RenaissanceRe Holdings Ltd. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. RenaissanceRe provides global property, casualty and specialty reinsurance and insurance. Unless otherwise noted, dollar amounts below are U.S. dollars.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net premiums earned | $1.785bn | $1.456bn | $3.466bn | $2.943bn |
| Underwriting income | $351.0m | $316.4m | $720.6m | $516.7m |
| Combined ratio | 80.3% | 78.3% | 79.2% | 82.4% |
| Net investment income | $292.7m | $107.2m | $547.0m | $190.9m |
| Net realized/unrealized investment gains (losses) | ($222.8m) | ($654.1m) | $56.7m | ($1.327bn) |
| Net income (loss) attributable to common shareholders | $191.0m | ($324.9m) | $755.1m | ($719.3m) |
| Diluted earnings (loss) per common share | $4.09 | ($7.53) | $16.71 | ($16.64) |
Q2 underwriting income comprised $281.0m from Property (63.0% combined ratio) and $70.0m from Casualty and Specialty (93.2%). For the first half, segment underwriting income was $579.7m and $140.9m, respectively. Q2 annualized return on average common equity was 13.5%; first-half annualized return was 28.9%. Book value per common share was $129.98 at June 30, up from $104.65 at year-end 2022; including accumulated dividends, the reported increase was 24.9%.
Financial condition and cash flows
- Total assets were $41.4bn at June 30, 2023, versus $36.6bn at December 31, 2022. Total investments were $25.5bn and cash and cash equivalents were $943.9m.
- Claims and claim expense reserves were $16.1bn; unearned premiums were $5.7bn.
- Debt was $1.88bn, up from $1.17bn at year-end. Shareholders’ equity attributable to RenaissanceRe was $7.40bn, up from $5.33bn.
- For the first six months, operating cash flow was $626.7m, investing cash flow was negative $3.18bn, and financing cash flow was positive $2.30bn. Cash declined $250.4m from year-end.
- Financing included net proceeds of about $1.353bn from a common-share offering and $741.6m from $750m of 5.75% senior notes due 2033. The company reported no amounts drawn under its revolving credit facilities and said it was in compliance with debt covenants.
Material changes and unusual items
- Common-shareholder earnings turned positive versus the prior-year loss. The first-half total investment result improved to $603.7m of income from a $1.14bn loss, reflecting substantially higher investment income and much smaller investment losses. Q2 still recorded investment losses of $222.8m.
- Net premiums earned rose 22.6% in Q2 and 17.8% for the first half year over year. Q2 gross premiums written increased 7.6%; first-half gross premiums written were nearly flat, with Property growth partly offset by lower Casualty and Specialty premiums.
- Q2 2023 large loss events reduced underwriting income by an estimated $68.5m and common-shareholder income by $44.6m, adding 4.2 percentage points to the consolidated combined ratio. The first-half underwriting impact was $147.6m and the common-shareholder impact was $98.1m, adding 4.5 points to the combined ratio. Estimates may change as claims information develops.
- Prior-year reserve development was favorable by $136.9m in the first half, compared with $60.8m favorable in the prior-year period. Management attributes the 2023 development principally to better-than-expected loss emergence; reserve estimates remain uncertain.
- The company agreed to acquire Validus and Talbot renewal rights from AIG for approximately $2.985bn, including about $2.735bn cash and $250m in RenaissanceRe shares. Closing was expected in Q4 2023, subject to regulatory and other conditions. AIG retains 95% of risk and reward on development of acquired in-force reserves under a reserve-development arrangement. Acquisition-related expenses were $11.3m in Q2; further costs were expected.
Outlook, risks and contingencies
Management gave qualitative, not numerical, guidance. It described reinsurance market conditions as favorable, citing rate increases at January, April and June renewals and opportunities in property catastrophe and selected casualty and specialty lines. Management expects higher rates to persist for some time, while emphasizing disciplined underwriting. It expects investment income to benefit from higher yields and portfolio reinvestment, and views third-party capital management fees as a growing income source. These are management expectations, not guarantees.
Key risks include catastrophe frequency and severity, climate-related losses, inflation and longer-tail claims trends, reserve estimation, investment-market and interest-rate volatility, counterparty credit, and the availability and cost of retrocessional protection. Validus-specific risks include regulatory delay or conditions, failure to close, integration and execution challenges, undiscovered liabilities, additional debt and share dilution. If the acquisition is not completed by the specified date or is abandoned, the 2033 notes may be subject to mandatory redemption at 101% of principal plus accrued interest. The company said no individual current litigation or arbitration was likely to have a material adverse effect; ordinary-course litigation remains possible.
Important facts for investors to verify
- Whether Validus closes on expected terms and timing, including regulatory approvals, final cash and share consideration, and any required redemption of the 2033 notes.
- How catastrophe claims develop and whether the estimated 2023 event losses or favorable prior-year reserve development change materially.
- Whether underwriting profitability and premium growth persist, particularly in Property catastrophe and Casualty and Specialty.
- How investment income, mark-to-market results and less-liquid investments perform; the company reported $1.2bn of remaining commitments to investments at June 30.
- Post-acquisition leverage, integration costs, capital needs and any dilution from issuing shares to AIG.