RenaissanceRe Holdings Ltd. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are with December 31, 2017. Amounts are U.S. dollars. RenaissanceRe provides property, casualty and specialty reinsurance and insurance, including business written through managed ventures.
Financial results and key metrics
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Gross premiums written | $1,159.7 million | $922.1 million |
| Net premiums earned | $440.3 million | $366.0 million |
| Total revenues | $418.0 million | $472.1 million |
| Net income | $92.2 million | $132.3 million |
| Net income attributable to RenaissanceRe common shareholders | $56.7 million; diluted EPS $1.42 | $92.4 million; diluted EPS $2.25 |
| Underwriting income | $129.6 million | $42.4 million |
| Combined ratio | 70.6% | 88.4% |
| Net investment income | $56.5 million | $54.3 million |
| Net realized and unrealized investment result | Loss of $82.1 million | Gain of $43.4 million |
| Operating cash flow | Use of $37.3 million | Source of $201.0 million |
Property generated $127.2 million of underwriting income and a 43.5% combined ratio. Casualty and Specialty generated $2.6 million of underwriting income and a 98.8% combined ratio, improving from a $49.3 million underwriting loss and 127.5% ratio a year earlier.
At March 31, total assets were $15.92 billion, total investments $10.22 billion, cash and cash equivalents $648.0 million, and shareholders’ equity attributable to RenaissanceRe $4.44 billion. Debt was $990.0 million, broadly unchanged from year-end. Cash declined $713.6 million during the quarter. Investing activities used $704.7 million, primarily reflecting net purchases of short-term and other investments; operating activities used $37.3 million. Management attributed operating cash-flow movements in part to premium and reinsurance renewal timing, claims payments, and the accounting reclassification of advance subscriptions for Upsilon RFO shares.
Book value per common share was $100.29, up from $99.72 at year-end; book value plus accumulated dividends increased 0.9% to $118.62. The annualized return on average common equity was 5.7%, versus 8.3% a year earlier. The quarterly common dividend was $0.33 per share, compared with $0.32.
Material changes versus Q1 2017
- Gross premiums written increased 25.8%, led by Property growth of 35.8%; Casualty and Specialty premiums rose 12.7%.
- Underwriting income improved by $87.2 million and the combined ratio improved by 17.8 percentage points. Favorable prior-year reserve development was $31.3 million, versus $29.0 million of adverse development in Q1 2017.
- Common-shareholder earnings fell by $35.6 million despite stronger underwriting, mainly because the investment result swung from a $97.7 million gain (net investment income plus realized and unrealized gains/losses) to a $25.7 million loss. Management cited rising interest rates and the absence of the prior-year equity investment gains.
- Property’s prior-year reserve release included $27.1 million of reductions to estimated losses from the 2017 catastrophe events. Casualty and Specialty had $3.8 million of favorable development, versus $30.3 million adverse development a year earlier, which had included the U.K. Ogden Rate change.
Outlook, risks and other notable matters
- Market outlook: Management said January 2018 property renewals improved after the 2017 catastrophe losses, but rate increases were less broad and lower than early-season market expectations. It noted abundant traditional and alternative capital and uncertainty about how long favorable conditions will persist. Casualty and Specialty markets showed generally favorable rate trends, but capacity remained ample. No numerical earnings or premium guidance was provided.
- Florida exposure: Management anticipated ample capital and relatively flat demand for Florida renewals, and did not expect to assemble a portfolio as large or attractive as in prior major Southeast windstorm seasons. It cited assignment-of-benefits practices as a concern that could raise claim costs and affect market demand.
- Investment and underwriting risks: Results are exposed to catastrophe frequency and severity, reserve-estimate uncertainty, interest-rate and market movements, inflation, foreign exchange, and counterparty and retrocession recoverability. Management noted that rising rates can depress current portfolio fair values even as reinvestment yields may improve over time.
- Capital and liquidity: Management stated that the group and principal operating subsidiaries remained adequately capitalized and that statutory capital exceeded applicable minimums. Approximately $4.7 billion of cash and investments were on deposit or held in trust for counterparties and regulatory purposes. A $500 million share-repurchase authorization remained available, but no open-market repurchases were made during the quarter.
- Ratings: S&P lowered the financial-strength ratings of several principal operating subsidiaries to A+ with stable outlook from AA- with negative outlook in February 2018. A.M. Best upgraded Renaissance Reinsurance U.S. and RenaissanceRe Specialty U.S. to A+ and revised certain outlooks to stable in March.
- Other items: The company terminated its National Australia Bank letter-of-credit facility, stating existing capacity was sufficient. The filing reports no material changes to previously disclosed legal proceedings, risk factors, or contractual obligations, and no material adverse effect from adopting the accounting standards discussed.
Important facts for investors to verify
- How much of the underwriting improvement depends on favorable reserve development, particularly releases tied to 2017 catastrophe losses.
- Whether premium growth and renewal pricing remain profitable as competition and available reinsurance capital affect rates and terms.
- The drivers and potential persistence of investment volatility from interest-rate changes, equity holdings, and other fair-value investments.
- Cash-flow and liquidity implications of claims payments, renewal-related working-capital movements, and collateral or trust requirements.
- Developments in Florida assignment-of-benefits claims, U.S. tax rules, and financial-strength ratings, and their effects on underwriting, capital, and market access.