SUMMARY OF RESULTS OF OPERATIONS
Below is a discussion of the results of operations for the third quarter of 2020, compared to the third quarter of 2019.
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Three months ended September 30,
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2020
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2019
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Change
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(in thousands, except per share amounts and percentages)
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Statement of operations highlights
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Gross premiums written
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$
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1,143,058
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$
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861,068
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$
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281,990
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Net premiums written
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$
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899,411
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$
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704,130
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$
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195,281
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Net premiums earned
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$
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1,000,183
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$
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906,748
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$
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93,435
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Net claims and claim expenses incurred
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942,030
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654,520
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287,510
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Acquisition expenses
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215,180
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202,181
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12,999
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Operational expenses
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49,045
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53,415
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(4,370)
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Underwriting loss
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$
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(206,072)
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$
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(3,368)
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$
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(202,704)
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Net investment income
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$
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83,543
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$
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111,387
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$
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(27,844)
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Net realized and unrealized gains on investments
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224,208
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34,395
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189,813
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Total investment result
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$
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307,751
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$
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145,782
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$
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161,969
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Net income
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$
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74,389
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$
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107,944
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$
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(33,555)
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Net income available to RenaissanceRe common shareholders
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$
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47,799
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$
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36,698
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$
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11,101
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Net income available to RenaissanceRe common shareholders per common share – diluted
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$
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0.94
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$
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0.83
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$
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0.11
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Dividends per common share
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$
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0.35
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$
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0.34
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$
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0.01
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Key ratios
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Net claims and claim expense ratio – current accident year
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99.6
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%
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73.3
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%
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26.3
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%
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Net claims and claim expense ratio – prior accident years
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(5.4)
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%
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(1.1)
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%
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(4.3)
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%
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Net claims and claim expense ratio – calendar year
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94.2
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%
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72.2
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%
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22.0
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%
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Underwriting expense ratio
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26.4
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%
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28.2
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%
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(1.8)
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%
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Combined ratio
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120.6
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%
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100.4
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%
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20.2
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%
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Return on average common equity - annualized
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2.8
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%
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2.8
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%
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—
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%
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Book value
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September 30,
2020
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June 30,
2020
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Change
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Book value per common share
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$
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135.13
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$
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134.27
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$
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0.86
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Accumulated dividends per common share
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21.73
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21.38
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0.35
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Book value per common share plus accumulated dividends
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$
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156.86
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$
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155.65
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$
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1.21
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Change in book value per common share plus change in accumulated dividends
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0.9
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%
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Net income available to RenaissanceRe common shareholders was $47.8 million in the third quarter of 2020, compared to net income available to RenaissanceRe common shareholders of $36.7 million in the third quarter of 2019, an increase of $11.1 million. As a result of our net income available to RenaissanceRe common shareholders in the third quarter of 2020, we generated an annualized return on average common equity of 2.8% and our book value per common share increased from $134.27 at June 30, 2020 to $135.13 at September 30, 2020, a 0.9% increase, after considering the change in accumulated dividends paid to our common shareholders.
The most significant items affecting our financial performance during the third quarter of 2020, on a comparative basis to the third quarter of 2019, include:
•Impact of Catastrophe Events - we had a net negative impact on net income available to RenaissanceRe common shareholders of $321.7 million resulting from Hurricane Laura, Hurricane Sally, the wildfires occurring in California, Oregon and Washington (the “Q3 2020 Wildfires”), other catastrophe events including the August 2020 derecho which impacted the U.S. Midwest, Hurricane Isaias, and Typhoon Maysak (the “Other Q3 2020 Catastrophe Events”), and loss estimates associated with aggregate loss contracts on these and other events in the third quarter of 2020 (collectively, the “Q3 2020 Large Loss Events”). This compares to a net negative impact on net income available to RenaissanceRe common shareholders of $154.9 million resulting from Hurricane Dorian and Typhoon Faxai (collectively, the “Q3 2019 Catastrophe Events”) in the third quarter of 2019;
•Underwriting Results - we incurred an underwriting loss of $206.1 million and had a combined ratio of 120.6% in the third quarter of 2020, compared to an underwriting loss of $3.4 million and a combined ratio of 100.4% in the third quarter of 2019. Our underwriting loss in the third quarter of 2020 was comprised of our Property segment, which incurred an underwriting loss of $206.6 million and had a combined ratio of 140.0%, and our Casualty and Specialty segment, which generated underwriting income of $0.6 million and had a combined ratio of 99.9%. In comparison, our underwriting loss in the third quarter of 2019 was comprised of our Property segment, which incurred an underwriting loss of $7.7 million, partially offset by underwriting income of $4.5 million in our Casualty and Specialty segment.
Our underwriting results in the third quarter of 2020 were principally impacted by the Q3 2020 Large Loss Events, which resulted in a net negative impact on the underwriting result of $422.4 million and added 43.4 percentage points to the combined ratio, primarily in the Property segment. The third quarter of 2019 was impacted by the Q3 2019 Catastrophe Events, which resulted in a net negative impact on the underwriting result of $181.9 million and added 20.6 percentage points to the combined ratio;
•Gross Premiums Written - our gross premiums written increased by $282.0 million, or 32.7%, to $1.1 billion, in the third quarter of 2020, compared to the third quarter of 2019. This was comprised of an increase of $168.6 million in the Casualty and Specialty segment and an increase of $113.4 million in the Property segment;
•Investment Results - our total investment result, which includes the sum of net investment income and net realized and unrealized gains on investments, was $307.8 million in the third quarter of 2020, compared to $145.8 million in the third quarter of 2019, an increase of $162.0 million. The primary driver of the total investment result in the third quarter of 2020 was net realized and unrealized gains on investments of $224.2 million principally within our equity and fixed maturity investments trading portfolios; and
•Net Income Attributable to Redeemable Noncontrolling Interests - our net income attributable to redeemable noncontrolling interests was $19.3 million in the third quarter of 2020, compared to $62.1 million in the third quarter of 2019. The decrease was primarily driven by underwriting losses in DaVinciRe, partially offset by an increase in the net income of Medici as compared to the third quarter of 2019.
COVID-19 Pandemic
In late 2019 an outbreak of a novel strain of coronavirus originated in China and has since spread globally. In January 2020, the World Health Organization declared the outbreak a global health emergency, and on March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. It is not yet possible to give an estimate of all of the Company’s potential reinsurance, insurance or investment exposures, or any other effects that the COVID-19 pandemic may have on our results of operations or financial condition. Due to the ongoing and rapidly evolving nature of the COVID-19 pandemic, we are continuing to evaluate the impact of the COVID-19 pandemic on our business, operations and financial condition, including our potential loss exposures.
We continue to evaluate industry trends and our potential exposure associated with the ongoing COVID-19 pandemic, and expect historically significant industry losses to emerge over time as the full impact of the pandemic and its effects on the global economy are realized. A longer or more severe recession will increase the probability of losses. Potential legislative, regulatory and judicial actions are also causing
significant uncertainty with respect to policy coverage and other issues. Among other things, we continue to actively monitor information received from or reported by clients, brokers, industry actuaries, regulators, courts, and others, and to assess that information in the context of our own portfolio. Our loss estimates represent our best estimate based on currently available information, and actual losses may vary materially from these estimates. Losses incurred in respect of the COVID-19 pandemic will be reflected in the periods in which those losses are incurred.
In addition to coverage exposures, volatility in global financial markets, together with low or negative interest rates, reduced liquidity and a continued slowdown in global economic conditions, have adversely impacted, and may adversely affect, our investment portfolio in the future. These conditions may also negatively impact our ability to access liquidity and capital markets financing, which may not be available or may only be available on unfavorable terms.
While we believe we have been able to operate effectively with most of our employees working remotely, an extended period of remote work arrangements could strain the Company’s business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and adversely affect the Company’s ability to manage our business. For additional information see "Current Outlook" and "Part II, Item 1A, Risk Factors."
Net Negative Impact
Net negative impact includes the sum of estimates of net claims and claim expenses incurred, earned reinstatement premiums assumed and ceded, lost profit commissions and redeemable noncontrolling interest. Our estimates of net negative impact are based on a review of our potential exposures, preliminary discussions with certain counterparties and catastrophe modeling techniques. Our actual net negative impact, both individually and in the aggregate, may vary from these estimates, perhaps materially. Changes in these estimates will be recorded in the period in which they occur.
There remains meaningful uncertainty regarding the estimates and the nature and extent of the losses associated with catastrophe events, driven by the magnitude and recent occurrence of each event, the geographic areas in which the events occurred, relatively limited claims data received to date, the contingent nature of business interruption and other exposures, potential uncertainties relating to reinsurance recoveries and other factors inherent in loss estimation, among other things.
The financial data in the table below provides additional information detailing the net negative impact of the Q3 2020 Large Loss Events on our consolidated financial statements in the third quarter of 2020.
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Three months ended September 30, 2020
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Hurricane Laura
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Hurricane Sally
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Q3 2020 Wildfires
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Other Q3 2020 Catastrophe Events
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Aggregate Losses
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Total Q3 2020 Large Loss Events
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(in thousands)
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Net claims and claims expenses incurred
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$
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(123,076)
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$
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(72,531)
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$
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(91,107)
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$
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(61,586)
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$
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(120,118)
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$
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(468,418)
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Assumed reinstatement premiums earned
|
18,282
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|
5,110
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17,604
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|
7,407
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5,123
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|
53,526
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Ceded reinstatement premiums earned
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(334)
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(236)
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—
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—
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—
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(570)
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Lost profit commissions
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(254)
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(418)
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(491)
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(549)
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(5,179)
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(6,891)
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Net negative impact on underwriting result
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(105,382)
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(68,075)
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(73,994)
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(54,728)
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|
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(120,174)
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|
|
(422,353)
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Redeemable noncontrolling interest
|
20,008
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|
|
11,834
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|
19,580
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|
17,958
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|
31,262
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|
100,642
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Net negative impact on net income available to RenaissanceRe common shareholders
|
$
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(85,374)
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$
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(56,241)
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$
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(54,414)
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$
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(36,770)
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$
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(88,912)
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$
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(321,711)
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The financial data below provides additional information detailing the net negative impact of the Q3 2020 Large Loss Events on our segment underwriting results and consolidated combined ratio in the third quarter of 2020.
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|
Three months ended September 30, 2020
|
Hurricane Laura
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|
Hurricane Sally
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|
Q3 2020 Wildfires
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|
Other Q3 2020 Catastrophe Events
|
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Aggregate Losses
|
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Total Q3 2020 Large Loss Events
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(in thousands, except percentages)
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Net negative impact on Property segment underwriting result
|
$
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(95,845)
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|
$
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(68,075)
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|
$
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(73,994)
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|
$
|
(54,728)
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|
$
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(120,174)
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|
$
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(412,816)
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Net negative impact on Casualty and Specialty segment underwriting result
|
(9,537)
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|
—
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|
—
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—
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|
—
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|
|
(9,537)
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Net negative impact on underwriting result
|
$
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(105,382)
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|
|
$
|
(68,075)
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|
|
$
|
(73,994)
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|
|
$
|
(54,728)
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|
|
$
|
(120,174)
|
|
|
$
|
(422,353)
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Percentage point impact on consolidated combined ratio
|
10.3
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|
|
6.7
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|
7.2
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5.4
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|
|
12.0
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|
|
43.4
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|
|
|
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|
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|
The financial data in the table below provides additional information detailing the net negative impact of the Q3 2019 Catastrophe Events on our consolidated financial statements in the third quarter of 2019.
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|
|
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|
|
|
|
|
|
|
Three months ended September 30, 2019
|
Hurricane Dorian
|
|
Typhoon Faxai
|
|
Total Q3 2019 Catastrophe Events
|
|
|
(in thousands)
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|
|
|
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|
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Net claims and claims expenses incurred
|
$
|
(60,784)
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|
|
$
|
(148,127)
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|
|
$
|
(208,911)
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|
|
|
Assumed reinstatement premiums earned
|
5,106
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|
|
18,332
|
|
|
23,438
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|
|
|
Ceded reinstatement premiums earned
|
(364)
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|
|
(118)
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|
|
(482)
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|
|
|
Earned profit commissions
|
92
|
|
|
3,943
|
|
|
4,035
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|
|
|
Net negative impact on underwriting result
|
(55,950)
|
|
|
(125,970)
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|
|
(181,920)
|
|
|
|
Redeemable noncontrolling interest
|
3,659
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|
|
23,335
|
|
|
26,994
|
|
|
|
Net negative impact on net income available to RenaissanceRe common shareholders
|
$
|
(52,291)
|
|
|
$
|
(102,635)
|
|
|
$
|
(154,926)
|
|
|
|
|
|
|
|
|
|
|
The financial data below provides additional information detailing the net negative impact of the Q3 2019 Catastrophe Events on our segment underwriting results and consolidated combined ratio in the third quarter of 2019.
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2019
|
Hurricane Dorian
|
|
Typhoon Faxai
|
|
Total Q3 2019 Catastrophe Events
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
Net negative impact on Property segment underwriting result
|
$
|
(53,378)
|
|
|
$
|
(125,540)
|
|
|
$
|
(178,918)
|
|
|
|
Net negative impact on Casualty and Specialty segment underwriting result
|
(2,572)
|
|
|
(430)
|
|
|
(3,002)
|
|
|
|
Net negative impact on underwriting result
|
$
|
(55,950)
|
|
|
$
|
(125,970)
|
|
|
$
|
(181,920)
|
|
|
|
Percentage point impact on consolidated combined ratio
|
6.2
|
|
|
14.2
|
|
|
20.6
|
|
|
|
|
|
|
|
|
|
|
Underwriting Results by Segment
Property
Below is a summary of the underwriting results and ratios for our Property segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
Gross premiums written
|
$
|
427,765
|
|
|
$
|
314,400
|
|
|
$
|
113,365
|
|
|
|
Net premiums written
|
$
|
378,708
|
|
|
$
|
302,982
|
|
|
$
|
75,726
|
|
|
|
Net premiums earned
|
$
|
516,623
|
|
|
$
|
444,332
|
|
|
$
|
72,291
|
|
|
|
Net claims and claim expenses incurred
|
590,958
|
|
|
338,260
|
|
|
252,698
|
|
|
|
Acquisition expenses
|
98,545
|
|
|
79,521
|
|
|
19,024
|
|
|
|
Operational expenses
|
33,672
|
|
|
34,238
|
|
|
(566)
|
|
|
|
Underwriting loss
|
$
|
(206,552)
|
|
|
$
|
(7,687)
|
|
|
$
|
(198,865)
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claim expenses incurred – current accident year
|
$
|
629,827
|
|
|
$
|
345,880
|
|
|
$
|
283,947
|
|
|
|
Net claims and claim expenses incurred – prior accident years
|
(38,869)
|
|
|
(7,620)
|
|
|
(31,249)
|
|
|
|
Net claims and claim expenses incurred – total
|
$
|
590,958
|
|
|
$
|
338,260
|
|
|
$
|
252,698
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claim expense ratio – current accident year
|
121.9
|
%
|
|
77.8
|
%
|
|
44.1
|
%
|
|
|
Net claims and claim expense ratio – prior accident years
|
(7.5)
|
%
|
|
(1.7)
|
%
|
|
(5.8)
|
%
|
|
|
Net claims and claim expense ratio – calendar year
|
114.4
|
%
|
|
76.1
|
%
|
|
38.3
|
%
|
|
|
Underwriting expense ratio
|
25.6
|
%
|
|
25.6
|
%
|
|
—
|
%
|
|
|
Combined ratio
|
140.0
|
%
|
|
101.7
|
%
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
Property Gross Premiums Written
In the third quarter of 2020, our Property segment gross premiums written increased by $113.4 million, or 36.1%, to $427.8 million, compared to $314.4 million in the third quarter of 2019.
Gross premiums written in the catastrophe class of business were $179.7 million in the third quarter of 2020, an increase of $76.9 million, or 74.8%, compared to the third quarter of 2019. Gross written premiums in the third quarter of 2020 included $52.9 million of reinstatement premiums associated with the Q3 2020 Large Loss Events, as compared to $23.1 million of reinstatement premiums written in the third quarter of 2019 associated with the Q3 2019 Catastrophe Events. In addition, gross written premiums in the third quarter of 2019 included $26.4 million of negative premium adjustments related to the business of the third-party capital vehicles that the Company manages as a result of the acquisition of TMR. The negative premium adjustments were fully ceded and were reflected in ceded premiums written, resulting in no impact to the Company’s results of operations in the third quarter of 2019.
Gross premiums written in the other property class of business were $248.1 million in the third quarter of 2020, an increase of $36.5 million, or 17.2%, compared to the third quarter of 2019. This increase was driven by growth from existing relationships and new opportunities across a number of the Company’s underwriting platforms, including in the delegated authority insurance business of Syndicate 1458.
Property Ceded Premiums Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Ceded premiums written - Property
|
$
|
49,057
|
|
|
$
|
11,418
|
|
|
$
|
37,639
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums written in our Property segment were $49.1 million in the third quarter of 2020, an increase of $37.6 million, or 329.6%, compared to the third quarter of 2019. In the third quarter of 2020,
ceded premiums written included certain of the gross premiums ceded to third-party investors in the Company’s managed vehicles, primarily RenaissanceRe Upsilon Fund Ltd. (“Upsilon Fund”). Ceded premiums written in the third quarter of 2019 included $26.4 million negative premium adjustments related to the business of the third-party capital vehicles that the Company manages as a result of the acquisition of TMR, as discussed above.
Due to the potential volatility of the reinsurance contracts which we sell, we purchase reinsurance to reduce our exposure to large losses and to help manage our risk portfolio. To the extent that appropriately priced coverage is available, we anticipate continued use of retrocessional reinsurance to reduce the impact of large losses on our financial results and to manage our portfolio of risk; however, the buying of ceded reinsurance in our Property segment is based on market opportunities and is not based on placing a specific reinsurance program each year. In addition, in future periods we may utilize the growing market for insurance-linked securities to expand our purchases of retrocessional reinsurance if we find the pricing and terms of such coverages attractive.
Property Underwriting Results
Our Property segment incurred an underwriting loss of $206.6 million in the third quarter of 2020, compared to an underwriting loss of $7.7 million in the third quarter of 2019. In the third quarter of 2020, our Property segment generated a net claims and claim expense ratio of 114.4%, an underwriting expense ratio of 25.6% and a combined ratio of 140.0%, compared to 76.1%, 25.6% and 101.7%, respectively, in the third quarter of 2019.
Principally impacting the underwriting result and combined ratio in the third quarter of 2020 were the Q3 2020 Large Loss Events, which resulted in a net negative impact on the Property segment underwriting result of $412.8 million and added 84.4 percentage points to the Property segment combined ratio. In comparison, the third quarter of 2019 was impacted by the Q3 2019 Catastrophe Events, which resulted in a net negative impact on the Property segment underwriting result of $178.9 million and added 42.3 percentage points to the Property segment combined ratio.
Casualty and Specialty Segment
Below is a summary of the underwriting results and ratios for our Casualty and Specialty segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
Gross premiums written
|
$
|
715,293
|
|
|
$
|
546,668
|
|
|
$
|
168,625
|
|
|
|
Net premiums written
|
$
|
520,703
|
|
|
$
|
401,148
|
|
|
$
|
119,555
|
|
|
|
Net premiums earned
|
$
|
483,560
|
|
|
$
|
462,416
|
|
|
$
|
21,144
|
|
|
|
Net claims and claim expenses incurred
|
351,052
|
|
|
316,099
|
|
|
34,953
|
|
|
|
Acquisition expenses
|
116,636
|
|
|
122,654
|
|
|
(6,018)
|
|
|
|
Operational expenses
|
15,319
|
|
|
19,198
|
|
|
(3,879)
|
|
|
|
Underwriting income
|
$
|
553
|
|
|
$
|
4,465
|
|
|
$
|
(3,912)
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claim expenses incurred – current accident year
|
$
|
366,080
|
|
|
$
|
319,087
|
|
|
$
|
46,993
|
|
|
|
Net claims and claim expenses incurred – prior accident years
|
(15,028)
|
|
|
(2,988)
|
|
|
(12,040)
|
|
|
|
Net claims and claim expenses incurred – total
|
$
|
351,052
|
|
|
$
|
316,099
|
|
|
$
|
34,953
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claim expense ratio – current accident year
|
75.7
|
%
|
|
69.0
|
%
|
|
6.7
|
%
|
|
|
Net claims and claim expense ratio – prior accident years
|
(3.1)
|
%
|
|
(0.6)
|
%
|
|
(2.5)
|
%
|
|
|
Net claims and claim expense ratio – calendar year
|
72.6
|
%
|
|
68.4
|
%
|
|
4.2
|
%
|
|
|
Underwriting expense ratio
|
27.3
|
%
|
|
30.6
|
%
|
|
(3.3)
|
%
|
|
|
Combined ratio
|
99.9
|
%
|
|
99.0
|
%
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
Casualty and Specialty Gross Premiums Written
In the third quarter of 2020, our Casualty and Specialty segment gross premiums written increased by $168.6 million, or 30.8%, to $715.3 million, compared to $546.7 million in the third quarter of 2019. The increase was due to growth from new and existing business opportunities written in the current and prior periods across various classes of business within the segment, partially offset by the non-renewal of a portion of the business acquired in connection with the acquisition of TMR.
Casualty and Specialty Ceded Premiums Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Ceded premiums written - Casualty and Specialty
|
$
|
194,590
|
|
|
$
|
145,520
|
|
|
$
|
49,070
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums written in our Casualty and Specialty segment were $194.6 million in the third quarter of 2020, compared to $145.5 million in the third quarter of 2019, an increase of $49.1 million. The increase was primarily a result of increased gross premiums written subject to our retrocessional quota share reinsurance programs.
Casualty and Specialty Underwriting Results
Our Casualty and Specialty segment generated underwriting income of $0.6 million in the third quarter of 2020, compared to underwriting income of $4.5 million in the third quarter of 2019. In the third quarter of 2020, our Casualty and Specialty segment generated a net claims and claim expense ratio of 72.6%, an underwriting expense ratio of 27.3% and a combined ratio of 99.9% compared to 68.4%, 30.6% and 99.0%, respectively, in the third quarter of 2019.
The increase in the Casualty and Specialty net claims and claim expense ratio of 4.2 percentage points was principally the result of higher current accident year losses in the third quarter of 2020 compared to the third quarter of 2019. The net claims and claim expense ratio was impacted by net losses resulting from the
impact of Hurricane Laura and the purchase of an adverse development cover associated with Syndicate 1458’s casualty reserves, which combined to add 3.2 percentage points. While the net claims and claim expense ratio was also impacted by increased reserves in our mortgage guaranty book within our financial lines business, there was an offsetting impact to acquisition expenses as a result of reduced profit commission expense associated with this business. The underwriting expense ratio in the Casualty and Specialty segment decreased 3.3 percentage points, to 27.3%, in the third quarter of 2020 compared to the third quarter of 2019, driven by lower acquisition and operating expense ratios. The decrease in profit commission expense noted above was the principal driver of the decrease in acquisition costs. Operating expenses were impacted by reduced travel, marketing and office operational expenses as a result of the COVID-19 pandemic.
Fee Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Management fee income
|
|
|
|
|
|
|
|
Joint ventures
|
$
|
13,070
|
|
|
$
|
11,434
|
|
|
$
|
1,636
|
|
|
|
Structured reinsurance products and other
|
8,785
|
|
|
8,765
|
|
|
20
|
|
|
|
Managed funds
|
8,610
|
|
|
4,558
|
|
|
4,052
|
|
|
|
Total management fee income
|
30,465
|
|
|
24,757
|
|
|
5,708
|
|
|
|
|
|
|
|
|
|
|
|
Performance fee income
|
|
|
|
|
|
|
|
Joint ventures
|
(1,842)
|
|
|
5,278
|
|
|
(7,120)
|
|
|
|
Structured reinsurance products and other
|
(10,414)
|
|
|
275
|
|
|
(10,689)
|
|
|
|
Managed funds
|
175
|
|
|
1,688
|
|
|
(1,513)
|
|
|
|
Total performance fee income
|
(12,081)
|
|
|
7,241
|
|
|
(19,322)
|
|
|
|
Total fee income
|
$
|
18,384
|
|
|
$
|
31,998
|
|
|
$
|
(13,614)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table above shows total fee income earned through third-party capital management, various joint ventures and certain structured retrocession agreements to which we are a party. Performance fees are based on the performance of the individual vehicles or products, and may be negative in a particular period if, for example, large losses occur, which can potentially result in no performance fees or the reversal of previously accrued performance fees. Joint ventures include DaVinciRe, Top Layer Re, Vermeer and Langhorne. Managed funds include Upsilon Fund and Medici. Structured reinsurance products and other includes certain vehicles and reinsurance contracts which transfer risk to capital.
In the third quarter of 2020, total fee income earned through third-party capital management, various joint ventures and certain structured retrocession agreements to which we are a party decreased $13.6 million, to $18.4 million, compared to $32.0 million in the third quarter of 2019, primarily driven by lower underlying performance of our joint ventures and structured reinsurance products, primarily related to the Q3 2020 Large Loss Events, partially offset by an increase in the dollar value of managed capital compared to the third quarter of 2019. Of the $18.4 million in total fee income earned through third-party capital management in the third quarter of 2020, $5.0 million was recorded through redeemable noncontrolling interest and $13.4 million was recorded through underwriting income as a reduction to operating expenses and acquisition expenses (2019 - $15.9 million and $16.1 million, respectively).
In addition to the fee income earned through third-party capital management, various joint ventures and certain structured retrocession agreements to which we are a party, as detailed in the table above, we also earn fee income on certain other underwriting-related activities. These fees, in the aggregate, are recorded as a reduction to operating expenses or acquisition expenses, as applicable. The total fees, as described above and including fee income earned on these other underwriting-related activities, earned by us in the third quarter of 2020 that were recorded as a reduction to operating expenses and as an increase in acquisition expenses were $30.6 million and $1.9 million, respectively, resulting in a reduction to the combined ratio of 2.9% (2019 - a reduction of $22.7 million, a reduction of $8.1 million and 3.4%, respectively).
Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Fixed maturity investments trading
|
$
|
68,022
|
|
|
$
|
82,977
|
|
|
$
|
(14,955)
|
|
|
|
Short term investments
|
1,611
|
|
|
15,061
|
|
|
(13,450)
|
|
|
|
Equity investments trading
|
1,559
|
|
|
1,326
|
|
|
233
|
|
|
|
Other investments
|
|
|
|
|
|
|
|
Catastrophe bonds
|
13,626
|
|
|
12,812
|
|
|
814
|
|
|
|
Other
|
2,598
|
|
|
2,672
|
|
|
(74)
|
|
|
|
Cash and cash equivalents
|
441
|
|
|
1,978
|
|
|
(1,537)
|
|
|
|
|
87,857
|
|
|
116,826
|
|
|
(28,969)
|
|
|
|
Investment expenses
|
(4,314)
|
|
|
(5,439)
|
|
|
1,125
|
|
|
|
Net investment income
|
$
|
83,543
|
|
|
$
|
111,387
|
|
|
$
|
(27,844)
|
|
|
|
|
|
|
|
|
|
|
Net investment income was $83.5 million in the third quarter of 2020, compared to $111.4 million in the third quarter of 2019, a decrease of $27.8 million. Impacting our net investment income for the third quarter of 2020 were lower returns in our fixed maturity and short term investments, primarily as a result of lower yields on these investments following the decline in interest rates in early 2020.
Net Realized and Unrealized Gains on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on fixed maturity investments trading
|
55,665
|
|
|
30,101
|
|
|
25,564
|
|
|
|
Net unrealized gains on fixed maturity investments trading
|
16,316
|
|
|
17,226
|
|
|
(910)
|
|
|
|
Net realized and unrealized gains on fixed maturity investments trading
|
71,981
|
|
|
47,327
|
|
|
24,654
|
|
|
|
Net realized and unrealized gains on investments-related derivatives
|
2,033
|
|
|
11,134
|
|
|
(9,101)
|
|
|
|
Net realized gains (losses) on equity investments trading
|
16,624
|
|
|
(72)
|
|
|
16,696
|
|
|
|
Net unrealized gains (losses) on equity investments trading
|
107,332
|
|
|
(26,451)
|
|
|
133,783
|
|
|
|
Net realized and unrealized gains (losses) on equity investments trading
|
123,956
|
|
|
(26,523)
|
|
|
150,479
|
|
|
|
Net realized and unrealized gains on other investments - catastrophe bonds
|
12,611
|
|
|
9,242
|
|
|
3,369
|
|
|
|
Net realized and unrealized gains (losses) on other investments - other
|
13,627
|
|
|
(6,785)
|
|
|
20,412
|
|
|
|
Net realized and unrealized gains on investments
|
$
|
224,208
|
|
|
$
|
34,395
|
|
|
$
|
189,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment portfolio strategy is structured to emphasize the preservation of capital and the availability of liquidity to meet our claims obligations and to be well diversified across market sectors. A large majority of our investments are invested in the fixed income markets and, therefore, our realized and unrealized holding gains and losses on investments are highly correlated to fluctuations in interest rates and credit spreads. Therefore, everything else being constant, as interest rates or credit spreads decline, we will tend to have realized and unrealized gains from our fixed maturity investments portfolio, and as interest rates and credit spreads rise, we will tend to have realized and unrealized losses from our fixed maturity investments portfolio.
Net realized and unrealized gains on investments were $224.2 million in the third quarter of 2020, compared to net realized and unrealized gains of $34.4 million in the third quarter of 2019, an increase of $189.8 million. Principally impacting our net realized and unrealized gains on investments were net realized and unrealized gains on equity investments trading, including significant gains from certain positions within our strategic investment portfolio, and fixed maturity investments trading, primarily due to the decline in
credit spreads related to the market recovery following the disruption in global financial markets associated with the COVID-19 pandemic.
Net Foreign Exchange Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Net foreign exchange gains (losses)
|
$
|
17,426
|
|
|
$
|
(8,275)
|
|
|
$
|
25,701
|
|
|
|
|
|
|
|
|
|
|
Our functional currency is the U.S. dollar. We routinely write a portion of our business in currencies other than U.S. dollars and invest a portion of our cash and investment portfolio in those currencies. In addition, and in connection with the acquisition of TMR, we acquired certain entities with non-U.S. dollar functional currencies. As a result, we may experience foreign exchange gains and losses in our consolidated financial statements. We are primarily impacted by foreign currency exposures associated with our underwriting operations, investment portfolio, and our operations with non-U.S. dollar functional currencies, and may, from time to time, enter into foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar denominated assets and liabilities.
Refer to “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the year ended December 31, 2019 for additional information related to our exposure to foreign currency risk and “Note 13. Derivative Instruments” in our “Notes to the Consolidated Financial Statements” for additional information related to foreign currency forward and option contracts we have entered into.
Equity in Earnings of Other Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Tower Hill Companies
|
$
|
2,379
|
|
|
$
|
4,068
|
|
|
$
|
(1,689)
|
|
|
|
Top Layer Re
|
2,120
|
|
|
1,943
|
|
|
177
|
|
|
|
Other
|
958
|
|
|
(134)
|
|
|
1,092
|
|
|
|
Total equity in earnings of other ventures
|
$
|
5,457
|
|
|
$
|
5,877
|
|
|
$
|
(420)
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of other ventures primarily represents our pro-rata share of the net income from our investments in a group of Tower Hill affiliated companies, including Bluegrass Insurance Management, LLC, Tower Hill Claims Service, LLC, Tower Hill Holdings, Inc., Tower Hill Insurance Group, LLC, Tower Hill Insurance Managers, LLC, Tower Hill Re Holdings, Inc., Tower Hill Signature Insurance Holdings, Inc. and Tomoka Re Holdings, Inc. (collectively, the “Tower Hill Companies”) and Top Layer Re, and, except for Top Layer Re, is recorded one quarter in arrears. Top Layer Re is recorded on a current quarter basis. The carrying value of these investments on our consolidated balance sheets, individually or in the aggregate, may differ from the realized value we may ultimately attain, perhaps significantly so. The other category includes our equity investments in a select group of insurance and insurance-related companies.
Equity in earnings of other ventures was $5.5 million in the third quarter of 2020, compared to $5.9 million in the third quarter of 2019, a decrease of $0.4 million, principally driven by reduced profitability of our equity investments in the Tower Hill Companies, partially offset by improved profitability associated with a select group of insurance and insurance-related companies within the other category.
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Assumed and ceded reinsurance contracts accounted for as derivatives and deposits
|
$
|
1,429
|
|
|
$
|
(318)
|
|
|
$
|
1,747
|
|
|
|
Other items
|
47
|
|
|
1,334
|
|
|
(1,287)
|
|
|
|
Total other income
|
$
|
1,476
|
|
|
$
|
1,016
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2020, we generated other income of $1.5 million, compared to $1.0 million in the third quarter of 2019, an increase of $0.5 million, primarily related to our assumed and ceded reinsurance contracts accounted for as derivatives and deposits.
Corporate Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Corporate expenses
|
$
|
48,050
|
|
|
$
|
13,844
|
|
|
$
|
34,206
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses include certain executive, director, legal and consulting expenses, costs for research and development, impairment charges related to goodwill and other intangible assets, and other miscellaneous costs, including those associated with operating as a publicly traded company, as well as costs associated with the acquisition of TMR and the sale of RenaissanceRe UK. From time to time, we may revise the allocation of certain expenses between corporate and operating expenses to better reflect the characteristic of the underlying expense.
Corporate expenses increased to $48.1 million in the third quarter of 2020, compared to $13.8 million in the third quarter of 2019, primarily driven by the $30.2 million loss on the sale of RenaissanceRe UK on August 18, 2020, as well as related transaction and other expenses, and expenses associated with senior management departures during the third quarter of 2020. The loss on sale includes amounts related to prior purchase GAAP adjustments and cumulative currency translation adjustments recorded since the acquisition of RenaissanceRe UK.
Income Tax Benefit (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
$
|
8,244
|
|
|
$
|
(3,664)
|
|
|
$
|
11,908
|
|
|
|
|
|
|
|
|
|
|
We are subject to income taxes in certain jurisdictions in which we operate; however, since the majority of our income is generally earned in Bermuda, which does not have a corporate income tax, the tax impact to our operations has historically been minimal.
We recognized an income tax benefit of $8.2 million in the third quarter of 2020, compared to an expense of $3.7 million in the third quarter of 2019, principally driven by lower underwriting performance and other miscellaneous items in the U.S., including amounts resulting from the continued impacts of U.S. tax reform, partially offset by investment gains, primarily in the U.S. based operations.
Net Income Attributable to Redeemable Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Net income attributable to redeemable noncontrolling interests
|
$
|
(19,301)
|
|
|
$
|
(62,057)
|
|
|
$
|
42,756
|
|
|
|
|
|
|
|
|
|
|
Our net income attributable to redeemable noncontrolling interests was $19.3 million in the third quarter of 2020, compared to $62.1 million in the third quarter of 2019, a change of $42.8 million. The decrease was primarily driven by underwriting losses in DaVinciRe, partially offset by an increase in the net income of Medici compared to the third quarter of 2019.
SUMMARY OF RESULTS OF OPERATIONS
Below is a discussion of the results of operations for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands, except per share amounts and percentages)
|
|
|
|
|
|
|
|
Statement of operations highlights
|
|
|
|
|
|
|
|
Gross premiums written
|
$
|
4,870,651
|
|
|
$
|
3,902,271
|
|
|
$
|
968,380
|
|
|
|
Net premiums written
|
$
|
3,350,022
|
|
|
$
|
2,656,126
|
|
|
$
|
693,896
|
|
|
|
Net premiums earned
|
$
|
2,923,377
|
|
|
$
|
2,368,278
|
|
|
$
|
555,099
|
|
|
|
Net claims and claim expenses incurred
|
2,023,256
|
|
|
1,334,928
|
|
|
688,328
|
|
|
|
Acquisition expenses
|
659,394
|
|
|
553,614
|
|
|
105,780
|
|
|
|
Operational expenses
|
165,583
|
|
|
158,162
|
|
|
7,421
|
|
|
|
Underwriting income
|
$
|
75,144
|
|
|
$
|
321,574
|
|
|
$
|
(246,430)
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
$
|
272,321
|
|
|
$
|
312,069
|
|
|
$
|
(39,748)
|
|
|
|
Net realized and unrealized gains on investments
|
561,891
|
|
|
395,655
|
|
|
166,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment result
|
$
|
834,212
|
|
|
$
|
707,724
|
|
|
$
|
126,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
801,424
|
|
|
$
|
909,927
|
|
|
$
|
(108,503)
|
|
|
|
Net income available to RenaissanceRe common shareholders
|
$
|
541,670
|
|
|
$
|
678,269
|
|
|
$
|
(136,599)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to RenaissanceRe common shareholders per common share – diluted
|
$
|
11.58
|
|
|
$
|
15.57
|
|
|
$
|
(3.99)
|
|
|
|
Dividends per common share
|
$
|
1.05
|
|
|
$
|
1.02
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
Key ratios
|
|
|
|
|
|
|
|
Net claims and claim expense ratio – current accident year
|
71.1
|
%
|
|
57.0
|
%
|
|
14.1
|
%
|
|
|
Net claims and claim expense ratio – prior accident years
|
(1.9)
|
%
|
|
(0.6)
|
%
|
|
(1.3)
|
%
|
|
|
Net claims and claim expense ratio – calendar year
|
69.2
|
%
|
|
56.4
|
%
|
|
12.8
|
%
|
|
|
Underwriting expense ratio
|
28.2
|
%
|
|
30.0
|
%
|
|
(1.8)
|
%
|
|
|
Combined ratio
|
97.4
|
%
|
|
86.4
|
%
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Return on average common equity - annualized
|
12.0
|
%
|
|
18.2
|
%
|
|
(6.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
Book value
|
September 30,
2020
|
|
December 31,
2019
|
|
Change
|
|
|
Book value per common share
|
$
|
135.13
|
|
|
$
|
120.53
|
|
|
$
|
14.60
|
|
|
|
Accumulated dividends per common share
|
21.73
|
|
|
20.68
|
|
|
1.05
|
|
|
|
Book value per common share plus accumulated dividends
|
$
|
156.86
|
|
|
$
|
141.21
|
|
|
$
|
15.65
|
|
|
|
Change in book value per common share plus change in accumulated dividends
|
13.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to RenaissanceRe common shareholders was $541.7 million in the nine months ended September 30, 2020, compared to net income available to RenaissanceRe common shareholders of $678.3 million in the nine months ended September 30, 2019, a decrease of $136.6 million. As a result of our net income available to RenaissanceRe common shareholders in the nine months ended September 30, 2020, we generated an annualized return on average common equity of 12.0% and our book value per common share increased from $120.53 at December 31, 2019 to $135.13 at September 30, 2020, a 13.0% increase, after considering the change in accumulated dividends paid to our common shareholders.
The most significant items affecting our financial performance during the nine months ended September 30, 2020, on a comparative basis to the nine months ended September 30, 2019, include:
•TMR - the second quarter of 2019 was the first quarter that reflected the results of TMR in our results of operations. As such, our results of operations for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, should be viewed in that context;
•Impact of Catastrophe Events - in the nine months ended September 30, 2020 we had a net negative impact on net income available to RenaissanceRe common shareholders of $327.5 million resulting from Hurricane Laura, Hurricane Sally, the Q3 2020 Wildfires, Other Q3 2020 Catastrophe Events and loss estimates associated with aggregate loss contracts on these and other events in 2020 (collectively, the “2020 Large Loss Events”). This compares to a net negative impact on net income available to RenaissanceRe common shareholders of $154.9 million resulting from the Q3 2019 Catastrophe Events in the nine months ended September 30, 2019;
•Underwriting Results - we generated underwriting income of $75.1 million and had a combined ratio of 97.4% in the nine months ended September 30, 2020, compared to underwriting income of $321.6 million and a combined ratio of 86.4% in the nine months ended September 30, 2019. Our underwriting income in the nine months ended September 30, 2020 was comprised of $141.2 million of underwriting income in our Property segment and a $66.1 million underwriting loss in our Casualty and Specialty segment. In comparison, our underwriting income in the nine months ended September 30, 2019 was comprised of our Property segment, which generated underwriting income of $296.4 million, and our Casualty and Specialty segment, which generated underwriting income of $25.2 million.
Included in our underwriting results in the nine months ended September 30, 2020 was the impact of the 2020 Large Loss Events, which resulted in a net negative impact on the underwriting result of $428.7 million and added 15.0 percentage points to the combined ratio, primarily in the Property segment. In comparison, the nine months ended September 30, 2019 was impacted by the Q3 2019 Catastrophe Events, which resulted in a net negative impact on the underwriting result of $181.9 million and added 7.9 percentage points to the combined ratio. Our underwriting result in the nine months ended September 30, 2020 was also negatively impacted by net claims and claim expenses associated with the COVID-19 pandemic of $123.1 million during the nine months ended September 30, 2020, primarily in the Casualty and Specialty segment. The losses primarily represent the cost of claims incurred but not yet reported, with respect to exposures such as event contingency and event-based casualty covers;
•Gross Premiums Written - our gross premiums written increased by $968.4 million, or 24.8%, to $4.9 billion, in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, with an increase of $504.8 million in the Property segment and an increase of $463.5 million in the Casualty and Specialty segment, driven by growth from existing relationships, new opportunities across a number of our underwriting platforms, rate improvements, and business acquired in connection with the acquisition of TMR;
•Investment Results - our total investment result, which includes the sum of net investment income and net realized and unrealized gains on investments, was $834.2 million in the nine months ended September 30, 2020, compared to $707.7 million in the nine months ended September 30, 2019, an increase of $126.5 million. Impacting the investment result were realized and unrealized gains on fixed maturity investments trading and equity investments trading, partially offset by realized and unrealized losses on other investments;
•Net Income Attributable to Redeemable Noncontrolling Interests - our net income attributable to redeemable noncontrolling interests was $236.1 million in the nine months ended September 30, 2020, compared to $204.1 million in the nine months ended September 30, 2019. The increase was primarily driven by growth and improved performance, with higher net income from Medici and Vermeer, partially offset by lower net income from DaVinci, during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019; and
•Common Share Offering - on June 5, 2020, we issued 6,325,000 of our common shares in an underwritten public offering at a public offering price of $166.00 per share. Concurrently with the public offering, we raised $75.0 million through the issuance of 451,807 of our common shares at a price of $166.00 per share to State Farm Mutual Automobile Insurance Company (“State Farm”), one of our existing stockholders, in a private placement. The total net proceeds from the offerings were $1.1 billion.
Net Negative Impact
The financial data below provides additional information detailing the net negative impact of the 2020 Large Loss Events on our consolidated financial statements in the nine months ended September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2020
|
Hurricane Laura
|
|
Hurricane Sally
|
|
Q3 2020 Wildfires
|
|
Other Q3 2020 Catastrophe Events
|
|
Aggregate Losses
|
|
Total 2020 Large Loss Events
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claims expenses incurred
|
$
|
(123,076)
|
|
|
$
|
(72,531)
|
|
|
$
|
(91,107)
|
|
|
$
|
(61,586)
|
|
|
$
|
(126,563)
|
|
|
$
|
(474,863)
|
|
|
|
Assumed reinstatement premiums earned
|
18,282
|
|
|
5,110
|
|
|
17,604
|
|
|
7,407
|
|
|
5,256
|
|
|
53,659
|
|
|
|
Ceded reinstatement premiums earned
|
(334)
|
|
|
(236)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(570)
|
|
|
|
Lost profit commissions
|
(254)
|
|
|
(418)
|
|
|
(491)
|
|
|
(549)
|
|
|
(5,232)
|
|
|
(6,944)
|
|
|
|
Net negative impact on underwriting result
|
(105,382)
|
|
|
(68,075)
|
|
|
(73,994)
|
|
|
(54,728)
|
|
|
(126,539)
|
|
|
(428,718)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
20,008
|
|
|
11,834
|
|
|
19,580
|
|
|
17,958
|
|
|
31,816
|
|
|
101,196
|
|
|
|
Net negative impact on net income available to RenaissanceRe common shareholders
|
$
|
(85,374)
|
|
|
$
|
(56,241)
|
|
|
$
|
(54,414)
|
|
|
$
|
(36,770)
|
|
|
$
|
(94,723)
|
|
|
$
|
(327,522)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The financial data below provides additional information detailing the net negative impact of the 2020 Large Loss Events on our segment underwriting results and consolidated combined ratio in the nine months ended September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2020
|
Hurricane Laura
|
|
Hurricane Sally
|
|
Q3 2020 Wildfires
|
|
Other Q3 2020 Catastrophe Events
|
|
Aggregate Losses
|
|
Total 2020 Large Loss Events
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net negative impact on Property segment underwriting result
|
$
|
(95,845)
|
|
|
$
|
(68,075)
|
|
|
$
|
(73,994)
|
|
|
$
|
(54,728)
|
|
|
$
|
(126,539)
|
|
|
$
|
(419,181)
|
|
|
|
Net negative impact on Casualty and Specialty segment underwriting result
|
(9,537)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,537)
|
|
|
|
Net negative impact on underwriting result
|
$
|
(105,382)
|
|
|
$
|
(68,075)
|
|
|
$
|
(73,994)
|
|
|
$
|
(54,728)
|
|
|
$
|
(126,539)
|
|
|
$
|
(428,718)
|
|
|
|
Percentage point impact on consolidated combined ratio
|
3.6
|
|
|
2.3
|
|
|
2.5
|
|
|
1.8
|
|
|
4.3
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The financial data in the table below provides additional information detailing the net negative impact of the Q3 2019 Catastrophe Events on our consolidated financial statements in the nine months ended September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
Hurricane Dorian
|
|
Typhoon Faxai
|
|
Total Q3 2019 Catastrophe Events
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Net claims and claims expenses incurred
|
$
|
(60,784)
|
|
|
$
|
(148,127)
|
|
|
$
|
(208,911)
|
|
|
|
Assumed reinstatement premiums earned
|
5,106
|
|
|
18,332
|
|
|
23,438
|
|
|
|
Ceded reinstatement premiums earned
|
(364)
|
|
|
(118)
|
|
|
(482)
|
|
|
|
Earned profit commissions
|
92
|
|
|
3,943
|
|
|
4,035
|
|
|
|
Net negative impact on underwriting result
|
(55,950)
|
|
|
(125,970)
|
|
|
(181,920)
|
|
|
|
Redeemable noncontrolling interest
|
3,659
|
|
|
23,335
|
|
|
26,994
|
|
|
|
Net negative impact on net income available to RenaissanceRe common shareholders
|
$
|
(52,291)
|
|
|
$
|
(102,635)
|
|
|
$
|
(154,926)
|
|
|
|
|
|
|
|
|
|
|
The financial data below provides additional information detailing the net negative impact of the Q3 2019 Catastrophe Events on our segment underwriting results and consolidated combined ratio in the nine months ended September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
Hurricane Dorian
|
|
Typhoon Faxai
|
|
Total Q3 2019 Catastrophe Events
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
Net negative impact on Property segment underwriting result
|
$
|
(53,378)
|
|
|
$
|
(125,540)
|
|
|
$
|
(178,918)
|
|
|
|
Net negative impact on Casualty and Specialty segment underwriting result
|
(2,572)
|
|
|
(430)
|
|
|
(3,002)
|
|
|
|
Net negative impact on underwriting result
|
$
|
(55,950)
|
|
|
$
|
(125,970)
|
|
|
$
|
(181,920)
|
|
|
|
Percentage point impact on consolidated combined ratio
|
2.4
|
|
|
5.4
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
Underwriting Results by Segment
Property Segment
Below is a summary of the underwriting results and ratios for our Property segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
$
|
2,690,827
|
|
|
$
|
2,185,984
|
|
|
$
|
504,843
|
|
|
|
Net premiums written
|
$
|
1,757,427
|
|
|
$
|
1,411,327
|
|
|
$
|
346,100
|
|
|
|
Net premiums earned
|
$
|
1,429,074
|
|
|
$
|
1,160,090
|
|
|
$
|
268,984
|
|
|
|
Net claims and claim expenses incurred
|
899,860
|
|
|
541,217
|
|
|
358,643
|
|
|
|
Acquisition expenses
|
278,668
|
|
|
222,971
|
|
|
55,697
|
|
|
|
Operational expenses
|
109,335
|
|
|
99,546
|
|
|
9,789
|
|
|
|
Underwriting income
|
$
|
141,211
|
|
|
$
|
296,356
|
|
|
$
|
(155,145)
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claim expenses incurred – current accident year
|
$
|
931,285
|
|
|
$
|
536,197
|
|
|
$
|
395,088
|
|
|
|
Net claims and claim expenses incurred – prior accident years
|
(31,425)
|
|
|
5,020
|
|
|
(36,445)
|
|
|
|
Net claims and claim expenses incurred – total
|
$
|
899,860
|
|
|
$
|
541,217
|
|
|
$
|
358,643
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claim expense ratio – current accident year
|
65.2
|
%
|
|
46.2
|
%
|
|
19.0
|
%
|
|
|
Net claims and claim expense ratio – prior accident years
|
(2.2)
|
%
|
|
0.5
|
%
|
|
(2.7)
|
%
|
|
|
Net claims and claim expense ratio – calendar year
|
63.0
|
%
|
|
46.7
|
%
|
|
16.3
|
%
|
|
|
Underwriting expense ratio
|
27.1
|
%
|
|
27.8
|
%
|
|
(0.7)
|
%
|
|
|
Combined ratio
|
90.1
|
%
|
|
74.5
|
%
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
Property Gross Premiums Written
In the nine months ended September 30, 2020, our Property segment gross premiums written increased by $504.8 million, or 23.1%, to $2.7 billion, compared to $2.2 billion in the nine months ended September 30, 2019.
Gross premiums written in the catastrophe class of business were $1.8 billion in the nine months ended September 30, 2020, an increase of $277.0 million, or 17.9% compared to the nine months ended September 30, 2019. The increase in gross premiums written in the catastrophe class of business was primarily driven by expanded participation on existing transactions, certain new transactions, rate improvements and business acquired as a result of the acquisition of TMR.
Gross premiums written in the other property class of business were $863.2 million in the nine months ended September 30, 2020, an increase of $227.8 million, or 35.9%, compared to the nine months ended September 30, 2019. The increase in gross premiums written in the other property class of business was primarily driven by growth from existing relationships, new opportunities across a number of the Company’s underwriting platforms, and business acquired as a result of the acquisition of TMR.
Property Ceded Premiums Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Ceded premiums written - Property
|
$
|
933,400
|
|
|
$
|
774,657
|
|
|
$
|
158,743
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums written in our Property segment increased $158.7 million, to $933.4 million, in the nine months ended September 30, 2020, compared to $774.7 million in the nine months ended September 30, 2019. The increase in ceded premiums written was principally due to certain of the gross premiums written in the catastrophe class of business noted above being ceded to third-party investors in our managed vehicles, primarily Upsilon Fund and Mona Lisa Re Ltd., as well as an overall increase in ceded purchases as part of the Company’s gross-to-net strategy.
Property Underwriting Results
Our Property segment generated underwriting income of $141.2 million in the nine months ended September 30, 2020, compared to underwriting income of $296.4 million in the nine months ended September 30, 2019, a decrease of $155.1 million. In the nine months ended September 30, 2020, our Property segment generated a net claims and claim expense ratio of 63.0%, an underwriting expense ratio of 27.1% and a combined ratio of 90.1%, compared to 46.7%, 27.8% and 74.5%, respectively, in the nine months ended September 30, 2019.
Principally impacting the Property segment underwriting result and combined ratio in the nine months ended September 30, 2020 were the 2020 Large Loss Events, which resulted in a net negative impact on the Property segment underwriting result of $428.7 million and added 15.0 percentage points to the combined ratio. In comparison, the nine months ended September 30, 2019 was impacted by the Q3 2019 Catastrophe Events, which resulted in an net negative impact on the underwriting result of $181.9 million and added 7.9 percentage points to the combined ratio.
See “Note 6. Reserve for Claims and Claim Expenses” in our “Notes to the Consolidated Financial Statements” for additional information related to the development of prior accident years net claims and claim expenses.
Casualty and Specialty Segment
Below is a summary of the underwriting results and ratios for our Casualty and Specialty segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written
|
$
|
2,179,824
|
|
|
$
|
1,716,287
|
|
|
$
|
463,537
|
|
|
|
Net premiums written
|
$
|
1,592,595
|
|
|
$
|
1,244,799
|
|
|
$
|
347,796
|
|
|
|
Net premiums earned
|
$
|
1,494,303
|
|
|
$
|
1,208,188
|
|
|
$
|
286,115
|
|
|
|
Net claims and claim expenses incurred
|
1,123,527
|
|
|
793,533
|
|
|
329,994
|
|
|
|
Acquisition expenses
|
380,726
|
|
|
330,829
|
|
|
49,897
|
|
|
|
Operational expenses
|
56,195
|
|
|
58,603
|
|
|
(2,408)
|
|
|
|
Underwriting (loss) income
|
$
|
(66,145)
|
|
|
$
|
25,223
|
|
|
$
|
(91,368)
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claim expenses incurred – current accident year
|
$
|
1,147,354
|
|
|
$
|
813,251
|
|
|
$
|
334,103
|
|
|
|
Net claims and claim expenses incurred – prior accident years
|
(23,827)
|
|
|
(19,718)
|
|
|
(4,109)
|
|
|
|
Net claims and claim expenses incurred – total
|
$
|
1,123,527
|
|
|
$
|
793,533
|
|
|
$
|
329,994
|
|
|
|
|
|
|
|
|
|
|
|
Net claims and claim expense ratio – current accident year
|
76.8
|
%
|
|
67.3
|
%
|
|
9.5
|
%
|
|
|
Net claims and claim expense ratio – prior accident years
|
(1.6)
|
%
|
|
(1.6)
|
%
|
|
—
|
%
|
|
|
Net claims and claim expense ratio – calendar year
|
75.2
|
%
|
|
65.7
|
%
|
|
9.5
|
%
|
|
|
Underwriting expense ratio
|
29.2
|
%
|
|
32.2
|
%
|
|
(3.0)
|
%
|
|
|
Combined ratio
|
104.4
|
%
|
|
97.9
|
%
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
Casualty and Specialty Gross Premiums Written
In the nine months ended September 30, 2020, our Casualty and Specialty segment gross premiums written increased by $463.5 million, or 27.0%, to $2.2 billion, compared to $1.7 billion in the nine months ended September 30, 2019. The increase was due to growth from new and existing business opportunities written in the current and prior periods across various classes of business within the segment, and business acquired in connection with the acquisition of TMR.
Casualty and Specialty Ceded Premiums Written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Ceded premiums written - Casualty and Specialty
|
$
|
587,229
|
|
|
$
|
471,488
|
|
|
$
|
115,741
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums written in our Casualty and Specialty segment increased by $115.7 million, to $587.2 million, in the nine months ended September 30, 2020, compared to $471.5 million in the nine months ended September 30, 2019, primarily resulting from increased gross premiums written subject to our retrocessional quota share reinsurance programs, as well as an overall increase in ceded purchases as part of our gross-to-net strategy.
Casualty and Specialty Underwriting Results
Our Casualty and Specialty segment incurred an underwriting loss of $66.1 million in the nine months ended September 30, 2020, compared to underwriting income of $25.2 million in the nine months ended September 30, 2019. In the nine months ended September 30, 2020, our Casualty and Specialty segment generated a net claims and claim expense ratio of 75.2%, an underwriting expense ratio of 29.2% and a combined ratio of 104.4%, compared to 65.7%, 32.2% and 97.9%, respectively, in the nine months ended
September 30, 2019. The underwriting loss in the nine months ended September 30, 2020 was principally driven by net claims and claim expenses associated with the COVID-19 pandemic of $113.7 million, which added 7.6 percentage points to the combined ratio during the nine months ended September 30, 2020.
Our Casualty and Specialty segment experienced net favorable development on prior accident years net claims and claim expenses of $23.8 million, or 1.6 percentage points, during the nine months ended September 30, 2020, compared to $19.7 million, or 1.6 percentage points, respectively, in the nine months ended September 30, 2019. The net favorable development during the nine months ended September 30, 2020 and 2019 was principally driven by reported losses coming in lower than expected.
See “Note 6. Reserve for Claims and Claim Expenses” in our “Notes to the Consolidated Financial Statements” for additional information related to the development of prior accident years net claims and claim expenses.
While the additional net claims and claim expenses associated with the COVID-19 pandemic that we incurred in the second and third quarters of 2020 were not significant, the Company continues to evaluate industry trends and its own potential exposure associated with the ongoing COVID-19 pandemic, and expects historically significant industry losses to emerge over time as the full impact of the pandemic and its effects on the global economy are realized. Among other things, the Company continues to actively monitor information received from or reported by clients, brokers, industry actuaries, regulators, courts, and others, and to assess that information in the context of its own portfolio. Our loss estimates represent our best estimate based on currently available information, and actual losses may vary materially from these estimates. Additionally, losses incurred in respect of the COVID-19 pandemic subsequent to September 30, 2020 will be reflected in the periods in which those losses are incurred.
Fee Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Management fee income
|
|
|
|
|
|
|
|
Joint ventures
|
$
|
37,041
|
|
|
$
|
30,688
|
|
|
$
|
6,353
|
|
|
|
Structured reinsurance products and other
|
26,121
|
|
|
26,986
|
|
|
(865)
|
|
|
|
Managed funds
|
21,536
|
|
|
14,822
|
|
|
6,714
|
|
|
|
Total management fee income
|
84,698
|
|
|
72,496
|
|
|
12,202
|
|
|
|
|
|
|
|
|
|
|
|
Performance fee income
|
|
|
|
|
|
|
|
Joint ventures
|
12,151
|
|
|
13,034
|
|
|
(883)
|
|
|
|
Structured reinsurance products and other
|
5,955
|
|
|
13,007
|
|
|
(7,052)
|
|
|
|
Managed funds
|
6,452
|
|
|
2,456
|
|
|
3,996
|
|
|
|
Total performance fee income
|
24,558
|
|
|
28,497
|
|
|
(3,939)
|
|
|
|
Total fee income
|
$
|
109,256
|
|
|
$
|
100,993
|
|
|
$
|
8,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the nine months ended September 30, 2020, total fee income earned through third-party capital management, various joint ventures and certain structured retrocession agreements to which we are a party increased $8.3 million, to $109.3 million, compared to $101.0 million in the nine months ended September 30, 2019, primarily driven by an increase in the dollar value of capital being managed and partially offset by reduced underlying performance. Of the $109.3 million in total fee income earned in the nine months ended September 30, 2020 through third-party capital management, various joint ventures and certain structured retrocession agreements to which we are a party, $57.5 million was recorded through redeemable noncontrolling interest and $51.7 million was recorded through underwriting income as a reduction to operating expenses and acquisition expenses (2019 - $49.5 million and $51.5 million, respectively).
In addition to the fee income earned through third-party capital management, joint ventures and certain structured retrocession agreements to which we are a party, as detailed in the table above, we also earn fee income on certain other underwriting-related activities. These fees, in the aggregate, are recorded as a
reduction to operating expenses or acquisition expenses, as applicable. The total fees, as described above and including fee income earned on certain other underwriting-related activities, earned by us in the nine months ended September 30, 2020 that were recorded as a reduction to operating expenses or acquisition expenses were $85.4 million and $7.5 million, respectively, resulting in a reduction to the combined ratio of 3.2% (2019 - $67.0 million, $17.5 million and 3.4%, respectively).
Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Fixed maturity investments trading
|
$
|
211,303
|
|
|
$
|
232,566
|
|
|
$
|
(21,263)
|
|
|
|
Short term investments
|
19,752
|
|
|
44,712
|
|
|
(24,960)
|
|
|
|
Equity investments trading
|
4,776
|
|
|
3,269
|
|
|
1,507
|
|
|
|
Other investments
|
|
|
|
|
|
|
|
Catastrophe bonds
|
41,284
|
|
|
33,284
|
|
|
8,000
|
|
|
|
Other
|
5,334
|
|
|
6,226
|
|
|
(892)
|
|
|
|
Cash and cash equivalents
|
2,782
|
|
|
5,801
|
|
|
(3,019)
|
|
|
|
|
285,231
|
|
|
325,858
|
|
|
(40,627)
|
|
|
|
Investment expenses
|
(12,910)
|
|
|
(13,789)
|
|
|
879
|
|
|
|
Net investment income
|
$
|
272,321
|
|
|
$
|
312,069
|
|
|
$
|
(39,748)
|
|
|
|
|
|
|
|
|
|
|
Net investment income was $272.3 million in the nine months ended September 30, 2020, compared to $312.1 million in the nine months ended September 30, 2019, a decrease of $39.7 million. Impacting our net investment income for the nine months ended September 30, 2020 were lower returns in our fixed maturity and short term investments, primarily as a result of lower yields on these investments following the decline in interest rates in early 2020, partially offset by higher returns on our catastrophe bonds due to growth in the portfolio.
Net Realized and Unrealized Gains on Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on fixed maturity investments trading
|
$
|
219,001
|
|
|
$
|
52,826
|
|
|
$
|
166,175
|
|
|
|
Net unrealized gains on fixed maturity investments trading
|
193,649
|
|
|
243,139
|
|
|
(49,490)
|
|
|
|
Net realized and unrealized gains on fixed maturity investments trading
|
412,650
|
|
|
295,965
|
|
|
116,685
|
|
|
|
Net realized and unrealized gains on investments-related derivatives
|
59,586
|
|
|
62,103
|
|
|
(2,517)
|
|
|
|
Net realized gains on equity investments trading
|
1,999
|
|
|
30,666
|
|
|
(28,667)
|
|
|
|
Net unrealized gains on equity investments trading
|
109,291
|
|
|
7,852
|
|
|
101,439
|
|
|
|
Net realized and unrealized gains on equity investments trading
|
111,290
|
|
|
38,518
|
|
|
72,772
|
|
|
|
Net realized and unrealized gains (losses) on other investments - catastrophe bonds
|
2,711
|
|
|
(4,870)
|
|
|
7,581
|
|
|
|
Net realized and unrealized (losses) gains on other investments - other
|
(24,346)
|
|
|
3,939
|
|
|
(28,285)
|
|
|
|
Net realized and unrealized gains on investments
|
$
|
561,891
|
|
|
$
|
395,655
|
|
|
$
|
166,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gains on investments were $561.9 million in the nine months ended September 30, 2020, compared to net realized and unrealized gains of $395.7 million in the nine months ended September 30, 2019, a increase of $166.2 million. Principally impacting our net realized and unrealized gains on investments in the nine months ended September 30, 2020 were:
•net realized and unrealized gains on our fixed maturity investments trading of $412.7 million in the nine months ended September 30, 2020, compared to net realized and unrealized gains of $296.0 million in the nine months ended September 30, 2019, an increase of $116.7 million, principally driven by higher realized gains generated on the sale of fixed maturity investments, partially offset by lower unrealized gains on fixed maturity investments trading;
•net realized and unrealized gains on equity investments trading of $111.3 million in the nine months ended September 30, 2020, compared to gains of $38.5 million in the nine months ended September 30, 2019, an increase of $72.8 million, principally driven by a net increase in the value of our strategic investment portfolio, during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019; and
•net realized and unrealized losses on our other investments of $24.3 million in the nine months ended September 30, 2020, compared to net realized and unrealized gains of $3.9 million in the nine months ended September 30, 2019, a decrease of $28.3 million, principally driven by lower returns in our private equity investment portfolio.
Net Foreign Exchange Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Net foreign exchange gains (losses)
|
$
|
4,503
|
|
|
$
|
(1,812)
|
|
|
$
|
6,315
|
|
|
|
|
|
|
|
|
|
|
Our functional currency is the U.S. dollar. We routinely write a portion of our business in currencies other than U.S. dollars and invest a portion of our cash and investment portfolio in those currencies. In addition, and in connection with the acquisition of TMR, we acquired certain entities with non-U.S. dollar functional currencies. As a result, we may experience foreign exchange gains and losses in our consolidated financial statements. We are primarily impacted by foreign currency exposures associated with our underwriting operations, investment portfolio, and operations with non-U.S. dollar functional currencies, and may, from time to time, enter into foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar denominated assets and liabilities.
Equity in Earnings of Other Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Tower Hill Companies
|
$
|
7,692
|
|
|
$
|
8,522
|
|
|
$
|
(830)
|
|
|
|
Top Layer Re
|
7,036
|
|
|
6,550
|
|
|
486
|
|
|
|
Other
|
4,334
|
|
|
2,278
|
|
|
2,056
|
|
|
|
Total equity in earnings of other ventures
|
$
|
19,062
|
|
|
$
|
17,350
|
|
|
$
|
1,712
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of other ventures was $19.1 million in the nine months ended September 30, 2020, compared to $17.4 million in the nine months ended September 30, 2019, an increase of $1.7 million, principally driven by improved profitability of our equity investments in Top Layer Re and a select group of insurance and insurance-related companies within the other category, partially offset by reduced profitability in the Tower Hill Companies.
Other (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Assumed and ceded reinsurance contracts accounted for as derivatives and deposits
|
$
|
(5,210)
|
|
|
$
|
3,547
|
|
|
(8,757)
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
1,049
|
|
|
1,562
|
|
|
(513)
|
|
|
|
Total other (loss) income
|
$
|
(4,161)
|
|
|
$
|
5,109
|
|
|
$
|
(9,270)
|
|
|
|
|
|
|
|
|
|
|
In the nine months ended September 30, 2020, we incurred an other loss of $4.2 million, compared to other income of $5.1 million in the nine months ended September 30, 2019, a decrease of $9.3 million, driven by losses on our assumed and ceded reinsurance contracts accounted for as derivatives and deposits.
Corporate Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Corporate expenses
|
$
|
75,939
|
|
|
$
|
76,480
|
|
|
$
|
(541)
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses include certain executive, director, legal and consulting expenses, costs for research and development, impairment charges related to goodwill and other intangible assets, and other miscellaneous costs, including those associated with operating as a publicly traded company, as well as costs associated with the acquisition of TMR and the sale of RenaissanceRe UK.
Corporate expenses decreased $0.5 million to $75.9 million, in the nine months ended September 30, 2020, compared to $76.5 million in the nine months ended September 30, 2019. Included in corporate expenses for the nine months ended September 30, 2020 is the $30.2 million loss on the sale of RenaissanceRe UK on August 18, 2020, as well as related transaction and other expenses, compared to $44.0 million of corporate expenses associated with the acquisition of TMR in the nine months ended September 30, 2019.
Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Income tax expense
|
$
|
(12,785)
|
|
|
$
|
(20,670)
|
|
|
$
|
7,885
|
|
|
|
|
|
|
|
|
|
|
In the nine months ended September 30, 2020, we recognized an income tax expense of $12.8 million, compared to $20.7 million in the nine months ended September 30, 2019. The income tax expense in the nine months ended September 30, 2020 was principally driven by investment gains in our U.S. based operations, partially offset by lower underwriting performance and other miscellaneous items, also primarily in our U.S. operations, including amounts from the continued impacts of U.S. tax reform.
Net Income Attributable to Redeemable Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Net income attributable to redeemable noncontrolling interests
|
$
|
(236,120)
|
|
|
$
|
(204,091)
|
|
|
$
|
(32,029)
|
|
|
|
|
|
|
|
|
|
|
Our net income attributable to redeemable noncontrolling interests was $236.1 million in the nine months ended September 30, 2020, compared to $204.1 million in the nine months ended September 30, 2019, a change of $32.0 million. The increase was primarily driven by growth and improved performance, with higher net income from Medici and Vermeer, partially offset by lower net income from DaVinci, during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources were not materially impacted by the COVID-19 pandemic and related volatility and slowdown in the global financial markets during the nine months ended September 30, 2020. For further discussion regarding the potential future impacts of the COVID-19 pandemic and related economic conditions on the Company's liquidity and capital resources, see "Current Outlook" and "Part II, Item 1A, Risk Factors."
Financial Condition
As a Bermuda-domiciled holding company, RenaissanceRe has limited operations of its own. Its assets consist primarily of investments in subsidiaries, and, to a degree, cash and securities in amounts which fluctuate over time. We therefore rely on dividends and distributions (and other statutorily permissible payments) from our subsidiaries, investment income and fee income to meet our liquidity requirements, which primarily include making principal and interest payments on our debt and dividend payments to our preference and common shareholders.
The payment of dividends by our subsidiaries is, under certain circumstances, limited by the applicable laws and regulations in the various jurisdictions in which our subsidiaries operate, including Bermuda, the U.S., the U.K., Switzerland, Australia, Singapore and Ireland. In addition, insurance laws require our insurance subsidiaries to maintain certain measures of solvency and liquidity. We believe that each of our insurance subsidiaries and branches exceeded the minimum solvency, capital and surplus requirements in their applicable jurisdictions at September 30, 2020. Certain of our subsidiaries and branches are required to file financial condition reports (“FCRs”) with their regulators, which provide details on solvency and financial performance. Where required, these FCRs will be posted on our website. The regulations governing our and our principal operating subsidiaries’ ability to pay dividends and to maintain certain measures of solvency and liquidity, and requirements to file FCRs are discussed in detail in “Part I, Item 1. Business, Regulation” and “Note 18. Statutory Requirements” in our “Notes to the Consolidated Financial Statements” in our Form 10-K for the year ended December 31, 2019.
Liquidity and Cash Flows
Holding Company Liquidity
RenaissanceRe’s principal uses of liquidity are: (1) common share related transactions including dividend payments to our common shareholders and common share repurchases, (2) preference share related transactions including dividend payments to our preference shareholders and preference share redemptions, (3) interest and principal payments on debt, (4) capital investments in our subsidiaries, (5) acquisition of new or existing companies or businesses, such as our acquisition of TMR and (6) certain corporate and operating expenses.
We attempt to structure our organization in a way that facilitates efficient capital movements between RenaissanceRe and our operating subsidiaries and to ensure that adequate liquidity is available when required, giving consideration to applicable laws and regulations, and the domiciliary location of sources of liquidity and related obligations.
In the aggregate, our principal operating subsidiaries have historically produced sufficient cash flows to meet their expected claims payments and operational expenses and to provide dividend payments to us. In addition, our subsidiaries maintain a concentration of investments in high quality liquid securities, which management believes will provide additional liquidity for extraordinary claims payments should the need arise. However, in some circumstances, RenaissanceRe may contribute capital to its subsidiaries. For example, during 2018 and 2017 we experienced significant losses from large catastrophe events, and as we would expect following events of this magnitude, it was necessary for RenaissanceRe to contribute capital to certain of our principal operating subsidiaries to ensure they were able to maintain levels of capital adequacy and liquidity in compliance with various laws and regulations, support rating agency capital requirements, pay valid claims quickly and be adequately capitalized to pursue business opportunities as they arise. During 2019, RenaissanceRe contributed capital to RenaissanceRe Specialty Holdings (UK) Limited to fund the acquisition of TMR and made a capital contribution to Renaissance Reinsurance to increase its shareholders’ equity, consistent with past practice following a significant acquisition and to support growth in premiums. In addition, from time to time we invest in new managed joint ventures, increase our investments in certain of our managed joint ventures and contribute cash to investment subsidiaries. In certain instances, we are required to make capital contributions to our subsidiaries, for example, Renaissance Reinsurance is obligated to make a mandatory capital contribution of up to $50.0 million in the event that a loss reduces Top Layer Re’s capital below a specified level.
Sources of Liquidity
Historically, cash receipts from operations, consisting primarily of premiums, investment income and fee income, have provided sufficient funds to pay losses and operating expenses of our subsidiaries and to fund dividends and distributions to RenaissanceRe. Other potential sources of liquidity include borrowings under our credit facilities and issuances of securities. For example, in June 2020, we raised $1.1 billion of net proceeds in an underwritten public offering and concurrent private placement of our common shares.
The premiums received by our operating subsidiaries are generally received months or even years before losses are paid under the policies related to such premiums. Premiums and acquisition expenses generally are received within the first two years of inception of a contract while operating expenses are generally paid within a year of being incurred. It generally takes much longer for claims and claims expenses to be reported and ultimately settled, requiring the establishment of reserves for claims and claim expenses. Therefore, the amount of claims paid in any one year is not necessarily related to the amount of net claims incurred in that year, as reported in the consolidated statement of operations.
While we expect that our liquidity needs will continue to be met by our cash receipts from operations, as a result of the combination of current market conditions, lower than usual investment yields, and the nature of our business where a large portion of the coverages we provide can produce losses of high severity and low frequency, future cash flows from operating activities cannot be accurately predicted and may fluctuate significantly between individual quarters and years. In addition, due to the magnitude and complexity of certain large loss events, meaningful uncertainty remains regarding losses from these events and our actual ultimate net losses from these events may vary materially from preliminary estimates, which would impact our cash flows from operations. Further, we expect historically significant industry losses related to the
COVID-19 pandemic to emerge over time as the full impact of the pandemic and its effects on the global economy are realized, which may impact our cash flows from operations.
Our “shelf” registration statement on Form S-3 under the Securities Act allows for the public offering of various types of securities, including common shares, preference shares and debt securities, and thus provides a source of liquidity. Because we are a “well-known seasoned issuer” as defined by the rules promulgated under the Securities Act, we are also eligible to file additional automatically effective registration statements on Form S-3 in the future for the potential offering and sale of an unlimited amount of debt and equity securities.
Credit Facilities
In addition, we maintain credit facilities that provide liquidity and allow us to satisfy certain collateral requirements. The outstanding amounts drawn under each of our significant credit facilities are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2020
|
Issued or Drawn
|
|
|
Revolving Credit Facility (1)
|
$
|
—
|
|
|
|
Bilateral Letter of Credit Facilities
|
|
|
|
Secured
|
330,356
|
|
|
|
Unsecured
|
346,459
|
|
|
|
Funds at Lloyd’s Letter of Credit Facility
|
290,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
966,815
|
|
|
|
|
|
|
(1) At September 30, 2020, no amounts were issued or drawn under this facility.
During the nine months ended September 30, 2020, the letters of credit and facilities that were transferred to the Company in connection with the acquisition of TMR were terminated. There have been no other material changes to our credit facilities as disclosed in our Form 10-K for the year ended December 31, 2019.
Refer to “Note 7. Debt and Credit Facilities” in our “Notes to the Consolidated Financial Statements” for additional information related to our debt and significant credit facilities.
Funds at Lloyd’s
As a member of Lloyd’s, the underwriting capacity, or stamp capacity, of Syndicate 1458 must be supported by providing a deposit in the form of cash, securities or letters of credit (referred to as “Funds at Lloyd’s” or “FAL”). At September 30, 2020, the FAL required to support the underwriting activities at Lloyd’s through Syndicate 1458 was £509.0 million (December 31, 2019 - £524.3 million). Actual FAL posted for Syndicate 1458 at September 30, 2020 by RenaissanceRe Corporate Capital (UK) Limited was £561.1 million (December 31, 2019 - £522.5 million), supported by a $290.0 million letter of credit and a $405.7 million deposit of cash and fixed maturity securities (December 31, 2019 - $290.0 million and $385.9 million, respectively).
Multi-Beneficiary Reinsurance Trusts and Multi-Beneficiary Reduced Collateral Reinsurance Trusts
Certain of our insurance subsidiaries use multi-beneficiary reinsurance trusts and multi-beneficiary reduced collateral reinsurance trusts to collateralize reinsurance liabilities. Refer to “Note 18. Statutory Requirements” in our “Notes to the Consolidated Financial Statements” in our Form 10-K for the year ended December 31, 2019 for additional information.
Multi-Beneficiary Reinsurance Trusts
Assets held under trust at September 30, 2020 with respect to our multi-beneficiary reinsurance trusts totaled $1.2 billion and $278.2 million for Renaissance Reinsurance and DaVinci, respectively (December 31, 2019 - $1.3 billion and $336.5 million, respectively), compared to the minimum amount required under U.S. state regulations of $884.1 million and $246.8 million, respectively, at September 30, 2020 (December 31, 2019 - $927.4 million and $249.4 million, respectively).
Multi-Beneficiary Reduced Collateral Reinsurance Trusts
Assets held under trust at September 30, 2020 with respect to our multi-beneficiary reduced collateral reinsurance trusts totaled $55.1 million and $46.8 million for Renaissance Reinsurance and DaVinci, respectively (December 31, 2019 - $51.7 million and $43.8 million, respectively), compared to the minimum amount required under U.S. state regulations of $45.1 million and $48.2 million, respectively (December 31, 2019 - $40.3 million and $40.9 million, respectively).
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
|
|
|
|
Net cash provided by operating activities
|
$
|
1,329,779
|
|
|
$
|
1,264,432
|
|
|
|
Net cash used in investing activities
|
(2,054,819)
|
|
|
(2,338,764)
|
|
|
|
Net cash provided by financing activities
|
632,307
|
|
|
833,020
|
|
|
|
Effect of exchange rate changes on foreign currency cash
|
1,043
|
|
|
4,641
|
|
|
|
Net decrease in cash and cash equivalents
|
(91,690)
|
|
|
(236,671)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
1,379,068
|
|
|
1,107,922
|
|
|
|
Cash and cash equivalents, end of period
|
$
|
1,287,378
|
|
|
$
|
871,251
|
|
|
|
|
|
|
|
|
2020
During the nine months ended September 30, 2020, our cash and cash equivalents decreased by $91.7 million, to $1.3 billion at September 30, 2020, compared to $1.4 billion at December 31, 2019.
Cash flows provided by operating activities. Cash flows provided by operating activities during the nine months ended September 30, 2020 were $1.3 billion, compared to $1.3 billion during the nine months ended September 30, 2019. Cash flows provided by operating activities during the nine months ended September 30, 2020 were primarily the result of certain adjustments to reconcile our net income of $801.4 million to net cash provided by operating activities, including:
•an increase in reinsurance balances payable of $1.1 billion principally driven by the issuance of non-voting preference shares to investors in Upsilon RFO, which are accounted for as prospective reinsurance and included in reinsurance balances payable on our consolidated balance sheet. See “Note 9. Variable Interest Entities” in our “Notes to the Consolidated Financial Statements” for additional information related to Upsilon RFO’s non-voting preference shares;
•an increase in unearned premiums of $745.5 million due to the growth in gross premiums written across both our Property and Casualty and Specialty segments;
•an increase in reserve for claims and claim expenses of $675.1 million primarily the result of net claims and claim expenses associated with the 2020 Large Loss Events, partially offset by a reduction in net claims and claim expenses of $155.2 million due to the sale of RenaissanceRe UK; partially offset by
•an increase in premiums receivable of $736.1 million due to the timing of receipts and increase in our gross premiums written;
•net realized and unrealized gains on investments of $561.9 million principally driven by higher realized gains generated on the sale of fixed maturity investments trading and higher overall returns in our portfolio of equity investments trading, partially offset by lower overall returns in our portfolio of other investments;
•an increase of $314.5 million in our prepaid reinsurance premiums due to the timing of payments and increase in ceded premiums written; and
•a decrease in other operating cash flows of $267.4 million primarily reflecting subscriptions received in advance of the issuance of Upsilon RFO’s non-voting preference shares effective January 1, 2020, which were recorded in other liabilities at December 31, 2019. During the nine months ended September 30, 2020, in connection with the issuance of the non-voting preference shares of
Upsilon RFO, other liabilities were reduced by the subscriptions received in advance, and reinsurance balances payable were increased by an offsetting amount, with corresponding impacts to other operating cash flows and the change in reinsurance balances payable, as noted above, on our consolidated statements of cash flows for the nine months ended September 30, 2020. See “Note 9. Variable Interest Entities” in our “Notes to the Consolidated Financial Statements” for additional information related to Upsilon RFO’s non-voting preference shares.
Cash flows used in investing activities. During the nine months ended September 30, 2020, our cash flows used in investing activities were $2.1 billion, principally reflecting net purchases of fixed maturity investments trading, short term investments and other investments of $1.5 billion, $549.2 million and $101.3 million, respectively. The net purchase of fixed maturity investments trading was primarily funded by cash flows provided by operating activities, as described above, and the issuance of RenaissanceRe common shares during the second quarter of 2020, whereas the net purchase of short term investments was primarily associated with capital received from investors in Upsilon RFO during the nine months ended September 30, 2020. The net purchase of other investments during the nine months ended September 30, 2020, was primarily driven by an increased allocation to catastrophe bonds. Partially offsetting these net outflows in our cash flows used in investing activities was net proceeds of $136.7 million from the sale of RenaissanceRe UK during the third quarter of 2020.
Cash flows provided by financing activities. Our cash flows provided by financing activities in the nine months ended September 30, 2020 were $632.3 million, and were principally the result of:
•the issuance of 6,325,000 of our common shares in an underwritten public offering at a public offering price of $166.00 per share, combined with an additional $75.0 million raised through the issuance of 451,807 of our common shares at a price of $166.00 per share to State Farm, one of our existing stockholders, in a private placement. The total net proceeds from the offerings were $1.1 billion;
•net inflows of $59.1 million primarily related to net third-party redeemable noncontrolling interest share transactions in Medici and Vermeer; partially offset by
•the repayment in full at maturity the aggregate principal amount of $250.0 million, plus applicable accrued interest, of our 5.75% Senior Notes due 2020 of RenRe North America Holdings Inc. and RenaissanceRe Finance;
•the redemption of all 5 million of our outstanding Series C 6.08% Preference Shares on March 26, 2020 for $125.0 million plus accrued and unpaid dividends thereon;
•the repurchase of 406 thousand of our common shares in open market transactions at an aggregate cost of $62.6 million and an average price of $154.36 per common share; and
•dividends paid on our common and preference shares of $50.8 million and $23.6 million, respectively.
2019
During the nine months ended September 30, 2019, our cash and cash equivalents decreased by $236.7 million, to $871.3 million at September 30, 2019, compared to $1.1 billion at December 31, 2018.
Cash flows provided by operating activities. Cash flows provided by operating activities during the nine months ended September 30, 2019 were $1.3 billion, compared to $888.5 million during the nine months ended September 30, 2018. Cash flows provided by operating activities during the nine months ended September 30, 2019 were primarily the result of certain adjustments to reconcile our net income of $909.9 million to net cash provided by operating activities, including:
•an increase in reinsurance balances payable of $738.4 million principally driven by the issuance of non-voting preference shares to investors in Upsilon RFO, which are accounted for as prospective reinsurance and included in reinsurance balances payable on our consolidated balance sheet. See “Note 10. Variable Interest Entities” in our “Notes to the Consolidated Financial Statements” for additional information related to Upsilon RFO’s non-voting preference shares;
•an increase in unearned premiums of $487.9 million due to the growth in gross premiums written across both our Property and Casualty and Specialty segments;
•a net decrease in reinsurance recoverable of $482.7 million, after taking into account the acquisition of TMR, primarily resulting from the collection of $930.7 million during the nine months ended September 30, 2019, partially offset by increases to reinsurance recoverable principally driven by increases in net claims and claim expenses associated with current accident year losses, combined with the continued execution of our gross-to-net strategy;
•an increase in reserve for claims and claim expenses of $118.7 million as a result of claims and claims expenses incurred of $1.8 billion during the nine months ended September 30, 2019 principally driven by current accident year losses, partially offset by claims payments of $1.6 billion primarily associated with prior accident years losses; partially offset by
•increases in premiums receivable of $625.0 million due to the timing of receipts of our gross premiums written;
•an increase of $216.1 million in our prepaid reinsurance premiums due to an increase in ceded premiums written;
•a decrease in other operating cash flows of $277.1 million primarily reflecting subscriptions received in advance of the issuance of Upsilon RFO’s non-voting preference shares effective January 1, 2019, which were recorded in other liabilities at December 31, 2018. During the first nine months of 2019, in connection with the issuance of the non-voting preference shares of Upsilon RFO, other liabilities were reduced by the subscriptions received in advance, and reinsurance balances payable were increased by an offsetting amount, with corresponding impacts to other operating cash flows and the change in reinsurance balances payable, as noted above, on our consolidated statements of cash flows for the first nine months of 2019. See “Note 9. Variable Interest Entities” in our “Notes to the Consolidated Financial Statements” for additional information related to Upsilon RFO’s non-voting preference shares; and
•net realized and unrealized gains on investments of $395.7 million principally due to improved performances from our fixed maturity, public equity and investments-related derivative portfolios.
Cash flows used in investing activities. During the nine months ended September 30, 2019, our cash flows used in investing activities were $2.3 billion, principally reflecting net purchases of short term investments, fixed maturity investments and other investments of $1.4 billion, $567.8 million and $130.5 million, respectively. The net purchase of short term investments was funded in part by the capital received from investors in Upsilon RFO and other net cash flows provided by operating activities. The net purchase of other investments during the nine months ended September 30, 2019, was primarily driven by an increased allocation to catastrophe bonds. In addition, we completed our acquisition of TMR on March 22, 2019, resulting in a net cash outflow of $276.2 million, comprised of cash consideration paid by RenaissanceRe as acquisition consideration of $813.6 million, net of cash acquired from TMR of $537.4 million. Refer to “Note 3. Acquisition of Tokio Millennium Re” in our “Notes to the Consolidated Financial Statements” in our Form 10-K for the year ended December 31, 2019 for additional information related to the acquisition of TMR.
Cash flows provided by financing activities. Our cash flows provided by financing activities in the nine months ended September 30, 2019 were $833.0 million, and were principally the result of:
•net inflows of $516.0 million related to net third party redeemable noncontrolling interest share transactions in DaVinciRe, Medici and Vermeer;
•net inflows of $396.4 million associated with the April 2, 2019 issuance of $400.0 million of our 3.600% Senior Notes due April 15, 2029; partially offset by
•dividends paid on our common and preference shares of $44.5 million and $27.6 million, respectively.
Capital Resources
We monitor our capital adequacy on a regular basis and seek to adjust our capital according to the needs of our business. In particular, we require capital sufficient to meet or exceed the capital adequacy ratios established by rating agencies for maintenance of appropriate financial strength ratings, the capital adequacy tests performed by regulatory authorities and the capital requirements under our credit facilities.
We may seek to raise additional capital or return capital to our shareholders through common share repurchases and cash dividends (or a combination of such methods). In the normal course of our operations, we may from time to time evaluate additional share or debt issuances given prevailing market conditions and capital management strategies, including for our operating subsidiaries and joint ventures. In addition, as noted above, we enter into agreements with financial institutions to obtain letter of credit facilities for the benefit of our operating subsidiaries in their reinsurance and insurance business.
Our total shareholders’ equity attributable to RenaissanceRe and debt was as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2020
|
|
At December 31, 2019
|
|
Change
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Common shareholders’ equity
|
$
|
6,865,821
|
|
|
$
|
5,321,367
|
|
|
$
|
1,544,454
|
|
|
|
|
Preference shares
|
525,000
|
|
|
650,000
|
|
|
(125,000)
|
|
|
|
|
Total shareholders’ equity attributable to RenaissanceRe
|
7,390,821
|
|
|
5,971,367
|
|
|
1,419,454
|
|
|
|
|
3.600% Senior Notes due 2029
|
392,161
|
|
|
391,475
|
|
|
686
|
|
|
|
|
3.450% Senior Notes due 2027
|
296,662
|
|
|
296,292
|
|
|
370
|
|
|
|
|
3.700% Senior Notes due 2025
|
298,335
|
|
|
298,057
|
|
|
278
|
|
|
|
|
5.750% Senior Notes due 2020
|
—
|
|
|
249,931
|
|
|
(249,931)
|
|
|
|
|
4.750% Senior Notes due 2025 (DaVinciRe) (1)
|
148,582
|
|
|
148,350
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
$
|
1,135,740
|
|
|
$
|
1,384,105
|
|
|
$
|
(248,365)
|
|
|
|
|
Total shareholders’ equity attributable to RenaissanceRe and debt
|
$
|
8,526,561
|
|
|
$
|
7,355,472
|
|
|
$
|
1,171,089
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) RenaissanceRe owns a noncontrolling economic interest in its joint venture DaVinciRe. Because RenaissanceRe controls a majority of DaVinciRe’s outstanding voting rights, the consolidated financial statements of DaVinciRe are included in the consolidated financial statements of RenaissanceRe. However, RenaissanceRe does not guarantee or provide credit support for DaVinciRe and RenaissanceRe’s financial exposure to DaVinciRe is limited to its investment in DaVinciRe’s shares and counterparty credit risk arising from reinsurance transactions.
During the nine months ended September 30, 2020, our total shareholders’ equity attributable to RenaissanceRe and debt increased by $1.2 billion, to $8.5 billion.
Our shareholders’ equity attributable to RenaissanceRe increased $1.4 billion during the nine months ended September 30, 2020 principally as a result of:
•the sale of 6,325,000 common shares in an underwritten public offering and the concurrent sale of 451,807 common shares to State Farm, each at a price per share of $166.00, for total aggregate net proceeds of $1.1 billion;
•our comprehensive income available to RenaissanceRe of $565.2 million; partially offset by
•the redemption of all 5 million of our outstanding Series C 6.08% Preference Shares for $125.0 million plus accrued and unpaid dividends thereon;
•the repurchase of 406 thousand common shares in open market transactions at an aggregate cost of $62.6 million and an average price of $154.36 per common share; and
•$50.8 million and $23.6 million of dividends on our common and preference shares, respectively.
Our debt decreased $248.4 million during the nine months ended September 30, 2020 principally as a result of the repayment in full at maturity on March 15, 2020 of our 5.75% Senior Notes due 2020 of RenRe North America Holdings Inc. and RenaissanceRe Finance Inc. for the aggregate principal amount of $250.0 million, plus applicable accrued interest.
For additional information related to the terms of our debt and significant credit facilities, see “Note 7. Debt and Credit Facilities” in our “Notes to the Consolidated Financial Statements” in this Form 10-Q and “Note 9. Debt and Credit Facilities” in our “Notes to the Consolidated Financial Statements” in our Form 10-K for the year ended December 31, 2019. See “Note 10. Shareholders’ Equity” in our “Notes to the Consolidated Financial Statements” in this Form 10-Q and “Note 12. Shareholders’ Equity” in our “Notes to the Consolidated Financial Statements” in our Form 10-K for the year ended December 31, 2019 for additional information related to our common and preference shares.
Reserve for Claims and Claim Expenses
We believe the most significant accounting judgment made by management is our estimate of claims and claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid claims and claim expenses arising from the insurance and reinsurance contracts we sell. Our actual net claims and claim expenses paid will differ, perhaps materially, from the estimates reflected in our financial statements, which may adversely impact our financial condition, liquidity and capital resources.
Refer to “Note 8. Reserve for Claims and Claim Expenses” in our “Notes to the Consolidated Financial Statements” in our Form 10-K for the year ended December 31, 2019 for more information on the risks we insure and reinsure, the reserving techniques, assumptions and processes we follow to estimate our claims and claim expense reserves, prior year development of the reserve for claims and claim expenses, analysis of our incurred and paid claims development and claims duration information for each of our Property and Casualty and Specialty segments. In addition, refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves” in our Form 10-K for the year ended December 31, 2019 for more information on the reserving techniques, assumptions and processes we follow to estimate our claims and claim expense reserves, our current estimates versus our initial estimates of our claims reserves, and sensitivity analysis for each of our Property and Casualty and Specialty segments.
Investments
The table below shows our invested assets:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Change
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasuries
|
$
|
4,350,971
|
|
|
21.4
|
%
|
|
$
|
4,467,345
|
|
|
25.7
|
%
|
|
$
|
(116,374)
|
|
|
|
Agencies
|
437,681
|
|
|
2.1
|
%
|
|
343,031
|
|
|
1.9
|
%
|
|
94,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government
|
568,960
|
|
|
2.8
|
%
|
|
497,392
|
|
|
2.9
|
%
|
|
71,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government-backed corporate
|
401,449
|
|
|
2.0
|
%
|
|
321,356
|
|
|
1.9
|
%
|
|
80,093
|
|
|
|
Corporate
|
4,655,765
|
|
|
22.9
|
%
|
|
3,075,660
|
|
|
17.7
|
%
|
|
1,580,105
|
|
|
|
Agency mortgage-backed
|
1,086,474
|
|
|
5.3
|
%
|
|
1,148,499
|
|
|
6.6
|
%
|
|
(62,025)
|
|
|
|
Non-agency mortgage-backed
|
293,953
|
|
|
1.4
|
%
|
|
294,604
|
|
|
1.7
|
%
|
|
(651)
|
|
|
|
Commercial mortgage-backed
|
788,995
|
|
|
3.9
|
%
|
|
468,698
|
|
|
2.7
|
%
|
|
320,297
|
|
|
|
Asset-backed
|
807,070
|
|
|
4.0
|
%
|
|
555,070
|
|
|
3.2
|
%
|
|
252,000
|
|
|
|
Total fixed maturity investments, at fair value
|
13,391,318
|
|
|
65.8
|
%
|
|
11,171,655
|
|
|
64.3
|
%
|
|
2,219,663
|
|
|
|
Short term investments, at fair value
|
5,158,961
|
|
|
25.4
|
%
|
|
4,566,277
|
|
|
26.3
|
%
|
|
592,684
|
|
|
|
Equity investments trading, at fair value
|
547,381
|
|
|
2.7
|
%
|
|
436,931
|
|
|
2.5
|
%
|
|
110,450
|
|
|
|
Other investments, at fair value
|
1,122,683
|
|
|
5.5
|
%
|
|
1,087,377
|
|
|
6.3
|
%
|
|
35,306
|
|
|
|
Total managed investment portfolio
|
20,220,343
|
|
|
99.4
|
%
|
|
17,262,240
|
|
|
99.4
|
%
|
|
2,958,103
|
|
|
|
Investments in other ventures, under equity method
|
98,990
|
|
|
0.6
|
%
|
|
106,549
|
|
|
0.6
|
%
|
|
(7,559)
|
|
|
|
Total investments
|
$
|
20,319,333
|
|
|
100.0
|
%
|
|
$
|
17,368,789
|
|
|
100.0
|
%
|
|
$
|
2,950,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2020, we held investments totaling $20.3 billion, compared to $17.4 billion at December 31, 2019. In connection with the acquisition of TMR, we acquired total investments with a fair market value of $2.3 billion on March 22, 2019, the date of acquisition. Our investment guidelines stress preservation of capital, market liquidity, and diversification of risk. Notwithstanding the foregoing, our investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular securities. In addition to the information presented above and below, see “Note 3. Investments” and “Note 4. Fair Value Measurements” in our “Notes to the Consolidated Financial Statements” for additional information regarding our investments and the fair value measurement of our investments, respectively.
As the reinsurance coverages we sell include substantial protection for damages resulting from natural and man-made catastrophes, as well as for potentially large casualty and specialty exposures, we expect from time to time to become liable for substantial claim payments on short notice. Accordingly, our investment portfolio as a whole is structured to seek to preserve capital and provide a high level of liquidity, which means that the large majority of our investment portfolio consists of highly rated fixed income securities, including U.S. treasuries, agencies, highly rated sovereign and supranational securities, high-grade corporate securities and mortgage-backed and asset-backed securities. We also have an allocation to publicly traded equities reflected on our consolidated balance sheet as equity investments trading and an allocation to other investments (including catastrophe bonds, private equity investments, senior secured bank loan funds and hedge funds).
Other Investments
The table below shows our portfolio of other investments:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
December 31,
2019
|
|
Change
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Catastrophe bonds
|
$
|
816,971
|
|
|
$
|
781,641
|
|
|
$
|
35,330
|
|
|
|
Private equity investments
|
274,810
|
|
|
271,047
|
|
|
3,763
|
|
|
|
Senior secured bank loan funds
|
20,933
|
|
|
22,598
|
|
|
(1,665)
|
|
|
|
Hedge funds
|
9,969
|
|
|
12,091
|
|
|
(2,122)
|
|
|
|
|
|
|
|
|
|
|
|
Total other investments
|
$
|
1,122,683
|
|
|
$
|
1,087,377
|
|
|
$
|
35,306
|
|
|
|
|
|
|
|
|
|
|
We account for our other investments at fair value in accordance with FASB ASC Topic Financial Instruments. The fair value of certain of our fund investments, which principally include private equity funds, senior secured bank loan funds and hedge funds, is recorded on our consolidated balance sheet in other investments, and is generally established on the basis of the net valuation criteria established by the managers of such investments, if applicable. The net valuation criteria established by the managers of such investments is established in accordance with the governing documents of such investments. Many of our fund investments are subject to restrictions on redemptions and sales which are determined by the governing documents and limit our ability to liquidate these investments in the short term.
Some of our fund managers and fund administrators are unable to provide final fund valuations as of our current reporting date. We typically experience a reporting lag to receive a final net asset value report of one month for our hedge funds and senior secured bank loan funds and three months for private equity funds, although we have occasionally experienced delays of up to six months at year end, as the private equity funds typically complete their year-end audits before releasing their final net asset value statements.
In circumstances where there is a reporting lag between the current period end reporting date and the reporting date of the latest fund valuation, we estimate the fair value of these funds by starting with the prior month or quarter-end fund valuations, adjusting these valuations for actual capital calls, redemptions or distributions, and the impact of changes in foreign currency exchange rates, and then estimating the return for the current period. In circumstances in which we estimate the return for the current period, all information available to us is utilized. This principally includes using preliminary estimates reported to us by our fund managers, obtaining the valuation of underlying portfolio investments where such underlying investments are publicly traded and therefore have a readily observable price, using information that is available to us with respect to the underlying investments, reviewing various indices for similar investments or asset classes, and estimating returns based on the results of similar types of investments for which we have obtained reported results, or other valuation methods, where possible. Actual final fund valuations may differ, perhaps materially so, from our estimates and these differences are recorded in our consolidated statement of operations in the period in which they are reported to us as a change in estimate. Included in net realized and unrealized gains (losses) on investments for the nine months ended September 30, 2020 is a loss of $2.4 million (2019 - $5.5 million) representing the change in estimate during the period related to the difference between our estimated net realized and unrealized gains (losses) due to the lag in reporting discussed above and the actual amount as reported in the final net asset values provided by our fund managers.
Our estimate of the fair value of catastrophe bonds is based on quoted market prices, or when such prices are not available, by reference to broker or underwriter bid indications. See “Note 4. Fair Value Measurements” in our “Notes to the Consolidated Financial Statements” for additional information regarding the fair value of measurement of our investments.
We have committed capital to private equity investments, other investments and investments in other ventures of $1.5 billion, of which $747.6 million has been contributed at September 30, 2020. Our remaining commitments to these investments at September 30, 2020 totaled $745.4 million. In the future, we may enter into additional commitments in respect of private equity investments or individual portfolio company investment opportunities.
Ratings
Financial strength ratings are important to the competitive position of reinsurance and insurance companies. We have received high long-term issuer credit and financial strength ratings from A.M. Best Company, Inc. (“A.M. Best”), S&P Global Ratings (“S&P”), Moody’s Investors Service (“Moody’s”) and Fitch Ratings Ltd. (“Fitch”), as applicable. These ratings represent independent opinions of an insurer’s financial strength, operating performance and ability to meet policyholder obligations, and are not an evaluation directed toward the protection of investors or a recommendation to buy, sell or hold any of our securities. Rating organizations continually review the financial positions of our principal operating subsidiaries and joint ventures and ratings may be revised or revoked by the agencies which issue them.
The ratings of our principal operating subsidiaries and joint ventures and the Enterprise Risk Management rating of RenaissanceRe as of October 23, 2020 are presented below.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.M. Best (1)
|
|
S&P (2)
|
|
Moody's (3)
|
|
Fitch (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Renaissance Reinsurance Ltd.
|
A+
|
|
A+
|
|
A1
|
|
A+
|
|
|
DaVinci Reinsurance Ltd.
|
A
|
|
A+
|
|
A3
|
|
—
|
|
|
Renaissance Reinsurance of Europe Unlimited Company
|
A+
|
|
A+
|
|
—
|
|
—
|
|
|
Renaissance Reinsurance U.S. Inc.
|
A+
|
|
A+
|
|
—
|
|
—
|
|
|
RenaissanceRe Europe AG
|
A+
|
|
A+
|
|
—
|
|
—
|
|
|
RenaissanceRe Specialty U.S.
|
A+
|
|
A+
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Top Layer Reinsurance Ltd.
|
A+
|
|
AA
|
|
—
|
|
—
|
|
|
Vermeer Reinsurance Ltd.
|
A
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
RenaissanceRe Syndicate 1458
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Lloyd's Overall Market Rating
|
A
|
|
A+
|
|
—
|
|
AA-
|
|
|
|
|
|
|
|
|
|
|
|
|
RenaissanceRe
|
Very Strong
|
|
Very Strong
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(1) The A.M. Best ratings for our principal operating subsidiaries and joint ventures represent the insurer’s financial strength rating. The Lloyd’s Overall Market Rating represents Syndicate 1458’s financial strength rating. The A.M. Best rating for RenaissanceRe represents our Enterprise Risk Management (“ERM”) score
(2) The S&P ratings for our principal operating subsidiaries and joint ventures represent the insurer’s financial strength rating and the issuer’s long-term issuer credit rating. The Lloyd’s Overall Market Rating represents Syndicate 1458’s financial strength rating. The S&P rating for RenaissanceRe represents the rating on its ERM practices.
(3) The Moody’s ratings represent the insurer’s financial strength rating.
(4) The Fitch rating for Renaissance Reinsurance represents the insurer’s financial strength rating. The Lloyd’s Overall Market Rating represents Syndicate 1458’s financial strength rating.
As of October 23, 2020, there were no other material changes to our ratings as disclosed in our Form 10-K for the year ended December 31, 2019.
EFFECTS OF INFLATION
It is possible that the risk of general economic inflation has increased which could, among other things, cause claims and claim expenses to increase and also impact the performance of our investment portfolio. This risk may be exacerbated by the steps taken by governments throughout the world in responding to the COVID-19 pandemic. The actual effects of this potential increase in inflation on our results cannot be accurately known until, among other items, claims are ultimately settled. The onset, duration and severity of an inflationary period cannot be estimated with precision. We consider the anticipated effects of inflation on us in our catastrophe loss models. Our estimates of the potential effects of inflation are also considered in pricing and in estimating reserves for unpaid claims and claim expenses. The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy.
OFF-BALANCE SHEET AND SPECIAL PURPOSE ENTITY ARRANGEMENTS
At September 30, 2020, we had not entered into any off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K.
CONTRACTUAL OBLIGATIONS
In the normal course of business, we are party to a variety of contractual obligations as summarized in our Form 10-K for the year ended December 31, 2019. We consider these contractual obligations when assessing our liquidity requirements. As of September 30, 2020, there were no material changes in our contractual obligations as disclosed in the table of contractual obligations and related footnotes included in our Form 10-K for the year ended December 31, 2019.
CURRENT OUTLOOK
The COVID-19 Pandemic and General Economic Conditions
The global COVID-19 pandemic has had immense impacts on a global scale, including on the insurance and reinsurance industries, where it continues to contribute to an accelerating hard market across property, casualty and specialty lines. Notwithstanding our view of current opportunities available to RenaissanceRe, the COVID-19 pandemic has raised and continues to raise many new questions and challenges for us and our industry. It is not possible to predict precisely all of the potential impacts of the COVID-19 pandemic on RenaissanceRe, or their respective potential timing. Estimating the impact of the COVID-19 pandemic remains complicated and challenging, and its ultimate impact and the extent of losses is highly unpredictable and uncertain at this time. Among the uncertainties that render such estimation unusually challenging are the unknown length and severity of the COVID-19 pandemic, the unknown duration and depth of the economic recession, and the extent and duration of society’s response to the COVID-19 pandemic and economic downturn. From governments’ unprecedented imposition of constraints on economic and social activity, to longer term changes in societal behaviors that may result from people’s reactions to the COVID-19 pandemic, we believe that the COVID-19 pandemic could change demand for (re)insurance products going forward, potentially having significant impacts on the industry. We continue to expect insured losses to emerge over time as primary insurance claims are handled and public sector initiatives develop, and as the full impact of the COVID-19 pandemic and its effects on the global economy are realized. We are closely monitoring COVID-19-related developments, including potential government actions which may impact the insurance and reinsurance sectors.
We expect that stress in the global economy will continue, possibly with a deep recession and severe unemployment, but we are unable to predict the ultimate duration and severity of the economic downturn. We continue to expect increased market volatility as well, impacting the costs of capital formation, business and investment planning, and mark-to-market results from period to period. Given that the demand for insurance is significantly influenced by prevailing economic conditions, continued declining and weak global economic conditions may lead to a suppression of demand for insurance and reinsurance generally, although we believe there will be opportunities for the business we write, including in the remainder of 2020. In addition, this pressure may inordinately affect smaller competitors in the primary insurance, reinsurance and retrocessional markets. In turn, these pressures may lead, among other things, to increased consolidation as larger, better capitalized competitors will be in a stronger position to withstand prolonged periods of economic downturn and sustain their business through the financial volatility. In the current environment, capital and liquidity are extremely important, and we believe our capital and liquidity positions are strong. In furtherance of our strategic plan, in the second quarter of 2020 we raised over $1 billion of new common equity to support our pursuit of successfully executing on future opportunities.
We currently believe that current economic conditions have, and will likely continue to, heighten our counterparty credit risk due to the strain that the COVID-19 pandemic is putting on potentially all companies, including our own customers, agents, brokers, retrocessionaires, and capital providers. If there is a sustained economic downturn resulting from the COVID-19 pandemic, these effects could be magnified or could manifest themselves in ways that we cannot currently predict. We have been closely monitoring the economic impact of COVID-19-related shutdowns and the development of forbearance measures on, among other things, our mortgage book and other aspects of our portfolio. Economic disruption and changing market dynamics may also lead to significant changes and mismatches in the market as different insurance products compete for similar coverages. While we believe that we are well positioned to continue
to execute on our strategic plan and compete for and meet the demand for the protection that we provide, it is difficult to predict all of the potential impacts of the COVID-19 pandemic on the markets in which we participate and our ability to effectively respond to these changing market dynamics.
More broadly, steps taken by governments throughout the world in responding to the COVID-19 pandemic, including the reduction of interest rates in certain jurisdictions in the U.S., could lead to higher inflation over time than we had anticipated, leading to higher costs of claims and claim expenses and the need to increase our reserves. The effects of this trend could be magnified for longer-tail business lines that are more inflation sensitive, particularly our casualty business. At this time, we expect that the low interest rate environment will continue, and that these actions and other dynamics are likely to reduce broadly available realized economic returns on investments.
In addition, market conditions have adversely impacted, and may adversely affect, our investment portfolio in the future. Over the longer term, as the COVID-19 pandemic continues and continues to create volatility in the financial markets, we expect that it is likely that the strain on financial markets will increase. In the near term, it is possible that adverse metrics in respect of the pandemic and the potential for uncertainty in respect of the presidential election in the U.S. will also contribute to volatility in the financial markets. In addition, access to public capital markets and private, third-party capital may become unavailable or constrained, or more expensive than in recent periods, or contain more onerous terms and conditions. Notwithstanding the many uncertainties and challenges that lie ahead, we believe that our track record of responding to industry events, differentiated risk management and client service capabilities, and access to diverse sources of both capital and risk position us favorably in the current environment.
While much of the positive performance in our investment portfolio in the first three quarters of 2020 reflected mark-to-market gains, we expect that it is highly likely that we will realize losses in certain individual positions in our investment portfolio in future periods, particularly in our equity investments trading portfolio and in lower rated corporate credit, as a result of the economic changes from the COVID-19 pandemic. These losses could be significant in respect of a particular financial period, or otherwise. Our ability to derive investment income from our investments may also become more difficult as economic sluggishness, or market volatility, continues. The sustained environment of low interest rates in recent years lowered the yields at which we invest our assets relative to longer-term historical levels. In 2019 and the first three quarters of 2020, decreases in prevailing interest rates contributed significantly to comparably high net realized and unrealized gains from our invested assets. However, as we invest cash from new premiums written or reinvest the proceeds of invested assets, we expect the yield on our portfolio to be adversely impacted by the anticipated period of low interest rates and broader economic uncertainty.
Operationally, as an international company with offices around the globe, the COVID-19 pandemic and restrictions related thereto have presented certain challenges. However, we believe we have adjusted well to date to the work paradigms required by the COVID-19 pandemic, benefiting from prior and enhanced investments in technology, systems and training, which have enabled us to maintain robust oversight of the company. As appropriate, certain of our offices have opened on an optional and limited basis in accordance with applicable rules and regulations in their respective jurisdictions. However, an extended period of remote work arrangements could strain our business continuity plans, introduce additive operational risk, including but not limited to cybersecurity risks such as ransomware attacks, and adversely affect our ability to manage our business.
Reinsurance Market Trends and Developments
Even before the onset of the COVID-19 pandemic, rates were rising across most lines of business. We continue to believe that the COVID-19 pandemic is accelerating the recent rate increases we have seen in many of the lines of business that we write. This has been exacerbated by the natural catastrophe activity in the second half of 2020 to date, which has accelerated the demand for reinsurance and which continues to outpace supply. As an organization, we believe these market conditions have created significant opportunities in the lines of business that we write, and that we are well positioned to deploy capital and grow in this environment given our market leadership and long-term relationships with brokers and customers. Our current expectation is that we will seek to deploy the proceeds from our recent equity offerings into the 2021 market beginning with the January 1 renewal period for general corporate purposes, which may include expanding our existing business lines, entering new business lines, forming new joint ventures, or acquiring books of business from other companies. This capital may be deployed from our holding company to our regulated operating subsidiaries or our joint ventures, and once contributed, our
ability to reallocate such capital may be constrained by regulators or, for our joint ventures, the terms and conditions of our shareholder agreements.
The market has also been impacted by a tightened supply of capital. Among other things, capital in the insurance-linked securities market, which we estimated had already declined to a degree over recent periods, has been further impacted by recent developments, further reducing supply, particularly in respect of certain regions and perils. For example, we believe that the existing and potential impact of the COVID-19 pandemic, along with the high incidence of natural catastrophes in 2020, has contributed to a significant amount of trapped collateral in the insurance-linked securities market. We currently anticipate that this may exacerbate the decline in capital invested in the insurance-linked securities market overall. We believe that this trend magnifies market appreciation of the structural differences between collateralized coverage and traditional reinsurance, and that cedants may increasingly prefer in the near term the certainty of rated balance sheets, providing us with additional opportunities in the lines of business that we write, and putting additional upward pressure on reinsurance rates.
In addition, partly as a result of expected reductions in the availability of retrocessional capacity from third-party investors as third-party capital becomes less abundant, we expect that the trend of increasing rates for retrocessional coverage may accelerate. Accordingly, this trend may affect the amount of such protection we purchase in the future. However, consistent with our strategy of retaining more risk when prices are rising, we expect to manage any potential reductions in the availability of retrocessional reinsurance. We expect that we may also see additional opportunities to be a provider of retrocessional reinsurance as rates increase. This may provide another opportunity for us to profitably deploy available capital, while retaining more net risk on our balance sheet.
Another factor that may contribute to rising rates is that we anticipate reinsurers may be less inclined to write certain classes of business in which we participate that are most impacted by social inflation trends, the risks of climate change, regional or market segment weakness, or other factors, without proper pricing adjustments if other, less risky, opportunities to deploy capital are available to them. Certain classes of business, like Florida homeowners’ coverage and certain forms of casualty coverage, may be impacted by more than one of these factors. Our assessment of these changes in risk exposure will impact our appetite to renew or pursue business we perceive to be adversely impacted, either absolutely or relative to other market opportunities. In particular with regards to our assessment of risks related to climate change, we believe that our proprietary climate-change informed catastrophe models and approach set us apart from many other underwriters or insurance-linked securities managers who often rely on a single vendor model that we believe does not fully capture the impact of climate change.
Property Exposed Market Developments
While the impact of the COVID-19 pandemic may be the most significant driver of market dynamics in the near-term, there are other recent trends that have impacted property exposed markets. Prior to the emergence of the COVID-19 pandemic, property exposed markets were already experiencing constrained supply and elevated demand, resulting in upward pressure on rates. We estimate that the insurance and reinsurance markets experienced some of the largest back-to-back years for insured natural disaster losses in history from 2017 to 2019 from multiple hurricanes, typhoons, wildfires and earthquakes. The associated losses over this period affected an unusually large number of regions, insureds, reinsurance lines and reinsurers. In addition, the ultimate scale of the losses, difficulty of loss estimation, length of payout periods, social inflation risk and other factors have contributed to uncertainty around these loss events and the market has been impacted by continuing, significant adverse developments from these events. In particular, we estimate that the industry’s reported adverse developments on Typhoon Jebi and on Hurricane Irma would each represent, by themselves, historically large insured loss events. Moreover, to date the 2020 Atlantic storm season has had a record-setting level of storm activity, with an unusual number of named storms forming thus far. The Western portion of the United States has also been impacted by an unprecedented level of wildfire activity. We believe that climate change contributes to making extreme events both more frequent and more severe, and we believe that this level of catastrophe event activity is a result of this trend.
We believe that revised views of risk as a result of these experiences and the potential reduction of capacity or risk appetite from the insurance-linked securities market, have contributed favorably to market conditions, although there can be no assurance that these developments will continue or be sustained. Based on our experience, intermediary reports and other industry commentary, in respect of the January and June 2020
renewals, rates for retrocessional reinsurance and some lines of primary insurance were up substantially, while rates on other layers of reinsurance, if loss free in expiring periods, were up less markedly. Loss affected reinsurance programs and lines, such as treaties exposed to the California wildfires, showed more substantially improved terms. In respect of the April 2020 renewal, which includes our Japanese property catastrophe business, the industry saw significant rate improvements in certain lines, such as wind risk, while earthquake-only risk remained flat, but at attractive levels. This momentum continued through the June and July 1 renewals. With respect to the COVID-19 pandemic, we have been generally able to obtain COVID-19 pandemic exclusions on many of the new deals that we wrote, and only wrote deals without such exclusion that met certain specific criteria.
These developments facilitated our growth in gross premiums written, both in our existing operations and by presenting opportunities to deploy additional third-party capital. Nonetheless, in respect of certain regions and perils we continue to assess that prevailing rate increases were not sufficient to offset increases in exposure, continuing risks from social inflation and the potential for sustained elevation in exposure due to changes in climate conditions and demographics. For example, we continue to carefully monitor ongoing, adverse trends in the Florida market with respect to claims practices, litigation risks, and exposure growth, and are prepared to continue to reduce our exposure to risks and accounts exposed to these trends. Additionally, in 2020, for the first time in several years, the Florida Hurricane Catastrophe Fund did not purchase private reinsurance, citing rising rates as a deciding factor. While we believe we are well positioned to compete for business we find attractive, a number of dynamics may limit the degree to which the market sustains favorable improvements in the near-term or continue to introduce or exacerbate long-term challenges in our markets.
Casualty and Specialty Exposed Market Developments
Certain of the markets in which our Casualty and Specialty segment operate experienced generally favorable rate trends in respect of the January 2020 renewals. We have found increasing opportunities to write additional or new business in this segment, contributing to meaningful economic growth in our gross written business, especially when adjusting for the re-underwriting of the portfolio we purchased from TMR. In general, we have seen meaningful improvements in terms and conditions, including broad-based reductions in ceding commissions, from 2019 and into 2020 to date. In particular, across that period we have observed favorable conditions for accounts that exhibited elevated loss emergence or underlying rate deterioration, but we also estimate that the favorable market trends have extended more broadly. In the near term, we continue to expect that the COVID-19 pandemic will put further pressure on rates and that current pricing trends are likely to continue, with terms and conditions for loss-affected lines of business continuing to show particular improvement and certain other areas of the casualty and specialty market potentially maintaining less pronounced but positive adjustments.
At the same time, we also estimate that underlying loss costs for many casualty and specialty lines of business will continue to rise, while the costs of capital increases and opportunities for investment income decrease. The casualty and specialty markets have continued to broadly exhibit adverse loss development and negative exposure trends, including a meaningful increase in both the incidence and severity of civil jury awards and other social inflation trends.
We plan to continue to seek unique or differentiated opportunities to provide coverage on large programs open to us on a differentiated basis or to select markets. However, we cannot assure you that positive market trends will continue, that we will succeed in identifying and expanding on attractive programs or obtain potentially attractive new programs, or that future, currently unforeseen, developments will not adversely impact the casualty and specialty markets.
Relatedly, specific renewal terms vary widely by insured account and our ability to shape our portfolio to improve its estimated risk and return characteristics is subject to a range of competitive and commercial factors. We cannot assure you that these positive dynamics will be sustained, or that we will participate fully in improving terms. We intend to seek to maintain strong underwriting discipline and, in light of prevailing market conditions, cannot provide assurance that we will succeed in growing or maintaining our current combined in-force book of business.
Legislative and Regulatory Update
As a result of the COVID-19 pandemic, we are seeing many legislative and regulatory initiatives that, if enacted, could have a significant adverse effect on our business and results of operations. Legislative,
regulatory, judicial or social influences may seek to impose new obligations on (re)insurers in connection with the COVID-19 pandemic that extend coverage beyond the intended contractual obligations or result in an increase in the frequency or severity of claims beyond expected levels, thereby resulting in unexpected or modeled insurance or reinsurance losses. Certain governments and regulatory bodies are also considering proposals that would retroactively change the terms of existing insurance contracts that generally exclude business interruption losses from pandemics. Litigation in the U.S. is still in the early stages and, accordingly we continue to expect uncertainty regarding coverage for these types of claims and that the outcome may differ by jurisdiction. Internationally, there have also been legal challenges concerning business interruption coverage, including the U.K. Financial Conduct Authority’s business interruption “test case.” Further, a number of legislative proposals have been introduced or proposed to alter the financing of pandemic-related risk in several of the markets in which we operate, and the impact of these and other proposals on our business is uncertain at this time. For example, at the federal level, following the initial onset of the COVID-19 pandemic, Congress considered legislation that would have retroactively forced insurers to cover pandemic claims in business interruption policies even if specifically excluded. These bills have currently been withdrawn, although we cannot assure you that they or similar legislation will not be re-introduced in the future. At the state level in the U.S., at least eight states and the District of Columbia have considered legislation to require retroactive business interruption coverage, and while none have yet passed legislation, we expect that any such legislation will be challenged in court should it become law, however, any legal action challenging such legislation could take years to resolve and there can be no assurance that the outcomes would be favorable. Moreover, a number of stakeholder groups have advocated that, regardless of the passage of any such legislation, primary insurers voluntarily pay business interruption claims, even if excluded. While we are prepared to engage constructively with our cedants in respect of any such developments, we are also committed to enforcing our own contractual and legal rights, and the outcome of any of these developments is challenging to currently assess.
Congress is also considering several proposals which, if enacted, would impact the financing of future pandemic exposure and, accordingly, related markets for insurance, reinsurance and other financial products. For example, one such proposal would establish a Pandemic Risk Insurance Act, which would establish a public-private partnership with insurers retaining 5% of the risk of a future pandemic and the federal government assuming the remainder of the risk, with businesses charged an “actuarial premium.” Another proposal would create a standing, multi-billion-dollar fund which the federal government would use to pay businesses directly for pandemic losses, rather than through an insurance product.
It is also possible that the economic uncertainty resulting from the COVID-19 pandemic could cause some governments, including cities, counties, states, and national governments, to look at risk transfer as a means to create budgeting certainty. These initiatives could create public entity risk transfer opportunities in the U.S. and globally. We have been a leader in several iterations of innovative governmental risk transfer initiatives, at the U.S. federal and state level, and in a number of other jurisdictions, across a range of perils. We believe we are well positioned to collaborate on, and participate in, any such new initiatives. However, given the early stages of these proposals, it is difficult to predict at this time the impact they may have on our business in the future, and we cannot assure you that we would succeed in participating, or that the terms of any such facilities would be attractive.
Across the world, many governments have reacted to COVID-19 pandemic by proposing or enacting stimulus measures which incorporate a variety of strategies, including certain tax relief measures and incentives. In general, we do not expect to participate in, or benefit from, any such initiatives. Accordingly, at this time, we do not anticipate any tax law changes or incentives in the jurisdictions where we operate will have a beneficial impact on our results of operations or financial position. Over time, it is possible that many jurisdictions in which we operate, or markets where we provide coverages or services, may consider changes to their tax and revenue systems in light of the unprecedented stimulus, borrowing, and fiscal measures undertaken recently and which may yet be enacted as the COVID-19 pandemic and its impacts continue. It is possible that such measures could increase tax burdens on companies operating in such jurisdictions, or operating multilaterally, or which transact in or with respect to such jurisdictions. At this time, we cannot anticipate or estimate the costs of any such future initiatives.
In prior Congressional sessions, Congress has considered a range of potential legislation which would, if enacted, provide for matters such as the creation of (i) a federal reinsurance catastrophe fund; (ii) a federal consortium to facilitate qualifying state residual markets and catastrophe funds in securing reinsurance; and (iii) a federal bond guarantee program for state catastrophe funds in qualifying state residual markets. In
April 2016, H.R.4947, the Natural Disaster Reinsurance Act of 2016, which would create a federal reinsurance program to cover any losses insured or reinsured by eligible state programs arising from natural catastrophes, including losses from floods, earthquakes, tropical storms, tornadoes, volcanic eruption and winter storms, was introduced. If enacted, this bill, or legislation, similar to any of these proposals, would, we believe, likely contribute to the growth of state entities offering below-market priced insurance and reinsurance in a manner adverse to us and market participants more generally. Such legislation could also encourage cessation, or even reversal, of reforms and stabilization initiatives that have been enacted in the state of Florida and other catastrophe-exposed states in recent years. While we believe such legislation will continue to be vigorously opposed, if adopted these bills would likely diminish the role of private market catastrophe reinsurers and could adversely impact our financial results, perhaps materially.
In May 2020, the Federal Housing Finance Administration, the regulator and conservator of Fannie Mae and Freddie Mac, issued a proposed capital rule that would significantly reduce the value of credit risk transfer to government sponsored entities (“GSEs”), reinsurers and other capital market participants if enacted. The proposal includes a series of “haircuts” to the GSEs’ credit for risk transfer, meaning they would be expected to require a larger capital reserve even after transferring risk off their balance sheets. Accordingly, this could adversely impact the attractiveness to the GSE’s of investing in private financial protection, including reinsurance, which have been a source of private market demand growth in our sector over recent periods. We cannot assess with precision the probability these changes will be enacted or their exact impact on the markets in which we participate if they are.
In June 2012, Congress passed the Biggert-Waters Bill, which provided for a five-year renewal of the National Flood Insurance Program (the “NFIP”) and, among other things, authorized the Federal Emergency Management Agency (“FEMA”) to carry out initiatives to determine the capacity of private insurers, reinsurers, and financial markets to assume a greater portion of the flood risk exposure in the U.S., and to assess the capacity of the private reinsurance market to assume some of the program’s risk. Commencing in January 2017, FEMA has, acting under authority contemplated by the Biggert-Waters Bill, secured annual reinsurance protection for the NFIP. Most recently, in January 2020, FEMA announced that it had renewed its reinsurance program to provide for $1.33 billion of protection in respect of 2020, covering 10.25% of NFIP’s losses between $4 billion and $6 billion, 34.7% of its losses between $6 billion and $8 billion, and 21.8% of its losses between $8 billion and $10 billion. In addition, NFIP has procured an additional $500 million of private market protection via the FloodSmart Re $500 million Series 2018-1 Notes. It is possible this program will continue and potentially expand in future periods and may encourage other U.S. federal programs to explore private market risk transfer initiatives; however, we cannot assure you that any such developments will in fact occur, or that if they do transpire we will succeed in participating.
The statutory authorization for the operation and continuation of the NFIP has expired and received a series of short-term extensions. The NFIP’s current authorization has now most recently been extended to September 30, 2021. In January 2019, the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency issued rules requiring lenders to accept private flood insurance policies that have coverage at least as comprehensive as that offered by NFIP, and providing a framework to evaluate alternative flood coverage; these rules went into effect on July 1, 2019. Congress is also considering legislative language that would direct FEMA to consider policyholders who discontinue an NFIP policy and then later return to the NFIP as having continuous coverage if they can demonstrate that a flood insurance policy from a private firm was maintained throughout the interim period. To the extent these laws, rules and regulations are adopted and enforced, they could incrementally contribute to the growth of private residential flood opportunities and the financial stabilization of the NFIP. However, we cannot assure you that legislation to reform the NFIP will indeed be enacted or that the private market for residential flood protection will be enhanced if it is.
In recent years, market conditions for insurance in the state of Florida have been significantly impacted by the increasingly prevalent utilization of a practice referred to as “assignment of benefits,” or “AOB.” We currently estimate that the impacts of AOB have contributed adversely and significantly to the ultimate economic losses borne by the insurance market in light of recent large Florida loss events, including Hurricanes Irma and Michael. An AOB is an instrument executed by a primary policyholder that is deemed to permit certain third parties, such as water extraction companies, roofers or plumbers, to “stand in the shoes” of the insured and seek direct payments from the policyholder’s insurance company.
In April 2019, SB 122: The Insurance Assignment Agreements Act (the “AOB Reform Bill”) became law in Florida, effective July 1, 2019. While we are cautiously optimistic that this law could somewhat mitigate, in respect of losses subsequent to July 2019, some of the more egregious practices that have contributed to adverse industry results in Florida, we continue to believe that the likely estimated impact to exposed loss in reinsurance treaties and programs will not be material. In addition, the AOB Reform Bill is not intended to remediate the adverse impacts of earlier events, such as the large losses in 2017 and 2018, which continue to exhibit loss development well beyond modeled expectations. In general, we continue to estimate that the dynamics and practices we refer to as “social inflation” will continue to adversely impact loss trends in Florida. Moreover, reforms of social inflation trends in Florida or other jurisdictions do not impact the increased risks attributable to changes in climate, demographics and other factors which we estimate are increasing the probability and severity of meteorologically-driven hazards.
Further, in February 2020, legislation was introduced in the Florida Senate, Bill No. SB 1334, which would, if ultimately adopted, significantly expand the Florida Hurricane Catastrophe Fund for a statutory period of several years. While the bill did not attain passage in this year’s session, it could be revisited in a future scheduled or special legislation session. In sum, taken together, these ongoing challenges have impacted our own risk selection criteria with respect to Florida exposures.