Business context and reporting period
RenaissanceRe Holdings Ltd. is a Bermuda-based provider of property, casualty and specialty reinsurance and insurance. This Form 10-Q covers the quarter and nine months ended September 30, 2022; financial comparisons are to the corresponding 2021 periods unless noted. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Gross premiums written | $2.221bn | $1.774bn | $7.628bn | $6.521bn |
| Net premiums earned | $1.767bn | $1.506bn | $4.710bn | $3.853bn |
| Total revenues | $1.287bn | $1.545bn | $3.030bn | $3.884bn |
| Net investment income | $157.8m | $78.3m | $348.7m | $239.0m |
| Net realized and unrealized investment gains (losses) | ($641.5m) | ($42.1m) | ($1.969bn) | ($196.6m) |
| Net income (loss) attributable to common shareholders | ($825.3m) | ($450.2m) | ($1.545bn) | ($284.3m) |
| Diluted loss per common share | ($19.27) | ($9.75) | ($35.84) | ($5.94) |
| Combined ratio | 138.7% | 145.1% | 103.6% | 110.0% |
Underwriting losses were $683.1m in Q3 and $166.5m for the nine months. Q3 Property underwriting loss was $722.6m (combined ratio 186.0%); Casualty and Specialty earned $39.5m (combined ratio 95.7%). For the nine months, Property lost $273.3m (combined ratio 113.1%) while Casualty and Specialty earned $106.9m (combined ratio 95.9%). A combined ratio above 100% indicates underwriting losses before investment income.
At September 30, 2022, total assets were $35.936bn, including investments of $20.893bn and cash and cash equivalents of $1.204bn. Total liabilities were $26.879bn; debt was $1.170bn and shareholders’ equity attributable to RenaissanceRe was $4.882bn. Cash declined $654.8m from year-end 2021. For the first nine months, operating cash flow was $870.5m, investing cash flow was ($1.782bn), and financing cash flow was $225.0m. Book value per common share was $94.55, down from $132.17 at year-end; book value plus accumulated dividends declined 27.6%.
Material changes versus prior periods
- Premium growth was led by Casualty and Specialty: nine-month gross premiums written rose 44.8% to $4.266bn. Property gross premiums written fell 5.9% to $3.362bn, partly reflecting reduced Upsilon RFO capacity and lower reinstatement premiums.
- Q3 2022 weather-related large losses had an estimated $977.4m negative impact on underwriting and $648.4m negative impact on common shareholders’ results. Hurricane Ian accounted for $539.7m of the latter estimate. The comparable Q3 2021 weather-loss impact on common shareholders was $726.8m.
- For the nine months, 2022 weather-related large losses had an estimated $722.1m negative impact on common shareholders, versus $908.7m for 2021 weather-related losses. Russia-Ukraine war losses added an estimated $25.0m negative common-shareholder impact.
- Investment income increased, but higher interest rates and weaker markets drove much larger investment losses. Nine-month fixed-maturity investment losses were $1.446bn; losses on investment-related derivatives were $161.9m. Q3 catastrophe-bond losses were $127.0m, primarily reflecting market pricing after Hurricane Ian.
- Prior-year claims development was favorable by $92.7m for the nine months, compared with $208.7m favorable in 2021. Claims reserves increased to $15.663bn from $13.295bn at year-end 2021.
- Fontana, a casualty and specialty joint venture, launched in April 2022 with $475m in capital commitments; $400m was funded, including $273.7m from third-party investors.
Outlook, commentary, risks and unusual items
Management expects attractive reinsurance opportunities in 2023, particularly at January 1 renewals, citing catastrophe-market contraction, increased demand, and potential rate improvement. It believes its capital position and ability to deploy capacity are advantages. Management also expects retrocessional protection to be less available and more expensive, and may purchase less protection. No quantitative earnings or premium guidance is provided.
Management expects higher interest rates to support future investment income and potentially allow some fixed-income mark-to-market losses to reverse through accretion to par for securities held to maturity. It cautions that inflation, recession risk, climate-driven catastrophe frequency and severity, long-tail claims, and market volatility may affect results. Loss estimates for recent catastrophes remain uncertain and may change materially as claims information develops.
Other key risks include reserve-estimation uncertainty, reinsurer and counterparty credit risk, availability and cost of retrocession, investment valuation and liquidity constraints, foreign-exchange movements, regulatory and tax changes, and reliance on subsidiary dividends and distributions. Management reported that insurance subsidiaries exceeded applicable minimum solvency and capital requirements and that the company was not in violation of debt covenants. It reported no material changes to previously disclosed risk factors or legal proceedings. A $36.2m partial valuation allowance was recorded against unrealized investment losses related to U.S. operations.
The company repurchased 1.1m common shares for $162.8m during the nine months and renewed authorization for up to $500m of repurchases. It stated it did not plan repurchases in Q4 2022, prioritizing capital for business deployment. On November 1, 2022, a letter-of-credit facility supporting Syndicate 1458 was amended to extend its term, subject to the stated notice and lender-consent provisions.
Important facts for investors to verify
- How Hurricane Ian and other 2022 catastrophe loss estimates develop, including reinsurance recoveries and the effect on reserves and cash flows.
- Whether elevated interest rates and market conditions continue to affect fixed-income, equity, derivative and catastrophe-bond valuations, and whether investment income offsets realized or unrealized losses.
- The adequacy and sensitivity of the $15.663bn claims reserve, including the sustainability of favorable prior-year development.
- The quality, timing and collectability of $5.0bn in reinsurance recoverables, and the availability and cost of future retrocessional protection.
- Whether Casualty and Specialty growth, Property pricing opportunities and new third-party-capital ventures produce returns consistent with management’s outlook.
- Liquidity and capital deployment, including $1.3bn of remaining commitments to investments, share-repurchase decisions and the impact of losses on book value and ratings.