RenaissanceRe Holdings Ltd. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. RenaissanceRe provides global property, casualty and specialty reinsurance and insurance, alongside managing third-party capital and joint ventures. Amounts below are U.S. dollars; financial statement amounts are rounded to millions unless stated otherwise.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Gross premiums written | $1,143m | $861m | $4,871m | $3,902m |
| Net premiums earned | $1,000m | $907m | $2,923m | $2,368m |
| Total revenues | $1,332m | $1,051m | $3,777m | $3,097m |
| Net income | $74m | $108m | $801m | $910m |
| Net income available to common shareholders | $48m | $37m | $542m | $678m |
| Diluted earnings per common share | $0.94 | $0.83 | $11.58 | $15.57 |
| Underwriting income (loss) | $(206)m | $(3)m | $75m | $322m |
| Combined ratio | 120.6% | 100.4% | 97.4% | 86.4% |
| Net investment income | $84m | $111m | $272m | $312m |
| Net realized and unrealized investment gains | $224m | $34m | $562m | $396m |
For Q3, the Property segment recorded a $207m underwriting loss and a 140.0% combined ratio; Casualty and Specialty recorded $1m of underwriting income and a 99.9% combined ratio. For the first nine months, Property generated $141m of underwriting income (90.1% combined ratio), while Casualty and Specialty had a $66m underwriting loss (104.4% combined ratio).
Operating cash flow for the first nine months was $1,330m, versus $1,264m a year earlier. Investing activities used $2,055m and financing activities provided $632m. Cash and cash equivalents ended the period at $1,287m, down from $1,379m at year-end 2019.
At September 30, total investments were $20,319m, total assets $30,996m, total liabilities $20,218m, and RenaissanceRe-attributable shareholders’ equity $7,391m. Debt was $1,136m, down from $1,384m at year-end 2019; the revolving credit facility was undrawn. The company reported $967m issued or drawn under specified letter-of-credit facilities. Its $6.7bn of pledged cash and investments includes collateral supporting counterparties and facilities.
Material changes and notable items
- Gross premiums written increased 32.7% in Q3 and 24.8% year to date. Growth came from both segments and reflects new and existing business, rate improvements and, in year-to-date comparisons, the TMR acquisition. Comparisons are affected by TMR being included only from March 22, 2019 in the prior-year results.
- Q3 2020 large catastrophe events—including Hurricanes Laura and Sally, western U.S. wildfires and other events—had an estimated $322m net negative impact on common-shareholder net income and added 43.4 percentage points to the consolidated combined ratio. The comparable Q3 2019 catastrophe impact was $155m on common-shareholder income.
- For the first nine months, 2020 large-loss events had an estimated $328m net negative impact on common-shareholder income. COVID-19-related net claims and claim expenses were $123m year to date, primarily in Casualty and Specialty; management attributed $114m of that amount to that segment.
- Prior accident-year reserves developed favorably by $55m net for the first nine months, compared with $15m favorable development in 2019. Reserve estimates are a significant management judgment and actual outcomes may differ materially.
- Investment gains supported results, while net investment income declined as lower interest rates reduced fixed-income and short-term investment returns. Q3 investment gains were principally driven by equity and fixed-maturity holdings.
- The company raised $1.1bn net from a June common-share offering and private placement. It repaid $250m of senior notes due 2020 and redeemed $125m of Series C preference shares. Repurchases were suspended in March to preserve capital.
- RenaissanceRe UK was sold on August 18, 2020; the company recognized a $30m pretax loss and received $137m in net sale proceeds.
Outlook, risks and contingencies
No quantitative earnings or revenue guidance is provided. Management described a hardening reinsurance market, with COVID-19 and catastrophe activity contributing to rising demand and constrained supply. It expects to seek deployment of proceeds from the equity offering into the 2021 market, beginning with January 1 renewals, while maintaining underwriting discipline. Deployment could support existing or new lines, joint ventures or acquisitions; capital contributed to regulated subsidiaries or joint ventures may be difficult to reallocate.
Management said the ultimate COVID-19 loss impact remains uncertain, including because of economic conditions and potential legislative, regulatory or judicial actions affecting coverage. It also cited low investment yields, potential investment losses, counterparty credit risk, inflation and social inflation, climate-related catastrophe risk, reserve uncertainty, and possible constraints or higher costs in accessing capital and retrocessional reinsurance. The company said operating liquidity and capital were not materially affected by the pandemic through September 30.
Subsequent to quarter-end, Hurricanes Delta and Zeta and ongoing western U.S. wildfires were being assessed. Management said the impact could be significant and potentially material, but could not yet be estimated reliably; losses were expected to be reported in Q4 2020. The filing also notes ordinary-course litigation and regulatory matters, but says no individual matter was expected to have a material adverse effect. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Investor verification priorities
- Track estimates and eventual reported losses for Q4 2020 events, COVID-19 claims, and the associated reinsurance recoveries.
- Assess reserve adequacy and subsequent development, particularly casualty and specialty exposures and catastrophe-event estimates.
- Separate underwriting performance from market-sensitive investment gains; review portfolio valuations, fund reporting lags and the sustainability of investment income.
- Verify renewal pricing, premium growth, retention and terms, including whether rate increases compensate for higher loss costs and reduced retrocessional capacity.
- Review liquidity and capital deployment after the $1.1bn equity raise, including collateral commitments, letter-of-credit usage, debt maturities and capital restrictions in subsidiaries and ventures.
- Consider the effect of the RenaissanceRe UK sale and TMR acquisition on comparability, segment mix and future results.