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RENAISSANCERE HOLDINGS LTD – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Edgar Glimpses
The following is a discussion and analysis of our results of operations for 2021 compared to 2020 and 2020 compared to 2019, respectively as well as our liquidity and capital resources atDecember 31, 2021 . This discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto included in this filing. This filing contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the results described or implied by these forward-looking statements. See "Note on Forward-Looking Statements." OnMarch 22, 2019 , we acquired TMR, including RREAG, RenaissanceReUK , and their subsidiaries, and our results of operations and financial condition include TMR from the acquisition date. The three months endedJune 30, 2019 , was the first full period that reflected the results of TMR on the Company's results of operations. Subsequently, onAugust 18, 2020 , we sold RenaissanceReUK to an investment vehicle managed byAXA Liabilities Managers , an affiliate of AXA XL. Refer to "Note 21. Sale of RenaissanceReUK " in our "Notes to the Consolidated Financial Statements" for additional information with respect to the sale of RenaissanceReUK . Refer to "Note 3. Acquisition ofTokio Millennium Re " in our "Notes to the Consolidated Financial Statements" for additional information with respect to the acquisition of TMR. The following discussion and analysis of our financial condition and results of operations for 2021 compared to 2020, and 2020 compared to 2019, should be read in this context. In this Form 10-K, references to "RenaissanceRe" refer toRenaissanceRe Holdings Ltd. (the parent company) and references to "we," "us," "our" and the "Company" refer toRenaissanceRe Holdings Ltd. together with its subsidiaries, unless the context requires otherwise. Defined terms used throughout this Form 10-K are included in the "Glossary of Defined Terms" at the end of "Part I, Item 1. Business" of this Form 10-K. All dollar amounts referred to in this Form 10-K are inU.S. dollars unless otherwise indicated. Due to rounding, numbers presented in the tables included in this Form 10-K may not add up precisely to the totals provided. INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page OVERVIEW 55 SELECTED CONSOLIDATED FINANCIAL DATA 57 SUMMARY OF CRITICAL ACCOUNTING ESTIMATES 59 Claims and Claim Expense Reserves 59 Premiums and Related Expenses 66 Reinsurance Recoverable 66 Fair Value Measurements and Impairments 67 Income Taxes 70 SUMMARY RESULTS OF OPERATIONS 71 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES 90 Financial Condition 90 Liquidity and Cash Flows 90 Capital Resources 96 Reserve for Claims and Claim Expenses 97 Investments 98 Ratings 103 CURRENT OUTLOOK 106 54
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OVERVIEW
RenaissanceRe is a global provider of reinsurance and insurance. We provide property, casualty and specialty reinsurance and certain insurance solutions to customers, principally through intermediaries. Established in 1993, we have offices inBermuda ,Australia ,Ireland ,Singapore ,Switzerland , theU.K. , and theU.S. To best serve our clients in the places they do business, we have operating subsidiaries, branches, joint ventures, managed funds and underwriting platforms around the world. Our operating subsidiaries include Renaissance Reinsurance, Renaissance ReinsuranceU.S. , RenaissanceRe SpecialtyU.S. , RREAG, Renaissance Reinsurance ofEurope and our Lloyd's syndicate, Syndicate 1458. We write property and casualty and specialty reinsurance through our wholly-owned operating subsidiaries, joint ventures, managed funds and Syndicate 1458 and certain insurance products primarily through Syndicate 1458 andRenaissanceRe SpecialtyU.S. Syndicate 1458 provides us with access to Lloyd's extensive distribution network and worldwide licenses, and also writes business through delegated authority arrangements. We also underwrite reinsurance on behalf of joint ventures, including DaVinci, Top Layer Re, Upsilon RFO and Vermeer. In addition, through Medici, we invest in various insurance-based investment instruments that have returns primarily tied to property catastrophe risk. Our mission is to match desirable, well-structured risks with efficient sources of capital to achieve our vision of being the best underwriter. We believe that this will allow us to produce superior returns for our shareholders over the long term, and to protect communities and enable prosperity. We seek to accomplish these goals by being a trusted, long-term partner to our customers for assessing and managing risk, delivering responsive and innovative solutions, leveraging our core capabilities of risk assessment and information management, investing in these core capabilities in order to serve our customers across market cycles, and keeping our promises. Our strategy focuses on superior risk selection, superior customer relationships and superior capital management. We provide value to our customers and joint venture and managed fund partners in the form of financial security, innovative products, and responsive service. We are known as a leader in paying valid claims promptly. We principally measure our financial success through long-term growth in tangible book value per common share plus the change in accumulated dividends. We believe this metric is the most appropriate measure of our financial performance, and in respect of which we believe we have delivered superior performance over time. The principal drivers of our profit are underwriting income, investment income, and fee income generated by our third-party capital management business. Our core products include property, casualty and specialty reinsurance, and certain insurance products principally distributed through intermediaries, with whom we have cultivated strong long-term relationships. We believe we have been one of the world's leading providers of catastrophe reinsurance since our founding. In recent years, through the strategic execution of several initiatives, including organic growth and acquisitions, we have expanded and diversified our casualty and specialty platform and products, and believe we are a leader in certain casualty and specialty lines of business. Our current business strategy focuses predominantly on writing reinsurance, although as we grow our casualty and specialty and other property lines of business, we are increasingly writing excess and surplus lines insurance through delegated authority arrangements. We also pursue a number of other opportunities, such as creating and managing our joint ventures and managed funds, executing customized reinsurance transactions to assume or cede risk, and managing certain strategic investments directed at classes of risk other than catastrophe reinsurance. From time to time we consider diversification into new ventures, either through organic growth, the formation of new joint ventures or managed funds, or the acquisition of, or the investment in, other companies or books of business of other companies. We have determined our business consists of the following reportable segments: (1) Property, which is comprised of catastrophe and other property (re)insurance written on behalf of our operating subsidiaries, joint ventures and managed funds, and (2) Casualty and Specialty, which is comprised of casualty and specialty (re)insurance written on behalf of our operating subsidiaries, joint ventures and managed funds. The underwriting results of our operating subsidiaries and underwriting platforms are included in our Property and Casualty and Specialty segment results as appropriate. A meaningful portion of the reinsurance and insurance we write provides protection from damages relating to natural and man-made catastrophes. Our results depend to a large extent on the frequency and severity of these catastrophic events, and the coverages we offer to customers that are affected by these events. 55 -------------------------------------------------------------------------------- We are exposed to significant losses from these catastrophic events and other exposures we cover, which primarily impact our Property segment, in both the property catastrophe and other property lines of business. Accordingly, we expect a significant degree of volatility in our financial results and our financial results may vary significantly from quarter-to-quarter and from year-to-year, based on the level of insured catastrophic losses occurring around the world. Our Casualty and Specialty business, which represents approximately half of our gross premiums written annually, is an efficient use of capital that is generally less correlated with our Property business. It allows us to bring additional capacity to our clients, across a wider range of product offerings, while continuing to be good stewards of our shareholders' capital. We continually explore appropriate and efficient ways to address the risk needs of our clients and the impact of various regulatory and legislative changes on our operations. We have created, and manage, multiple capital vehicles across several jurisdictions and may create additional risk bearing vehicles or enter into additional jurisdictions in the future. In addition, our differentiated strategy and capabilities position us to pursue bespoke or large solutions for clients, which may be non-recurring. This, and other factors including the timing of contract inception, could result in significant volatility of premiums in both our Property and Casualty and Specialty segments. As our product and geographical diversity increases, we may be exposed to new risks, uncertainties and sources of volatility. Our revenues are principally derived from three sources: (1) net premiums earned from the reinsurance and insurance policies we sell; (2) net investment income and net realized and unrealized gains from the investment of our capital funds and the investment of the cash we receive on the policies which we sell; and (3) fees received from our joint ventures and managed funds. Our expenses primarily consist of: (1) net claims and claim expenses incurred on the policies of reinsurance and insurance we sell; (2) acquisition costs, which typically represent a percentage of the premiums we write; (3) operating expenses, which primarily consist of personnel expenses, rent and other operating expenses; (4) corporate expenses, which include certain executive, legal and consulting expenses, costs for research and development, transaction and integration-related expenses, and other miscellaneous costs, including those associated with operating as a publicly traded company; (5) redeemable noncontrolling interests, which represent the interests of third parties with respect to the net income of DaVinciRe, Medici and Vermeer; and (6) interest and dividends related to our debt and preference shares. We are also subject to taxes in certain jurisdictions in which we operate. Since the majority of our income is currently earned inBermuda , which does not have a corporate income tax, the tax impact to our operations has historically been minimal. In the future, our net tax exposure may increase as our operations expand geographically, or as a result of adverse tax developments. The underwriting results of an insurance or reinsurance company are discussed frequently by reference to its net claims and claim expense ratio, underwriting expense ratio, and combined ratio. The net claims and claim expense ratio is calculated by dividing net claims and claim expenses incurred by net premiums earned. The underwriting expense ratio is calculated by dividing underwriting expenses (acquisition expenses and operational expenses) by net premiums earned. The combined ratio is the sum of the net claims and claim expense ratio and the underwriting expense ratio. A combined ratio below 100% indicates profitable underwriting prior to the consideration of investment income. A combined ratio over 100% indicates unprofitable underwriting prior to the consideration of investment income. We also discuss our net claims and claim expense ratio on a current accident year basis and a prior accident years basis. The current accident year net claims and claim expense ratio is calculated by taking current accident year net claims and claim expenses incurred, divided by net premiums earned. The prior accident years net claims and claim expense ratio is calculated by taking prior accident years net claims and claim expenses incurred, divided by net premiums earned. Effects of Inflation General economic inflation has increased and there is a risk of inflation remaining elevated for an extended period, which could cause claims and claim expenses to increase, impact the performance of our investment portfolio or have other adverse effects. This risk may be exacerbated by the steps taken by governments and central banks throughout the world in responding to the COVID-19 pandemic. The actual effects of the current and potential future 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 56 -------------------------------------------------------------------------------- catastrophe loss models and on our investment portfolio. 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. COVID-19 Pandemic 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. 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. We continue to evaluate industry trends and information received from or reported by clients, brokers, industry actuaries, regulators, courts, and others, 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. SELECTED CONSOLIDATED FINANCIAL DATA The following tables set forth our selected consolidated financial data and other financial information at the end of and for each of the years in the five-year period endedDecember 31, 2021 . The results of TMR are included in our consolidated financial data fromMarch 22, 2019 . The selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes thereto and the other information in this "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K. 57 --------------------------------------------------------------------------------
Year ended December 31, 2021 2020 2019 2018 2017
(in thousands, except share and
per share data and percentages)
Statements of Operations Data:
Gross premiums written $ 7,833,798 $ 5,806,165 $ 4,807,750 $ 3,310,427 $ 2,797,540
Net premiums written 5,939,375 4,096,333 3,381,493 2,131,902 1,871,325
Net premiums earned 5,194,181 3,952,462 3,338,403 1,976,129 1,717,575
Net investment income 319,479 354,038 424,207 269,965 197,775
Net realized and unrealized gains
(losses) on investments (218,134) 820,636 414,109 (183,168) 160,256
Net claims and claim expenses
incurred 3,876,087 2,924,609 2,097,021 1,120,018 1,861,428
Acquisition expenses 1,214,858 897,677 762,232 432,989 346,892
Operational expenses 212,184 206,687 222,733 178,267 160,778
Underwriting income (loss) (108,948) (76,511) 256,417 244,855 (651,523)
Net income (loss) (103,440) 993,058 950,267 268,917 (354,671)
Net income (loss) available
(attributable) to RenaissanceRe
common shareholders (73,421) 731,482 712,042 197,276 (244,770)
Net income (loss) available
(attributable) to RenaissanceRe
common shareholders per common
share - diluted (1.57) 15.31 16.29 4.91 (6.15)
Dividends per common share 1.44 1.40 1.36 1.32 1.28
Weighted average common shares
outstanding - diluted 47,171 47,178 43,175 39,755 39,854
Return on average common equity (1.1) % 11.7 % 14.1 % 4.7 % (5.7) %
Combined ratio 102.1 % 101.9 % 92.3 % 87.6 % 137.9 %
At December 31, 2021 2020 2019 2018 2017
Balance Sheet Data:
Total investments $ 21,442,659 $ 20,558,176 $ 17,368,789 $ 11,885,747 $ 9,503,439
Total assets 33,959,502 30,820,580 26,330,094 18,676,196 15,226,131
Reserve for claims and claim
expenses 13,294,630 10,381,138 9,384,349 6,076,271 5,080,408
Unearned premiums 3,531,213 2,763,599 2,530,975 1,716,021 1,477,609
Debt 1,168,353 1,136,265 1,384,105 991,127 989,623
Capital leases 22,459 22,853 25,072 25,853 26,387
Preference shares 750,000 525,000 650,000 650,000 400,000
Total shareholders' equity
attributable to RenaissanceRe 6,624,281 7,560,248 5,971,367 5,045,080 4,391,375
Common shares outstanding 44,445 50,811 44,148 42,207 40,024
Book value per common share $ 132.17 $ 138.46 $ 120.53 $ 104.13 $ 99.72
Accumulated dividends 23.52 22.08 20.68 19.32 18.00
Book value per common share plus
accumulated dividends $ 155.69 $ 160.54 $ 141.21 $ 123.45 $ 117.72
Change in book value per common
share plus change in accumulated
dividends (3.5) % 16.0 % 17.1 % 5.7 % (6.9) %
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-------------------------------------------------------------------------------- SUMMARY OF CRITICAL ACCOUNTING ESTIMATES Claims and Claim Expense Reserves General Description 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. We establish our claims and claim expense reserves by taking case reserves, adding estimates for IBNR and, if deemed necessary, adding costs for additional case reserves which represent our estimates for claims related to specific contracts which we believe may not be adequately estimated by the client as of that date, or adequately covered in the application of IBNR. Our reserving committee, which includes members of our senior management, reviews, discusses, and assesses the reasonableness and adequacy of the reserving estimates included in our audited financial statements. In accordance with FASB ASC Topic Business Combinations, we allocated the total consideration paid for TMR among acquired assets and assumed liabilities based on their fair values. These assets and liabilities include TMR's claims and claim expense reserves, which totaled$2.4 billion atMarch 22, 2019 , and consisted of$783.3 million and$1.6 billion included in our Property and Casualty and Specialty segments, respectively. The following table summarizes our claims and claim expense reserves by segment, allocated between case reserves, additional case reserves and IBNR: Case Additional At December 31, 2021 Reserves Case Reserves IBNR Total (in thousands) Property$ 1,555,210 $ 1,996,760 $
2,825,718
Casualty and Specialty 1,784,334 128,065 5,004,543 6,916,942 Total$ 3,339,544 $ 2,124,825 $ 7,830,261 $ 13,294,630
At
(in thousands)
Property$ 1,127,909 $ 1,617,003 $
1,627,541
Casualty and Specialty 1,651,150 133,843 4,223,692 6,008,685 Total$ 2,779,059 $ 1,750,846 $ 5,851,233 $ 10,381,138 59
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Activity in the liability for unpaid claims and claim expenses is summarized as
follows:
Year ended December 31, 2021 2020 2019
(in thousands)
Reserve for claims and claim expenses, net of
reinsurance recoverable, as of beginning of
period $ 7,455,128 $ 6,593,052 $ 3,704,050
Net incurred related to:
Current year 4,125,557 3,108,421 2,123,876
Prior years (249,470) (183,812) (26,855)
Total net incurred 3,876,087 2,924,609 2,097,021
Net paid related to:
Current year 574,230 412,172 265,649
Prior years 1,649,872 1,592,456 832,405
Total net paid 2,224,102 2,004,628 1,098,054
Foreign exchange (1) (81,152) 97,273 31,260
Amounts disposed (2) - (155,178) -
Amounts acquired (3) - - 1,858,775
Reserve for claims and claim expenses, net of
reinsurance recoverable, as of end of period 9,025,961 7,455,128 6,593,052
Reinsurance recoverable as of end of period 4,268,669 2,926,010 2,791,297
Reserve for claims and claim expenses as of end
of period $ 13,294,630 $ 10,381,138 $ 9,384,349
(1) Reflects the impact of the foreign exchange revaluation of the reserve for
claims and claim expenses, net of reinsurance recoverable, denominated in
non-U.S. dollars as at the balance sheet date.
(2) Represents the fair value of RenaissanceRe UK's reserve for claims and
claim expenses, net of reinsurance recoverable, disposed of on August 18, 2020 .
(3) Represents the fair value of TMR's reserve for claims and claim expenses,
net of reinsurance recoverable, acquired at March 22, 2019 .
The following table details our prior year development by segment of its
liability for unpaid claims and claim expenses:
Year ended December 31, 2021 2020 2019
(in thousands) (Favorable) (Favorable) (Favorable)
adverse adverse adverse
development development development
Property $ (233,373) $ (157,049) $ (2,973)
Casualty and Specialty (16,097) (26,763) (23,882)
Total favorable development of prior accident
years net claims and claim expenses $ (249,470) $ (183,812) $ (26,855)
Our reserving methodology for each line of business uses a loss reserving
process that calculates a point estimate for our ultimate settlement and
administration costs for claims and claim expenses. We do not calculate a range
of estimates and do not discount any of our reserves for claims and claim
expenses. We use this point estimate, along with paid claims and case reserves,
to record our best estimate of additional case reserves and IBNR in our
consolidated financial statements. Under GAAP, we are not permitted to establish
estimates for catastrophe claims and claim expense reserves until an event
occurs that gives rise to a loss.
Reserving for our claims involves other uncertainties, such as the dependence on
information from ceding companies, the time lag inherent in reporting
information from the primary insurer to us or to our ceding companies, and
different reserving practices among ceding companies. The information received
from ceding companies is typically in the form of bordereaux, broker
notifications of loss and/or discussions with ceding companies or their brokers.
This information may be received on a monthly, quarterly or transactional basis
and normally includes paid claims and estimates of case reserves. We may also
receive an estimate or provision for IBNR from certain ceding companies. This
information is often updated and
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adjusted from time to time during the loss settlement period as new data or
facts in respect of initial claims, client accounts, industry or event trends
may be reported or emerge in addition to changes in applicable statutory and
case laws.
Our estimates of large losses are based on factors including currently available
information derived from claims information from certain customers and brokers,
industry assessments of losses, proprietary models, historical reinsurance and
insurance loss experience and statistics, management's experience and judgment
to assist the establishment of appropriate claims and claim expense reserves,
and the terms and conditions of our contracts. The uncertainty of our estimates
for large losses is also impacted by the preliminary nature of the information
available, the magnitude and relative infrequency of the loss, the expected
duration of the respective claims development period, inadequacies in the data
provided to the relevant date by industry participants, the potential for
further reporting lags or insufficiencies and, in certain cases, the form of the
claims and legal issues under the relevant terms of insurance and reinsurance
contracts. In addition, a significant portion of the net claims and claim
expenses associated with certain large losses can be concentrated with a few
large clients and therefore the loss estimates for these losses may vary
significantly based on the claims experience of those clients. The contingent
nature of business interruption and other exposures will also impact losses in a
meaningful way, which we believe may give rise to significant complexity in
respect of claims handling, claims adjustment and other coverage issues, over
time. Given the magnitude of certain losses, there can be meaningful uncertainty
regarding total covered losses for the insurance industry and, accordingly,
several of the key assumptions underlying our loss estimates. Loss reserve
estimation in respect of our retrocessional contracts poses further challenges
compared to directly assumed reinsurance. In addition, our actual net losses may
increase if our reinsurers or other obligors fail to meet their obligations.
Because of the inherent uncertainties discussed above, we have developed a
reserving philosophy which attempts to incorporate prudent assumptions and
estimates, and we have generally experienced favorable development on prior
accident years net claims and claim expenses in the last several years. However,
there is no assurance that this favorable development on prior accident years
net claims and claim expenses will occur in future periods.
Our reserving techniques, assumptions and processes differ among our Property
and Casualty and Specialty segments. Refer to "Note 8. Reserve for Claims and
Claim Expenses" in our "Notes to the Consolidated Financial Statements" 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.
Property Segment
Actual Results vs. Initial Estimates
As discussed above, the key assumption in estimating reserves for our Property
segment is our estimate of incurred claims and claim expenses. The table below
shows our initial estimates of incurred claims and claim expenses for each
accident year and how these initial estimates have developed over time. The
initial estimate of accident year incurred claims and claim expenses represents
our estimate of the ultimate settlement and administration costs for claims
incurred in our Property segment occurring during a particular accident year,
and as reported as of December 31 of that year. The re-estimated incurred claims
and claim expenses as of December 31 of subsequent years, represent our revised
estimates as reported as of those dates. Our most recent estimates as reported
at December 31, 2021 differ from our initial accident year estimates and
demonstrate that our most recent estimate of incurred claims and claim expenses
are reasonably likely to vary from our initial estimate, perhaps significantly.
Changes in this estimate will be recorded in the period in which they occur. In
accident years where our current estimates are lower than our initial estimates,
we have experienced favorable development, in comparison, for accident years
where our current estimates are higher than our original estimates we have
experienced adverse development. The table is presented on a net basis and,
therefore, includes the benefit of reinsurance recoverable. In addition, we have
included historical incurred claims and claim expenses development information
related to Platinum and TMR in the table below. For incurred accident year
claims and claim expenses denominated in currencies other than USD, we have used
the current year-end
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balance sheet foreign exchange rate for all periods provided, thereby
eliminating the effects of changes in foreign currency translation rates from
the incurred accident year claims development information included in the table
below.
The following table details our Property segment incurred claims and claim
expenses, net of reinsurance, as of December 31, 2021 .
Incurred Claims and Claim Expenses, Net of Reinsurance
(in thousands) For the year ended December 31,
Accident
Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
2012 $ 560,348 $ 429,885 $ 395,605 $ 375,439 $ 358,509 $ 346,756 $ 338,877 $ 334,347 $ 325,042 $ 322,871
2013 - 318,033 294,315 272,191 250,014 238,734 235,016 235,356 238,404 240,779
2014 - - 302,158 278,813 265,569 260,542 259,379 256,845 250,647 247,708
2015 - - - 372,338 357,065 334,099 323,211 311,964 305,847 295,081
2016 - - - - 455,503 469,120 452,922 434,706 415,572 411,698
2017 - - - - - 1,644,982 1,461,953 1,350,684 1,328,419 1,273,461
2018 - - - - - - 938,309 1,020,102 979,598 857,217
2019 - - - - - - - 992,526 956,445 898,472
2020 - - - - - - - - 1,580,564 1,600,743
2021 - - - - - - - - - 2,370,891
Total $ 8,518,921
Our initial and subsequent estimates of incurred claims and claim expenses, net
of reinsurance, are impacted by available information derived from claims
information from customers and brokers, industry assessments of losses,
proprietary models, historical reinsurance and insurance loss experience and
statistics, management's experience and judgment to assist the establishment of
appropriate claims and claim expense reserves, and the terms and conditions of
our contracts. As described above, given the complexity in reserving for claims
and claims expenses associated with property losses, and catastrophe excess of
loss reinsurance contracts in particular, which make up a significant proportion
of our Property segment, we have experienced development, both favorable and
unfavorable, in any given accident year. For example, net claims and claim
expenses associated with the 2017 accident year have experienced favorable
development. This is largely driven by reductions in estimated net ultimate
claims and claim expenses associated with the 2017 Large Loss Events. In
comparison, net claims and claim expenses associated with 2020 accident year
have experienced adverse development. The adverse development was driven by an
increase in expected net claims and claim expenses as new and additional claims
information was received associated with the 2020 Weather-Related Large Loss
Events.
In accident years with a low level of insured catastrophe losses, our other
property lines of business contribute a greater proportion of our overall
incurred claims and claim expenses within our Property segment, compared to
years with a high level of insured catastrophe losses. We expect that certain of
our other property lines of business will tend to generate less volatility in
future calendar years and, as such, we would expect to see a slower more stable
increase or decrease in estimated incurred net claims and claim expenses over
time in such business. Certain of our other property contracts are also exposed
to catastrophe events, resulting in increased volatility of incurred claims and
claim expenses driven by the occurrence of catastrophe events. In addition,
volatility in the initial estimate associated with large catastrophe losses and
the speed at which we settle claims can vary significantly based on the type of
event. We also anticipate that losses from the COVID-19 pandemic will be highly
complex and uncertain, given the unprecedented situation, and will take longer
to develop given the nature of the losses, thus potentially adding volatility to
our incurred net claims and claim expenses.
Sensitivity Analysis
The table below shows the impact on our reserve for claims and claim expenses,
net income (loss) and shareholders' equity as of and for the year ended
December 31, 2021 of a reasonable range of possible outcomes associated with our
estimates of gross ultimate losses for claims and claim expenses incurred within
our Property segment. The reasonable range of possible outcomes is based on a
distribution of
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outcomes of our ultimate incurred claims and claim expenses from large losses.
In addition, we adjust the loss ratios and development curves in our other
property lines of business in a similar fashion to the sensitivity analysis
performed for our Casualty and Specialty segment, discussed in greater detail
below. In general, our reserve for claims and claim expenses for more recent
losses are subject to greater uncertainty and, therefore, greater variability
and are likely to experience material changes from one period to the next. This
is due to uncertainty with respect to the size of the industry losses, which
contracts have been exposed to the loss and the magnitude of claims incurred by
our clients. As our claims age, more information becomes available and we
believe our estimates become more certain, although there is no assurance this
trend will continue in the future. As a result, the sensitivity analysis below
is based on the age of each accident year, our current estimated incurred claims
and claim expenses for the losses occurring in each accident year, and a
reasonable range of possible outcomes of our current estimates of claims and
claim expenses by accident year. The impact on net income (loss) and
shareholders' equity assumes no increase or decrease in reinsurance recoveries,
loss related premium or profit commission, or redeemable noncontrolling
interest.
Property Claims and Claim Expense Reserve Sensitivity Analysis
$ Impact of % Impact of
Change Reserve Change
Reserve for for Claims on Reserve for % Impact of % Impact of
Claims and Claim and Claim Claims Change on Net Income Change on
Expenses at Expenses and Claim Expenses (Loss) for Shareholders'
(in thousands, except December 31, at December 31, at December 31, the Year Ended Equity at
percentages) 2021 2021 2021 December 31, 2021 December 31, 2021
Higher $ 7,070,794 $ 693,106 5.2 % 670.1 % (10.5) %
Recorded $ 6,377,688 $ - - % - % - %
Lower $ 5,892,394 $ (485,294) (3.7) % (469.2) % 7.3 %
We believe the changes we made to our estimated incurred claims and claim
expenses represent a reasonable range of possible outcomes based on our
experience to date and our future expectations. While we believe these are a
reasonable range of possible outcomes, we do not believe the above sensitivity
analysis should be considered an actuarial reserve range. In addition, the
sensitivity analysis only reflects a reasonable range of possible outcomes in
our underlying assumptions. It is possible that our estimated incurred claims
and claim expenses could be significantly higher or lower than the sensitivity
analysis described above. For example, we could be liable for events for which
we have not estimated claims and claim expenses or for exposures we do not
currently believe are covered under our policies. These changes could result in
significantly larger changes to our estimated incurred claims and claim
expenses, net income and shareholders' equity than those noted above, and could
be recorded across multiple periods. We also caution that the above sensitivity
analysis is not used by management in developing our reserve estimates and is
also not used by management in managing the business.
Casualty and Specialty Segment
Actual Results vs. Initial Estimates
As discussed above, the key assumption in estimating reserves for our Casualty
and Specialty segment is our estimate of incurred claims and claim expenses.
Standard actuarial techniques are used to calculate the ultimate claims and
claim expenses. The key assumptions in the determination of ultimate claims and
claim expenses include the estimated incurred claims and claim expenses ratio
and the estimated loss reporting patterns. The table below shows our initial
estimates of incurred claims and claim expenses for each accident year and how
these initial estimates have developed over time. The initial estimate of
accident year incurred claims and claim expenses represents our estimate of the
ultimate settlement and administration costs for claims incurred in our Casualty
and Specialty segment occurring during a particular accident year, and as
reported as of December 31 of that year. The re-estimated incurred claims and
claim expenses as of December 31 of subsequent years, represent our revised
estimates as reported as of those dates. Our most recent estimates as reported
at December 31, 2021 differ from our initial accident year estimates and
demonstrates that our initial estimate of incurred claims and claim expenses are
reasonably
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likely to vary from our most recent estimate, perhaps significantly. Changes in
this estimate will be recorded in the period in which they occur. In accident
years where our current estimates are lower than our initial estimates, we have
experienced favorable development while accident years where our current
estimates are higher than our original estimates indicate adverse development.
The table is presented on a net basis and, therefore, includes the benefit of
reinsurance recoverable. In addition, we have included historical incurred
claims and claim expenses development information related to Platinum and TMR in
the table below. For incurred accident year claims denominated in currencies
other than USD, we have used the current year-end balance sheet foreign exchange
rate for all periods provided, thereby eliminating the effects of changes in
foreign currency translation rates from the incurred accident year claims
development information included in the table below.
The following table details our Casualty and Specialty segment incurred claims
and claim expenses, net of reinsurance, as of December 31, 2021 .
Incurred Claims and Claim Expenses, Net of Reinsurance
(in thousands) For the year ended December 31,
Accident
Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
2012 $ 578,130 $ 592,453 $ 563,062 $ 551,958 $ 540,732 $ 554,391 $ 568,888 $ 577,474 $ 569,186 $ 570,741
2013 - 594,425 592,861 564,622 540,484 527,719 512,923 490,856 482,099 485,498
2014 - - 700,597 695,827 700,137 681,191 663,280 675,424 646,998 640,914
2015 - - - 767,250 787,882 827,103 807,386 793,509 811,403 816,906
2016 - - - - 962,878 995,833 994,781 986,009 950,960 962,173
2017 - - - - - 1,309,433 1,286,751 1,313,703 1,274,909 1,285,920
2018 - - - - - - 1,260,481 1,322,850 1,318,322 1,331,532
2019 - - - - - - - 1,262,941 1,256,812 1,255,990
2020 - - - - - - - - 1,510,390 1,475,979
2021 - - - - - - - - - 1,709,700
Total $ 10,535,353
As each underwriting year has developed, our estimated expected incurred claims
and claim expenses, net of reinsurance, have changed. As an example, our
re-estimated incurred claims and claim expenses decreased for the 2014 accident
year from the initial estimates. This decrease was principally driven by actual
reported and paid net claims and claim expenses associated with the 2014
accident year being lower than expected, which has resulted in a reduction in
our expected ultimate claims and claim expense ratio for this accident year. In
comparison, the 2018 accident year has developed adversely compared to our
initial estimates of incurred claims and claim expenses and our current
estimates are higher than our initial estimates. The increase in incurred claims
and claim expenses for the 2018 accident year is due to reported losses
generally coming in higher than expected on attritional net claims and claim
expenses.
The reserving methodology for our Casualty and Specialty segment is weighted
more heavily to our initial estimate in the early periods immediately following
the contracts' inception through the use of the expected loss ratio method. The
expected loss ratio method estimates the incurred losses by multiplying the
initial expected loss ratio by the earned premium. Under the expected loss ratio
method, no reliance is placed on the development of claims and claim expenses.
The determination of when reported losses are sufficient and credible to warrant
selection of an ultimate loss ratio different from the initial expected loss
ratio also requires judgment. We generally make adjustments for reported loss
experience indicating unfavorable variances from the initial expected loss ratio
sooner than reported loss experience indicating favorable variances as reporting
of losses in excess of expectations tends to have greater credibility than an
absence of, or lower than expected level of, reported losses. Over time, as a
greater number of claims are reported and the credibility of reported losses
improves, actuarial estimates of IBNR are typically based on the
Bornhuetter-Ferguson actuarial method. The Bornhuetter-Ferguson method places
weight on claims and claim expenses development experience. If there is adverse
development of prior accident years claims and claim expenses, we generally
select the Bornhuetter-Ferguson method to ensure the claim experience is
considered in the determination of our estimated claims and claim expenses with
the associated business. If we believe we lack the claims experience in the
early stages of development of a line of business, we may not select the
Bornhuetter-Ferguson method until such time as we believe there is
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greater credibility in the level of reported losses. As development experience
for claims and claim expenses on prior accident years becomes credible, the
Bornhuetter-Ferguson method is generally selected which places greater weight on
this reported experience as it develops. The Bornhuetter-Ferguson method
estimates our expected ultimate claims and claim expenses by applying our
initial estimated loss ratio to our undeveloped premium, and adding the reported
losses to the estimate. The impact of these methodologies can be observed in the
table above. For example, the 2014 accident year ultimate loss remained
relatively consistent for the first two years of development (i.e., the years
ended December 31, 2015 and 2016), before experiencing favorable development in
years three and four (i.e., the years ended December 31, 2017 and 2018),
reflecting the timing of our adoption of the Bornhuetter-Ferguson method as the
reported experience became more credible.
Sensitivity Analysis
The table below shows the impact on our Casualty and Specialty segment reserve
for claims and claim expenses, net income (loss) and shareholders' equity as of
and for the year ended December 31, 2021 , of a reasonable range of possible
outcomes associated with a variety of reasonable actuarial assumptions for our
estimates of gross ultimate claims and claim expense ratios and loss reporting
patterns. The impact on net income (loss) and shareholders' equity assumes no
increase or decrease in reinsurance recoveries, loss related premium or profit
commission, or redeemable noncontrolling interest.
Casualty and Specialty Claims and Claim Expense Reserve Sensitivity Analysis
$ Impact of % Impact of % Impact of
Change Change Change on % Impact of
on Reserves for on Reserve for Net Income (Loss) Change on
Estimated Claims and Claim Claims and Claim for the Year Shareholders'
Loss Expenses at Expenses at Ended Equity at
(in thousands, except Reporting December 31, December 31, December 31, December 31,
percentages) Pattern 2021 2021 2021 2021
Increase expected claims and Slower
claim expense ratio by 10% reporting $ 1,143,914 8.6 % 1,105.9 % (17.3) %
Increase expected claims and Expected
claim expense ratio by 10% reporting $ 500,454 3.8 % 483.8 % (7.6) %
Increase expected claims and Faster
claim expense ratio by 10% reporting $ 141,739 1.1 % 137.0 % (2.1) %
Expected claims and claim Slower
expense ratio reporting $ 584,963 4.4 % 565.5 % (8.8) %
Expected claims and claim Expected
expense ratio reporting $ - - % - % - %
Expected claims and claim Faster
expense ratio reporting $ (326,104) (2.5) % (315.3) % 4.9 %
Decrease expected claims and Slower
claim expense ratio by 10% reporting $ 26,013 0.2 % 25.1 % (0.4) %
Decrease expected claims and Expected
claim expense ratio by 10% reporting $ (500,454) (3.8) % (483.8) % 7.6 %
Decrease expected claims and Faster
claim expense ratio by 10% reporting $ (793,948) (6.0) % (767.5) % 12.0 %
We believe that ultimate claims and claim expense ratios 10.0 percentage points
above or below our estimated assumptions constitute a reasonable range of
possible outcomes based on our experience to date and our future expectations.
In addition, we believe that the adjustments we made to speed up or slow down
our estimated loss reporting patterns represent a reasonable range of possible
outcomes. While we believe these are a reasonable range of possible outcomes, we
do not believe the above sensitivity analysis should be considered an actuarial
reserve range. In addition, the sensitivity analysis only reflects a reasonable
range of possible outcomes in our underlying assumptions. It is possible that
our initial estimated claims and claim expense ratios and loss reporting
patterns could be significantly different from the sensitivity analysis
described above. For example, we could be liable for events that we have not
estimated reserves for, or for exposures we do not currently believe are covered
under our contracts. These changes could result in significantly larger changes
to reserves for claims and claim expenses, net income
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and shareholders' equity than those noted above, and could be recorded across
multiple periods. We also caution that the above sensitivity analysis is not
used by management in developing our reserve estimates and is also not used by
management in managing the business.
Premiums and Related Expenses
Premiums are recognized as income, net of any applicable reinsurance or
retrocessional coverage purchased, over the terms of the related contracts and
policies. Premiums written are based on contract and policy terms and include
estimates based on information received from both insureds and ceding companies.
Unearned premiums represents the portion of premiums written that relate to the
unexpired terms of contracts and policies in force. Amounts are computed by pro
rata methods based on statistical data or reports received from ceding
companies. Reinstatement premiums are estimated after the occurrence of a loss
and are recorded in accordance with the contract terms based upon paid losses as
well as reported and estimated reserves. Reinstatement premiums are earned when
written.
Due to the nature of reinsurance, ceding companies routinely report and remit
premiums to us subsequent to the contract coverage period. Consequently,
premiums written and receivable include amounts reported by the ceding
companies, supplemented by our estimates of premiums that are written but not
reported. The estimation of written premiums may be affected by early
cancellation, election of contract provisions for cut-off and return of unearned
premiums or other contract disruptions. The time lag involved in the process of
reporting premiums is shorter than the lag in reporting losses. In addition to
estimating premiums written, we estimate the earned portion of premiums written
which is subject to judgment and uncertainty. Any adjustments to written and
earned premiums, and the related losses and acquisition expenses, are accounted
for as changes in estimates and are reflected in the results of operations in
the period in which they are made.
Lines of business that are similar in both the nature of their business and
estimation process may be grouped for purposes of estimating premiums. Premiums
are estimated based on ceding company estimates and our own judgment after
considering factors such as: (1) the ceding company's historical premium versus
projected premium, (2) the ceding company's history of providing accurate
estimates, (3) anticipated changes in the marketplace and the ceding company's
competitive position therein, (4) reported premiums to date and (5) the
anticipated impact of proposed underwriting changes. Estimates of premiums
written and earned are based on the selected ultimate premium estimate, the
terms and conditions of the reinsurance contracts and the remaining exposure
from the underlying policies. We evaluate the appropriateness of these estimates
in light of the actual premium reported by the ceding companies, information
obtained during audits and other information received from ceding companies.
We estimate our provision for current expected credit losses by applying
specific percentages against each premiums receivable based on the
counterparty's credit ratings. The percentages applied are based on information
received from both insureds and ceding companies and are then adjusted by us
based on industry knowledge and our judgment and estimates. We then evaluate the
overall adequacy of the provision for current expected credit losses based on
other qualitative and judgmental factors. At December 31, 2021 , the Company's
premiums receivable balance was $3.8 billion (2020 - $2.9 billion ). Of the
Company's premiums receivable balance as of December 31, 2021 , the majority are
receivables from highly rated counterparties. At December 31, 2021 , the Company
held a provision for current expected credit losses on its premiums receivable
of $2.8 million (2020 - $6.0 million ).
Reinsurance Recoverable
We enter into retrocessional reinsurance agreements in order to help reduce our
exposure to large losses and to help manage our risk portfolio. Amounts
recoverable from reinsurers are estimated in a manner consistent with the claims
and claim expense reserves associated with the related assumed reinsurance. For
multi-year retrospectively rated contracts, we accrue amounts (either assets or
liabilities) that are due to or from our retrocessionaires based on estimated
contract experience. If we determine that adjustments to earlier estimates are
appropriate, such adjustments are recorded in the period in which they are
determined.
The estimate of reinsurance recoverable can be more subjective than estimating
the underlying claims and claim expense reserves as discussed under the heading
"Claims and Claim Expense Reserves" above. In particular, reinsurance
recoverable may be affected by deemed inuring reinsurance, industry losses
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reported by various statistical reporting services, and other factors.
Reinsurance recoverable on dual trigger reinsurance contracts require us to
estimate our ultimate losses applicable to these contracts as well as estimate
the ultimate amount of insured industry losses that will be reported by the
applicable statistical reporting agency, as per the contract terms. In addition,
the level of our additional case reserves and IBNR reserves has a significant
impact on reinsurance recoverable. These factors can impact the amount and
timing of the reinsurance recoverable to be recorded.
The majority of the balance we have accrued as recoverable will not be due for
collection until some point in the future. The amounts recoverable that will
ultimately be collected are subject to uncertainty due to the ultimate ability
and willingness of reinsurers to pay our claims at a future point in time, for
reasons including insolvency or elective run-off, contractual dispute and
various other reasons. In addition, because the majority of the balances
recoverable will not be collected for some time, economic conditions as well as
the financial and operational performance of a particular reinsurer may change,
and these changes may affect the reinsurer's willingness and ability to meet
their contractual obligations to us. To reflect these uncertainties, we estimate
and record a provision for current expected credit losses for potential
uncollectible reinsurance recoverable which reduces reinsurance recoverable and
net income.
We estimate our provision for current expected credit losses by applying
specific percentages against each reinsurance recoverable based on our
counterparty's credit rating. The percentages applied are based on historical
industry default statistics developed by major rating agencies and are then
adjusted by us based on industry knowledge and our judgment and estimates. We
then evaluate the overall adequacy of the provision for current expected credit
losses based on other qualitative and judgmental factors. At December 31, 2021 ,
our reinsurance recoverable balance was $4.3 billion (2020 - $2.9 billion ). Of
this amount, 46.9% is fully collateralized by our reinsurers, 52.1% is
recoverable from reinsurers rated A- or higher by major rating agencies and 1.0%
is recoverable from reinsurers rated lower than A- by major rating agencies
(2020 - 45.2%, 53.4% and 1.4%, respectively). The reinsurers with the three
largest balances accounted for 19.9%, 8.4% and 4.3%, respectively, of our
reinsurance recoverable balance at December 31, 2021 (2020 - 15.3%, 10.8% and
6.7%, respectively). The provision for current expected credit losses recorded
against reinsurance recoverable was $8.3 million at December 31, 2021 (2020 -
$6.3 million ). The three largest company-specific components of the provision
for current expected credit losses represented 18.0%, 13.9% and 11.2%,
respectively, of our total provision for current expected credit losses at
December 31, 2021 (2020 - 13.2%, 13.0% and 6.7%, respectively).
Fair Value Measurements and Impairments
Fair Value
The use of fair value to measure certain assets and liabilities with resulting
unrealized gains or losses is pervasive within our consolidated financial
statements. Fair value is defined under accounting guidance currently applicable
to us to be the price that would be received upon the sale of an asset or paid
to transfer a liability in an orderly transaction between open market
participants at the measurement date. We recognize the change in unrealized
gains and losses arising from changes in fair value in our consolidated
statements of operations.
FASB ASC Topic Fair Value Measurements and Disclosures prescribes a fair value
hierarchy that prioritizes the inputs to the respective valuation techniques
used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to valuation techniques that use at least one
significant input that is unobservable (Level 3).
In certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the level in the fair value
hierarchy within which the fair value measurement in its entirety falls has been
determined based on the lowest level input that is significant to the fair value
measurement of the asset or liability. Our assessment of the significance of a
particular input to the fair value measurement in its entirety requires
judgment, and we consider factors specific to the asset or liability.
In order to determine if a market is active or inactive for a security, we
consider a number of factors, including, but not limited to, the volume of
trading activity for the security in question, the price of the
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security compared to its par value (for fixed maturity investments), and other
factors that may be indicative of market activity.
At December 31, 2021 , we classified $169.3 million and $10.8 million of our
assets and liabilities, respectively, at fair value on a recurring basis using
Level 3 inputs. This represented 0.5% and 0.0% of our total assets and
liabilities, respectively. Level 3 fair value measurements are based on
valuation techniques that use at least one significant input that is
unobservable. These measurements are made under circumstances in which there is
little, if any, market activity for the asset or liability. We use valuation
models or other pricing techniques that require a variety of inputs including
contractual terms, market prices and rates, yield curves, credit curves,
measures of volatility, prepayment rates and correlations of such inputs, some
of which may be unobservable, to value these Level 3 assets and liabilities.
Refer to "Note 6. Fair Value Measurements" in our "Notes to the Consolidated
Financial Statements" for additional information about fair value measurements.
Impairments
The amount and timing of asset impairment is subject to significant estimation
techniques and is a critical accounting estimate for us. The significant
impairment reviews we complete are for our goodwill and other intangible assets
and equity method investments, as described in more detail below.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets acquired are initially recorded at fair
value. Subsequent to initial recognition, finite lived other intangible assets
are amortized over their estimated useful life, subject to impairment, and
goodwill and indefinite lived other intangible assets are carried at the lower
of cost or fair value, subject to impairment. If goodwill or other intangible
assets are impaired, they are written down to their estimated fair values with a
corresponding expense reflected in our consolidated statements of operations.
In accordance with FASB ASC Topic Business Combinations, we allocated the total
consideration paid for TMR among acquired assets and assumed liabilities based
on their fair values. We recognized identifiable finite lived intangible assets
of $11.2 million , which will be amortized over a weighted average period of 10.5
years, identifiable indefinite lived intangible assets of $6.8 million , and
certain other adjustments to the fair values of the assets acquired, liabilities
assumed and shareholders' equity of TMR at March 22, 2019 , based on foreign
exchange rates on March 22, 2019 .
In addition, we recognized goodwill of $13.1 million , based on foreign exchange
rates on March 22, 2019 , attributable to the excess of the purchase price over
the fair value of the net assets of TMR. Goodwill resulting from the acquisition
of TMR will not be amortized but instead will be tested for impairment at least
annually, as outlined below (more frequently if certain indicators are present).
Goodwill is assigned to the applicable reporting unit of the acquired entities
giving rise to the goodwill and other intangible assets.
We assess goodwill and other intangible assets for impairment in the fourth
quarter of each year, or more frequently if events or changes in circumstances
indicate that the carrying amount may not be recoverable. For purposes of the
annual impairment evaluation, we assess qualitative factors to determine if
events or circumstances exist that would lead us to conclude that it is more
likely than not that the fair value of a reporting unit is less than its
carrying amount. If we determine that it is not more likely than not that the
fair value of a reporting unit is less than its carrying amount, then we do not
perform a quantitative evaluation. Should we determine that a quantitative
analysis is required, we will first determine the fair value of the reporting
unit and compare that with the carrying value, including goodwill. If the fair
value of the reporting unit exceeds its carrying amount, then goodwill is not
considered impaired and no further analysis is required. If the carrying amount
of a reporting unit exceeds its fair value, we then proceed to determine the
amount of the impairment charge, if any. There are many assumptions and
estimates underlying the fair value calculation. Principally, we identify the
reporting unit or business entity that the goodwill or other intangible asset is
attributed to, and review historical and forecasted operating and financial
performance and other underlying factors affecting such analysis, including
market conditions. Other assumptions used could produce significantly different
results which may result in a change in the value of goodwill or our other
intangible assets and a related charge in our consolidated statements of
operations. An impairment charge could be recognized in the event of a
significant decline in the implied fair value of those operations
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where the goodwill or other intangible assets are applicable. In the event we
determine that the value of goodwill has become impaired, an accounting charge
will be taken in the fiscal quarter in which such determination is made, which
could have a material adverse effect on our results of operations in the period
in which the impairment charge is recorded.
As a result of the Company's impairment assessment performed during the fourth
quarter of 2021, the Company determined that there was no impairment during
2021, and therefore the Company recorded no intangible asset impairment charge
during the year ended December 31, 2021 . Refer to "Note 4. Goodwill and Other
Intangible Assets" in our "Notes to the Consolidated Financial Statements" for
additional information with respect to the impairment.
As at December 31, 2021 , excluding the amounts recorded in investments in other
ventures, under the equity method, as noted below, our consolidated balance
sheets include $210.9 million of goodwill (2020 - $211.0 million ) and $32.6
million of other intangible assets (2020 - $38.6 million ). Impairment charges
related to these balances were $Nil during the year ended December 31, 2021
(2020 - $6.8 million , 2019 - $Nil). In the future, it is possible we will hold
more goodwill and intangible assets, which would increase the degree of judgment
and uncertainty embedded in our financial statements, and potentially increase
the volatility of our reported results.
Deferred Acquisition Costs and Value of Business Acquired
VOBA was initially recorded to reflect the establishment of the value of
business acquired asset in connection with the acquisition of TMR, which
represents the estimated present value of the expected underwriting profit
within the unearned premiums liability, net of reinsurance, less costs to
service the related policies and a risk premium. VOBA is derived using, among
other things, estimated loss ratios by line of business to calculate the
underwriting profit, weighted average cost of capital, risk premium and expected
payout patterns. The adjustment for VOBA will be amortized to acquisition
expenses over approximately two years, as the contracts for business in-force as
of the acquisition date expire.
Investments in Other Ventures , Under Equity Method
Investments in which we have significant influence over the operating and
financial policies of the investee are classified as investments in other
ventures, under equity method, and are accounted for under the equity method of
accounting. Under this method, we record our proportionate share of income or
loss from such investments in our results for the period. Any decline in the
value of investments in other ventures, under equity method, including goodwill
and other intangible assets arising upon acquisition of the investee, considered
by management to be other-than-temporary, is reflected in our consolidated
statements of operations in the period in which it is determined. As of
December 31, 2021 , we had $98.1 million (2020 - $98.4 million ) in investments in
other ventures, under equity method on our consolidated balance sheets,
including $9.9 million of goodwill and $8.7 million of other intangible assets
(2020 - $10.6 million and $12.4 million ). The carrying value of our investments
in other ventures, under equity method, individually or in the aggregate, may,
and likely will, differ from the realized value we may ultimately attain,
perhaps significantly so.
In determining whether an equity method investment is impaired, we take into
consideration a variety of factors including the operating and financial
performance of the investee, the investee's future business plans and
projections, recent transactions and market valuations of publicly traded
companies where available, discussions with the investee's management, and our
intent and ability to hold the investment until it recovers in value.
Accordingly, we make assumptions and estimates in assessing whether an
impairment has occurred and if, in the future, our assumptions and estimates
made in assessing the fair value of these investments change, this could result
in a material decrease in the carrying value of these investments. This would
cause us to write-down the carrying value of these investments and could have a
material adverse effect on our results of operations in the period the
impairment charge is taken. We do not have any current plans to dispose of these
investments, and cannot assure you we will consummate future transactions in
which we realize the value at which these holdings are reflected in our
financial statements. We have not recorded any other-than-temporary impairment
charges related to goodwill and other intangible assets associated with our
investments in other ventures, under the equity method in any of the years ended
December 31, 2021 , 2020 or 2019. See "Note 4. Goodwill and Other Intangible
Assets" in our "Notes to the Consolidated Financial Statements" for additional
information.
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Income Taxes
Income taxes have been provided in accordance with the provisions of FASB ASC
Topic Income Taxes. Deferred tax assets and liabilities result from temporary
differences between the amounts recorded in our consolidated financial
statements and the tax basis of our assets and liabilities. Such temporary
differences are primarily due to net operating loss carryforwards and GAAP
versus tax basis accounting differences relating to unearned premiums, reserves
for claims and claim expenses, deferred finance charges, deferred underwriting
results, accrued expenses, investments, deferred acquisition expenses,
intangible assets, amortization and depreciation and VOBA. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period in which the change in tax rates is enacted. A valuation
allowance against net deferred tax assets is recorded if it is more likely than
not that all, or some portion, of the benefits related to deferred tax assets
will not be realized.
At December 31, 2021 , our net deferred tax asset (prior to our valuation
allowance) and valuation allowance were $192.4 million (2020 - $138.0 million )
and $131.5 million (2020 - $88.7 million ), respectively. See "Note 15. Taxation"
in our "Notes to the Consolidated Financial Statements" for additional
information. At each balance sheet date, we assess the need to establish a
valuation allowance that reduces the net deferred tax asset when it is more
likely than not that all, or some portion, of the net deferred tax assets will
not be realized. The valuation allowance assessment is performed separately in
each taxable jurisdiction based on all available information including
projections of future GAAP taxable income from each tax-paying component in each
tax jurisdiction. The valuation allowance relates to a substantial portion of
our net deferred tax assets in most jurisdictions in which we do business. It
excludes Bermuda and our U.S. operations that existed prior to the acquisition
of TMR, which only have a small valuation allowance against finite lived tax
carryforwards.
We have unrecognized tax benefits of $Nil as of December 31, 2021 (2020 - $Nil).
Interest and penalties related to unrecognized tax benefits, would be recognized
in income tax expense. At December 31, 2021 , interest and penalties accrued on
unrecognized tax benefits were $Nil (2020 - $Nil).
The following filed income tax returns are open for examination with the
applicable tax authorities: tax years 2018 through 2020 with the IRS ; 2017
through 2020 with Ireland ; 2019 through 2020 with the U.K. ; 2017 through 2020
with Singapore ; 2019 and 2020 with Switzerland ; and 2017 through 2020 with
Australia . We do not expect the resolution of these open years to have a
significant impact on our consolidated statements of operations and financial
condition.
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SUMMARY OF RESULTS OF OPERATIONS
(in thousands, except per share amounts and
percentages)
Statements of Operations Highlights
Year ended December 31, 2021 2020 2019
Gross premiums written $ 7,833,798
Net premiums written$ 5,939,375
Net premiums earned$ 5,194,181
Net claims and claim expenses incurred 3,876,087 2,924,609 2,097,021
Acquisition expenses 1,214,858 897,677 762,232
Operational expenses 212,184 206,687 222,733
Underwriting income (loss) $ (108,948) $ (76,511) $ 256,417
Net investment income $ 319,479 $ 354,038 $ 424,207
Net realized and unrealized gains (losses) on
investments (218,134) 820,636 414,109
Total investment result $ 101,345
Net income (loss) $ (103,440) $ 993,058 $ 950,267
Net income (loss) available (attributable) to
RenaissanceRe common shareholders $ (73,421) $ 731,482 $ 712,042
Net income (loss) available (attributable) to
RenaissanceRe common shareholders per common
share - diluted $ (1.57) $ 15.31 $ 16.29
Dividends per common share $ 1.44 $ 1.40 $ 1.36
Key Ratios
Year ended December 31, 2021 2020 2019
Net claims and claim expense ratio - current
accident year 79.4 % 78.6 % 63.6 %
Net claims and claim expense ratio - prior
accident years (4.8) % (4.6) % (0.8) %
Net claims and claim expense ratio - calendar
year 74.6 % 74.0 % 62.8 %
Underwriting expense ratio 27.5 % 27.9 % 29.5 %
Combined ratio 102.1 % 101.9 % 92.3 %
Return on average common equity (1.1) % 11.7 % 14.1 %
Book Value
At December 31, 2021 2020 2019
Book value per common share $ 132.17 $ 138.46 $ 120.53
Accumulated dividends per common share 23.52 22.08 20.68
Book value per common share plus accumulated
dividends $ 155.69 $ 160.54 $ 141.21
Change in book value per common share plus
change in accumulated dividends (3.5) % 16.0 % 17.1 %
Balance Sheet Highlights
At December 31, 2021 2020 2019
Total assets $ 33,959,502
Total shareholders' equity attributable to
RenaissanceRe$ 6,624,281 $ 7,560,248 $ 5,971,367 71
-------------------------------------------------------------------------------- Results of Operations for 2021 Compared to 2020 Net loss attributable toRenaissanceRe common shareholders was$73.4 million in 2021, compared to net income available toRenaissanceRe common shareholders of$731.5 million in 2020, a decrease of$804.9 million . As a result of our net loss attributable toRenaissanceRe common shareholders in 2021, we generated an annualized return on average common equity of negative 1.1% and our book value per common share decreased from$138.46 atDecember 31, 2020 to$132.17 atDecember 31, 2021 , a 3.5% decrease, after considering the change in accumulated dividends paid to our common shareholders. The most significant items affecting our financial performance during 2021, on a comparative basis to 2020, include: •Impact of Weather-Related Large Losses and COVID-19 - in 2021, we had a net negative impact on our net loss attributable toRenaissanceRe common shareholders of$962.1 million resulting from the 2021 Weather-Related Large Losses. This compares to a net negative impact on our net income available toRenaissanceRe common shareholders of$493.6 million in 2020 resulting from the 2020 Weather-Related Large Loss Events and$286.6 million resulting from losses related to the COVID-19 pandemic; •Underwriting Results - we incurred an underwriting loss of$108.9 million and had a combined ratio of 102.1% in 2021, compared to an underwriting loss of$76.5 million and a combined ratio of 101.9% in 2020. Our underwriting loss in 2021 was comprised of an underwriting loss of$185.5 million in our Property segment, partially offset by underwriting income of$76.6 million in our Casualty and Specialty segment. In comparison, our underwriting loss in 2020 was comprised of$87.5 million of underwriting loss in our Casualty and Specialty segment, partially offset by underwriting income of$11.0 million in our Property segment. Included in our underwriting results in 2021 was the impact of the 2021 Weather-Related Large Losses, which resulted in a net negative impact on our underwriting result of$1.4 billion and added 28.5 percentage points to the combined ratio, primarily in the Property segment. In comparison, our underwriting result in 2020 was principally impacted by the 2020 Weather-Related Large Loss Events and the COVID-19 losses. In 2020, the 2020 Weather-Related Large Loss Events resulted in a net negative impact on the underwriting result of$668.5 million and added 17.2 percentage points to the combined ratio, primarily in the Property segment. The COVID-19 losses incurred in 2020, which impacted both the Property and Casualty and Specialty segments, resulted in a net negative impact on the underwriting result of$351.9 million and added 8.9 percentage points to the combined ratio; •Gross Premiums Written - our gross premiums written increased by$2.0 billion , or 34.9%, to$7.8 billion , in 2021, compared to 2020, with an increase of$959.6 million in the Property segment and an increase of$1.1 billion in the Casualty and Specialty segment. The increase was driven by growth from both new and existing business and rate improvements across both segments and a number of our underwriting platforms, and, in our Property segment, reinstatement premiums of$348.0 million associated with 2021 Weather-Related Large Losses, as compared to$79.2 million of reinstatement premiums in 2020 associated with the 2020 Weather-Related Large Loss Events and$28.0 million associated with COVID-19 losses in 2020; •Investment Results - our total investment result, which includes the sum of net investment income and net realized and unrealized gains (losses) on investments, was$101.3 million in 2021, compared to$1.2 billion in 2020, a decrease of$1.1 billion . The primary driver of the lower total investment result, for 2021, was the net realized and unrealized losses on our fixed maturity trading portfolio, partially offset by net realized and unrealized gains on our equity investments trading portfolio. The higher investment results in 2020 were favorably impacted by the market recovery following the disruption in global financial markets associated with the COVID-19 pandemic; and •Net Loss (Income) Attributable to Redeemable Noncontrolling Interests - our net loss attributable to redeemable noncontrolling interests was$63.3 million in 2021, compared to net income attributable to redeemable noncontrolling interest of$230.7 million in 2020, reflecting the impact of higher underwriting losses in DaVinci, lower underwriting income in Vermeer, and a decrease in Medici net income, primarily due to foreign exchange losses that are attributable to third party investors. 72 -------------------------------------------------------------------------------- Results of Operations for 2020 Compared to 2019 Net income available toRenaissanceRe common shareholders was$731.5 million in 2020, compared to$712.0 million in 2019, an increase of$19.4 million . As a result of our net income available toRenaissanceRe common shareholders in 2020, we generated an annualized return on average common equity of 11.7% and our book value per common share increased from$120.53 atDecember 31, 2019 to$138.46 atDecember 31, 2020 , a 16.0% increase, after considering the change in accumulated dividends paid to our common shareholders. The most significant items affecting our financial performance during 2020, on a comparative basis to 2019, include: •Impact of Weather-Related Large Loss Events and COVID-19 - in 2020, we had a net negative impact on our net income available toRenaissanceRe common shareholders of$493.6 million resulting from the 2020 Weather-Related Large Loss Events and$286.6 million resulting from losses related to the COVID-19 pandemic. This compares to a net negative impact on our net income available toRenaissanceRe common shareholders of$348.2 million from the combined impacts of the 2019 Large Loss Events. •Underwriting Results - we incurred an underwriting loss of$76.5 million and had a combined ratio of 101.9% in 2020, compared to underwriting income of$256.4 million and a combined ratio of 92.3% in 2019. Our underwriting loss in 2020 was comprised of an$87.5 million underwriting loss in our Casualty and Specialty segment, offset by underwriting income of$11.2 million in our Property segment. In comparison, underwriting income in 2019 was comprised of$209.3 million of underwriting income in our Property segment and$46.0 million of underwriting income in our Casualty and Specialty segment. Our underwriting result in 2020 was principally impacted by the 2020 Weather-Related Large Loss Events and the COVID-19 losses. The 2020 Weather-Related Large Loss Events resulted in a net negative impact on the underwriting result of$668.5 million and added 17.2 percentage points to the combined ratio, primarily in the Property segment. The COVID-19 losses, which impacted both the Property and Casualty and Specialty segments, resulted in a net negative impact on the underwriting result of$351.9 million and added 8.9 percentage points to the combined ratio. Partially offsetting the impact of the 2020 Weather-Related Large Loss Events and COVID-19 losses was favorable development on prior accident years of$183.8 million , primarily related to large loss events in 2019, 2018 and 2017, as well as favorable movements in other assumed losses and ceded recoveries. This favorable development reduced the combined ratio by 4.6 percentage points and was principally in the Property segment. In comparison, our underwriting result in 2019 was principally impacted by the 2019 Large Loss Events, which had a net negative impact on our underwriting result of$418.9 million and added 12.9 percentage points to the combined ratio, principally in the Property segment; •Gross Premiums Written - our gross premiums written increased by$1.0 billion , or 20.8%, to$5.8 billion , in 2020, compared to 2019, with an increase of$568.2 million in the Property segment and an increase of$430.3 million in the Casualty and Specialty segment; •Investment Results - our total investment result, which includes the sum of net investment income and net realized and unrealized gains on investments, was$1.2 billion in 2020, compared to$838.3 million in 2019, an increase of$336.4 million . The increase was primarily driven by net realized and unrealized gains on investments of$820.6 million in 2020, compared to$414.1 million in 2019. The net realized and unrealized gains on investments in 2020 were driven by net realized and unrealized gains on the fixed maturity investments portfolio, equity investments trading and investment-related derivatives; •Net Income Attributable to Redeemable Noncontrolling Interests - our net income attributable to redeemable noncontrolling interests was$230.7 million in 2020, compared to$201.5 million in 2019. The increase was due to improved performance from Medici and Vermeer, compared to 2019, partially offset by lower underlying performance in DaVinci which was negatively impacted by the 2020 Weather-Related Large Loss Events and the COVID-19 losses; and 73 -------------------------------------------------------------------------------- •Common Share Offering - onJune 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 toState Farm , one of our existing stockholders, in a private placement. The total net proceeds from the offerings were$1.1 billion . Net Negative Impact Net negative impact on underwriting result includes the sum of (1) net claims and claim expenses incurred, (2) assumed and ceded reinstatement premiums earned and (3) earned and lost profit commissions. Net negative impact on net income (loss) available (attributable) toRenaissanceRe common shareholders is the sum of (1) net negative impact on underwriting result and (2) redeemable noncontrolling interest, before consideration of any related income tax benefit (expense). Our estimates of net negative impact are based on a review of our potential exposures, preliminary discussions with certain counterparties and actuarial modeling techniques. Our actual net negative impact, both individually and in the aggregate, may vary from these estimates, perhaps materially. Changes in these estimates will be recorded in the period in which they occur. Meaningful uncertainty remains regarding the estimates and the nature and extent of the losses from catastrophe events, driven by the magnitude and recent nature of each event, the geographic areas impacted by the events, relatively limited claims data received to date, the contingent nature of business interruption and other exposures, potential uncertainties relating to reinsurance recoveries and other factors inherent in loss estimation, among other things. 2021 Net Negative Impact The financial data in the table below provides additional information detailing the net negative impact of the 2021 Weather-Related Large Losses on our consolidated financial statements in 2021. Other 2021 Total 2021 Year ended December 31, Winter Storm Catastrophe Aggregate Weather-Related Large 2021 Uri European Floods Hurricane Ida Events (1) Losses (2) Losses (3) (in thousands) Net claims and claims expenses incurred$ (358,937) $ (360,644) $ (741,285) $ (85,941) $ (161,093) $ (1,707,900) Assumed reinstatement premiums earned 86,626 90,346 156,061 9,939 6,140 349,112 Ceded reinstatement premiums earned (11,045) (16,372) (27,467) - - (54,884) Earned (lost) profit commissions 773 8,084 - 1,645 - 10,502 Net negative impact on underwriting result (282,583) (278,586) (612,691) (74,357) (154,953) (1,403,170) Redeemable noncontrolling interest - DaVinciRe 91,966 84,082 179,403 15,660 37,175 408,286 Redeemable noncontrolling interest - Vermeer 10,000 - 21,403 1,422 - 32,825 Redeemable noncontrolling interest 101,966 84,082 200,806 17,082 37,175 441,111 Net negative impact on net income (loss) available (attributable) toRenaissanceRe common shareholders$ (180,617) $ (194,504) $ (411,885) $ (57,275) $ (117,778) $ (962,059) 74
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The financial data in the table below provides additional information detailing
the net negative impact of the 2021 Weather-Related Large Losses on our segment
underwriting results and consolidated combined ratio in 2021.
Other 2021
Total 2021
Year endedDecember 31 , Winter Storm
Catastrophe Aggregate Weather-Related Large
2021 Uri European Floods Hurricane Ida Events (1) Losses (2) Losses (3)
(in thousands, except
percentages)
Net negative impact on
Property segment
underwriting result $ (275,566) $ (276,317) $ (596,271) $ (74,357) $ (154,953) $ (1,377,464)
Net negative impact on
Casualty and Specialty
segment underwriting
result (7,017) (2,269) (16,420) - - (25,706)
Net negative impact on
underwriting result $ (282,583) $ (278,586) $ (612,691) $ (74,357) $ (154,953) $ (1,403,170)
Percentage point impact
on consolidated combined
ratio 5.5 5.4 12.0 1.4 3.0 28.5
(1)"Other 2021 Catastrophe Events" includes the hail storm in Europe in late
June 2021 , the wildfires in California during the third quarter of 2021, the
tornadoes in the Central and Midwest U.S. in December 2021 , and the Midwest
Derecho in December 2021 .
(2)"Aggregate Losses" includes loss estimates associated with certain aggregate
loss contracts triggered during 2021 as a result of weather-related catastrophe
events.
(3)"2021 Weather-Related Large Losses" includes Winter Storm Uri, the European
Floods, Hurricane Ida, Other 2021 Catastrophe Events and Aggregate Losses.
75
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2020 Net Negative Impact
The financial data in the table below provides additional information detailing
the net negative impact of the 2020 Weather-Related Large Loss Events on our
consolidated financial statements in 2020.
Q3 2020 Q4 2020 Total 2020
Weather-Related Weather-Related 2020 Aggregate Weather-Related Large
Year ended December 31, 2020 Catastrophe Events (1) Catastrophe Events (2) Losses (3) Loss Events (4)
(in thousands)
Net claims and claims expenses
incurred $ (456,425) $ (129,394) $ (153,757) $ (739,576)
Assumed reinstatement premiums earned 68,094 6,323 4,997 79,414
Ceded reinstatement premiums earned (4,019) (1,678) - (5,697)
Earned (lost) profit commissions 837 2,774 (6,270) (2,659)
Net negative impact on underwriting
result (391,513) (121,975) (155,030) (668,518)
Redeemable noncontrolling interest 92,823 36,811 45,270 174,904
Net negative impact on net income
(loss) available (attributable) to
RenaissanceRe common shareholders $ (298,690) $ (85,164) $ (109,760) $ (493,614)
The financial data in the table below provides additional information detailing
the net negative impact of the 2020 Weather-Related Large Loss Events on our
segment underwriting results and consolidated combined ratio in 2020.
Q3 2020 Q4 2020 Total 2020
Weather-Related Weather-Related 2020 Aggregate Weather-Related Large
Year ended
Loss Events (4)
(in thousands, except percentages)
Net negative impact on Property
segment underwriting result $ (378,674) $ (118,150) $ (155,030) $ (651,854)
Net negative impact on Casualty and
Specialty segment underwriting
result (12,839) (3,825) - (16,664)
Net negative impact on underwriting
result $ (391,513) $ (121,975) $ (155,030) $ (668,518)
Percentage point impact on
consolidated combined ratio 10.0 3.1 3.9 17.2
(1)"Q3 2020 Weather-Related Catastrophe Events" includes Hurricane Laura,
Hurricane Sally, the third quarter 2020 wildfires in California , Oregon and
Washington , other third quarter catastrophe events including the August 2020
derecho which impacted the U.S. Midwest, Hurricane Isaias, and Typhoon Maysak.
(2) "Q4 2020 Weather-Related Catastrophe Events" includes Hurricanes Zeta,
Delta, Hurricane Eta and wildfires on the West Coast of the United States during
the fourth quarter of 2020.
(3) "2020 Aggregate Losses" includes loss estimates associated with aggregate
loss contracts triggered during 2020 primarily as a result of losses associated
with the Q3 2020 Weather-Related Catastrophe Events and Q4 2020 Weather-Related
Catastrophe Events.
(4) "2020 Weather-Related Large Loss Events" includes the Q3 2020
Weather-Related Catastrophe Events, Q4 2020 Weather-Related Catastrophe Events
and the aggregate losses in 2020 described in footnote (3).
76
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COVID-19 Losses
In 2020, losses related to the COVID-19 pandemic resulted in a net negative
impact on net income available to RenaissanceRe common shareholders of $286.6
million , which reflects a net negative impact on underwriting result of $351.9
million , offset by redeemable noncontrolling interest of $65.4 million . The net
negative impact on underwriting result had a 8.9 percentage point impact on the
consolidated combined ratio, and is comprised of net claims and claims expenses
incurred of $385.6 million , offset by net reinstatement premiums earned and
earned profit commissions of $33.6 million . The net negative impact on
underwriting result was $235.0 million in the Property Segment, principally
representing the cost of claims incurred but not yet reported with respect to
exposures such as business interruption coverage, and $117.0 million for the
Casualty and Specialty segment, primarily representing the cost of claims
incurred but not yet reported, with respect to exposures such as event
contingency and event-based casualty covers.
2019 Net Negative Impact
The financial data below provides additional details regarding the net negative
impact of certain events on our consolidated results of operations in 2019.
Q3 2019 Total 2019
Catastrophe 2019 Aggregate Large Loss
Year ended December 31, 2019 Typhoon Hagibis Events Losses Events
(in thousands)
Net claims and claims expenses
incurred$ (199,305) $
(187,188)
Assumed reinstatement premiums earned 28,829 24,596 183 53,608
Ceded reinstatement premiums earned (219) (574) - (793)
Earned (lost) profit commissions 7,509 3,100 1,740 12,349
Net negative impact on underwriting
result (163,186) (160,066) (95,668) (418,920)
Redeemable noncontrolling interest -
DaVinciRe 35,078 22,677 12,932 70,687
Net negative impact on net income
(loss) available (attributable) to
The financial data below provides additional information detailing the net
negative impact of certain events on our segment underwriting results and
consolidated combined ratio in 2019.
Q3 2019 Total 2019
Catastrophe 2019 Aggregate Large Loss
Year ended December 31, 2019 Typhoon Hagibis Events Losses Events
(in thousands, except percentages)
Net negative impact on Property
segment underwriting result
Net negative impact on Casualty and
Specialty segment underwriting
result (1,532) (3,002) - (4,534)
Net negative impact on underwriting
result $ (163,186) $
(160,066)
Percentage point impact on
consolidated combined ratio 5.0 4.9 2.8 12.9
77
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Underwriting Results by Segment
Property Segment
Below is a summary of the underwriting results and ratios for our Property
segment:
Year ended December 31, 2021 2020 2019
(in thousands, except percentages)
Gross premiums written$ 3,958,724
Net premiums written$ 2,868,002
Net premiums earned$ 2,608,298
Net claims and claim expenses incurred 2,163,016 1,435,947 965,384
Acquisition expenses 487,178 353,700 313,554
Operational expenses 143,608 135,547 138,187
Underwriting income (loss) $ (185,504) $ 11,021 $ 210,369
Net claims and claim expenses incurred - current
accident year $ 2,396,389
Net claims and claim expenses incurred - prior
accident years (233,373) (157,049) (2,973)
Net claims and claim expenses incurred - total
Net claims and claim expense ratio - current
accident year 91.9 % 82.3 % 59.5 %
Net claims and claim expense ratio - prior
accident years (9.0) % (8.1) % (0.2) %
Net claims and claim expense ratio - calendar
year 82.9 % 74.2 % 59.3 %
Underwriting expense ratio 24.2 % 25.2 % 27.8 %
Combined ratio 107.1 % 99.4 % 87.1 %
Property Gross Premiums Written
In 2021, our Property segment gross premiums written increased by $959.6
million , or 32.0%, to $4.0 billion , compared to $3.0 billion in 2020.
Gross premiums written in the catastrophe class of business were $2.2 billion in
2021, an increase of $349.0 million , or 18.5%, compared to 2020. The increase in
gross premiums written in the catastrophe class of business included $339.7
million of reinstatement premiums associated with the 2021 Weather-Related Large
Losses, compared to reinstatement premiums of $77.0 million associated with the
2020 Weather-Related Large Loss Events and $25.9 million associated with
COVID-19 losses in 2020. The growth in 2021 was also driven by an improved rate
environment, increased shares on existing deals, participation in new deals and
opportunities across underwriting platforms.
Gross premiums written in the other property class of business were $1.7 billion
in 2021, an increase of $610.6 million , or 54.9%, compared to 2020. The increase
in gross premiums written in the other property class of business was primarily
driven by rate improvements which contributed to growth in new and existing
business written in the current and prior periods across underwriting platforms.
This included growth in catastrophe exposed U.S. property excess and surplus
lines.
In 2020, our Property segment gross premiums written increased by $568.2
million , or 23.4%, to $3.0 billion , compared to $2.4 billion in 2019.
Gross premiums written in our catastrophe class of business were $1.9 billion in
2020, an increase of $291.3 million , or 18.3%, compared to 2019. The increase in
gross premiums written in our catastrophe class of business in 2020 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.
78
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Gross premiums written in our other property class of business were $1.1 billion
in 2020, an increase of $276.8 million , or 33.1%, compared to 2019. The increase
in gross premiums written in our other property class of business was primarily
driven by growth from existing relationships, new opportunities across a number
of our underwriting platforms, and business acquired as a result of the
acquisition of TMR.
As our other property class of business has become a larger percentage of our
Property segment gross premiums written, the amount of proportional business has
increased. Proportional business typically has a higher expense ratio and
combined ratio than traditional excess of loss reinsurance.
Our Property segment gross premiums written continue to be characterized by a
large percentage of U.S. and Caribbean premium, as we have found business
derived from exposures in Europe , Asia and the rest of the world to be, in
general, less attractive on a risk-adjusted basis during recent periods. A
significant amount of our U.S. and Caribbean premium provides coverage against
windstorms, notably U.S. Atlantic windstorms, as well as earthquakes and other
natural and man-made catastrophes.
Property Ceded Premiums Written
Year ended December 31, 2021 2020
2019
(in thousands)
Ceded premiums written - Property
Ceded premiums written in our Property segment increased 13.4%, to$1.1 billion , in 2021, compared to$961.9 million in 2020. The increase in ceded premiums written was primarily driven by higher gross premiums written in 2021, which were ceded to Upsilon RFO, and ceded reinstatement premiums earned of$54.7 million associated with the 2021 Weather-Related Large Losses. Ceded premiums written in our Property segment increased$185.2 million , to$961.9 million , in 2020, compared to$776.7 million in 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 RFO, as well as an overall increase in ceded purchases as part of the Company's gross-to-net strategy. 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$185.5 million in 2021, compared to underwriting income of$11.0 million in 2020, a decrease of$196.5 million . In 2021, our Property segment generated a net claims and claim expense ratio of 82.9%, an underwriting expense ratio of 24.2% and a combined ratio of 107.1%, compared to 74.2%, 25.2% and 99.4%, respectively, in 2020. Principally impacting the Property segment underwriting result and combined ratio in 2021 were the 2021 Weather-Related Large Losses, which resulted in a net negative impact on the Property segment underwriting result of$1.4 billion and added 58.6 percentage points to the combined ratio. In comparison, 2020 was impacted by the 2020 Weather-Related Large Loss Events, which resulted in a net negative impact on the underwriting result of$651.9 million and added 35.0 percentage points to the combined ratio, and COVID-19 losses, which resulted in a net negative impact on the underwriting result of$235.0 million and added 12.3 percentage points to the combined ratio. 79 -------------------------------------------------------------------------------- The net claims and claim expense ratio for prior accident years reflected net favorable development of 15.3% for the catastrophe class of business and 2.4% for the other property class of business, primarily related to weather-related large losses in the 2017 to 2019 accident years. The underwriting expense ratio decreased 1.0 percentage point, principally driven by improved operating leverage, through higher net premiums earned, including$293.3 million of net reinstatement premiums earned associated with the 2021 Weather-Related Large Losses. Our Property segment generated underwriting income of$11.0 million in 2020, compared to$209.3 million in 2019, a decrease of$198.1 million . In 2020, our Property segment generated a net claims and claim expense ratio of 74.2%, an underwriting expense ratio of 25.2% and a combined ratio of 99.4%, compared to 59.3%, 27.8% and 87.1%, respectively, in 2019. Principally impacting the Property segment underwriting result and combined ratio in 2020 were the 2020 Weather-Related Large Loss Events, which resulted in a net negative impact on the underwriting result of$651.9 million and added 35.0 percentage points to the combined ratio, and COVID-19 losses, which resulted in a net negative impact on the underwriting result of$235.0 million and added 12.3 percentage points to the combined ratio. Partially offsetting the impact of the 2020 Weather-Related Large Loss Events and COVID-19 losses was favorable development on prior accident years of$157.3 million , primarily related to large loss events in 2019, 2018 and 2017, as well as favorable movements in other assumed losses and ceded recoveries. This favorable development reduced the Property segment combined ratio by 8.1 percentage points. In comparison, 2019 was principally impacted by the 2019 Large Loss Events, which resulted in a net negative impact on the Property segment underwriting result of$414.4 million and a corresponding increase in the Property segment combined ratio of 26.7 percentage points. Refer to "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Summary of Critical Accounting Estimates-Claims and Claim Expense Reserves" and "Note 8. Reserve for Claims and Claim Expenses" in our "Notes to the Consolidated Financial Statements" for additional discussion of our reserving techniques and prior year development of net claims and claim expenses. 80 -------------------------------------------------------------------------------- Casualty and Specialty Segment Below is a summary of the underwriting results and ratios for our Casualty and Specialty segment: Year ended December 31, 2021 2020 2019
(in thousands, except percentages)
Gross premiums written$ 3,875,074
Net premiums written$ 3,071,373
Net premiums earned$ 2,585,883
Net claims and claim expenses incurred 1,713,071 1,488,662 1,131,637
Acquisition expenses 727,680 543,977 448,678
Operational expenses 68,576 71,140 84,546
Underwriting income (loss) $ 76,556
Net claims and claim expenses incurred -
current accident year$ 1,729,168
Net claims and claim expenses incurred - prior
accident years (16,097) (26,763) (23,882)
Net claims and claim expenses incurred - total
Net claims and claim expense ratio - current
accident year 66.9 % 75.2 % 67.5 %
Net claims and claim expense ratio - prior
accident years (0.7) % (1.4) % (1.4) %
Net claims and claim expense ratio - calendar
year 66.2 % 73.8 % 66.1 %
Underwriting expense ratio 30.8 % 30.5 % 31.2 %
Combined ratio 97.0 % 104.3 % 97.3 %
Casualty and Specialty Gross Premiums Written
In 2021, our Casualty and Specialty segment gross premiums written increased by
$1.1 billion , or 38.0%, to $3.9 billion , compared to $2.8 billion in 2020. The
increase was primarily due to growth from new and existing business
opportunities written in the current and prior periods across various classes of
business within the segment, combined with rate improvements.
In 2020, our Casualty and Specialty segment gross premiums written increased by
$430.3 million , or 18.1%, to $2.8 billion , compared to $2.4 billion in 2019. The
increase was due to growth from new and existing business opportunities written
in the current period and prior periods across various classes of business
within the segment, and business acquired in connection with the acquisition of
TMR.
Our relative mix of business between proportional business and excess of loss
business has fluctuated in the past and will likely continue to do so in the
future. Proportional business typically has a higher expense ratio and tends to
be exposed to more attritional and frequent losses, while being subject to less
expected severity as compared to traditional excess of loss business.
Casualty and Specialty Ceded Premiums Written
Year ended December 31, 2021 2020 2019
(in thousands)
Ceded premiums written - Casualty and Specialty
Ceded premiums written in our Casualty and Specialty segment increased by 7.5%, to$803.7 million , in 2021, compared to$747.9 million in 2020, primarily driven by the increase in gross premiums written subject to our retrocessional quota share reinsurance programs. 81 -------------------------------------------------------------------------------- Ceded premiums written in our Casualty and Specialty segment increased by$98.4 million , to$747.9 million , in 2020, compared to$649.5 million in 2019, primarily resulting from increased gross premiums written subject to our retrocessional quota share reinsurance programs. As in our Property segment, the buying of ceded reinsurance in our Casualty and Specialty segment is based on market opportunities and is not based on placing a specific reinsurance program each year. Casualty and Specialty Underwriting Results Our Casualty and Specialty segment generated underwriting income of$76.6 million in 2021, compared to an underwriting loss of$87.5 million in 2020. In 2021, our Casualty and Specialty segment generated a net claims and claim expense ratio of 66.2%, an underwriting expense ratio of 30.8% and a combined ratio of 97.0%, compared to 73.8%, 30.5% and 104.3%, respectively, in 2020. The underwriting loss in 2020 was principally driven by net claims and claim expenses associated with the COVID-19 pandemic of$122.1 million , which added 6.1 percentage points to the net claims and claim expense ratio during 2020. The decrease in the Casualty and Specialty segment combined ratio in 2021 was principally driven by a decrease of 7.6 percentage points in the net claims and claim expense ratio, driven by lower current accident year losses, as compared to 2020 which was impacted by losses associated with the COVID-19 pandemic. Additionally, our Casualty and Specialty segment experienced net favorable development on prior accident years net claims and claim expenses of$16.1 million , or 0.7 percentage points, during 2021. The net favorable development during 2021 was driven by reported losses generally coming in lower than expected on attritional net claims and claim expenses. See "Note 8. 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. The underwriting expense ratio in 2021 was comparable to 2020 and included an increase in the net acquisition expense ratio, principally due to the effects of purchase accounting amortization related to the acquisition of TMR, which improved the ratio in 2020, largely offset by a decrease in the operating expense ratio due to continued improvement in operating leverage. Our Casualty and Specialty segment incurred an underwriting loss of$87.5 million in 2020, compared to underwriting income of$46.0 million in 2019. The underwriting loss in 2020 was driven by the COVID-19 losses. In 2020, our Casualty and Specialty segment generated a net claims and claim expense ratio of 73.8%, an underwriting expense ratio of 30.5% and a combined ratio of 104.3%, compared to 66.1%, 31.2% and 97.3%, respectively, in 2019. The increase in the combined ratio in 2020 was principally driven by net claims and claim expenses associated with the COVID-19 losses of$122.1 million , which added 6.1 percentage points to the net claims and claim expense ratio during 2020. Our Casualty and Specialty segment experienced net favorable development on prior accident years net claims and claim expenses of$26.8 million , or 1.4 percentage points, during 2020, compared to$23.9 million , or 1.4 percentage points, respectively, in 2019. The net favorable development during 2020 and 2019 was principally driven by reported losses coming in lower than expected. Refer to "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Summary of Critical Accounting Estimates-Claims and Claim Expense Reserves" and "Note 8. Reserve for Claims and Claim Expenses" in our "Notes to the Consolidated Financial Statements" for additional discussion of our reserving techniques and prior year development of net claims and claim expenses. 82 --------------------------------------------------------------------------------
Fee Income Year ended December 31, 2021 2020 2019 (in thousands) Management Fee Income Joint ventures$ 43,074 $ 45,499 $ 42,546
Structured reinsurance products 34,639 34,951 35,238
Managed funds 31,358 31,026
18,636
Total management fee income$ 109,071 $ 111,476 $ 96,420 Performance Fee Income Joint ventures$ 14,235 $ 10,167 $ 9,660
Structured reinsurance products 4,917 7,525 7,693
Managed funds 280 15,994
420
Total performance fee income$ 19,432 $ 33,686 $ 17,773 Total fee income$ 128,503 $ 145,162 $ 114,193 The table above shows total fee income earned through third-party capital management activities, including various joint ventures, managed funds 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 zero or 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 certain entities investing inLanghorne Holdings LLC . Managed funds includeUpsilon Fund and Medici. Structured reinsurance products and other includes certain reinsurance contracts and certain other vehicles through which we transfer risk to capital. In 2021, total fee income earned through third-party capital management activities decreased$16.7 million , to$128.5 million , as compared to$145.2 million in 2020, primarily driven by lower performance fee income due to the impact of the 2021 Weather-Related Large Losses on our joint ventures and managed funds, partially offset by higher favorable development on prior year losses in DaVinci. In 2020, total fee income earned through third-party capital management activities increased$31.0 million , to$145.2 million , compared to$114.2 million in 2019, driven by an increase in performance fee income due to favorable development on prior accident years, which benefited certain of the Company's managed funds, and an increase in management fee income due to an increase in the dollar value of third-party capital being managed by the Company. The fees earned through our third-party capital management activities are principally recorded through redeemable noncontrolling interest, or as an increase to underwriting income (reduction to underwriting loss), through a decrease in operating expenses or acquisition expenses, as detailed in the table below. Twelve months ended December 31 2021 2020 2019 (in thousands) Underwriting income (loss) - fee income on third-party capital management activities(1)$ 67,287 $ 87,764 $ 60,046 Equity in earnings of other ventures 50 70 105 Net income (loss) attributable to redeemable noncontrolling interest 61,166 57,328 54,042 Total fee income$ 128,503 $ 145,162 $ 114,193
(1)Reflects total fee income earned through third-party capital management
activities recorded through underwriting income (loss) as a decrease (increase)
to operating expenses or acquisition expenses.
83 -------------------------------------------------------------------------------- In addition to the$128.5 million of fee income earned through our third-party capital management activities described above, we earned$73.4 million of additional fees on other underwriting-related activities, primarily related to expense overrides paid to us by our reinsurers. These additional fees on other underwriting-related activities are recorded as a reduction to operating expenses or acquisition expenses, as applicable. The total fees recorded through underwriting income (loss) are detailed in the table below. Twelve months ended December 31 2021 2020 2019 (in thousands) Underwriting income (loss) - fee income on third-party capital management activities$ 67,287 $ 87,764 $ 60,046 Underwriting income (loss) - additional fees on other underwriting-related activities 73,418 59,080 47,828 Total fees recorded through underwriting income (loss) 140,705 146,844 107,874 Impact of Total fees recorded through underwriting income (loss) on the combined ratio 2.7 % 3.7 % 3.2 % Net Investment Income Year ended December 31, 2021 2020 2019 (in thousands) Fixed maturity investments$ 234,911 $ 278,215 $ 318,503 Short term investments 2,333 20,799 56,264 Equity investments trading 9,017 6,404 4,808 Other investments Catastrophe bonds 64,860 54,784 46,154 Other 28,811 9,417 8,447 Cash and cash equivalents 297 2,974 7,676 340,229 372,593 441,852 Investment expenses (20,750) (18,555) (17,645) Net investment income$ 319,479 $ 354,038 $ 424,207 Net investment income was$319.5 million in 2021, compared to$354.0 million in 2020, a decrease of$34.6 million . Impacting our net investment income for 2021 were lower returns in our fixed maturity and short term investment portfolios, primarily as a result of general decline in credit spreads and an increased allocation to lower yielding short term andU.S. treasury investments from other fixed maturity investments as compared to 2020. Net investment income was$354.0 million in 2020, compared to$424.2 million in 2019, a decrease of$70.2 million . Impacting our net investment income for 2020 was 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. 84 --------------------------------------------------------------------------------
Net Realized and Unrealized Gains (Losses) on Investments
Year ended December 31, 2021 2020 2019
(in thousands)
Gross realized gains $ 177,314 $ 323,425 $ 133,409
Gross realized losses (97,726) (46,524) (43,149)
Net realized gains (losses) on fixed maturity
investments 79,588 276,901 90,260
Net unrealized gains (losses) on fixed maturity
investments trading (389,376) 216,859 170,183
Net realized and unrealized gains (losses) on
investments-related derivatives (1) (12,237) 68,608 58,891
Net realized gains (losses) on equity investments
trading 335,491 3,532 31,062
Net unrealized gains (losses) on equity investments
trading (285,882) 262,064 64,087
Net realized and unrealized gains (losses) on other
investments - catastrophe bonds (35,033) (7,031) (9,392)
Net realized and unrealized gains (losses) on other
investments - other 89,315 (297) 9,018
Net realized and unrealized gains (losses) on
investments $ (218,134) $ 820,636 $ 414,109
(1)Net realized and unrealized gains (losses) on investment-related derivatives
includes fixed maturity investments related derivatives (interest rate futures,
interest rate swaps, credit default swaps and total return swaps), and equity
investments related derivatives (equity futures). See "Note 19. Derivative
Instruments" in our "Notes to Consolidated Financial Statements" for additional
information.
Our investment portfolio strategy seeks to preserve capital and provide us with
a high level of liquidity. 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. Therefore, as interest rates decline, we will tend to have
realized and unrealized gains from our investment portfolio, and as interest
rates rise, we will tend to have realized and unrealized losses from our
investment portfolio.
Net realized and unrealized losses on investments were $218.1 million in 2021,
compared to net realized and unrealized gains of $820.6 million in 2020, a
decrease of $1.0 billion . Principally impacting our net realized and unrealized
losses on investments in 2021 were:
•net realized and unrealized losses on our fixed maturity investments trading of
$309.8 million compared to net realized and unrealized gains of $493.8 million
in 2020, a decrease of $803.5 million , principally driven by increasing yields
on U.S. treasuries during 2021;
•net realized and unrealized gains on equity investments trading of $49.6
million compared to $265.6 million in 2020, a decrease of $216.0 million . The
net realized and unrealized gains in 2021 were primarily driven by net realized
and unrealized gains on our equity investments, which was in line with the
performance of the wider equity markets. This was partially offset by net
realized and unrealized losses from our investment in Trupanion, Inc. In 2020,
the net realized and unrealized gains were principally driven by net unrealized
gains of $226.6 million on our strategic investment in Trupanion, Inc.
•net realized and unrealized gains on our other investments of $89.3 million
compared to net realized and unrealized losses of $0.3 million in 2020, an
improvement of $89.6 million , principally driven by fair value appreciation of
the underlying investments, which favorably impacted our fund investments
portfolio; and
•net realized and unrealized losses on investments-related derivatives of $12.2
million compared to net realized and unrealized gains of $68.6 million in 2020,
a decrease of $80.8 million , principally driven by net realized and unrealized
gains on our interest rate futures in 2020, which were favorably impacted by
declining interest rates.
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Net realized and unrealized gains on investments were $820.6 million in 2020,
compared to net realized and unrealized gains of $414.1 million in 2019, an
increase of $406.5 million . Principally impacting our net realized and
unrealized gains on investments in 2020 were:
•net realized and unrealized gains on our fixed maturity investments trading of
$493.8 million in 2020, compared to net realized and unrealized gains of $260.4
million in 2019, an increase of $233.3 million , principally higher as a result
of realized gains generated on the sale of fixed maturity investments;
•net realized and unrealized gains on our investment-related derivatives of
$68.6 million in 2020, compared to gains of $58.9 million in 2019, an increase
of $9.7 million , principally driven by higher net realized and unrealized gains
on interest rate futures during 2020, compared to 2019; and
•net realized and unrealized gains on equity investments trading of $265.6
million in 2020, compared to $95.1 million in 2019, an improvement of $170.4
million , principally driven by net unrealized gains of $226.6 million on the
Company's strategic investment in Trupanion Inc.
Net Foreign Exchange Gains (Losses)
Year ended December 31, 2021 2020
2019
(in thousands)
Total foreign exchange gains (losses)
In 2021, net foreign exchange losses were$41.0 million compared to a$27.8 million net foreign exchange gain in 2020. The net foreign exchange loss was primarily driven by losses attributable to third party investors in Medici which are allocated through noncontrolling interest and miscellaneous foreign exchange losses generated by our underwriting activities. In 2020, net foreign exchange gains were$27.8 million compared to net foreign exchange losses of$2.9 million in 2019. The net foreign exchange gains were primarily driven by gains attributable to third-party investors in Medici, miscellaneous foreign exchange gains generated by our underwriting activities, and foreign exchange gains attributable to our operations with non-U.S. dollar functional currencies. Our functional currency is theU.S. dollar. We routinely write a portion of our business in currencies other thanU.S. dollars and invest a portion of our cash and investment portfolio in those currencies. In addition, and in connection with the acquisition of TMR, we acquired certain entities with non-U.S. dollar functional currencies. As a result, we may experience foreign exchange gains and losses in our consolidated financial statements. We are primarily impacted by the foreign currency risk exposures associated with our underwriting operations and our investment portfolio, and may, from time to time, enter into foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar denominated assets and liabilities. Refer to "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" for additional information related to our exposure to foreign currency risk and "Note 19. Derivative Instruments" in our "Notes to the Consolidated Financial Statements" for additional information related to foreign currency forward and option contracts we have entered into. 86
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Equity in Earnings of
Year ended December 31, 2021 2020 2019 (in thousands) Top Layer Re$ 8,286 $ 9,595 $ 8,801 Tower Hill Companies (2,073) 3,104 10,337 Other 6,096 4,495 4,086
Total equity in earnings of other ventures
Equity in earnings of other ventures represents our pro-rata share of the net income from our investments in the Tower Hill Companies, Top Layer Re, and our equity investments in a select group of insurance and insurance-related companies, which are included in Other. Except for Top Layer Re, which is recorded on a current quarter basis, equity in earnings of other ventures is recorded one quarter in arrears. 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. Earnings from our investments in other ventures was$12.3 million in 2021, compared to earnings of$17.2 million in 2020, a decrease of$4.9 million , principally driven by reduced profitability of our equity investments in the Tower Hill group of companies, primarily as a result of underwriting losses during 2021. Equity in earnings of other ventures was$17.2 million in 2020, compared to$23.2 million in 2019, a decrease of$6.0 million , principally driven by reduced profitability in the Tower Hill Companies, partially offset by improved profitability in Top Layer Re and our equity investments within the other category. Other Income (Loss) Year ended December 31, 2021 2020 2019 (in thousands) Assumed and ceded reinsurance contracts accounted for as derivatives and deposits$ 5,905 $ (1,177) $ 4,473 Other 4,975 1,390 476 Total other income (loss)$ 10,880 $ 213 $ 4,949 In 2021, we generated other income of$10.9 million , compared to$0.2 million in 2020, an increase of$10.7 million , driven by a gain on the sale of a portion of our strategic investments recorded under the equity method and lower losses from assumed and ceded reinsurance contracts accounted for at fair value during 2021. In 2020, we generated other income of$0.2 million , compared to$4.9 million in 2019, a decrease of$4.7 million , driven by losses on our assumed and ceded reinsurance contracts accounted for as derivatives and deposits. Corporate Expenses Year ended December 31, 2021 2020 2019 (in thousands) Total corporate expenses$ 41,152 $ 96,970 $ 94,122 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. In 2020 and 2019, corporate expenses also included costs incurred in connection with the acquisition of TMR. 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. 87 -------------------------------------------------------------------------------- Corporate expenses decreased$55.8 million to$41.2 million , in 2021, compared to$97.0 million in 2020. The decrease of$55.8 million was primarily due to higher non-recurring expenses in 2020 resulting from the loss on sale of RenaissanceReUK , executive compensation charges and certain integration and compensation related costs associated with the acquisition of TMR. Corporate expenses increased$2.8 million to$97.0 million , in 2020, compared to$94.1 million in 2019. Corporate expenses for 2020 included a loss of$30.2 million on the sale of RenaissanceReUK onAugust 18, 2020 , including related transaction and other expenses, and$8.5 million of certain expenses associated with senior management departures during the year. In comparison, corporate expenses in 2019 included$49.7 million of corporate expenses associated with the acquisition of TMR. Interest Expense and Preferred Share Dividends Year ended December 31, 2021 2020 2019
(in thousands)
Interest Expense
$300.0 million 3.700% Senior Notes due 2025 11,100 11,100 11,100$300.0 million 3.450% Senior Notes due 2027 10,350 10,350 10,350$400.0 million 3.600% Senior Notes due 2029 14,400 14,400 10,720
(DaVinciRe) 7,125 7,125 7,125
Other 4,561 4,483 4,694
Total interest expense 47,536 50,453 58,364
Preferred Share Dividends
$125.0 million 6.08% Series C Preference Shares - 1,767 7,600$275.0 million 5.375% Series E Preference Shares 9,033 14,781 14,781$250.0 million 5.750% Series F Preference Shares 14,375 14,375 14,375$500.0 million 4.20% Series G Preference Shares 9,858 - - Total preferred share dividends 33,266 30,923 36,756
Total interest expense and preferred share
dividends$ 80,802
Interest expense decreased$2.9 million to$47.5 million in 2021, compared to$50.5 million in 2020. Interest expense decreased$7.9 million to$50.5 million in 2020, compared to$58.4 million in 2019, primarily driven by the maturity of our 5.75% Senior Notes inMarch 2020 . Preferred share dividends increased$2.3 million to$33.3 million in 2021, compared to$30.9 million in 2020, primarily driven by the issuance of 4.20% Series G Preference Shares in July, 2021, partially offset by the redemption in full of the$275.0 million 5.375% Series E Preference Shares in August, 2021 and the redemption in full of 6.08% Series C Preference Shares in 2020. Preferred share dividends decreased$5.8 million to$30.9 million in 2020, compared to$36.8 million in 2019, primarily driven by the redemption in full of the$125 million outstanding principal amount of 6.08% Series C Preference Shares in March, resulting in only three months of dividends compared to 12 months in the prior period. 88 --------------------------------------------------------------------------------
Income Tax (Expense) Benefit
Year ended December 31, 2021 2020 2019 (in thousands) Income tax (expense) benefit$ 10,668 $ (2,862) $ (17,215) We are subject to income taxes in certain jurisdictions in which we operate; however, since the majority of our income is currently earned inBermuda , which does not have a corporate income tax, the tax impact to our operations has historically been minimal. In 2021, we recognized an income tax benefit of$10.7 million , compared to an income tax expense of$2.9 million in 2020. The income tax benefit in 2021 was principally driven by unrealized investment portfolio losses in our taxable jurisdictions, while the income tax expense in the prior comparative period was principally driven by unrealized investment gains in ourU.S. based operations. In 2020, we recognized an income tax expense of$2.9 million , compared to$17.2 million in 2019. The reduction in income tax expense was principally driven by lower underwriting performance, partially offset by higher investment gains, primarily in ourU.S. -based operations. AtDecember 31, 2021 , our net deferred tax asset (after valuation allowance) totaled$60.9 million . Our operations inIreland , theU.K. ,Singapore ,Switzerland and theU.S. operations of TMR have historically produced GAAP taxable losses and we currently do not believe it is more likely than not that we will be able to recover the predominant amount of our net deferred tax assets in these jurisdictions. Our valuation allowance totaled$131.5 million and$88.7 million atDecember 31, 2021 and 2020, respectively. Our effective income tax rate, which we calculate as income tax (expense) benefit divided by income or loss before taxes, may fluctuate significantly from period to period depending on the geographic distribution of pre-tax income or loss in any given period between different jurisdictions with comparatively higher tax rates and those with comparatively lower tax rates. The geographic distribution of pre-tax income or loss can vary significantly between periods due to, but not limited to, the following factors: the business mix of net premiums written and earned; the size and nature of net claims and claim expenses incurred; the amount and geographic location of operating expenses, net investment income, net realized and unrealized gains (losses) on investments; outstanding debt and related interest expense; and the amount of specific adjustments to determine the income tax basis in each of our operating jurisdictions. In addition, a significant portion of our gross and net premiums are currently written and earned inBermuda , which does not have a corporate income tax, including the majority of our catastrophe business, which can result in significant volatility to our pre-tax income or loss in any given period. We expect our consolidated effective tax rate to increase in the future, as our global operations outside ofBermuda expand. In addition, it is possible we could be adversely affected by changes in tax laws, regulation, or enforcement, any of which could increase our effective tax rate more rapidly or steeply than we currently anticipate. Generally, the preponderance of our revenue and pre-tax income or loss is generated by our domestic (i.e.,Bermuda ) operations, in the form of underwriting income or loss and net investment income or loss, rather than our foreign operations. However, the geographic distribution of pre-tax income or loss can vary significantly between periods for a variety of reasons, including the business mix of net premiums written and earned, the size and nature of net claims and claim expenses incurred, the amount and geographic location of operating expenses, net investment income and net realized and unrealized gains (losses) on investments and the amount of specific adjustments to determine the income tax basis in each of our operating jurisdictions. Pre-tax income for our domestic operations was higher compared to our foreign operations for the years endedDecember 31, 2021 , 2020 and 2019 primarily as a result of the more volatile catastrophe business underwritten in ourBermuda operations during these periods incurring a comparatively lower level of catastrophe losses and thus generating higher levels of net underwriting income than our foreign operations, which underwrite primarily less volatile business with higher attritional net claims and claim expenses and as a result produce lower levels of net underwriting income in benign loss years. 89 --------------------------------------------------------------------------------
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests
Year ended December 31, 2021 2020 2019
(in thousands)
Redeemable noncontrolling interest - DaVinciRe $ (102,932) $ 113,671 $ 127,084
Redeemable noncontrolling interest - Medici 1,492 55,970 25,759
Redeemable noncontrolling interest - Vermeer 38,155 61,012 48,626
Net income (loss) attributable to redeemable
noncontrolling interests $ (63,285) $ 230,653 $ 201,469
Our net loss attributable to redeemable noncontrolling interests was $63.3
million compared to net income attributable to redeemable noncontrolling
interests of $230.7 million in 2020. This change from 2020 reflects the impact
of higher underwriting losses in DaVinci, lower underwriting income in Vermeer,
and a decrease in Medici net income, primarily due to foreign exchange losses
that are attributable to third party investors.
Our net income attributable to redeemable noncontrolling interests was $230.7
million in 2020, compared to $201.5 million in 2019, a change of $29.2 million .
The increase was driven by improved performance from Medici and Vermeer,
compared to 2019, partially offset by lower underlying performance in DaVinci
which was negatively impacted by the 2020 Weather-Related Large Loss Events and
the COVID-19 losses.
Refer to "Note 10. Noncontrolling Interests" in our "Notes to Consolidated
Financial Statements" for additional information regarding our redeemable
noncontrolling interests.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
As a Bermuda -domiciled holding company, RenaissanceRe has limited operations of
its own. Its assets consist primarily of investments in subsidiaries and 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 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
December 31, 2021 . Certain of our subsidiaries and branches are required to file
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."
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 and (6)
certain corporate and operating expenses.
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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. For example, our internal investment
structures and cash pooling arrangements among the Company and certain of our
subsidiaries help to efficiently facilitate capital and liquidity movements.
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 determine it is necessary or advisable to
contribute capital to our subsidiaries, or may be contractually required to
contribute capital to our joint ventures or managed funds. For example, 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 to support growth
in premiums, and in 2020, RenaissanceRe contributed capital to RREAG to support
growth in premiums. In addition, from time to time we invest in new managed
joint ventures or managed funds, increase our investments in certain of our
managed joint ventures or managed funds 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 the
losses and operating expenses incurred by 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 July 2021 , we raised $488.7 million of net proceeds in an underwritten public
offering of Depositary Shares, each representing a 1/1,000th interest in a share
of 4.20% Series G Preference 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 net claims and claims expenses incurred to be reported and ultimately
settled, requiring the establishment of reserves for claims and claim expenses
and losses recoverable. Therefore, the amount of net claims paid in any one year
is not necessarily related to the amount of net claims and claims expenses
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, relatively low 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.
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, which 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 additional debt and equity securities.
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Credit Facilities, Trusts and Other Collateral Arrangements
We also maintain various other arrangements that allow us to access liquidity
and satisfy collateral requirements, including revolving credit facilities,
letter of credit facilities, and regulatory trusts, as well as other types of
trust and collateral arrangements. Regulatory and other requirements to post
collateral to support our reinsurance obligations could impact our liquidity.
For example, many jurisdictions in the U.S. do not permit insurance companies to
take credit for reinsurance obtained from unlicensed or non-admitted insurers on
their statutory financial statements unless security is posted, so our contracts
generally require us to post a letter of credit or provide other security (e.g.,
through a multi-beneficiary reinsurance trust). In addition, if we were to fail
to comply with certain covenants in our debt agreements, we may have to pledge
additional collateral.
Letter of Credit and Revolving Credit Facilities
We and certain of our subsidiaries, joint ventures, and managed funds maintain
secured and unsecured revolving credit facilities and letter of 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 December 31, 2021 Issued or Drawn
(in thousands)
Revolving Credit Facility (1) $ -
Medici Revolving Credit Facility (2) 30,000
Bilateral Letter of Credit Facilities
Secured 410,440
Unsecured 369,324
Funds at Lloyd's Letter of Credit Facility 275,000
$ 1,084,764
(1) At December 31, 2021, no amounts were issued or drawn under this facility.
(2) RenaissanceRe owns a noncontrolling economic interest in Medici. Because
RenaissanceRe controls all of Medici's outstanding voting rights, the financial
statements of Medici are included in RenaissanceRe's consolidated financial
statements. The drawn amount of the Medici revolving credit facility is included
on the Company's consolidated balance sheets under debt.
Refer to "Note 9. Debt and Credit Facilities" in our "Notes to the Consolidated
Financial Statements" for additional information related to our significant debt
and 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, the FAL, in the form of
cash, securities or letters of credit. At December 31, 2021 , the FAL required to
support the underwriting activities at Lloyd's through Syndicate 1458 was £756.0
million (2020 - £696.2 million). Actual FAL posted for Syndicate 1458 at
December 31, 2021 by RenaissanceRe CCL was $983.4 million (2020 - $874.2
million ), supported by a $275.0 million letter of credit and a $708.4 million
deposit of cash and fixed maturity securities (2020 - $225.0 million and $649.2
million , respectively). Refer to "Note 9. Debt and Credit Facilities" in our
"Notes to the Consolidated Financial Statements" for additional information
related to this letter of credit facility.
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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. As of December 31, 2021 , all of these trusts were
funded in accordance with the relevant regulatory thresholds. However,
Renaissance Reinsurance maintains a significant surplus in the amount of
approximately $660 million , which is the subject of a withdrawal request that is
under review by the NYDFS. Refer to "Note 18. Statutory Requirements" in our
"Notes to the Consolidated Financial Statements" for additional information on
our multi-beneficiary reinsurance trusts and multi-beneficiary reduced
collateral reinsurance trusts.
Contractual Obligations
In assessing our liquidity requirements and cash needs, we also consider
contractual obligations to which we are a party. In certain circumstances, our
contractual obligations may be accelerated due to defaults under the agreements
governing those obligations (including pursuant to cross-default provisions in
such agreements) or in connection with certain changes in control of the
Company, for example. In addition, in certain circumstances, in the event of a
default these obligations may bear an increased interest rate or be subject to
penalties.
The table below shows certain of our current and long-term contractual
obligations:
Less Than 1 More Than 5
At December 31, 2021 Total Year 1-3 Years 3-5 Years Years
(in thousands)
Long term debt obligations (1)
3.600% Senior Notes due 2029 $ 504,942 $ 14,400 $ 28,800 $ 28,800 $ 432,942
3.450% Senior Notes due 2027 356,911 10,350 20,700 20,700 305,161
3.700% Senior Notes due 2025 336,067 11,100 22,200 302,767 -
4.750% Senior Notes due 2025
(DaVinciRe) 173,737 7,125 14,250 152,362 -
Total long term debt
obligations 1,371,657 42,975 85,950 504,629 738,103
Investment commitments (2) 1,411,306 1,411,306 - - -
Operating lease obligations 54,870 8,515 13,626 11,586 21,143
Capital lease obligations 18,112 2,661 5,322 5,322 4,807
Payable for investments
purchased 1,170,568 1,170,568 - - -
Reserve for claims and claim
expenses (3) 13,294,630 3,988,389 4,254,281 2,127,141 2,924,819
Total contractual obligations $ 17,321,143 $ 6,624,414 $ 4,359,179 $ 2,648,678 $ 3,688,872
(1)Includes contractual interest payments.
(2)The investment commitments do not have a defined contractual commitment date
and we have therefore included them in the less than one year category.
(3)The amount and timing of the cash flows associated with our policy
liabilities are highly uncertain. Refer to "Note 8. Reserve for Claims and Claim
Expenses" in our "Notes to the Consolidated Financial Statements" for more
information on our estimate of claims and claim expense reserves.
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Cash Flows
Year ended December 31, 2021 2020 2019
(in thousands)
Net cash provided by (used in) operating
activities $ 1,234,815
Net cash provided by (used in) investing
activities (816,296)
(2,304,689) (2,988,644)
Net cash provided by (used in) financing
activities (302,461) 665,214 1,120,117
Effect of exchange rate changes on foreign
currency cash 6,148 4,485 2,478
Net increase (decrease) in cash and cash
equivalents 122,206 357,745 271,146
Cash and cash equivalents, beginning of period 1,736,813 1,379,068 1,107,922
Cash and cash equivalents, end of period
2021
During 2021, our cash and cash equivalents increased by$122.2 million , to$1.9 billion atDecember 31, 2021 , compared to$1.7 billion atDecember 31, 2020 . Cash flows provided by operating activities. Cash flows provided by operating activities during 2021 were$1.2 billion , compared to$2.0 billion during 2020. Cash flows provided by operating activities during 2021 were primarily the result of certain adjustments to reconcile our net loss of$103.4 million to net cash provided by operating activities, including: •an increase in reserve for claims and claim expenses of$2.9 billion primarily resulting from net claims and claim expenses associated with the 2021 Weather-Related Large Losses; •an increase in unearned premiums of$767.6 million due to the growth in gross premiums written across both our Property and Casualty and Specialty segments; •an increase in reinsurance balances payable of$372.6 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 11. Variable Interest Entities" in our "Notes to the Consolidated Financial Statements" for additional information related to Upsilon RFO's non-voting preference shares; partially offset by •an increase in reinsurance recoverable of$1.3 billion due to the increase in net claims and claim expenses and recoverables associated with the 2021 Weather-Related Large Losses; •an increase in premiums receivable of$886.9 million due to the timing of receipts and increase in our gross premiums written; •an increase of$215.6 million in our deferred acquisition costs due to the growth in gross premiums written across both our Property and Casualty and Specialty segments; •an increase of$31.1 million in our prepaid reinsurance premiums due to an increase in ceded premiums written; and •a decrease in other operating cash flows of$437.2 million primarily reflecting subscriptions received in advance of the issuance of Upsilon RFO's non-voting preference shares effectiveJanuary 1, 2021 , which were recorded in other liabilities atDecember 31, 2020 . During 2021, 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 2021. See "Note 11. 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 2021, our cash flows used in investing activities were$816.3 million , principally reflecting net purchases of other investments of$617.8 million , short term investments of$252.8 million and fixed maturity investments trading of$136.8 million , partially offset by cash flow from net 94 -------------------------------------------------------------------------------- sales of and equity investments trading of$206.6 million . The net purchases of other investments, was primarily driven by an increased allocation to catastrophe bonds and fund investments, whereas the net purchases of short term investments and fixed maturity investments trading was primarily funded by cash flows provided by operating activities, as described above. Cash flows used in financing activities. Our cash flows used in financing activities in 2021 were$302.5 million , and were principally the result of: •the repurchase of 6.6 million of our common shares in open market transactions at an aggregate cost of$1.0 billion and an average price of$156.78 per common share; •the redemption of all 11 million of our outstanding 5.375% Series E Preference Shares onAugust 11, 2021 for$275.0 million ; •dividends paid on our common and preference shares of$67.8 million and$32.9 million , respectively; and partially offset by •net inflows of$488.7 million associated with the issuance of 20 million of Depositary Shares (each representing 1/1000th interest in a share of our 4.20% Series G Preference Shares), net of expenses; •net inflows of$594.3 million primarily related to net third-party redeemable noncontrolling interest share transactions in DaVinci, Medici and Vermeer; and •net inflows of$30.0 million from the drawdown of the Medici Revolving Credit Facility. See "Note 9. Debt and Credit Facilities" in our "Notes to the Consolidated Financial Statements" for additional information related to the revolving credit facility available to Medici. 2020 During 2020, our cash and cash equivalents increased by$357.7 million , to$1.7 billion atDecember 31, 2020 , compared to$1.4 billion atDecember 31, 2019 . Cash flows provided by operating activities. Cash flows provided by operating activities during 2020 were$2.0 billion , compared to$2.1 billion during 2019. Cash flows provided by operating activities during 2020 were primarily the result of certain adjustments to reconcile our net income of$993.1 million to net cash provided by operating activities, including: •an increase in reserve for claims and claim expenses of$1.2 billion primarily, the result of claims and claim expenses associated with the 2020 Weather-Related Large Loss Events and losses related to the COVID-19 pandemic, partially offset by a reduction in net claims and claim expenses of$155.2 million due to the sale of RenaissanceReUK and favorable development on prior accident years net claim and claim expenses of$183.8 million ; •an increase in reinsurance balances payable of$662.3 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. Refer to "Note 11. 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$232.9 million due to the growth in gross premiums written across both our Property and Casualty and Specialty segments; partially offset by •net realized and unrealized gains on investments of$820.6 million principally driven by net realized and unrealized gains on our fixed maturity investments portfolio, equity investments trading and investment-related derivatives; •an increase in premiums receivable of$293.6 million due to the timing of receipts and increase in our gross premiums written; •an increase in reinsurance recoverable of$138.4 million principally related to the increase in claims and claim expenses noted above; 95 -------------------------------------------------------------------------------- •an increase of$55.8 million in our prepaid reinsurance premiums due to the timing of payments and increase in ceded premiums written; and •an increase in other operating cash flows of$178.3 million primarily reflecting subscriptions received in advance of the issuance of Upsilon RFO's non-voting preference shares effectiveJanuary 1, 2021 , which were recorded in other liabilities atDecember 31, 2020 . Refer to "Note 11. 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 2020, our cash flows used in investing activities were$2.3 billion , principally reflecting net purchases of fixed maturity investments trading, short term investments and other investments of$1.6 billion ,$581.5 million , and$216.8 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 ofRenaissanceRe 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 2020.The net purchase of other investments during 2020 was primarily driven by an increased allocation to catastrophe bonds. Partially offsetting these net outflows from investing activities were net proceeds of$136.7 million from the sale of RenaissanceReUK during the third quarter of 2020. Cash flows provided by financing activities. Our cash flows provided by financing activities in 2020 were$665.2 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 toState Farm , one of our existing stockholders, in a private placement. The total net proceeds from the offerings were$1.1 billion ; •net inflows of$119.1 million related to net third-party redeemable noncontrolling interest share transactions in DaVinciRe, Medici and Vermeer; partially offset by •the repayment in full at maturity of the aggregate principal amount of$250.0 million , plus applicable accrued interest, of our 5.75% Senior Notes due 2020 ofRenRe North America Holdings Inc. andRenaissanceRe Finance ; •the redemption of all 5 million of our outstanding Series C 6.08% Preference Shares onMarch 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$68.5 million and$30.9 million , respectively. Capital Resources We monitor our capital adequacy on a regular basis and seek to adjust our capital according to the needs of our business. In particular, we require capital sufficient to meet or exceed the capital adequacy ratios established by rating agencies for maintenance of appropriate financial strength ratings, the capital adequacy tests performed by regulatory authorities and the capital requirements under our credit facilities. From time to time, rating agencies may make changes in their capital models and rating methodologies, which could increase the amount of capital required to support our ratings. We may seek to raise additional capital or return capital to our shareholders through common share repurchases and cash dividends (or a combination of such methods). In the normal course of our operations, we may from time to time evaluate additional share or debt issuances given prevailing market conditions and capital management strategies, including for our operating subsidiaries, joint ventures and managed funds. In addition, as noted above, we enter into agreements with financial institutions to obtain letter of credit facilities for the benefit of our operating subsidiaries and certain of our joint ventures and managed funds in their reinsurance and insurance business. 96 -------------------------------------------------------------------------------- Our total shareholders' equity attributable toRenaissanceRe and total debt was as follows: At December 31, 2021 2020 Change (in thousands) Common shareholders' equity$ 5,874,281 $ 7,035,248 $ (1,160,967) Preference shares 750,000 525,000 225,000 Total shareholders' equity attributable to RenaissanceRe 6,624,281 7,560,248 (935,967) 3.600% Senior Notes due 2029 393,305 392,391 914 3.450% Senior Notes due 2027 297,281 296,787 494 3.700% Senior Notes due 2025 298,798 298,428 370 4.750% Senior Notes due 2025 (DaVinciRe) (1) 148,969 148,659 310 Total senior notes 1,138,353 1,136,265 2,088 Medici Revolving Credit Facility (2) 30,000 - 30,000 Total debt$ 1,168,353 $ 1,136,265 $ 32,088 (1)RenaissanceRe owns a noncontrolling economic interest in its joint venture DaVinciRe. BecauseRenaissanceRe controls a majority of DaVinciRe's outstanding voting rights, the consolidated financial statements of DaVinciRe are included in the consolidated financial statements ofRenaissanceRe . However,RenaissanceRe does not guarantee or provide credit support for DaVinciRe andRenaissanceRe's financial exposure to DaVinciRe is limited to its investment in DaVinciRe's shares and counterparty credit risk arising from reinsurance transactions. (2)RenaissanceRe owns a noncontrolling economic interest in Medici. BecauseRenaissanceRe controls all of Medici's outstanding voting rights, the financial statements of Medici are included inRenaissanceRe's consolidated financial statements. Our shareholders' equity attributable toRenaissanceRe decreased$0.9 billion during 2021 principally as a result of: •the repurchase of 6.6 million common shares in open market transactions at an aggregate cost of$1.0 billion and an average price of$156.78 per common share; •the redemption of all Series E 5.375% Preference Shares for$275.0 million plus accrued and unpaid dividends thereon; •our comprehensive loss attributable toRenaissanceRe of$38.4 million ; and •$67.8 million and$33.3 million of dividends on our common and preference shares, respectively; and partially offset by •raising$500.0 million in gross proceeds inJuly 2021 through the issuance of 20,000,000 Depositary Shares, each of which represents a 1/1,000th interest in a share of our 4.20% Series G Preference Shares. Our debt increased$32.1 million during the year endedDecember 31, 2021 principally as a result of$30.0 million that was drawn under the Medici Revolving Credit Facility. For additional information related to the terms of our debt and significant credit facilities, see "Note 9. Debt and Credit Facilities" in our "Notes to the Consolidated Financial Statements." See "Note 12. Shareholders' Equity" in our "Notes to the Consolidated Financial Statements" for additional information related to our common and preference shares. 97 -------------------------------------------------------------------------------- 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" 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" 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. 98 --------------------------------------------------------------------------------
Investments
The table below shows our invested assets:
At December 31, 2021 2020 Change
(in thousands, except percentages)
U.S. treasuries $ 6,247,779 29.1 % $ 4,960,409 24.1 % $ 1,287,370
Agencies 361,684 1.7 % 368,032 1.8 % (6,348)
Non-U.S. government 549,613 2.6 % 491,531 2.4 % 58,082
Non-U.S. government-backed corporate 474,848 2.2 % 338,014 1.6 % 136,834
Corporate 3,214,438 15.0 % 4,261,025 20.7 % (1,046,587)
Agency mortgage-backed 721,955 3.4 % 1,113,792 5.4 % (391,837)
Non-agency mortgage-backed 233,346 1.1 % 291,444 1.4 % (58,098)
Commercial mortgage-backed 634,925 3.0 % 791,272 3.8 % (156,347)
Asset-backed 1,068,543 5.0 % 890,984 4.3 % 177,559
Total fixed maturity investments, at
fair value 13,507,131 63.1 % 13,506,503 65.5 % 628
Short term investments, at fair value 5,298,385 24.7 % 4,993,735 24.3 % 304,650
Equity investments trading, at fair
value 546,016 2.5 % 702,617 3.4 % (156,601)
Catastrophe bonds 1,104,034 5.1 % 881,290 4.3 % 222,744
Direct private equity investments 88,373 0.4 % 79,807 0.4 % 8,566
Fund investments 725,802 3.4 % 295,851 1.4 % 429,951
Term loans 74,850 0.3 % - - % 74,850
Total other investments, at fair value 1,993,059 9.2 % 1,256,948 6.2 % 736,111
Total managed investment portfolio 19,351,532 90.3 % 19,202,855 93.2 % 148,677
Investments in other ventures, under
equity method 98,068 0.5 % 98,373 0.6 % (305)
Total investments $ 21,442,659 90.8 % $ 20,558,176 93.8 % $ 884,483
We structure our investment portfolio to emphasize the preservation of capital
and the availability of liquidity to meet our claims obligations, to be well
diversified across market sectors, and to generate relatively attractive returns
on a risk-adjusted basis over time. Notwithstanding the foregoing, our
investments are subject to market-wide risks and fluctuations, as well as to
risks inherent in particular securities. For additional information regarding
our investments and the fair value measurement of our investments refer to "Note
5. Investments" and "Note 6. Fair Value Measurements" in our "Notes to the
Consolidated Financial Statements."
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
investments are 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, direct private equity investments,
fund investments and term loans).
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The following table summarizes the composition of our investment portfolio,
including the amortized cost, fair value, credit ratings and effective yields.
Credit Rating (1)
% of Total Weighted Average Non-
Amortized Investment Yield to Investment
December 31, 2021 Cost Fair Value Portfolio Maturity AAA AA A BBB Grade Not Rated
(in thousands, except
percentages)
Short term investments $ 5,298,385 $ 5,298,385 24.7 % 0.1 % $ 5,261,431 $ 21,682 $ 13,431 $ 203 $ 177 $ 1,461
100.0 % 99.3 % 0.4 % 0.3 % - % - % - %
Fixed maturity investments
U.S. treasuries 6,302,313 6,247,779 29.1 % 1.1 % - 6,247,779 - - - -
Agencies 364,429 361,684 1.7 % 1.2 % 56,067 305,617 - - - -
Non-U.S. government 552,935 549,613 2.6 % 1.2 % 286,810 202,067 45,192 14,257 1,287 -
Non-U.S. government-backed
corporate 476,200 474,848 2.2 % 1.4 % 168,177 272,297 24,480 3,702 6,192 -
Corporate 3,202,614 3,214,438 15.0 % 2.8 % 31,603 113,253 979,752 996,288 1,053,867 39,675
Agency mortgage-backed 721,711 721,955 3.4 % 1.9 % - 721,955 - - - -
Non-agency mortgage-backed 232,144 233,346 1.1 % 3.2 % 51,279 11,749 1,810 5,751 110,459 52,298
Commercial mortgage-backed 631,016 634,925 3.0 % 1.9 % 492,903 113,736 4,191 15,835 2,514 5,746
Asset-backed 1,069,217 1,068,543 5.0 % 1.8 % 770,492 166,595 59,346 37,270 22,935 11,905
Total fixed maturity
investments 13,552,579 13,507,131 63.1 % 1.7 % 1,857,331 8,155,048 1,114,771 1,073,103 1,197,254 109,624
100.0 % 13.8 % 60.3 % 8.3 % 7.9 % 8.9 % 0.8 %
Equity investments trading 546,016 2.5 % - - - - - 546,016
100.0 % - % - % - % - % - % 100.0 %
Other investments
Catastrophe bonds 1,104,034 5.1 % - - - - 1,104,034 -
Direct private equity
investments 88,373 0.4 % - - - - - 88,373
Total fund investments 725,802 3.4 % - - - - - 725,802
Term loans 74,850 0.3 % - - 74,850 - - -
Total other investments 1,993,059 9.2 % - - 74,850 - 1,104,034 814,175
100.0 % - % - % 3.8 % - % 55.4 % 40.9 %
Investments in other ventures 98,068 0.5 % - - - - - 98,068
100.0 % - % - % - % - % - % 100.0 %
Total investment portfolio $ 21,442,659 100.0 % $ 7,118,762 $ 8,176,730 $ 1,203,052 $ 1,073,306 $ 2,301,465 $ 1,569,344
100.0 % 33.3 % 38.1 % 5.6 % 5.0 % 10.7 % 7.3 %
(1) The credit ratings included in this table are those assigned by S&P. When
ratings provided by S&P were not available, ratings from other nationally
recognized rating agencies were used. We have grouped short term investments
with an A-1+ and A-1 short term issue credit rating as AAA , short term
investments with an A-2 short term issue credit rating as AA and short term
investments with an A-3 short term issue credit rating as A.
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Fixed Maturity Investments and Short Term Investments
At December 31, 2021 , our fixed maturity investments and short term investment
portfolio had a weighted average credit quality rating of AA (2020 - AAA ) and a
weighted average effective yield of 1.2% (2020 - 0.9%). At December 31, 2021 ,
our non-investment grade and not rated fixed maturity investments totaled $1.3
billion or 9.7% of our fixed maturity investments (2020 - $1.4 billion or 10.0%,
respectively). In addition, within our other investments category we have funds
that invest in non-investment grade and not rated fixed income securities and
non-investment grade cat-linked securities. At December 31, 2021 , the funds that
invest in non-investment grade and not rated fixed income securities and
non-investment grade cat-linked securities totaled $1.8 billion (2020 - $911.4
million ).
At December 31, 2021 , we had $5.3 billion of short term investments (2020 - $5.0
billion ). Short term investments are managed as part of our investment portfolio
and have a maturity of one year or less when purchased. Short term investments
are carried at fair value. The increase in our allocation to short term
investments at December 31, 2021 , compared to December 31, 2020 , is principally
driven by the additional invested assets in certain of our managed joint
ventures and managed funds that limit investment allocation to shorter term
securities.
The duration of our fixed maturity investments and short term investments at
December 31, 2021 was 3.0 years (2020 - 2.9 years). From time to time, we may
reevaluate the duration of our portfolio in light of the duration of our
liabilities and market conditions.
The value of our fixed maturity investments will fluctuate with changes in the
interest rate environment and when changes occur in economic conditions or the
investment markets. Additionally, our differing asset classes expose us to other
risks which could cause a reduction in the value of our investments.
Equity Investments Trading
The following table summarizes the fair value of equity investments trading:
At December 31, 2021 2020 Change
(in thousands)
Financials $ 146,615 $ 452,765 $ (306,150)
Communications and technology 82,444 119,592
(37,148)
Consumer 51,083 44,477
6,606
Industrial, utilities and energy 26,645 43,380 (16,735) Healthcare 28,796 35,140 (6,344) Basic materials 5,092 7,263 (2,171) Equity exchange traded funds 114,919 -
114,919
Fixed income exchange traded funds 90,422 -
90,422
Total equity investments trading
A portion of our investments included in equity investments trading is managed
pursuant to diversified public equity securities mandates with third-party
investment managers. In addition, our equity investments trading include more
concentrated public equity positions that we invest in through our strategic
investment portfolio. These investments are subject to a variety of risks
including: company performance, the availability of strategic investment
opportunities, and macro-economic, industry, and systemic risks of the equity
markets overall. Consequently, the carrying value of our investment portfolio
will vary over time as the value or size of our portfolio of strategic
investments in marketable equity securities fluctuates. The change in fair value
of equity investments trading from 2020 to 2021 was impacted by the partial sale
of our strategic investment in Trupanion. It is possible we will increase our
equity allocation in the future, and it could, from time to time, have a
material effect on our financial results.
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Other Investments
The table below shows our portfolio of other investments:
At December 31, 2021 2020 Change
(in thousands)
Catastrophe bonds $ 1,104,034 $ 881,290 $ 222,744
Direct private equity investments 88,373 79,807 8,566
Fund investments 725,802 295,851 429,951
Term loans 74,850 - 74,850
Total other investments $ 1,993,059 $ 1,256,948 $ 736,111
We account for our other investments at fair value in accordance with FASB ASC
Topic Financial Instruments. The fair value of our fund investments, which
include private equity funds, private credit funds and hedge funds, is recorded
on our consolidated balance sheet in other investments, and is generally
established on the basis of the net asset value per share (or its equivalent),
determined by the managers of these investments in accordance with the
applicable governing documents. Many of our fund investments are subject to
restrictions on redemptions and sales which 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 certain private credit funds and three months for private equity
funds and private credit funds, although we have occasionally experienced delays
of up to six months at year end. In circumstances where there is a reporting
lag, we estimate the fair value of these funds by starting with the prior month
or quarter-end fund valuation, adjusting 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 using all information
available to us. This principally includes using preliminary estimates reported
to us by our fund managers, estimating returns based on the performance of broad
market indices, or other valuation methods. Actual final fund valuations may
differ, perhaps materially, from our estimates and these differences are
recorded as a change in estimate in our consolidated statement of operations in
the period in which they are reported to us. Included in net realized and
unrealized gains (losses) on investments for 2021 is income of $7.0 million
(2020 - a loss of $2.4 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. Refer to "Note 6. Fair Value Measurements" in our
"Notes to the Consolidated Financial Statements" for additional information
regarding the fair value measurement of our investments.
We have committed capital to direct equity investments, fund investments, term
loans, and investments in other ventures of $2.7 billion , of which $1.3 billion
has been contributed at December 31, 2021 . Our remaining commitments to these
investments at December 31, 2021 totaled $1.4 billion . In the future, we may
enter into additional commitments in respect of these investments or individual
portfolio company investment opportunities.
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Investments in Other Ventures , under Equity Method
The table below shows our investments in other ventures, under equity method:
At December 31, 2021 2020
(in thousands, except
percentages) Investment Ownership % Carrying Value Investment Ownership % Carrying Value
Tower Hill Companies $ 78,698 2.0% - 25.0% $ 25,575 $ 64,750 2.0% - 25.0% $ 30,470
Top Layer Re 65,375 50.0 % 25,903 65,375 50.0 % 26,958
Other 46,698 22.4 % 46,590 42,652 25.0 % 40,945
Total investments in other
ventures, under equity method$ 190,771 $ 98,068$ 172,777
$ 98,373
The equity in earnings of the Tower Hill Companies and investments in other ventures are reported one quarter in arrears and Top Layer is reported on a current quarter basis. The realized value we ultimately attain for our investments in other ventures, under equity method will likely differ from the carrying value, perhaps materially. 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 and scores fromA.M. Best , S&P, Moody's and 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. Additionally, rating organizations may change their rating methodology, which could have a material impact on our financial strength ratings. The ratings of our principal operating subsidiaries and joint ventures and the ERM score ofRenaissanceRe as ofFebruary 2, 2022 are presented below. 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 ofEurope Unlimited Company A+ A+ - - Renaissance Reinsurance U.S. Inc. A+ A+ - - RenaissanceRe Europe AG A+ A+ - - RenaissanceRe Specialty U.S. Ltd. A+ A+ - - Top Layer Reinsurance Ltd. A+ AA - - Vermeer Reinsurance Ltd. A - - - RenaissanceRe Syndicate 1458 - - - - Lloyd's Overall Market Rating A A+ - AA- RenaissanceRe ERM Score Very Strong Very Strong - - (1) TheA.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 RenaissanceRe Syndicate 1458's financial strength rating.RenaissanceRe has been assigned a "Very Strong" ERM score byA.M. Best . 103 -------------------------------------------------------------------------------- (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 representsRenaissanceRe Syndicate 1458's financial strength rating.RenaissanceRe has been assigned a "Very Strong" ERM score by S&P. (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.A.M. Best The outlook for all of ourA.M. Best ratings is stable. "A+" is the second highest designation ofA.M. Best's rating levels. "A+" rated insurance companies are defined as "Superior" companies and are considered byA.M. Best to have a very strong ability to meet their obligations to policyholders. "A" is the third highest designation assigned byA.M. Best , representingA.M. Best's opinion that the insurer has an "Excellent" ability to meet its ongoing obligations to policyholders. S&P The outlook for all of our S&P ratings is stable. The "A" range ("A+," "A," "A-"), which is the third highest rating assigned by S&P, indicates that S&P believes the insurers have strong capacity to meet their respective financial commitments but they are somewhat more susceptible to adverse effects or changes in circumstances and economic conditions than insurers rated higher. Moody's The outlook for all of our Moody's ratings is stable.Moody's Insurance Financial Strength Ratings represent its opinions of the ability of insurance companies to pay punctually policyholder claims and obligations and senior unsecured debt instruments. Moody's believes that insurance companies rated "A1" and "A3" offer good financial security. Fitch The outlook for all of our Fitch ratings is stable. Fitch believes that insurance companies rated "A+" have "Strong" capacity to meet policyholders and contract obligations on a timely basis with a low expectation of ceased or interrupted payments. Insurers rated "AA-""by Fitch are believed to have a very low expectation of ceased or interrupted payments and very strong capital to meet policyholder obligations. Lloyd's Overall Market RatingA.M. Best , S&P and Fitch have each assigned a financial strength rating to the Lloyd's overall market. The financial risks to policy holders of syndicates within the Lloyd's market are partially mutualized through the Lloyd'sCentral Fund , to which all underwriting members contribute. Because of the presence of the Lloyd'sCentral Fund , and the current legal and regulatory structure of the Lloyd's market, financial strength ratings on individual syndicates would not be particularly meaningful and in any event would not be lower than the financial strength rating of the Lloyd's overall market. 104 -------------------------------------------------------------------------------- SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATIONRenaissanceRe Finance , a 100% owned subsidiary ofRenaissanceRe , is the issuer of certain 3.700% Senior Notes due 2025 and 3.450% Senior Notes due 2027, each of which are fully and unconditionally guaranteed byRenaissanceRe . The guarantees are senior unsecured obligations ofRenaissanceRe and rank equally in right of payment with all other existing and future unsecured and unsubordinated indebtedness ofRenaissanceRe which may be outstanding from time to time. Each series of notes contain various covenants, including limitations on mergers and consolidations, and restrictions as to the disposition of, and the placing of liens on, stock of designated subsidiaries. For additional information related to the terms of our outstanding debt securities, see "Note 9. Debt and Credit Facilities" included herein. The following tables present supplemental summarized financial information forRenaissanceRe andRenaissanceRe Finance , collectively the "Obligor Group ." Intercompany transactions among the members of theObligor Group have been eliminated. The financial information of non-obligor subsidiaries has been excluded from the summarized financial information. Significant intercompany transactions and receivable/payable balances between theObligor Group and non-obligor subsidiaries are presented separately in the summarized financial information: 105 --------------------------------------------------------------------------------
Summarized Balance Sheets
(in thousands) December 31, 2021 Assets Receivables due from non-obligor subsidiaries $ 9,550 Other current assets 106,482 Total current assets $ 116,032 Goodwill and other intangibles $ 108,261 Loan receivable from non-obligor subsidiaries 840,298 Other noncurrent assets 1,866,059 Total noncurrent assets$ 2,814,618 Liabilities Payables due to non-obligor subsidiaries $ 160,703 Other current liabilities 28,680 Total current liabilities $ 189,383 Loan payable to non-obligor subsidiaries $ 201,380 Other noncurrent liabilities 1,088,288 Total noncurrent liabilities$ 1,289,668
Summarized Statement of Operations
Year ended December
(in thousands) 31, 2021
Revenues
Intercompany revenue with non-obligor subsidiaries $ 100,933
Other revenue 245
Total revenues 101,178
Expenses
Intercompany expense with non-obligor subsidiaries 38,960
Other expense 67,493
Total expenses 106,453
Income tax benefit (expense) (44)
Net income (loss) (5,319)
Dividends on RenaissanceRe preference shares (33,266)
Net income (loss) attributable to Obligor Group $ (38,585)
CURRENT OUTLOOK
Reinsurance Market Trends and Developments
We have built a global, multi-line, specialist company that allows us to write
more business with more customers in more locations around the world. In 2021,
we continued our growth with existing and new customers across our segments and
broadened our access to risk, writing more lines of business on more
106
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platforms. We also continued to diversify our sources of capital through various
owned and managed balance sheets as well as the equity, debt and
insurance-linked securities markets. This has afforded us significant
flexibility to react when the world changes. We believe that the trusted
relationships we have developed have provided us an incumbency position,
contributing to our significant growth in attractive business in 2021. Despite
our recent growth, we reduced our growth rate at the recent January 1st
renewals, electing to focus more on optimizing our portfolio and increasing its
efficiency and profitability. As always, we were a consistent partner, offering
capacity across the risk spectrum.
Recent Industry Trends
In 2021, the insurance industry experienced its fifth consecutive year of
elevated catastrophe losses. We saw a market trend shift away from property
catastrophe risk due to the effects of climate change, social and monetary
inflation, as well as a lack of confidence in catastrophe modeling. Despite
these challenges, we believe that our expertise and experience allow us to
determine that we are being paid adequately to assume risk, which we are
uniquely positioned to understand due to our strong underwriting bench (which
has been through multiple market cycles), as well as our integrated system, and
our team of scientists, engineers, and risk modelers at RenaissanceRe Sciences.
We believe that market conditions have created significant opportunities to
source attractive risk in the lines of business that we write, and that such
opportunities will result in superior returns for our shareholders.
Social inflation continues to be a risk, and we expect it to be an ongoing
trend. Over the course of 2021, we also saw the rapid increase of monetary
inflation. This is particularly impactful to our industry, as it drives
rebuilding costs, such as increases in wages and commodity prices. We consider
the anticipated effects of inflation on us in our catastrophe loss models and on
our investment portfolio.
In the current market, we believe that we are uniquely positioned to write a
variety of risks, leveraging the enhancements we made over the last several
years to our risk and capital management technology and underwriting expertise
to cover additional lines of business. In particular, we have invested heavily
to understand the influence of climate change on the weather and its impact on
the risks that we take. We plan to continue to seek to take advantage of
additional opportunities throughout the year and believe that strategic
decisions that we have made in prior periods have laid the foundation for these
initiatives. We believe that our clients value our ability to be a long-term
partner that brings access to multiple forms of capital and innovative,
large-scale solutions.
January 1st Renewals
Property. The January 1 renewal is the largest renewal period for our Property
segment. We had several goals we wanted to achieve, including seeking rate
increases, improving terms and conditions, adjusting for our increased view of
risk, and decreasing our exposure to aggregate deals; and we were pleased with
the results and the portfolio we built. We believe that we saw improved market
conditions, and across markets we pushed hard for higher rates, while remaining
disciplined when rate increases were not sufficient. We used the options we have
developed, such as our third-party capital vehicles, to provide flexibility and
to optimize our gross-to-net strategy, as evidenced by the growth in DaVinci and
the increased percentage of property catastrophe business that we allocated to
it. A significant amount of the growth in our Property segment over the last few
years has been in the other property class of business, due largely to the
substantial rate increases in the U.S. property excess and surplus market. As we
expected, there was significant dislocation in the property retrocession markets
at January 1 , and we expect these trends to continue in 2022.
Casualty and Specialty. The January 1 renewal is also important for our Casualty
and Specialty segment. Casualty and Specialty business has become increasingly
desirable due to a combination of robust multi-year rate increases, as well as
recent favorable plan performance. We continued to see underlying rate increases
across multiple lines of business and geographies within our Casualty and
Specialty segment, and we expanded participation on multiple casualty and
specialty lines. We believe that our book of business is continuing to reflect
the rate improvements that we have seen over the past several years. We think
that our prior work building strong relationships with key customers allowed us
to gain superior access to desirable business.
General Economic Conditions
We actively managed our capital in 2021 and expect to continue to do so in 2022.
We believe that our shares have been trading at attractive levels, which
provides us with additional options to manage excess capital. If this trend
continues, we expect to utilize our strong capital position to continue to
return excess capital to shareholders. When possible, our preference is to
deploy any excess capital into profitable business opportunities before
returning excess capital to shareholders.
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Overall, 2021 was a challenging year for third-party capital, but our ability to raise funds is a testament to the deep experience of ourCapital Partners team and the relationships that they have built over the 20 years in this area. We believe the stresses in the global economy will continue and that these conditions may result in increased market volatility. A period of low interest rates may affect our ability to derive investment income from our investments. As interest rates begin to rise from historic lows, we expect that we will see an increase in net investment income from our investment portfolio. The effects of these interest rate trends on our reinsurance and insurance business could be magnified for longer-tail business lines that are more inflation sensitive, particularly in our Casualty and Specialty segment, and in our other property class of business within our Property segment. 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. We continue to closely monitor recent tax reform proposals and announcements. Tax law changes globally, and in the jurisdictions where we operate, 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, the practical details of how theOECD's framework for instituting a global minimum corporate tax would be implemented are not clear, so we cannot anticipate or estimate the cost to us of this or any other such future initiative. However, we believe that the flexible global operating model that we have utilized will continue to prove resilient. COVID-19 Pandemic The COVID-19 pandemic has had immense impacts on a global scale, including on the (re)insurance industries where it has raised many new questions and challenges for us and our industry. While we believe that we can 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. See "Part I, Item 1A. Risk Factors," for additional information on factors that could cause our actual results to differ materially from those in the forward-looking statements contained in this Form 10-K and other documents we file with theSEC .
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