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RENAISSANCERE HOLDINGS LTD – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our results of operations for 2022 compared to 2021, as well as our liquidity and capital resources atDecember 31, 2022 . 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." For a discussion and analysis of our results of operations for 2021 compared to 2020, please refer to the disclosures set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 54-108 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 4, 2022 . 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 in
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 51
SELECTED CONSOLIDATED FINANCIAL DATA 53
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES 54
Claims and Claim Expense Reserves 54
Premiums and Related Expenses 61
Reinsurance Recoverable 61
Fair Value Measurements and Impairments 62
Income Taxes 64
SUMMARY RESULTS OF OPERATIONS 66
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES 79
Financial Condition 79
Liquidity and Cash Flows 80
Capital Resources 85
Reserve for Claims and Claim Expenses 86
Investments 87
Ratings 91
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION 102
CURRENT OUTLOOK 94
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OVERVIEW
RenaissanceRe is a global provider of reinsurance and insurance that specializes in matching well-structured risks with efficient sources of capital. 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. We are one of the world's leading providers of property and, casualty and specialty reinsurance. 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 further our purpose of protecting communities and enabling prosperity. We seek to accomplish these goals by (i) being a trusted, long-term partner to our customers for assessing and managing risk, (ii) delivering responsive and innovative solutions, (iii) leveraging our core capabilities of risk assessment and information management, (iv) investing in these core capabilities in order to serve our customers across market cycles, and (v) keeping our promises. 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. Our business consists of the following reportable segments: (1) Property, which is comprised of catastrophe and other property (re)insurance, and (2) Casualty and Specialty, which is comprised of casualty and specialty (re)insurance. The underwriting results of our operating subsidiaries and underwriting platforms are included in our Property and Casualty and Specialty segment results as appropriate. Our strategy focuses on operating as an integrated system of three competitive advantages: superior risk selection, superior customer relationships and superior capital management. We provide value to our customers and partners in the form of financial security, innovative products, and responsive service. We are known as a leader in paying valid claims promptly. There are three principal drivers of profit that generate diversified earnings streams for our business - underwriting income, fee income, and investment income. Underwriting income is the income that we earn from our core underwriting business. By accepting the volatility that this business brings, we believe that we can generate superior long-term returns and achieve our vision. Fee income is the income that we earn primarily from managing third-party capital in ourCapital Partners unit, and is composed of management fee income and performance fee income. Compared to our other drivers of profit, we view fee income as a relatively stable, lower-volatility and capital efficient source of income. Investment Income is income derived from the investment portfolio that we maintain to support our business. We take a disciplined approach in building a relatively conservative, well-structured investment portfolio with a focus on fixed income investments. We view fee income, in particular management fee income, and investment income as relatively stable sources of income.
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.
Our current business strategy focuses predominantly on writing reinsurance,
although we also write excess and surplus lines insurance through delegated
authority arrangements. Additionally, we 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 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.
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Revenues and Expenses
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, managed funds and structured reinsurance products, which are primarily reflected in redeemable non-controlling interest or as an offset to acquisition or operating expenses. 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 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; and (5) 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. 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. We manage DaVinci,Fontana , Medici, and Vermeer, and own all, or a majority, of the voting interests, but own no, or a minority, economic interest of each. As a result of our controlling voting interests, we fully consolidate these entities in our financial statements, even though we do not retain the full value of economic outcomes generated by these entities. The portions of the economic outcomes that are not retained by us are ultimately allocated to the third-party investors who hold the non-controlling interests in these entities. The economic outcomes may include underwriting results, investments results, and foreign exchange impacts, among other items. For example, if one of these entities were to generate underwriting losses due to a natural catastrophe, the full amount would be reflected in net income (loss) on our consolidated statements of operations, but ultimately we would only retain a portion of that amount in our net income (loss) attributable toRenaissanceRe . In the Company's Consolidated Balance Sheets and Consolidated Statements of Operations, we allocate the portion of these items attributable to third parties in the "Net (income) loss attributable to redeemable noncontrolling interests" line item. Refer to "Note 9. Noncontrolling Interests" in our "Notes to the Consolidated Financial Statements" for additional information regarding our redeemable noncontrolling interests and how this accounting treatment impacts the Company's financial results.
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 impact from the war inUkraine and global supply chain issues. More recently, many central banks have begun to raise interest rates, which could act as a countervailing force against some inflationary pressures. 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 52 -------------------------------------------------------------------------------- inflationary period cannot be estimated with precision. We consider the anticipated effects of inflation on us in our 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.
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, 2022 . 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. Year ended December 31, 2022 2021 2020 2019 2018 (in thousands, except share and per share data and percentages) Statements of Operations Data: Gross premiums written$ 9,213,540 $ 7,833,798 $ 5,806,165 $ 4,807,750 $ 3,310,427 Net premiums written 7,196,160 5,939,375 4,096,333 3,381,493 2,131,902 Net premiums earned 6,333,989 5,194,181 3,952,462 3,338,403 1,976,129 Net investment income 559,932 319,479 354,038 424,207 269,965 Net realized and unrealized gains (losses) on investments (1,800,485) (218,134) 820,636 414,109 (183,168) Net claims and claim expenses incurred 4,338,840 3,876,087 2,924,609 2,097,021 1,120,018 Acquisition expenses 1,568,606 1,214,858 897,677 762,232 432,989 Operational expenses 276,691 212,184 206,687 222,733 178,267 Underwriting income (loss) 149,852 (108,948) (76,511) 256,417 244,855 Net income (loss) (1,159,816) (103,440) 993,058 950,267 268,917 Net income (loss) available (attributable) toRenaissanceRe common shareholders (1,096,578) (73,421) 731,482 712,042 197,276 Net income (loss) available (attributable) toRenaissanceRe common shareholders per common share - diluted (25.50) (1.57) 15.31 16.29 4.91 Dividends per common share 1.48 1.44 1.40 1.36 1.32 Weighted average common shares outstanding - diluted 43,040 47,171 47,178 43,175 39,755 Return on average common equity (22.0) % (1.1) % 11.7 % 14.1 % 4.7 % Combined ratio 97.7 % 102.1 % 101.9 % 92.3 % 87.6 % At December 31, 2022 2021 2020 2019 2018 Balance Sheet Data: Total investments$ 22,220,436 $ 21,442,659 $ 20,558,176 $ 17,368,789 $ 11,885,747 Total assets 36,552,878 33,959,502 30,820,580 26,330,094 18,676,196 Reserve for claims and claim expenses 15,892,573 13,294,630 10,381,138 9,384,349 6,076,271 Unearned premiums 4,559,107 3,531,213 2,763,599 2,530,975 1,716,021 Debt 1,170,442 1,168,353 1,136,265 1,384,105 991,127 Capital leases 22,020 22,459 22,853 25,072 25,853 Preference shares 750,000 750,000 525,000 650,000 650,000 Total shareholders' equity attributable to RenaissanceRe 5,325,274 6,624,281 7,560,248 5,971,367 5,045,080 Common shares outstanding 43,718 44,445 50,811 44,148 42,207 Book value per common share$ 104.65 $ 132.17 $ 138.46 $ 120.53 $ 104.13 Accumulated dividends 25.00 23.52 22.08 20.68 19.32 Book value per common share plus accumulated dividends$ 129.65 $ 155.69 $ 160.54 $ 141.21 $ 123.45 Change in book value per common share plus change in accumulated dividends (19.7) % (3.5) % 16.0 % 17.1 % 5.7 % 53
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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. Our claims and claim expense reserves are a combination of case
reserves, additional case reserves, or ACR, and incurred but not reported losses
and incurred but not enough reported losses, collectively referred to as IBNR.
Case reserves are losses reported to us by insureds and ceding companies, but
which have not yet been paid. If deemed necessary and in certain situations, we
establish ACR, which represents our estimates for claims related to specific
contracts that we believe may not be adequately estimated by the client as of
that date or within the IBNR. We establish IBNR using actuarial techniques and
expert judgement to represent the anticipated cost of claims which have not been
reported to us yet or where we anticipate increased reporting. 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 consolidated financial statements.
The following table summarizes our reserve for claims and claim expenses by
segment, allocated between case reserves, additional case reserves and IBNR:
Case Additional
At December 31, 2022 Reserves Case Reserves IBNR Total
(in thousands)
Property $ 1,956,688 $ 2,008,891 $
3,570,253
Casualty and Specialty 1,864,365 167,993 6,324,383 8,356,741 Total$ 3,821,053 $ 2,176,884 $ 9,894,636 $ 15,892,573
At
(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 54
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Activity in the liability for unpaid claims and claim expenses is summarized as
follows:
Year ended December 31, 2022 2021
(in thousands)
Reserve for claims and claim expenses, net of reinsurance
recoverable, as of beginning of period $
9,025,961
Net incurred related to:
Current year 4,586,422 4,125,557
Prior years (247,582) (249,470)
Total net incurred 4,338,840 3,876,087
Net paid related to:
Current year 105,885 574,230
Prior years 1,924,271 1,649,872
Total net paid 2,030,156 2,224,102
Foreign exchange (1) (152,997) (81,152)
Reserve for claims and claim expenses, net of reinsurance
recoverable, as of end of period 11,181,648 9,025,961
Reinsurance recoverable as of end of period 4,710,925 4,268,669
Reserve for claims and claim expenses as of end of period
(1)Reflects the impact of the foreign exchange revaluation of the reserve for
claims and claim expenses, net of reinsurance recoverable, denominated in
non-
The following table details our prior year development by segment of its
liability for unpaid claims and claim expenses:
Year endedDecember 31 ,
2022 2021
(in thousands) (Favorable) (Favorable)
adverse adverse
development development
Property $ (205,741) $ (233,373)
Casualty and Specialty (41,841) (16,097)
Total favorable development of prior accident years net
claims and claim expenses $
(247,582)
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 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,
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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 7. 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 ofDecember 31 of that year. The re-estimated incurred claims and claim expenses as ofDecember 31 of subsequent years, represent our revised estimates as reported as of those dates. Our most recent estimates as reported atDecember 31, 2022 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 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. 56 --------------------------------------------------------------------------------
The following table details our Property segment incurred claims and claim
expenses, net of reinsurance, as of
Incurred Claims and Claim Expenses, Net of Reinsurance
(in thousands) For the year ended December 31,
Accident
Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 312,792 $ 288,846 $ 267,276 $ 245,077 $ 233,993 $ 230,368 $ 230,603 $ 233,668 $ 236,185 $ 234,533
2014 - 299,256 276,253 263,337 258,384 257,237 254,897 248,847 245,956 247,101
2015 - - 368,476 352,454 331,342 320,695 309,509 303,110 292,867 300,028
2016 - - - 447,077 460,729 445,119 427,918 409,221 399,222 408,757
2017 - - - - 1,639,389 1,453,773 1,342,224 1,319,428 1,273,721 1,207,671
2018 - - - - - 918,764 985,180 941,093 818,156 820,098
2019 - - - - - - 955,220 928,613 875,408 779,852
2020 - - - - - - - 1,568,157 1,583,694 1,565,564
2021 - - - - - - - - 2,338,470 2,311,045
2022 - - - - - - - - - 2,232,896
Total $ 10,107,545
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 2019 accident year have experienced favorable
development. This is largely driven by reductions in estimated net ultimate
claims and claim expenses associated with the 2019 Large Loss Events. In
comparison, net claims and claim expenses associated with the 2020 accident year
experienced adverse development during the year ended December 31, 2021 , but
returned to similar reserves as we initially posted during the year ended
December 31, 2022 . 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 endedDecember 31, 2022 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 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 57 -------------------------------------------------------------------------------- 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 Gross 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) 2022 2022 2022 December 31, 2022 December 31, 2022
Higher $ 8,125,317 $ 589,485 3.7 % 50.8 % (11.1) %
Recorded $ 7,535,832 $ - - % - % - %
Lower $ 7,142,727 $ (393,105) (2.5) % (33.9) % 7.4 %
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 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. The inflationary outlook is also highly
uncertain and could result in larger changes than those depicted above. We
continue to monitor the inflationary environment and reflect our view within our
best estimate reserves. 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 ofDecember 31 of that year. The re-estimated incurred claims and claim expenses as ofDecember 31 of subsequent years, represent our revised estimates as reported as of those dates. Our most recent estimates as reported atDecember 31, 2022 differ from our initial accident year estimates and demonstrates that our initial estimate of incurred claims and claim expenses are reasonably 58 -------------------------------------------------------------------------------- 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
Incurred Claims and Claim Expenses, Net of Reinsurance
(in thousands) For the year ended December 31,
Accident
Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2013 $ 590,242 $ 588,095 $ 559,965 $ 535,968 $ 523,642 $ 509,143 $ 487,222 $ 478,205 $ 481,950 $ 477,100
2014 - 695,244 689,624 694,504 674,414 656,655 669,543 640,779 635,233 636,964
2015 - - 761,464 779,834 821,290 801,604 788,355 805,053 810,781 824,490
2016 - - - 945,940 981,453 980,292 972,137 937,587 946,993 950,798
2017 - - - - 1,284,763 1,262,729 1,290,103 1,248,949 1,263,344 1,293,340
2018 - - - - - 1,238,246 1,298,264 1,299,006 1,308,994 1,357,942
2019 - - - - - - 1,241,269 1,234,332 1,234,242 1,235,474
2020 - - - - - - - 1,491,604 1,455,782 1,341,439
2021 - - - - - - - - 1,690,563 1,642,920
2022 - - - - - - - - - 2,297,481
Total $ 12,057,948
As each accident 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 2020 accident
year from the initial estimates. This decrease was principally driven by actual
reported and paid net claims and claim expenses associated with the 2020
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 actuarial 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 actuarial 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 actuarial method until such time as we
59
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believe there is 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 actuarial method is generally
selected which places greater weight on this reported experience as it develops.
The Bornhuetter-Ferguson actuarial 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.
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 endedDecember 31, 2022 , 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 2022 2022 2022 2022 Increase expected claims and Slower claim expense ratio by 10% reporting$ 1,193,432 7.5 % 102.9 % (22.4) %
Increase expected claims and Expected
claim expense ratio by 10% reporting $ 849,548 5.3 % 73.2 % (16.0) %
Increase expected claims and Faster
claim expense ratio by 10% reporting $ 549,339 3.5 % 47.4 % (10.3) %
Expected claims and claim Slower
expense ratio reporting $ 312,884 2.0 % 27.0 % (5.9) %
Expected claims and claim Expected
expense ratio reporting $ - - % - % - %
Expected claims and claim Faster
expense ratio reporting $ (273,106) (1.7) % (23.5) % 5.1 %
Decrease expected claims and Slower
claim expense ratio by 10% reporting $ (565,340) (3.6) % (48.7) % 10.6 %
Decrease expected claims and Expected
claim expense ratio by 10% reporting $ (847,224) (5.3) % (73.0) % 15.9 %
Decrease expected claims and Faster
claim expense ratio by 10% reporting $ (1,093,228) (6.9) % (94.3) % 20.5 %
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 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 and shareholders' equity than those noted above, and could be recorded
across multiple periods. The inflationary outlook is also highly uncertain and
could result in larger changes than those depicted above. We continue to monitor
the inflationary environment and reflect our view within our best estimate
reserves. 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.
60
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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. Subsequent revisions to premium estimates are recorded in the period in which they are determined. 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 and case 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. AtDecember 31, 2022 , the Company's premiums receivable balance was$5.1 billion (2021 -$3.8 billion ). Of the Company's premiums receivable balance as ofDecember 31, 2022 , the majority are receivables from highly rated counterparties. AtDecember 31, 2022 , the Company held a provision for current expected credit losses on its premiums receivable of$4.6 million (2021 -$2.8 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, frequency and timing
of industry losses reported by various statistical reporting services, loss
development, loss buffer tables and various 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
61
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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 on uncollateralized recoverable balances. 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, 2022 ,
our reinsurance recoverable balance was $4.7 billion (2021 - $4.3 billion ). Of
this amount, 47.2% is fully collateralized by our reinsurers, 52.0% is
recoverable from reinsurers rated A- or higher by major rating agencies and 0.8%
is recoverable from reinsurers rated lower than A- by major rating agencies
(2021 - 46.9%, 52.1% and 1.0%, respectively). The reinsurers with the three
largest balances accounted for 20.8%, 7.0% and 5.4%, respectively, of our
reinsurance recoverable balance at December 31, 2022 (2021 - 19.9%, 8.4% and
4.3%, respectively). The provision for current expected credit losses recorded
against reinsurance recoverable was $12.2 million at December 31, 2022 (2021 -
$8.3 million ). The three largest company-specific components of the provision
for current expected credit losses represented 14.3%, 9.1% and 8.0%,
respectively, of our total provision for current expected credit losses at
December 31, 2022 (2021 - 18.0%, 13.9% and 11.2%, 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 security
compared to its par value (for fixed maturity investments), and other factors
that may be indicative of market activity.
62 -------------------------------------------------------------------------------- AtDecember 31, 2022 , we classified$170.3 million and$5.3 million of our assets and liabilities, respectively, at fair value on a recurring basis using Level 3 inputs (2021 -$169.3 million and$10.8 million , respectively). This represented 0.5% and 0.0% of our total assets and liabilities, respectively (2021 - 0.5% and 0.0%, 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 including credit spreads and projected cash flows, prepayment rates and correlations of such inputs, some of which may be unobservable, to value these Level 3 assets and liabilities.
Refer to "Note 5. 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 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. We assess goodwill and other intangible assets for impairment in the second half 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 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 second half of 2022, the Company determined that there was no impairment during 2022, and therefore the Company recorded no intangible asset impairment charge during the year endedDecember 31, 2022 . Refer to "Note 3.Goodwill and Other Intangible Assets" in our "Notes to the Consolidated Financial Statements" for additional information with respect to the impairment.
As at
ventures, under the equity method, as noted below, our consolidated balance
sheets include
million
63 -------------------------------------------------------------------------------- related to these balances were $Nil during the year endedDecember 31, 2022 (2021 - $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.
Investments in
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 ofDecember 31, 2022 , we had$79.8 million (2021 -$98.1 million ) in investments in other ventures, under equity method on our consolidated balance sheets, including$9.9 million of goodwill and$7.9 million of other intangible assets (2021 -$9.9 million and$8.7 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 equity method in any of the years endedDecember 31, 2022 or 2021. See "Note 3.Goodwill and Other Intangible Assets" in our "Notes to the Consolidated Financial Statements" for additional information.
Income Taxes
Income taxes have been determined 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. 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. AtDecember 31, 2022 , our net deferred tax asset (prior to our valuation allowance) and valuation allowance were$316.8 million (2021 -$192.4 million ) and$193.6 million (2021 -$131.5 million ), respectively. See "Note 14. 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. 64 -------------------------------------------------------------------------------- We have unrecognized tax benefits of $Nil as ofDecember 31, 2022 (2021 - $Nil). Interest and penalties related to unrecognized tax benefits, would be recognized in income tax expense. AtDecember 31, 2022 , interest and penalties accrued on unrecognized tax benefits were $Nil (2021 - $Nil). The following filed income tax returns are open for examination with the applicable tax authorities: tax years 2017 through 2021 with theU.S. ; 2018 through 2021 withIreland ; 2020 through 2021 with theU.K. ; 2018 through 2021 withSingapore ; 2020 and 2021 withSwitzerland ; and 2018 through 2021 withAustralia . We do not expect the resolution of these open years to have a significant impact on our consolidated statements of operations and financial condition. 65 --------------------------------------------------------------------------------
SUMMARY OF RESULTS OF OPERATIONS
(in thousands, except per share amounts and percentages)
Statements of Operations Highlights
Year ended December 31, 2022 2021
Gross premiums written $
9,213,540
Net premiums written $
7,196,160
Net premiums earned $
6,333,989
Net claims and claim expenses incurred 4,338,840 3,876,087
Acquisition expenses 1,568,606 1,214,858
Operational expenses 276,691 212,184
Underwriting income (loss) $
149,852
Net investment income $
559,932
Net realized and unrealized gains (losses) on investments (1,800,485)
(218,134)
Total investment result $
(1,240,553)
Net income (loss) $
(1,159,816)
Net income (loss) available (attributable) to
common shareholders $
(1,096,578)
Net income (loss) available (attributable) to
common shareholders per common share - diluted $
(25.50)
Dividends per common share $
1.48$ 1.44 Key Ratios Year ended December 31, 2022 2021
Net claims and claim expense ratio - current accident year 72.4 %
79.4 %
Net claims and claim expense ratio - prior accident years (3.9) %
(4.8) %
Net claims and claim expense ratio - calendar year 68.5 % 74.6 %
Underwriting expense ratio 29.2 % 27.5 %
Combined ratio 97.7 % 102.1 %
Return on average common equity (22.0) % (1.1) %
Book Value
At December 31, 2022 2021
Book value per common share $
104.65
Accumulated dividends per common share 25.00 23.52
Book value per common share plus accumulated dividends
Change in book value per common share plus change in
accumulated dividends (19.7) % (3.5) %
Balance Sheet Highlights
At December 31, 2022 2021
Total assets $
36,552,878
Total shareholders' equity attributable to
66 --------------------------------------------------------------------------------
Results of Operations for 2022 Compared to 2021
Net loss attributable toRenaissanceRe common shareholders was$1.1 billion in 2022, compared to$73.4 million in 2021. As a result of our net loss attributable toRenaissanceRe common shareholders in 2022, we generated an return on average common equity of negative 22.0% and our book value per common share decreased from$132.17 atDecember 31, 2021 to$104.65 atDecember 31, 2022 , a 19.7% decrease, after considering the change in accumulated dividends paid to our common shareholders.
The most significant items affecting our financial performance during 2022, on a
comparative basis to 2021, include:
•Investment Results - our total investment result, which includes the sum of net investment income and net realized and unrealized gains (losses) on investments, was a loss of$1.2 billion in 2022, compared to a gain of$101.3 million in 2021, a decrease of$1.3 billion . The primary driver of the lower total investment result for 2022 was realized and unrealized losses on our fixed maturity trading and equity investment portfolios. The investment result in 2021 was impacted by lower net realized and unrealized losses on our fixed maturity trading portfolio, which were partially offset by net realized and unrealized gains from our equity investments; •Impact of Weather-Related Large Losses and the Russia-Ukraine War - we had a net negative impact on net loss attributable toRenaissanceRe common shareholders of$807.6 million resulting from the 2022 Weather-Related Large Losses (as defined below) and$23.9 million resulting from losses related to the Russia-Ukraine War. This compares to a net negative impact on net loss attributable toRenaissanceRe common shareholders of$962.1 million resulting from the 2021 Weather-Related Large Losses in 2021; •Underwriting Results - we generated underwriting income of$149.9 million and had a combined ratio of 97.7% in 2022, compared to an underwriting loss of$108.9 million and a combined ratio of 102.1% in 2021. Our underwriting income in 2022 was comprised of an underwriting loss of$16.1 million in our Property segment, and underwriting income of$166.0 million in our Casualty and Specialty segment. In comparison, our underwriting loss in 2021 was comprised of an underwriting loss of$185.5 million in our Property segment, and underwriting income of$76.6 million in our Casualty and Specialty segment. Included in our underwriting results in 2022 was the impact of the 2022 Weather-Related Large Losses, which resulted in a net negative impact on the underwriting result of$1.2 billion and added 20.0 percentage points to the combined ratio, primarily in our Property segment. In comparison, our underwriting results in 2021 were impacted by the 2021 Weather-Related Large Losses, which resulted in a net negative impact on the underwriting result of$1.4 billion and added 28.5 percentage points to the combined ratio, primarily in our Property segment; and •Gross Premiums Written - our gross premiums written increased by$1.4 billion , or 17.6%, to$9.2 billion , in 2022, compared to 2021. This was comprised of an increase of$1.6 billion in our Casualty and Specialty segment, offset by a decrease of$224.5 million in our Property segment. Gross premiums written in our Property segment included$247.1 million of reinstatement premiums associated with the 2022 Weather-Related Large Losses for 2022, as compared to$348.0 million of reinstatement premiums associated with the 2021 Weather-Related Large Losses for 2021.
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, both 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 these catastrophe events, driven by the magnitude and recent nature of each event, the geographic areas 67 -------------------------------------------------------------------------------- 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.
2022 Net Negative Impact
The financial data below provides additional information detailing the net
negative impact of the 2022 Weather-Related Large Losses on our consolidated
financial statements in 2022.
Other 2022
Catastrophe Aggregate 2022 Weather-Related
Year ended December 31, 2022 Hurricane Ian Events (1) Losses Large
Losses (2)
(in thousands)
Net claims and claims expenses incurred $
(982,189)
Assumed reinstatement premiums earned 221,801 27,138 52
248,991
Ceded reinstatement premiums earned (57,913) (579) -
(58,492)
Earned (lost) profit commissions (1,487) (1,285) (49)
(2,821)
Net negative impact on underwriting result (819,788) (305,699) (93,807)
(1,219,294)
Redeemable noncontrolling interest 286,910 87,398 37,399
411,707
Net negative impact on net income (loss)
available (attributable) to
common shareholders $
(532,878)
The financial data below provides additional information detailing the net
negative impact of the 2022 Weather-Related Large Losses on our segment
underwriting results and consolidated combined ratio in 2022.
Other 2022
Catastrophe Aggregate 2022 Weather-Related
Year ended December 31, 2022 Hurricane Ian Events (1) Losses Large Losses (2)
(in thousands, except percentages)
Net negative impact on Property segment
underwriting result $ (811,828) $ (302,080) $ (93,807) $ (1,207,715)
Net negative impact on Casualty and
Specialty segment underwriting result (7,960) (3,619) - (11,579)
Net negative impact on underwriting
result $ (819,788) $ (305,699) $ (93,807) $ (1,219,294)
Percentage point impact on consolidated
combined ratio 13.4 4.9 1.5 20.0
(1)"Other 2022 Catastrophe Events" includes the floods in Eastern Australia in
February and March of 2022, Storm Eunice, the severe weather in France in May
and June of 2022, Hurricane Fiona and the typhoons in Asia during the third
quarter of 2022, and Hurricane Nicole and Winter Storm Elliott during the fourth
quarter of 2022.
(2)"2022 Weather-Related Large Losses" includes Hurricane Ian, Other 2022
Catastrophe Events and loss estimates associated with certain aggregate loss
contracts triggered during 2022 as a result of weather-related catastrophe
events.
During 2022, losses related toRussia's invasion ofUkraine resulted in a net negative impact on net income (loss) available (attributable) toRenaissanceRe common shareholders of$23.9 million . This reflects net claims and claims expenses incurred and a net negative impact on underwriting result of$26.1 million , which was solely in the Casualty and Specialty segment, partially offset by redeemable noncontrolling interest of$2.2 million . The net negative impact on underwriting result had a 0.5 percentage point impact on the consolidated combined ratio. 68 --------------------------------------------------------------------------------
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 101,966 84,082 200,806 17,082 37,175 441,111
Net negative impact on net
income (loss) available
(attributable) to
RenaissanceRe common
shareholders $ (180,617) $ (194,504) $ (411,885) $ (57,275) $ (117,778) $ (962,059)
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.
69 --------------------------------------------------------------------------------
Underwriting Results by Segment
Property Segment
Below is a summary of the underwriting results and ratios for our Property
segment:
Year ended December 31, 2022 2021
(in thousands, except percentages)
Gross premiums written $
3,734,241
Net premiums written $
2,847,659
Net premiums earned $
2,770,227
Net claims and claim expenses incurred 2,044,771 2,163,016
Acquisition expenses 547,210 487,178
Operational expenses 194,355 143,608
Underwriting income (loss) $
(16,109)
Net claims and claim expenses incurred - current accident
year $
2,250,512
Net claims and claim expenses incurred - prior
accident years (205,741) (233,373)
Net claims and claim expenses incurred - total $
2,044,771
Net claims and claim expense ratio - current accident year 81.2 %
91.9 %
Net claims and claim expense ratio - prior accident years (7.4) %
(9.0) %
Net claims and claim expense ratio - calendar year 73.8 % 82.9 %
Underwriting expense ratio
26.8 % 24.2 %
Combined ratio 100.6 % 107.1 %
Property Gross Premiums Written
In 2022, our Property segment gross premiums written decreased by
million
Gross premiums written in the catastrophe class of business were$2.1 billion in 2022, a decrease of$159.0 million , or 7.1%, compared to 2021. Included within gross premiums written in the catastrophe class of business were$243.4 million of reinstatement premiums associated with the 2022 Weather-Related Large Losses as compared to$339.7 million of reinstatement premiums associated with the 2021 Weather-Related Large Losses. The decrease in gross premiums written in the catastrophe class of business was driven by lower reinstatement premiums, primarily due to a lower level of catastrophe losses in 2022 as compared to 2021, as well as a$171.8 million reduction in Upsilon RFO, the majority of which is attributable to third party investors in Upsilon RFO. Excluding Upsilon RFO and the impact of the reinstatement premiums in each of the respective periods, gross premiums written in the catastrophe class of business increased from the comparative period, driven by an improved rate environment which has contributed to growth with existing clients and new opportunities across underwriting platforms. Gross premiums written in the other property class of business were$1.7 billion in 2022, a decrease of$65.5 million , or 3.8%, compared to 2021. The decrease in gross premiums written in the other property class of business was principally due to the non-renewal of deals that did not meet our return hurdles, partially offset by growth and rate improvement across other areas within this class of business.
Our Property segment gross premiums continue to be characterized by a large
proportion of
coverage against windstorms, notably
earthquakes and other natural and man-made catastrophes.
70 --------------------------------------------------------------------------------
Property Ceded Premiums Written
Year ended December 31, 2022 2021 (in thousands) Ceded premiums written$ 886,582 $ 1,090,722 Ceded premiums written in our Property segment decreased 18.7%, to$886.6 million , in 2022, compared to$1.1 billion in 2021. The decrease in ceded premiums written was driven by the reduction in premiums ceded to Upsilon RFO third-party investors following a reduction in the size ofUpsilon Fund , and a corresponding decrease in gross premiums written, as discussed above, in addition to a reduction in retrocessional purchases as part of our gross-to-net strategy, in conjunction with the growth in our managed third-party capital vehicles. Due to the potential volatility of the reinsurance contracts which we sell, we purchase reinsurance to reduce our exposure to large losses and to help manage our risk portfolio. To the extent that appropriately priced coverage is available, we anticipate continued use of retrocessional reinsurance to reduce the impact of large losses on our financial results and to manage our portfolio of risk; however, the buying of ceded reinsurance in our Property segment is based on market opportunities and is not based on placing a specific reinsurance program each year. In addition, in future periods, we may utilize the growing market for insurance-linked securities to expand our purchases of retrocessional reinsurance if we find the pricing and terms of such coverages attractive.
Property Net Premiums Written
Twelve months ended December 31, 2022 2021 (in thousands) Net premiums written$ 2,847,659 $ 2,868,002 Net premiums written in our Property segment were$2.8 billion in 2022, a decrease of$20.3 million , or 0.7%, compared to 2021. This decrease was driven by the reduction in assumed reinstatement premiums as well as the reduction in gross premiums written in the other property class of business. These were partially offset by the reduction in retrocessional purchases.
Property Underwriting Results
Our Property segment incurred an underwriting loss of$16.1 million in 2022, compared to$185.5 million in 2021, a reduction in the underwriting loss of$169.4 million . In 2022, our Property segment generated a net claims and claim expense ratio of 73.8%, an underwriting expense ratio of 26.8% and a combined ratio of 100.6%, compared to 82.9%, 24.2% and 107.1%, respectively, in 2021. Principally impacting the Property segment underwriting result and combined ratio in 2022 were the 2022 Weather-Related Large Losses, which resulted in a net negative impact on the Property segment underwriting result of$1.2 billion and added 46.8 percentage points to its combined ratio. In comparison, 2021 was impacted by 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. The net claims and claim expense ratio for prior accident years reflected net favorable development of 7.4%, primarily related to the 2017 to 2021 accident years. The underwriting expense ratio increased 2.6 percentage points, principally driven by lower performance based compensation expense in 2021, and a reduced benefit to the ratio following lower management fees due to reductions in Upsilon and the portfolio of structured reinsurance products. 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. 71 --------------------------------------------------------------------------------
Casualty and Specialty Segment
Below is a summary of the underwriting results and ratios for our Casualty and
Specialty segment:
Year ended December 31, 2022 2021
(in thousands, except percentages)
Gross premiums written $
5,479,299
Net premiums written $
4,348,501
Net premiums earned $
3,563,762
Net claims and claim expenses incurred 2,294,069 1,713,071
Acquisition expenses 1,021,396 727,680
Operational expenses 82,336 68,576
Underwriting income (loss) $
165,961
Net claims and claim expenses incurred - current accident
year $
2,335,910
Net claims and claim expenses incurred - prior accident
years (41,841) (16,097)
Net claims and claim expenses incurred - total $
2,294,069
Net claims and claim expense ratio - current accident year 65.5 %
66.9 %
Net claims and claim expense ratio - prior accident years (1.1) %
(0.7) %
Net claims and claim expense ratio - calendar year 64.4 % 66.2 %
Underwriting expense ratio 30.9 % 30.8 %
Combined ratio 95.3 % 97.0 %
Casualty and Specialty Gross Premiums Written
In 2022, our Casualty and Specialty segment gross premiums written increased by$1.6 billion , or 41.4%, to$5.5 billion , compared to$3.9 billion in 2021. The increase was due to growth in new and existing business and rate improvements. Premium increased across all classes of business and principally in casualty and credit lines of business. The growth in credit during 2022 was mainly in our mortgage book of business. Additionally, the growth in other specialty lines was due to growth in cyber business. Gross premiums written in 2022 also included positive premium developments on business underwritten in 2021 and prior years of approximately$450 million . These changes in premium estimates occurred across all lines of business but principally in general casualty and professional liability lines and largely reflect rate improvements. Our relative mix of business between proportional business and excess of loss business has fluctuated in the past and will likely continue to do so in the future. Proportional business typically has a higher expense ratio and tends to be exposed to more attritional and frequent losses, while being subject to less expected severity as compared to traditional excess of loss business.
Casualty and Specialty Ceded Premiums Written
Year ended December 31, 2022 2021 (in thousands) Ceded premiums written$ 1,130,798 $ 803,701 Ceded premiums written in our Casualty and Specialty segment increased by 40.7%, to$1.1 billion , in 2022, compared to$803.7 million in 2021, primarily resulting from increased gross premiums written subject to our retrocessional quota share reinsurance programs, partially offset by a decrease in retrocessional purchases. 72 -------------------------------------------------------------------------------- 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. 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$166.0 million in 2022, compared to$76.6 million in 2021. In 2022, our Casualty and Specialty segment generated a net claims and claim expense ratio of 64.4%, an underwriting expense ratio of 30.9% and a combined ratio of 95.3%, compared to 66.2%, 30.8% and 97.0%, respectively, in 2021. The decrease in the Casualty and Specialty segment combined ratio in 2022 was principally driven by a decrease of 1.8 percentage points in the net claims and claim expense ratio, primarily as a result of lower current accident year attritional losses principally due to a decrease in initial expected loss ratios in certain casualty classes of business. Additionally, our Casualty and Specialty segment experienced net favorable development on prior accident years net claims and claim expenses of$41.8 million , or 1.1 percentage points, during 2022. The net favorable development during 2022 was primarily driven by reported losses generally coming in lower than expected on attritional net claims and claim expenses. See "Note 7. Reserve for Claims and Claim Expenses" in our "Notes to the Consolidated Financial Statements" for additional information related to the development of prior accident years net claims and claim expenses. Refer to "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Summary of Critical Accounting Estimates-Claims and Claim Expense Reserves" and "Note 8. Reserve for Claims and Claim Expenses" in our "Notes to the Consolidated Financial Statements" for additional discussion of our reserving techniques and prior year development of net claims and claim expenses. Fee Income Year ended December 31, 2022 2021 (in thousands) Management Fee Income Joint ventures$ 56,746 $ 43,074 Structured reinsurance products 26,592 34,639 Managed funds 25,564 31,358 Total management fee income 108,902 109,071 Performance Fee Income Joint ventures 4,354 14,235 Structured reinsurance products 4,451 4,917 Managed funds 972 280 Total performance fee income 9,777 19,432 Total fee income$ 118,679 $ 128,503 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 DaVinci, Top Layer, Vermeer,Fontana 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 third-party capital. 73 -------------------------------------------------------------------------------- In 2022, total fee income earned through third-party capital management activities decreased$9.8 million , to$118.7 million , as compared to$128.5 million in 2021, primarily driven by lower performance fee income due to the impact of the 2022 Weather-Related Large Losses and continued impact of the deficit carried forward from weather-related losses in 2021 on our joint ventures, managed funds and structured reinsurance agreements. Management fee income was relatively stable in 2022, primarily due to the reduced size of our structured reinsurance products and lower capital managed atUpsilon Fund , largely offset by increased capital managed at other joint ventures and Medici, including the impact ofFontana from the second quarter of 2022.
The fees earned through 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. Below is a summary of
the impact of fee income on the applicable financial statement line items.
Year ended December 31 2022 2021
(in thousands)
Underwriting income (loss) - fee income on third-party
capital management activities (1) $
49,946
Equity in earnings of other ventures 94 50
Net income (loss) attributable to redeemable noncontrolling
interest 68,639 61,166
Total fee income $ 118,679 $ 128,503
(1)Reflects total fee income earned through third-party capital management
activities recorded through underwriting income (loss) as a decrease to
operating expenses or acquisition expenses. The $49.9 million includes $46.9
million of management fee income, recorded as a reduction to operating expenses
and $3.0 million of performance fee income recorded as a reduction to
acquisition expenses (2021 - $67.3 million , $62.1 million and $5.2 million ,
respectively).
In addition to the $118.7 million of fee income earned through our third-party
capital management activities described above, we earned additional fee income
of $93.7 million on other underwriting-related activities, primarily related to
expense overrides paid to us by our reinsurers. This additional fee income on
other underwriting-related activities is recorded as a reduction to operating
expenses or acquisition expenses, as applicable. The total fee income recorded
through underwriting income (loss) are detailed in the table below.
Year ended December 31 2022 2021
(in thousands)
Underwriting income (loss) - fee income on third-party capital
management activities
Underwriting income (loss) - additional fee income on other
underwriting-related activities 93,743 73,418
Total fee income recorded through underwriting income (loss) (1)
Impact of Total fees recorded through underwriting income (loss) on
the combined ratio 2.3 % 2.7 %
(1)The $143.7 million includes $123.2 million of management fee income, recorded
as a reduction to operating expenses and $20.5 million of performance fee income
recorded as a reduction to acquisition expenses (2021 - $140.7 million , $126.6
million and $14.1 million , respectively).
74
--------------------------------------------------------------------------------
Net Investment Income
Year ended December 31, 2022 2021 (in thousands) Fixed maturity investments trading$ 382,165 $ 234,911 Short term investments 41,042 2,333 Equity investments 20,864 9,017 Other investments Catastrophe bonds 94,784 64,860 Other 37,497 28,811 Cash and cash equivalents 5,197 297 581,549 340,229 Investment expenses (21,617) (20,750) Net investment income$ 559,932 $ 319,479 Net investment income was$559.9 million in 2022, compared to$319.5 million in 2021, an increase of$240.5 million . The increase was primarily driven by higher interest rates and increased yields within the Company's investment portfolio, primarily driven by an increase in yields onU.S. treasuries.
Net Realized and Unrealized Gains (Losses) on Investments
Year ended December 31, 2022 2021
(in thousands)
Gross realized gains on fixed maturity investments trading $
38,781
Gross realized losses on fixed maturity investments trading
(771,342) (97,726)
Net realized gains (losses) on fixed maturity investments trading (732,561) 79,588
Net unrealized gains (losses) on fixed maturity investments
trading (636,762) (389,376)
Net realized and unrealized gains (losses) on investments-related
derivatives (1) (165,293) (12,237)
Net realized gains (losses) on equity investments 43,035 335,491
Net unrealized gains (losses) on equity investments (166,823) (285,882)
Net realized and unrealized gains (losses) on equity investments (123,788) 49,609
Net realized and unrealized gains (losses) on other investments -
catastrophe bonds (130,335) (35,033)
Net realized and unrealized gains (losses) on other investments -
other (11,746) 89,315
Net realized and unrealized gains (losses) on investments
(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 18. Derivative
Instruments" in our "Notes to Consolidated Financial Statements" for additional
information.
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. 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. 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.
75
--------------------------------------------------------------------------------
Net realized and unrealized losses on investments were $1.8 billion in 2022,
compared to $218.1 million in 2021, an increase in net realized and unrealized
losses of $1.6 billion . Principally impacting our net realized and unrealized
losses on investments in 2022 were:
•net realized and unrealized losses on our fixed maturity investments trading of
$1.4 billion compared to $309.8 million in 2021, an increase of $1.1 billion ,
primarily due to higher rates of inflation in 2022, coupled with increasing
interest rates;
•net realized and unrealized losses on investments-related derivatives of $165.3
million compared to net realized and unrealized losses of $12.2 million in 2021,
an increase of $153.1 million , principally driven by the increase in interest
rates and broad equity market declines, which negatively impacted our interest
rate and equity futures, respectively, for 2022;
•net realized and unrealized losses on equity investments of $123.8 million
compared to net realized and unrealized gains of $49.6 million in 2021, a
decrease of $173.4 million . The net realized and unrealized losses in 2022 were
principally driven by broad equity market declines, compared to the gains in
2021, which were in line with the performance of the wider equity markets. The
net realized and unrealized gains in 2021 were partially offset by net realized
and unrealized losses from our investment in Trupanion, Inc.;
•net realized and unrealized losses on catastrophe bonds of $130.3 million
(primarily held in the Medici portfolio, the majority of which is owned by third
party investors), principally driven by the impact of Hurricane Ian, as compared
to $35.0 million in 2021, which reflected general declines in the catastrophe
bond market; and
•net realized and unrealized losses on our other investments of $11.7 million
compared to net realized and unrealized gains of $89.3 million in 2021, a
decline of $101.1 million , which was a result of lower unrealized gains on our
fund investments portfolio and increased losses on our direct private equity
investment portfolio in 2022, compared to the gains in 2021, which were driven
by fair value appreciation of underlying investments favorably impacting our
portfolio of fund investments
Net Foreign Exchange Gains (Losses)
Year ended December 31, 2022 2021 (in thousands) Total foreign exchange gains (losses)$ (56,909) $ (41,006) In 2022, net foreign exchange losses were$56.9 million compared to$41.0 million in 2021. The net foreign exchange loss in each of 2022 and 2021 was driven by losses attributable to third-party investors in Medici, which are consolidated but then allocated out through redeemable noncontrolling interest, and the impact of certain foreign exchange exposures related to our underwriting activities, which are not expected to recur. Our functional currency is theU.S. dollar. We routinely write a portion of our business in currencies other thanU.S. dollars and invest a portion of our cash and investment portfolio in those currencies. We are primarily impacted by foreign currency exposures associated with our underwriting operations and our investment portfolio, and may, from time to time, enter into foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar denominated assets and liabilities.
Refer to "Part II, Item 7A. Quantitative and Qualitative Disclosures About
Market Risk" for additional information related to our exposure to foreign
currency risk and "Note 18. Derivative Instruments" in our "Notes to the
Consolidated Financial Statements" for additional information related to foreign
currency forward and option contracts we have entered into.
76 --------------------------------------------------------------------------------
Equity in Earnings (Losses) of
Year ended December 31, 2022 2021 (in thousands) Top Layer$ 6,347 $ 8,286 Tower Hill Companies (921) (2,073) Other 5,823 6,096
Total equity in earnings (losses) 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, and our equity investments in a select group of insurance and insurance-related companies, which are included in Other. Except for Top Layer, 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$11.2 million in 2022, compared to$12.3 million in 2021, a decrease of$1.1 million . The decrease was primarily due to the impact of mark-to-market losses in the investment portfolios and underwriting losses of certain of these other ventures, partially offset by a valuation gain on our equity investment in one of the insurance-related companies.
Other Income (Loss)
Year ended December 31, 2022 2021
(in thousands)
Assumed and ceded reinsurance contracts accounted for as
derivatives and deposits $
11,197
Other 1,439 4,975
Total other income (loss) $
12,636
In 2022, we generated other income of$12.6 million , compared to$10.9 million in 2021, an increase of$1.8 million , driven by gains on our assumed and ceded reinsurance contracts accounted for as derivatives and deposits. The 2021 other income results include a gain on the sale of a portion of one of our strategic investments recorded under the equity method. Corporate Expenses Year ended December 31, 2022 2021 (in thousands) Total corporate expenses$ 46,775 $ 41,152 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. From time to time, we may revise the allocation of certain expenses between corporate and operating expenses to better reflect the characteristic of the underlying expense. Corporate expenses increased$5.6 million to$46.8 million , in 2022, compared to$41.2 million in 2021. The increase of$5.6 million was primarily due to structuring fees incurred during 2022 associated with the renewal of our 5 year Wells Fargo revolving credit facility, and higher legal fees associated with the launch ofFontana . 77 --------------------------------------------------------------------------------
Interest Expense and Preferred Share Dividends
Year ended December 31, 2022 2021 (in thousands) Interest Expense$300.0 million 3.700% Senior Notes due 2025$ 11,100 $
11,100
$300.0 million 3.450% Senior Notes due 2027 10,350
10,350
$400.0 million 3.600% Senior Notes due 2029 14,400
14,400
7,125 Other 5,360 4,561 Total interest expense 48,335 47,536 Preferred Share Dividends$275.0 million 5.375% Series E Preference Shares -
9,033
$250.0 million 5.750% Series F Preference Shares 14,375
14,375
$500.0 million 4.20% Series G Preference Shares 21,000
9,858
Total preferred share dividends 35,375
33,266
Total interest expense and preferred share dividends
Interest expense increased
Preferred share dividends increased$2.1 million to$35.4 million in 2022, compared to$33.3 million in 2021, driven by the issuance of 4.20% Series G Preference Shares inJuly 2021 , resulting in only 6 months of dividends in 2021 compared to 12 months in 2022. This was partially offset by the redemption in full of the$275.0 million 5.375% Series E Preference Shares inAugust 2021 , resulting in zero months of dividends in 2022 compared to 8 months in 2021.
Income Tax Benefit (Expense)
Year ended December 31, 2022 2021 (in thousands) Income tax benefit (expense)$ 59,019 $ 10,668 We are subject to income taxes in certain jurisdictions in which we operate; however, since the majority of our income is generally earned inBermuda , which does not have a corporate income tax, the tax impact to our operations has historically been minimal. In 2022, we recognized an income tax benefit of$59.0 million , compared to$10.7 million in 2021. The increase in income tax benefit in 2022 was primarily driven by higher mark to market losses in taxable jurisdictions compared to the prior year, partially offset byU.S. underwriting income in the current year and a partial valuation allowance recorded against theU.S. mark to market losses during the current year. AtDecember 31, 2022 , our net deferred tax asset before and after valuation allowance totaled$316.8 million and$123.2 million , respectively. 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. Accordingly we have recorded a valuation allowance on the majority of the net deferred tax asset in these jurisdictions. In addition, we recorded a partial valuation allowance in the current year of$18.9 million against a portion of the unrealized losses in theU.S. investment portfolio. 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. 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 78 -------------------------------------------------------------------------------- distribution of pre-tax income or loss can vary significantly between periods for a variety of reasons, including the business mix and geographic location of the balance sheet on which net premiums are 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. We expect our consolidated effective tax rate may increase in the future if 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.
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests
Year ended December 31, 2022 2021
(in thousands)
Redeemable noncontrolling interest - DaVinci $
(65,514)
Redeemable noncontrolling interest - Medici (70,504) 1,492
Redeemable noncontrolling interest - Vermeer 43,058 38,155
Redeemable noncontrolling interest - Fontana (5,653) -
Net income (loss) attributable to redeemable noncontrolling
interests $
(98,613)
Our net loss attributable to redeemable noncontrolling interests was
million
increase was primarily due to the following:
•Medici, which had a net loss attributable to redeemable noncontrolling interests in 2022 due to realized and unrealized losses on its catastrophe bonds portfolios, primarily driven by the widening of credit spreads on catastrophe bonds, the impact of Hurricane Ian, and foreign exchange losses on hedges related to foreign currency share classes, all of which are shared with our third-party investors. After taking into account the original currency carrying value of Medici's foreign currency share classes, foreign currency hedges had no net impact to Medici's investors;
•Fontana, which was launched in the second quarter of 2022 and had a net loss
due to realized and unrealized losses on investments; partially offset by
•DaVinci, which had a lower net loss in 2022 compared to 2021, primarily
resulting from the lower impact of the 2022 Weather-Related Large Losses as
compared to the 2021 Weather-Related Large Losses, partially offset by higher
realized and unrealized losses on investments in 2022 compared to 2021; and
•Vermeer, which had a higher net income in 2022 compared to 2021, primarily resulting from higher net investment income, partially offset by higher losses resulting from the 2022 Weather-Related Large Losses.
Refer to "Note 9. 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 aBermuda -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 79 -------------------------------------------------------------------------------- requirements in their applicable jurisdictions atDecember 31, 2022 . 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 17. Statutory Requirements" in our "Notes to the Consolidated Financial Statements." Liquidity and Cash Flows Holding Company LiquidityRenaissanceRe'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, or investments in, new or existing companies or books of business of other companies and (6) certain corporate and operating expenses. We attempt to structure our organization in a way that facilitates efficient capital movements betweenRenaissanceRe 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, in 2022,RenaissanceRe contributed capital to RenaissanceRe SpecialtyU.S. 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. For instance, effectiveApril 1, 2022 ,RenaissanceRe launchedFontana , an innovative joint venture dedicated to writing Casualty and Specialty risks. In certain instances, we may be required to make capital contributions to our subsidiaries or joint ventures or managed funds, 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'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 toRenaissanceRe . Other potential sources of liquidity include borrowings under our credit facilities and issuances of securities. 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. We expect that our liquidity needs for the next 12 months will be met by our cash receipts from operations. However, as a result of a combination of market conditions, turnover of our investment portfolios and changes in 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 80 -------------------------------------------------------------------------------- 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.
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 theU.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 (such as through a multi-beneficiary reinsurance trust). However, certain of our subsidiaries qualify as certified reinsurers or reciprocal reinsurers in one or moreU.S. states, which has, and may continue to, reduce the amount of collateral that we are required to post. 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, 2022 Issued or Drawn
(in thousands)
Revolving Credit Facility (1) $ -
Medici Revolving Credit Facility (2) 30,000
Bilateral Letter of Credit Facilities
Secured 447,384
Unsecured 625,750
Funds at Lloyd's Letter of Credit Facility 275,000
$ 1,378,134
(1)At
(2)
statements of Medici are included in
statements. The drawn amount of the Medici Revolving Credit Facility is included
on the Company's consolidated balance sheets under debt.
Refer to "Note 8. 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. AtDecember 31, 2022 , the FAL required to support the underwriting activities at Lloyd's through Syndicate 1458 was £986.8 million (2021 - £756.0 million). Actual FAL posted for Syndicate 1458 atDecember 31, 2022 byRenaissanceRe Corporate Capital (UK) Limited was$1,012.6 million (2021 -$983.4 million ), supported by a$275.0 million 81 -------------------------------------------------------------------------------- letter of credit and a$737.6 million deposit of cash and fixed maturity securities (2021 -$275.0 million and$708.4 million , respectively). Refer to "Note 8. Debt and Credit Facilities" in our "Notes to the Consolidated Financial Statements" for additional information related to this letter of credit facility.
Multi-Beneficiary Reinsurance Trusts, Multi-Beneficiary Reduced Collateral
Reinsurance Trusts
Renaissance Reinsurance,DaVinci Reinsurance and RREAG, use multi-beneficiary reinsurance trusts and/or multi-beneficiary reduced collateral reinsurance trusts to collateralize reinsurance liabilities. As described below, as ofDecember 31, 2022 , all of these trusts were funded in accordance with the relevant regulatory thresholds. However, assets held in these trusts may exceed the amount required underU.S. state regulations. In the second quarter of 2022, theNew York State Department of Financial Services approved the release of a substantial portion of the surplus balance previously held in the Renaissance Reinsurance multi-beneficiary reinsurance trust.
Refer to "Note 17. 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, 2022 Total Year 1-3 Years 3-5 Years Years
(in thousands)
Long term debt obligations (1)
3.600% Senior Notes due 2029 $ 490,542 $ 14,400 $ 28,800 $ 28,800 $ 418,542
3.450% Senior Notes due 2027 346,561 10,350 20,700 315,511 -
3.700% Senior Notes due 2025 324,967 11,100 313,867 - -
4.750% Senior Notes due 2025
(DaVinci) 166,612 7,125 159,487 - -
Total long term debt
obligations 1,328,682 42,975 522,854 344,311 418,542
Investment commitments (2) 1,226,230 1,226,230 - - -
Operating lease obligations 93,204 7,097 17,223 15,454 53,430
Capital lease obligations 15,451 2,661 5,322 5,322 2,146
Payable for investments
purchased 493,776 493,776 - - -
Reserve for claims and claim
expenses (3) 15,892,573 5,085,623 5,562,400 2,383,886 2,860,664
Total contractual obligations $ 19,049,916 $ 6,858,362 $ 6,107,799 $ 2,748,973 $ 3,334,782
(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 7. 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.
82 -------------------------------------------------------------------------------- Cash Flows Year ended December 31, 2022 2021 (in thousands) Net cash provided by (used in) operating activities$ 1,603,683 $ 1,234,815 Net cash provided by (used in) investing activities (3,016,176) (816,296) Net cash provided by (used in) financing activities 725,342 (302,461) Effect of exchange rate changes on foreign currency cash 22,471 6,148 Net increase (decrease) in cash and cash equivalents (664,680) 122,206 Cash and cash equivalents, beginning of period 1,859,019 1,736,813 Cash and cash equivalents, end of period$ 1,194,339 $ 1,859,019 2022
During 2022, our cash and cash equivalents decreased by
billion
Cash flows provided by operating activities. Cash flows provided by operating activities during 2022 were$1.6 billion , compared to$1.2 billion during 2021. Cash flows provided by operating activities during 2022 were primarily the result of certain adjustments to reconcile our net loss of$1.2 billion to net cash provided by operating activities, including:
•an increase in reserve for claims and claim expenses of
resulting from net claims and claim expenses associated with the 2022
Weather-Related Large Losses;
•net realized and unrealized losses on investments of
driven by unrealized mark-to-market losses resulting from the significant
increase in interest rates;
•an increase in unearned premiums of
premiums written in the Casualty and Specialty segment;
•an increase in reinsurance balances payable of$67.3 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. See "Note 10. Variable Interest Entities" in our "Notes to the Consolidated Financial Statements" for additional information related to Upsilon RFO's non-voting preference shares; partially offset by
•an increase in premiums receivable of
receipts and increase in our gross premiums written;
•an increase in reinsurance recoverable of
net claims and claim expenses and recoverables associated with the 2022
Weather-Related Large Losses; and
•an increase of
timing of payments.
Cash flows used in investing activities. During 2022, our cash flows used in investing activities were$3.0 billion , principally reflecting net purchases of fixed maturity investments trading of$2.8 billion , equity investments of$202.3 million , and other investments of$618.8 million , partially offset by cash flow from net sales of short term investments of$640.4 million . The net purchases of fixed maturity investments trading was primarily funded by cash flows provided by operating activities, as described above, whereas the net purchase of other investments during 2022, was primarily driven by an increased allocation to catastrophe bonds and fund investments.
Cash flows provided by financing activities. Our cash flows provided by
financing activities in 2022 were
result of:
•net inflows of
noncontrolling interest share transactions in Medici, DaVinci and
partially offset by
83 --------------------------------------------------------------------------------
•the repurchase of 1.1 million of our common shares in open market transactions
at an aggregate cost of
common share; and
•dividends paid on our common shares of
shares of
2021
During 2021, our cash and cash equivalents increased by
billion
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
resulting from net claims and claim expenses associated with the 2021
Weather-Related Large Losses;
•an increase in unearned premiums of
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
net claims and claim expenses and recoverables associated with the 2021
Weather-Related Large Losses;
•an increase in premiums receivable of
receipts and increase in our gross premiums written;
•an increase of
growth in gross premiums written across both our Property and Casualty and
Specialty segments;
•an increase of
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 sales of and equity investments 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
•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; 84 --------------------------------------------------------------------------------
•the redemption of all 11 million of our outstanding 5.375% Series E Preference
Shares on
•dividends paid on our common and preference shares of
million
•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
noncontrolling interest share transactions in DaVinci, Medici and Vermeer; and
•net inflows of$30.0 million from the drawdown of the Medici Revolving Credit Facility. See "Note 9. Debt and Credit Facilities" in our "Notes to the Consolidated Financial Statements" for additional information related to the revolving credit facility available to Medici.
Capital Resources
We monitor our capital adequacy on a regular basis and seek to adjust our capital according to the needs of our business. In particular, we require capital sufficient to meet or exceed the capital adequacy ratios established by rating agencies for maintenance of appropriate financial strength ratings, the capital adequacy tests performed by regulatory authorities and the capital requirements under our credit facilities. From time to time, rating agencies may make changes in their capital models and rating methodologies, which could increase the amount of capital required to support our ratings. We may seek to raise additional capital or return capital to our shareholders through common share repurchases and cash dividends (or a combination of such methods). In the normal course of our operations, we may from time to time evaluate additional share or debt issuances given prevailing market conditions and capital management strategies, including for our operating subsidiaries, joint ventures and managed funds. In addition, as noted above, we enter into agreements with financial institutions to obtain letter of credit facilities for the benefit of our operating subsidiaries and certain of our joint ventures and managed funds in their reinsurance and insurance business. Our total shareholders' equity attributable toRenaissanceRe and total debt was as follows: At December 31, 2022 2021 Change (in thousands) Common shareholders' equity$ 4,575,274 $ 5,874,281 $ (1,299,007) Preference shares 750,000 750,000 - Total shareholders' equity attributable to RenaissanceRe$ 5,325,274 $ 6,624,281 $ (1,299,007) 3.600% Senior Notes due 2029$ 394,221 $ 393,305 $ 916 3.450% Senior Notes due 2027 297,775 297,281 494 3.700% Senior Notes due 2025 299,168 298,798 370 4.750% Senior Notes due 2025 (DaVinci) (1) 149,278 148,969 309 Total senior notes 1,140,442 1,138,353 2,089 Medici Revolving Credit Facility (2) 30,000 30,000 - Total debt$ 1,170,442 $ 1,168,353 $ 2,089 (1)RenaissanceRe owns a noncontrolling economic interest in its joint venture DaVinci. BecauseRenaissanceRe controls a majority of DaVinci's issued voting shares, the consolidated financial statements of DaVinci are included in the consolidated financial statements ofRenaissanceRe . However,RenaissanceRe does not guarantee or provide credit support for DaVinci andRenaissanceRe's financial exposure to DaVinci is limited to its investment in DaVinci'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 issued voting shares, the financial statements of Medici are included inRenaissanceRe's consolidated financial statements. However,RenaissanceRe does not guarantee or provide credit support for Medici andRenaissanceRe's financial exposure to Medici is limited to its investment in Medici's shares and counterparty credit risk arising from reinsurance transactions. 85 --------------------------------------------------------------------------------
Our shareholders' equity attributable to
during 2022 principally as a result of:
•our comprehensive loss attributable to
•the repurchase of 1.1 million common shares in open market transactions at an
aggregate cost of
share; and
•$64.7 million and
shares, respectively.
For additional information related to the terms of our debt and significant credit facilities, see "Note 8. Debt and Credit Facilities" in our "Notes to the Consolidated Financial Statements." See "Note 11. Shareholders' Equity" in our "Notes to the Consolidated Financial Statements" for additional information related to our common and preference shares.
Reserve for Claims and Claim Expenses
We believe the most significant accounting judgment made by management is our
estimate of claims and claim expense reserves. Claims and claim expense reserves
represent estimates, including actuarial and statistical projections at a given
point in time, of the ultimate settlement and administration costs for unpaid
claims and claim expenses arising from the insurance and reinsurance contracts
we sell. Our actual net claims and claim expenses paid will differ, perhaps
materially, from the estimates reflected in our financial statements, which may
adversely impact our financial condition, liquidity and capital resources.
Refer to "Note 7. 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.
86
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Investments
The table below shows our invested assets:
At December 31, 2022 2021 Change
(in thousands, except percentages)
U.S. treasuries $ 7,180,129 32.3 % $ 6,247,779 29.1 % $ 932,350
Corporate (1) $ 4,390,568 19.8 % $ 3,689,286 17.2 % $ 701,282
Agencies 395,149 1.8 % 361,684 1.7 % 33,465
Non-U.S. government 383,838 1.7 % 549,613 2.6 % (165,775)
Residential mortgage-backed 710,429 3.2 % 955,301 4.5 % (244,872)
Commercial mortgage-backed 213,987 1.0 % 634,925 3.0 % (420,938)
Asset-backed 1,077,302 4.8 % 1,068,543 5.0 % 8,759
Total fixed maturity investments, at
fair value 14,351,402 64.6 % 13,507,131 63.1 % 844,271
Short term investments, at fair
value 4,669,272 21.0 % 5,298,385 24.7 % (629,113)
Equity investments, at fair value 625,058 2.8 % 546,016 2.5 % 79,042
Catastrophe bonds 1,241,468 5.6 % 1,104,034 5.1 % 137,434
Fund investments 1,086,706 4.9 % 725,802 3.4 % 360,904
Term loans 100,000 0.5 % 74,850 0.3 % 25,150
Direct private equity investments 66,780 0.3 % 88,373 0.4 % (21,593)
Total other investments, at fair
value 2,494,954 11.3 % 1,993,059 9.2 % 501,895
Investments in other ventures, under
equity method 79,750 0.3 % 98,068 0.5 % (18,318)
Total investments $ 22,220,436 100.0 % $ 21,442,659 100.0 % $ 777,777
(1)Corporate fixed maturity investments include non-
corporate fixed maturity investments.
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 4. Investments" and "Note 5. 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, includingU.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 and an allocation to other investments (including catastrophe bonds, direct private equity investments, fund investments and term loans). 87 -------------------------------------------------------------------------------- The following table summarizes the composition of our investment portfolio, including the amortized cost, fair value, credit ratings and effective yields. Credit Rating (1) Non- Investments not Investment subject to creditDecember 31, 2022 Fair ValueAAA AA A BBB Grade Not Rated ratings Fixed maturity investments trading, at fair valueU.S. treasuries$ 7,180,129 $ 20,532 $ 7,159,597 $ - $ - $ - $ - $ - Corporate (2) 4,390,568 191,679 393,590 1,367,062 1,426,758 975,818 35,661 - Agencies 395,149 36,018 359,131 - - - - - Non-U.S. government 383,838 151,726 219,250 8,922 2,802 1,138 - - Residential mortgage-backed 710,429 41,631 513,674 1,936 7,664 92,087 53,437 - Commercial mortgage-backed 213,987
162,358 31,675 875 11,113 4,400 3,566 -
Asset-backed 1,077,302 693,998 196,642 63,222 42,347 73,551 7,542 -
Total fixed maturity investments
trading, at fair value 14,351,402 1,297,942 8,873,559 1,442,017 1,490,684 1,146,994 100,206 -
Short term investments, at fair value 4,669,272 4,641,616 24,751 1,292 677 366 570 -
Equity investments, at fair value
Fixed income exchange traded funds
(3) 295,481 - - 8,405 201,112 85,964 - -
Other equity investments 329,577 - - - - - - 329,577
Total equity investments, at fair
value 625,058 - - 8,405 201,112 85,964 - 329,577
Other investments, at fair value
Catastrophe bonds 1,241,468 - - - - 1,241,468 - -
Fund investments:
Private credit funds 771,383 - - - - - - 771,383
Private equity funds 315,323 - - - - - - 315,323
Term loans 100,000 - - 100,000 - - - -
Direct private equity investments 66,780 - - - - - - 66,780
Total other investments, at fair
value 2,494,954 - - 100,000 - 1,241,468 - 1,153,486
Investments in other ventures, under
equity method 79,750 - - - - - - 79,750
Total investments $ 22,220,436
$ 5,939,558 $ 8,898,310 $ 1,551,714 $ 1,692,473 $ 2,474,792 $ 100,776 $ 1,562,813 100.0 % 26.7 % 40.1 % 7.0 % 7.6 % 11.1 % 0.5 % 7.0 % (1)The credit ratings included in this table are those assigned byStandard & Poor's Corporation ("S&P"). When ratings provided by S&P were not available, ratings from other recognized rating agencies were used. The Company has grouped short term investments with an A-1+ and A-1 short term issue credit rating asAAA , 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.
(2)Corporate fixed maturity investments include non-
corporate fixed maturity investments.
(3)The credit ratings included in this table are based on the credit rating of
the underlying investment held in the exchange traded funds.
88 --------------------------------------------------------------------------------
Fixed Maturity Investments and Short Term Investments
AtDecember 31, 2022 , our fixed maturity investments and short term investment portfolio had a weighted average credit quality rating of AA (2021 - AA) and a weighted average effective yield of 5.0% (2021 - 1.2%). AtDecember 31, 2022 , our non-investment grade and not-rated fixed maturity investments totaled$1.2 billion or 8.7% of our fixed maturity investments (2021 -$1.3 billion or 9.7%, 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. AtDecember 31, 2022 , the funds that invest in non-investment grade and not-rated fixed income securities and non-investment grade cat-linked securities totaled$2.0 billion (2021 -$1.8 billion ). AtDecember 31, 2022 , we had$4.7 billion of short term investments (2021 -$5.3 billion ). Short term investments are managed as part of our investment portfolio and have a maturity of one year or less when purchased. Short term investments are carried at fair value. The decrease in our allocation to short term investments atDecember 31, 2022 , compared toDecember 31, 2021 , was principally driven by increased allocations toU.S. treasuries. The duration of our fixed maturity investments and short term investments atDecember 31, 2022 was 2.7 years (2021 - 3.0 years). From time to time, we may reevaluate the duration of our portfolio in light of the duration of our liabilities and market conditions. The value of our fixed maturity investments will fluctuate with changes in the interest rate environment and when changes occur in economic conditions or the investment markets. Additionally, our differing asset classes expose us to other risks which could cause a reduction in the value of our investments.
Equity Investments
The following table summarizes the fair value of equity investments:
At December 31, 2022 2021
Change
(in thousands)
Fixed income exchange traded funds
Financials 103,250 146,615
(43,365)
Equity exchange traded funds 90,510 114,919
(24,409)
Communications and technology 48,687 82,444
(33,757)
Consumer 33,447 51,083
(17,636)
Industrial, utilities and energy 25,326 26,645 (1,319) Healthcare 24,617 28,796 (4,179) Basic materials 3,740 5,092 (1,352) Total equity investments$ 625,058 $ 546,016 $ 79,042 A portion of our investments included in equity investments is managed pursuant to diversified public equity securities mandates with third-party investment managers. In addition, our equity investments 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. 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. 89 --------------------------------------------------------------------------------
Other Investments
The table below shows our portfolio of other investments:
At December 31, 2022 2021 Change (in thousands) Catastrophe bonds$ 1,241,468 $ 1,104,034 $ 137,434 Fund investments 1,086,706 725,802 360,904 Term loans 100,000 74,850 25,150 Direct private equity investments 66,780 88,373 (21,593) Total other investments$ 2,494,954 $ 1,993,059 $ 501,895 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. Our fund managers and their fund administrators are generally 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 three months for both private equity funds and private credit funds, although we have occasionally experienced delays of up to six months, particularly 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 these valuations for actual capital calls, redemptions or distributions, as well as the impact of changes in foreign currency exchange rates, and then estimating the return for the current period. This principally includes using preliminary estimates reported to us by our fund managers, where available, and 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 in our consolidated statement of operations in the period in which they are reported to us as a change in estimate. Net income of$19.8 million (2021 -$7.0 million ) is recorded between net investment income and net realized and unrealized gains (losses) on investments for 2022, representing the change in estimate during the period related to the difference between our estimate recorded onDecember 31, 2021 (2021 -December 31, 2020 ) due to the lag in reporting discussed above, and the actual amount reported in the final net asset values provided by our fund managers in the current year. 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 5. 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 private equity investments, fund investments, term loans, and investments in other ventures of$2.9 billion , of which$1.7 billion has been contributed atDecember 31, 2022 (2021 -$2.7 billion and$1.3 billion , respectively). Our remaining commitments to these investments atDecember 31, 2022 totaled$1.2 billion (2021 -$1.4 billion ). In the future, we may enter into additional commitments in respect of these investments or individual portfolio company investment opportunities. 90 --------------------------------------------------------------------------------
Investments in
The table below shows our investments in other ventures, under equity method:
At December 31, 2022 2021
(in thousands, except
percentages) Investment Ownership % Carrying Value Investment Ownership % Carrying Value
Tower Hill Companies $ 78,698 2.0% - 25.0% $ 10,897 $ 78,698 2.0% - 25.0% $ 25,575
Top Layer 65,375 50.0 % 23,562 65,375 50.0 % 25,903
Other 47,517 22.8 % 45,291 46,698 22.4 % 46,590
Total investments in other
ventures, under equity method$ 191,590 $ 79,750$ 190,771
$ 98,068
The equity in earnings of the Tower Hill Companies and other ventures, under the equity method, 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.
In addition, S&P and
opinion on the many critical dimensions of risk that determine overall
creditworthiness.
from each of these agencies, which is the highest ERM score assigned.
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The ratings of our principal operating subsidiaries and joint ventures and the
ERM score of
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 -
Fontana Reinsurance Ltd. A - - -
Fontana Reinsurance U.S. Ltd. A - - -
Renaissance Reinsurance of Europe
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) The A.M. Best ratings for our principal operating subsidiaries and joint
ventures represent the insurer's financial strength rating. The Lloyd's Overall
Market Rating represents RenaissanceRe Syndicate 1458's financial strength
rating. RenaissanceRe has been assigned a "Very Strong" ERM score by A.M. Best .
(2) The S&P ratings for our principal operating subsidiaries and joint ventures
represent the insurer's financial strength rating and the issuer's long-term
issuer credit rating. The Lloyd's Overall Market Rating represents RenaissanceRe
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.
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. 92 --------------------------------------------------------------------------------
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 Rating
A.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.
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
RenaissanceRe 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 8. 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: 93 --------------------------------------------------------------------------------
Summarized Balance Sheets
At December 31, 2022 (in thousands) Assets Receivables due from non-obligor subsidiaries$ 370,219 Other current assets 216,909 Total current assets$ 587,128 Goodwill and other intangibles$ 104,718 Loan receivable from non-obligor subsidiaries 874,721 Other noncurrent assets 186,279 Total noncurrent assets$ 1,165,718 Liabilities Payables due to non-obligor subsidiaries$ 16,049 Other current liabilities 95,792 Total current liabilities$ 111,841 Loan payable to non-obligor subsidiaries$ 201,380 Other noncurrent liabilities 1,092,728 Total noncurrent liabilities$ 1,294,108
Summarized Statement of Operations
Year endedDecember 31, 2022 (in thousands) Revenues Intercompany revenue with non-obligor subsidiaries$ 33,914 Other revenue 645 Total revenues 34,559 Expenses Intercompany expense with non-obligor subsidiaries 24,262 Other expense (15,527) Total expenses 8,735 Income tax benefit (expense) 2,380 Net income (loss) 28,204 Dividends onRenaissanceRe preference shares (8,844) Net income (loss) attributable toObligor Group $ 19,360
CURRENT OUTLOOK
We remain committed to being a global property, casualty and specialty reinsurer
that operates at scale and as a leader in underwriting property catastrophe
risk. We believe that this position is a critical link in the insurance value
chain, where we have a competitive position. Over the last 10 years, we have
made key strategic decisions to build the capabilities and scale that we believe
will allow us to generate superior and sustainable long-term returns in an
evolving marketplace.
Over time, we have diversified our sources of capital through various owned and
managed balance sheets as well as equity, debt and insurance-linked securities
markets, and we have expanded our business by adding new products, platforms,
capabilities and customers. These actions have contributed to a diversification
of earnings streams for our business, aid us in generating our three drivers of
profit - underwriting income, fee income and investment income - and support our
strategic position as a global
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property, casualty and specialty reinsurer. We believe that our three drivers of
profit are well positioned to set us up for success in 2023.
We believe that our understanding of volatility places us in a preferred position to accept risk, and we continue to see strong opportunities for growth across our portfolio. We think that our strategic commitment to reinsurance enhances our value proposition to customers because our reinsurance participation is consistent and broad, and our focus on reinsurance minimizes potential channel conflict with our customers. We think that we are uniquely positioned to write a variety of risks, leveraging the enhancements we have made over the last several years to our risk and capital management technology and underwriting expertise to cover additional lines of business. We plan to continue to seek to take advantage of additional available opportunities and think that strategic decisions 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 who brings access to multiple forms of capital and innovative, large-scale solutions, and we are unique among our peers in that we have both owned and managed, and rated and fronted, vehicles across the risks that we write. Moving forward, we expect to benefit from certain tailwinds, including the recent increases in reinsurance rates, growth in ourCapital Partners unit and increased investment income. We also believe that we are reaping the benefits of higher operating leverage resulting from the investments that we have made in growing the scale of our business.
Reinsurance Market Trends and Developments
TheJanuary 1 renewals provided an opportunity to reset the relationship between insurers and reinsurers. This aligns with our expectations following the impact of Hurricane Ian and other recent catastrophes in the latter half of 2022. We believe that there was a structural shift at theJanuary 1 renewals that should allow us to achieve the risk-adjusted returns that our investors require while providing the access to reliable, high-quality capital that our customers need. To achieve our vision, we need to be able to offset the volatility that our underwriting business brings with superior long-term returns. However, as our business has continued to diversify, some of the volatility that our earnings experience from natural catastrophe losses has lessened. We set firm goals going into theJanuary 1 renewals and believe that we successfully achieved what we set out to accomplish. The continued effects of climate change, inflation and the increasing occurrence of secondary perils drove changes in market dynamics. We believe that we took advantage of the opportunities that were presented, and through the successful execution of our gross-to-net strategy, significantly improved the efficiency of our portfolio. Given the impact of catastrophes and trapped collateral reducing available collateral, including catastrophe bonds, there was dislocation in the retrocessional market, with retrocession less available and more expensive. Even in a challenging retrocessional market, in line with our gross-to-net strategy, we were able to obtain more coverage than anticipated due to our strong relationships and long track record.
Three Drivers of Profit
Underwriting Income
In line with the reset at theJanuary 1 renewals, we saw rates increase across multiple lines of business that we write in both segments. We expect attractive opportunities to continue in 2023, and believe that we are in a strong position to take advantage of them due to: (i) our capital position; (ii) our ability to deploy excess capital; (iii) our status as one of the largest writers of property catastrophe risk and ability to anchor programs off of that position; and (iv) increased demand for property catastrophe risk at the upper ends of programs where we have capacity. We expect that these increases in rate may allow us to increase our underwriting income.
Property
Several large events impacted the property market during 2022, including
Hurricane Ian. With the global impact of climate change, we expect the frequency
and severity of perils such as drought, flood, rain, hail and wildfire to
continue at the elevated levels we have seen in recent years. We think that
expected losses, cost of capital and inherent volatility in this business are
all increasing, which have created favorable pricing trends. Commensurate with
the level of volatility that it absorbs, we think that property catastrophe risk
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should be a highly profitable business line. As expected, these factors provided
attractive opportunities at the
TheJanuary 1 renewals were characterized by significant supply and demand imbalances for property catastrophe reinsurance which led to a late renewal and resulted in an increase in rates, along with a tightening of terms and conditions. This benefited us because we have the unique capital flexibility and underwriting expertise to allow us to execute into a shifting market to build a portfolio that we believe has increased expected profitability, reduced risk and resulted in better diversification. A byproduct of the rate increases was that some insurers determined to retain additional risk rather than pay additional rate. We anticipate that some of this risk will return to the reinsurance market as macroeconomic factors, such as inflation and climate change, continue to contribute to overall risk. While we view theJanuary 1 renewals as a success, a significant portion of the most dislocated part of the property catastrophe market,U.S. risk, does not renew until mid-year. We expect that the increased rates that we saw at theJanuary 1 renewal will persist through 2023 and believe that we have ample capital to deploy to continue our growth. Looking ahead, we may begin to strategically shift some of our focus from the other property class of business to the property catastrophe class of business, which is exhibiting increasingly attractive opportunities. Casualty and Specialty The renewal in our Casualty and Specialty segment was also successful. We saw rate increases in many specialty classes and made progress on reducing ceding commissions in traditional casualty lines. We believe that our book of business continues to reflect the rate improvements that we have seen over the past several years, and should provide a consistent and stable source of underwriting income. We think that our prior work building strong relationships with key customers allowed us to gain superior access to desirable business. We continue to see opportunities across multiple lines of business and geographies within our Casualty and Specialty segment, and we have expanded participation on multiple casualty and specialty lines. Across various classes we saw a positive movement in terms and conditions, and there were several dislocated markets that provided opportunities for us to lead business that we believe will be profitable. For lines of business where the expected margins did not meet our internal hurdle rates, we scaled back our exposure.
Fee Income
We take a differentiated approach to ourCapital Partners business, with a focus on first sourcing the risks that we intend to write, and then matching it with the appropriate third-party capital. This approach, combined with our historical alignment with third-party investors in our joint ventures and managed funds has allowed us to successfully increase the size of ourCapital Partners business in a challenging environment. We view theCapital Partners business as a permanent part of our strategic positioning. We believe that compared to our other drivers of profit, fee income, particularly management fee income, provides a relatively stable and lower volatility source of income. Management fees are fees that we receive for the day-to-day management and oversight of our joint venture vehicles and managed funds, and as we continue to manage increasing amounts of capital on behalf of our third-party investors, we expect that they can increase. Performance fees are based on the performance of the individual vehicles or products, and while depressed during 2022 as a result of past natural catastrophe activity, we believe that they can begin to recover in 2023.
Investment Income
Over the course of 2022, we experienced significant mark-to-market losses in our
investment portfolio. However, as a result of high-quality assets that compose
our investment portfolio, we anticipate that we will be able to earn back most
of these losses over time through a combination of accretion to par and
increased net investment income as we undertake portfolio management to reinvest
in assets with higher coupons.
Moving forward, we expect that the general increase in interest rates in the
market should aid us in increasing our net investment income as the majority of
our investments are highly-rated fixed income securities.
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General Economic Conditions
We believe the stresses in the global economy will continue and that this may result in increased market volatility. Global events, including the COVID-19 pandemic, the war inUkraine and global supply chain issues have contributed to widespread economic inflation. We consider the anticipated effects of inflation, including social, economic, and event-driven, in our catastrophe loss models, on our investment portfolio, and generally in the running of our business, and have enhanced our inflation framework to proactively monitor this trend. Many central banks have raised interest rates, which could act as a countervailing force against some inflationary pressures. Historic increases in interest rates have driven significant short-term mark-to-market losses in our investment portfolio. However, we expect to see an increase in net investment income from our investment portfolio as interest rates have risen, and a reversal of the mark-to-market losses from accretion to par for certain securities that we hold to maturity. The effects of 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. The risk of a global recession is a continuing concern. However, we believe that our business model is well positioned to be less sensitive to an inflationary or recessionary environment. This type of environment may increase demand for reinsurance by reducing the supply and increasing the cost of capital, and adjusting customers' risk tolerances. Consequently, reinsurance rates may rise while becoming more competitive as compared to other forms of risk capital. See the "Risk Factors" section in our Form 10-K 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 .
ARGO GROUP INTERNATIONAL HOLDINGS, LTD. FILES (8-K) Disclosing Entry into a Material Definitive Agreement, Other Events, Financial Statements and Exhibits
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