was still assessing the impact and could not yet provide a reliable estimate; losses are to be reported in 2023 annual results.
- Other risks include catastrophe frequency and severity, climate change, inflation and reserve uncertainty; investment and interest-rate volatility; reinsurer/counterparty credit and recoverability; and acquisition integration. Bermuda announced an intention to introduce a 15% corporate income tax from January 1, 2025; implementation, including interaction with OECD Pillar Two, could increase future taxes.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. It stated that no individual pending litigation or arbitration was likely to have a material adverse effect.
Important facts for investors to verify
- How Validus integration, purchase accounting, acquired investment assets and reserves affect earnings, capital, leverage and dilution in subsequent filings.
- The ultimate insured-loss estimate for Hurricane Otis and development of 2023 catastrophe claims.
- Whether favorable prior-year reserve development persists, and how actual claims emergence compares with the $15.96B reported claims reserve.
- Whether higher investment yields offset continued mark-to-market sensitivity to rates, and how portfolio changes affect investment income and liquidity.
- Premium growth, pricing and combined-ratio trends by segment, particularly following the reported decline in gross premiums written.
- Capital deployment and liquidity after the acquisition, including remaining unfunded investment commitments of $1.5B and the effect of any future tax changes.