Business context and reporting period
RenaissanceRe Holdings Ltd. is a Bermuda-based global reinsurer and insurer, writing property, casualty and specialty business. This Form 10-K covers the fiscal year ended December 31, 2018; the filing also reports quarterly results, including the three months ended December 31, 2018. Amounts below are U.S. dollars.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Gross premiums written | $3.310 billion | $2.798 billion |
| Net premiums earned | $1.976 billion | $1.718 billion |
| Underwriting income (loss) | $244.9 million | ($651.5 million) |
| Combined ratio | 87.6% | 137.9% |
| Net income (loss) attributable to common shareholders | $197.3 million | ($244.8 million) |
| Diluted earnings (loss) per share | $4.91 | ($6.15) |
| Net investment income | $261.9 million | $222.2 million |
| Net realized and unrealized investment gains (losses) | ($175.1 million) | $135.8 million |
- Net operating cash flow was $1.222 billion; cash and cash equivalents ended the year at $1.108 billion, down from $1.362 billion.
- Total investments were $11.886 billion and total assets were $18.676 billion. Shareholders’ equity attributable to RenaissanceRe was $5.045 billion.
- Gross claims reserves were $6.076 billion, with $3.704 billion net of reinsurance; reinsurance recoverables were $2.372 billion.
- Balance-sheet debt was $991.1 million. A $500 million revolving credit facility was undrawn; total debt including this unused capacity was reported as $1.491 billion.
- Book value per common share was $104.13, versus $99.72 at year-end 2017. Including accumulated dividends, the reported annual increase was 5.7%. Return on average common equity was 4.7%.
Material changes versus prior comparable periods
- Annual underwriting recovered from the severe 2017 catastrophe-loss year. The 2018 combined ratio improved to 87.6% from 137.9%, and common-shareholder results returned to profit.
- 2018 gross premiums written grew 18.3%, with Property up 22.2% and Casualty and Specialty up 14.2%. Growth included reinstatement premiums and large, non-recurring transactions; one such transaction contributed $56.2 million to common-shareholder net income.
- 2018 large-loss events reduced common-shareholder net income by an estimated $216.1 million, partly offset by $129.8 million of favorable revisions to estimates for 2017 events. The 2018 events added 18.6 percentage points to the annual combined ratio; changes to 2017 event estimates reduced it by 8.0 points.
- Prior-year claims development was favorable by $270.7 million in 2018, compared with $41.0 million in 2017. Reserve development remains uncertain, particularly for recent catastrophes.
- Investment results weakened: total investment result was $86.8 million, down from $358.0 million, as market-related realized and unrealized losses outweighed higher investment income.
- For Q4 2018, common-shareholder net loss was $83.9 million, compared with a $3.5 million loss in Q4 2017. Q4 net premiums earned were $574.6 million; net realized and unrealized investment losses were $88.7 million.
Outlook, commentary and principal risks
- Management described January 2019 property renewals as generally stable, with some improvement in loss-affected programs and retrocessional coverage. It expected abundant market capital over the medium and longer term and cautioned that favorable pricing changes might not persist.
- Casualty and Specialty markets were described as broadly stable, with generally favorable rate trends in 2018. Management emphasized underwriting discipline and did not assure premium growth or maintenance of the current book.
- The proposed Tokio Millennium Re acquisition was expected to close in the first half of 2019, subject to approvals. Estimated consideration was approximately $1.4 billion. The acquired portfolio represented about $1.3 billion of incremental reinsurance premium, but RenaissanceRe expected to target about $700 million of gross premiums after re-underwriting. Integration costs, renewals, ratings and regulatory approvals remain material uncertainties.
- In December 2018, RenaissanceRe issued 1,947,496 common shares to State Farm for $250 million. It also issued $250 million of Series F preference shares. These issuances increased capital and shares outstanding and added preference dividends.
- Key risks include catastrophe severity and frequency, uncertain claims reserves and recoveries, climate and inflation effects, Florida assignment-of-benefits claims, broker concentration (three brokers generated 75.2% of gross premiums), competitive pricing, investment-market losses, counterparty credit risk, regulatory and tax changes, and acquisition execution. Management reported no individual current litigation likely to have a material adverse effect.
- Management stated that disclosure controls and internal control over financial reporting were effective at year-end. The auditor issued an unqualified opinion on the financial statements and internal controls.
Most important facts for investors to verify
- How 2018 and subsequent catastrophe claims develop, and whether the $270.7 million favorable prior-year reserve development proves sustainable.
- Collection, timing and counterparty quality of the $2.372 billion in reinsurance recoverables, including the impact of further 2017–2018 loss revisions.
- Final TMR purchase consideration, approvals, acquired reserve quality, customer renewals, targeted premium volume, integration costs and any rating changes.
- Whether premium growth and underwriting margins can be maintained without relying on non-recurring transactions, reinstatement premiums or reserve releases.
- Investment portfolio performance and liquidity, including the effect of interest rates and credit spreads, and the ability to meet $470.8 million of investment commitments.
- Available parent-company liquidity and subsidiary dividend capacity, given regulatory limits, debt obligations and the planned acquisition.