Business context and reporting period
RenaissanceRe Holdings Ltd. filed this unaudited Form 10-Q for the quarter ended September 30, 2017. The Bermuda-based group provides property, casualty and specialty reinsurance and insurance through operating subsidiaries, joint ventures and Lloyd’s Syndicate 1458. Results are highly exposed to catastrophe frequency and severity and may fluctuate significantly between periods.
Financial performance and condition
Amounts below are in U.S. dollars; figures are rounded to millions unless stated otherwise.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net premiums earned | $547.8m | $346.5m | $1,296.1m | $1,051.5m |
| Total revenue | $634.7m | $442.5m | $1,612.4m | $1,373.9m |
| Net income (loss) | $(703.5)m | $188.1m | $(356.9)m | $538.8m |
| Net income (loss) available to common shareholders | $(504.8)m | $146.8m | $(241.3)m | $411.1m |
| Diluted earnings (loss) per share | $(12.75) | $3.56 | $(6.04) | $9.71 |
| Combined ratio | 244.8% | 67.4% | 149.5% | 73.2% |
| Net investment income | $40.3m | $51.4m | $148.7m | $134.4m |
| Net realized and unrealized investment gains | $42.1m | $59.9m | $143.5m | $191.3m |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $621.7m | $380.4m |
- Q3 catastrophe and aggregate losses from Hurricanes Harvey, Irma and Maria, the Mexico City earthquake, and aggregate loss contracts reduced common-shareholder results by an estimated $615.1m and underwriting results by $838.7m; they added 156.0 percentage points to the quarterly combined ratio. Estimates were preliminary and subject to material revision.
- Q3 Property underwriting loss was $750.2m, with a 322.7% combined ratio; Casualty and Specialty underwriting loss was $43.1m, with a 120.4% combined ratio. For the first nine months, segment losses were $552.2m and $89.6m, respectively.
- For the first nine months, premiums written increased year over year: gross premiums written rose to $2,389.8m from $2,051.5m, and net premiums written to $1,583.1m from $1,315.8m. Growth included catastrophe-related reinstatement premiums.
- Prior-year reserve development for the first nine months was favorable by $3.7m overall, versus $76.6m favorable in 2016. Casualty and Specialty included $33.5m adverse development from the U.K. Ogden discount-rate change, partly offset by favorable experience elsewhere.
- At September 30, total assets were $15,044.9m, up from $12,352.1m at year-end 2016; total investments were $9,642.2m. Cash and equivalents were $581.6m, compared with $421.2m at year-end.
- Claims reserves rose to $5,192.3m from $2,848.3m at year-end; reinsurance recoverables increased to $1,588.3m from $279.6m, reflecting catastrophe-related losses and expected recoveries. The filing notes that reserve estimates and recoveries remain uncertain.
- Shareholders’ equity attributable to RenaissanceRe was $4,403.0m, down from $4,866.6m. Book value per common share was $100.00; book value plus accumulated dividends was $117.68, down 6.9% from year-end 2016. The company repurchased $188.6m of common shares during the first nine months.
- Debt carrying value was $989.2m. The company issued $300m of 3.450% senior notes due 2027 and repaid $250m of 7.50% notes at maturity. Nine-month financing cash outflow was $256.0m, while cash increased by $160.4m overall.
Outlook, risks and unusual items
- Management anticipated improved property-catastrophe renewal conditions for January 2018, particularly for loss-affected business, but said the scale, breadth and duration of any market improvement were uncertain. Abundant capital, competitive pressures, and erosion of contract terms could constrain pricing.
- Management expected casualty capacity to remain abundant in 2018, while noting possible improvement in terms for catastrophe-affected lines. It emphasized underwriting discipline and did not provide earnings or premium guidance.
- California wildfires beginning in October 2017 were expected to have a significant and potentially material financial impact. At filing time, the company said it could not accurately estimate the amount; additional fourth-quarter events could also affect results.
- Other stated risks include catastrophe-loss estimation and reserve adequacy, collectability of reinsurance recoverables, investment and interest-rate volatility, counterparty credit risk, inflation, currency movements, regulatory and tax changes, and restrictions on subsidiary dividends. The company reported no material changes to previously disclosed risk factors or legal proceedings.
- At September 30, $3.3bn of cash and investments were pledged or held in trust for counterparties and regulatory authorities. The company said its group and principal operating subsidiaries remained adequately capitalized after $112.3m of net capital contributions to operating subsidiaries during the first nine months.
Key facts for investors to verify
- How catastrophe loss estimates, particularly for Maria and the Mexico City earthquake, develop as claims information and reinsurance recoveries become clearer.
- Whether the $1,588.3m reinsurance recoverable balance is collected as expected, and how reserve estimates respond to subsequent loss emergence.
- The eventual net impact of the October 2017 California wildfires and other fourth-quarter events, which was not quantified in this filing.
- Whether anticipated January 2018 renewal improvements materialize and translate into adequate pricing and contract terms.
- How capital, liquidity, and shareholder returns are affected by losses, collateral requirements, subsidiary dividend restrictions, and continued share repurchases.