RenaissanceRe Holdings Ltd. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet comparisons are to December 31, 2012. Financial figures are unaudited and in U.S. dollars unless noted. RenaissanceRe provides reinsurance, insurance and related services, principally in property catastrophe and specialty markets, and consolidates its controlled DaVinciRe joint venture.
Key financial results
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Gross premiums written | $635.4 million | $664.2 million |
| Net premiums written | $436.8 million | $492.6 million |
| Net premiums earned | $271.3 million | $278.7 million |
| Total revenues | $343.3 million | $356.5 million |
| Net income | $235.4 million | $263.8 million |
| Net income attributable to RenaissanceRe common shareholders | $190.5 million | $201.4 million |
| Diluted earnings per common share | $4.23 | $3.88 |
| Underwriting income | $173.0 million | $196.6 million |
| Combined ratio | 36.2% | 29.4% |
| Net cash from operating activities | $128.5 million | $171.1 million |
| Cash and cash equivalents at period end | $335.6 million | $325.4 million at Dec. 31, 2012 |
Investment income was $43.6 million, down from $67.0 million; net realized and unrealized investment gains were $13.9 million, versus $46.1 million. The current-year claims ratio improved to 23.9% from 25.6%, but less favorable prior-year reserve development increased the calendar-year claims ratio to 10.0% from 5.6%. Prior-year claims development contributed $37.6 million of favorable reserve release, compared with $55.9 million in Q1 2012.
Financial position and capital
- Total assets were $8.10 billion, including $6.30 billion of investments. Shareholders’ equity attributable to RenaissanceRe was $3.56 billion, up $60.0 million from year-end.
- Claims reserves were $1.76 billion, down from $1.88 billion at year-end. Premiums receivable rose to $654.4 million from $491.4 million, while unearned premiums rose to $658.2 million from $399.5 million.
- Reported debt was $254.3 million, down from $351.8 million. The company repaid $100 million of 5.875% Senior Notes at scheduled maturity; remaining debt included $249.4 million of 5.75% Senior Notes and $5.0 million outstanding under Renaissance Trading’s credit facility.
- Investing activities provided $219.9 million, while financing activities used $341.5 million. Financing uses included $111.3 million of share repurchases, dividends, debt repayment and net DaVinciRe third-party share transactions.
- Book value per common share was $71.07, versus $68.14 at year-end; book value plus accumulated dividends increased 4.7% during the quarter. The company repurchased 1.37 million shares at an average $81.29 and had $500 million available under its enlarged repurchase authorization.
Material changes and management commentary
- Underwriting income declined $23.6 million, mainly because net earned premiums were lower and favorable reserve development was smaller. Gross premiums written fell 4.3%; net premiums written fell 11.3%.
- Reinsurance gross premiums written decreased 8.0%, reflecting non-renewals or lower rates on some catastrophe contracts and timing of specialty contracts. Lloyd’s gross premiums written increased 35.5%, and its underwriting income rose to $4.2 million from $1.1 million.
- Other income improved to $7.0 million from a $39.1 million loss, chiefly as weather and energy operations moved to $8.7 million income from a $35.5 million loss associated with unusually warm weather in Q1 2012. Management cautioned that these activities are seasonal and volatile.
- Investment returns were weaker, including lower private-equity returns and fixed-maturity unrealized losses as credit-spread-driven gains were less favorable than in the prior-year quarter. Management expects historically low yields to continue pressuring investment income in the near term.
- DaVinciRe’s January transactions increased RenaissanceRe’s ownership from 30.8% to 32.9%; ownership and third-party interests may fluctuate. The company also launched Upsilon Re II for 2013 catastrophe retrocessional business.
Outlook, risks and contingencies
- No specific earnings or financial guidance was provided. Management expected increased competitive pressure on premiums and risk-adjusted rates at 2013 renewals, citing abundant traditional and alternative capital and limited demand growth; underwriting discipline could constrain portfolio growth.
- Results are exposed to severe catastrophe losses, reserve-estimation uncertainty, reinsurance recoverability and counterparty performance. Management highlighted uncertainty in estimates for major catastrophe events, including Sandy, New Zealand and Tohoku earthquakes, and Thailand flooding; actual ultimate losses may differ materially from estimates.
- Other cited risks include low investment yields, interest-rate and market movements, inflation, economic weakness, competition, and potential regulatory or legislative changes affecting private catastrophe markets and Bermuda-based reinsurers. The filing discusses proposed U.S. federal catastrophe programs and tax measures as potential risks, not enacted changes.
- At March 31, $1.69 billion of cash and investments were pledged or held in trust for counterparties and regulatory purposes. Total outstanding letters of credit were $501.7 million; the principal letter-of-credit facility commitment was reduced to $250 million. Bermuda insurance subsidiaries’ statutory capital and surplus was $2.9 billion against a $542.1 million minimum solvency margin.
- Management reported no material change in commitments and contingencies or legal proceedings from the 2012 Form 10-K, and no individual current litigation was believed likely to have a material adverse effect. Disclosure controls were deemed effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- How much future underwriting results depend on favorable prior-year reserve releases, including the actuarial assumption changes within specialty reinsurance.
- Whether premium reductions and renewal-rate pressure persist, and how growth and profitability develop in Reinsurance versus Lloyd’s.
- Whether investment income remains under pressure and whether fair values of private equity, other Level 3 investments and weather/energy derivatives change materially.
- How catastrophe losses and recoveries develop, particularly for large events and concentrated cedant exposures, and whether counterparties meet their obligations.
- The liquidity and capital effects of share repurchases, DaVinciRe redemptions, pledged assets, regulatory requirements and reliance on subsidiary distributions.