RenaissanceRe Holdings Ltd. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are to December 31, 2018. Amounts are U.S. dollars. RenaissanceRe provides property, casualty and specialty reinsurance and insurance solutions. On March 22, 2019, it completed its acquisition of Tokio Millennium Re entities (TMR).
Financial results and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenues | $807.1 million | $418.0 million |
| Net premiums earned | $550.0 million | $440.3 million |
| Net income | $353.1 million | $92.2 million |
| Net income available to common shareholders | $273.7 million | $56.7 million |
| Diluted EPS | $6.43 | $1.42 |
| Underwriting income / combined ratio | $154.1 million / 72.0% | $129.6 million / 70.6% |
| Net investment income | $81.5 million | $56.5 million |
| Net realized and unrealized investment gains (losses) | $170.6 million | ($82.1 million) |
Q1 operating cash flow was $377.1 million, versus cash used of $37.3 million a year earlier. Investing activities used $616.0 million, including the net cash outflow for TMR; financing activities provided $152.5 million. Cash and cash equivalents ended at $1.02 billion, down from $1.11 billion at year-end.
At March 31, total investments were $14.85 billion, total assets $24.56 billion, total liabilities $16.90 billion, and shareholders’ equity attributable to RenaissanceRe $5.55 billion. Debt was $1.19 billion, including a $200 million revolving-credit draw used partly to fund TMR. Book value per common share was $111.05; book value plus accumulated dividends was $130.71, up 7.0% from year-end. The quarterly common dividend was $0.34 per share.
Changes versus the prior comparable period
- Gross premiums written rose 34.9% to $1.56 billion; net premiums written increased to $929.0 million. Growth came from both segments, led by Property.
- Investment results swung to a $252.1 million total investment gain from a $25.7 million loss, chiefly reflecting gains in fixed-maturity and public-equity portfolios and derivatives.
- Combined ratio increased to 72.0% from 70.6%, despite higher underwriting income. Prior-year reserve releases were $4.3 million, compared with $31.3 million in Q1 2018.
- Property produced $152.4 million of underwriting income and a 47.6% combined ratio. Casualty and Specialty produced $1.7 million and a 99.3% combined ratio.
- Corporate expenses increased to $38.8 million from $6.7 million, including $25.5 million of TMR-related transaction, integration and compensation costs.
Acquisition, outlook and risks
The TMR transaction’s aggregate consideration was approximately $1.564 billion, including cash, RenaissanceRe shares and a $500 million special dividend; the reported net purchase price after that dividend was approximately $1.064 billion. TMR’s post-close operating results were not material and were not included in Q1 operations, but its assets and liabilities were consolidated at quarter-end. Acquired claims reserves were approximately $2.4 billion gross. A reserve development agreement provides indemnification from Tokio for substantially all adverse development on specified acquired reserves, subject to its terms. The purchase price remains subject to post-closing adjustment, expected by Q3 2019.
On April 2, 2019, the company issued $400 million of 3.600% senior notes due 2029; proceeds repaid the $200 million revolving-credit balance, with the remainder for general corporate purposes. This was a subsequent event, not debt outstanding at March 31 beyond the revolver draw.
Management reported generally stable January 2019 renewals, with improved terms in some loss-affected property programs and growth opportunities. It saw favorable early-2019 conditions in parts of Casualty and Specialty, while cautioning that underlying loss costs may continue to rise. Management expects ample industry capital over the medium and long term and emphasized continued underwriting discipline. The filing gives no quantitative earnings or premium guidance.
- Results are exposed to catastrophe frequency and severity, reserve uncertainty, and potentially material differences between estimated and ultimate claims. Q1 prior-year development was much less favorable than in 2018.
- Investment gains were a major contributor to reported profit and may fluctuate with markets and interest rates; rising rates could produce near-term investment losses.
- Management noted uncertainty around social inflation and Florida assignment-of-benefits claims, inflation, soft or changing market conditions, counterparty recoveries, and regulatory and tax changes.
- Liquidity and capital mobility depend partly on regulated subsidiaries’ ability to pay dividends. The company reported statutory capital above applicable minimums; its holding company relies substantially on subsidiary distributions.
- Management said no individual litigation or arbitration was expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of earnings growth is sustainable underwriting performance versus market-sensitive investment gains.
- Development of casualty and specialty losses and the adequacy of reserves, including acquired TMR reserves and the operation of Tokio’s reserve indemnity.
- Post-closing purchase-price adjustment, integration costs, and TMR’s contribution to results in subsequent quarters.
- Debt and liquidity after the April 2029-note issuance, and compliance with debt and credit-facility covenants.
- Premium growth, pricing and terms at renewals, exposure to catastrophe losses, and changes in third-party capital and reinsurance availability.