RenaissanceRe Holdings Ltd. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. Amounts are U.S. dollars. RenaissanceRe provides property, casualty and specialty reinsurance and insurance, including business written through managed ventures.
Financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Gross premiums written | $2,025.7 million | $1,564.3 million |
| Net premiums earned | $913.1 million | $550.0 million |
| Net investment income | $99.5 million | $82.1 million |
| Realized and unrealized investment gains (losses) | $(110.7) million | $170.0 million |
| Net income | $25.2 million | $353.1 million |
| Net income (loss) attributable to common shareholders | $(82.0) million | $273.7 million |
| Diluted earnings (loss) per common share | $(1.89) | $6.43 |
| Operating cash flow | $475.5 million | $377.1 million |
| Cash and cash equivalents, quarter-end | $896.2 million | $1,021.3 million |
Gross premiums written rose 29.5%, reflecting growth in both segments, new and existing business, and the TMR acquisition. The comparison is affected by TMR: Q1 2019 included its results only from the March 22 acquisition date, and those results were not material for that quarter.
The 2020 common-shareholder loss reflected, among other factors, $98.1 million of income attributable to redeemable noncontrolling interests. The total investment result (net investment income plus realized and unrealized investment gains or losses) was a loss of $11.2 million, versus a gain of $252.1 million a year earlier. Investment losses were principally driven by equity and other investments, amid COVID-19-related market disruption.
Underwriting and segment performance
| Segment | Q1 2020 underwriting result | Q1 2020 combined ratio | Q1 2019 combined ratio |
|---|---|---|---|
| Property | $147.1 million income | 65.1% | 47.6% |
| Casualty and Specialty | $(83.2) million loss | 116.9% | 99.3% |
| Total | $64.1 million income | 93.0% | 72.0% |
The Casualty and Specialty result included an estimated $103.8 million of COVID-19-related claims, adding 21.1 percentage points to that segment’s combined ratio. The estimate primarily reflected incurred-but-not-reported exposures, including event contingency and event-based casualty covers; actual losses may differ materially. Property underwriting income was slightly lower year over year, with higher attritional and small catastrophe losses and $14.0 million of adverse prior-year development. Overall, prior-year reserves developed adversely by $13.9 million, compared with $4.3 million of favorable development in Q1 2019.
Company-wide net claims and claim expenses were $571.0 million; the calendar-year claims ratio was 62.5%, versus 41.3% in Q1 2019. The underwriting expense ratio was 30.5%, versus 30.7%.
Financial position, debt and liquidity
- Total investments were $17.8 billion, up from $17.4 billion at year-end. The portfolio included $11.0 billion of fixed-maturity investments and $5.3 billion of short-term investments.
- Total assets were $27.5 billion; total liabilities were $18.6 billion. Claims reserves were $9.4 billion, and reinsurance recoverables were $2.8 billion.
- Debt was $1.13 billion, down from $1.38 billion after repayment at maturity of $250 million of 5.75% senior notes. The revolving credit facility had no amounts drawn; issued or drawn letters of credit totaled $988.2 million.
- Shareholders’ equity attributable to RenaissanceRe was $5.68 billion, versus $5.97 billion at year-end. Book value per common share fell to $117.15 from $120.53; including accumulated dividends, the measure fell 2.5% to $138.18.
- Operating cash flow was $475.5 million; investing cash outflow was $530.3 million and financing cash outflow was $429.6 million. Cash declined $482.9 million. Operating cash flow included substantial timing and funding effects related to Upsilon RFO investor subscriptions and reinsurance balances payable.
- Management said COVID-19 and related market volatility had not materially affected liquidity or capital resources in Q1, and stated that capital and liquidity positions were strong. It also cautioned that future cash flows are difficult to predict and market access could become more constrained or costly.
Capital actions and other material changes
- The company redeemed all $125 million of its Series C 6.08% preference shares and repurchased approximately 406,000 common shares for $62.6 million. It suspended share repurchases in March to preserve capital and prioritize business deployment; none were made in April or through May 4.
- The quarterly common dividend was $0.35 per share, compared with $0.34 in Q1 2019.
- On February 4, 2020, the company agreed to sell RenaissanceRe UK, a run-off subsidiary, to an AXA Liabilities Managers-managed vehicle. The transaction was subject to regulatory approval and expected to close in 2020; final consideration depends on closing book value.
- Q1 2020 corporate expenses were $16.0 million, down from $38.8 million, largely because Q1 2019 included TMR acquisition expenses.
Outlook, commentary and risks
- The filing provides no quantified earnings or premium guidance. Management said uncertainty over the pandemic’s duration, coverage interpretation and economic effects made total potential claims and investment impacts difficult to estimate.
- Management expected rate increases to continue or accelerate in some markets, citing COVID-19 uncertainty and potentially reduced third-party retrocessional capacity. It said opportunities may arise but emphasized disciplined risk selection; it did not assure that favorable market trends or growth would persist.
- Management expected low interest rates to pressure portfolio yields and said further losses in individual investment positions, particularly equities and lower-rated corporate credit, were likely. Economic deterioration could also raise counterparty credit risk, reduce demand, constrain capital access and affect claims costs through inflation.
- Potential legislation, regulation, court decisions or social pressure could expand pandemic-related insurance obligations beyond policy terms, including disputes over business-interruption coverage. The company said outcomes and potential losses were uncertain.
- Other disclosed risks include catastrophe frequency and severity, reserve-estimation uncertainty, climate and social inflation, reinsurance recoverability, market and investment volatility, currency and credit exposure, and operational or cybersecurity risks from extended remote work.
- Management reported that the company could operate effectively with most employees working remotely, while warning that prolonged arrangements could create operational and cybersecurity risks. It also reported no material change in internal control over financial reporting and effective disclosure controls at quarter-end.
Important facts for investors to verify
- How COVID-19 claims develop beyond the $103.8 million Q1 estimate, including any coverage litigation or retroactive legal changes.
- Whether investment losses, particularly in equities, other investments and lower-rated credit, continue; and whether reported fund valuations are subject to meaningful reporting lags or later adjustments.
- Whether casualty and specialty underwriting returns below a 100% combined ratio, and whether current pricing adequately reflects emerging losses, social inflation and pandemic exposures.
- Reserve development, reinsurance recoverables and reinsurer credit quality; 52.1% of recoverables were fully collateralized and 46.0% were from reinsurers rated A− or higher at March 31, 2020.
- Liquidity and capital availability, subsidiary dividend capacity, and the status and closing terms of the RenaissanceRe UK sale.