RenaissanceRe Reports Net Income of $41.7 Million for the Fourth Quarter of 2012 or $0.87 Per Dilute
RenaissanceRe Reports Net Income of $41.7 Million for the Fourth Quarter of 2012 or $0.87 Per Diluted Common Share; Quarterly Operating Income of $31.0 Million or $0.65 Per Diluted Common Share
Annual Net Income of $566.0 Million for 2012 or $11.23 Per Diluted Common Share; Annual Operating Income of $402.4 Million or $7.93 Per Diluted Common Share
PEMBROKE, Bermuda--(BUSINESS WIRE)-- RenaissanceRe Holdings Ltd. (NYS: RNR) today reported net income available to RenaissanceRe common shareholders of $41.7 million or $0.87 per diluted common share in the fourth quarter of 2012, compared to $81.8 million or $1.58 per diluted common share in the fourth quarter of 2011. Operating income available to RenaissanceRe common shareholders was $31.0 million or $0.65 per diluted common share for the fourth quarter of 2012, compared to $58.0 million and $1.11, respectively, in the fourth quarter of 2011. The Company reported an annualized return on average common equity of 5.2% and an annualized operating return on average common equity of 3.9% in the fourth quarter of 2012, compared to 10.8% and 7.7%, respectively, in the fourth quarter of 2011. Book value per common share decreased $0.06, or 0.1%, in the fourth quarter of 2012 to $68.14, compared to a 2.4% increase in the fourth quarter of 2011. Tangible book value per common share plus accumulated dividends increased $0.20, or 0.3%, in the fourth quarter of 2012 to $79.28, compared to a 3.1% increase in the fourth quarter of 2011. During the fourth quarter of 2012, the Company repurchased 2.8 million common shares in open market transactions and a privately negotiated transaction at an aggregate cost of $222.5 million and at an average share price of $80.03.
For the year ended December 31, 2012, the Company reported net income available to RenaissanceRe common shareholders of $566.0 million or $11.23 per diluted common share, compared to a net loss attributable to RenaissanceRe common shareholders of $92.2 million or $1.84 per diluted common share in 2011. Operating income available to RenaissanceRe common shareholders was $402.4 million or $7.93 per diluted common share for 2012, compared to an operating loss attributable to RenaissanceRe common shareholders of $162.4 million or $3.22 per diluted common share in 2011. The Company reported a return on average common equity of 17.7% and an operating return on average common equity of 12.6% in 2012, compared to negative 3.0% and negative 5.3%, respectively, in 2011. Book value per common share increased $8.87, or 15.0%, in 2012 to $68.14, compared to a 5.3% decrease in the 2011. Tangible book value per common share plus accumulated dividends increased $9.91, or 17.0%, in 2012 to $79.28, compared to a 1.8% decrease in 2011. During 2012, the Company repurchased 6.4 million common shares in open market transactions and a privately negotiated transaction at an aggregate cost of $494.4 million and at an average share price of $77.26.
See Comments on Regulation G for a reconciliation of non-GAAP measures.
Neill A. Currie, CEO, commented: "I am pleased to report $41.7 million of net income in the fourth quarter, despite incurring $127.0 million of net negative impact from Sandy. For the year, we generated $566.0 million of net income, a 12.6% operating ROE and 17.0% growth in tangible book value per share excluding dividends."
Mr. Currie added: "Our performance in 2012 reflected the value of our "Three Superiors" - superior customer relationships, superior risk selection and superior capital management. As we enter our twentieth year of operation, we remain focused on perpetuating these strengths along with the discipline that has served our clients, joint venture partners and shareholders so well over the long-term."
FOURTH QUARTER 2012 HIGHLIGHTS(1)
Underwriting income of $4.3 million and a combined ratio of 98.5%, compared to $127.1 million and 36.2%, respectively. These results were primarily driven by storm Sandy which negatively impacted the Company's underwriting results by $127.0 million and added 60.7 percentage points to the combined ratio.
Total investment income of $50.3 million, which includes the sum of net investment income, net realized and unrealized gains on investments and net other-than-temporary impairments, compared to $76.8 million. The decrease was driven by lower total returns in the Company's fixed maturity investment portfolio as a result of lower investment yields across most sectors during the quarter compared to the prior year, combined with weaker returns in the Company's portfolio of other investments, principally as a result of lower returns for the Company's private equity investments.
Equity in earnings from other ventures of $6.6 million, improved $29.3 million from a loss of $22.7 million, primarily driven by equity in earnings in Top Layer Re of $6.0 million, compared to a loss of $22.6 million, due to the absence of losses during the quarter compared to net losses related to the Tohoku earthquake in the comparative quarter.
Net income attributable to redeemable noncontrolling interests of $9.7 million decreased from $25.4 million, primarily impacted by a decrease in profitability of DaVinciRe as a result of storm Sandy and partially offset by a decrease in the Company's ownership percentage in DaVinciRe from 42.8% at December 31, 2011 to 30.8% at December 31, 2012.
Storm Sandy
The following is supplemental financial data regarding the net financial statement impact on the Company's segment underwriting results and consolidated results for the fourth quarter of 2012 due to storm Sandy:
Storm Sandy | ||||||||||||
Quarter ended December 31, 2012 | Reinsurance | Lloyd's | Consolidated | |||||||||
(in thousands, except percentages) | ||||||||||||
Net claims and claim expenses incurred | $ | (169,477 | ) | $ | (18,467 | ) | $ | (187,944 | ) | |||
Reinstatement premiums earned | 36,030 | 1,407 | 37,437 | |||||||||
Ceded reinstatement premiums earned | (385 | ) | — | (385 | ) | |||||||
Lost profit commissions | 1,771 | — | 1,771 | |||||||||
Net negative impact on underwriting result | $ | (132,061 | ) | $ | (17,060 | ) | (149,121 | ) | ||||
Redeemable noncontrolling interest - DaVinciRe | 22,160 | |||||||||||
Net negative impact (2) | $ | (126,961 | ) | |||||||||
Percentage point impact on consolidated combined ratio | 63.9 | 55.6 | 60.7 | |||||||||
Underwriting Results by Segment(1)
Reinsurance Segment
Gross premiums written in the Reinsurance segment were $57.7 million, an increase of $38.4 million. Excluding the impact of $36.5 million of reinstatement premiums written during the fourth quarter of 2012, including $36.0 million from storm Sandy, and $5.3 million of reinstatement premiums written in the fourth quarter of 2011 from large losses, gross premiums written increased $7.2 million, reflecting relatively flat market conditions.
Managed catastrophe premiums totaled $27.1 million, an increase of $26.3 million; however, excluding the impact of reinstatement premiums written of $37.9 million during the fourth quarter of 2012 and $5.5 million of net reinstatement premiums written in the fourth quarter of 2011 from large losses, managed catastrophe premiums of negative $10.8 million were down $6.2 million primarily as a result of $9.2 million of net negative premium adjustments during the quarter. The Company's managed catastrophe premiums are prone to significant volatility due to the timing of contract inception and also due to the business being characterized by a relatively small number of relatively large transactions. In addition, gross premiums written in the specialty unit were $34.1 million, an increase of $13.0 million, or 61.5%, due to the inception of several new quota share contracts.
The Reinsurance segment generated underwriting income of $24.4 million and a combined ratio of 90.2%, compared to $135.3 million and 23.2%, respectively, primarily as a result of a $164.6 million increase in net claims and claim expenses principally due to $169.5 million related to storm Sandy, and partially offset by a $71.8 million increase in net premiums earned due to an increase in gross premiums written, as discussed above. Storm Sandy had a net negative impact on the Reinsurance segment's underwriting result of $132.1 million and increased its combined ratio by 63.9 percentage points.
The Reinsurance segment experienced $39.3 million of favorable development on prior year reserves, compared to $32.0 million, including $24.5 million and $14.9 million of favorable development in the catastrophe and specialty units, respectively. Favorable development within the catastrophe unit is primarily due to reductions in estimated ultimate losses on the 2010 Chilean earthquake of $24.6 million and on a number of other catastrophes of $13.9 million, partially offset by adverse development related to the 2010 and 2011 New Zealand earthquakes of $13.9 million. The specialty unit experienced prior accident years favorable development of $14.9 million principally due to better than expected loss emergence on a number of relatively small events.
Lloyd's Segment
Gross premiums written in the Lloyd's segment were $26.2 million, an increase of $2.4 million, or 10.3%, primarily due to continued growth within the segment. The Lloyd's segment incurred an underwriting loss of $14.5 million and a combined ratio of 140.9%, compared to $11.1 million and 149.0%, respectively. Included in net claims and claim expenses of $30.0 million is $18.5 million due to storm Sandy. Storm Sandy had a net negative impact on the Lloyd's segment's underwriting result of $17.1 million and increased its combined ratio by 55.6 percentage points.
Other Items(1)
On October 1, 2012, the Company entered into a loss portfolio transfer in respect of its contractor's liability book of business within Glencoe Insurance Ltd., whereby the Company transferred net liabilities of $29.1 million, resulting in a loss of $7.4 million which was recorded as prior accident years net claims and claims expenses in the Company's Other segment in the fourth quarter of 2012.
The Company's weather and energy risk management operations generated pre-tax income of $8.6 million, compared to a pre-tax loss of $41.3 million, primarily due to positive trading results driven by winter positions in the United Kingdom combined with the absence of the losses which were experienced during the fourth quarter of 2011 as a result of unusually warm weather experienced in the United Kingdom and certain parts of the United States during late 2011.
On November 27, 2012, the Company announced a mandatory partial redemption of 6.0 million of its outstanding Series D Preference Shares at a redemption price of $25.00 per Series D Preference Share. The partial redemption was allocated by random lottery in accordance with the Depository Trust Company's rules and procedures and on December 27, 2012 the Company redeemed the 6.0 million Series D Preference Shares called for redemption for $150.0 million plus accrued and unpaid dividends thereon. Following this transaction, 6.0 million Series D Preference Shares remain outstanding.
During the fourth quarter of 2012, the Company repurchased 2.8 million common shares in open market transactions and a privately negotiated transaction at an aggregate cost of $222.5 million and at an average share price of $80.03.
Subsequent to December 31, 2012 and through the period ending February 5, 2013, the Company repurchased 1.4 million common shares in open market transactions at an aggregate cost of $111.3 million and at an average share price of $81.29.
FULL YEAR 2012 HIGHLIGHTS(3)
Gross premiums written increased $116.6 million, or 8.1% for the year, to $1,551.6 million. Excluding the impact of $20.1 million and $160.3 million of net reinstatement premiums written from large losses in 2012 and 2011, respectively, gross premiums written increased $256.8 million, or 20.1% for the year, due to a combination of improved pricing during the 2012 renewals within the Company's core markets, and continued growth across most lines of business within the Company's specialty unit and Lloyd's segment.
Underwriting income of $451.3 million and a combined ratio of 57.8%, compared to an underwriting loss of $177.2 million and a combined ratio of 118.6%, was positively impacted by a decrease in net claims and claim expenses of $536.0 million due to significantly lower insured losses in respect of large events. Included in underwriting income for 2012 was $149.1 million and $26.3 million of underwriting losses related to storm Sandy and hurricane Isaac, respectively, which added a total of 19.0 percentage points to the combined ratio. In 2011 a number of large losses (namely the 2011 New Zealand and Tohoku earthquakes, the large U.S. tornadoes, the Australian floods, losses arising from aggregate contracts, hurricane Irene and the Thailand floods (collectively referred to as the "2011 Large Losses")) resulted in $725.2 million of underwriting losses and added 85.4 percentage points to the Company's combined ratio. Favorable development on prior accident years was $158.0 million, compared to $132.0 million, as discussed in more detail below.
Total investment income of $331.6 million, which includes the sum of net investment income, net realized and unrealized gains on investments and net other-than-temporary impairments, compared to $180.1 million. The increase in investment income was primarily due to higher total returns on the Company's fixed maturity investment portfolio as a result of the significant tightening of credit spreads and declining interest rates combined with higher average invested assets and an increase in net investment income of $38.4 million from the Company's other investments which was principally related to improved returns from the Company's portfolio of senior secured bank loan funds.
Other loss deteriorated $22.2 million to a loss of $22.9 million, primarily as a result of the Company's ceded reinsurance contracts accounted for at fair value which incurred a loss of $4.6 million, compared to income of $37.4 million, principally as a result of net recoverables from the Tohoku earthquake which did not reoccur in 2012, and partially offset by lower pre-tax trading losses of $20.8 million, compared to $45.0 million, within the Company's weather and energy risk management operations.
Equity in earnings of other ventures of $23.2 million compared to a loss of $36.5 million, primarily due to equity in earnings of Top Layer Re of $20.8 million, compared to a loss of $37.5 million, as a result of the absence of net claims and claim expenses in Top Layer Re during the year, compared to net claims and claim expenses related to the 2011 New Zealand and Tohoku earthquakes.
Net income attributable to redeemable noncontrolling interests of $148.0 million, compared to a net loss attributable to redeemable noncontrolling interests of $33.2 million, primarily due to increased profits at DaVinciRe as a result of significantly lower net claims and claim expenses in respect of large events and improved investment results and partially offset by a decrease in the Company's ownership percentage in DaVinciRe from 42.8% at December 31, 2011 to 30.8% at December 31, 2012.
Underwriting Results by Segment(3)
Reinsurance Segment
Gross premiums written in the Reinsurance segment were $1,392.1 million, an increase of $68.9 million, or 5.2%. Excluding the impact of $18.7 million and $159.8 million of net reinstatement premiums written from large losses in 2012 and 2011, respectively, gross premiums written increased $210.0 million, or 18.1%, primarily due to improved market conditions in the Company's core markets during the 2012 renewals. Included in net reinstatement premiums written of $18.7 million in 2012 is $36.0 million related to storm Sandy, and $8.9 million related to hurricane Isaac, partially offset by $16.3 million and $9.9 million of negative reinstatement premiums written related to the 2011 New Zealand earthquake and Tohoku, respectively. Gross premiums written in the specialty unit for 2012 were $209.9 million, an increase of $64.0 million, or 43.9%, compared to 2011, due to the inception of several new quota share contracts.
For 2012, managed catastrophe premiums totaled $1,291.7 million, an increase of $172.8 million, or 15.7%, compared to 2011, excluding the impact of $18.5 million and $160.3 million of net reinstatement premiums written from large losses in 2012 and 2011, respectively. The Company's managed catastrophe premiums are prone to significant volatility due to the timing of contract inception and also due to the business being characterized by a relatively small number of relatively large transactions.
The Reinsurance segment generated underwriting income of $481.0 million and a combined ratio of 49.2%, compared to incurring an underwriting loss of $124.8 million and 114.3%, respectively. The $605.8 million improvement in the underwriting result and 65.1 percentage point decrease in the combined ratio was principally due to a $533.9 million decrease in current accident year losses combined with an increase of $73.3 million in net premiums earned. Hurricane Isaac and storm Sandy negatively impacted the Reinsurance segment's underwriting result by $157.9 million, compared to 2011 which was negatively impacted by $695.5 million related to the 2011 Large Losses.
The Reinsurance segment experienced favorable development on prior years reserves of $144.7 million, including $110.6 million and $34.1 million from the catastrophe and specialty units, respectively. Favorable development within the catastrophe unit is primarily due to reductions in estimated ultimate losses on the 2010 Chilean earthquake of $24.6 million, the 2008 hurricanes of $17.5 million, the June 2007 U.K. floods of $17.3 million, the 2005 hurricanes of $6.4 million, hurricane Irene of $4.6 million, the Tohoku earthquake of $3.9 million, a number of other catastrophes totaling $57.7 million and partially offset by adverse development related to the 2010 and 2011 New Zealand earthquakes of $21.5 million primarily due to an increase in estimated ultimate losses. Favorable development within the specialty unit included $14.4 million associated with actuarial assumption changes, principally in the Company's casualty and medical malpractice lines of business, and primarily as a result of revised initial expected claims ratios and claim development factors due to actual experience coming in better than expected, and $19.7 million related to actual reported loss activity coming in better than expected.
Lloyd's Segment
For 2012, gross premiums written in the Lloyd's segment were $160.0 million, an increase of $48.4 million, or 43.4%, primarily as a result of continued growth across all lines of business within the segment. The Lloyd's segment incurred an underwriting loss of $25.8 million and a combined ratio of 121.0%, compared to $47.6 million and 162.4%, respectively. The Lloyd's segment was negatively impacted by storm Sandy in 2012 which resulted in $17.1 million of underwriting losses and increased the combined ratio by 16.2 percentage points, compared to 2011 which was negatively impacted by the 2011 Large Losses and resulted in $29.7 million of underwriting losses.
Other Items(3)
During 2012, the Company repurchased 6.4 million common shares in open market transactions and a privately negotiated transaction at an aggregate cost of $494.4 million and at an average share price of $77.26.
During January 2013, DaVinciRe redeemed shares from certain DaVinciRe shareholders, including the Company, while certain other existing DaVinciRe shareholders purchased additional shares in DaVinciRe. The net redemption as a result of these transactions was $150.0 million. The Company's ownership in DaVinciRe was 30.8% at December 31, 2012 and subsequent to the above transactions, its ownership in DaVinciRe increased to 32.9% effective January 1, 2013.
This Press Release includes certain non-GAAP financial measures including "operating income (loss) available (attributable) to RenaissanceRe common shareholders", "operating income (loss) available (attributable) to RenaissanceRe common shareholders per common share - diluted", "operating return on average common equity - annualized", "managed catastrophe premiums", "tangible book value per common share" and "tangible book value per common share plus accumulated dividends." A reconciliation of such measures to the most comparable GAAP figures in accordance with Regulation G is presented in the attached supplemental financial data.
Please refer to the "Investor Information - Financial Reports - Financial Supplements" section of the Company's website at www.renre.com for a copy of the Financial Supplement which includes additional information on the Company's financial performance.
RenaissanceRe Holdings Ltd. will host a conference call on Thursday, February 7, 2013 at 9:00 a.m. (ET) to discuss this release. Live broadcast of the conference call will be available through the "Investor Information - Company Webcasts" section of RenaissanceRe's website at www.renre.com.
As of December 31, 2012, the Company undertook a review of its reportable segments and concluded that its former Insurance segment no longer warranted separate disclosure as a reportable segment. As such, the results of operations of the former Insurance segment have been included in the Company's Other category, and all prior periods presented herein have been reclassified to conform with the current year presentation.
RenaissanceRe Holdings Ltd. is a global provider of reinsurance and insurance. The Company's business consists of two reportable segments: (i) Reinsurance, which includes catastrophe reinsurance, specialty reinsurance and certain property catastrophe and specialty joint ventures managed by the Company's ventures unit, and (ii) Lloyd's, which includes reinsurance and insurance business written through Syndicate 1458.
Cautionary Statement under "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995: Statements made in this earnings release contain information about the Company's future business prospects.These statements may be considered "forward-looking."These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements.For further information regarding cautionary statements and factors affecting future results, please refer to RenaissanceRe Holdings Ltd.'s filings with the Securities and Exchange Commission, including its Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q.
(1) | All comparisons are with the fourth quarter of 2011 unless specifically stated. | |
(2) | 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 - DaVinci Re. The Company's estimates are based on a review of its potential exposures, preliminary discussions with certain counterparties and catastrophe modeling techniques. Given the magnitude and recent occurrence of these events, delays in receiving claims data, the contingent nature of business interruption and other exposures, potential uncertainties relating to reinsurance recoveries, the unusual complexity of the coverage and legal issues relating to these events and other uncertainties inherent in loss estimation, meaningful uncertainty remains regarding losses from these events. Accordingly, the Company's actual net impact from these events will vary from these preliminary estimates, perhaps materially so. Changes in these estimates will be recorded in the period in which they occur. | |
(3) | All comparisons are with the full year 2011 unless specifically stated. |
RenaissanceRe Holdings Ltd. | ||||||||||||||||
Summary Consolidated Statements of Operations | ||||||||||||||||
(in thousands of United States Dollars, except per share amounts and percentages) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three months ended | Twelve months ended | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
Revenues | ||||||||||||||||
Gross premiums written | $ | 83,745 | $ | 42,970 | $ | 1,551,591 | $ | 1,434,976 | ||||||||
Net premiums written | $ | 77,417 | $ | 29,193 | $ | 1,102,657 | $ | 1,012,773 | ||||||||
Decrease (increase) in unearned premiums | 206,234 | 169,916 | (33,302 | ) | (61,724 | ) | ||||||||||
Net premiums earned | 283,651 | 199,109 | 1,069,355 | 951,049 | ||||||||||||
Net investment income | 40,497 | 52,331 | 167,375 | 118,000 | ||||||||||||
Net foreign exchange gains (losses) | 1,272 | (400 | ) | 5,223 | (6,911 | ) | ||||||||||
Equity in earnings (losses) of other ventures | 6,612 | (22,702 | ) | 23,238 | (36,533 | ) | ||||||||||
Other income (loss) | 5,781 | (43,648 | ) | (22,905 | ) | (685 | ) | |||||||||
Net realized and unrealized gains on fixed maturity investments | 10,617 | 23,920 | 163,991 | 70,668 | ||||||||||||
Total other-than-temporary impairments | — | (132 | ) | (395 | ) | (630 | ) | |||||||||
Portion recognized in other-than-temporary impairments | — | 29 | 52 | 78 | ||||||||||||
Net other-than-temporary impairments | — | (103 | ) | (343 | ) | (552 | ) | |||||||||
Total revenues | 348,430 | 208,507 | 1,405,934 | 1,095,036 | ||||||||||||
Expenses | ||||||||||||||||
Net claims and claim expenses incurred | 186,893 | 3,551 | 325,211 | 861,179 | ||||||||||||
Acquisition expenses | 39,385 | 25,101 | 113,542 | 97,376 | ||||||||||||
Operational expenses | 53,121 | 43,368 | 179,301 | 169,666 | ||||||||||||
Corporate expenses | 3,964 | 8,607 | 16,692 | 18,264 | ||||||||||||
Interest expense | 5,772 | 5,721 | 23,097 | 23,368 | ||||||||||||
Total expenses | 289,135 | 86,348 | 657,843 | 1,169,853 | ||||||||||||
Income (loss) from continuing operations before taxes | 59,295 | 122,159 | 748,091 | (74,817 | ) | |||||||||||
Income tax (expense) benefit | (424 | ) | (2,945 | ) | (1,429 | ) | 315 | |||||||||
Income (loss) from continuing operations | 58,871 | 119,214 | 746,662 | (74,502 | ) | |||||||||||
Income (loss) from discontinued operations | 1,121 | (3,305 | ) | 2,287 | (15,890 | ) | ||||||||||
Net income (loss) | 59,992 | 115,909 | 748,949 | (90,392 | ) | |||||||||||
Net (income) loss attributable to noncontrolling interests | (9,692 | ) | (25,388 | ) | (148,040 | ) | 33,157 | |||||||||
Net income (loss) available (attributable) to RenaissanceRe | 50,300 | 90,521 | 600,909 | (57,235 | ) | |||||||||||
Dividends on preference shares | (8,645 | ) | (8,750 | ) | (34,895 | ) | (35,000 | ) | ||||||||
Net income (loss) available (attributable) to RenaissanceRe | $ | 41,655 | $ | 81,771 | $ | 566,014 | $ | (92,235 | ) | |||||||
Income (loss) from continuing operations available (attributable) to | $ | 0.86 | $ | 1.66 | $ | 11.35 | $ | (1.53 | ) | |||||||
Income (loss) from discontinued operations available (attributable) to | 0.02 | (0.07 | ) | 0.05 | (0.31 | ) | ||||||||||
Net income (loss) available (attributable) to RenaissanceRe common | $ | 0.88 | $ | 1.59 | $ | 11.40 | $ | (1.84 | ) | |||||||
Income (loss) from continuing operations available (attributable) to | $ | 0.85 | $ | 1.64 | $ | 11.18 | $ | (1.53 | ) | |||||||
Income (loss) from discontinued operations available (attributable) to | ||||||||||||||||
