RenaissanceRe Holdings Ltd. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise stated. RenaissanceRe provides property, casualty and specialty reinsurance and insurance, alongside investment and third-party capital management activities. Dollar amounts below are in U.S. dollars.
Financial performance and position
- Premiums and revenue: Gross premiums written rose 11.0% to $2.94 billion; net premiums written rose 18.7% to $2.17 billion; net premiums earned increased 28.8% to $1.49 billion. Total GAAP revenue was $876.4 million, up from $861.9 million, as higher earned premiums and investment income were largely offset by larger investment losses.
- Profit and underwriting: Net loss attributable to RenaissanceRe common shareholders was $394.4 million, or $9.10 per diluted share, versus a $290.9 million loss, or $5.87 per share. Underwriting income improved to $200.3 million from a $35.8 million loss; the combined ratio improved to 86.5% from 103.1% (below 100% indicates underwriting profit). Annualized return on average common equity was negative 28.1%.
- Segments: Property generated $184.8 million of underwriting income and a 70.1% combined ratio, versus a $41.8 million loss and 106.9% ratio. Casualty and Specialty generated $15.5 million of underwriting income and a 98.2% combined ratio, compared with $6.0 million and 98.9%.
- Investments: Net investment income increased to $83.7 million from $79.8 million. Net realized and unrealized investment losses widened to $673.0 million from $345.6 million, principally reflecting rising interest rates and losses in fixed-income and equity portfolios. Total investment result was a loss of $589.3 million versus a $265.8 million loss.
- Cash flow: Operating cash flow was $168.2 million, down from $206.5 million. Investing activities used $403.9 million and financing activities used $66.5 million. Cash and cash equivalents fell $296.0 million during the quarter to $1.56 billion.
- Balance sheet and capital: Total assets were $34.85 billion and total investments were $20.85 billion at March 31. Claims reserves were $13.51 billion; debt was $1.17 billion, essentially unchanged from year-end. RenaissanceRe-attributable shareholders’ equity declined $507.3 million to $6.12 billion. Book value per common share fell to $121.44 from $132.17 at year-end; including accumulated dividends, the measure declined 7.8% to $145.33.
- Liquidity and distributions: The company reported $1.56 billion in cash and cash equivalents, alongside substantial liquid investments; $8.4 billion of cash and investments were pledged or held in trust. No amounts were drawn under the main revolving credit facility; $30 million was drawn under Medici’s facility and repaid after quarter-end. The company repurchased 576,663 common shares for $93.4 million and paid $16.2 million in common dividends. A $500 million repurchase authorization was renewed, with $489.1 million remaining at quarter-end.
Material changes and notable items
- Casualty and Specialty gross premiums written increased 54.4% to $1.60 billion, with growth across lines, particularly professional liability and general casualty. Property gross premiums written decreased 16.9% to $1.34 billion, in part due to a smaller Upsilon RFO vehicle and lower reinstatement premiums.
- Q1 2022 weather-related large losses, including Australian floods and Storm Eunice, had an estimated $102.3 million negative impact on underwriting income and a $67.9 million negative impact on common shareholders’ results after noncontrolling interests; they added 7.0 points to the consolidated combined ratio. Russia-Ukraine War losses had an estimated $27.1 million underwriting impact and $24.9 million impact on common shareholders’ results, adding 1.8 points to the combined ratio. Management cautioned these estimates may change materially.
- Prior-year claims development was favorable by $17.8 million, versus $9.0 million favorable in Q1 2021. This partly offset current-period claims; reserve estimates remain subject to substantial uncertainty.
- Management reported significant mark-to-market investment losses from the rapid rise in interest rates, but expects higher rates to increase future investment income. Equity markets also declined. These results substantially outweighed improved underwriting versus the prior-year quarter, which was heavily affected by Winter Storm Uri.
- Fontana, a casualty and specialty joint venture, launched April 1, 2022 with $475 million in capital commitments, including $150 million from RenaissanceRe. After quarter-end, the company also purchased additional DaVinciRe shares; its economic ownership rose to 33.8%.
Outlook, risks and contingencies
- No numerical earnings or premium guidance was provided. Management described attractive opportunities in reinsurance markets, citing property catastrophe market contraction, continued rate increases in casualty and specialty, and its intention to pursue profitable growth while managing capital and volatility.
- Management said it reduced the size of Upsilon RFO and was monitoring Florida claims practices, litigation risks and exposure growth, with willingness to reduce exposure where warranted. It updated its hurricane model to reflect its views on climate change and social and economic inflation.
- Key risks include catastrophe frequency and severity, climate change, inflation and claims-cost trends, reserve uncertainty, investment and interest-rate volatility, credit and retrocession recoverability, foreign-exchange movements, and uncertainty over the scope and duration of Russia-Ukraine-related losses. Management also continued to assess potential COVID-19-related losses.
- Management stated that subsidiaries exceeded applicable minimum solvency, capital and surplus requirements, and that the company was not in violation of debt covenants. A withdrawal request for approximately $604.6 million of surplus in a reinsurance trust was under review by the New York Department of Financial Services. The filing reported no material change in previously disclosed legal proceedings or risk factors and no individual current litigation or arbitration expected to have a material adverse effect.
Important facts for investors to verify
- How subsequent claims reporting changes the estimates for Q1 weather and Russia-Ukraine losses, and whether the $13.51 billion claims reserve proves adequate.
- Whether elevated interest rates and market volatility continue to affect portfolio valuations, and whether higher reinvestment yields translate into increased investment income.
- Whether growth in Casualty and Specialty premiums sustains underwriting profitability, including the effects of inflation, business mix and acquisition costs.
- The status and timing of the NYDFS review of the approximately $604.6 million trust surplus withdrawal request, and the availability of pledged assets for liquidity needs.
- Funding and performance of Fontana and other managed vehicles, commitments to investments (including $1.4 billion remaining at quarter-end), and the effect of changing third-party ownership interests.
- Capital allocation decisions, including share repurchases, dividends and the company’s capacity to meet collateral, claims and subsidiary capital requirements.