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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File No. 34-0-26512
RENAISSANCERE HOLDINGS LTD.
(Exact name of Registrant as specified in its charter)
Bermuda 98-013-8020
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
Organization)
Renaissance House, 8-12 East Broadway, Pembroke HM 19 Bermuda
(Address of Principal Executive Offices)
(441) 295-4513
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: Common Shares, par
value $1.00 per share
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of Common Shares held by nonaffiliates of the
Registrant as of March 27, 1998 was $611,117,643, based on the closing sale
price of the Common Shares on the New York Stock Exchange on that date.
The number of Common Shares outstanding as of March 27, 1998 was
22,535,809.
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DOCUMENTS INCORPORATED BY REFERENCE
Sections of the Registrant's Annual Report to Shareholders mailed to
shareholders on or about March 24, 1998 (the "Annual Report") are incorporated
by reference into Part II of this Form 10-K. With the exception of the sections
of the Annual Report specifically incorporated by reference herein, the Annual
Report is not deemed to be filed as part of this Form 10-K.
Sections of the Registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to Regulation
14A under the Securities Exchange Act of 1934 relating to the Registrant's
Annual General Meeting of Shareholders to be held on May 5, 1998 (the "Proxy
Statement") are incorporated by reference into Part III of this Form 10-K. With
the exception of the sections of the Proxy Statement specifically incorporated
by reference herein, the Proxy Statement is not deemed to be filed as part of
this Form 10-K.
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RENAISSANCERE HOLDINGS LTD.
TABLE OF CONTENTS
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Page
PART I
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Item 1. Business...................................................................1
Item 2. Properties................................................................23
Item 3. Legal Proceedings.........................................................23
Item 4. Submission of Matters to a Vote of Security Holders.......................23
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.....23
Item 6. Selected Consolidated Financial Data......................................23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................23
Item 8. Financial Statements and Supplementary Data...............................23
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.....................................24
PART III
Item 10. Directors and Executive Officers of the Company.........................24
Item 11. Executive Compensation.................................................24
Item 12. Security Ownership of Certain Beneficial Owners and Management.........24
Item 13. Certain Relationships and Related Transactions.........................24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......24
SIGNATURES........................................................................27
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(i)
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PART I
Unless the context otherwise requires, references herein to the
"Company" include RenaissanceRe Holdings Ltd. and its subsidiaries, Renaissance
Reinsurance Ltd. ("Renaissance Reinsurance"), Glencoe Insurance Ltd. ("Glencoe")
and Renaissance U.S. Holdings, Inc. ("Renaissance US"). Certain terms used below
are defined in the "Glossary of Selected Insurance Terms" appearing on pages
20-22 of this Report.
Note on Forward-Looking Statements
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Exchange Act. Forward-looking statements are statements other than
historical information or statements of current condition. Some forward-looking
statements may be identified by use of terms such as "believes," "anticipates,"
"intends," or "expects." These forward-looking statements relate, among other
things, to the plans and objectives of the Company for future operations. In
light of the risks and uncertainties inherent in all future projections, the
inclusion of forward-looking statements in this report should not be considered
as a representation by the Company or any other person that the objectives or
plans of the Company will be achieved. Numerous factors could cause the
Company's actual results to differ materially from those in the forward-looking
statements, including the following: (i) the occurrence of catastrophic events
with a frequency or severity exceeding the Company's estimates; (ii) a decrease
in the level of demand for property catastrophe reinsurance, or increased
competition owing to increased capacity of property catastrophe reinsurers;
(iii) any lowering or loss of one of the financial or claims-paying ratings of
the Company or one or more of its subsidiaries; (iv) actions of competitors; (v)
loss of services of any one of the Company's key executive officers; (vi) the
passage of federal or state legislation subjecting Renaissance Reinsurance to
supervision or regulation in the United States; (vii) challenges by insurance
regulators in the United States to Renaissance Reinsurance's claim of exemption
from insurance regulation under the current laws; (viii) changes in economic
conditions, including currency rate conditions; or (ix) a contention by the
United States Internal Revenue Service that the Company or Renaissance
Reinsurance is engaged in the conduct of a trade or business within the U.S. The
foregoing review of important factors should not be construed as exhaustive; the
Company undertakes no obligation to release publicly the results of any future
revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Item 1. Business
General
The Company provides reinsurance and insurance where risk of natural
catastrophe represents a significant component of the overall exposure. The
Company's results depend to a large extent on the frequency and severity of
catastrophic events, and the concentration and coverage offered to clients
impacted thereby. In addition, the Company writes other lines of insurance and
reinsurance on a limited basis, and is actively exploring new opportunities. The
Company's principal business is property catastrophe reinsurance, written on a
worldwide basis through Renaissance Reinsurance. Based on property catastrophe
gross premiums written, the Company is the largest Bermuda-based provider of
property catastrophe reinsurance and one of the largest providers of this
coverage in the world. The Company provides property catastrophe reinsurance
coverage to insurance companies and other reinsurers primarily on an excess of
loss basis. Excess of loss catastrophe coverage generally provides coverage for
claims arising from large natural catastrophes, such as earthquakes and
hurricanes, in excess of a specified loss. The Company is also exposed to claims
arising from other natural and manmade catastrophes such as winter storms,
freezes, floods, fires and tornadoes in connection with the coverages it
provides.
The Company's principal operating objective is to utilize its capital
efficiently by focusing on the writing of property catastrophe reinsurance and
other insurance and reinsurance coverages with superior risk/return
characteristics, while maintaining a low cost operating structure in the
favorable regulatory and tax environment of Bermuda. The Company's primary
underwriting goal is to construct a portfolio of insurance and reinsurance
contracts that maximizes the return on shareholders' equity subject to prudent
risk constraints. The Company seeks
<PAGE>
to moderate the volatility inherent in the property catastrophe reinsurance
market through the use of contract terms, portfolio selection methodology,
diversification criteria and probability analyses. While property catastrophe
reinsurance represented approximately 91% of the Company's gross premiums
written in 1997 and 95% in each of 1996 and 1995 and continues to be the
Company's primary focus, the Company has recently increased its commitment to
the primary insurance business.
The Company is continuing to expand its primary insurance business
through internal growth and acquisition. The Company capitalized Glencoe in
January 1996 with a $50.0 million capital contribution and subsequently sold a
29.9% interest in Glencoe for an aggregate of $15.1 million in cash to two
strategic investors, one of whom sold its 9.9% interest to the Company in August
1997 for $5.2 million in cash. During the fourth quarter of 1997, the Company
contributed an additional $12 million to Glencoe, pro rata with Glencoe's
remaining minority investor, maintaining the Company's ownership in Glencoe at
80%. Glencoe seeks to employ in the primary insurance market the modeling,
underwriting, customer service and capital management approaches that
Renaissance Reinsurance employs with respect to its reinsurance policies.
Glencoe primarily writes property insurance on properties that are exposed to
natural catastrophes. Glencoe operates as a Bermuda-domiciled company and is
eligible to write business on an excess and surplus lines basis in 27 states,
including California, where it has primarily written earthquake exposure
insurance. Glencoe will also consider submissions from insureds located in other
international jurisdictions where it has been approved with respect to exposures
for which it has underwriting expertise. As of December 31, 1997, the Company's
equity in Glencoe was $54.7 million. For the year ended December 31, 1997,
Glencoe generated gross premiums written of $7.0 million and net income of $2.4
million. For the year ended December 31, 1996, Glencoe generated gross premiums
written of $1.6 million and net income of $.9 million.
In January 1998, the Company began to provide personal lines homeowners
coverages through DeSoto Insurance Company ("DeSoto"), a wholly owned subsidiary
of Glencoe. DeSoto is a special purpose Florida homeowners insurance company
that is licensed to assume and renew homeowner policies from the Florida Joint
Underwriting Association (the "JUA"), a state sponsored insurance company.
DeSoto initially assumed approximately 12,000 policies with an in-force premium
of approximately $10 million.
On December 19, 1997, the Company announced it had executed a definitive
agreement to acquire the U.S. operating subsidiaries of Nobel Insurance Limited,
a Bermuda company ("Nobel") through Renaissance US (the "Nobel Acquisition").
The principal business being acquired from Nobel is the servicing and
underwriting of commercial property, casualty and surety risks for specialized
industries and personal lines coverage for low-value dwellings. The casualty
business is expected to be substantially reinsured by American Reinsurance
Company and/or Inter-Ocean Reinsurance Company Ltd., who will provide
comprehensive prospective and retrospective reinsurance coverage. Nobel's
principal operating unit, Nobel Insurance Company ("Nobel Insurance"), is a
Texas insurance company licensed in all 50 states and the District of Columbia.
Under the terms of the agreement in respect of the Nobel Acquisition, the
Company has agreed to pay $54.1 million in cash for the operating subsidiaries
of Nobel, and to provide approximately $8.9 million of limited recourse
financing, in exchange for a limited recourse participating promissory note from
Nobel (the "Note"), to enable Nobel to support certain of its obligations in the
liquidation of its remaining operations. It is expected that the transaction
will be financed with debt and cash at a 2:1 ratio of debt to cash. The purchase
of the operating subsidiaries of Nobel is presently expected to close in the
second quarter of 1998; however, there can be no assurance that the Nobel
Acquisition, which is subject to customary conditions (including shareholder and
regulatory approvals), will be consummated.
For the years ended December 31, 1997, 1996, and 1995, the Company
achieved returns on average shareholders' equity of 24.3%, 30.2%, and 43.3%,
respectively, and combined ratios of 47.5%, 51.3% and 52.0%, respectively. The
year ended December 31, 1997 was a relatively light year for natural
catastrophes worldwide, compared to historical averages. Accordingly, the
reduced level of catastrophe losses resulted in a significantly lower loss ratio
in 1997 compared to 1996 and therefore positively affected the Company's results
from operations. Because of the high severity and low frequency of losses
related to the property catastrophe insurance and reinsurance business, there
can be no assurance that the Company will experience this reduced level of
losses in future years, or that the Company will achieve similar financial
results in the future.
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The 1996 and 1995 results of the Company were achieved despite the
occurrence of several major catastrophes in 1996 and 1995 (which, according to
industry trade sources, had the fifth and third highest level of U.S. property
catastrophe insured losses on record, respectively). The major catastrophes
which occurred in 1996 were Hurricane Fran in September, which produced an
estimated $1.6 billion of insurance industry losses, the Northeastern United
States winter storms in January and the Northwestern United States floods in
December. The major catastrophes which occurred in 1995 were Hurricanes Luis,
Marilyn and Opal.
Ratings
Renaissance Reinsurance has been assigned an "A" claims-paying ability
rating from each of Standard & Poor's Insurance Ratings Services ("S&P") and
A.M. Best Company, Inc. ("AM Best"), and Glencoe has been assigned an "A-"
claims-paying ability rating from A.M. Best, representing independent opinions
of the financial strength and ability of Renaissance Reinsurance and Glencoe to
meet their respective obligations to their policyholders. Such ratings may not
reflect the considerations applicable to an investment in the Company.
The "A" range ("A+," "A" and "A-") is the third highest of four ratings
ranges within what S&P considers the "secure" category. Insurance companies
assigned a claims-paying ability rating in the "A" range are believed by S&P to
provide good financial security, but their capacity to meet policyholder
obligations is somewhat susceptible to adverse economic and underwriting
conditions.
"A (Excellent)" and "A- (Excellent)" are the third and fourth highest of
A.M. Best's fifteen ratings designations. Insurance companies assigned an "A" or
"A-" rating by A.M. Best are companies which, in A.M. Best's opinion, have
demonstrated excellent overall performance when compared to the standards
established by A.M. Best and have a strong ability to meet their obligations to
policyholders over a long period of time.
Strategy
The principal components of the Company's business strategy are to:
o Focus on the property catastrophe reinsurance business. The Company's
primary focus is property catastrophe reinsurance, which represented
approximately 91% of the Company's gross premiums written in 1997 and
95% in each of 1996 and 1995.
o Build a superior portfolio of property catastrophe reinsurance by
utilizing proprietary modeling capabilities. The Company assesses
underwriting decisions on the basis of the expected incremental return
on equity of each new reinsurance contract in relation to the Company's
overall portfolio of reinsurance contracts. To facilitate this, the
Company has developed REMS(C), a proprietary, computer-based pricing and
exposure management system. The Company utilizes REMS(C) to assess
property catastrophe risks, price treaties and limit aggregate exposure.
The Company combines the analyses generated by REMS(C) with its own
knowledge of the client submitting the proposed program to assess the
premium offered against the risk of loss that such program presents. See
"Underwriting."
o Utilize the Company's capital base efficiently while maintaining
prudent risk levels in the Company's reinsurance portfolio. The Company
manages its risks through a variety of means, including the use of
contract terms, portfolio selection methodology, diversification
criteria and probability analyses. By using such measures and by
employing its proprietary modeling capabilities, the Company attempts to
construct a portfolio of reinsurance contracts which maximizes the use
of its capital while optimizing the risk-reward characteristics of its
portfolio. The Company relies less on traditional ratios, such as net
premiums written to surplus, because the Company believes that such
statistics do not adequately reflect the risk in the property
catastrophe reinsurance business. Management believes the level of net
premiums written relative to surplus does not reflect the composition of
a reinsurer's attachment points, aggregate limits,
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o geographic diversification, and other material elements of the risk
exposures embodied in a reinsurer's book of business.
o Capitalize on the experience and skill of management. The Company's
senior management team has extensive experience in the reinsurance
and/or insurance industries, with an average of approximately 20 years
of experience for each of the five senior executives of the Company.
Additionally, senior management is supported by an officer group with an
average of approximately ten years of experience in the reinsurance
and/or insurance industries.
o Build and maintain long-term relationships with brokers and clients.
The Company markets its reinsurance products worldwide exclusively
through reinsurance brokers. The Company believes that its existing
portfolio of reinsurance business is a valuable asset given the renewal
practices of the reinsurance industry. The Company believes that it has
established a reputation with its brokers and clients for prompt
response on underwriting submissions, for fast claims payments and for
the development of customized reinsurance programs. See "--Marketing."
o Maintain a low cost structure. Management believes that as a result of
its ability to maintain a small staff and by basing operations in the
favorable regulatory and tax environment of Bermuda, the Company is able
to maintain low operating costs relative to its capital base and net
premiums earned. As of March 18, 1998, the Company had 34 employees.
After consummation of the Nobel Acquisition, the Company expects to
employ approximately 250 additional employees, and will be subject to an
increased level of U.S. regulation through the businesses purchased from
Nobel. See "Regulation."
o Leverage the Company's modeling expertise by expanding into primary
insurance markets with significant natural catastrophe exposures. The
Company is pursuing opportunities in the United States to write an
increased level of catastrophe-exposed primary insurance. The Company is
exploring opportunities to write both personal and commercial coverages,
on a primary basis, where natural catastrophe exposures represent a
significant component of the overall exposure. In addition to Glencoe,
these opportunities may be pursued through the development of new
operations, such as DeSoto, or through acquisitions, such as the
purchase of the operating subsidiaries of Nobel.
Industry Trends
The high level of worldwide property catastrophe losses in terms of both
frequency and severity from 1987 to 1993 had a significant effect on the results
of property insurers and property catastrophe reinsurers and on the worldwide
property catastrophe reinsurance market, causing certain property catastrophe
reinsurers and certain underwriting syndicates at Lloyd's to withdraw from the
market or reduce their underwriting commitments while also causing a substantial
increase in market demand, particularly in the United States, Japan and the
United Kingdom. In particular, these events included Hurricane Hugo
(U.S.--1989), Hurricane Andrew (U.S.--1992), Typhoon Mireille (No. 19)
(Japan--1991) and Winter Storm Daria (90A) (Northern Europe--1990).
The increase in demand for property catastrophe reinsurance was
attributable to several factors. The significant property catastrophe losses
occurring during 1987 through 1993 caused many insurers and reinsurers to
reexamine their assumptions regarding their need for reinsurance protection from
catastrophe exposures. In addition, rating agencies, such as S&P, and regulators
increased their scrutiny of insurers and reinsurers with respect to their
catastrophe exposure. For example, Typhoon Mireille (No. 19) resulted in greater
scrutiny by the Ministry of Finance of Japan of insurers and reinsurers with
respect to catastrophe exposure, thereby increasing demand for property
catastrophe reinsurance in Japan. In addition, A.M. Best began to require
completion of a catastrophe loss analysis questionnaire dealing with expected
claims resulting from potential catastrophic events. Finally, a general increase
in insured property values in catastrophe-exposed areas contributed to increased
demand for property catastrophe insurance and reinsurance. This supply/demand
imbalance caused a significant increase in prevailing premium rates for property
catastrophe reinsurance worldwide in 1993.
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<PAGE>
In response to this imbalance, approximately $4.0 billion of capital
entered the Bermuda-based property catastrophe reinsurance market in 1992 and
1993. The Bermuda property catastrophe reinsurance market has subsequently grown
markedly, having aggregate capital of approximately $6.6 billion at December 31,
1997, and accounting for approximately 25% of the worldwide property catastrophe
gross premiums written in 1997, according to industry trade reports. The
increased property catastrophe reinsurance capacity represented by the Bermuda
market helped balance supply and demand in the property catastrophe reinsurance
market and, as a result thereof, premium rates and other terms of trade in the
property catastrophe reinsurance market stabilized in 1994-1995. In each of 1996
and 1997, according to industry trade sources, worldwide price levels decreased
by an average of 10% to 15%, although prices remained more stable in the United
States, where the level of property catastrophe losses in recent years has been
generally higher than in other markets. Based on publicly available industry
trade data, price levels are expected to decline at a similar pace in 1998. In
particular, rates have declined significantly in areas outside the United
States, where there has been favorable loss experience, while in the United
States, where the level of property catastrophe losses has generally been higher
than in international markets in recent years, rates have decreased to a lesser
degree. However, current premium rates and retention levels have remained, and
Management believes are likely to remain, higher than those that existed in
1992.
Premium rates or other terms or conditions of trade may vary in the
future, the present level of demand may not continue and the present level of
supply may increase as a result of capital provided by recent or future market
entrants or by existing property catastrophe reinsurers. Some of the property
catastrophe reinsurers who have entered the worldwide reinsurance markets (or
may enter them in the future) have or could have more capital than the Company.
The full effect of this additional capital on the property catastrophe
reinsurance market may not be known for some time.
Management is aware of a number of new, proposed or potential
legislative or industry changes that may impact the worldwide demand for
property catastrophe reinsurance and other products offered by the Company. In
the United States, the states of Hawaii and Florida have implemented
arrangements whereby property insurance in catastrophe prone areas is provided
through state-sponsored entities. The California Earthquake Authority, the first
privately financed, publicly operated residential earthquake insurance pool,
provides earthquake insurance to California homeowners. Currently before the
U.S. Congress are two draft bills, the Homeowners' Insurance Availability Act of
1997 and the Natural Disaster Protection and Insurance Act of 1997, which would
establish a federal program to provide reinsurance for state disaster insurance
programs and ensure the availability and affordability of insurance against
catastrophic natural disasters, respectively, and could impact upon the demand
for, and availability of, traditional reinsurance. In the United Kingdom, the
government has enacted a bill to allow insurers to build claim equalization
reserves which might reduce the amount of property reinsurance necessary in the
marketplace. Management is also aware of many potential initiatives by capital
market participants to produce alternative products that may compete with the
existing catastrophe reinsurance markets. Management is unable to predict the
extent to which the foregoing new, proposed or potential initiatives may affect
the demand for the Company's products or the risks which may be available for
the Company to consider underwriting.
Reinsurance Products
The Company's property catastrophe reinsurance contracts are generally
"all risk" in nature. The Company's most significant exposure is to losses from
earthquakes and hurricanes, although the Company is also exposed to claims
arising from other natural and man-made catastrophes, such as winter storms,
freezes, floods, fires and tornadoes in connection with the coverages it
provides. The Company's predominant exposure under such coverage is to property
damage. However, other risks, including business interruption and other
non-property losses, may also be covered under the property reinsurance contract
when arising from a covered peril. In accordance with market practice, the
Company's property reinsurance contracts generally exclude certain risks such as
war, nuclear contamination or radiation.
Catastrophic events of significant magnitude have historically been
relatively infrequent, although the property catastrophe reinsurance market
experienced a high level of worldwide catastrophe losses in terms of both
frequency and severity during the period from 1987 to 1996 as compared to prior
years. However, because of the
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wide range of the possible catastrophic events to which the Company is exposed,
and because of the potential for multiple events to occur in the same time
period, the Company's business is volatile, and its results of operations may
reflect such volatility. Further, the Company's financial condition may be
impacted by this volatility over time or at any point in time. The effects of
claims from one or a number of severe catastrophic events could have a material
adverse effect on the Company. The Company expects that increases in the values
and concentrations of insured property and the effects of inflation will
increase the severity of such occurrences per year in the future.
The Company seeks to moderate the volatility described in the preceding
paragraph through the use of contract terms, portfolio selection methodology,
diversification criteria and probability analyses. Also, consistent with its
risk management practices, the Company purchases property catastrophe coverage
for its own account to seek to further reduce the potential volatility of its
results.
Type of Reinsurance
The following table sets forth the Company's gross premiums written and
number of programs written by type of reinsurance.
Years Ended December 31,
--------------------------------------------------------
1997 1996 1995
------------------ ---------------- ------------------
Gross Number Gross Number Gross Number
Premiums of Premiums of Premiums of
Type of Reinsurance Written Programs Written Programs Written Programs
------------------- ------- -------- ------- ------- ------- --------
(dollars in millions)
Catastrophe excess of
loss................ $150.8 311 $157.6 293 $146.8 271
Excess of loss
retrocession........ 37.6 74 70.4 105 73.8 105
Proportional
retrocession
of catastrophe
excess of loss.... 21.9 11 33.3 11 56.7 12
Marine, aviation and
other............... 18.0 25 8.6 25 15.3 35
------ --- ------ --- ------ ---
Total Reinsurance.. $228.3 421 $269.9 434 $292.6 423
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Catastrophe Excess of Loss Reinsurance. Catastrophe excess of loss
reinsurance provides coverage when aggregate claims and claim adjustment
expenses from a single occurrence of a covered peril exceed the attachment point
specified in a particular contract. A portion of the Company's property
catastrophe excess of loss contracts limit coverage to one occurrence in a
contract year, but most such contracts provide for coverage of a second
occurrence after the payment of a reinstatement premium. The coverage provided
under excess of loss retrocessional contracts may be on a worldwide basis or
limited in scope to selected geographic areas. Coverage can also vary from "all
property" perils to limited coverage on selected perils, such as "earthquake
only" coverage.
Excess of Loss Retrocessional Reinsurance. The Company also enters into
retrocessional contracts pursuant to which it provides property catastrophe
coverage to other reinsurers or retrocedents. In providing retrocessional
reinsurance, the Company focuses on property catastrophe retrocessional
reinsurance which covers the retrocedent on an excess of loss basis when
aggregate claims and claim adjustment expenses from a single occurrence of a
covered peril and from a multiple number of reinsureds exceed a specified
attachment point. The coverage provided under excess of loss retrocessional
contracts may be on a worldwide basis or limited in scope to selected geographic
areas. Coverage can also vary from "all property" perils to limited coverage on
selected perils, such as "earthquake only" coverage. In general, excess of loss
retrocessional contracts are for a term of one year. Retrocessional coverage is
characterized by high volatility, principally because retrocessional contracts
expose a reinsurer to an aggregation of losses from a single catastrophic event.
In addition, the information available to retrocessional underwriters concerning
the original primary risk can be less precise than the information received from
primary companies directly. Moreover, exposures from retrocessional business can
change within a contract term as the underwriters of a retrocedent alter their
book of business after retrocessional coverage has been bound.
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Proportional Retrocessional Reinsurance. The Company writes proportional
retrocessions of catastrophe excess of loss reinsurance treaties when it
believes that premium rates and volume are attractive. In such proportional
retrocessional reinsurance, the Company assumes a specified proportion of the
risk on a specified coverage and receives an equal proportion of the premium.
The ceding insurer receives a commission, based upon the premiums ceded to the
reinsurer, and may also be entitled to receive a profit commission based on the
ratio of losses, loss adjustment expense and the reinsurer's expenses to
premiums ceded. A proportional retrocessional catastrophe reinsurer is dependent
upon the ceding insurer's underwriting, pricing and claims administration to
yield an underwriting profit, although the Company generally obtains detailed
underwriting information concerning the exposures underlying the proportional
retrocessions of catastrophe excess of loss reinsurance treaties written by the
Company. In addition, all of the Company's proportional retrocessions of
catastrophe excess of loss reinsurance contracts have aggregate per event risk
exposure limits.
Marine, Aviation and Other Reinsurance. The Company has also written
short-tail marine and aviation reinsurance and retrocessional reinsurance for
selected domestic and foreign insurers and reinsurers. Marine and aviation risks
involve primarily property damage, although certain marine and aviation risks
may involve casualty coverage arising from the same event causing the property
claim. Coverage is generally written in excess of a substantial attachment
point, so events likely to cause a claim will occur infrequently, such as the
destruction of a drilling platform, the loss of a satellite or the loss of a
sizable vessel and its contents. Although the Company focuses on writing
catastrophe excess of loss reinsurance, the Company also writes risk excess of
loss reinsurance and retrocessions. The risk excess of loss treaties in which
the Company participates generally contain limited reinstatement provisions. In
selected cases, the Company also writes customized financial reinsurance
contracts when the expected returns are particularly attractive.
Primary Insurance Operations; Glencoe and DeSoto; Nobel
The Company is pursuing opportunities in the United States to write an
increased amount of catastrophe-exposed primary insurance. The Company expects
to write both personal and commercial coverages, on a primary basis, where
natural catastrophe exposures represent a significant component of the overall
exposure. In September 1997, the Company promoted Keith S. Hynes, formerly the
Company's Chief Financial Officer, to the position of President and Chief
Executive Officer of Glencoe, to manage all aspects of the Company's initiatives
in the primary insurance business.
In January 1996 the Company incorporated Glencoe in Bermuda as an excess
and surplus lines insurance company. Glencoe is pursuing opportunities in the
catastrophe-exposed primary insurance business in the United States, and is
writing policies that primarily are exposed to earthquake and wind perils.
Glencoe is eligible to do business in the United States on an excess and surplus
lines basis in 26 states. For the year ended December 31, 1997, Glencoe
generated gross premiums written of $7.0 million and net income of $2.4 million.
For the year ended December 31, 1996, Glencoe generated gross premiums written
of $1.6 million and net income of $0.9 million.
In September 1997, Glencoe organized DeSoto in Florida to pursue the
assumption of policies from the Florida Residential Property and Casualty Joint
Underwriting Association (the "JUA"). In January 1998, the Company began to
provide personal lines coverages through DeSoto with an initial assumption of
approximately 12,000 policies with an in-force premium of approximately $10
million.
On December 19, 1997, the Company announced it had executed a definitive
agreement in respect of the Nobel Acquisition to acquire the operating
subsidiaries of Nobel, through Renaissance U.S. The principal business of Nobel
is the servicing and underwriting of commercial property, casualty and surety
risks for specialized industries and personal lines coverage for low-value
dwellings. The casualty business is expected to be substantially reinsured by
American Reinsurance Company and/or Inter-Ocean Reinsurance Company Ltd., who
will provide comprehensive prospective and retrospective reinsurance coverage.
Nobel's principal operating unit,
-7-
<PAGE>
Nobel Insurance, is a Texas insurance company, licensed in all 50 states and the
District of Columbia. In the years ended December 31, 1997 and 1996, the
businesses being acquired from Nobel generated unaudited gross premiums written
of approximately $76.5 million and $83.7 million, respectively, and unaudited
net income (loss) of approximately $3.2 million and $(1.6) million,
respectively. The purchase of the operating subsidiaries of Nobel is presently
expected to close in the second quarter of 1998; however, there can be no
assurance that the Nobel transaction, which is subject to customary conditions
(including regulatory and shareholder approvals) will be consummated.
Potential Diversification
From time to time, the Company may consider opportunistic
diversification into new ventures, either through organic growth or the
acquisition of other companies or books of business. In evaluating such new
ventures, the Company seeks an attractive return on equity and the ability to
develop or capitalize on a competitive advantage. Accordingly, the Company
regularly reviews strategic transaction opportunities and periodically engages
in discussions regarding possible transactions. However, other than with respect
to the Nobel Acquisition, the Company has no definitive agreements with respect
to any material transaction and there can be no assurance that the Company will
enter into any such agreement in the future, or that any consummated transaction
would contribute materially to the Company's results.
Geographic Diversification
The Company seeks to diversify its exposure across geographic zones. The
Company writes the majority of its business within the United States because the
returns obtained relative to the risks involved are currently most attractive in
the United States and because it is able to obtain the most detailed
underwriting information on U.S. risks. Within the United States, the Company's
zones of highest exposure are Southern California, Northern California,
metropolitan New York, New Madrid (midwestern United States) and Southern
Florida.
The following table sets forth the percentage of the Company's gross
reinsurance premiums written allocated to the territory of coverage exposure.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1997 1996 1995
------------------ ---------------- ------------------
Percentage Percentage Percentage
Gross of Gross Gross of Gross Gross of Gross
Premiums Premiums Premiums Premiums Premiums Premiums
Geographic Area Written Written Written Written Written Written
- --------------- ------- ------- ------- ------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
United States....... $123.7 54.2% $126.6 46.9% $144.1 49.2%
Worldwide........... 27.9 12.2 44.5 16.5 59.1 20.2
Worldwide
(excluding 32.0 14.0 38.7 14.3 41.3 14.1
U.S.)(1) ..........
Europe 9.2
(including U.K.)... 21.0 31.5 11.7 25.4 8.7
Other 16.8 7.4 19.0 7.0 11.7 4.0
Australia and New
Zealand............ 6.9 3.0 9.6 3.6 11.0 3.8
------ ------ ------ ------ ------ -----
Total Reinsurance. $228.3 100.0% $269.9 100.0% $292.6 100.0%
====== ====== ====== ====== ====== =====
</TABLE>
- ---------------
(1) The category "Worldwide (excluding U.S.)" consists of contracts that cover
more than one geographic zone (other than the U.S.). The exposure in this
category for gross premiums written to date is predominantly from Europe.
See Note 13 to Consolidated Financial Statements.
-8-
<PAGE>
Program Limits
The following table sets forth the number of the Company's programs in force
at December 31, 1997 by aggregate program limits.
Aggregate
Program Number of
Limit Programs
----------- --------
$50-60 million...................................... 2
$40-50 million...................................... 1
$30-40 million...................................... 5
$20-30 million...................................... 13
$10-20 million...................................... 39
Less than $10 million............................... 361
---
Total............................................ 421
===
Underwriting
The Company's primary underwriting goal is to construct a portfolio of
reinsurance and insurance contracts that maximizes the return on shareholders'
equity subject to prudent risk constraints.
Management assesses underwriting decisions on the basis of the expected
incremental return on equity of each new reinsurance contract in relation to the
Company's overall portfolio of reinsurance contracts. To facilitate this,
Management has developed REMS(C), a proprietary, computer-based pricing and
exposure management system. Management utilizes REMS(C) to assess property
catastrophe risks, price treaties and limit aggregate exposure. REMS was
developed with consulting assistance from Tillinghast, an actuarial consulting
unit of Towers, Perrin, Forster & Crosby, Inc., and AIR, the developer of the
CATMAP(TM) system. REMS(C) has analytic and modeling capabilities that assist
the Company's underwriters in assessing the catastrophe exposure risk and return
of each incremental reinsurance contract in relation to the Company's overall
portfolio of reinsurance contracts. The Company has licensed and integrated into
REMS(C) six commercially available catastrophe computer models in addition to
the Company's base model. The Company uses these models to validate and stress
test its base REMS(C) results. In addition, the Company stress tests its
exposures and potential future results by increasing the frequency and severity
of catastrophic events above the levels embedded in the models purchased from
the outside consultants. Management combines the analyses generated by REMS(C)
with its own knowledge of the client submitting the proposed program to assess
the premium offered against the risk of loss which such program presents.
REMS(C) provides more precise exposure information than is generally
analyzed currently throughout the property catastrophe reinsurance industry.
REMS(C) combines computer-generated, statistical simulations that estimate
catastrophic event probabilities with exposure and coverage information on each
client's reinsurance contract to produce expected claims for reinsurance
programs submitted to the Company. REMS(C) then uses simulation techniques to
generate 40,000 years of catastrophic event activity, including events causing
in excess of $250 billion in insured industry losses. From this 40,000 year
simulation, the Company is able to obtain expected claims, expected profits and
a probability distribution of potential outcomes for each program in its
portfolio and for its total portfolio.
Management believes that REMS(C) provides the Company's underwriters
with several competitive advantages which are not generally available. These
include (i) the ability to simulate 40,000 years of catastrophic event activity
compared to a much smaller sample in generally available models, allowing the
Company to analyze its exposure to a greater number and combination of potential
events, (ii) the ability to analyze the incremental impact of an individual
reinsurance contract on the Company's overall portfolio, and (iii) the ability
to collect
-9-
<PAGE>
detailed data from a wide variety of sources which allows the Company to measure
geographic exposure at a detailed level.
For its property catastrophe reinsurance business, the Company has
developed underwriting guidelines that limit the amount of exposure it will
underwrite directly for any one cedent, the exposure to claims from any single
catastrophic event and the exposure to losses from a series of catastrophic
events. The Company also attempts to distribute its exposure across a range of
attachment points.
As part of its pricing and underwriting process, the Company also
assesses a variety of factors, including the reputation of the proposed cedent
and the likelihood of establishing a long-term relationship with the cedent; the
geographic area in which the cedent does business and its market share;
historical loss data for the cedent and, where available, for the industry as a
whole in the relevant regions, in order to compare the cedent's historical
catastrophe loss experience to industry averages; the cedent's pricing
strategies; and the perceived financial strength of the cedent.
Marketing
The Company markets its reinsurance products worldwide exclusively
through reinsurance brokers. The Company focuses its marketing efforts on
targeted brokers and insurance and reinsurance companies, placing primary
emphasis on existing clients. Management believes that its existing portfolio of
business is a valuable asset given the renewal nature of the reinsurance
industry and, therefore, attempts to continually strengthen relationships with
its existing brokers and clients. The Company also targets prospects that are
deemed likely to enhance the risk/return composition of its portfolio, that are
capable of supplying detailed and accurate underwriting data and that
potentially add further diversification to the Company's book of business.
Management believes that primary insurers' and brokers' willingness to
use a particular reinsurer is based not just on pricing terms, but on the
financial security of the reinsurer, its claim paying ability ratings,
perceptions of the quality of a reinsurer's service, the reinsurer's willingness
to design customized programs, its long-term stability and its commitment to
provide reinsurance capacity. Management believes that the Company has
established a reputation with its brokers and clients for prompt response on
underwriting submissions and for fast claims payments. Since the Company
selectively writes large lines on a limited number of property catastrophe
reinsurance contracts, it can establish reinsurance terms and conditions on
these contracts that are attractive in its judgment, make large commitments to
the most attractive programs and provide superior client responsiveness. In
addition, the Company acts as sole reinsurer on certain property catastrophe
reinsurance contracts, which allows the Company to take advantage of its ability
to develop customized reinsurance programs. Management believes that such
customized programs help the Company to develop long-term relationships with
brokers and clients.
The reinsurance brokers perform data collection, contract preparation
and other administrative tasks, enabling the Company to market its reinsurance
products cost effectively by maintaining a smaller staff. The Company believes
that by maintaining close relationships with brokers, it is able to obtain
access to a broad range of potential reinsureds. Subsidiaries and affiliates of
J&H Marsh & McLennan, Inc., E.W. Blanch & Co., Benfield Greig Ltd., AON Re Group
and Bates Turner, L.L.C. (a GE Capital Services Company, an affiliate of GE
Investments) accounted for approximately 23.5%, 21.2%, 13.1%, 7.9% and 4.4%,
respectively, of the Company's net premiums written in 1997. During such period,
the Company issued authorization for coverage on programs submitted by 73
brokers worldwide. The Company received approximately 1,630 program submissions
during 1997. The Company is highly selective and, from such submissions, the
Company issued authorizations for coverage for only 421 programs, or 25.8% of
the program submissions received.
Reserves
The Company's policy is to establish claim reserves for the settlement
costs of all claims and claim adjustment expenses incurred by the Company when
an event occurs. The Company incurred claims of
-10-
<PAGE>
$50.0 million, $86.9 million and $110.6 million for the years ended December 31,
1997, 1996 and 1995, respectively.
Under generally accepted accounting principles (GAAP), the Company is
not permitted to establish claim reserves with respect to its property
catastrophe reinsurance policies until an event which gives rise to a claim
occurs. Generally, reserves will be established without regard to whether any
future claim may subsequently be contested by the Company. Any reserve for
claims and claim expenses may also include reserves for unpaid reported claims
and claim expenses and reserves for estimated losses that have been incurred but
not reported to the Company. Such reserves are estimated by Management based
upon reports received from ceding companies, as supplemented by the Company's
own estimates of reserves on such reported losses as well as reserves for losses
that are incurred but not reported. The Company utilizes both proprietary and
commercially available models as well as historical reinsurance industry loss
development patterns to assist in the establishment of appropriate claim
reserves. In addition, when reviewing a proposed reinsurance contract, the
Company typically receives and evaluates the insured's historical and projected
loss experience with respect to certain events. The Company's reserve estimates
are continually reviewed and, in accordance with GAAP, as adjustments to these
reserves become necessary, such adjustments are reflected in current operations.
Claim reserves represent estimates, including actuarial and statistical
projections at a given point in time, of an insurer's or reinsurer's
expectations of the ultimate settlement and administration costs of claims
incurred, and it is possible that the ultimate liability may exceed or be less
than such estimates. Such estimates are not precise in that, among other things,
they are based on predictions of future developments and estimates of future
trends in claim severity and frequency and other variable factors such as
inflation. During the claim settlement period, it often becomes necessary to
refine and adjust the estimates of liability on a claim either upward or
downward. Even after such adjustments, ultimate liability may exceed or be less
than the revised estimates.
Investments
The Company's strategy is to maximize its underwriting profitability and
fully deploy its capital through its underwriting activities; consequently, the
Company has established an investment policy which it considers to be
conservative. The Company's investment guidelines, which are established by
Management and approved by the Company's Board of Directors, stress
diversification of risk, preservation of capital and market liquidity.
Notwithstanding the foregoing, the Company's investments are subject to
market-wide risks and fluctuations, as well as to risks inherent in particular
securities. The primary objective of the portfolio, as set forth in such
guidelines, is to maximize investment returns consistent with these policies. To
achieve this objective, the Company's current fixed income investment guidelines
call for an average credit quality of AA and a target duration of two years. In
1997, the Company reallocated $50.0 million of its fixed maturity investments to
non-U.S. equity securities.
Primarily because of the potential for large claims payments, the
Company's investment portfolio is structured to provide a high level of
liquidity. The table below shows the aggregate amounts of investments available
for sale, equity securities and cash and cash equivalents comprising the
Company's portfolio of invested assets.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1997 1996 1995
---------- ---------- --------
(in thousands)
<S> <C> <C> <C>
Investments available for sale at fair value.......... $710.2 $603.5 $528.8
Equity securities, at fair value...................... 26.4 -- --
Cash and cash equivalents............................. 122.9 199.0 139.2
------ ------ ------
Total invested assets................................. $859.5 $802.5 $681.8
====== ====== ======
</TABLE>
-11-
<PAGE>
The growth in the Company's portfolio of invested assets for the year
ended December 31, 1997 resulted from net cash provided by operating activities
of $153.3 million offset by net cash used in financing activities of $72.0
million and net unrealized depreciation of investments of $11.7 million.
At December 31, 1997, the fixed income invested asset portfolio had a
dollar weighted average rating of AA, an average duration of 2.8 years and an
average yield to maturity of 6.61%, before investment expenses.
All fixed income securities in the Company's investment portfolio are
classified as securities available for sale and are carried at fair value. Any
unrealized gains or losses as a result of changes in fair value over the period
such investments are held are not reflected in the Company's statement of
operations, but rather are reflected in shareholders' equity.
The Company periodically evaluates the creditworthiness of each issuer
whose securities it holds. Special attention is paid to those securities whose
market values have declined materially, for reasons other than changes in
interest rates, to evaluate the realizable value of the investment, the specific
condition of the issuer, and the issuer's ability to comply with the material
terms of the security. Information reviewed may include the recent operational
results and financial position of the issuer, information about its industry,
recent press releases and other information as deemed necessary. If evidence
does not exist to support a realizable value equal to or greater than the
carrying value of the investment, and such decline in market value is determined
to be other than temporary, the Company reduces the carrying amount to its net
realizable value, which becomes the new cost basis. The amount of the reduction
is reported as a realized loss. The Company recognizes any recovery of such
reductions in the cost basis of an investment only upon the sale of the
investment.
At December 31, 1997, the Company held investments and cash totaling
$859.5 million with a net unrealized depreciation balance of $10.2 million. Of
the $859.5 million, the Company had dollar denominated fixed income investments
in Korea, Thailand and Indonesia totaling $66.2 million with a net unrealized
depreciation balance of $12.7 million. During the fourth quarter, the Company
recognized $3.8 million in realized losses from the writedown of investments
with an exposure to the financial conditions in Asia. The primary reasons for
the writedown in the investments were the declines in the financial condition of
the issuer and the related reduction in credit ratings by rating agencies. These
changes caused the Company to conclude that the decline in fair value of certain
investments was other-than-temporary. The Company's investment portfolio,
specifically the remaining securities of Asian issuers, is subject to the risks
of further declines in realizable value. The Company attempts to mitigate this
risk through the active management of its portfolio.
At December 31, 1997, the Company's $26.4 million of equity securities,
which were sold in January of 1998, were invested in currencies other than the
U.S. dollar. Also at December 31, 1997, $9.6 million of cash and cash
equivalents were invested in currencies other than the U.S. dollar. The combined
$36.0 million represented approximately 4.2% of the Company's invested assets.
The Company's portfolio does not contain any investments in derivative
securities. Also, the Company's investment portfolio does not contain any direct
investments in real estate, mortgage loans or similar securities.
Under the terms of certain reinsurance contracts, the Company may be
required to provide letters of credit to reinsureds in respect of reported
claims and/or unearned premiums. The Company has obtained a facility providing
for the issuance of letters of credit. This facility is secured by a lien on a
portion of the Company's investment portfolio. At December 31, 1997 the Company
had outstanding letters of credit aggregating $24.7 million.
Investment Advisers
During 1997, each of Warburg, Pincus Investments International
(Bermuda), Ltd. ("WPII"), an affiliate of Warburg, Pincus Investors, L.P.; GE
Investments (U.S.) Limited ("GE Investments"), an affiliate of PT Investments,
Inc. and GE Investment Private Placement Partners I - Insurance, Limited
Partnership; the Bank of
-12-
<PAGE>
N.T. Butterfield & Son Limited ("Butterfield Bank") and Falcon Asset Management
(Bermuda) ("Falcon"), an affiliate of USF&G, performed investment advisory
services on behalf of the Company. The terms of such services were determined in
arms' length negotiations, subject to the Company's investment guidelines. The
performance of, and the fees paid to, the Company's investment advisors, are
reviewed periodically by the Investment Committee of the Board of Directors.
The following table summarizes the fair value of the investments and
cash and cash equivalents of the Company as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
Type of Investment ----------------------------------------
------------------ 1997 1996 1995
------------ ------------ ------------
(dollars in millions)
<S> <C> <C> <C>
Fixed Maturities Available for Sale:
U.S. Government debt securities......... 257.8 -- --
Non-U.S. government debt securities..... 256.9 239.4 201.9
Non-U.S. corporate debt securities...... 188.6 329.6 299.5
Non-U.S. mortgage backed securities..... 6.9 34.5 22.4
------ ----- ------
Subtotal............................ 710.2 603.5 523.8
Equity Securities....................... 26.4 -- --
Short-term investments...................... -- -- 5.0
Cash and cash equivalents................... 122.9 199.0 139.2
------ ----- ------
Total fixed maturity investments, equity
securities, short-term investments and
cash and cash equivalents............ $859.5 $802.5 $668.0
====== ====== ======
</TABLE>
The following table summarizes the fair value by contractual maturities
of the Company's fixed maturity investment portfolio as of the dates indicated.
All mortgage-backed securities mature within five years.
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996 1995
----------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Due in less than one year $84.1 $56.1 75.1
Due after one through five years 473.0 457.1 $358.3
Due after five through ten years 90.9 90.3 90.4
Due after ten years 62.2 -- --
------ ------ ------
Total $710.2 $603.5 $523.8
====== ====== ======
</TABLE>
Maturity and Duration of Fixed Maturity Portfolio
Currently, the Company maintains a target duration of two years on a
weighted average basis, reflecting Management's belief that it is important to
maintain a liquid, shorter-duration portfolio to better assure the Company's
ability to pay claims on a timely basis. The actual portfolio duration may not
exceed the target duration by more than two years. The Company expects to
reevaluate the target duration in light of estimates of the duration of its
liabilities and market conditions, including the level of interest rates, from
time to time.
-13-
<PAGE>
Quality of Debt Securities in Portfolio
The Company's investment guidelines stipulate that the minimum credit
rating for securities purchased for the Company's portfolio is B, that a maximum
of 15% of the portfolio be rated BB or below and that the overall average rating
of the portfolio, including cash and cash equivalents, be at least AA.
The following table summarizes the composition of the fair value of the
fixed maturity portfolio as of the dates indicated by rating as assigned by S&P
or, with respect to non-rated issues, as estimated by the Company's investment
managers.
December 31,
------------------------------------------------
Rating 1997 1996 1995
------ ------ ------ ------
AAA........................ 56.9% 28.1% 39.5%
AA......................... 12.2 50.1 41.6
A.......................... 14.9 20.2 15.3
BBB........................ 5.0 1.6 3.6
BB......................... 4.9 -- --
B ........................ 6.1 -- --
------ ------ ------
100.0% 100.0% 100.0%
===== ===== =====
Equity Securities
At December 31, 1997, the Company's investments in equity securities,
managed by GE Investments, consisted entirely of common stock, preferred stock
or other forms of non-U.S. securities of established companies listed on foreign
exchanges. The portfolio also included American Depositary Receipts of non-U.S.
issuers. This portfolio was liquidated in January 1998.
Derivatives
The Company's portfolio does not contain any direct investments in
derivative securities.
Real Estate
The Company's portfolio does not contain any direct investments in real
estate or mortgage loans.
Foreign Currency Exposures
All of the Company's fixed maturities are currently invested in
securities denominated in U.S. dollars. The Company's investments in equity
securities are primarily invested in securities which are denominated in
currencies other than the U.S. dollar. The Company's fixed maturity portfolio is
generally not invested so as to hedge exposures to various currencies. The
Company maintains a portion of its foreign currency premiums in the original
currency as cash investments in anticipation of known claims or other foreign
currency liabilities.
Diversification and Liquidity
Pursuant to the investment guidelines of the Company, there is no limit
on the percentage of the Company's fixed income portfolio that may be invested
in the securities of the U.S. Government, up to 15% of the portfolio may be
invested in the countries of Canada, France, Germany, Japan and the United
Kingdom, and all other countries are limited to a maximum limit of 3% of the
portfolio. No more than 10% of the portfolio may be invested in securities
issued by any single issuer, maturing in one year or less or in obligations of
any single issuer that is rated AA or AAA by S&P, or Aa or Aaa by Moody's and is
either (i) a sovereign (or guaranteed by a sovereign) issuing in a currency
other than its own, (ii) a local government entity or (iii) a supranational
entity. Each investment adviser has limitations as follows: up to 10% of the
portfolio may be invested in obligations of any
-14-
<PAGE>
individual issuer not described above, but with ratings of AA or AAA by S&P, or
Aa or Aaa by Moody's; up to 7% of the portfolio may be invested in obligations
of any individual A issuer, as rated by S&P or by Moody's; up to 5% of the
portfolio may be invested in obligations of any individual BBB issuer as rated
by S&P or Baa issuer as rated by Moody's; and up to 3% of the portfolio may be
invested in obligations of any individual BB issuer as rated by S&P or Ba as
rated by Moody's. In addition, no more than 15% of each investment advisor's
portfolio may be rated lower than BB by S&P or Ba3 by Moody's.
The Company is currently evaluating its investment guidelines, and as a
consequence the revised guidelines may permit the Company to increase the
average duration and credit risk of the portfolio.
Competition
The property catastrophe reinsurance industry is highly competitive and
is undergoing a variety of challenging developments, including a marked trend
toward greater consolidation. The Company competes, and will continue to
compete, with major U.S. and non-U.S. property catastrophe insurers, reinsurers,
and certain underwriting syndicates. Many of these competitors have greater
financial, marketing and management resources than the Company. In addition, new
companies may enter the property catastrophe reinsurance market or existing
reinsurers may deploy additional capital in the property catastrophe reinsurance
market. The Company cannot predict what effect any of these developments may
have on the Company and its business.
Competition in the types of reinsurance business that the Company
underwrites is based on many factors, including premium charges and other terms
and conditions offered, services provided, speed of claims payment, ratings
assigned by independent rating agencies, the perceived financial strength and
the experience of the reinsurer in the line of reinsurance to be written. The
number of jurisdictions in which a reinsurer is licensed or authorized to do
business is also a factor. Some of the reinsurers who have entered the Bermuda
and London-based reinsurance markets have or could have greater financial,
marketing or managerial resources than the Company. Ultimately, increasing
competition could affect the Company's ability to attract business on terms
having the potential to yield an attractive return on equity.
Management is also aware of many potential initiatives by capital market
participants to produce alternative products that may compete with the existing
catastrophe reinsurance markets. Management is unable to predict the extent to
which the foregoing new, proposed or potential initiatives may affect the demand
for the Company's products or the risks which may be available for the Company
to consider underwriting.
Employees
As of March 27, 1998, the Company employed 34 people, all of whom are
either shareholders or optionholders of the Company. The Company believes that
its employee relations are satisfactory. None of the Company's employees are
subject to collective bargaining agreements, and the Company knows of no current
efforts to implement such agreements at the Company.
After consummation of the Nobel Acquisition, the Company expects to
employ approximately 250 additional employees. None of such employees are
subject to collective bargaining agreements, and the Company knows of no current
efforts to implement such agreements.
-15-
<PAGE>
Regulation
Bermuda
The Insurance Act 1978, as amended, and Related Regulations. The
Insurance Act, which regulates the business of Renaissance Reinsurance and
Glencoe, provides that no person shall carry on an insurance business in or from
within Bermuda unless registered as an insurer under the Act by the Minister.
Renaissance Reinsurance and Glencoe are registered as a Class 4 and a Class 3
insurer under the Insurance Act, respectively. The Minister, in deciding whether
to grant registration, has broad discretion to act as he thinks fit in the
public interest. The Minister is required by the Insurance Act to determine
whether the applicant is a fit and proper body to be engaged in the insurance
business and, in particular, whether it has, or has available to it, adequate
knowledge and expertise. In connection with the applicant's registration, the
Minister may impose conditions relating to the writing of certain types of
insurance.
An Insurance Advisory Committee appointed by the Minister advises him on
matters connected with the discharge of his functions and sub-committees thereof
supervise and review the law and practice of insurance in Bermuda, including
reviews of accounting and administrative procedures.
The Insurance Act imposes on Bermuda insurance companies solvency and
liquidity standards and auditing and reporting requirements and grants to the
Minister powers to supervise, investigate and intervene in the affairs of
insurance companies. Significant aspects of the Bermuda insurance regulatory
framework are set forth below.
Cancellation of Insurer's Registration. An insurer's registration may be
canceled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with a requirement made of it under
the Insurance Act or, if in the opinion of the Minister after consultation with
the Insurance Advisory Committee, the insurer has not been carrying on business
in accordance with sound insurance principles.
Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, the
latter of which is required to be filed annually with the Registrar of Companies
(the "Registrar"), who is the chief administrative officer under the Insurance
Act. The auditor must be approved by the Minister as the independent auditor of
the insurer. The approved auditor may be the same person or firm which audits
the insurer's financial statements and reports for presentation to its
shareholders.
Loss Reserve Specialist. Every Registered Class 3 and Class 4 insurer is
required to submit an annual loss reserve opinion when filing the Annual
Statutory Financial Return. This opinion must be issued by a Loss Reserve
Specialist. The Loss Reserve Specialist, who will normally be a qualified
casualty actuary, must be approved by the Minister.
Statutory Financial Statements. An insurer must prepare annual Statutory
Financial Statements. The Insurance Act prescribes rules for the preparation and
substance of such Statutory Financial Statements (which include, in statutory
form, a balance sheet, income statement, and a statement of capital and surplus,
and detailed notes thereto). The insurer is required to give detailed
information and analyses regarding premiums, claims, reinsurance and
investments. The Statutory Financial Statements are not prepared in accordance
with GAAP and are distinct from the financial statements prepared for
presentation to the insurer's shareholders under the Companies Act 1981 of
Bermuda, which financial statements may be prepared in accordance with GAAP. The
insurer is required to submit the Annual Statutory Financial Statements as part
of the Annual Statutory Financial Return.
Minimum Solvency Margin. The Insurance Act provides that the statutory
assets of an insurer must exceed its statutory liabilities by an amount greater
than the prescribed minimum solvency margin which varies with the type of
business of the insurer and the insurer's net premiums written and loss reserve
level. The
-16-
<PAGE>
minimum solvency margin for a Class 4 insurer is the greatest of $100.0 million,
50% of net premiums written (with a credit for reinsurance ceded not exceeding
25% of gross premiums) and 15% of loss and loss expense provisions and other
insurance reserves. The minimum solvency margin for a Class 3 insurer is the
greatest of $1.0 million, 20% of the first $6.0 million of net premiums written
plus 15% of net premiums written in excess of $6.0 million, and 15% of loss and
loss expense provisions and other insurance reserves.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity
ratio for general business. An insurer engaged in general business is required
to maintain the value of its relevant assets at not less than 75% of the amount
of its relevant liabilities. Relevant assets include cash and time deposits,
quoted investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable and
reinsurance balances receivable. There are certain categories of assets which,
unless specifically permitted by the Minister, do not automatically qualify as
relevant assets, such as unquoted equity securities, investments in and advances
to affiliates, real estate and collateral loans. The relevant liabilities are
total general business insurance reserves and total other liabilities less
deferred income tax and sundry liabilities (by interpretation, those not
specifically defined).
Annual Statutory Financial Return. An insurer is required to file with
the Registrar a Statutory Financial Return no later than four months from the
insurer's financial year end (unless specifically extended). The Statutory
Financial Return includes, among other matters, a report of the approved
independent auditor on the Statutory Financial Statements of the insurer; a
declaration of the statutory ratios; a solvency certificate; the Statutory
Financial Statements themselves; the opinion of the approved Loss Reserve
Specialist and certain details concerning ceded reinsurance. The solvency
certificate and the declaration of the statutory ratios must be signed by the
principal representative and at least two directors of the insurer who are
required to state whether the Minimum Solvency Margin and, in the case of the
solvency certificate, the Minimum Liquidity Ratio, have been met, and the
independent approved auditor is required to state whether in its opinion it was
reasonable for them to so state and whether the declaration of the statutory
ratios complies with the requirements of the Insurance Act. The Statutory
Financial Return must include the opinion of a Loss Reserve Specialist in
respect of the loss and loss expense provisions of the insurer. Where an
insurer's accounts have been audited for any purpose other than compliance with
the Insurance Act, a statement to that effect must be filed with the Statutory
Financial Return.
Supervision, Investigation and Intervention. The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if the
Minister believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to him, the Minister may
direct an insurer to produce documents or information relating to matters
connected with the insurer's business.
If it appears to the Minister that there is a risk of the insurer
becoming insolvent, the Minister may direct the insurer not to take on any new
insurance business; not to vary any insurance contract if the effect would be to
increase the insurer's liabilities; not to make certain investments; to realize
certain investments; to maintain in Bermuda, or transfer to the custody of a
Bermuda bank, certain assets; not to declare or pay any dividends or other
distributions or to restrict the making of such payments and/or to limit its
premium income.
An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda. For the purpose of
the Insurance Act, the principal office of the Company and its Subsidiaries is
at the Company's offices at Renaissance House, 8-12 East Broadway, Pembroke HM
19 Bermuda and Mr. Keith S. Hynes, the Company's Senior Vice President, and Mr.
John D. Nichols, Jr., the Company's Vice President, Treasurer and Secretary, are
the principal representatives of Renaissance Reinsurance and Glencoe,
respectively. Without a reason acceptable to the Minister, an insurer may not
terminate the appointment of its principal representative, and the principal
representative may not cease to act as such, unless thirty days' notice in
writing to the Minister is given of the intention to do so. It is the duty of
the principal representative, within thirty days of his reaching the view that
there is a likelihood of the insurer for which he acts becoming insolvent or its
coming to his knowledge, or his having reason to believe, that an event has
occurred, to make a report in writing to the Minister setting out all the
particulars of the case that are available to him. Examples of such an event
include
-17-
<PAGE>
failure by the insurer to comply substantially with a condition imposed upon the
insurer by the Minister relating to a solvency margin or a liquidity or other
ratio.
United States and Other
Renaissance Reinsurance is not admitted to do business in any
jurisdiction except Bermuda. The insurance laws of each state of the United
States and of many other countries regulate the sale of insurance and
reinsurance within their jurisdictions by alien insurers, such as Renaissance
Reinsurance, which are not admitted to do business within such jurisdiction.
With some exceptions, such sale of insurance or reinsurance within a
jurisdiction where the insurer is not admitted to do business is prohibited.
Renaissance Reinsurance does not intend to maintain an office or to solicit,
advertise, settle claims or conduct other insurance activities in any
jurisdiction other than Bermuda where the conduct of such activities would
require that Renaissance Reinsurance be so admitted. Glencoe is eligible to
write insurance in 26 states and is subject to the regulation and reporting
requirements of these states. In accordance with certain requirements of the
National Association of Insurance Commissioners (the "NAIC"), Glencoe has
established, and is required to maintain, a trust funded with a minimum of $15.0
million as a condition of its status as a licensed, non-admitted insurer in the
U.S.
DeSoto is a licensed insurer in Florida and the businesses being
acquired from Nobel are subject to regulation in all 50 U.S. states and the
District of Columbia. The Company's U.S. operations, which will expand
significantly after the contemplated acquisition of the operating subsidiaries
of Nobel, are subject to extensive regulation under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. Such regulation generally is designed to protect policyholders
rather than investors and relates to such matters as the standard of solvency
which must be met and maintained; the licensing of insurers and their agents;
the nature of and extermination of the affairs of insurance companies, which
includes periodic market conduct examinations by the regulatory authorities;
annual and other reports, prepared on a statutory accounting basis, required to
be filed on the financial condition of insurers or for other purposes;
establishment and maintenance of reserves for unearned premiums and losses; and
requirements regarding numerous other matters. In general, regulated insurers
must file all rates for insurance directly underwritten with the insurance
department of each state in which they operate on an admitted basis; reinsurance
generally is not subject to rate regulation. Further, state insurance statutes
typically place limitations on the amount of dividends or other distributions
payable by insurance companies in order to protect their solvency. Florida, the
jurisdiction of incorporation of DeSoto, requires that dividends be paid only
out of earned surplus and limits the annual amount payable without the prior
approval of the Florida Insurance Department to the greater of 10% of
policyholders' surplus adjusted for unrealized gains or 100% of prior year
statutory net income. Texas, the jurisdiction of incorporation of Nobel
Insurance, currently requires that dividends be paid only out of earned
statutory surplus and limits the annual amount of dividends payable without the
prior approval of the Texas Insurance Department to the greater of 10% of
statutory capital and surplus at the end of the previous calendar year or 100%
of statutory net income from operations for the previous calendar year. These
laws also impose prior approval requirements for certain transactions with
affiliates.
Further, as a result of the Company's ownership of DeSoto and
prospective ownership of Nobel Insurance Company, under the terms of applicable
state statutes, any person or entity desiring to purchase more than 10 percent
of the Company's outstanding voting securities is required to obtain prior
regulatory approval for the purchase.
The NAIC has established eleven financial ratios to assist state
insurance departments in their oversight of the financial condition of insurance
companies operating in their respective states. The NAIC calculates these ratios
based on information submitted by insurers on an annual basis and shares the
information with the applicable state insurance departments. The failure of the
Company's U.S. insurance subsidiaries to comply with the acceptable range of
such ratios could have an adverse effect on the Company.
-18-
<PAGE>
In their ongoing effort to improve solvency regulations, the NAIC and
individual states have enacted certain laws and statutory financial statement
reporting requirements. For example, NAIC rules require audited statutory
financial statements as well as actuarial certification of loss and loss
adjustment expense reserves therein. Other activities are focused on greater
disclosure of an insurer's reliance on reinsurance and changes in its
reinsurance programs and tighter rules on accounting for certain overdue
reinsurance. In addition, the NAIC has implemented risk-based capital
requirements for property and casualty insurance companies (see below). These
regulatory initiatives and the overall focus on solvency may intensify the
restructuring and consolidation of the insurance industry. It is also possible
that the U.S. Congress may enact legislation regulating the insurance industry.
While the impact of these regulatory efforts on the Company's operations cannot
be quantified until enacted, the Company believes it will be adequately
positioned to compete in an environment of more stringent regulation.
The NAIC has implemented a risk-based capital measurement formula to be
applied to all property/casualty insurance companies, which formula calculates a
minimum required statutory net worth based on the underwriting, investment,
credit loss reserve and other business risks applicable to the insurance
company's operations. An insurance company that does not meet threshold
risk-based capital measurement standards could be required to reduce the scope
of its operations and ultimately could become subject to statutory receivership
proceedings.
The Company's U.S. insurance subsidiaries are subject to guaranty fund
laws which can result in assessments, up to prescribed limits, for losses
incurred by policyholders as a result of the impairment or insolvency of
unaffiliated insurance companies. Typically, an insurance company is subject to
the guaranty fund laws of the states in which it conducts insurance business;
however, companies which conduct business on a surplus lines basis in a
particular state are generally exempt from that state's guaranty fund laws. The
Company does not expect the amount of any such guaranty fund assessments to be
paid by the Company in 1998 to be material.
The expansion of the Company's operations through Glencoe and DeSoto and
the contemplated purchase of the operating subsidiaries of Nobel, and the
potential further expansion of the Company into additional insurance markets,
could expose the Company or subsidiaries of the Company to increasing regulatory
oversight. However, the Company intends to continue to conduct its operations so
as to minimize the likelihood that RenaissanceRe Holdings Ltd. or Renaissance
Reinsurance will become subject to U.S. regulation.
Other Available Information
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. For further information regarding the Company,
reference is made to such reports, proxy statements and other information which
are available as described under "Available Information" and "Incorporation of
Certain Documents by Reference."
-19-
<PAGE>
GLOSSARY OF SELECTED INSURANCE TERMS
Attachment point The amount of loss (per occurrence or in the
aggregate, as the case may be) above which
excess of loss reinsurance becomes operative.
Broker One who negotiates contracts of insurance
or reinsurance, receiving a commission for
placement and other services rendered, between
(1) a policy holder and a primary insurer, on
behalf of the insured party, (2) a primary
insurer and reinsurer, on behalf of the primary
insurer, or (3) a reinsurer and a
retrocessionaire, on behalf of the reinsurer.
Catastrophe excess of loss A form of excess of loss reinsurance that,
reinsurance subject to a specified limit, indemnifies the
ceding company for the amount of loss in excess
of a specified retention with respect to an
accumulation of losses resulting from a
"catastrophe cover."
Cede; Cedent; Ceding company When a party reinsures its liability with
another, it "cedes" business and is referred to
as the "cedent" or "ceding company."
Claim adjustment expenses The expenses of settling claims, including
legal and other fees and the portion of general
expenses allocated to claim settlement costs.
Claim reserves Liabilities established by insurers and
reinsurers to reflect the estimated cost of
claims payments and the related expenses that
the insurer or reinsurer will ultimately be
required to pay in respect of insurance or
reinsurance it has written. Reserves are
established for losses and for claim adjustment
expenses.
Excess of loss reinsurance A generic term describing reinsurance that
indemnifies the reinsured against all or a
specified portion of losses on underlying
insurance policies in excess of a specified
amount, which is called a "level" or
"retention." Also known as non-proportional
reinsurance. Excess of loss reinsurance is
written in layers. A reinsurer or group of
reinsurers accepts a band of coverage up to a
specified amount. The total coverage purchased
by the cedent is referred to as a "program" and
will typically be placed with predetermined
reinsurers in prenegotiated layers. Any
liability exceeding the outer limit of the
program reverts to the ceding company, which
also bears the credit risk of a reinsurer's
insolvency.
Funded cover A form of insurance where the insured pays
premiums to a reinsurer to serve essentially as
a deposit in order to offset future losses. On
a funded cover, there is generally limited or
no transfer of risk for catastrophe losses from
the insured to the reinsurer.
-20-
<PAGE>
Generally accepted accounting Accounting principles as set forth in opinions
principles of the Accounting Principles Board of the
American Institute of Certified Public
Accountants and/or statements of the Financial
Accounting Standards Board and/or their
respective successors and which are applicable
in the circumstances as of the date in
question.
Incurred but not reported Reserves for estimated losses that have been
incurred by insureds and reinsureds but not yet
reported to the insurer or reinsurer including
unknown future developments on losses which are
known to the insurer or reinsurer.
Layer The interval between the retention or
attachment point and the maximum limit of
indemnity for which a reinsurer is responsible.
Net premiums written Gross premiums written for a given period less
premiums ceded to reinsurers and
retrocessionaires during such period.
Proportional reinsurance A generic term describing all forms of
reinsurance in which the reinsurer shares a
proportional part of the original premiums and
losses of the reinsured. (Also known as pro
rata reinsurance, quota share reinsurance or
participating reinsurance.) In proportional
reinsurance the reinsurer generally pays the
ceding company a ceding commission. The ceding
commission generally is based on the ceding
company's cost of acquiring the business being
reinsured (including commissions, premium
taxes, assessments and miscellaneous
administrative expense) and also may include a
profit factor.
Reinstatement premium The premium charged for the restoration of the
reinsurance limit of a catastrophe contract to
its full amount after payment by the reinsurer
of losses as a result of an occurrence.
Reinsurance An arrangement in which an insurance company,
the reinsurer, agrees to indemnify another
insurance or reinsurance company, the ceding
company, against all or a portion of the
insurance or reinsurance risks underwritten by
the ceding company under one or more policies.
Reinsurance can provide a ceding company with
several benefits, including a reduction in net
liability on individual risks and catastrophe
protection from large or multiple losses.
Reinsurance also provides a ceding company with
additional underwriting capacity by permitting
it to accept larger risks and write more
business than would be possible without a
concomitant increase in capital and surplus,
and facilitates the maintenance of acceptable
financial ratios by the ceding company.
Reinsurance does not legally discharge the
primary insurer from its liability with respect
to its obligations to the insured.
-21-
<PAGE>
Retention The amount or portion of risk that an insurer
retains for its own account. Losses in excess
of the retention level are paid by the
reinsurer. In proportional treaties, the
retention may be a percentage of the original
policy's limit. In excess of loss business, the
retention is a dollar amount of loss, a loss
ratio or a percentage.
Retrocessional Reinsurance; A transaction whereby a reinsurer cedes to
Retrocessionaire another reinsurer, the retrocessionaire, all or
part of the reinsurance that the first
reinsurer has assumed. Retrocessional
reinsurance does not legally discharge the
ceding reinsurer from its liability with
respect to its obligations to the reinsured.
Reinsurance companies cede risks to
retrocessionaires for reasons similar to those
that cause primary insurers to purchase
reinsurance: to reduce net liability on
individual risks, to protect against
catastrophic losses, to stabilize financial
ratios and to obtain additional underwriting
capacity.
Risk excess of loss reinsurance A form of excess of loss reinsurance that
covers a loss of the reinsured on a single
"risk" in excess of its retention level of the
type reinsured, rather than to aggregate losses
for all covered risks, as does catastrophe
excess of loss reinsurance. A "risk" in this
context might mean the insurance coverage on
one building or a group of buildings or the
insurance coverage under a single policy, which
the reinsured treats as a single risk.
Statutory accounting principles Recording transactions and preparing financial
("SAP") statements in accordance with the rules and
procedures prescribed or permitted by United
States state insurance regulatory authorities
including the NAIC, which in general reflect
a liquidating, rather than going concern,
concept of accounting.
Underwriting The insurer's or reinsurer's process
of reviewing applications submitted
for insurance coverage, deciding
whether to accept all or part of the
coverage requested and determining
the applicable premiums.
Underwriting capacity The maximum amount that an insurance company
can underwrite. The limit is generally
determined by the company's retained
earnings and investment capital. Reinsurance
serves to increase a company's
underwriting capacity by reducing its
exposure from particular risks.
Underwriting expenses The aggregate of policy acquisition costs,
including commissions, and the portion of
administrative, general and other expenses
attributable to underwriting operations.
-22-
<PAGE>
Item 2. Properties
The Company leases office space in Bermuda, where its executive offices
are located.
Item 3. Legal Proceedings
The Company is, from time to time, a party to litigation and arbitration
that arises in the normal course of its business operations. While any
proceeding contains an element of uncertainty, the Company believes that it is
not presently a party to any such litigation or arbitration that would have a
material adverse effect on its business or operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The information with respect to the market for the Common Shares and
related shareholder matters is contained under the caption "Financial and
Investor Information" on the inside back cover of the Company's Annual Report to
Shareholders for the year ended December 31, 1997 (the "Annual Report") and is
incorporated herein by reference thereto in response to this item.
Item 6. Selected Consolidated Financial Data
Selected Consolidated Financial Data is listed on page 12 of the Annual
Report and is incorporated herein by reference thereto in response to this item.
The selected financial data of the Company should be read in conjunction with
the Consolidated Financial Statements of the Company and related Notes thereto
contained in the Annual Report and incorporated herein by reference thereto.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information with respect to Management's discussion and analysis of
financial condition and results of operations, is contained under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" on pages 13 through 24 of the Annual Report and is incorporated
herein by reference thereto in response to this item.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of the Company are contained on
pages 26 through 43 of the Annual Report and are incorporated herein by
reference thereto in response to this item. Reference is made to Item 14(a) of
this Report for the Schedules to the Consolidated Financial Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company.
This information with respect to directors and officers of the Company
is contained under the captions "Directors and Executive Officers of the
Company" on pages 6 through 8 of the Company's Definitive Proxy Statement in
respect of the Annual General Meeting of Shareholders to be held on May 5, 1998
(the "Proxy Statement") and "Proposal 1" on pages 27-28 of the Proxy Statement,
and is incorporated herein by reference thereto in response to this item.
Item 11. Executive Compensation
The information with respect to executive compensation is contained
under the subcaption "Executive Officer and Director Compensation" on pages 16
through 26 of the Proxy Statement, and is incorporated herein by reference
thereto in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information with respect to security ownership of certain beneficial
owners and Management is contained under the caption "Security Ownership of
Certain Beneficial Owners, Management and Directors" on pages 9 through 11 of
the Proxy Statement, and is incorporated herein by reference thereto in response
to this item.
Item 13. Certain Relationships and Related Transactions
The information with respect to certain relationships and related
transactions is contained under the caption "Certain Relationships and Related
Transactions" on pages 12 through 14 of the Proxy Statement, and is incorporated
herein by reference thereto in response to this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Exhibits.
1. The Consolidated Financial Statements of the Company and related Notes
thereto are contained on pages 26 through 43 of the Company's 1997
Annual Report to Shareholders are incorporated herein by reference
thereto.
2. The Schedules to the Consolidated Financial Statements of the Company
are listed in the accompanying Index to Schedules to Consolidated
Financial Statements and are filed as part of this Report.
3. The following exhibits are included in this Report:
3.1 Memorandum of Association.*
3.3 Amended and Restated Bye-Laws.@
4.1 Specimen Common Share certificate.*
-24-
<PAGE>
10.1 Discretionary Investment Advisory Agreement, dated June 9, 1993, between
Renaissance Reinsurance Ltd. and Warburg, Pincus Counsellors, Inc.*
10.2 Investment Management Agreement, dated as of November 1, 1993, between
GE Investment Management Incorporated and Renaissance Reinsurance Ltd.*
10.3 RenaissanceRe Holdings Ltd. Restricted Stock Plan.*
10.4 Agreement and Plan of Recapitalization, dated as of March 26, 1995, by
and among RenaissanceRe Holdings Ltd., Renaissance Reinsurance Ltd. and
Investors named therein.*
10.5 Amended and Restated Employment Agreement, dated as of July 1, 1997,
between Renaissance Reinsurance Ltd. and James N. Stanard.+
10.6 Form of Employment Agreement, dated as of June 23, 1997, between
Renaissance Reinsurance Ltd. and certain executive officers.#
10.7 Employment Agreement, dated as of February 4, 1998, between Renaissance
Reinsurance Ltd. and William I. Riker.
10.8 Third Amended and Restated Credit Agreement, dated as of December 12,
1996, among RenaissanceRe Holdings Ltd., various financial institutions
which are, or may become, parties thereto (the "Lenders"), Fleet
National Bank of Connecticut and Mellon Bank, N.A., as Co-Agents, and
Bank of America National Trust and Savings Association, as
Administrative Agent for the Lenders.+++
10.9 First Amendment to Amended and Restated Credit Agreement, dated as of
September 8, 1997, among RenaissanceRe Holdings Ltd., the Lenders named
therein, and Bank of America National Trust and Savings Association as
Administrative Agent.+
10.10 Equity Purchase Agreement, dated as of December 13, 1996, by and among
RenaissanceRe Holdings Ltd., Warburg, Pincus Investors, L.P., Trustees
of General Electric Pension Trust, GE Private Placement Partners I,
Limited Partnership and United States Fidelity and Guaranty Company. @@
10.11 RenaissanceRe Holdings Ltd. Second Amended and Restated 1993 Stock
Incentive Plan.
10.12 RenaissanceRe Holdings Ltd. Amended and Restated Non-Employee Director
Stock Plan (subject to shareholder approval).
10.13 Stock Purchase Agreement, dated December 19, 1997, by and among
RenaissanceRe Holdings Ltd. and Renaissance U.S. Holdings, Inc. and
Nobel Insurance Limited and Nobel Holdings, Inc.++
10.14 Guaranty Agreement, dated June 23, 1997, between RenaissanceRe Holdings
Ltd. and The Bank of America.+
10.15 Amended and Restated Shareholders Agreement, dated as of March 23, 1996,
by and among Warburg, Pincus Investors, L.P., Trustees of General
Electric Pension Trust, GE Private Placement Partners I, Limited
Partnership and United States Fidelity and Guaranty Company.
10.16 Amended and Restated Registration Rights Agreement, dated as of March
23, 1996, by and among Warburg, Pincus Investors, L.P., PT Investments
Inc., GE Private Placement Partners I-Insurance, Limited Partnership
and United States Fidelity and Guaranty Company.
10.17 Amended and Restated Declaration of Trust of RenaissanceRe Capital
Trust, dated as of March 7, 1997, among the Company, as Sponsor, The
Bank of New York, as Property Trustee, The Bank of New York (Delaware),
as Delaware Trustee, and the Administrative Trustees named therein. @@@
10.18 Indenture, dated as of March 7, 1997, among the Company, as Sponsor, and
The Bank of New York, as Debenture Trustee. @@@
10.19 Series A Capital Securities Guarantee Agreement, dated as of March 7,
1997, between the Company and The Bank of New York, as Trustee. @@@
10.20 Registration Rights Agreement, dated March 7, 1997, among the Company,
the Trust, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc. @@@
13.1 Annual Report to Shareholders of RenaissanceRe Holdings Ltd. for the
year ended December 31, 1997 (with the exception of the information
incorporated by reference into Items 5, 7, 8 and 14 of this Report, such
Annual Report to Shareholders is furnished for the information of the
Commission and is not deemed "filed" as part of this Report).
-25-
<PAGE>
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young.
27.1 Financial Data Schedule for the Year ended December 31, 1997
27.2 Restated Financial Data Schedule for the Year ended December 31, 1996
(b) Reports on Form 8-K:
The Company filed no Current Reports on Form 8-K with the Commission
during the fourth quarter of 1997.
- -----------------------
* Incorporated by reference to the Registration Statement on Form S-1 of
the Company (Registration No. 33-70008) which was declared effective by
the Commission on July 26, 1995.
** Incorporated by reference to the Registration Statement on Form S-1 of
the Company (Registration No. 333-00802) which was declared effective by
the Commission on February 27, 1996.
@ Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on January 7, 1997, relating to certain events
which occurred on December 23, 1996.
@@ Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on December 16, 1996, relating to an event
which occurred on December 13, 1996.
@@@ Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on March 19, 1997, relating to certain events
which occurred on March 7, 1997.
+ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, filed with the Commission on
October 22, 1997.
++ Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on January 6, 1998, relating to certain events
which occurred on December 19, 1997.
+++ Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, filed with the Commission on March
21, 1997.
# A substantially similar form of Employment Agreement has been entered
into with each of Messrs. Hynes, Lummis and Eklund.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda
on March 27, 1998.
RENAISSANCERE HOLDINGS LTD.
/s/ James N. Stanard
-------------------------
James N. Stanard
President, Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James N. Stanard President and Chief Executive Officer March 27, 1998
- --------------------- and Chairman of the Board of Directors
James N. Stanard
/s/ John M. Lummis Senior Vice President and Chief March 27, 1998
- ------------------ Financial Officer (Principal
John M. Lummis Accounting Officer)
/s/ Arthur S. Bahr Director March 27, 1998
- ------------------
Arthur S. Bahr
/s/ Thomas A. Cooper Director March 27, 1998
- --------------------
Thomas A. Cooper
/s/ Edmund B. Greene Director March 27, 1998
- --------------------
Edmund B. Greene
/s/ Gerald L. Igou Director March 27, 1998
- ------------------
Gerald L. Igou
/s/ Kewsong Lee Director March 27, 1998
- ------------------
Kewsong Lee
/s/ Dan L. Hale Director March 27, 1998
- ---------------
Dan L. Hale
/s/ Howard H. Newman Director March 27, 1998
- --------------------
Howard H. Newman
/s/ Scott E. Pardee Director March 27, 1998
- -------------------
Scott E. Pardee
/s/ John C. Sweeney Director March 27, 1998
- -------------------
John C. Sweeney
</TABLE>
-27-
<PAGE>
<TABLE>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ David A. Tanner Director March 27, 1998
- -------------------
David A. Tanner
</TABLE>
-28-
<PAGE>
RENAISSANCERE HOLDINGS LTD AND SUBSIDIARIES.
INDEX TO SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Auditors on Schedules........................................................S-2
I Summary of Investments other than Investments in Related Parties at December 31, 1997......S-3
III Condensed Financial Information of the Registrant......................................... S-4
V Supplementary Insurance Information for the years ended December 31, 1997, 1996 and 1995...S-7
VI Reinsurance for the years ended December 31, 1997, 1996 and 1995...........................S-8
X Supplementary Information Concerning Property-Casualty Insurance Operations................S-9
Schedules other than those listed above are omitted for the reason that they are not applicable.
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULES
To the Board of Directors and Shareholders
of RenaissanceRe Holdings Ltd.
We have audited the consolidated financial statements of RenaissanceRe
Holdings Ltd. and Subsidiaries as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997, and have issued our
report thereon dated January 14, 1998; such financial statements and our report
thereon are incorporated by reference elsewhere in this Annual Report on Form
10-K. Our audits also included the financial statement schedules listed in item
14(a)(2) of this Annual Report on Form 10-K for the year ended December 31,
1997. These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young
Hamilton, Bermuda
January 14, 1998
S-2
<PAGE>
SCHEDULE I
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(Expressed in United States Dollars)
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
------------------ Amount at
Amortized Market which shown in
Type of Investment: Cost Value the Balance Sheet
---- ----- -----------------
<S> <C> <C> <C>
Fixed Maturities Available for Sale:
U.S. Government bonds............... $ 257.8 $ 257.8 $ 257.8
Non U.S. sovereign government bonds 263.5 256.9 256.9
Non U.S. corporate debt securities.. 194.3 188.6 188.6
Non U.S. mortgage-backed securities. 6.9 6.9 6.9
---------- --------- ----------
Subtotal......................... 722.5 710.2 710.2
Equity Securities....................... 24.2 26.4 26.4
Cash and cash equivalents............... 122.9 122.9 122.9
Total investments, short-term ---------- --------- ----------
investments, cash and cash
equivalents.................. $ 869.6 $ 859.5 $ 859.5
========== ========= ==========
</TABLE>
S-3
<PAGE>
SCHEDULE III
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENAISSANCERE HOLDINGS LTD.
BALANCE SHEETS
(Parent Company)
(Expressed in United States Dollars)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------ ------
<S> <C> <C>
ASSETS
Cash...................................................... $ 41,593 $ 50,212
Investments available for sale............................ 50,753 23,106
Investment in subsidiaries................................ 657,227 598,220
Dividend receivable....................................... 7,261 26,300
Due from subsidiary....................................... -- --
Other assets.............................................. 1,749 421
-------- --------
Total assets...................................... $758,583 $698,259
-------- --------
LIABILITIES
Loan payable.............................................. $ 50,000 $150,000
Minority interest - Company obligated, mandatorily
redeemablecapital ecurities of a subsidiary trust holding
solely junior subordinated debentures of the Company...... 100,000 --
Other liabilities......................................... 9,880 2,056
-------- --------
Total liabilities................................. $159,880 $152,056
-------- --------
Commitments and contingencies.............................
SHAREHOLDERS' EQUITY
Common Shares: $1 par value-authorized 100,000,000 shares.
Issued and outstanding at December 31, 1997-22,440,901
(1996-23,530,616) ........................................ $ 22,441 $23,531
Additional paid-in capital................................ 52,481 102,902
Loans to officers and employees........................... -- (3,868)
Unearned Stock Grant Compensation......................... (4,731) --
Net unrealized depreciation on investments................ (10,155) 1,577
Retained earnings......................................... 538,667 422,061
-------- --------
Total shareholders' equity........................ 598,703 546,203
-------- --------
Total liabilities and shareholders' equity..... $758,583 $698,259
-------- --------
</TABLE>
S-4
<PAGE>
SCHEDULE III (Cont'd.)
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENAISSANCERE HOLDINGS LTD.
STATEMENTS OF INCOME
(Parent Company)
(Expressed in United States Dollars)
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31,1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income:
Investment income........................... $ 5,723 $ 2,534 $ 92
--------- ---------- ----------
Total income................................ 5,723 2,534 92
--------- ---------- ----------
Expenses:
Amortization of organizational expenses..... - 168 1,439
Interest expense............................ 4,271 6,553 6,424
Corporate expenses.......................... 3,218 2,298 3,092
--------- ---------- ----------
Total expenses.............................. 7,489 9,019 10,955
--------- ---------- ----------
Loss before equity in net income of (1,766) (6,485) (10,863)
subsidiaries & taxes........................
Equity in net income of Reinsurance......... 146,209 161,855 176,185
Equity in net income of Glencoe............. 2,421 900 --
--------- ---------- ----------
Income before minority interests & taxes.... 146,864 156,270 165,322
Minority interest - Company obligated,
mandatorily redeemable capital securities
of a subsidiary trust holding solely junior
subordinated debentures of the Company...... (6,998) -- --
Minority interest - Glencoe.................. (617) (110) --
--------- ---------- ----------
Net income before taxes 139,249 156,160 165,322
Income tax expense -- -- --
--------- ---------- ----------
Net income 139,249 156,160 165,322
Net income allocable to Series B
Preference Shares........................... -- -- 2,536
--------- ---------- ----------
Net income available to Common Shareholders. $ 139,249 $ 156,160 $ 162,786
========= ========== ==========
</TABLE>
S-5
<PAGE>
SCHEDULE III (Cont'd.)
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(Continued)
RENAISSANCERE HOLDINGS LTD.
STATEMENTS OF CASH FLOWS
(Parent Company)
(Expressed in United States Dollars)
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31,1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................. $ 139,249 156,160 $ 165,322
Less equity in net income of subsidiaries.. 148,013 162,755 176,185
--------- ---------- ----------
(8,764) (6,595) (10,863)
Adjustments to reconcile net income to net
cash provided by operating activities
Other...................................... (4,013) 3,630 1,020
--------- ---------- ----------
Net cash applied to operating activities... (12,777) (2,965) (9,843)
--------- ---------- ----------
Cash flows applied to investing activities
Contributions to subsidiary........ (12,000) (50,000) --
Proceeds from sales of investments......... 73,793 40,624 --
Purchases of investments................... (105,223) (63,440) --
Dividends from subsidiary.................. 124,770 135,629 --
Purchase of minority interest in subsidiary (5,185) -- --
Proceeds from sale of minority interest in
subsidiary.............................. -- 15,126 --
Net cash provided by (applied to) --------- ---------- ----------
investing activities.................... 76,155 77,939 --
--------- ---------- ----------
Cash flows from financing activities
Proceeds from issuance of Common Shares.... -- -- 54,496
Proceeds from issuance of Capital
Securities................................ 100,000 -- --
Repurchase of Common Shares................ (53,458) (73,460) --
Dividend to Common Shareholders............ (22,643) (20,489) (4,096)
Net proceeds from (repayment of) bank loan. (100,000) 50,000 40,000
Redemption of Series B 15% Cumulative
Redeemable Voting Preference Shares...... -- -- (57,874)
Repayments from (loans to) officers........ 4,104 (868) (2,628)
--------- ---------- ----------
Net cash provided by financing activities.. (71,997) (44,817) 29,898
--------- ---------- ----------
Net increase in cash and cash equivalents.. $ (8,619) $ 30,157 $ 20,055
Balance at beginning of year............... 50,212 20,055 --
--------- ---------- ----------
Balance at end of year..................... $ 41,593 $ 50,212 $ 20,055
--------- ---------- ----------
</TABLE>
S-6
<PAGE>
SCHEDULE V
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(Expressed in United States Dollars)
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1997 Year Ended December 31, 1997
-------------------------------- ------------------------------------------------------------------
Future
Policy
Benefits, Benefits,
Losses, Claims, Amortization
Deferred Claims Losses of Deferred
Policy and Net and Policy Other Net
Acquisition Claims Unearned Premium Investment Settlement Acquisition Operating Premiums
Costs Expenses Premiums Revenue Income Expenses Costs Expenses Written
------- --------- -------- --------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property.. $ 5,739 $ 110,037 $ 57,008 $ 211,490 $ 49,573 $ 50,015 $ 25,227 $ 25,131 $ 195,752
------- --------- -------- --------- -------- -------- -------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 Year Ended December 31, 1996
-------------------------------- ------------------------------------------------------------------
Future
Policy
Benefits, Benefits,
Losses, Claims, Amortization
Deferred Claims Losses of Deferred
Policy and Net and Policy Other Net
Acquisition Claims Unearned Premium Investment Settlement Acquisition Operating Premiums
Costs Expenses Premiums Revenue Income Expenses Costs Expenses Written
------- --------- -------- --------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property.. $6,819 $105,421 $65,617 $252,828 $44,280 $86,945 $26,162 $16,731 $251,564
====== ======== ======= ======== ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 Year Ended December 31, 1995
-------------------------------- ------------------------------------------------------------------
Future
Policy
Benefits, Benefits,
Losses, Claims, Amortization
Deferred Claims Losses of Deferred
Policy and Net and Policy Other Net
Acquisition Claims Unearned Premium Investment Settlement Acquisition Operating Premiums
Costs Expenses Premiums Revenue Income Expenses Costs Expenses Written
------- --------- -------- --------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property.. $6,163 $100,445 $60,444 $288,886 $32,320 $110,555 $29,286 $10,448 $289,928
====== ======== ======= ======== -------- ======== ======= ======= ========
</TABLE>
S-7
<PAGE>
SCHEDULE VI
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
REINSURANCE
(Expressed in United States Dollars)
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage
Ceeded to Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
------ --------- --------- ------ ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Property Premiums Written $ 7,041 $ 32,535 $221,246 $195,752 113%
========= ========= ======== ======== ====
Year ended December 31, 1996
Property Premiums Written $ 1,552 $ 18,349 $268,361 $251,564 107%
======== ======== ======== ======== ====
Year ended December 31, 1995
Property Premiums Written $ -- $ 2,866 $292,794 $289,928 101%
======== ======== ======== ======== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE X
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
(Expressed in United States Dollars)
(dollars in thousands)
Reserve for
Deferred Unpaid
Policy Claims and Discount Net
Acquisition Claims if any, Unearned Earned Investment
Affiliation with Registrant Costs Expenses Deducted Premiums Premiums Income
--------------------------- ----- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Subsidiaries
Year ended December 31, 1997. $5,739 $110,037 $ -- $57,008 $211,490 $49,573
====== ======== ======= ======= ======== =======
Year ended December 31, 1996. $6,819 $105,421 $ -- $65,617 $252,828 $44,280
====== ======== ======= ======= ======== =======
Year ended December 31, 1995. $6,163 $100,445 $ -- $60,444 $288,886 $32,320
====== ======== ======= ======= ======== =======
<CAPTION>
Claims and Claims
Expense Insured Amortization
Related to of Deferred
------------- Policy Paid Claims Net
Current Prior Acquisition and Claims Premiums
Affiliation with Registrant Year Years Costs Expenses Written
--------------------------- ---- ----- ----- -------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries
Year ended December 31, 1997. $50,015 $ 0 $25,227 $45,399 $195,752
======= ======= ======= ======= ========
Year ended December 31, 1996. $ 75,118 $11,827 $26,162 $81,969 $251,564
======== ======= ======= ======= ========
Year ended December 31, 1995. $ 80,939 $29,616 $29,286 $73,378 $289,928
======== ======= ======= ======= ========
</TABLE>
S-9
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
EXHIBITS
to
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1997
RenaissanceRe Holdings Ltd.
----------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
<S> <C> <C>
3.1 Memorandum of Association.*
3.2 Amended and Restated Bye-Laws.@
4.1 Specimen Common Share certificate.*
10.1 Discretionary Investment Advisory Agreement, dated June 9, 1993, between
Renaissance Reinsurance Ltd. and Warburg, Pincus Counsellors, Inc.*
10.2 Investment Management Agreement, dated as of November 1, 1993, between
GE Investment Management Incorporated and Renaissance Reinsurance Ltd.*
10.3 RenaissanceRe Holdings Ltd. Restricted Stock Plan.*
10.4 Agreement and Plan of Recapitalization, dated as of March 26, 1995, by
and among RenaissanceRe Holdings Ltd., Renaissance Reinsurance Ltd. and
Investors named therein.*
10.5 Amended and Restated Employment Agreement, dated as of July 1, 1997,
between Renaissance Reinsurance Ltd. and James N. Stanard.+
10.6 Form of Employment Agreement, dated as of June 23, 1997, between
Renaissance Reinsurance Ltd. and certain executive officers.#
10.7 Employment Agreement, dated as of February 4, 1998, between Renaissance
Reinsurance Ltd. and William I. Riker.
10.8 Third Amended and Restated Credit Agreement, dated as of December 12,
1996, among RenaissanceRe Holdings Ltd., various financial institutions
which are, or may become, parties thereto (the "Lenders"), Fleet
National Bank of Connecticut and Mellon Bank, N.A., as Co-Agents, and
Bank of America National Trust and Savings Association, as
Administrative Agent for the Lenders.+++
10.9 First Amendment to Amended and Restated Credit Agreement, dated as of
September 8, 1997, among RenaissanceRe Holdings Ltd., the Lenders named
therein, and Bank of America National Trust and Savings Association as
Administrative Agent.+
<PAGE>
<CAPTION>
Exhibit
No. Description Page
<S> <C> <C>
10.10 Equity Purchase Agreement, dated as of December 13, 1996, by and among
RenaissanceRe Holdings Ltd., Warburg, Pincus Investors, L.P., Trustees
of General Electric Pension Trust, GE Private Placement Partners I,
Limited Partnership and United States Fidelity and Guaranty Company. @@
10.11 RenaissanceRe Holdings Ltd. Second Amended and Restated 1993 Stock
Incentive Plan.
10.12 RenaissanceRe Holdings Ltd. Amended and Restated Non-Employee Director
Stock Plan (subject to shareholder approval).
10.13 Stock Purchase Agreement, dated December 19, 1997, by and among
RenaissanceRe Holdings Ltd. and Renaissance U.S. Holdings, Inc. and
Nobel Insurance Limited and Nobel Holdings, Inc.++
10.14 Guaranty Agreement, dated June 23, 1997, between RenaissanceRe Holdings
Ltd. and The Bank of America.+
10.15 Amended and Restated Shareholders Agreement, dated as of March 23, 1996,
by and among Warburg, Pincus Investors, L.P., Trustees of General
Electric Pension Trust, GE Private Placement Partners I, Limited
Partnership and United States Fidelity and Guaranty Company.
10.16 Amended and Restated Registration Rights Agreement, dated as of March
23, 1996, by and among Warburg, Pincus Investors, L.P., PT Investments
Inc., GE Private Placement Partners I-Insurance, Limited Partnership
and United States Fidelity and Guaranty Company.
10.17 Amended and Restated Declaration of Trust of RenaissanceRe Capital
Trust, dated as of March 7, 1997, among the Company, as Sponsor, The
Bank of New York, as Property Trustee, The Bank of New York (Delaware),
as Delaware Trustee, and the Administrative Trustees named therein. @@@
10.18 Indenture, dated as of March 7, 1997, among the Company, as Sponsor, and
The Bank of New York, as Debenture Trustee. @@@
10.19 Series A Capital Securities Guarantee Agreement, dated as of March 7,
1997, between the Company and The Bank of New York, as Trustee. @@@
10.20 Registration Rights Agreement, dated March 7, 1997, among the Company,
the Trust, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc. @@@
13.1 Annual Report to Shareholders of RenaissanceRe Holdings Ltd. for the
year ended December 31, 1997 (with the exception of the information
incorporated by reference into Items 5, 7, 8 and 14 of this Report, such
Annual Report to Shareholders is furnished for the information of the
Commission and is not deemed "filed" as part of this Report).
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young.
27.1 Financial Data Schedule for the Year ended December 31, 1997.
27.2 Restated Financial Data Schedule for the Year ended December 31, 1996.
</TABLE>
- -----------------------
* Incorporated by reference to the Registration Statement on Form S-1 of
the Company (Registration No. 33-70008) which was declared effective by
the Commission on July 26, 1995.
** Incorporated by reference to the Registration Statement on Form S-1 of
the Company (Registration No. 333-00802) which was declared effective by
the Commission on February 27, 1996.
@ Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on January 7, 1997, relating to certain events
which occurred on December 23, 1996.
@@ Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on December 16, 1996, relating to an event
which occurred on December 13, 1996.
@@@ Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on March 19, 1997, relating to certain events
which occurred on March 7, 1997.
+ Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, filed with the Commission
on October 22, 1997.
++ Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on January 6, 1998, relating to certain events
which occurred on December 19, 1997.
+++ Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, filed with the Commission on March
21, 1997.
# A substantially similar form of Employment Agreement has been entered
into with each of Messrs. Hynes, Lummis and Eklund.
FORM OF EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of June 23, 1997 and is
entered into between Renaissance Reinsurance Ltd., a Bermuda company (the
"Company"), and _________ ("Executive").
WHEREAS, Executive is currently employed as a [Senior] Vice
President and ____________ of the Company; and
WHEREAS, Executive and the Company desire to embody in this
Agreement the terms and conditions under which Executive shall continue to be
employed by the Company.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I.
Employment, Duties and Responsibilities
---------------------------------------
1.01. Employment. During the Term (as defined below), Executive
shall serve as a [Senior] Vice President and _____________ of the Company [and
its parent, RenaissanceRe Holdings Ltd. ("Holdings")]. Executive agrees to
devote his full time and efforts to promote the interests of the Company.
1.02. Duties and Responsibilities. Executive shall have such duties
and responsibilities as specified by the Company's Board of Directors (the
"Company's Board") from time to time and as are consistent with his position.
1.03. Base of Operation. Executive's principal base of operation for
the performance of his duties and responsibilities under this Agreement shall be
the offices of the Company in Hamilton, Bermuda; provided, however, that
Executive shall perform such duties and responsibilities outside of Bermuda as
shall from time to time be reasonably necessary to fulfill his obligations
hereunder. Executive's performance of any duties and responsibilities outside of
Bermuda shall be conducted in a manner consistent with any guidelines provided
to Executive by Holdings' Board of Directors (the "Holdings Board").
ARTICLE II.
Term
2.01. Term. Subject to Article V, the employment of the Executive
under this Agreement shall be for a term (the "Term") commencing as of the date
first written above and continuing until July 1, 1998; provided, however, that
the Term
<PAGE>
shall be extended for successive one-year periods as of July 1st of each year
commencing with July 1, 1998 (each, a "Renewal Date") unless, with respect to
any such Renewal Date, either party hereto gives the other party at least 30
days prior written notice of its election not to so extend the Term.
ARTICLE III.
Compensation and Expenses
-------------------------
3.01. Salary, Incentive Awards and Benefits. As compensation and
consideration for the performance by Executive of his obligations under this
Agreement, Executive shall be entitled, during the Term, to the following
(subject, in each case, to the provisions of ARTICLE V hereof):
(a) Salary; Bonus. The Company shall pay Executive a base
salary at a rate to be determined by the Board, upon recommendation of the Chief
Executive Officer, payable in accordance with the normal payment procedures of
the Company and subject to such withholding and other normal employee deductions
as may be required by law. Bonuses shall be payable at the discretion of the
Company.
(b) Awards. Executive may participate in the Second Amended
and Restated 1993 Stock Incentive Plan of RenaissanceRe Holdings Ltd. (the
"Plan"). Executive may receive grants from time to time as determined by the
Compensation Committee of the Holdings Board. Executive shall enter into
separate award agreements with respect to such awards granted to him ("Awards")
under the Plan, and his rights with respect to such Awards shall be governed by
the Plan and such award agreements.
(c) Benefits. Executive shall be eligible to participate in
such life insurance, health, disability and major medical insurance benefits,
and in such other employee benefit plans and programs for the benefit of the
employees and officers of the Company, as may be maintained from time to time
during the Term, in each case to the extent and in the manner available to other
officers of the Company and subject to the terms and provisions of such plan or
program.
(d) Vacation. Executive shall be entitled to reasonable paid
vacation periods, not to exceed five weeks for each full year during the Term,
to be taken at his discretion, in a manner consistent with his obligations to
the Company under this Agreement, and subject, with respect to timing, to the
reasonable approval of the Chief Executive Officer of the Company.
2
<PAGE>
(e) Indemnification/Liability Insurance. The Company shall
indemnify Executive as required by the Bye-laws, and may maintain customary
insurance policies providing for indemnification of Executive.
3.02. Expenses; Perquisites. During the Term, the Company shall
provide Executive with the following expense reimbursements and perquisites:
(a) Business Expenses. The Company will reimburse Executive
for reasonable business-related expenses incurred by him in connection with the
performance of his duties hereunder, subject, however, to the Company's policies
relating to business-related expenses as in effect from time to time.
(b) Automobile. The Company shall provide Executive with an
automobile with a value comparable to automobiles customarily provided to
executive officers of comparable Bermuda-based companies.
(c) Tax Gross-Up. To the extent that benefits provided to
Executive under subsections 3.02(b) of this Agreement result in imputed income
and a resulting increased income tax liability to Executive, the Company shall
pay Executive a tax reimbursement benefit in an amount such that, after
deduction of all income taxes payable with respect to such tax reimbursement
benefit, the amount retained by Executive will be equal to the amount of such
increased income tax liability.
ARTICLE IV.
Exclusivity, Etc.
-----------------
4.01. Exclusivity; Non-Competition. Executive agrees to perform his
duties, responsibilities and obligations hereunder efficiently and to the best
of his ability. Executive agrees that he will devote his entire working time,
care and attention and best efforts to such duties, responsibilities and
obligations throughout the Term. Executive also agrees that during the Term he
will not engage in any business activities that are competitive with the
business activities of the Company or any of its divisions, subsidiaries or
affiliates.
4.02. Other Business Ventures. Executive agrees that during the Term
he will not own, directly or indirectly, any controlling or substantial stock or
other beneficial interest in any business enterprise which is engaged in
business activities that are competitive with the business activities of the
Company or any of its divisions, subsidiaries or affiliates. The preceding
sentence notwithstanding, Executive may own, directly or indirectly, up to 1% of
the outstanding capital stock of any
3
<PAGE>
business having a class of capital stock which is traded on any major stock
exchange or in a national over-the-counter market.
4.03. Confidential Information. Executive agrees that he will not,
at any time during or after the Term, make use of or divulge to any other
person, firm or corporation any trade or business secret, process, method or
means, or any other confidential information concerning the business or policies
of the Company or any of its divisions, subsidiaries or affiliates, which he may
have learned in connection with his employment hereunder. For purposes of this
Agreement, a "trade or business secret, process, method or means, or any other
confidential information" shall mean any information designated as confidential
by the Board and as to which Executive receives notice, provided that Executive
shall be obligated to confer periodically with and assist the Board in
determining which information should, in the best interests of the Company, be
so designated. Executive's obligation under this Section 4.03 shall not apply to
any information which (i) is known publicly; (ii) is in the public domain or
hereafter enters the public domain without the fault of Executive; (iii) is
known to Executive prior to his receipt of such information from the Company, as
evidenced by written records of Executive or (iv) is hereafter disclosed to
Executive by a third party not under an obligation of confidence to the Company.
Executive agrees not to remove from the premises of the Company, except as an
employee of the Company in pursuit of the business of the Company or except as
specifically permitted in writing by the Board, any document or other object
containing or reflecting any such confidential information. Executive recognizes
that all such documents and objects, whether developed by him or by someone
else, will be the sole exclusive property of the Company. Upon termination of
his employment hereunder, Executive shall forthwith deliver to the Company all
such confidential information, including without limitation all lists of
customers, correspondence, accounts, records and any other documents or property
made or held by him or under his control in relation to the business or affairs
of the Company or its subsidiaries or affiliates, and no copy of any such
confidential information shall be retained by him.
4.04. Non-Competition Obligations. During the Term and, other than
in the case of the death or disability of the Executive, upon any termination of
the employment of the Executive (including a termination by reason of either
party's election not to extend the Term as provided in Section 2.01), the
Executive shall not, for a period of one year from the date of such termination
(the "Non-Competition Period"), directly or indirectly, whether as an employee
consultant, independent contractor, partner, joint venturer or otherwise, (A)
engage in any business activities reasonably determined by the Company's Board
to be competitive, to a material extent, with any substantial type or kind of
business activities conducted by the Company or any of its divisions,
subsidiaries or affiliates at
4
<PAGE>
the time of such termination; (B) on behalf of any person or entity engaged in
business activities competitive with the business activities of the Company or
any of its divisions, subsidiaries or affiliates, solicit or induce, or in any
manner attempt to solicit or induce, any person employed by, or as agent of, the
Company or any of its divisions, subsidiaries or affiliates to terminate such
person's contract of employment or agency, as the case may be, with the Company
or with any such division, subsidiary or affiliate or (C) divert, or attempt to
divert, any person, concern, or entity from doing business with the Company or
any of its divisions, subsidiaries or affiliates, nor will he attempt to induce
any such person, concern or entity to cease being a customer or supplier of the
Company or any of its divisions, subsidiaries or affiliates. The preceding
sentence notwithstanding, in the case of (i) a voluntary termination of
employment by the Executive which is not for "Good Reason" following a "Change
in Control" (each as hereinafter defined), (ii) a termination by the Company for
Cause (as hereinafter defined), or (iii) an election by the Executive not to
extend the term as provided in Section 2.01, the Company may elect, within 14
days after the date of such termination, to waive the Executive's
non-competition obligations, in which case it shall not be required to make
payments to the Executive during the Non-Competition Period, as provided in
Section 5.05(a).
4.05. Remedies. Executive acknowledges that the Company's remedy at
law for a breach by him of the provisions of this Article IV will be inadequate.
Accordingly, in the event of a breach or threatened breach by Executive of any
provision of this Article IV, the Company shall be entitled to injunctive relief
in addition to any other remedy it may have. If any of the provisions of, or
covenants contained in, this Article IV are hereafter construed to be invalid or
unenforceable in any jurisdiction, the same shall not affect the remainder of
the provisions or the enforceability thereof in any other jurisdiction, which
shall be given full effect, without regard to the invalidity or unenforceability
in such other jurisdiction. If any of the provisions of, or covenants contained
in, this Article IV are held to be unenforceable in any jurisdiction because of
the duration or geographical scope thereof, the parties agree that the court
making such determination shall have the power to reduce the duration or
geographical scope of such provision or covenant and, in its reduced form, such
provision or covenant shall be enforceable; provided, however, that the
determination of such court shall not affect the enforceability of this Article
IV in any other jurisdiction.
ARTICLE V.
Termination
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5.01. Termination for Cause. The Company shall have the right to
terminate Executive's employment at any time for "Cause". For purposes of this
Agreement, "Cause" shall mean (a) Executive's failure to substantially perform
his duties under this Agreement, (b) the engaging by Executive in misconduct
which is injurious to the Company or any of its divisions, subsidiaries or
affiliates, monetarily or otherwise, (c) the commission by Executive of an act
of fraud or embezzlement against the Company or any of its divisions,
subsidiaries or affiliates, (d) the conviction of Executive of a felony, or (e)
Executive's material breach of the provisions of any of Sections 4.01, 4.02 or
4.03 of this Agreement, provided Executive has received prior written notice of
such breach.
5.02. Death. In the event Executive dies during the Term, the
Executive's employment shall automatically terminate, such termination to be
effective on the date of Executive's death.
5.03. Disability. In the event that Executive suffers a disability
which prevents him from substantially performing his duties under this Agreement
for a period of at least 90 consecutive days, or 180 non-consecutive days within
any 365-day period, and Executive becomes eligible for the Company's long-term
disability plan, the Company shall have the right to terminate the Executive's
employment, such termination to be effective upon the giving of notice to
Executive in accordance with Section 6.03 of this Agreement.
5.04. Termination Without Cause. The Company may at any time
terminate Executive's employment for reasons other than Cause.
5.05. Effect of Termination.
(a) Obligations of Company. In the event of any termination
of the Executive's employment hereunder, the Company shall pay Executive any
earned but unpaid base salary. In addition, except as provided in Section 5.06,
upon a termination of Executive's employment for any reason other than the
Executive's death or disability (including a termination by reason of either
party's election not to extend the Term as provided in Section 2.01), the
Company shall continue to pay Executive during the Non-Competition Period, his
then current base salary, and an amount equal to the highest regular annual
bonus paid or payable to the Executive over the preceding three fiscal years
(excluding any extraordinary or non-recurring bonus), such amounts to be payable
in equal monthly installments commencing on the date which is one month after
the date of such termination. The preceding sentence notwithstanding, in the
event of a termination of employment described in the last sentence of Section
4.04 of this Agreement, if the Company elects to waive the Executive's
non-competition obligations within 14
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days after the date of such termination, the Company shall not be required to
make such additional payments.
(b) Awards. Executive's rights with respect to Awards, upon
any termination of his employment with the Company, shall be governed
exclusively by the terms and conditions of the Plan and any award agreements
executed by Executive in connection with the Plan.
(c) Obligations of Executive. Executive may terminate his
employment at any time by 10 days' written notice to the Company. Executive
shall have no obligations to the Company under this Agreement after the
termination of his employment, except and to the extent Sections 4.03, 4.04 or
4.05 shall apply.
5.06. Termination Following a Change in Control. In the event that a
Change in Control occurs (as hereinafter defined) and, on or within two years
following the date of such Change in Control, the Executive's employment is
terminated by the Company without Cause, or the Company elects not to extend the
Term as provided in Section 2.01, or the Executive terminates his employment
voluntarily for "Good Reason" (as hereinafter defined), then in lieu of the
payments described in the second sentence of Section 5.05(a), the Company shall
pay the Executive, within fifteen days following the date of such termination, a
lump sum cash amount equal to two times the sum of:
(i) Executive's annual base salary at the highest rate in effect
during the Term; and
(ii) the highest regular annual bonus paid or payable to the
Executive over the preceding three fiscal years (excluding any
extraordinary or non-recurring bonus).
For purposes of this Agreement, "Good Reason" means
(i) any action taken or failed to be taken by the
Company or any of its officers which, without Executive's prior written
consent, changes Executive's position (including titles), authority,
duties or responsibilities from those in effect prior to the Change in
Control, or reduces Executive's ability to carry out such duties and
responsibilities;
(ii) any failure by the Company to comply with any of
the provisions of Section 3 of this Agreement, other than an insubstantial
or inadvertent failure which is remedied by the Company promptly after
receipt of notice thereof from Executive;
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(iii) the Company's requiring Executive to be employed
at any location more than 35 miles further from his current principal
residence than the location at which Executive was employed immediately
preceding the Change in Control; or
(iv) any failure by the Company to obtain the
assumption of and agreement to perform this Agreement by a successor as
contemplated by Section 6.02(b) of this Agreement.
For purposes of this Agreement, "Change in Control" means the sale
or other disposition of more than 51% of the value of all of Holdings'
outstanding equity securities to one or more persons other than the "Investors"
(as such term is defined in the Plan), but excluding any transaction which, in
the discretion of the Holdings Board, is to be accounted for as a pooling of
interests.
Except as specifically provided in this Section 5.06, the effect of
a termination of Executive's employment following a Change in Control shall be
governed by the provisions of Section of 5.05.
ARTICLE VI.
Miscellaneous
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6.01. Life Insurance. Executive agrees that the Company or any of
its divisions, subsidiaries or affiliates may apply for and secure and own
insurance on Executive's life (in amounts determined by the Company). Executive
agrees to cooperate fully in the application for and securing of such insurance,
including the submission by Executive to such physical and other examinations,
and the answering of such questions and furnishing of such information by
Executive, as may be required by the carrier(s) of such insurance.
Notwithstanding anything to the contrary contained herein, neither the Company
nor any of its divisions, subsidiaries or affiliates shall be required to obtain
any insurance for or on behalf of Executive.
6.02. Benefit of Agreement; Assignment; Beneficiary. (a) This
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns, including, without limitation, any corporation or person
which may acquire all or substantially all of the Company's assets or business,
or with or into which the Company may be consolidated or merged. This Agreement
shall also inure to the benefit of, and be enforceable by, Executive and his
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
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(b) The Company shall require any successor (whether direct
or indirect, by operation of law, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
6.03. Notices. Any notice required or permitted hereunder shall be in
writing and shall be sufficiently given if personally delivered or if sent by
telegram or telex or by registered or certified mail, postage prepaid, with
return receipt requested, addressed: (a) in the case of the Company to
Renaissance Reinsurance Ltd., Renaissance House, East Broadway, Hamilton,
Bermuda, Attention: Secretary, or to such other address and/or to the attention
of such other person as the Company shall designate by written notice to
Executive; and (b) in the case of Executive, to Executive at his then current
home address as shown on the Company's books, or to such other address as
Executive shall designate by written notice to the Company. Any notice given
hereunder shall be deemed to have been given at the time of receipt thereof by
the person to whom such notice is given.
6.04. Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties hereto with respect to the terms and conditions
of Executive's employment and supersedes any and all prior agreements and
understandings, whether written or oral, between the parties hereto with respect
to compensation due for services rendered hereunder. This Agreement may not be
changed or modified except by an instrument in writing signed by both of the
parties hereto.
6.05. Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a continuing
waiver or as a consent to or waiver of any subsequent breach hereof.
6.06. Headings. The Article and Section headings herein are for
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the
provisions hereof.
6.07. Enforcement. If any action at law or in equity is brought by
either party hereto to enforce or interpret any of the terms of this Agreement,
the prevailing party shall be entitled to reimbursement by the other party of
the reasonable costs and expenses incurred in connection with such action
(including reasonable attorneys' fees), in addition to any other relief to which
such party may be entitled. Executive shall have no right to enforce any of his
rights hereunder by seeking or obtaining injunctive or other equitable relief
and acknowledges
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that damages are an adequate remedy for any breach by the Company of this
Agreement.
6.08. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the internal laws of Bermuda
without reference to the principles of conflict of laws. The parties submit to
the non-exclusive jurisdiction of the courts of Bermuda.
6.09. Agreement to Take Actions. Each party to this Agreement shall
execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.
6.10. No Mitigation; No Offset. Executive shall not be required to
mitigate damages or the amount of any payment provided for under this Agreement
by seeking (and, without limiting the generality of this sentence, no payment
otherwise required under this Agreement shall be reduced on account of) other
employment or otherwise, and payments under this Agreement shall not be subject
to offset in respect of any claims which the Company may have against Executive.
6.11. Attorneys' Fees. Each party to this Agreement will bear its
own expenses in connection with any dispute or legal proceeding between the
parties arising out of the subject matter of this Agreement, including any
proceeding to enforce any right or provision under this Agreement.
6.12. Termination; Survivorship. This Agreement shall terminate upon
termination of the Executive's employment, except that the respective rights and
obligations of the parties under this Agreement as set forth herein shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
6.13. Validity. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision or provisions of this Agreement, which shall remain in
full force and effect.
6.14. Other Agreements. Executive represents and warrants to the
Company that to the best of his knowledge, neither the execution and delivery of
this Agreement nor the performance of his duties hereunder violates or will
violate the provisions of any other agreement to which he is a party or by which
he is bound.
6.15. Subsidiaries, etc. (a) The obligations of the Company under
this Agreement may be satisfied by any subsidiary
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or affiliate of the Company for which Executive serves as an employee under this
Agreement, to the extent such obligations relate to Executive's employment by
such subsidiary or affiliate.
(b) The rights of the Company under this Agreement may be
enforced by any Subsidiary or affiliate of the Company for which Executive
serves as an employee under this Agreement, to the extent such rights relate to
Executive's employment by such subsidiary or affiliate.
6.16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and Executive have duly executed this
Agreement as of the date first above written.
RENAISSANCE REINSURANCE LTD.
By:
-------------------------------------
Name:
Title:
----------------------------------------
[Executive]
11
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of February 4, 1998 and
is entered into between Renaissance Reinsurance Ltd., a Bermuda company (the
"Company"), and William I. Riker ("Executive").
WHEREAS, Executive is currently employed as Senior Vice
President of the Company pursuant to an agreement dated May 27, 1997 (the "Prior
Agreement"); and
WHEREAS, Executive and the Company desire to replace the Prior
Agreement and to embody in this Agreement new terms and conditions under which
Executive shall continue to be employed by the Company.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I.
Employment, Duties and Responsibilities
1.01. Employment. During the Term (as defined below),
Executive shall serve as President and Chief Operating Officer of the Company
and Executive Vice President of its parent, RenaissanceRe Holdings Ltd.
("Holdings"). Executive agrees to devote his full time and efforts to promote
the interests of the Company.
1.02. Duties and Responsibilities. Executive shall have such
duties and responsibilities as specified by the Company's Board of Directors
(the "Company's Board") from time to time and as are consistent with his
position.
1.03. Base of Operation. Executive's principal base of
operation for the performance of his duties and responsibilities under this
Agreement shall be the offices of the Company in Hamilton, Bermuda; provided,
however, that Executive shall perform such duties and responsibilities outside
of Bermuda as shall from time to time be reasonably necessary to fulfill his
obligations hereunder. Executive's performance of any duties and
responsibilities outside of Bermuda shall be conducted in a manner consistent
with any guidelines provided to Executive by Holdings' Board of Directors (the
"Holdings Board").
<PAGE>
ARTICLE II.
Term
2.01. Term. Subject to Article V, the employment of Executive
under this Agreement shall be for a term (the "Term") commencing as of the date
first written above and continuing until June 30, 2003, unless sooner terminated
as provided herein.
ARTICLE III.
Compensation and Expenses
3.01. Salary, Incentive Awards and Benefits. As compensation and
consideration for the performance by Executive of his obligations under this
Agreement, Executive shall be entitled, during the Term, to the following
(subject, in each case, to the provisions of ARTICLE V hereof):
(a) Salary; Bonus. The Company shall pay Executive a base
salary at a rate to be determined by the Company's Board, upon recommendation of
the Chief Executive Officer of the Company, payable in accordance with the
normal payment procedures of the Company and subject to such withholding and
other normal employee deductions as may be required by law. Bonuses shall be
payable at the discretion of the Company.
(b) Restricted Stock. Executive shall participate in the
Second Amended and Restated 1993 Stock Incentive Plan RenaissanceRe Holdings
Ltd., as amended through the date hereof and hereafter from time to time (the
"Plan"). Executive is hereby granted 75,000 shares of restricted common stock of
Holdings (the "Restricted Stock") under the Plan. The Restricted Stock shall
vest at the rate of 20% per year on a cumulative basis, commencing on June 30,
1999, and shall be subject to the terms of the Plan and a Restricted Stock
Agreement with respect to the Restricted Stock to be entered into at even date
herewith.
(c) Benefits. Executive shall be eligible to participate
in such life insurance, health, disability and major medical insurance benefits,
and in such other employee benefit plans and programs for the benefit of the
employees and officers of the Company, as may be maintained from time to time
during the Term, in each case to the extent and in the manner available to other
officers of the Company and subject to the terms and provisions of such plan or
program.
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(d) Vacation. Executive shall be entitled to reasonable
paid vacation periods, not to exceed five weeks for each full year during the
Term, to be taken at his discretion, in a manner consistent with his obligations
to the Company under this Agreement, and subject, with respect to timing, to the
reasonable approval of the Chief Executive Officer of the Company.
(e) Indemnification/Liability Insurance. The Company shall
indemnify Executive as required by the Bye-laws, and may maintain customary
insurance policies providing for indemnification of Executive.
3.02. Expenses; Perquisites. During the Term, the Company shall
provide Executive with the following expense reimbursements and perquisites:
(a) Business Expenses. The Company will reimburse
Executive for reasonable business-related expenses incurred by him in connection
with the performance of his duties hereunder, subject, however, to the Company's
policies relating to business-related expenses as in effect from time to time.
(b) Automobile. The Company shall provide Executive with
an automobile with a value comparable to automobiles customarily provided to
executive officers of comparable Bermuda-based companies.
(c) Tax Gross-Up. To the extent that benefits provided to
Executive under subsection 3.02(b) of this Agreement result in imputed income
and a resulting increased income tax liability to Executive, the Company shall
pay Executive a tax reimbursement benefit in an amount such that, after
deduction of all income taxes payable with respect to such tax reimbursement
benefit, the amount retained by Executive will be equal to the amount of such
increased income tax liability.
ARTICLE IV.
Exclusivity, Etc.
4.01. Exclusivity; Non-Competition. Executive agrees to perform
his duties, responsibilities and obligations hereunder efficiently and to the
best of his ability. Executive agrees that he will devote his entire working
time, care and attention and best efforts to such duties, responsibilities and
obligations throughout the Term. Executive also agrees that during the Term he
will not engage in any business activities that are competitive with the
business activities of the Company or any of its divisions, subsidiaries or
affiliates.
4.02. Other Business Ventures. Executive agrees that during the
Term he will not own, directly or indirectly, any controlling or substantial
stock or other beneficial interest in
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any business enterprise which is engaged in business activities that are
competitive with the business activities of the Company or any of its divisions,
subsidiaries or affiliates. The preceding sentence notwithstanding, Executive
may own, directly or indirectly, up to 1% of the outstanding capital stock of
any business having a class of capital stock which is traded on any major stock
exchange or in a national over-the-counter market.
4.03. Confidential Information. Executive agrees that he will
not, at any time during or after the Term, make use of or divulge to any other
person, firm or corporation any trade or business secret, process, method or
means, or any other confidential information concerning the business or policies
of the Company or any of its divisions, subsidiaries or affiliates, which he may
have learned in connection with his employment hereunder. For purposes of this
Agreement, a "trade or business secret, process, method or means, or any other
confidential information" shall mean any information designated as confidential
by the Company's Board and as to which Executive receives notice, provided that
Executive shall be obligated to confer periodically with and assist the
Company's Board in determining which information should, in the best interests
of the Company, be so designated. Executive's obligation under this Section 4.03
shall not apply to any information which (i) is known publicly; (ii) is in the
public domain or hereafter enters the public domain without the fault of
Executive; (iii) is known to Executive prior to his receipt of such information
from the Company, as evidenced by written records of Executive or (iv) is
hereafter disclosed to Executive by a third party not under an obligation of
confidence to the Company. Executive agrees not to remove from the premises of
the Company, except as an employee of the Company in pursuit of the business of
the Company or except as specifically permitted in writing by the Company's
Board, any document or other object containing or reflecting any such
confidential information. Executive recognizes that all such documents and
objects, whether developed by him or by someone else, will be the sole exclusive
property of the Company. Upon termination of his employment hereunder, Executive
shall forthwith deliver to the Company all such confidential information,
including without limitation all lists of customers, correspondence, accounts,
records and any other documents or property made or held by him or under his
control in relation to the business or affairs of the Company or its
subsidiaries or affiliates, and no copy of any such confidential information
shall be retained by him.
4.04. Non-Competition Obligations. During the Term and, other
than in the case of the death or disability of Executive, upon any termination
of the employment of Executive, Executive shall not, until the earlier of (x)
two years from the date of such termination or (y) June 30, 2004 (the
"Non-Competition Period"), directly or indirectly, whether as an employee
consultant, independent contractor, partner, joint venturer or otherwise, (A)
engage in any business activities
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reasonably determined by the Company's Board to be competitive, to a material
extent, with any substantial type or kind of business activities conducted by
the Company or any of its divisions, subsidiaries or affiliates at the time of
such termination; (B) on behalf of any person or entity engaged in business
activities competitive with the business activities of the Company or any of its
divisions, subsidiaries or affiliates, solicit or induce, or in any manner
attempt to solicit or induce, any person employed by, or as agent of, the
Company or any of its divisions, subsidiaries or affiliates to terminate such
person's contract of employment or agency, as the case may be, with the Company
or with any such division, subsidiary or affiliate or (C) divert, or attempt to
divert, any person, concern, or entity from doing business with the Company or
any of its divisions, subsidiaries or affiliates, nor will he attempt to induce
any such person, concern or entity to cease being a customer or supplier of the
Company or any of its divisions, subsidiaries or affiliates. The preceding
sentence notwithstanding, in the case of (i) a voluntary termination of
employment by Executive prior to a "Change in Control," or a voluntary
termination following a "Change in Control" which is not for "Good Reason" (each
as hereinafter defined), or (ii) a termination by the Company for Cause (as
hereinafter defined), the Company may elect, within 14 days after the date of
such termination, to waive Executive's non-competition obligations, in which
case it shall not be required to make payments to Executive during the
Non-Competition Period, as provided in Section 5.05(a).
4.05. Remedies. Executive acknowledges that the Company's remedy
at law for a breach by him of the provisions of this Article IV will be
inadequate. Accordingly, in the event of a breach or threatened breach by
Executive of any provision of this Article IV, the Company shall be entitled to
injunctive relief in addition to any other remedy it may have. If any of the
provisions of, or covenants contained in, this Article IV are hereafter
construed to be invalid or unenforceable in any jurisdiction, the same shall not
affect the remainder of the provisions or the enforceability thereof in any
other jurisdiction, which shall be given full effect, without regard to the
invalidity or unenforceability in such other jurisdiction. If any of the
provisions of, or covenants contained in, this Article IV are held to be
unenforceable in any jurisdiction because of the duration or geographical scope
thereof, the parties agree that the court making such determination shall have
the power to reduce the duration or geographical scope of such provision or
covenant and, in its reduced form, such provision or covenant shall be
enforceable; provided, however, that the determination of such court shall not
affect the enforceability of this Article IV in any other jurisdiction.
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ARTICLE V.
Termination
5.01. Termination for Cause. The Company shall have the right to
terminate Executive's employment at any time for "Cause". For purposes of this
Agreement, "Cause" shall mean (a) Executive's failure to substantially perform
his duties under this Agreement, (b) the engaging by Executive in misconduct
which is injurious to the Company or any of its divisions, subsidiaries or
affiliates, monetarily or otherwise, (c) the commission by Executive of an act
of fraud or embezzlement against the Company or any of its divisions,
subsidiaries or affiliates, (d) the conviction of Executive of a felony, or (e)
Executive's material breach of the provisions of any of Sections 4.01, 4.02 or
4.03 of this Agreement, provided Executive has received prior written notice of
such breach.
5.02. Death. In the event Executive dies during the Term,
Executive's employment shall automatically terminate, such termination to be
effective on the date of Executive's death.
5.03. Disability. In the event that Executive suffers a
disability which prevents him from substantially performing his duties under
this Agreement for a period of at least 90 consecutive days, or 180
non-consecutive days within any 365-day period, and Executive becomes eligible
for the Company's long-term disability plan, the Company shall have the right to
terminate Executive's employment, such termination to be effective upon the
giving of notice to Executive in accordance with Section 6.03 of this Agreement.
5.04. Termination Without Cause. The Company may at any time
terminate Executive's employment for reasons other than Cause.
5.05. Effect of Termination.
(a) Obligations of Company. In the event of any
termination of Executive's employment hereunder, the Company shall pay Executive
any earned but unpaid base salary. In addition, except as provided in Section
5.06, upon a termination of Executive's employment for any reason other than
Executive's death or disability, the Company shall continue to pay Executive
during the Non-Competition Period, his then current base salary, and an amount
equal to the highest regular annual bonus paid or payable to Executive over the
preceding three fiscal years (excluding any extraordinary or non-recurring
bonus), such amounts to be payable in equal monthly installments commencing on
the date which is one month after the date of such termination. The preceding
sentence notwithstanding, in the event of a termination of employment described
in the last sentence of Section 4.04 of this Agreement, if the Company elects to
waive Executive's non-competition obligations within 14 days after the
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date of such termination, the Company shall not be required to make such
additional payments.
(b) Restricted Stock. Except as otherwise provided in
Section 5.06(B) hereof, Executive's rights with respect to Restricted Stock upon
any termination of his employment with the Company shall be governed exclusively
by the terms and conditions of the Plan and any agreements executed by Executive
in connection with the Restricted Stock.
(c) Obligations of Executive. Executive may terminate his
employment at any time by 10 days' written notice to the Company. Executive
shall have no obligations to the Company under this Agreement after the
termination of his employment, except and to the extent Sections 4.03, 4.04 or
4.05 shall apply.
5.06. Termination Following a Change in Control. In the event
that a Change in Control occurs (as hereinafter defined) and, on or within two
years following the date of such Change in Control, Executive's employment is
terminated by the Company without Cause, or Executive terminates his employment
voluntarily for "Good Reason" (as hereinafter defined), then
(A) in lieu of the payments described in the second sentence of Section
5.05(a), the Company shall pay Executive, within fifteen days following the date
of such termination, a lump sum cash amount equal to two times the sum of:
(i) Executive's annual base salary at the highest rate in
effect during the Term; and
(ii) the highest regular annual bonus paid or payable to
Executive over the preceding three fiscal years (excluding
any extraordinary or non-recurring bonus) and
(B) notwithstanding anything to the contrary in the Plan, the portion of
the Restricted Stock that had not yet vested shall not vest as of the date of
such Change in Control but shall become fully vested as of the date of such
termination.
For purposes of this Agreement, "Good Reason" means
(i) any action taken or failed to be taken by the
Company or any of its officers which, without Executive's prior written
consent, changes Executive's position (including titles), authority,
duties or responsibilities from those in effect prior to the Change in
Control, or reduces Executive's ability to carry out such duties and
responsibilities;
(ii) any failure by the Company to comply with any
of the provisions of Section 3 of this Agreement,
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other than an insubstantial or inadvertent failure which is remedied by
the Company promptly after receipt of notice thereof from Executive;
(iii) the Company's requiring Executive to be
employed at any location more than 35 miles further from his current
principal residence than the location at which Executive was employed
immediately preceding the Change in Control; or
(iv) any failure by the Company to obtain the
assumption of and agreement to perform this Agreement by a successor as
contemplated by Section 6.02(b) of this Agreement.
For purposes of this Agreement, "Change in Control" means the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of securities representing more
than 50% of the value and voting power of all of the outstanding equity
securities of Holdings (the "Outstanding Equity Securities"); provided, however,
that the following acquisitions shall not constitute a Change in Control: (i)
any acquisition by Holdings, (ii) any acquisition by one or more of the
"Investors" (as such term is defined in the Plan) or any entity directly or
indirectly controlling, controlled by, or under common control with, one or more
of the Investors (an "Investor Affiliate"), or (iii) any acquisition by a
corporation pursuant to a merger, consolidation or other similar transaction (a
"Corporate Event") if, as a result of such Corporate Event, (A) substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Equity Securities immediately prior to such
Corporate Event beneficially own, directly or indirectly, securities
representing more than 50% of the value and voting power of the then outstanding
equity securities of the corporation resulting from such Corporate Event
(including a corporation which, as a result of such transaction, owns Holdings
or all or substantially all of Holdings' assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Corporate Event, of the Outstanding Equity Securities,
and (B) no Person other than (1) one or more of the Investors or any Investor
Affiliate, or (2) any corporation resulting from such Corporate Event,
beneficially owns, directly or indirectly, securities representing more than 50%
of the value and voting power of the then outstanding equity securities of the
corporation resulting from such Corporate Event.
Except as specifically provided in this Section 5.06, the effect
of a termination of Executive's employment following a
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Change in Control shall be governed by the provisions of Section of 5.05.
ARTICLE VI.
Miscellaneous
6.01. Life Insurance. Executive agrees that the Company or any
of its divisions, subsidiaries or affiliates may apply for and secure and own
insurance on Executive's life (in amounts determined by the Company). Executive
agrees to cooperate fully in the application for and securing of such insurance,
including the submission by Executive to such physical and other examinations,
and the answering of such questions and furnishing of such information by
Executive, as may be required by the carrier(s) of such insurance.
Notwithstanding anything to the contrary contained herein, neither the Company
nor any of its divisions, subsidiaries or affiliates shall be required to obtain
any insurance for or on behalf of Executive.
6.02. Benefit of Agreement; Assignment; Beneficiary. (a) This
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns, including, without limitation, any corporation or person
which may acquire all or substantially all of the Company's assets or business,
or with or into which the Company may be consolidated or merged. This Agreement
shall also inure to the benefit of, and be enforceable by, Executive and his
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
(b) The Company shall require any successor (whether
direct or indirect, by operation of law, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
6.03. Notices. Any notice required or permitted hereunder shall
be in writing and shall be sufficiently given if personally delivered or if sent
by telegram or telex or by registered or certified mail, postage prepaid, with
return receipt requested, addressed: (a) in the case of the Company, to
Renaissance Reinsurance Ltd., Renaissance House, East Broadway, Hamilton,
Bermuda, Attention: Secretary, or to such other address and/or to the attention
of such other person as the Company shall designate by written notice to
Executive; and (b) in the case of Executive, to Executive at his then current
home address as shown on the Company's books, or to such other address as
Executive shall designate by written notice to the Company. Any notice given
hereunder shall be deemed to have been given at the time of receipt thereof by
the person to whom such notice is given.
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<PAGE>
6.04. Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties hereto with respect to the terms and conditions
of Executive's employment and supersedes any and all prior agreements and
understandings, whether written or oral, between the parties hereto with respect
to compensation due for services rendered hereunder including, without
limitation, the Prior Agreement. This Agreement may not be changed or modified
except by an instrument in writing signed by both of the parties hereto.
6.05. Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a continuing
waiver or as a consent to or waiver of any subsequent breach hereof.
6.06. Headings. The Article and Section headings herein are for
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof.
6.07. Enforcement. If any action at law or in equity is brought
by either party hereto to enforce or interpret any of the terms of this
Agreement, the prevailing party shall be entitled to reimbursement by the other
party of the reasonable costs and expenses incurred in connection with such
action (including reasonable attorneys' fees), in addition to any other relief
to which such party may be entitled. Executive shall have no right to enforce
any of his rights hereunder by seeking or obtaining injunctive or other
equitable relief and acknowledges that damages are an adequate remedy for any
breach by the Company of this Agreement.
6.08. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the internal laws of Bermuda
without reference to the principles of conflict of laws. The parties submit to
the non-exclusive jurisdiction of the courts of Bermuda.
6.09. Agreement to Take Actions. Each party to this Agreement
shall execute and deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be reasonably necessary
or desirable in order to perform his or its obligations under this Agreement or
to effectuate the purposes hereof.
6.10. No Mitigation; No Offset. Executive shall not be required
to mitigate damages or the amount of any payment provided for under this
Agreement by seeking (and, without limiting the generality of this sentence, no
payment otherwise required under this Agreement shall be reduced on account of)
other employment or otherwise, and payments under this Agreement shall not be
subject to offset in respect of any claims which the Company may have against
Executive.
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6.11. Attorneys' Fees. Each party to this Agreement will bear its
own expenses in connection with any dispute or legal proceeding between the
parties arising out of the subject matter of this Agreement, including any
proceeding to enforce any right or provision under this Agreement.
6.12. Termination; Survivorship. This Agreement shall terminate
upon termination of Executive's employment, except that the respective rights
and obligations of the parties under this Agreement as set forth herein shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
6.13. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision or provisions of this Agreement, which
shall remain in full force and effect.
6.14. Other Agreements. Executive represents and warrants to the
Company that to the best of his knowledge, neither the execution and delivery of
this Agreement nor the performance of his duties hereunder violates or will
violate the provisions of any other agreement to which he is a party or by which
he is bound.
6.15. Subsidiaries, etc. (a) The obligations of the Company under
this Agreement may be satisfied by any subsidiary or affiliate of the Company
for which Executive serves as an employee under this Agreement, to the extent
such obligations relate to Executive's employment by such subsidiary or
affiliate.
(b) The rights of the Company under this Agreement may be
enforced by any Subsidiary or affiliate of the Company for which Executive
serves as an employee under this Agreement, to the extent such rights relate to
Executive's employment by such subsidiary or affiliate.
6.16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company and Executive have duly executed this Agreement
as of the date first above written.
RENAISSANCE REINSURANCE LTD.
By: /s/ John M. Lummis
-----------------------------------
Name: John M. Lummis
Title: Senior Vice President and
Chief Financial Officer
/s/ William I. Riker
------------------------------------------
William I. Riker
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SECOND AMENDED AND RESTATED
1993 STOCK INCENTIVE PLAN OF
RENAISSANCERE HOLDINGS LTD.
1. Purpose
The purpose of the Second Amended and Restated 1993 Stock
Incentive Plan (the "Plan") of RenaissanceRe Holdings Ltd. (the "Company") is to
provide a means through which the Company and the Subsidiaries, as applicable,
may attract able persons to enter and remain in the employ of the Company and to
provide a means whereby those employees upon whom the responsibilities of the
successful administration and management of the Company rest, and whose present
and potential contributions to the welfare of the Company are of importance, can
acquire and maintain Common Share ownership, thereby strengthening their
commitment to the welfare of the Company and promoting an identity of interest
between the Company's shareholders and such employees. As used herein with
reference to the employment of a Participant, the term "Company" shall include
the Subsidiaries, as applicable.
2. Definitions
The following definitions shall be applicable throughout the Plan.
(a) "Base Shares" means the Base Shares issued under the 1995
Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Bonus Shares" means the Bonus Shares issued under the 1995
Plan.
(d) "Cause" means the definition of such term in a Participant's
employment agreement, without regard to whether such employment agreement has
expired, or in the absence of such an agreement, (1) a Participant's failure to
substantially perform his duties as an employee of the Company, (2) the engaging
by the Participant in misconduct which is injurious to the Company, monetarily
or otherwise, (3) the commission by the Participant of an act of fraud or
embezzlement against the Company, (4) the conviction of the Participant of a
felony, or (5) a material breach of any Non-Competition Obligation.
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(e) "Change in Control" means the sale or other disposition of
more than 90% of the value of all of the Company's outstanding equity securities
to one or more persons other than the Investors, but excluding any transaction
which, in the discretion of the Board, is to be accounted for as a pooling of
interests.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the Compensation Committee of the Board.
(h) "Common Shares" means the common shares of the Company, par
value $1.00 per share.
(i) "Disability" means the definition of such term in a
Participant's employment agreement, without regard to whether the term of such
employment agreement has expired, or in the absence of such agreement, the
complete and permanent inability by reason of illness or accident to perform the
duties of the occupation at which a Participant was employed when such
disability commenced, as determined by the Board based upon medical evidence
acceptable to it.
(j) "Fair Market Value" of a Common Share means, as of any date
when the Common Shares are quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market System ("NMS") or
listed on one or more national securities exchanges, the average closing trading
price reported on NASDAQ-NMS or the principal national securities exchange on
which such Common Shares are listed and traded for the five-day period preceding
such date. If the Common Shares are not quoted on NASDAQ-NMS or listed on such
an exchange, or representative quotes are not otherwise available, the Fair
Market Value shall mean the amount determined by the Board to be the fair market
value of the Common Shares based upon a good faith attempt to value the Common
Shares accurately.
(k) "Investors" shall have the meaning given such term in the
Shareholders Agreement.
(l) "ISO" means an "incentive stock option" within the meaning of
Section 422 of the Code.
(m) "Non-Competition Obligation" means the definition of such
term in a Participant's employment agreement, without regard to whether such
employment agreement has expired, or in the absence of such an agreement, the
obligation of each Participant, in consideration of the receipt of awards
hereunder, for the one year period commencing on the termination of such
Participant's employment, not to directly or indirectly, whether as an employee
consultant, independent contractor,
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partner, joint venturer or otherwise, (A) engage in any business activities
reasonably determined by the Board to be competitive, to a material extent, with
any substantial type or kind of business activities conducted by the Company or
its Subsidiary at the time of such termination; (B) on behalf of any person or
entity engaged in business activities competitive with the business activities
of the Company or its Subsidiary, solicit or induce, or in any manner attempt to
solicit or induce, any person employed by, or as agent of, the Company or its
Subsidiary to terminate such person's contract of employment or agency, as the
case may be, with the Company or its Subsidiary, or (C) divert, or attempt to
divert, any person, concern, or entity from doing business with the Company or
its Subsidiary, or attempt to induce any such person, concern or entity to cease
being a customer or supplier of the Company or its Subsidiary.
(n) "NQSO" means an Option which is not an ISO.
(o) "Option" means an option to purchase Common Shares, which may
be either an ISO or a NQSO.
(p) "Participant" means an employee of the Company who has been
granted awards pursuant to the Plan.
(q) "Plan" means the Second Amended and Restated 1993 Stock
Incentive Plan of RenaissanceRe Holding Ltd.
(r) "1995 Plan" means the Amended and Restated 1993 Stock
Incentive Plan of RenaissanceRe Holdings Ltd., effective as of March 26, 1995.
(s) "Reload Options" shall mean Options granted pursuant to
Section 7(d) hereof.
(t) "Restricted Stock" means Common Shares subject to such
restrictions as may be prescribed by the Committee.
(u) "Shareholders Agreement" means that certain amended and
restated shareholders agreement dated as of the 23rd day of December, 1996,
among the Investors.
(v) "Subsidiary" means any "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code.
(w) "Without Cause" means the definition of such term in a
Participant's employment agreement, without regard to whether such employment
agreement has expired, or in the absence of such an agreement, any termination
by the Company for reasons other than Cause or Disability.
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3. Restatement of Plan; Effective Date, Duration, Shares Reserved
(a) The Plan is an amendment and restatement of the 1995 Plan,
and shall be effective on the date of its adoption by the Board, subject to
approval by the shareholders of the Company. In the event the Plan is so
approved, it shall continue in effect for a period of ten years from such date,
after which no awards may be granted, provided that the expiration of the Plan
shall not affect the obligations of the Company and Participants with respect to
outstanding awards.
(b) Subject to adjustments pursuant to the provisions of Section
10 hereof, the maximum number of Common Shares which may be issued or sold
hereunder shall not exceed 4,000,000, inclusive of shares issued or sold
pursuant to awards granted under the 1995 Plan. Such shares may be either
authorized but unissued shares; provided, however, that shares with respect to
which an Option has been exercised, or as to which Base Shares, Bonus Shares or
Restricted Stock have vested, shall not again be available for issuance
hereunder. If outstanding Options granted hereunder shall terminate or expire
for any reason without being wholly exercised, or if Base Shares, Bonus Shares
or Restricted Stock are forfeited, the Common Shares allocable to the
unexercised portion of such Options or the forfeited Base Shares, Bonus Shares
or Restricted Stock will again be available for issuance under the Plan. The
number of Common Shares available for issuance shall be increased by the number
of shares tendered to or withheld by the Company in connection with the payment
of the purchase price or tax withholding obligations relating to any award
hereunder. The preceding sentence notwithstanding, the maximum number of shares
for which ISOs may be granted under the Plan shall not exceed 4,000,000, and the
maximum number of shares for which Options may be granted to any single
Participant shall not exceed 4,000,000.
4. Administration
The Committee shall administer the Plan. Subject to the
provisions of the Plan, the Committee shall have exclusive power to:
(a) Select the Participants in the Plan;
(b) Determine the number of Options or other awards to be granted
to each Participant;
(c) Determine the time or times when Options or other awards will
be granted;
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(d) Determine the terms of each award, including whether an
Option will be an ISO or an NQSO and the terms for payment of the exercise
price; and
(e) Prescribe the form or forms of agreements evidencing Options
and other awards.
Subject to the provisions of the Plan and the terms of any
employment agreement entered into with a Participant which relate to the Plan,
the Committee shall have the authority to interpret the Plan, to establish,
adopt, or revise such rules and regulations and to make all such determinations
relating to the Plan as it may deem necessary or advisable for the
administration of the Plan.
5. Eligibility
Participants shall be limited to officers and employees of the
Company who have received written notification from the Committee, or from a
person designated by the Committee, that they have been selected to receive
awards under the Plan.
6. Terms of Outstanding Base Shares, Bonus Shares and Options Unchanged
The adoption of the Plan shall not affect the terms and
conditions applicable to outstanding Base Shares, Bonus Shares and Options.
7. Terms of Options; Other Awards
(a) General. Options may be granted under the Plan from time to
time as determined by the Committee. Subject to the provisions of the Plan, the
Committee will determine the terms of Options to be granted. Options may be
granted at a price below, equal to or above Fair Market Value, as determined by
the Committee in its sole discretion. All Options granted under the Plan will
have a maximum term of ten years from the date of grant, subject to earlier
termination as provided in the Plan or in a Participant's Option agreement.
(b) Pool A Options. Under the 1995 Plan, the Company granted
Options for an aggregate of 675,000 Common Shares ("Pool A Options") to
Participants.
(c) Pool B Options. The Company has granted Options ("Pool B
Options") for an aggregate of [303,300] Common Shares.
(d) Reload Options. (i) Reload Options may be granted from time
to time by the Committee, in its sole discretion, in the event a Participant,
while employed by the Company, exercises an Option by the delivery of Common
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Shares which have been held by the Participant for a period of at least six
months, or in the event a Participant's tax withholding obligations upon
exercise of Options are satisfied by the Company withholding Common Shares with
an aggregate Fair Market Value equal to the minimum tax withholding amount due
thereon, as provided in Section 9(c)(ii) hereof. Such Reload Options shall
entitle the Participant to purchase that number of Common Shares equal to the
number of Common Shares so delivered to, or withheld by, the Company, provided
that the total number of shares covered by Reload Options shall not exceed the
number of shares subject to the original Option grant.
(ii) The price per share of Reload Options shall be the Fair
Market Value Per Share on the date such Reload Option is granted. The duration
of such Reload Option shall not extend beyond ten years from the date of grant
of the underlying award to which the grant of the Reload Option relates. Reload
Options shall be fully vested and exercisable on the date of grant. Other
specific terms and conditions applicable to Reload Options granted under the
Plan shall be determined by the Committee.
(e) Special Provisions Applicable to ISOs. The following special
provisions shall be applicable to ISOs granted under the Plan.
(i) No ISOs shall be granted under the Plan after ten years from
the earlier of (1) the date the Plan is adopted by the Board, or (2) the date
the Plan is approved by the Company's shareholders.
(ii) ISOs may not be granted to a person who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, any of its Subsidiaries, or any "parent corporation" of
the Company within the meaning of Section 424(e) of the Code.
(iii) If the aggregate fair market value of the Common Shares
with respect to which ISOs are exercisable for the first time by any Participant
during a calendar year (under all plans of the Company and its parent
corporations and Subsidiaries) exceeds $100,000, such ISOs shall be treated, to
the extent of such excess, as NQSOs. For purposes of the preceding sentence, the
fair market value of the Common Shares shall be based on the Fair Market Value
per share, determined at the time the ISOs covering such shares were granted.
(iv) The exercise price per Common Share of an ISO may not be
less than the Fair Market Value Per Share on the date the ISO is granted.
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(f) Other Awards. The Committee may grant other forms of
share-based awards, including without limitation Restricted Stock, on such terms
as it shall establish in its sole discretion.
8. Termination of Employment
Except to the extent specifically provided otherwise in a
Participant's award agreement, the following provisions shall apply to Base
Shares, Bonus Shares and Options upon a Participant's termination of employment
with the Company.
(a) In General. In the event a Participant's employment with the
Company is terminated for any reason other than his or her death or Disability,
all Base Shares, Bonus Shares, Restricted Stock and Options which have not
vested as of the date of such termination shall be immediately forfeited. The
Participant shall have a period of up to 30 days within which to exercise any
Options which were vested as of the date of termination, and such vested Options
shall lapse and be cancelled to the extent not so exercised.
(b) Death or Disability. In the event a Participant's employment
with the Company is terminated by reason of his or her death or Disability or if
such Participant shall die or become disabled within 30 days of his or her
involuntary termination of employment other than for Cause, all Base Shares,
Bonus Shares, Restricted Stock and Options which have not vested as of the date
of such termination shall become immediately vested. Such Participant (or such
Participant's estate) shall have up to one year after such termination to
exercise vested Options.
9. General
(a) Privileges of share ownership. (i) Except as otherwise
specifically provided in the Plan, no person shall be entitled to the privileges
of share ownership in respect of Common Shares which are subject to Options
until such shares have been issued to that person upon exercise of an Option
according to its terms. Except as otherwise provided in the Plan, holders of
Base Shares, Bonus Shares and Restricted Stock will be entitled to the
privileges of share ownership in respect of such shares, including the right to
vote and receive dividends, whether or not such shares are vested.
(ii) The Committee may, at its discretion, approve cash payments
to Participants on certain Options. Participants who hold any such Options as of
the date immediately following the record date for a dividend declared in
respect of the Common Shares shall receive a cash payment with respect to such
Options equal to the
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product of (A) the per share dollar amount of the dividend so declared and (B)
the number of Common Shares issuable upon exercise of such Options as of the
date immediately following such record date. Such amounts shall generally be
paid at the time dividends are paid and shall not be contingent upon the
exercise of such Options.
(b) Government and other regulations. The obligations of the
Company under the Plan shall be subject to all applicable laws, rules,
regulations and other governmental requirements; it being understood, however,
that the Company shall take all reasonable actions as may be required to ensure
that the benefits intended to be conferred on the Participants hereunder shall
not be reduced to any material extent by any unanticipated governmental
requirements.
(c) Tax withholding. The Company shall have the right to deduct
from any payment to a Participant pursuant to the Plan any federal, state or
local income or other taxes required by law to be withheld in respect thereof.
It shall be a condition to the obligation of the Company to issue Common Shares
to a Participant upon the exercise of an Option by such Participant that such
Participant (or any beneficiary or person entitled to exercise such Option) pay
to the Company, upon demand, such amount as may be requested by the Company for
the purpose of satisfying any liability to withhold federal, state or local
income or other taxes. In the event any such amount so requested is not paid,
the Company may refuse to issue Common Shares to such Participant upon the
exercise by such Participant of Options. Unless the Committee shall in its sole
discretion determine otherwise, payment for taxes required to be withheld may be
made in whole or in part by an election by a Participant, in accordance with
such rules as may be adopted by the Committee from time to time, (i) to have the
Company withhold Common Shares otherwise issuable upon exercise of Options
having a Fair Market Value equal to such tax withholding liability and/or (ii)
to tender to the Company Common Shares held by such Participant for at least six
months prior to the date of such tender and having a Fair Market Value equal to
such tax withholding liability.
(d) Payment of Exercise Price. The exercise price of Options may
be paid in cash or by such other means as may be approved by the Committee in
its discretion; provided that any right to such pay exercise price by tendering
Common Shares shall be limited to shares which have been held by the Participant
for at least six months. In the event the Committee shall provide that the
exercise price of an Option may be paid by delivery of shares of Restricted
Stock, and the exercise price is so paid by the Participant, the Participant
shall receive, in connection with such exercise, an equal number of shares of
Restricted Stock having the same restrictions and any remaining Common
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Shares issued upon such exercise shall have such restrictions, if any, as are
set forth in such Participant's option agreement with the Company.
(e) Claim to Base Shares, and Bonus Shares and Options;
employment rights. No employee or other person shall have any claim or right to
be granted Base Shares, Bonus Shares or Options under the Plan nor, having been
selected for the grant of Base Shares, Bonus Shares or Options, to be selected
for additional grants. Neither this Plan nor any action taken hereunder shall be
construed as giving any Participant any right to be retained in the employ of
the Company.
(f) Agreements. Each Participant to whom Options are granted
under the Plan shall be required to enter into a written agreement authorized by
the Board in respect of such grant. The Board may, in any such agreement,
prescribe terms and conditions governing the grant.
(g) Payments to persons other than Participants. If the Board
shall find that any person to whom any amount is payable under the Plan is
unable to care for his affairs because of illness or accident, or is a minor, or
has died, then any payment due to such person or his estate (unless a prior
claim therefor has been made by a duly appointed legal representative), may, if
the Board so directs, be paid to his spouse, child, relative, an institution
maintaining or having custody of such person, or any other person deemed by the
Board to be a proper recipient on behalf of such person otherwise entitled to
payment. Any such payment shall be a complete discharge of the liability of the
Board and the Company therefor.
(h) Governing law. The Plan shall be governed by and construed in
accordance with the internal laws of Bermuda without reference to the principles
of conflicts of law thereof.
(i) Funding. No provision of the Plan shall require the Company
for the purpose of satisfying any obligations under the Plan, to purchase assets
or place any assets in a trust or other entity to which contributions are made
or otherwise to segregate any assets, nor shall the Company maintain separate
bank accounts, books, records or other evidence of the existence of a segregated
or separately maintained or administered fund for such purposes. Participants
shall have no rights under the Plan other than as unsecured general creditors of
the Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.
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(j) Nontransferability. Options granted under the Plan, and all
unvested Base Shares and Bonus Shares, may not be sold, assigned, donated, or
transferred or otherwise disposed of, mortgaged, pledged or encumbered except,
in the event of a Participant's death, by will or the laws of descent and
distribution. During a Participant's lifetime, Options granted under the Plan
may be exercised only by the Participant.
(k) Restrictive Legends. The certificates evidencing Common
Shares issued under the Plan shall bear such restrictive legends as the
Committee deems necessary to reflect transfer restrictions applicable thereto.
(l) Relationship to other benefits. No payment under the Plan
shall be taken into account in determining any benefits under any pension,
retirement, profit sharing, group insurance or other benefit plan of the Company
except as otherwise specifically provided.
(m) Expenses. The expenses of administering the Plan shall be
borne by the Company and its Subsidiaries, as applicable.
(n) Titles and headings. The titles and headings of the sections
in the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings shall
control.
(o) Tax Liabilities. The Company will provide Participants with
reasonable financing arrangements with respect to compensation income tax
liabilities associated with the receipt or vesting of the Base Shares and Bonus
Shares.
10. Changes in Capital Structure
Base Shares, Bonus Shares, Options and other awards under the
Plan shall be subject to adjustment or substitution, as determined by the Board
in its reasonable discretion, as to the number, price or kind of shares or other
consideration subject to such Base Shares, Bonus Shares, Options and such other
awards or as otherwise determined by the Board to be equitable (i) in the event
of changes in the outstanding Common Shares or in the capital structure of the
Company, by reason of share dividends, share splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the date of grant of any such
Base Shares, Bonus Shares, Options and such other awards or (ii) in the event of
any change in applicable laws or any change in circumstances which results in or
would result in any substantial dilution or enlargement of the rights granted
to, or available for, Participants in the Plan, or which otherwise warrants
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equitable adjustment because it interferes with the intended operation of the
Plan. In addition, in the event of any such adjustments, exchanges or
substitution, the aggregate number of Common Shares available under the Plan
shall be appropriately adjusted, as determined by the Board in its reasonable
discretion.
11. Effect of Change in Control
In the event of a Change in Control, notwithstanding any vesting
schedule provided for hereunder, all outstanding Base Shares, Bonus Shares and
Options, shall automatically vest and such Options shall be deemed exercised and
in exchange therefor Participants shall be paid a cash amount based on the
difference between (1) the price per share paid for the Common Shares in
connection with such Change in Control, and (2) the exercise price per share
(which in the case of Base Shares and Bonus Shares shall be zero).
12. Nonexclusivity of the Plan
The adoption of this Plan by the Board shall not be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.
13. Amendments and Termination
The Board may at any time terminate the Plan. With the express
written consent of an individual Participant, the Board may cancel or reduce or
otherwise alter outstanding Base Shares, Bonus Shares and Options. The Board
may, at any time, or from time to time, amend or suspend and, if suspended,
reinstate, the Plan in whole or in part. Notwithstanding anything herein which
could be deemed to be to the contrary, the Board may not take any action,
including any amendment or termination of the Plan, which shall impair to any
material extent the rights of a Participant in respect of Base Shares, Bonus
Shares, Options and other awards pursuant to the Plan previously granted to a
Participant without the written consent of such Participant. Except as provided
in Section 10, the Board may not, without approval of the shareholders of the
Company, increase the aggregate number of Common Shares issuable under the Plan.
15. Non-Competition Obligations
Each Participant, as condition of, and in consideration of, the
granting of any Base Share, Bonus
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Share or Option, shall expressly agree to be bound by a Non-Competition
Obligation.
-12-
AMENDED AND RESTATED
RENAISSANCERE HOLDINGS LTD.
NON-EMPLOYEE DIRECTOR STOCK PLAN
--------------------------------
SECTION 1. PURPOSE. RenaissanceRe Holdings Ltd., a Bermuda
company (the "Company"), hereby adopts the Amended and Restated RenaissanceRe
Holdings Ltd. Non-Employee Director Stock Plan (the "Plan"), subject to the
approval of the Company's shareholders. The purpose of the Plan is to provide an
incentive to the Participants (defined below) (i) to join and remain in the
service of the Company, (ii) to maintain and enhance the long-term performance
and profitability of the Company and (iii) to acquire a financial interest in
the success of the Company. The Plan shall become effective upon the date of its
approval by the requisite vote of the Company's shareholders (the "Effective
Date").
SECTION 2. ELIGIBILITY. Members of the Company's Board of
Directors (the "Board") who are not employees of (i) the Company, (ii) any of
the Investors (as defined below), or (iii) any of their respective affiliates,
will be granted awards pursuant to the provisions of the Plan (a "Participant or
Participants"). The "Investors" shall mean and include each of (i) Warburg,
Pincus Investors, L.P., (ii) PT Investments, Inc., (iii) GE Private Placement
Partners I-Insurance, Limited Partnership and (iv) United States Fidelity and
Guaranty Company. For purposes of the Plan, an "Affiliate" of an entity shall
mean any entity directly or indirectly controlling, controlled by, or
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under common control with such entity. Any Participant who terminates service as
a director of the Company shall automatically cease participation in the Plan as
of the date of his or her termination.
SECTION 3. ADMINISTRATION.
3.1 The Board. The Plan shall be administered by the Board.
3.2 Board Authority. The Board shall have the authority to:
(i) exercise all of the powers granted to it under the Plan, (ii) construe,
interpret and implement the Plan, (iii) prescribe, amend and rescind rules and
regulations relating to the Plan, (iv) make all determinations necessary in
administering the Plan and (v) correct any defect, supply any omission, and
reconcile any inconsistency in the Plan.
3.3 Binding Determinations. The determination of the Board on
all matters within its authority relating to the Plan shall be conclusive.
3.4 No Liability. No member of the Board shall be liable for
any action or determination made in good faith with respect to the Plan or any
award hereunder.
SECTION 4. SHARES SUBJECT TO PLAN
4.1 Shares. Awards under the Plan shall be for Common Shares,
$1.00 par value, of the Company and any other shares into which such shares
shall thereafter be changed by reason of merger, reorganization,
recapitalization, consolidation, split-up,
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combination of shares, or similar event as set forth in and in accordance with
this Section 4 (the "Shares").
4.2 Shares Available for Awards. Subject to Section 4.3
(relating to adjustments upon changes in the Company's capitalization), as of
any date the total number of Shares with respect to which awards may be granted
under the Plan shall be equal to the excess (if any) of (i) 200,000 Shares, over
(ii) the sum of (A) the number of Shares subject to outstanding awards granted
under the Plan, and (B) the number of Shares previously transferred pursuant to
awards granted under the Plan. In accordance with (and without limitation upon)
the preceding sentence, Shares covered by awards granted under the Plan which
expire or terminate for any reason whatsoever shall again become available for
awards under the Plan. In addition, any shares which are tendered to or withheld
by the Company in connection with the exercise of Options or the payment of
withholding taxes shall again become available for awards under the Plan. Shares
granted under the Plan shall be authorized and unissued common shares of the
Company.
4.3 Adjustments upon Certain Changes. In the event of any
merger, reorganization, recapitalization, consolidation, sale or other
distribution of substantially all of the assets of the Company, any stock
dividend, stock split, spin-off, split-up, distribution of cash, securities or
other property by the Company, or other change in the Company's corporate
structure affecting the Shares, then the Board shall substitute or adjust as it
determines to be equitable in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be
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awarded under the Plan: (i) the aggregate number of Shares reserved for issuance
under the Plan, (ii) the number of Shares subject to outstanding awards and
(iii) the amount to be paid by Participants or the Company, as the case may be,
with respect to any outstanding awards.
SECTION 5. AWARDS UNDER THE PLAN. Each Participant shall
automatically be granted non-discretionary awards under the Plan in the form of
(i) "Director Shares" and (ii) "Options" (as such terms are defined below).
SECTION 6. DIRECTOR SHARES
6.1 Awards. Each Participant who, as of the date of each
annual general meeting of the Company's shareholders, shall continue to serve as
a director of the Company after the date of such annual general meeting shall
automatically be granted an award of Director Shares in such number as shall be
determined by the Board. The Board may also grant Director Shares to
Participants from time to time, in such number as it shall determine in its
discretion.
6.2 Vesting. Director Shares shall either be fully (100%)
vested on the grant date or subject to such vesting restrictions as may be
established by the Board.
6.3 Shareholder Rights. A Participant shall have the right to
receive dividends and other rights of a shareholder with respect to awards of
Director Shares.
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6.4 Transferability. Director Shares shall be non-transferable
during any period after the grant date that such Shares are subject to vesting
restrictions, but shall otherwise be transferable by the Participant, subject to
any applicable securities law restrictions.
SECTION 7. OPTIONS.
7.1 Awards. As of the date that a Participant first becomes a
member of the Board (or such later date as the Board may establish in its
discretion), such Participant shall automatically be granted an option to
purchase 6,000 Shares (each, an "Option") at a price per Share equal to the Fair
Market Value of a Share on the date of grant or as otherwise determined by the
Board. Thereafter, as of each subsequent annual general meeting of shareholders,
such Participant (so long as he continues to serve as a director of the Company
after the date of such subsequent annual general meeting) shall automatically be
granted an Option to purchase 2,000 Shares, at a price per Share equal to the
Fair Market Value of a Share on the date of grant. The Board may also grant
Options to Participants from time-to-time, at such per Share price and in such
number as it shall determine in its discretion.
7.2 Vesting. All Options granted under the Plan shall either
be fully (100%) vested on the date of grant or subject to such vesting
restrictions as may be established by the Board.
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7.3 Option Term. Options granted under the Plan shall be
exercisable for a maximum period of 10 years from the date of grant, subject to
earlier termination as provided by the Board at the time of grant.
7.4 Share Certificates; Transferability. Share certificates
representing the Shares covered by Options awarded to a Participant shall be
registered in the Participant's name. Options may not be sold, transferred,
assigned, pledged or otherwise encumbered by the Participant other than by will
or the laws of descent and distribution. At the time a Participant's Options are
exercised, a certificate for Shares covered by the Options shall be registered
in the Participant's name and delivered to the Participant (or to such
Participant's legal representative or designated beneficiary in the event of the
Participant's death).
7.5 Shareholder Rights. The Participant shall have no rights
as a shareholder of Shares covered by Options until the time such Options are
exercised and certificates for Shares covered by such Options are registered in
the Participant's name as provided in Section 7.4.
7.6 Exercise of Options. Options granted under the Plan may be
exercised by written notice to the Company in such form as the Board may
designate, accompanied by full payment of the exercise price therefor. The
exercise price may be paid (i) in cash or cash equivalents, (ii) by tendering
previously owned
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Shares with a Fair Market Value equal to the exercise price, (iii) pursuant to
brokerage arrangements approved by the Board providing for simultaneous
exercising of Options and sale of Shares, and (iv) by any combination of such
methods. The Board may require that Participants enter into written Option
Agreements with the Company setting forth the terms of Option grants.
SECTION 8. WITHHOLDING TAXES; RIGHT TO OFFSET. The Company
shall be entitled to require as a condition of delivery of any Shares to a
Participant hereunder that the Participant remit an amount sufficient to satisfy
all foreign, federal, state, local and other governmental withholding tax
requirements related thereto (if any) and any or all indebtedness or other
obligation of the Participant to the Company or any of its subsidiaries.
SECTION 9. PLAN AMENDMENTS AND TERMINATION. The Board may
suspend or terminate the Plan at any time and may amend it at any time and from
time to time, in whole or in part, provided, that the Board may not, without
approval of the Company's shareholders, materially increase the maximum number
of Shares which may be issued under the Plan. No termination, modification or
amendment of the Plan may adversely affect the rights conferred by outstanding
Options or Director Shares without the written consent of the affected
Participant. Unless terminated earlier, the Plan will terminate on the tenth
anniversary of the
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Effective Date and no additional awards may be granted under the Plan after such
tenth anniversary.
SECTION 10. MISCELLANEOUS.
10.1 Listing, Registration and Legal Compliance. If the Board
shall at any time determine that any Consent (as hereinafter defined) is
necessary or desirable as a condition of, or in connection with, the granting of
any award under the Plan, the issuance or purchase of Shares or other rights
hereunder or the taking of any other action hereunder (each such action being
hereinafter referred to as a "Plan Action"), then such Plan Action shall not be
taken, in whole or in part, unless and until such Consent shall have been
effected or obtained to the full satisfaction of the Board. Without limiting the
generality of the foregoing, in the event that (i) the Company shall be entitled
under the Plan to make any payment in cash, Shares or both, and (ii) the Board
shall determine that a Consent is necessary or desirable as a condition of, or
in connection with, payment in any one or more of such forms, then the Board
shall be entitled to determine not to make any payment whatsoever until such
Consent shall have been obtained in the manner aforesaid. The term "Consent" as
used herein with respect to any Plan Action means (i) the listings,
registrations or qualifications in respect thereof upon any securities exchange
or under any foreign, federal, state or local law, rule or regulation, (ii) any
and all consents, clearances and approvals in respect of a
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Plan Action by any governmental or other regulatory body, or (iii) any and all
written agreements and representations by a Participant with respect to the
disposition of Shares or with respect to any other matter, which the Board shall
deem necessary or desirable to comply with the terms of any such listing,
registration or qualification or to obtain an exemption from the requirement
that any such listing, qualification or registration be made.
10.2 Right of Discharge Reserved. Nothing in the Plan shall
confer upon any Participant the right to serve as a director of the Company or
affect any right that the Company or any Participant may have to terminate the
Participant's service as a director.
10.3 Fair Market Value. For purposes of the Plan, as of any
date when the Shares are listed on the NASDAQ National Market system
("NASDAQ-NMS") or listed on one or more national securities exchanges, the "Fair
Market Value" of the Shares as of any date shall be deemed to be the mean
between the high and low sale prices of the Shares reported on the NASDAQ-NMS or
the principal national securities exchange on which the Shares are listed and
traded on the immediately preceding business date, or, if there is no such sale
on that date, then on the last preceding date on which such a sale was reported.
If the Shares are not listed on the NASDAQ-NMS or listed on an exchange, the
"Fair Market Value" of the Shares shall mean the amount determined by
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<PAGE>
the Board to be the fair market value based upon a good faith attempt to value
the Shares accurately.
SECTION 11. GOVERNING LAW. The Plan is deemed adopted, made
and delivered in Bermuda and shall be governed by the laws of Bermuda without
reference to principles of conflicts of laws.
SECTION 12. NOTICES. All notices and other communications
hereunder shall be given in writing, shall be personally delivered against
receipt or sent by registered or certified mail, return receipt requested, shall
be deemed given on the date of delivery or of mailing, and if mailed, shall be
addressed (a) to the Company, at its principal corporate headquarters, Attn:
Chief Financial Officer, and (b) to a Participant, at the Participant's
principal residential address last furnished to the Company. Either party may,
by notice, change the address to which notice to such party is to be given.
SECTION 13. SECTION HEADINGS. The Section headings contained
herein are for the purposes of convenience only and are not intended to define
or limit the contents of said Sections.
10
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
This Amended and Restated Shareholders Agreement, dated as of
this 23 day of March 1998, is entered into by and among RenaissanceRe Holdings
Ltd., a company organized under the laws of Bermuda (the "Company"), Warburg,
Pincus Investors, L.P., a Delaware limited partnership ("Warburg"), PT
Investments, Inc., a Delaware corporation ("PT Investments"), GE Investment
Private Placement Partners I-Insurance, Limited Partnership, a Delaware limited
partnership ("Insurance L.P."), and United States Fidelity and Guaranty Company,
a Maryland corporation ("USF&G") (Warburg, Insurance L.P., PT Investments and
USF&G are referred to herein as the "Institutional Investors").
R E C I T A L S
WHEREAS, in an effort to reduce the Company's related person
insurance income exposure and to mitigate the effects of subpart F income on
certain direct and indirect holders of common shares, par value $1.00 per share
(the "Full Voting Common Shares"), of the Company, the Board of Directors of the
Company (the "Board") deemed it advisable and in the best interests of the
Company and its shareholders to consummate the Recapitalization (as defined
below);
WHEREAS, PT Investments is a wholly owned subsidiary of Trustees
of General Electric Pension Trust ("GE Pension Trust") and the partners of GE
Investment Private Placement Partners I, Limited Partnership ("GE Investment")
(other than GE Pension Trust) are also the partners of Insurance L.P.;
WHEREAS, the Board has authorized the creation by redesignation
of the authorized share capital of the Company of two new series of capital
shares of the Company (the "Recapitalization") consisting of (i) 16,789,776
shares of Diluted Voting Class I Common Shares, par value $1.00 per share (the
"Diluted Voting I Shares"), and 1,639,641 shares of Diluted Voting Class II
Common Shares, par value $1.00 per share (the "Diluted Voting II Shares" and
together with the Diluted Voting I Shares, the "Diluted Voting Shares") (the
Diluted Voting Shares together with the Full Voting Common Shares are referred
to herein as the "Common Shares") issuable in exchange for an equal number of
Full Voting Common Shares held by certain shareholders of the Company on a
one-for-one basis, subject to approval of the Board;
WHEREAS, each holder of Diluted Voting I Shares is entitled to a
fixed voting interest in the Company of up to 9.9% of all outstanding voting
rights attached to the Common Shares, inclusive of the percentage interest in
the Company represented by the Common Shares owned directly, indirectly or
constructively by a holder of Diluted Voting Shares within the meaning of
Section 958 of the Internal Revenue Code of 1986, as amended, and
<PAGE>
applicable rules and regulations thereunder (the "Controlled Common Shares");
WHEREAS, each holder of Diluted Voting II Shares is entitled to
one-third of a vote for each Diluted Voting II Share; provided that in no event
shall a holder of Diluted Voting II Shares have greater than 9.9% of all
outstanding voting rights attached to the Common Shares, inclusive of the
percentage interest in the Company represented by the Controlled Common Shares;
WHEREAS, at a Special General Meeting of Shareholders of the
Company (the "Special Meeting") held on December 23, 1996, the shareholders of
the Company approved the amendment to the Bye-Laws setting forth (i) the terms,
rights and preferences of the Diluted Voting Shares and (ii) certain corporate
governance changes;
WHEREAS, following the Special Meeting (i) GE Pension Trust
exchanged all of its Full Voting Common Shares for 2,826,650 Diluted Voting I
Shares and contributed such shares to PT Investments and (ii) GE Investment
exchanged all of its Full Voting Common Shares for (x) 1,372,541 Diluted Voting
I Shares and contributed such shares to PT Investments and (y) 1,454,109 Diluted
Voting II Shares and contributed such shares to Insurance L.P.; and
WHEREAS, each of Warburg and USF&G has the right at any time in
the future to exchange all or a portion of their respective Full Voting Common
Shares for an equal number of Diluted Voting I Shares upon two days written
notice to the Company and without further requisite action on the part of the
Board.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. COVENANTS OF THE PARTIES
(a) Election of Directors. The Board on the date hereof consists
of Arthur S. Bahr, Thomas A. Cooper, Edmund B. Greene, Dan L. Hale, Gerald L.
Igou, Kewsong Lee, Scott E. Pardee, Howard H. Newman, James N. Stanard, John C.
Sweeney and David A. Tanner. Each Institutional Investor agrees to take all
action within its respective powers, including but not limited to the voting of
capital shares of the Company, and the Company agrees to use its reasonable best
efforts, required to have at all times (i) three Board members designated by
Warburg (the "Warburg Directors"), (ii) one Board member designated by PT
Investments (the "PT Investments Director"), (iii) one Board member designated
by Insurance L.P. (the "Insurance L.P. Director"), (iv) one Board member
designated by USF&G (the "USF&G Director") and (v) James N. Stanard (so long as
he is the
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Company's Chief Executive Officer). The Warburg Directors currently serving on
the Board are Messrs. Lee and Newman. The PT Investments Director currently
serving on the Board is Mr. Igou. The Insurance L.P. Director currently serving
on the board is Mr. Greene. The USF&G Director currently serving on the Board is
Mr. Hale. The number of directors serving on the Board shall be fixed at eleven;
provided, that a majority of the members of the Board may, at its discretion,
expand the size of the Board to 12 directors and fill any additional position so
created.
(b) Appointment of Board Committees.
(i) The Board has established Compensation, Investment and
Audit Committees. For so long as Warburg, PT Investments or USF&G, as
the case may be, is entitled to elect at least one Director to the
Board, subject to the provisions of Section 1(d) below, Warburg, PT
Investments and USF&G shall cause the Board to appoint one Warburg
Director, the PT Investments Director and the USF&G Director to the
Compensation Committee. The Compensation Committee presently consists of
Messrs. Bahr, Cooper, Hale and Newman. The Audit Committee presently
consists of Messrs. Bahr, Cooper, Lee, Hale and Pardee. Notwithstanding
the foregoing, should it be the case that, pursuant to Section 1(d)
below, PT Investments shall not have the right under this Agreement to
nominate a director to the Board but Insurance L.P. shall have the right
under this Agreement to nominate a director to the Board, the rights
ascribed to PT Investments under this paragraph shall be ascribed to
Insurance L.P.
(ii) Notwithstanding anything to the contrary set forth in
Section 1(b)(i) above, the Board shall have the right, at any time from
the date hereof, to adjust the composition of the Committees set forth
in Section 1(b)(1) above, upon ten days' written notice (an "Adjustment
Notice") to each party hereto, provided, that no party shall be deemed
to have consented to the matters set forth in an Adjustment Notice
unless an authorized officer of such party shall have provided a written
response consenting to such matters or a designee of such party to the
Board shall have voted in favor of such matters at a meeting of the
Board.
(iii) Notwithstanding anything to the contrary set forth
in this Section 1(b), the composition of the committees of the Board
shall at all times comply with the provisions of applicable laws and the
rules of any national securities exchange or similar organization to
which the Company is subject.
(c) Replacement Directors. In the event that any director (a
"Withdrawing Director") designated in the manner set forth in Section 1(a)
hereof is unable to serve, or once having commenced to serve, is removed or
withdraws from the Board, such
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Withdrawing Director's replacement (the "Substitute Director") shall be
designated by the Institutional Investor(s) that designated such Withdrawing
Director; provided, however, that this provision shall not apply to vacancies on
the Board due to resignations pursuant to clauses (i), (ii) or (v) of Section
1(b) hereof. In the event any one of Warburg, PT Investments, Insurance L.P. or
USF&G desires to remove any director nominated by such party, with or without
cause, then each Institutional Investor agrees to take all action within its
respective power, including but not limited to the voting of Full Voting Common
Shares, Diluted Voting I Shares and/or Diluted Voting II Shares, as applicable,
of the Company, to cause the removal of such director and the election of any
Substitute Director promptly following his or her nomination pursuant to this
Section 1(b).
(d) Number of Directors; Termination; Rights Non-Transferable.
(i) At such time as Warburg Owns less than 3,706,144
Common Shares, but at least 1,853,073 Common Shares, then the number of
directors that Warburg shall be entitled to nominate shall be reduced to
two and, in the event that there are more than two Warburg Directors
serving on the Board at such time, then Warburg shall cause one of its
directors to resign.
(ii) At such time as Warburg Owns less than 1,853,073
Common Shares, but at least 741,229 Common Shares, then the number of
directors that Warburg shall be entitled to nominate shall be reduced to
one and, in the event that there is more than one Warburg Director
serving on the Board at such time, then Warburg shall cause one or more
of its directors to resign.
(iii) Except as provided in the immediately following
clause (iv), at such time as PT Investments and Insurance L.P. shall, in
the aggregate, Own less than 1,853,073 Common Shares, then PT
Investments shall not have any right to nominate a director and
Insurance L.P. shall have the right to nominate one director. For so
long as Insurance L.P. Owns any Common Shares, it shall have the right
to nominate one director.
(iv) At such time as Insurance L.P. shall Own no Common
Shares and PT Investments shall own at least 741,229 Common Shares,
Insurance L.P. shall not have the right to nominate a director and PT
Investments shall have the right to nominate one director.
(v) At such time as any one of Warburg, PT Investments or
USF&G, respectively, Owns less than 741,229 Common Shares, then such
party shall no longer be entitled to nominate any director to the Board
and, in the event that there are any Warburg Directors or any PT
Investments
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Director or USF&G Director serving on the Board at such time, then
Warburg, PT Investments or USF&G, as the case may be, shall cause such
director(s) to resign.
(vi) Any Institutional Investor may, by written notice to
each other Institutional Investor, terminate its rights and obligations
under this Agreement and cease to be a party to this Agreement for all
purposes (a) at such time as such Institutional Investor Owns less than
741,229 Common Shares, (b) in the case of Warburg or USF&G only, if
Warburg or USF&G, as the case may be, ceases to Own at least 10% of the
total number of Common Shares outstanding on the date of such notice,
and (c) in the case of PT Investments and Insurance L.P. only, if PT
Investments and Insurance L.P. cease to Own, collectively, at least 10%
of the total number of Common Shares outstanding on the date of such
notice.
(vii) The rights of Warburg, PT Investments, Insurance
L.P. and USF&G under this Agreement are not transferable, whether by
sale of capital stock or otherwise, to any Person or entity other than
an Affiliate of Warburg, PT Investments, Insurance L.P. or USF&G,
respectively.
(e) Board of Directors of Renaissance Reinsurance. The Board
shall cause the Board of Directors of Renaissance Reinsurance to consist
at all times of the same number of directors as the Board and the same
persons who are serving on the Board.
2. INTERPRETATION OF THIS AGREEMENT
(a) Terms Defined. As used in this Agreement, the following terms
have the respective meaning set forth below:
Affiliate: means any person or entity, directly or indirectly,
controlling, controlled by or under common control with such person or entity.
Own: means either (i) own under the rules set forth in section
958 of the U.S. Internal Revenue Code of 1986 (which includes shares directly
owned, indirectly owned through ownership of another entity and constructively
owned because of certain relationships (such as family relationships or
ownership relationships)) or (ii) beneficially own directly or indirectly as a
result of the possession of sole or shared voting power within the meaning of
section 13(d)(3) of the U.S. Securities Exchange Act of 1934.
Person: an individual, partnership, joint-stock company,
corporation, trust or unincorporated organization, and a government or agency or
political subdivision thereof.
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(b) Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(d) Section Headings. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
3. MISCELLANEOUS
(a) Notices.
(i) All communications under this Agreement shall be in writing
and shall be delivered by hand or mailed by overnight courier or by
registered or certified mail, postage prepaid:
(A) if to USF&G, at 6225 Centennial Way, Baltimore,
Maryland 21202, Attention: Dan L. Hale, with a copy to: Corporate
Secretary, or at such other address as it may have furnished the
Company in writing;
(B) if to Warburg, at 466 Lexington Avenue, New York, New
York 10017, Attention: Howard H. Newman, with a copy to: Kewsong
Lee, or at such other address as it may have furnished the
Company in writing;
(C) if to Insurance L.P., at c/o GE Investment Management
Incorporated, 3003 Summer Street, Stamford, Connecticut 06905,
Attention: Controller to Alternative Investments, with copies to:
Associate General Counsel to Alternative Investments and GE
Investment, 2029 Century Park East, Suite 1230, Los Angeles,
California 90067, or at such other address as Insurance L.P. may
have furnished the Company in writing;
(D) if to PT Investments, at 3003 Summer Street,
Stamford, Connecticut 06905, Attention: Controller to Alternative
Investments, with a copy to: Associate General Counsel to
Alternative Investments, or such other address as PT Investments
may have furnished the Company in writing; and
(E) if to the Company, at its offices, currently
Renaissance House, 8-12 East Broadway, Pembroke HM 19 Bermuda,
marked for the attention of the President,
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with a copy to the Secretary of the Company, or at such other
address as it may have furnished in writing to each of the
Institutional Investors, with a copy to: Willkie Farr &
Gallagher, 153 East 53rd Street, New York, New York 10022,
Attention: John S. D'Alimonte.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier,
on the first business day following the date of such mailing; and if
mailed by registered or certified mail, on the third business day after
the date of such mailing.
(b) Indemnification of Directors of the Company. The Directors,
acting in relation to any of the affairs of the Company, and every one of them
and their heirs, executors and administrators, shall be indemnified and secured
harmless out of the assets of the Company from and against all actions, costs,
charges, losses, damages and expenses which they or any of them, their heirs,
executors or administrators, shall or may incur or sustain by or by reason of
any act done, concurred in or omitted in or about the execution of their duty,
or supposed duty, or in their respective offices or trusts, and none of them
shall be answerable for the acts, receipts, neglects or defaults of the others
of them or for joining in any receipts for the sake of conformity, or for any
bankers or other persons with whom any moneys or effects belonging to the
Company shall or may be lodged or deposited for safe custody, or for
insufficiency or deficiency of any security upon which any moneys of or
belonging to the Company shall be placed out on or invested, or for any other
loss, misfortune or damage which may happen in the execution of their respective
offices or trusts, or in relation thereto, provided that this indemnity shall
not extend to any matter in respect of any willful negligence, willful default,
fraud or dishonesty which may attach to any of said persons.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
(e) Entire Agreement; Amendment and Waiver. This Agreement
constitutes the entire understanding of the parties hereto with respect to the
matters covered by this Agreement and supersedes all prior understandings among
such parties, including the Amended and Restated Shareholders Agreement, dated
as of December 27, 1996, by and among the parties signatory to this Agreement
(other than PT Investments and Insurance L.P.), Trustees of General Electric
Pension Trust and GE Investment Private Placement Partners I, Limited
Partnership. This
7
<PAGE>
Agreement may be amended, and the observance of any term of this Agreement may
be waived, with (and only with) the written consent of the Company and each of
the Institutional Investors.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended
and Restated Shareholders Agreement as of the date first above written.
RENAISSANCERE HOLDINGS LTD.
By: /s/ John M. Lummis
Name: John M. Lummis
Title: Senior Vice President and
Chief Financial Officer
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Kewsong Lee
Name: Kewsong Lee
Title: Partner
UNITED STATES FIDELITY AND
GUARANTY COMPANY
By: /s/ Dan Hale
Name: Dan Hale
Title: Executive Vice President
PT INVESTMENTS, INC.
By: /s/ Michael M. Pastore
Name: Michael M. Pastore
Title: Vice President
GE INVESTMENT PRIVATE PLACEMENT
PARTNERS I - INSURANCE, LIMITED
PARTNERSHIP
By: GE Investment Management Incorporated,
General Partner
By: /s/ Michael M. Pastore
Name: Michael M. Pastore
Title: Vice President
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as
of March 23, 1998, is entered into by and among RenaissanceRe Holdings Ltd., a
company organized under the laws of Bermuda (the "Company"), Warburg, Pincus
Investors, L.P., a Delaware limited partnership ("Warburg"), PT Investments,
Inc., a Delaware corporation ("PT Investments"), GE Investment Private Placement
Partners I-Insurance, Limited Partnership, a Delaware limited partnership
("Insurance L.P."), United States Fidelity and Guaranty Company, a Maryland
corporation ("USF&G"), and the individuals whose names and addresses appear on
Schedule I hereto, as such Schedule I may be amended from time to time (the
"Management Investors") (Warburg, PT Investments, Insurance L.P. and USF&G are
referred to herein as the "Institutional Investors" and each of Warburg, PT
Investments, Insurance L.P., USF&G and each of the Management Investors are
referred to herein individually as an "Investor" and collectively as the
"Investors").
R E C I T A L S
WHEREAS, the authorized capital shares of the Company consist of
(i) common shares, par value $1.00 per share (the "Full Voting Common Shares"),
(ii) Diluted Voting Class I Common Shares, par value $1.00 per share (the "DVI
Shares"), (iii) Diluted Voting Class II Common Shares, par value $1.00 per share
(the "DVII Shares") (the Full Voting Common Shares, DVI Shares and DVII Shares
are collectively referred to herein as the "Common Shares") and (iv) preference
shares, par value $1.00 per share;
WHEREAS, the Company wishes to grant to the Investors rights to
have Common Shares registered under the Securities Act of 1933, as amended (the
"Securities Act"), upon the terms and subject to the conditions of this
Agreement; and
WHEREAS, Schedule I hereto sets forth, for each of the Investors,
the number of Common Shares to which such registration rights relate.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, the parties hereto hereby agree as
follows:
<PAGE>
SECTION 1. REGISTRATION RIGHTS.
(a) Definitions.
As used in this Agreement:
(i) "Commission" shall mean the U.S. Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act;
(ii) an "ERISA Conflict" shall be deemed to result for the
purposes of this Agreement, as to any contemplated action, if PT
Investments shall furnish an opinion of outside counsel to the effect
that a reasonable possibility exists that such action will result in a
violation of the Employee Retirement Income Security Act of 1974, as
amended;
(iii) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended;
(iv) the term "Holder" shall mean any holder of Registrable
Securities;
(v) the term "Initiating Holder" shall mean: (i) on any date
that is prior to June 30, 1998, any Holder or Holders (other than
Holders who are Management Investors) who in the aggregate are Holders
of more than 10% of the then outstanding Registrable Securities, (ii) at
any time on or after June 30, 1998, any Holder or Holders (other than
Holders who are Management Investors) who in the aggregate are Holders
of more than 5% of the then outstanding Registrable Securities and (iii)
at any from the date hereof, Insurance L.P. and its permitted
transferees and assigns, for so long as Insurance L.P. or such
transferees and assigns shall own more than 5% of the then outstanding
Registrable Securities;
(vi) the terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act (and any post-effective
amendments filed or required to be filed) and the declaration or
ordering of effectiveness of such registration statement;
(vii) the term "Registrable Securities" means (A) any Common
Shares held by an Investor, (B) any additional Common Shares acquired by
the Investors, including any Full Voting Common Shares issued to
Management Investors upon the exercise of options granted under the
RenaissanceRe Holdings
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<PAGE>
Ltd. Amended and Restated 1993 Stock Incentive Plan (the "Incentive
Plan"), and (C) any capital shares of the Company issued as a dividend
or other distribution with respect to, or in exchange for or in
replacement of, the Common Shares referred to in clause (A) or (B)
above; provided, however, that the Company shall be required to honor a
demand for registration of DVI Shares or DVII Shares only if it shall be
a condition to the delivery of the DVI Shares or DVII Shares
contemplated by such registration that, immediately following the sale
thereof by the holder, such DVI Shares or DVII Shares shall be converted
into Full Voting Common Shares.
(viii) "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with Sections 1(b) and 1(c) hereof,
including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company and
all fees and disbursements of counsel for each of the Holders, blue sky
fees and expenses and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by
the Company); and
(ix) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable
Securities.
(b) Requested Registration.
(i) Request for Registration. If the Company shall receive from
an Initiating Holder, at any time, a written request that the Company
effect any registration with respect to all or a part of the Registrable
Securities, the Company shall:
(A) promptly give written notice of the proposed
registration to all other Holders of Registrable Securities; and
(B) as soon as practicable, use all reasonable efforts to
effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act, and the
participation by Company officers in road show presentations, as
such participation may be reasonably requested by the
underwriters of an underwritten offering) as may be so
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requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written
request received by the Company within 10 business days after
written notice from the Company is given under Section 1(b)(i)(A)
above; provided that the Company shall not be obligated to
effect, or take any action to effect, any such registration
pursuant to this Section 1(b):
(x) In any particular jurisdiction in which the
Company would be required to execute a general consent to
service of process in effecting such registration,
qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may
be required by the Securities Act or applicable rules or
regulations thereunder;
(y) After the Company has effected (i) two such
registrations pursuant to this Section 1(b) requested by
each of Warburg and USF&G and (ii) three such
registrations pursuant to this Section 1(b) requested by
PT Investments and/or Insurance L.P. and such
registrations have been declared or ordered effective by
the Commission and the sales of such Registrable
Securities shall have closed; or
(z) If the Registrable Securities requested by all
Holders to be registered pursuant to such request are not
anticipated to result in aggregate proceeds (before
deduction of any underwriting discounts and commissions)
of at least $25,000,000, or consist of at least 1,000,000
Common Shares.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 1(b)(ii)
below, include other securities of the Company which are held by
officers or directors of the Company, or which are held by persons who,
by virtue of agreements with the Company, are entitled to include their
securities in any such registration, but the Company's right to include
any of its securities in any such registration shall be subject to the
limitations set forth in Section 1(b)(ii) below.
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<PAGE>
The registration rights set forth in this Section 1(b) shall be
assignable, in whole or in part, to any transferee of Common Shares
provided such transferee agrees to be bound by all provisions of this
Agreement.
(ii) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 1(b).
If officers or directors of the Company holding Common Shares
(other than Registrable Securities) shall request inclusion in any
registration pursuant to Section 1(b), or if holders of securities of
the Company other than Registrable Securities who are entitled, by
contract with the Company or otherwise, to have securities included in
such a registration (the "Other Shareholders") request such inclusion,
the Holders shall offer to include the securities of such officers,
directors and Other Shareholders in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of
this Section 1. The Holders whose shares are to be included in such
registration and the Company shall (together with all officers,
directors and Other Shareholders proposing to distribute their
securities (other than Registrable Securities) through such
underwriting) enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected for
such underwriting by the Initiating Holders and reasonably acceptable to
the Company, provided that no underwriter whose selection would result
in an ERISA Conflict may participate in any such underwriting.
Notwithstanding any other provision of this Section 1(b), if the
representative advises the Holders in writing that marketing factors
require a limitation on the number of shares to be underwritten, then
the securities of the Company held by officers or directors (other than
Registrable Securities) of the Company and the securities held by Other
Shareholders shall be excluded from such registration to the extent so
required by such limitations. If, after the exclusion of such shares,
further reductions are still required, the number of shares included in
the registration by each Holder shall be reduced on a pro rata basis
(based on the number of shares held by the respective Holders) by such
minimum number of shares as is necessary to comply with such request. No
Registrable Securities or any other securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. If any officer, director or Other
Shareholder who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may
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<PAGE>
elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The securities so withdrawn
shall also be withdrawn from registration. If the underwriter has not
limited the number of Registrable Securities or other securities to be
underwritten, the Company may include its securities for its own account
in such registration if the representative so agrees and if the number
of Registrable Securities and other securities which would otherwise
have been included in such registration and underwriting will not
thereby be limited.
(iii) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting the filing of a registration statement pursuant to
this Section 1(b), a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing
of such registration statement, then the Company shall have the right to
defer such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided however, that the
Company may not utilize this right more than once in any twelve (12)
month period.
(c) Company Registration.
(i) If the Company shall determine to register any of its equity
securities either for its own account or for the account of a security
holder or holders, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration form which does not
permit secondary sales or does not include substantially the same
information as would be required to be included in a registration
statement covering the sale of Registrable Securities, the Company will:
(A) promptly give to each of the Holders a written notice
thereof (which shall include a list of the jurisdictions in which
the Company intends to attempt to qualify such securities under
the applicable blue sky or other state securities laws); and
(B) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities
specified in a written request or
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<PAGE>
requests, made by the Holders within fifteen (15) days after
receipt of the written notice from the Company described in
clause (i) above, except as set forth in Section 1(c)(ii) below.
Such written request may specify all or a part of the Holders'
Registrable Securities.
(ii) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting,
the Company shall so advise each of the Holders as a part of the written
notice given pursuant to Section 1(c)(i)(A). In such event, the right of
each of the Holders to registration pursuant to this Section 1(c) shall
be conditioned upon such Holders' participation in such underwriting and
the inclusion of such Holders' Registrable Securities in the
underwriting to the extent provided herein. The Holders whose shares are
to be included in such registration shall (together with the Company and
the Other Shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected for
underwriting by the Company, provided that no underwriter whose
selection would result in an ERISA Conflict may participate in any such
underwriting. Notwithstanding any other provision of this Section 1(c),
if the representative determines that marketing factors require a
limitation on the number of shares to be underwritten, the Company shall
so advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following
manner: The securities of the Company held by officers, directors and
Other Shareholders of the Company (other than Registrable Securities)
shall be excluded from such registration and underwriting to the extent
required by such limitation, and, if a limitation on the number of
shares is still required, the number of shares that may be included in
the registration and underwriting by each of the Holders shall be
reduced, on a pro rata basis (based on the number of shares held by such
Holder), by such minimum number of shares as is necessary to comply with
such limitation. If any of the Holders or any officer, director or Other
Shareholder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such
registration.
(iii) Number and Transferability. Each of the Holders shall be
entitled to have its shares included in an unlimited
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<PAGE>
number of registrations pursuant to this Section 1(c). The registration
rights granted pursuant to this Section 1(c) shall be assignable, in
whole or in part, to any transferee of the Common Shares provided such
transferee agrees to be bound by all provisions of this Agreement.
(d) Form S-3. The Company shall use its best efforts to qualify
for registration on Form S-3 for secondary sales. After the Company has
qualified for the use of Form S-3, Holders of Registrable Securities shall have
the right to request unlimited registrations on Form S-3 (such requests shall be
in writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended method of disposition of shares by such holders),
subject only to the following:
(i) The Company shall not be required to effect a registration
pursuant to this Section 1(d) unless the Holder or Holders of
Registrable Securities requesting registration propose to dispose of
shares of Registrable Securities resulting in aggregate proceeds (before
deduction of underwriting discounts and expenses of sale) of more than
$10,000,000.
(ii) The Company shall not be required to effect a registration
pursuant to this Section 1(d) within 180 days of the effective date of
the most recent registration pursuant to this Section 1(d) in which
securities held by the requesting Holder could have been included for
sale or distribution.
(iii) The Company shall not be required to effect a registration
pursuant to this Section 1(d) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer
of the Company stating that in the good faith judgment of the Board, it
would be seriously detrimental to the Company and its shareholders for
such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement. In such event, the
Company shall have the right to defer the filing of the registration
statement no more than once during any 12 month period for a period of
not more than 120 days after receipt of the request of the Holder or
Holders under this Section 1(d).
(iv) The Company shall not be obligated to effect any
registration pursuant to this Section 1(d) in any particular
jurisdiction in which the Company would be required to execute a general
consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to
service in such jurisdiction and except
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as may be required by the Securities Act or applicable rules or
regulations thereunder.
The Company shall give written notice thereof to all Holders of
Registrable Securities within five days of the receipt of a request for
registration pursuant to this Section 1(d) and shall provide a reasonable
opportunity for other Holders of Registrable Securities to participate in the
registration, provided that if the registration is for an underwritten offering,
the terms of Section 1(b)(ii) shall apply to all participants in such offering.
Subject to the foregoing, the Company will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by the Holder or Holders thereof for purposes of
disposition.
(e) Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
this Section 1 shall be borne by the Company, and all Selling Expenses shall be
borne by the Holders of the securities so registered pro rata on the basis of
the number of their shares so registered; provided, however, that the Company
shall not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by any of the Holders, as applicable,
the registration statement does not become effective, in which case each of the
Holders and Other Shareholders requesting registration shall bear such
Registration Expenses pro rata on the basis of the number of their shares so
included in the registration request, and provided, further, that such
registration shall not be counted as a registration pursuant to Section
1(b)(i)(B)(y).
(f) Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 1, the Company will keep the
Holders, as applicable, advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company will:
(i) keep such registration effective for a period of 120 days or
until the Holders, as applicable, have completed the distribution described in
the registration statement relating thereto, whichever first occurs; provided,
however, that (A) such 120-day period shall be extended for a period of time
equal to the period during which the Holders, as applicable, refrain from
selling any securities included in such registration in accordance with
provisions in Section 1(j) hereof; and (B) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended until all
such Registrable Securities are sold, provided that Rule 415, or any successor
rule
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under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (y) includes any prospectus required by Section
10(a)(3) of the Securities Act or (z) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (y) and (z) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement; and
(ii) furnish such number of prospectuses and other documents incident
thereto as each of the Holders, as applicable, from time to time may reasonably
request.
(g) Indemnification.
(i) The Company will indemnify each of the Holders, as
applicable, each of its officers, directors and partners, and each
person controlling each of the Holders, with respect to each
registration which has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action
or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each of
the Holders, each of its officers, directors and partners, and each
person controlling each of the Holders, each such underwriter and each
person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided
that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by any Holder with respect to such Holder or
underwriter with respect
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to such underwriter and stated to be specifically for use therein.
(ii) Each of the Holders will, if Registrable Securities held by
it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company,
each of its directors and officers and each underwriter, if any, of the
Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning
of the Securities Act and the rules and regulations thereunder, each
Other Shareholder and each of their officers, directors, and partners,
and each person controlling such Other Shareholder against all claims,
losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of
a material fact with respect to such Holder contained in any such
registration statement, prospectus, offering circular or other document
made by such Holder, or any omission (or alleged omission) to state
therein a material fact with respect to such Holder required to be
stated therein or necessary to make the statements by such Holder
therein not misleading, and will reimburse the Company and such Other
Shareholders, directors, officers, partners, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such
Holder with respect to such Holder and stated to be specifically for use
therein; provided, however, that the obligations of each of the Holders
hereunder shall be limited to an amount equal to the proceeds to such
Holder of securities sold as contemplated herein.
(iii) Each party entitled to indemnification under this Section
1(g) (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the
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Indemnified Party may participate in such defense at such party's
expense (unless the Indemnified Party shall have reasonably concluded
that there may be a conflict of interest between the Indemnifying Party
and the Indemnified Party in such action, in which case the fees and
expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the Indemnifying Party is
materially prejudiced thereby. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 1(g) is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such
loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on
the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability,
claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with any underwritten
public offering contemplated by this Agreement are in conflict with the
foregoing provisions, the
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provisions in such underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of the Company and Holders
is subject to the condition that, insofar as they relate to any loss,
claim, liability or damage made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement in question becomes
effective or the amended prospectus filed with the Commission pursuant
to Commission Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter if a copy of
the Final Prospectus was furnished to the underwriter and was not
furnished to the person asserting the loss, liability, claim or damage
at or prior to the time such action is required by the Securities Act.
(vii) Any indemnification payments required to be made to an
Indemnified Party under this Section 1(g) shall be made as the related
claims, losses, damages, liabilities or expenses are incurred.
(h) Information by the Holders. Each of the Holders and each
Other Shareholder holding securities included in any registration, shall furnish
to the Company such information regarding such Holder or Other Shareholder and
the distribution proposed by such Holder or Other Shareholder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Section
1. The Institutional Investors shall not be required, in connection with any
underwriting arrangements entered into in connection with any registration, to
provide any information, representations or warranties, or covenants with
respect to the Company, its business or its operations and such Institutional
Investors shall not be required to provide any indemnification with respect to
any registration statement except as specifically provided for in Section
1(g)(ii) hereof.
(i) Rule 144 Reporting.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of the restricted
securities to the public without registration, the Company agrees to:
(A) make and keep public information available as those
terms are understood and defined in Rule 144, at all times from
and after 90 days after the date hereof;
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<PAGE>
(B) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act at all
times that it is subject to such reporting requirements; and
(C) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by the
Company as to its compliance with the reporting requirements of
Rule 144, and of the Securities Act and the Exchange Act (it is
subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents so filed as the Holder may reasonably
request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities
without registration.
(j) "Market Stand-off" Agreement. Each of the Holders agrees, if
requested by the Company and an underwriter of Common Shares (or other
securities) of the Company, not to sell or otherwise transfer or dispose of any
Common Shares (or other securities) of the Company held by such Holder during
the 90-day period following the effective date of a registration statement of
the Company filed under the Securities Act, provided that all officers and
directors of the Company enter into similar agreements.
If requested by the underwriters, the Holders shall execute a
separate agreement to the foregoing effect. The Company may impose stop-transfer
instructions with respect to the Common Shares (or other securities) subject to
the foregoing restriction until the end of said 90-day period. The provisions of
this Section 1(j) shall be binding upon any transferee who acquires Registrable
Securities, whether or not such transferee is entitled to the registration
rights provided hereunder.
(k) Termination. The registration rights set forth in this
Section 1 shall not be available to any Holder if, in the opinion of counsel to
the Company, all of the Registrable Securities then owned by such Holder could
be sold in any 90-day period pursuant to Rule 144 under the Act (without giving
effect to the provisions of Rule 144(k)).
SECTION 2. MISCELLANEOUS.
(a) Assignability. This Agreement shall be binding upon and inure
to the benefit of the respective heirs, personal representatives, successors and
assigns of the parties hereto.
-14-
<PAGE>
(b) Notices. All communications under this Agreement shall be in
writing and shall be delivered by hand or mailed by overnight courier or
by registered or certified mail, postage prepaid:
(A) if to USF&G, at 6225 Centennial Way, Baltimore,
Maryland 21209, Attention: Dan L. Hale, with a copy to: Corporate
Secretary, or at such other address as it may have furnished the
Company in writing;
(B) if to Warburg, at 466 Lexington Avenue, New York, New
York 10017, Attention: Howard Newman, with a copy to: Kewsong
Lee, or at such other address as it may have furnished the
Company in writing;
(C) if to Insurance L.P., at c/o GE Investment Management
Incorporated, 3003 Summer Street, Stamford, Connecticut 06905,
Attention: Controller to Alternative Investments, with copies to:
Associate General Counsel to Alternative Investments and GE
Investment, 2029 Century Park East, Suite 1230, Los Angeles,
California 90067, or at such other address as GE Investment may
have furnished the Company in writing;
(D) if to PT Investments, at 3003 Summer Street,
Stamford, Connecticut 06905, Attention: Controller to
Alternative Investments, with a copy to: Associate General
Counsel to Alternative Investments, or such other address as
GE Pension Trust may have furnished the Company in writing; and
(E) if to the Company, at its offices, currently
Renaissance House, East Broadway, Pembroke HMGX, Bermuda, marked
for the attention of the President, with a copy to the Secretary
of the Company, or at such other address as it may have furnished
in writing to each of the Institutional Investors, with a copy
to: Willkie Farr & Gallagher, 153 East 53rd Street, New York, New
York 10022, Attention: John S. D'Alimonte.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier,
on the first business day following the date of such mailing; and if
mailed by registered or certified mail, on the third business day after
the date of such mailing.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
-15-
<PAGE>
(d) Entire Agreement; Amendment. This Agreement constitutes the
entire understanding of the parties hereto with respect to the matters to which
it relates and supercedes all prior understandings among such parties with
respect to such matters, including without limitation the Amended and Restated
Registration Rights Agreement, dated as of December 27, 1996, by and among the
parties signatory to this Agreement (other than PT Investments and Insurance
L.P.), Trustees of General Electric Pension Trust and GE Investment Private
Placement Partners I, Limited Partnership. This Agreement may be amended, and
the observance of any term of this Agreement may be waived, with (and only with)
the written consent of the Company and each of the Institutional Investors,
provided that new Management Investors may be added as parties to this Agreement
in connection with such individuals purchasing Common Shares upon any such
Management Investor having duly executed a counterpart to this Agreement.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
-16-
<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned
parties has executed this Agreement effective for all purposes as of the date
first written above.
RENAISSANCERE HOLDINGS LTD.
By: /s/ John M. Lummis
-----------------------------------
Name: John M. Lummis
Title: Senior Vice President and
Chief Financial Officer
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Kewsong Lee
-----------------------------------
Name: Kewsong Lee
Title: Partner
PT INVESTMENTS, INC.
By: /s/ Michael M. Pastore
-----------------------------------
Name: Michael M. Pastore
Title: Vice President
GE INVESTMENT PRIVATE PLACEMENT
PARTNERS I-INSURANCE,
LIMITED PARTNERSHIP
By: GE Investment Management
Incorporated, General Partner
By: /s/ Michael M. Pastore
-----------------------------------
Name: Michael M. Pastore
Title: Vice President
-17-
<PAGE>
UNITED STATES FIDELITY AND GUARANTY COMPANY
By: /s/ Dan Hale
-----------------------------------
Name: Dan Hale
Title: Executive Vice President
/s/ David A. Eklund
------------------------------------------
David A. Eklund
/s/ Keith S. Hynes
------------------------------------------
Keith S. Hynes
/s/ William I. Riker
------------------------------------------
William I. Riker
/s/ James N. Stanard
------------------------------------------
James N. Stanard
-18-
<PAGE>
SCHEDULE I
Investor Number of Shares Held
Warburg, Pincus Investors L.P. 3,873,402
GE Investment Private Placement
Partners I - Insurance,
Limited Partnership 318,213
PT Investments, Inc. 2,448,504
United States Fidelity and
Guaranty Company 2,426,137
David A. Eklund 29,200
Keith S. Hynes 164,956
William I. Riker 145,364
James N. Stanard 905,187
Total(1) 10,310,963
- ---------------
(1) Does not reflect an aggregate of 365,044 Full Voting Common Shares
issuable upon the exercise of outstanding options granted under the
Incentive Plan as of December 31, 1997, all of which Full Voting Common
Shares are Registrable Securities as defined in Section 1(a)(viii)(b) of
this Agreement.
[RENAISSANCERE HOLDINGS LOGO]
ANNUAL REPORT 1997
<PAGE>
COMPANY OVERVIEW
RenaissanceRe Holdings Ltd. ("RenaissanceRe") provides reinsurance and insurance
coverage where the risk of natural catastrophes represents a significant
component of the overall exposure. We are a leader in using sophisticated
computer models to construct an optimal portfolio of these coverages.
Our principal business is property catastrophe reinsurance. Our subsidiary,
Renaissance Reinsurance Ltd. ("Renaissance Reinsurance"), is one of the largest
providers of this coverage in the world. We provide reinsurance to insurance
companies and other reinsurers primarily on an excess of loss basis, which means
that we begin paying when their claims, from all of the homes, businesses and
properties that they insure from a particular catastrophe, exceed a certain
retained amount. Through these coverages we are subject to claims arising from
large natural catastrophes, such as earthquakes and hurricanes, although we are
also exposed to claims arising from other events such as winter storms, floods,
tornadoes, fires and explosions.
We have also begun to provide primary insurance. This business is written
through two subsidiaries, Glencoe Insurance Ltd. ("Glencoe") and DeSoto
Insurance Company ("DeSoto"). Through these subsidiaries we write commercial
insurance in various areas of the United States and homeowners insurance in
Florida, focusing on business exposed to natural catastrophes.
<PAGE>
CONTENTS
Financial Highlights 2
Letter to Shareholders 3
Overview of Operations
Reinsurance 5
Primary Operations 7
Capital Management 9
Focused Diversification 11
Selected Financial Data 12
Management's Discussion and Analysis 13
Management's Responsibility for Financial Statements 25
Report of Independent Auditors 25
Consolidated Financial Statements 26
Notes to the Consolidated Financial Statements 30
Directors and Officers 44
Financial and Investor Information Inside Back Cover
RenaissanceRe Holdings Ltd. 1997 Annual Report
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
RenaissanceRe Holdings Ltd. and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in thousands, except per share amounts) 1997 1996 1995 1994 1993(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross premiums written $228,287 $269,913 $292,607 $273,481 $66,118
Net income available to common shareholders 139,249 156,160 162,786 96,419 31,281
Common dividends declared and paid 22,643 20,489 4,096 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS
Operating income(2) - diluted $ 6.19 $ 6.12 $ 6.65 $ 4.23 $ 1.37
Net income - diluted 6.06 6.01 6.75 4.24 1.37
Book value 26.68 23.21 18.99 11.79 7.67
Dividends declared 1.00 0.80 0.16 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
RETURN ON AVERAGE SHAREHOLDER'S EQUITY 24.3% 30.2% 43.3% 44.1% 32.7%
==---------------------------------------------------------------------------------------------------------------------------------
OPERATING RATIOS
Claims and claim expense ratio 23.7% 34.3% 38.3% 47.0% 2.8%
Underwriting expense ratio 23.8% 17.0% 13.7% 14.6% 17.9%
Combines ratio 47.5% 51.3% 52.0% 61.6% 20.7%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)For the period June 7, 1993 (date of incorporation) through December 31,
1993.
(2)Excludes realized gains (losses) on investments.
[GRAPH REPRESENTING RETURN ON AVERAGE EQUITY FOR YEAR ENDING DEC. 31 1993-1997]
[GRAPH REPRESENTING BOOK VALUE PER SHARE FOR YEAR ENDING DEC. 31 1993-1997]
[GRAPH REPRESENTING QUARTERLY DIVIDENDS PER SHARE FROM 1995-1997]
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 2 ]
<PAGE>
LETTER TO SHAREHOLDERS
Dear Fellow Shareholder:
Overall, this was a fine year for RenaissanceRe. In a continuing environment of
softening prices and fierce competition in the insurance and reinsurance
industries, we have continued to effectively execute our success factors of
underwriting, marketing and capital management.
We again achieved one of the highest ROE's in the property and casualty
insurance industry and had modest growth in earnings per share. We were,
however, aided by a mild year for natural catastrophes, following three
above-average years.
We completed a strategic planning process that crystallized our position on
diversification (for an explanation please see page 11) and then made meaningful
strides in executing that plan by building capabilities in the
catastrophe-exposed primary business in the U.S.
Although we suffered a 2.8% decline in our asset portfolio in the fourth quarter
due to the Asian financial crisis, we moved quickly to rebalance the portfolio
to maintain its conservative profile. These moves are described by John Lummis
on page 9.
Market Conditions
1997 saw a continuation and intensification of insurance market trends of
competition and consolidation.
Virtually all segments of the worldwide insurance and reinsurance markets have
seen falling prices; the property catastrophe market is no exception. Faced with
the classic strategic trade-off between market share and profitability, we
remain focused on maintaining the quality (by which I mean the risk/reward
relationship) of our portfolio. Therefore we allowed its size to decline for the
second year in a row. While net written premium was down 22%, our exposure to
loss (after reinsurance that we purchase) was also reduced. Note that the
decline in premium over the last two years is almost entirely due to our net
position in the retrocessional market (reinsurance of reinsurers): we are
purchasing more and selling less. Reinsurance of primary insurance clients was
about flat this year, after growing in 1996.
[PHOTO OF JAMES N. STANARD]
Consolidation continues among our production sources, our clients and our
competitors. We remain committed to using brokers as our sole source of
reinsurance proposals. Our emphasis on rapid response and creative product
design keeps us in a strong position with the now fewer and larger brokers. We
also leveraged our reputation as a highly sophisticated catastrophe modeler into
a marketing tool by conducting over thirty modeling seminars for our clients.
Consolidation among our clients has been a major contributor to the drop in our
retrocessional premium income, as the combined entity usually buys less
reinsurance.
Consolidation among our competitors has not hurt us so far. With the security we
offer, we benefit from the trend of clients seeking to deal with a smaller
number of reinsurers - we are one of the survivors when cuts are made.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 3 ]
<PAGE>
Primary Operations
Our biggest operational accomplishment this year was the expansion of our
primary insurance businesses. Although still a small contributor to earnings, we
are carefully constructing a platform from which to pursue selected
catastrophe-exposed primary insurance business. Glencoe, our 80%-owned surplus
lines company, is now eligible in 26 states in the U.S. We started DeSoto to
write homeowners business in Florida, and have a definitive agreement to
purchase Nobel Insurance Company, a specialist in low value dwelling homeowners
insurance. Nobel has a strong management team led by CEO Jef Amsbaugh. Jef
established a fine track record since taking charge of an essentially bankrupt
company in 1989. Keith Hynes explains our strategy behind these moves on page 7.
We are sometimes asked whether these primary operations could jeopardize our
reinsurance client relationships. This is an important issue, but hardly unique
to Renaissance Reinsurance; almost all major reinsurers have some primary
operations. Further, it is not unusual for us to reinsure each of two fierce
competitors in the same market, relying on confidential business plans provided
by each one. The important issue is fair and ethical dealing in such situations.
Our primary operations are run by a different management team than reinsurance
and we have an explicit "Chinese wall" policy insuring confidentiality of client
information. In fact, our surplus lines primary capability in Glencoe has been
viewed favorably by some of our reinsurance clients with whom we have forged
cooperative arrangements. To them, Glencoe simply provides another vehicle to
shed unwanted catastrophe risk.
Challenges
In 1998 we will be working hard to:
- - Maintain our position as a leading specialist in catastrophe
reinsurance in the face of continued competition and consolidation.
Bill Riker explains our plan to do this on page 5.
- - Effectively execute our primary operations strategy. Our primary
business derives its strength from our core catastrophe management
skills, but presents us with new management challenges: increased
delegation and dispersion of risk-taking authority, requiring
management controls not needed in smaller reinsurance shops; importance
of expense control; more complex processing systems; and regulatory
complexities not found in reinsurance.
Conclusion
We enter 1998 with the strongest management team, client relationships, and
balance sheet ever. Although smaller in size, the quality of our catastrophe
excess portfolio is comparable to past years. We have established a focused
diversification strategy and made meaningful progress toward executing it.
Overall, we are well positioned to provide value and security to our customers
and attractive returns to our shareholders. To that, we pledge our very best
effort.
Sincerely,
/s/ James N. Stanard
James N. Stanard
Chairman, President and Chief Executive Officer
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 4 ]
<PAGE>
REINSURANCE
The year 1997 solidified our position as a market leader. Low loss activity
contributed to continued pricing softness, with declines of 10-15% in the U.S.
and greater declines in the international arena. Early in the year, it was clear
that to retain our lead as the premier catastrophe market we needed to:
- - "Raise the bar" on service to our clients and producers;
- - Maintain underwriting discipline by further refining our risk selection
methodologies; and
- - Enhance the relationships we enjoy with our clients and producers.
[PHOTO WILLIAM I. RIKER]
WILLIAM I. RIKER
President & Chief Operating Officer
Renaissance Reinsurance Ltd.
[PHOTO DAVID A. EKLUND]
DAVID A. EKLUND
Executive Vice President
Renaissance Reinsurance Ltd.
We accomplished all three. The core service we provide to our clients and
producers is the application of our technological skills to their business
needs. Increasingly, our clients rely on us for informed solutions and insight
regarding catastrophe exposure management. We conducted seminars for over thirty
clients in 1997 during which we explained the behaviors of the different
catastrophe models and how they can be most effectively utilized. Based on
positive client feedback, we will expand this program in 1998. As information
providers and technology facilitators to our clients, we are able to earn
preferred positions on their reinsurance programs.
We remain a market leader in the development of custom products for our clients.
Many clients are expressing more interest in developing multi-year reinsurance
agreements with their reinsurers. Our analytical skills and modeling
capabilities enable us to structure such agreements while protecting us from
unfavorable long-duration contracts.
Superior service helps assure that we get the "first call". In the reinsurance
market, the opportunity to structure a new contract is extremely valuable, as
you are then given priority choice when the transaction is concluded. For
example, we provided companies who were assuming risks from the Florida
Residential Property and Casualty Joint Underwriting Association ("JUA") with
unique information which enabled them to optimize their selections from the JUA
and accomplish their corporate goals. We are now the leading reinsurer for these
new companies.
New insurance programs are being developed around technology that monitors and
selects risks. These new programs often need sophisticated, flexible structures.
We have worked closely with many organizations to develop programs which meet
these complex needs. Only Renaissance Reinsurance and a few other sophisticated
reinsurers can properly underwrite these structures.
In raising the bar for service, we reorganized our underwriting service
responsibilities to provide better and faster contract documentation. We have
also automated our high resolution modeling capabilities so that we are now
considered the most responsive reinsurance company in the world in this field.
Just as an ebbing tide brings the rocks to the surface, decreased pricing makes
understanding the risks you write more important. We improved our proprietary
REMS system and completed a new version, REMS 32, in the early spring. The
enhancements included faster performance, improved tracking of our customer
service, as well as refined and improved analytical analysis.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 5 ]
<PAGE>
In 1997 we also expanded our relationship with EQECAT, one of the newer, more
sophisticated catastrophe modelers in the market; their models have been added
to our portfolio of the best models in the world. On the international front, we
work closely with Cartograph, one of the leaders in developing models for
international regions.
We continue to have the best multiple model capability in the world, a key
competitive advantage. As clients and brokers become more proficient in using
these tools, it disadvantages reinsurers lacking multiple model capabilities.
To us, information is a competitive weapon. We have built detailed files on the
complete catastrophe reinsurance industry and we are confident that our
information constitutes the best database in the world.
Tale of Two Markets
The emergence of new technology has changed the way reinsurers and insurers
evaluate catastrophe exposure, enabling them to better quantify and understand
the risks. However, not all reinsurers have embraced this technology and
reinsurers lacking technology are relying on outdated heuristics to evaluate
risks. This market rift, between those organizations which possess and utilize
new technology and those who don't, is responsible for numerous recent examples
of irrational pricing, almost exclusively on the side of underpricing the risk.
Many of the major reinsurance players have invested in technology and can now
better evaluate the "true cost" (expected losses) of the catastrophe product.
Understanding "true costs" is especially difficult in the catastrophe business
because we only get hints of true price discovery every few years (in the form
of catastrophes); hence, mistakes will not surface in years with low catastrophe
experiences and may not surface for many years.
Fortunately, relationship-driven, value-oriented clients are focusing on
long-term quality, benefiting the sophisticated players like Renaissance
Reinsurance.
Where are we going?
With a growing technology endowment, we continue to do a better job of selecting
and managing risks.
The migration of business to the informed, technologically sophisticated markets
will widen the gap between the two markets. Adverse selection, against companies
that do not embrace and properly utilize new technologies, will eventually erode
the margins of these companies in "average years".
In this framework, what are the questions to ask reinsurers?
- - How do you measure and evaluate your expected margins?
- - How do you avoid adverse selection as technology enables clients to tailor
their risks, and other reinsurers to select risks?
- - How do you determine/measure when you will no longer write a risk?
- - How do you incorporate price adequacy into your risk profile?
Answers to these questions can shed light on which of the two markets a
reinsurer is participating in.
In conclusion, we are maintaining our course of combining traditional values and
unsurpassed technology to retain our premier position as the most innovative
supplier of property catastrophe reinsurance in the world.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 6 ]
<PAGE>
PRIMARY OPERATIONS
[PHOTO OF KEITH S. HYNES]
KEITH S. HYNES
Executive Vice President
Primary Operations
RenaissanceRe Holdings Ltd.
Our primary operations have the same goals and operate on the same business
principles that have made our reinsurance business successful. We seek to
maintain a portfolio of risks in both that is better than the market average. We
believe this is the only way to achieve our second goal, which is to produce an
attractive return on capital. We achieve these goals through superior execution
of the basics of the insurance business, underwriting and marketing, and by
matching the level of capital to the requirements of each business.
During 1997, we established the foundation for our primary activities. Glencoe
achieved surplus lines eligibility in 26 states. Its gross premium written
increased to $7.0 million from $1.5 million in 1996. We anticipate premiums will
grow further, but are focusing on maintaining a superior book of business in the
current, very competitive market conditions. Glencoe is presently focused on
writing commercial, catastrophe-exposed property business. It has achieved
profitability in each of its first two years of operations.
Based on our belief that there are segments of the homeowners insurance market
that can meet our goals, we incorporated DeSoto Insurance Company in September
with an initial capitalization of $10 million. In December, DeSoto became the
first "special purpose homeowners insurance company" to be licensed by the State
of Florida Department of Insurance. A special purpose homeowners insurance
company is not subject to assessment by either the Florida Residential Property
and Casualty Joint Underwriting Association (JUA) or the Florida Windstorm
Underwriting Association (WUA). DeSoto's freedom from JUA and WUA assessments
confers a unique competitive advantage. This regulatory advantage is augmented
by our ability to assess and manage catastrophe exposure, which is a critical
success factor for any company writing Florida homeowners business. DeSoto
commenced operations on January 1, 1998, an assumption of approximately 12,000
policies from the JUA. The in-force premium of these policies was approximately
$10 million.
[CATASTROPHE RISK ACCESS POINTS CHART APPEARS HERE, SHOWING DATA FOR RENAISSANCE
REINSURANCE, NOBEL, GLENCOE AND DESOTO]
Both Glencoe and DeSoto extend RenaissanceRe's capabilities into contiguous
business areas and leverage RenaissanceRe's catastrophe exposure assessment and
management skills. The chart on this page shows several points in the insurance
business where catastrophe risk can be accessed. Renaissance Reinsurance has
achieved a leadership position in writing and managing catastrophe coverage in
the reinsurance and retrocessional markets. Glencoe provides the opportunity to
write catastrophe-exposed business in the excess and surplus lines market.
DeSoto will be obtaining catastrophe risk in the Florida homeowners market
through an assumption of policies from the state JUA. We expect to establish
vehicles to write catastrophe-exposed business in additional sectors of the
insurance/reinsurance marketplace.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 7 ]
<PAGE>
In December, we reached a definitive agreement to acquire Nobel Insurance
Company ("Nobel") and related entities for $54.1 million. Nobel is a licensed
insurer in all 50 states, writing in three focused insurance businesses. The
product line which we find most attractive is Nobel's low value dwelling
homeowners insurance (coverage for homes valued under $100,000). We've been one
of Nobel's reinsurers for its homeowners business, and have developed respect
for their management team. Nobel is a leader in this business in the southeast
United States, but does not write in Florida because of an aversion to
catastrophe exposure. We believe that the low value dwelling business is a
segment of the homeowners market where we can meet our corporate goals, and that
Nobel, together with the Company, have the requisite skills to be successful.
Nobel's second business segment is commercial casualty insurance, made up of
commercial auto and general liability. Nobel was founded in 1978 as a captive
casualty insurer for the explosives industry. Nobel continues to be the leading
casualty insurer for the explosives industry and has increased its customer base
beyond the explosives industry. A unique aspect of our acquisition of Nobel is
our strategic partnership with American Reinsurance Company and Inter-Ocean
Reinsurance Company Ltd., who will be providing comprehensive prospective and
retrospective reinsurance protection for Nobel's casualty business.
Nobel's third business segment is surety insurance, where they provide coverage
to small and mid-size contractors.
In addition to Nobel's insurance business, our acquisition includes IAS/CAT
Crew, which is an independent loss adjustment firm. Through the IAS/CAT Crew
division, Nobel is a leader in providing catastrophe claims adjustment and
planning services. Should a catastrophe occur, this capability will be valuable
to Glencoe, DeSoto and to Renaissance Reinsurance's customers.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 8 ]
<PAGE>
CAPITAL MANAGEMENT
[PHOTO OF JOHN M. LUMMIS]
JOHN M. LUMMIS
Senior Vice President &
Chief Financial Officer
RenaissanceRe Holdings Ltd.
Capital management at RenaissanceRe serves two key constituencies - our
shareholders and our customers. We seek to generate attractive returns on our
shareholders' equity while providing unquestioned security to our customers.
At first look, it might appear that the interests of these two constituencies
are in conflict: higher return on equity might be presumed to come at the
expense of our customers. However, our management of risk and capital is
designed to harmonize the interests of our shareholders and our customers.
RenaissanceRe is differentiated from its peers by the way we integrate
underwriting and capital management. Our underwriters assess each potential
contract in the context of our whole portfolio. Each contract we write is
allocated capital based on its correlation with the rest of the portfolio; the
lower the correlation, the lower the capital allocation (other things being
equal).
Our system enables us to identify risks that are attractive in our portfolio
even where they are unattractive in the customer's portfolio. Both customer and
reinsurer win, as a risk - one that might be viewed as too large or concentrated
for a customer's balance sheet - finds a better "fit" in our portfolio.
In addition to carefully evaluating the risks we assume, RenaissanceRe
rigorously assesses the financial structure that stands behind these risks:
- - We seek to optimize the reinsurance that we purchase to enhance the
risk/reward characteristics of the net reinsurance portfolio.
- - We also seek to lower our overall cost of capital through the prudent use of
debt and preferred financing.
- - Finally, we are committed to actively managing our equity.
A year of low catastrophe losses, such as 1997, does not test our capital and
risk management. But while others may ignore the risks in this environment, we
will continue to actively manage our portfolio of risks.
1997 Achievements
RenaissanceRe's focus on capital was reflected in several ways during 1997:
- - In January and June, we repurchased a total of 1.5 million shares,
representing 6.4% of shares outstanding at the beginning of the year. The
total value was $53.5 million, or an average of $35.33 per share. The January
transaction was entered into shortly after a purchase of 2.1 million shares
for $71.9 million in December 1996 from our founding shareholders. The June
transaction was entered into in conjunction with a secondary offering by
these shareholders.
- - The Company's Board of Directors increased the quarterly dividend from $.20
to $.25 per share in February 1997 - the third consecutive annual increase.
- - The Company issued $100 million of 8.54% trust preferred, capital securities.
Proceeds were used to retire bank debt. This security is attractive to us for
its equity features in our capital structure.
- - The Company updated its proprietary underwriting and risk management system,
REMS, to incorporate retrocessional purchases. This enhancement allows us to
evaluate the amount of capital that is released under our capital allocation
rules by virtue of retrocessional purchases.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 9 ]
<PAGE>
- - The Company increased its public ownership from 26% of the shares outstanding
at the beginning of the year to 54% at the end of the year. This increase
occurred through two secondary offerings by our founding shareholders.
Investment Portfolio
The majority of our assets are invested in what we call our core portfolio
(currently about 85% of the total invested assets). The mandate to our
investment manager for this portfolio is to maintain high credit quality
(average AA) with focus on preservation of capital and liquidity. The remainder
of our assets are invested in higher risk asset classes, equity and
non-investment grade bond portfolios focused on total return.
At year end, we held bonds in Korea, Thailand and Indonesia with a market value
of $66 million. In view of the increased risk associated with these bonds
following the financial crisis in Asia, we concluded that we needed to reduce
the overall risk in the investment portfolio. We achieved this by selling our
equity positions valued at $52.9 million (at a gain of $1.9 million). We decided
to retain our portfolio of primarily sovereign, dollar denominated bonds rather
than selling these bonds into the distressed market prevailing at year end. We
believe this portfolio will recover in value and, at current prices, is an
attractive use of capital.
Through our move into U.S. Treasuries and the sale of our equities, we have
maintained the conservative profile of our investment portfolio.
1998
The most important capital management question that faces RenaissanceRe is how
to utilize the excess capital that the reinsurance business is likely to
generate in 1998. While the reinsurance portfolio is declining in size, it
continues to generate substantial profits, beyond what can be deployed in that
business. There will be two uses of this excess capital:
- - First, it will be deployed in supporting new business activities,
particularly in the growth of our primary, catastrophe-exposed businesses,
but potentially in other new businesses as well. However, because of our high
standards for new business ventures (as described on the following page), it
is possible that we will be unable to fully deploy our excess capital.
- - To the extent that we have capital in excess of the needs of the business, we
will evaluate returning capital to our shareholders through share repurchases
and cash dividends.
As we actively manage our common equity, we will also continue to optimize our
use of retrocessional coverage, debt and preferred stock financing. Our actions
will be taken with a view to maximizing returns for our shareholders and
providing security for our customers.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 10 ]
<PAGE>
FOCUSED DIVERSIFICATION
The key strategic question we faced this year concerned diversification. We
started the year with a very strong position in a relatively small, specialized
market: property catastrophe excess reinsurance. Through effective risk
selection, marketing and capital management, we have generated outstanding ROE's
for five years in a row. However, profit potential in this market is limited by
the absence of loss activity which would firm prices. Given this situation, what
should we do?
Our Mission
TO OBTAIN A PORTFOLIO OF PROPERTY CATASTROPHE REINSURANCE, INSURANCE AND
FINANCIAL RISKS THAT PRODUCES AN ATTRACTIVE RETURN ON CAPITAL AND IS
SIGNIFICANTLY BETTER THAN THE MARKET AVERAGE. WE DO THIS BY PROVIDING QUALITY TO
CUSTOMERS IN THE FORM OF EXCELLENT FINANCIAL SECURITY, INNOVATIVE PRODUCTS AND
RESPONSIVE SERVICE.
One strategic alternative would be aggressive diversification. This would follow
the consolidation theme in the industry, and, some argue, would improve the
valuation of our stock, based on the theory that if risk is spread among many
different types of insurance, earnings become more predictable. We rejected this
because it did not fit with our culture of tight control of risk, and our
organization lacked experience in managing a wide range of businesses.
A second alternative would be a pure "stick to our knitting" strategy. This
would have us continue to strengthen our position in the catastrophe market
while we wait for the inevitable market turn. Such a strategy has some appeal,
but we concluded that it would not maximize the value of the Company because we
would not be fully utilizing the core skills and competitive advantages which we
have developed.
This led to a third course that we call "focused diversification" - searching
for opportunities to replicate our success as a start-up (we have demonstrated
that we know how to start a successful business) in another market. As we
explained in last year's report, any diversification must meet three tests:
1. It must produce an attractive return on capital;
2. We must be able to develop a competitive advantage; and
3. It must not divert important resources from our core business.
As you might expect, the most promising opportunities are those that are
extensions of our core property catastrophe expertise. Glencoe, DeSoto, and the
homeowners segment of Nobel all extend our established catastrophe expertise
into the primary market. We refer to this extension of existing skills to
related markets as "mining".
We also search for opportunities beyond the catastrophe business (which we refer
to as "exploring"). Here, we look for an intersection of an attractive market
opportunity, an ability to develop a competitive advantage, and a cultural fit
(our ability to execute). So far, we have not seen any attractive market
opportunities, but we are actively pursuing new ideas.
To define the boundaries of our exploration activities, we revised our mission
statement (shown on the left) to encompass "financial risks" beyond insurance.
With the rapid change occurring in the markets for financial risk-bearing, we
are optimistic that we will find niches where we can excel. However, our focus
is on attractive return on capital, not revenue growth or diversification for
its own sake. So we will patiently wait for opportunities that fit with our
strategy.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 11 ]
<PAGE>
SELECTED FINANCIAL DATA
The following summary financial information should be read in conjunction with
the Consolidated Financial Statements and the notes thereto presented on pages
26 to 43 in this Annual Report.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(dollar amounts in thousands,
except per share data) 1997 1996 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Gross premiums written $228,287 $269,913 $292,607 $273,481 $66,118
Net premiums written 195,752 251,564 289,928 269,954 66,118
Net premiums earned 211,490 252,828 288,886 242,762 34,643
Net investment income 49,573 44,280 32,320 14,942 2,725
Total revenues 254,726 294,959 326,566 261,392 38,631
Claims and claim expenses 50,015 86,945 110,555 114,095 982
Acquisition and operating expenses 50,358 42,893 39,734 35,378 6,218
Net income 139,249 156,160 162,786 96,419 31,281
Earnings per Common Share - basic $ 6.19 $ 6.15 $ 6.84 $ 4.24 $ 1.37
Earnings per Common Share - diluted 6.06 6.01 6.75 4.24 1.37
Dividends per share 1.00 0.80 0.16 -- --
- ---------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total investments $736,538 $603,484 $528,836 $284,493 $136,811
Cash and cash equivalents 122,929 198,982 139,163 153,049 33,028
Total assets 960,749 904,764 757,060 509,410 208,512
Reserve for claims and
claim adjustment expenses 110,037 105,421 100,445 63,268 982
Capital Securities(2) 100,000 -- -- -- --
Shareholders' equity 598,703 546,203 486,336 265,247 172,471
Book value per Common Share $ 26.68 $ 23.21 $ 18.99 $ 11.79 $ 7.67
- ---------------------------------------------------------------------------------------------------
OPERATING RATIOS
Claims and claim expense ratio 23.7% 34.3% 38.3% 47.0% 2.8%
Underwriting expense ratio 23.8% 17.0% 13.7% 14.6% 17.9%
Combined ratio 47.5% 51.3% 52.0% 61.6% 20.7%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period June 7, 1993 (date of incorporation) through December 31,
1993.
(2) Represents Minority interest - Company obligated, mandatorily redeemable
capital securities of a subsidiary trust holding solely junior subordinated
debentures of the Company.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 12 ]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company provides reinsurance and insurance where risk of natural catastrophe
represents a significant component of the overall exposure. The Company's
results depend to a large extent on the frequency and severity of catastrophic
events, and the concentration and coverage offered to clients impacted thereby.
In addition, the Company writes other lines of insurance and reinsurance on a
limited basis, and is actively exploring new opportunities.
The Company's principal operating objective is to utilize its capital
efficiently by focusing on the writing of property catastrophe insurance and
reinsurance contracts with superior risk/return characteristics, while
maintaining a low cost operating structure in the favorable regulatory and tax
environment of Bermuda. The Company's primary underwriting goal is to construct
a portfolio of insurance and reinsurance contracts that maximizes the return on
shareholders' equity subject to prudent risk constraints.
The Company's principal business is property catastrophe reinsurance, written on
a worldwide basis through Renaissance Reinsurance. Based on gross premiums
written, the Company is one of the largest providers of this coverage in the
world. The Company provides property catastrophe reinsurance coverage to
insurance companies and other reinsurers primarily on an excess of loss basis.
Excess of loss catastrophe coverage generally provides coverage for claims
arising from large natural catastrophes, such as earthquakes and hurricanes, in
excess of a specified loss. In connection with the coverage it provides, the
Company is also exposed to claims arising from other natural and man-made
catastrophes such as winter storms, freezes, floods, fires and tornadoes.
The Company is continuing to expand its primary insurance business through
internal growth and acquisition. In 1997 the Company wrote $7 million of primary
insurance through Glencoe, an 80 percent-owned subsidiary. Glencoe provides
primary catastrophe-exposed property coverage on an excess and surplus lines
basis, and is eligible to write business in 26 states.
In January 1998, the Company began to provide personal lines coverages through
DeSoto, a wholly owned subsidiary of Glencoe. DeSoto is a special purpose
Florida homeowners insurance company that is licensed to assume and renew
homeowner policies from the Florida JUA, a state sponsored insurance company.
DeSoto's initial assumption approximated 12,000 policies and an in-force premium
of $10 million.
On December 19, 1997, the Company announced it had executed a definitive
agreement to acquire the operating subsidiaries of Nobel Insurance Limited,
through a newly established U.S. holding company. The principal businesses of
Nobel Insurance Limited are the service and underwriting of commercial property,
casualty and surety risks for specialized industries and personal lines coverage
for low value dwellings. The casualty business will be substantially reinsured
by American Reinsurance Company and Inter-Ocean Reinsurance Company Ltd., who
will provide comprehensive prospective and retrospective reinsurance. Nobel
Insurance Limited's principal operating unit, Nobel Insurance Company ("Nobel"),
is a Texas domiciled company, licensed in 50 states. The purchase of the
operating subsidiaries of Nobel Insurance Limited is expected to close in the
second quarter of 1998. See Note 1 to the Consolidated Financial Statements and
"Financial Condition - Liquidity and Capital Requirements" regarding financing
of the acquisition.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 13 ]
<PAGE>
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward-looking statements in the
following discussion and elsewhere in this Annual Report. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments. In
particular, statements using verbs such as "expect", "anticipate", "hope",
"believe" or words of similar impact generally involve forward-looking
statements.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable events or
developments; some of which may be national or international in scope, such as
general economic conditions and interest rates; some of which may be related to
the reinsurance and insurance industries generally, such as pricing competition,
industry consolidation and regulatory developments, and others of which may
relate to the Company specifically, such as risks with implementing business
strategies and related organizational implications, adequacy of reserves,
exposure to catastrophe losses, technological risks inherent in developing
technological infrastructures, credit, interest rate, currency and other risks
associated with the Company's investment portfolio, and other factors. The
Company disclaims any obligation to update forward-looking information.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
For the year ended December 31, 1997, net income available to common
shareholders was $139.2 million compared to $156.2 million for the year ended
December 31, 1996. The decrease was primarily due to a decrease in gross
premiums written, an increase in ceded reinsurance premiums, an increase in
operating expenses and an increase in foreign exchange losses, which were
partially offset by a decrease in claims and claim expenses incurred and an
increase in net investment income. The above factors, combined with a 12 percent
decrease in the number of weighted average shares outstanding, as a result of
the purchase of Common Shares during late December 1996 and during 1997,
resulted in an increase in earnings per Common Share, on a diluted basis, to
$6.06 for the year ended December 31, 1997 from $6.01 for the year ended
December 31, 1996. Operating earnings (excluding realized gains and losses on
investments) decreased during 1997 to $142.1 million for the year ended December
31, 1997 from $159.1 million for the same period in 1996.
Gross premiums written for the year ended December 31, 1997 decreased 15.4
percent to $228.3 million from $269.9 million for the year ended December 31,
1996. The property catastrophe reinsurance market continues to be extremely
competitive due to the increased capital in the reinsurance market and the
limited opportunities to profitably deploy such capital. Because the property
catastrophe business has recently been among the most profitable segments of the
market, it is accordingly the focus of much competition which has resulted in
lower premiums measured on a risk adjusted basis. The decline in premiums
written is the result of the Company selectively deciding to non-renew those
policies where the pricing does not reflect the risk, and the reduced premiums
on renewed business.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 14 ]
<PAGE>
The 15.4 percent premium decrease was the result of a 17.4 percent decrease in
premiums due to the Company not renewing coverage and a 9.6 percent decrease
related to changes in pricing, participation levels and coverage on renewed
business, partially offset by an 11.6 percent increase in premiums related to
new business. A majority of the decline in premiums written related to
reductions in the Company's book of assumed retrocessional premiums which were
$59.5 million in 1997 compared to $103.7 million in 1996.
During 1997, consistent with its risk management practices and the availability
of coverage responsive to the Company's risk profile, the Company increased the
level of property catastrophe reinsurance coverage purchased for its own
account. Ceded premiums written in 1997 were $32.5 million compared to $18.3
million in 1996. To the extent that appropriately priced coverage is available,
the Company anticipates continued use of reinsurance to reduce the potential
volatility of its results.
Property catastrophe reinsurance premiums accounted for approximately 91 percent
of the Company's gross premiums written in 1997. The remaining gross premiums
written in 1997 consisted primarily of excess and surplus lines primary premiums
written by Glencoe, and premiums on aviation and marine coverages. The Company's
gross premiums written by geographic region were as follows:
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, (in thousands) 1997 1996
- --------------------------------------------------------------------------------
GEOGRAPHIC REGION
United States $123,717 $126,611
Worldwide 27,930 44,460
Worldwide (excluding U.S.) 32,005 38,746
Europe (including the United Kingdom) 21,007 31,534
Other 16,738 18,958
Australia and New Zealand 6,890 9,604
- --------------------------------------------------------------------------------
TOTAL GROSS PREMIUMS WRITTEN $228,287 $269,913
================================================================================
The category "Worldwide (excluding U.S.)" consists of contracts that cover more
than one geographic region (other than the U.S.). The exposure in this category
for gross premiums written to date is predominately from Europe and Japan.
The table below sets forth the Company's combined ratio and components thereof:
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------
Claims/claim adjustment expense ratio 23.7% 34.3%
Underwriting expense ratio 23.8 17.0
- --------------------------------------------------------------------------------
COMBINED RATIO 47.5% 51.3%
================================================================================
Claims and claim expenses incurred for the year ended December 31, 1997 were
$50.0 million compared to $86.9 million for the year ended December 31, 1996.
Compared to historical averages, the year ended December 31, 1997 was a
relatively light year for natural catastrophes worldwide. Accordingly, the
reduced level of catastrophe losses resulted in a significantly lower loss ratio
in 1997 compared to 1996 and therefore positively affected the Company's results
from operations. Due to the high severity and low frequency of losses related to
the property catastrophe insurance and reinsurance business, there can be no
assurance that the Company will experience this reduced level of losses in
future years.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 15 ]
<PAGE>
Included in the expenses for the year ended December 31, 1996 are provisions of
$15.0 million for claims incurred from Hurricane Fran which struck North
Carolina during the third quarter of 1996, $9.3 million for claims incurred by
regional midwestern clients related to severe wind and hail storms during the
second quarter of 1996, $8.3 million for losses related to the Northeast U.S.
winter storms in the first quarter of 1996, and a provision of $7.0 million for
Northwestern U.S. floods in December of 1996. Also, during 1996, there was $12.1
million of development on prior year losses, which primarily related to a $3.2
million development on losses related to the 1994 Northridge Earthquake and a
net development of $3.5 million for Hurricanes Luis, Marilyn and Opal which
occurred in 1995.
Estimates of claims and claim expenses incurred are based in part upon the
estimation of claims resulting from catastrophic events. Estimation by the
Company of claims resulting from catastrophic events based upon its own
historical claim experience is inherently difficult because of the Company's
short operating history and the possible severity of property catastrophe
claims. Therefore, the Company utilizes both proprietary and commercially
available models, as well as historical reinsurance industry property
catastrophe claims experience, for purposes of evaluating future trends and
providing an estimate of ultimate claims costs.
Underwriting expenses, consisting of brokerage commissions, excise taxes and
other costs directly related to underwriting, for the year ended December 31,
1997 were $50.4 million or 23.8 percent of net premiums earned, compared to
$42.9 million or 17.0 percent for the year ended December 31, 1996. The primary
contributors to the increase in underwriting expenses were the increased
operating costs related to the hiring of additional professional staff and
continued investment in modeling technology. Also, since there is no reduction
in acquisition expenses related to the purchase of reinsurance, the purchase of
reinsurance causes acquisition costs to be a higher percentage of net premiums
earned. Additionally, premiums written by Glencoe, due to the nature of the
business, have a higher ratio of acquisition costs.
Net investment income (excluding net realized investment gains and losses) for
the year ended December 31, 1997 was $49.6 million, compared to $44.3 million
for the year ended December 31, 1996. The increase in investment income resulted
primarily from the increase in the amount of invested assets which was primarily
the result of cash flows provided by operations, partially offset by amounts
used to purchase common stock during the year. Invested assets at December 31,
1997 were $859.5 million compared to $802.5 million at December 31, 1996.
During each of 1997 and 1996, the Company recorded net realized losses on
investments of $2.9 million. Included in the 1997 net realized loss figure is a
provision of $3.8 million for what the Company believes to be an other than
temporary impairment of certain securities of Asian issuers held by the Company
as at December 31, 1997. See Financial Condition - Investments.
During 1997 the Company realized net foreign exchange losses of $3.4 million
compared to net realized foreign exchange gains of $0.8 million for the year
ended December 31, 1996. The foreign exchange losses recorded in 1997 resulted
primarily in the strengthening of the U.S. dollar against the British pound and
the German mark. The exchange gains in 1996 resulted primarily in the weakening
of the U.S. dollar against the British pound.
During the year ended December 31, 1997 net income available to common
shareholders was reduced by $7.0 million for minority interests related to the
Capital Securities that were issued in March 1997. The proceeds from the Capital
Securities were utilized to partially reduce the
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 16 ]
<PAGE>
amount outstanding under the Company's Revolving Credit Facility and
accordingly, interest expense for the year ended December 31, 1997 decreased to
$4.3 million from $6.6 million for the year ended December 31, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
For the year ended December 31, 1996, net income available to common
shareholders was $156.2 million compared to $162.8 million for the year ended
December 31, 1995. The decrease was primarily due to a decrease in gross
premiums written, an increase in ceded reinsurance premiums and an increase in
operating expenses, which were partially offset by an increase in net investment
income. The above factors, combined with an 8 percent increase in the number of
weighted average shares outstanding, as a result of the initial public offering
of 3,105,000 Common Shares in July 1995, resulted in a decrease in earnings per
Common Share, on a diluted basis, to $6.01 for the year ended December 31, 1996
from $6.75 for the year ended December 31, 1995. Operating earnings (excluding
realized gains and losses on investments) were $159.1 million for the year ended
December 31, 1996 compared to $160.5 million for the year ended December 31,
1995.
Gross premiums written for the year ended December 31, 1996 decreased 7.8
percent to $269.9 million from $292.6 million for the year ended December 31,
1995. The decline in the gross premiums written was primarily related to the
competitive market for property catastrophe reinsurance. The principal
components of the decline related to a decrease in premiums from renewing
business of 8.8 percent, an 11.8 percent decrease due to the Company not
renewing coverage and a decrease in reinstatement premiums of 1.3 percent, which
was partially offset by a 14.1 percent increase in premiums related to new
business.
Reinsurance ceded premiums written were $18.3 million for the year ended
December 31, 1996 compared to $2.7 million for the year ended December 31, 1995,
resulting in net premiums written of $251.6 million for the year ended December
31, 1996 compared with $289.9 million for the year ended December 31, 1995.
Approximately 95 percent of the Company's gross premiums written in 1996 were in
respect of property catastrophe reinsurance. The remaining gross premiums
written in 1996 consisted primarily of aviation and marine coverages. The
Company's gross premiums written by geographic region were as follows:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, (IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------
GEOGRAPHIC REGION
United States $126,611 $144,077
Worldwide 44,460 59,137
Worldwide (excluding U.S.) 38,746 41,311
Europe (including the United Kingdom) 31,534 25,365
Other 18,958 11,720
Australia and New Zealand 9,604 10,997
- --------------------------------------------------------------------------------
TOTAL GROSS PREMIUMS WRITTEN $269,913 $292,607
================================================================================
The category "Worldwide (excluding U.S.)" consists of contracts that cover more
than one geographic region (other than the U.S.). The exposure in this category
for gross premiums written to date is predominately from Europe and Japan.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 17 ]
<PAGE>
The table below sets forth the Company's combined ratio and components thereof:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Claims and claim expense ratio 34.3% 38.3%
Underwriting expense ratio 17.0 13.7
- --------------------------------------------------------------------------------
COMBINED RATIO 51.3% 52.0%
================================================================================
Claims and claim expenses incurred for the year ended December 31, 1996 were
$86.9 million. Included in the expenses for the year are provisions of $15.0
million for claims incurred from Hurricane Fran which struck North Carolina
during the third quarter of 1996, $9.3 million for claims incurred by regional
midwestern clients related to severe wind and hail storms during the second
quarter of 1996, $8.3 million for losses related to the Northeast U.S. winter
storms in the first quarter of 1996, and a provision of $7.0 million for
Northwestern U.S. floods in December of 1996. Also, during 1996, there was $12.1
million of development on prior year losses, which primarily related to a $3.2
million development on losses related to the 1994 Northridge Earthquake and a
net development of $3.5 million for Hurricanes Luis, Marilyn and Opal which
occurred in 1995. In comparison, claims and claim expenses incurred for the year
ended December 31, 1995 were $110.6 million or 38.3 percent of net premiums
earned.
Estimates of claims and claim expenses incurred are based in part upon the
estimation of claims resulting from catastrophic events. Estimation by the
Company of claims resulting from catastrophic events based upon its own
historical claim experience is inherently difficult because of the Company's
short operating history and the possible severity of property catastrophe
claims. Therefore, the Company utilizes both proprietary and commercially
available models, as well as historical reinsurance industry property
catastrophe claims experience, for purposes of evaluating future trends and
providing an estimate of ultimate claims costs.
Underwriting expenses, consisting of brokerage commissions, excise taxes and
other costs directly related to underwriting, for the year ended December 31,
1996 were $42.9 million or 17.0 percent of net premiums earned, compared to
$39.7 million or 13.7 percent for the year ended December 31, 1995. The primary
contributors to the increase in underwriting expenses were the increased
operating costs related to the hiring of additional professional staff. Also
affecting the increase in acquisition costs as a percentage of net premiums
earned is the increase in reinsurance purchased, which provides no reduction in
the associated acquisition expenses.
Net investment income (excluding net realized investment gains and losses) for
the year ended December 31, 1996 was $44.3 million, compared to $32.3 million
for the year ended December 31, 1995. The increase in investment income resulted
primarily from the increase in the amount of invested assets which was primarily
the result of cash flows provided by operating activities and increased
borrowings under the Company's Revolving Credit Facility. The Company recorded
net realized losses of $2.9 million on the sale of investments compared to net
realized gains of $2.3 million for the year ended December 31, 1995.
The Company realized net foreign exchange gains for each of the years ended
December 31, 1996 and 1995 of $0.8 million and $3.0 million, respectively. The
exchange gains in 1996 resulted primarily from the weakening of the U.S. dollar
against the British pound and in 1995 resulted from the weakening of the U.S.
dollar against most European currencies, the Japanese yen and the Australian
dollar.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 18 ]
<PAGE>
FINANCIAL CONDITION
Liquidity and Capital Requirements
As a holding company, RenaissanceRe relies on investment income, cash dividends
and other permitted payments from its subsidiaries to make principal payments,
interest payments, cash distributions on outstanding obligations and pay
quarterly dividends, if any, to the Company's shareholders. The payment of
dividends by the Company's subsidiaries to the Company is, under certain
circumstances, limited under Bermuda insurance law. The Bermuda Insurance Act
1978, amendments thereto and related regulations of Bermuda (the "Act"),
requires the Company's subsidiaries to maintain certain measures of solvency and
liquidity. As at December 31, 1997 the statutory capital and surplus of the
Company's subsidiaries was $665.2 million, and the amount required to be
maintained was $115.0 million. During 1997 Renaissance Reinsurance paid
aggregate cash dividends of $117.5 million to RenaissanceRe. See Notes 11 and 16
to the Consolidated Financial Statements.
The Company's operating subsidiaries have historically produced sufficient cash
flows to meet expected claims payments, operational expenses and provide
dividend payments to RenaissanceRe. The Company's subsidiaries also maintain a
concentration of investments in high quality liquid securities, which management
believes will provide sufficient liquidity to meet extraordinary claims payments
should the need arise.
In January 1996, the Company capitalized a new subsidiary, Glencoe, with a $50.0
million capital contribution, $38.0 million of which was derived from a dividend
from Renaissance Reinsurance and the balance of which came from other available
funds. In June 1996 the Company sold a 29.9 percent interest in Glencoe, which
is reflected as minority interest on the consolidated balance sheets. During the
third quarter of 1997, the Company purchased an additional 9.9 percent of
Glencoe for $5.2 million and increased its ownership of Glencoe from 70.1
percent to 80.0 percent. Also, during the fourth quarter of 1997, the Company
contributed an additional $12 million to Glencoe pro-rata with Glencoe's
minority investor, maintaining the Company's ownership in Glencoe at 80.0
percent.
Under the terms of its agreement to acquire the operating subsidiaries of Nobel
Insurance Limited, the Company is required to pay $54.1 million in cash, and
will provide approximately $8.9 million of limited recourse financing, in
exchange for a promissory note from Nobel Insurance Limited (the "Note"), to
enable Nobel Insurance Limited to support certain of its obligations in the
liquidation of the remaining operations. It is expected that the transaction
will be financed with debt and cash at a 2:1 ratio of debt to cash. See Note 1
to the Consolidated Financial Statements.
The Company anticipates that its primary insurance operations, including
Glencoe, DeSoto and Nobel, will become an increasingly important element of the
Company over time. The Company currently believes that internally generated
capital will be sufficient to support its reinsurance and insurance businesses,
however external financing may be utilized to finance significant transactions.
Cash flows from operating activities resulted principally from premium and
investment income, net of paid losses, acquisition costs and underwriting
expenses. Cash flows from operations in 1997 were $153.3 million, compared to
$174.8 million in 1996. The 1997 cash flows from
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 19 ]
<PAGE>
operations were utilized to purchase $53.5 million of the Company's Common
Shares and pay aggregate quarterly dividends of $22.6 million. The 1996 cash
flows from operations were utilized to purchase $73.5 million of the Company's
Common Shares and pay aggregate quarterly dividends of $20.5 million.
The operating results of the Company have generated cash flows from operations
in 1997 and 1996 significantly in excess of its commitments. To the extent that
capital is not utilized in the Company's reinsurance business, the Company will
consider using such capital to invest in new opportunities or will consider
returning such capital to its shareholders.
Because of the potential high severity and low frequency of losses on the
coverages written by the Company, and the seasonality of the Company's business,
it is not possible to accurately predict the Company's future cash flows from
operating activities. As a consequence, cash flows from operating activities may
fluctuate, perhaps significantly, between individual quarters and years.
Capital Resources
The total capital of the Company as at December 31, 1997 and 1996 was as
follows:
- --------------------------------------------------------------------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Revolving Credit Facility $ 50,000 $150,000
Minority interest - Company obligated mandatorily
redeemable capital securities of a subsidiary trust 100,000 --
Shareholders' Equity 598,703 546,203
- --------------------------------------------------------------------------------
TOTAL CAPITAL RESOURCES $748,703 $696,203
================================================================================
On March 7, 1997 the Company completed the sale of $100 million of Capital
Securities - see Note 7 to the Consolidated Financial Statements. The Capital
Securities mature on March 1, 2027, and pay cumulative cash distributions at an
annual rate of 8.54 percent, payable semi-annually. Such securities are required
to be classified as minority interest, rather than as a component of
shareholders' equity of the Company.
During the third quarter of 1997, the Company executed the First Amendment to
the Third Amended and Restated Credit Agreement dated as of December 12, 1996
(the "Revolving Credit Facility"). The amendments became effective on September
8, 1997, except for the amendments relating to invested assets, which were
effective on June 30, 1997. The Revolving Credit Facility was amended to a)
extend the termination date from December 1, 1999 to December 1, 2001; b)
specifically define the Capital Securities as a component of Net Worth; c) amend
the definition of invested assets and the covenants related to invested assets;
d) amend certain restrictions regarding acquisitions, and e) amend certain fee
schedules. As of December 31, 1997, $50 million was outstanding under the
Revolving Credit Facility. Under the terms of the agreement, and if the Company
is in compliance with the covenants thereunder, the Company has access to an
additional $150 million should the need arise. During 1997, the average interest
cost of the Revolving Credit Facility was 6.07 percent.
Shareholders' Equity
During 1997, shareholders' equity increased by $52.5 million, from $546.2
million at December 31, 1996 to $598.7 million at December 31, 1997. The
components of the increase included net income from continuing operations of
$139.2 million and a repayment of officers loans of $3.9
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 20 ]
<PAGE>
million, partially offset by the purchase of Common Shares of $53.5 million (see
below), the payment of dividends of $22.6 million, the unrealized depreciation
on investments of $11.7 million and $2.8 million of costs related to two
secondary offerings and the Company's stock option plan.
Significant capital transactions have included:
- - On June 23, 1997, in conjunction with a secondary offering for the Company's
founding institutional shareholders, the Company purchased and cancelled
700,000 Common Shares at $36.29 per share for an aggregate purchase price of
$25.4 million from the Company's founding institutional shareholders or their
successors.
- - On December 13, 1996, the Board of Directors approved a capital plan, which
was comprised of two components. First the Company purchased and cancelled
2,085,361 Common Shares at $34.50 per share from its founding institutional
investors or their successors for an aggregate purchase price of $71.9
million. Second, on January 22, 1997, the Company completed a fixed price
tender offer and purchased and cancelled 813,190 Common Shares from its
public shareholders at $34.50 per share for an aggregate purchase price of
$28.1 million.
- - In July 1995, the Company completed the Initial Public Offering of its Common
Shares. The net proceeds of approximately $54.5 million were used to reduce
the Company's then-outstanding borrowings under the Revolving Credit Facility
and for general corporate purposes.
Investments
Primarily because of the potential for large claims payments, the Company's
investment portfolio is structured to provide a high level of liquidity. During
1997, the Company adjusted its investment guidelines to allow the reallocation
of $50 million of its fixed maturity portfolio to equity securities. The table
below shows the aggregate amounts of investments available for sale, equity
securities and cash and cash equivalents comprising the Company's portfolio of
invested assets:
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, (IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
Investments available for sale at fair value $710,166 $603,484
Equity securities, at fair value 26,372 --
Cash, cash equivalents 122,929 198,982
- --------------------------------------------------------------------------------
TOTAL INVESTED ASSETS $859,467 $802,466
================================================================================
The growth in the Company's portfolio of invested assets for the year ended
December 31, 1997 resulted from net cash provided by operating activities of
$153.3 million offset by net cash used in financing activities of $72.0 million
and net unrealized depreciation of investments of $11.7 million.
The Company's current investment guidelines call for the invested asset
portfolio, including cash and cash equivalents, to have at least an AA rating as
measured by Standard & Poor's Ratings Group. At December 31, 1997, the invested
asset portfolio had a dollar weighted average rating of AA, an average duration
of 2.8 years and an average yield to maturity of 6.61 percent, before investment
expenses.
All fixed income securities in the Company's investment portfolio are classified
as securities available for sale and are carried at fair value. Any unrealized
gains or losses as a result of changes in fair value over the period such
investments are held are not reflected in the Company's statement of operations,
but rather are reflected in shareholders' equity. See Notes 2 and 3 to the
Consolidated Financial Statements.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 21 ]
<PAGE>
The Company periodically evaluates the creditworthiness of each issuer whose
securities it holds. Special attention is paid to those securities whose market
values have declined materially, for reasons other than changes in interest
rates, to evaluate the realizable value of the investment, the specific
condition of the issuer, and the issuer's ability to comply with the material
terms of the security. Information reviewed may include the recent operational
results and financial position of the issuer, information about its industry,
recent press releases and other information as deemed necessary. If evidence
does not exist to support a realizable value equal to or greater than the
carrying value of the investment, and such decline in market value is determined
to be other than temporary, the Company reduces the carrying amount to its net
realizable value, which becomes the new cost basis. The amount of the reduction
is reported as a realized loss. The Company recognizes any recovery of such
reductions in the cost basis of an investment only upon the sale of the
investment.
As at December 31, 1997 the Company held investments and cash totaling $859.5
million with a net unrealized depreciation balance of $10.2 million. Of the
$859.5 million, the Company had dollar denominated fixed income investments in
Korea, Thailand and Indonesia totaling $66.2 million with a net unrealized
depreciation balance of $12.7 million. During the fourth quarter, the Company
recognized $3.8 million in realized losses from the writedown of investments
with an exposure to the financial conditions in Asia. The primary reasons for
the writedown in the investments were the declines in the financial condition of
the respective issuers and the related reduction in credit ratings by rating
agencies. These changes caused the Company to conclude that the decline in fair
value of certain investments was other than temporary. The Company's investment
portfolio, specifically the remaining securities of Asian issuers, is subject to
the risks of further declines in realizable value. The Company attempts to
mitigate this risk through the active management of its portfolio.
At December 31, 1997 the Company's $26.4 million of equity securities, which
were sold in January of 1998, were invested in currencies other than the U.S.
dollar. Also at December 31, 1997, $9.6 million of cash and cash equivalents
were invested in currencies other than the U.S. dollar. The combined $36.0
million represented approximately 4.2 percent of the Company's invested assets.
The Company's investment portfolio does not contain any investments in
derivatives. Also, the Company's investment portfolio does not contain any
direct investments in real estate, mortgage loans or similar securities.
Under the terms of certain reinsurance contracts, the Company may be required to
provide letters of credit to reinsureds in respect of reported claims and/or
unearned premiums. The Company has obtained a facility providing for the
issuance of letters of credit. This facility is secured by a lien on a portion
of the Company's investment portfolio. At December 31, 1997 the Company had
outstanding letters of credit aggregating $24.7 million.
In order to encourage employee ownership of Common Shares, the Company has
guaranteed certain loan and pledge agreements (collectively, the "Employee
Credit Facility") between certain employees of the Company (the "Participating
Employees") and Bank of America Illinois ("BofA"). Pursuant to the terms of the
Employee Credit Facility, BofA has agreed to loan the Participating Employees up
to an aggregate of $25 million solely to purchase Common Shares and to pay
certain taxes relating to compensation payable in Common Shares. Each loan under
the Employee Credit Facility is required to be initially collateralized by the
respective Participating
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 22 ]
<PAGE>
Employee with Common Shares or other collateral acceptable to BofA. If the value
of the collateral provided by a Participating Employee subsequently decreases,
such Participating Employee is required to contribute additional collateral in
the amount of such deficiency. Loans under the Employee Credit Facility are
otherwise nonrecourse to the Participating Employees. Given the level of
collateral, the Company does not presently anticipate that it will be required
to honor any guarantees under the Employee Credit Facility, although there can
be no assurance that the Company will not be so required in the future.
CURRENCY
The Company's functional currency is the United States ("U.S.") dollar. The
Company writes a substantial portion of its business in currencies other than
U.S. dollars and may, from time to time, experience significant exchange gains
and losses and incur underwriting losses in currencies other than U.S. dollars,
which will in turn affect the Company's financial statements. See Note 2 to the
Consolidated Financial Statements.
The Company's foreign currency policy is to hold foreign currency assets,
including cash and receivables, that approximate the net monetary foreign
currency liabilities, including loss reserves and reinsurance balances payable.
All changes in the exchange rates are recognized currently in the Company's
statement of income. As a result of the Company's exposure to foreign currency
fluctuations, it is anticipated that during periods in which the U.S. dollar
appreciates, the Company will likely recognize foreign exchange losses.
EFFECTS OF INFLATION
The potential exists, after a catastrophe loss, for the development of
inflationary pressures in a local economy. The anticipated effects on the
Company are implicitly considered in the Company's catastrophe loss models. The
effects of inflation are also considered in pricing and in estimating reserves
for unpaid claims and claim adjustment expenses. The actual effects of inflation
on the results of the Company cannot be accurately known until claims are
ultimately settled.
YEAR 2000
Certain computer programs and/or software may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in miscalculations or
system failures. The Company has completed an assessment of its business
applications and computer systems, and believes that all critical business
applications and systems will function properly with respect to dates in the
year 2000 and thereafter.
The Company is in the process of evaluating its potential exposures from the
non-compliance, if any, of its vendors' and customers' systems with the Year
2000. There can be no assurance that the systems of its vendors and customers,
on which the Company relies on for supporting information, will be timely
converted and would not have an effect on the Company's business operations.
Currently, none of the Company's reinsurance or insurance policies specifically
provides coverage for Year 2000 losses. The Company has begun to explicitly
exclude coverage for Year 2000 losses from its policies, and expects to adopt
this wording for the majority of its policies and contracts going forward. The
Company believes that the potential for a material loss due to this exposure has
been, or will be, minimized; however, there can be no assurance that potential
losses would not have an adverse effect on the future results of operations.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 23 ]
<PAGE>
The Company anticipates completing the Year 2000 evaluation prior to December
31, 1998 and it is anticipated that any future costs associated with the Year
2000 project will be minimal and accordingly not have an adverse effect on the
future results of operations.
CURRENT OUTLOOK
It is anticipated that the competitive pressures that have existed since 1995
will continue into 1998. The Company anticipates that these pressures will
continue to suppress the growth in premiums from property catastrophe
reinsurance contracts. However, although no assurance can be given, the Company
believes that opportunities in certain select markets will continue to exist,
which because of the Company's technical advantages, and the Company's
relationships with leading brokers, will enable the Company to find additional
opportunities in the property catastrophe reinsurance business that otherwise
would not be available.
Additionally, the Company's financial strength has enabled it to pursue
opportunities outside of the property catastrophe reinsurance market, such as
the expansion of Glencoe, the capitalization of DeSoto and the purchase of
Nobel. The Company believes that its financial strength will enable it to
continue to pursue other opportunities in the future. There can be no assurance
that the Company's pursuit of such opportunities will materially impact the
Company's financial condition and results of operations.
During recent fiscal years, there has been considerable consolidation among the
leading reinsurance brokerage firms; whereby 70.1 percent of the Company's
assumed premiums are sourced from five reinsurance brokers. Although there can
be no assurance as to how this consolidation may effect the property catastrophe
reinsurance business and the business of the Company, the Company believes that
its valued relationships with the brokers will minimize any effect on the
Company's business.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 24 ]
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the integrity of the consolidated financial
statements and other financial information presented in this annual report. The
accompanying consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States, applying certain
estimates and judgements as required.
The Company's internal controls are designed so that transactions are authorized
and executed in accordance with management's authorization, to provide
reasonable assurance as to the integrity and reliability of the financial
statements and to adequately safeguard the assets against unauthorized use or
disposition. Such controls are based on established policies and procedures and
are implemented by qualified personnel with an appropriate segregation of
duties.
Ernst & Young, independent auditors, are retained to audit the Company's
consolidated financial statements and express their opinion thereon. Their
accompanying report is based on audits conducted in accordance with auditing
standards generally accepted in the United States, which includes the
consideration of the Company's internal controls and an examination, on a test
basis, of evidence supporting the amounts and disclosures in the financial
statements. These procedures enable them to obtain a reasonable assurance about
whether the financial statements are free of material misstatement and provide a
reasonable basis for their opinion.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee. The Audit Committee meets periodically
with the independent auditors, both privately and with management present, to
review accounting, auditing, internal controls and financial reporting matters.
/s/ James N. Stanard
- --------------------
James N. Stanard
Chairman, President and Chief Executive Officer
/s/ John M. Lummis
- -------------------
John M. Lummis
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RENAISSANCERE HOLDINGS LTD.
We have audited the accompanying consolidated balance sheets of RenaissanceRe
Holdings Ltd. and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
RenaissanceRe Holdings Ltd. and Subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
accounting principles generally accepted in the United States.
Ernst & Young
Hamilton, Bermuda
January 14, 1998
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 25 ]
<PAGE>
CONSOLIDATED BALANCE SHEETS
RenaissanceRe Holdings Ltd. and Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, (expressed in thousands of United States dollars, except per share amounts) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments and cash
Fixed maturity investments available for sale, at fair value $ 710,166 $ 603,484
(Amortized cost $722,447 and $601,907 at December 31, 1997 and 1996,
respectively) (Note 3)
Equity securities, at fair value (cost $24,229) (Note 3) 26,372 --
Cash and cash equivalents 122,929 198,982
- ---------------------------------------------------------------------------------------------------------------------
Total investments and cash 859,467 802,466
Reinsurance premiums receivable 56,568 56,685
Ceded reinsurance balances 17,454 19,783
Accrued investment income 12,762 13,913
Deferred acquisition costs 5,739 6,819
Other assets 8,759 5,098
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 960,749 $ 904,764
=====================================================================================================================
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY LIABILITIES
Reserve for claims and claim adjustment expenses (Note 5) $ 110,037 $ 105,421
Reserve for unearned premiums 57,008 65,617
Bank loan (Note 6) 50,000 150,000
Reinsurance balances payable 21,778 18,072
Other 9,541 4,215
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 248,364 343,325
- ---------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST - COMPANY OBLIGATED, MANDATORILY REDEEMABLE CAPITAL
SECURITIES OF A SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE COMPANY (NOTE 7) 100,000 --
MINORITY INTEREST - GLENCOE 13,682 15,236
COMMITMENTS AND CONTINGENCIES (NOTE 17)
SHAREHOLDERS' EQUITY (NOTES 8, 11 AND 16)
Common Shares: $1 par value-authorized 100,000,000 shares;
issued and outstanding at December 31, 1997- 22,440,901 shares
(1996 - 23,530,616 shares) 22,441 23,531
Additional paid-in capital 52,481 102,902
Unearned stock grant compensation (Note 15) (4,731) --
Loans to officers (Note 15) -- (3,868)
Net unrealized appreciation (depreciation) on investments (Note 3) (10,155) 1,577
Retained earnings 538,667 422,061
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 598,703 546,203
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY $ 960,749 $ 904,764
=====================================================================================================================
BOOK VALUE PER COMMON SHARE $ 26.68 $ 23.21
=====================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 26 ]
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
RenaissanceRe Holdings Ltd. and Subsidiaries
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 1996 1995
(expressed in thousands of United States dollars, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Gross premiums written $228,287 $ 269,913 $ 292,607
- -------------------------------------------------------------------------------------------------------------------------
Net premiums written $195,752 $ 251,564 $ 289,928
Decrease (increase) in unearned premium 15,738 1,264 (1,042)
- -------------------------------------------------------------------------------------------------------------------------
Net premiums earned 211,490 252,828 288,886
Net investment income (Note 3) 49,573 44,280 32,320
Foreign exchange gains (losses) (3,442) 789 3,045
Net realized gains (losses) on investments (Note 3) (2,895) (2,938) 2,315
- -------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 254,726 294,959 326,566
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Claims and claim expenses incurred (Note 5) 50,015 86,945 110,555
Acquisition costs 25,227 26,162 29,286
Operational expenses 25,131 16,731 10,448
Corporate expenses 3,218 2,298 4,531
Interest expense 4,271 6,553 6,424
- -------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 107,862 138,689 161,244
- -------------------------------------------------------------------------------------------------------------------------
Income before minority interests and taxes 146,864 156,270 165,322
Minority interest - Company obligated, mandatorily redeemable capital securities
of a subsidiary trust holding solely junior subordinated debentures of the
Company (Note 7) (6,998) -- --
Minority interest - Glencoe (617) (110) --
- -------------------------------------------------------------------------------------------------------------------------
Income before taxes 139,249 156,160 165,322
Income tax expense (Note 12) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net income 139,249 156,160 165,322
Net income allocable to Series B Preference Shares -- -- 2,536
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $139,249 $ 156,160 $ 162,786
=========================================================================================================================
EARNINGS PER COMMON SHARE - BASIC $ 6.19 $ 6.15 $ 6.84
EARNINGS PER COMMON SHARE - DILUTED $ 6.06 $ 6.01 $ 6.75
=========================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 27 ]
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RenaissanceRe Holdings Ltd. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED NET DECEMBER 31, UNEARNED NET UNREALIZED
1997, 1996 and 1995 ADDITIONAL STOCK APPRECIATION TOTAL
(expressed in thousands of COMMON PAID-IN GRANT LOANS TO (DEPRECIATION) RETAINED SHAREHOLDERS'
United States dollars) SHARES CAPITAL COMPENSATION OFFICERS ON INVESTMENTS EARNINGS EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 141,201 $ -- $ -- $ -- $ (3,654) $127,700 $ 265,247
Net income -- -- -- -- -- 165,322 165,322
Income allocated to Series B
Preference Shares -- -- -- -- -- (2,536) (2,536)
Net unrealized appreciation
of investments -- -- -- -- 6,353 -- 6,353
Conversion of Series A
Preference Shares (127,175) 127,175 -- -- -- -- --
Exercise of options, share grants
and related items 974 3,506 -- -- -- -- 4,480
Stock dividend to common
shareholders 7,500 (7,500) -- -- -- -- --
Issuance of Common Shares 3,105 51,189 -- -- -- -- 54,294
Loans to officers -- -- -- (2,728) -- -- (2,728)
Dividends declared and paid
to common shareholders -- -- -- -- -- (4,096) (4,096)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 25,605 174,370 -- (2,728) 2,699 286,390 486,336
Net income -- -- -- -- -- 156,160 156,160
Net unrealized depreciation
of investments -- -- -- -- (1,122) -- (1,122)
Purchase of Common Shares (2,085) (70,860) -- -- -- -- (72,945)
Secondary registration costs -- (515) -- -- -- -- (515)
Exercise of options and related items 11 (93) -- -- -- -- (82)
Loans to officers -- -- -- (1,140) -- -- (1,140)
Dividends declared and paid
to common shareholders -- -- -- -- -- (20,489) (20,489)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 23,531 102,902 -- (3,868) 1,577 422,061 546,203
Net income -- -- -- -- -- 139,249 139,249
Net unrealized depreciation
of investments -- -- -- -- (11,732) -- (11,732)
Purchase of Common Shares (1,513) (51,945) -- -- -- -- (53,458)
Secondary registration costs -- (1,300) -- -- -- -- (1,300)
Exercise of options, share grants
and related items 423 2,824 (4,731) -- -- -- (1,484)
Repayment of loans from officers -- -- -- 3,868 -- -- 3,868
Dividends declared and paid
to common shareholders -- -- -- -- -- (22,643) (22,643)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ 22,441 $ 52,481 (4,731) $ -- $ (10,155) $538,667 $ 598,703
====================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 28 ]
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
RenaissanceRe Holdings Ltd. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, (expressed in thousands of United States dollars)
- --------------------------------------------------------------------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 1997 1996 1995
<S> <C> <C> <C>
Net income $139,249 $156,160 $165,322
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,121 296 548
Realized loss (gain) on investments 2,895 2,938 (2,315)
Reinsurance balances, net 3,823 16,906 (5,440)
Ceded reinsurance balances 2,328 (17,756) (1,293)
Accrued investment income 1,151 938 (6,117)
Reserve for unearned premiums (8,610) 5,173 1,043
Reserve for claims and claim adjustment expenses 4,617 4,976 37,177
Other, net 6,710 5,186 6,382
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 153,284 174,817 195,307
- ------------------------------------------------------------------------------------------
CASH FLOWS APPLIED TO INVESTING ACTIVITIES
Proceeds from maturities and sales of investments 697,532 317,582 268,575
Purchase of investments available for sale (829,193) (404,888) (579,764)
Net sales of short-term investments -- 4,988 72,547
Purchase of equities (81,452) -- --
Proceeds from sale of equities 57,958 -- --
Purchase of furniture and equipment -- (2,989) (349)
Purchase of minority interest in Glencoe (5,185) -- --
Proceeds from sale of minority interest in Glencoe 3,000 15,126 --
- ------------------------------------------------------------------------------------------
NET CASH APPLIED TO INVESTING ACTIVITIES (157,340) (70,181) (238,991)
- ------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (APPLIED TO) FINANCING ACTIVITIES
Purchase of Common Shares (53,458) (73,460) --
Proceeds from issuance of Common Shares -- -- 54,496
Net proceeds from (repayment of) bank loan (100,000) 50,000 40,000
Redemption of Series B 15% Cumulative
Redeemable Voting Preference Shares -- -- (57,874)
Proceeds from issuance of Capital Securities 100,000 -- --
Dividends paid (22,643) (20,489) (4,096)
Repayments from (loans to) officers 4,104 (868) (2,728)
- -----------------------------------------------------------------------------------------
NET CASH PROVIDED BY (APPLIED TO)
FINANCING ACTIVITIES (71,997) (44,817) 29,798
- -----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (76,053) 59,819 (13,886)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 198,982 139,163 153,049
- -----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $122,929 $198,982 $139,163
=========================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 29 ]
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
RenaissanceRe Holdings Ltd. ("RenaissanceRe"), was formed under the laws of
Bermuda on June 7, 1993 and serves as the holding company for its wholly owned
subsidiaries, Renaissance Reinsurance Ltd. ("Renaissance Reinsurance") and
RenaissanceRe Capital Trust ("the Trust") and its majority owned subsidiary,
Glencoe Insurance Ltd. ("Glencoe"). Renaissance Reinsurance and Glencoe were
also incorporated in Bermuda and the Trust was incorporated in Delaware.
Renaissance Reinsurance primarily provides property catastrophe reinsurance
coverage to insurers and reinsurers on a worldwide basis. Renaissance
Reinsurance commenced its reinsurance underwriting operations on June 15, 1993.
Glencoe primarily provides catastrophe-exposed property coverage on an insurance
and reinsurance basis. Glencoe commenced its insurance underwriting operations
on January 2, 1996.
On December 19, 1997, the Company announced it had executed a definitive
agreement to acquire the operating subsidiaries of Nobel Insurance Limited,
through a newly established U. S. holding company. The principal businesses of
Nobel Insurance Limited are the service and underwriting of commercial property,
casualty and surety risks for specialized industries and personal lines coverage
for low value dwellings. The principal operating unit, Nobel Insurance Company
("Nobel"), is a Texas domiciled company, licensed in 50 states. In connection
with the acquisition, Nobel's lead casualty reinsurers, American Reinsurance
Company, and Inter-Ocean Reinsurance Company Ltd., have agreed to provide
reinsurance for the casualty business with respect to future and prior accident
years. Under the terms of the agreement, the Company will acquire the
subsidiaries for $54.1 million in cash, and will provide $8.9 million of limited
recourse financing to enable Nobel Insurance Limited to support certain
obligations in the liquidation of its remaining operations. The acquisition is
expected to be financed with a combination of bank debt and cash.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements have been prepared on the basis of United
States generally accepted accounting principles ("GAAP") and include the
accounts of RenaissanceRe and its subsidiaries, Renaissance Reinsurance and
Glencoe. RenaissanceRe, Renaissance Reinsurance and Glencoe are collectively
referred to herein as the "Company". All intercompany transactions and balances
have been eliminated on consolidation. Minority interests represent the
interests of external parties in respect of net income and shareholders' equity
of Glencoe and the Trust (see Note 7). Certain comparative information has been
reclassified to conform to current presentation.
Use of estimates in financial statements
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported and
disclosed amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The Company's principal
estimates include claims and claim adjustment expenses and certain premiums
estimated on information from ceding companies. Actual results could differ from
those estimates.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 30 ]
<PAGE>
Premium revenues and related expenses
Premiums are recognized as income, net of any applicable retrocessional
coverage, over the terms of the related contracts and policies. Premiums written
are estimated based on information received from ceding companies and any
subsequent differences arising on such estimates are recorded in the period in
which they are determined. Unearned premium reserves represent the portion of
premiums written that relate to the unexpired terms of contracts and policies in
force. Such reserves are computed by pro-rata methods based on statistical data
or reports received from ceding companies.
Acquisition costs, consisting principally of commissions and brokerage expenses
incurred at the time a contract or policy is issued, are deferred and amortized
over the period in which the related premiums are earned. Deferred policy
acquisition costs are limited to their estimated realizable value based on the
related unearned premiums. Anticipated claims and claim adjustment expenses,
based on historical and current experience, and anticipated investment income
related to those premiums are considered in determining the recoverability of
deferred acquisition costs.
Claims and claim adjustment expenses
The reserve for claims and claim adjustment expenses includes estimates for
unpaid claims and claim adjustment expenses on reported losses as well as an
estimate of losses incurred but not reported. The reserve is based on reports
and individual case estimates received from ceding companies as well as
management estimates of ultimate losses. Inherent in the estimates of ultimate
losses are expected trends in claim severity and frequency and other factors
which could vary significantly as claims are settled. Accordingly, ultimate
losses may vary materially from the amounts provided in the consolidated
financial statements. These estimates are reviewed regularly and, as experience
develops and new information becomes known, the reserves are adjusted as
necessary. Such adjustments, if any, are reflected in results of operations in
the period in which they become known and are accounted for as changes in
estimates.
Investments
Investments are considered available for sale and are reported at fair value.
The net unrealized appreciation or depreciation on investments is included as a
separate component of shareholders' equity. Investment transactions are recorded
on the trade date with balances pending settlement reflected in the balance
sheet as a component of other assets.
Realized gains or losses on the sale of investments are determined on the basis
of the specific identification method and include adjustments to the net
realizable value of investments for declines in value that are considered to be
other-than-temporary. Net investment income includes interest and dividend
income together with amortization of market premiums and discounts and is net of
investment management and custody fees. The amortization of premium and
accretion of discount for fixed maturity securities is computed utilizing the
interest method. The effective yield utilized in the interest method is adjusted
when sufficient information exists to estimate the probability and timing of
prepayments. Fair values of investments are based on quoted market prices, or
when such prices are not available, by reference to broker or underwriter bid
indications.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 31 ]
<PAGE>
Fair value of financial instruments
Fair value disclosures with respect to certain financial instruments are
included separately herein where appropriate. The carrying values of other
financial instruments, including the bank loan payable, reinsurance premiums
receivable and accrued investment income, approximate their fair value due to
the short-term nature of the balances.
Earnings per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. All earnings per
share amounts for prior periods have been restated to conform to the
requirements of SFAS No. 128.
Foreign exchange
The Company's functional currency is the United States dollar. Monetary assets
and liabilities denominated in foreign currencies are translated at exchange
rates in effect at the balance sheet date. Revenues and expenses denominated in
foreign currencies are translated at the prevailing exchange rate at the
transaction date. Exchange gains and losses are included in the determination of
net income.
Cash and cash equivalents
For the purposes of the statements of cash flows, cash equivalents include money
market instruments with a maturity of ninety days or less when purchased.
Stock incentive compensation plans
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. The alternative
fair value accounting provided for under SFAS No. 123 requires the use of option
valuation models that were not necessarily developed for use in valuing employee
stock options. It is the opinion of management that disclosure of the pro forma
impact of fair values provides a more relevant and informative presentation of
the impact of stock options issued to employees than financial statement
recognition of such amounts. Under APB 25, the Company recognizes compensation
expense for stock option grants to the extent that the fair value of the stock
exceeds the stock option exercise price at the date of grant.
New accounting pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 130 requires that a company classify items of other
comprehensive income in a financial statement and display the accumulated
balance of other comprehensive income in the equity section of a statement of
financial position. SFAS No. 131 requires disclosures about segments of a
company and related information about the different types of business activities
and the different economic environments in which it operates. These statements
will be effective for periods beginning after December 15, 1997 with earlier
application permitted. The effect of adopting these standards will not be
material to the Company's financial position.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 32 ]
<PAGE>
NOTE 3. INVESTMENTS
The amortized cost, fair value and related unrealized gains and losses on fixed
maturity investments are as follows:
<TABLE>
<CAPTION>
==================================================================================================
GROSS GROSS
DECEMBER 31, 1997 AMORTIZED UNREALIZED UNREALIZED FAIR
(amounts expressed in thousands) COST GAINS LOSSES VALUE
==================================================================================================
<S> <C> <C> <C> <C>
U.S. Government bonds $257,788 $ 15 $ (18) $257,785
Non-U.S. government bonds 263,463 1,892 (8,512) 256,843
Non-U.S. corporate bonds 194,320 1,808 (7,513) 188,615
Non-U.S. mortgage-backed securities 6,876 47 -- 6,923
- ---------------------------------------------------------------------------------------------------
$722,447 $3,762 $(16,043) $710,166
==================================================================================================
==================================================================================================
GROSS GROSS
DECEMBER 31, 1996 AMORTIZED UNREALIZED UNREALIZED FAIR
(amounts expressed in thousands) COST GAINS LOSSES VALUE
==================================================================================================
<S> <C> <C> <C> <C>
Non-U.S. government bonds $239,019 $1,338 $ (1,001) $239,356
Non-U.S. corporate bonds 328,398 2,110 (933) 329,575
Non-U.S. mortgage-backed securities 34,490 63 -- 34,553
- --------------------------------------------------------------------------------------------------
$601,907 $3,511 $ (1,934) $603,484
==================================================================================================
</TABLE>
The gross unrealized gains and losses on equity securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
==================================================================================================
GROSS GROSS
DECEMBER 31, 1997 UNREALIZED UNREALIZED FAIR
(amounts expressed in thousands) COST GAINS LOSSES VALUE
==================================================================================================
<S> <C> <C> <C> <C>
Equity securities $24,229 $3,777 $(1,634) $26,372
==================================================================================================
</TABLE>
Contractual maturities of fixed maturity securities are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
==================================================================================================
DECEMBER 31, 1997
----------------------
AMORTIZED FAIR
(amounts expressed in thousands) COST VALUE
==================================================================================================
<S> <C> <C>
Due within one year $ 83,831 $ 84,105
Due after one through five years 477,443 473,027
Due after five through ten years 99,202 90,875
Due after ten years 61,971 62,159
- --------------------------------------------------------------------------------------------------
$722,447 $710,166
==================================================================================================
</TABLE>
The following table summarizes the composition of the fair value of the fixed
maturity portfolio by ratings assigned by rating agencies (e.g. Standard &
Poor's Corporation) or, with respect to non-rated issues, as estimated by the
Company's investment managers.
<TABLE>
<CAPTION>
==================================================================================================
AT DECEMBER 31,
-------------------
1997 1996
==================================================================================================
<S> <C> <C>
AAA 56.9% 28.1%
AA 12.2 50.1
A 14.9 20.2
BBB 5.0 1.6
BB 4.9 --
B 6.1 --
- --------------------------------------------------------------------------------------------------
100.0% 100.0%
==================================================================================================
</TABLE>
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 33 ]
<PAGE>
Investment income
The components of net investment income are as follows:
<TABLE>
<CAPTION>
=======================================================================================================
YEARS ENDED DECEMBER 31,
(amounts expressed in thousands) 1997 1996 1995
=======================================================================================================
<S> <C> <C> <C>
Fixed maturities $42,183 $36,335 $25,936
Short-term investments -- 53 2,974
Cash and cash equivalents 9,338 9,460 5,122
- -------------------------------------------------------------------------------------------------------
51,521 45,848 34,032
Investment expenses 1,948 1,568 1,712
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $49,573 $44,280 $32,320
=======================================================================================================
</TABLE>
The analysis of realized gains (losses) and the change in unrealized gains
(losses) on investments is as follows:
<TABLE>
<CAPTION>
=======================================================================================================
YEARS ENDED DECEMBER 31,
(amounts expressed in thousands) 1997 1996 1995
=======================================================================================================
<S> <C> <C> <C>
Gross realized gains $ 4,741 $ 1,240 $ 2,488
Gross realized losses (7,636) (4,178) (173)
- -------------------------------------------------------------------------------------------------------
Net realized gains (losses) on investments (2,895) (2,938) 2,315
Unrealized gains (losses) (11,732) (1,122) 6,353
- -------------------------------------------------------------------------------------------------------
TOTAL REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS $(14,627) $(4,060) $8,668
=======================================================================================================
</TABLE>
Proceeds from maturities and sales of fixed maturity investments were $697.5
million, $317.6 million and $268.6 million for the years ended December 31,
1997, 1996 and 1995, respectively. Proceeds from the sales of equity securities
were $58.0 million for the year ended December 31, 1997.
At December 31, 1997, the Company's investments in equity securities and in cash
and cash equivalents included $36.0 million of investments in non-U.S. dollar
currencies, representing approximately 4.2 percent of invested assets. At
December 31, 1996, cash and cash equivalents included $25.3 million of
investments in non-U.S. dollar currencies, representing approximately 3.2
percent of invested assets.
NOTE 4. CEDED REINSURANCE
The Company utilizes reinsurance to reduce its exposure to large losses. The
Company currently has in place contracts that provide for recovery of a portion
of certain claims and claim expenses from reinsurers in excess of various
retentions and loss warranties. If reinsurers are unable to meet their
obligations under the agreements, the Company would remain liable to the extent
that any reinsurance company fails to meet its obligation. To date, there have
been no losses reported to indicate that the Company's reinsurance coverage will
be reached, and there are no amounts recoverable for claims and claim expenses
from reinsurers. The earned reinsurance premiums ceded during 1997 were $25.1
million.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 34 ]
<PAGE>
NOTE 5. RESERVE FOR CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Estimates of claims and claim adjustment expenses are based in part upon the
estimation of claims resulting from catastrophic events. Estimation by the
Company of claims resulting from catastrophic events based upon its own
historical claim experience is inherently difficult because of the Company's
short operating history and the possible severity of property catastrophe
claims. Therefore, the Company utilizes both proprietary and commercially
available models, as well as historical reinsurance industry property
catastrophe claims experience, for purposes of evaluating future trends and
providing an estimate of ultimate claims costs.
Activity in the liability for unpaid claims and claim adjustment expense is
summarized as follows:
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------
(amounts expressed in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Balance as of January 1 $105,421 $100,445 $ 63,268
Incurred related to:
Current year 50,015 75,118 80,939
Prior years -- 11,827 29,616
- --------------------------------------------------------------------------------
Total incurred 50,015 86,945 110,555
Paid related to:
Current year 3,740 26,415 29,253
Prior years 41,659 55,554 44,125
- --------------------------------------------------------------------------------
Total paid 45,399 81,969 73,378
- --------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31 $110,037 $105,421 $100,445
================================================================================
The Company had no development of prior year reserves in 1997. During 1996, the
Company incurred $11.8 million of claims and claim expenses for 1995 and prior
periods primarily as a result of reserve increases for claims related to the
Northridge, California earthquake and a retrocessional quota share contract. The
additional development on both of these claims was partially offset by
additional premiums received under the reinsured contracts. During 1995, the
Company incurred $29.6 million of claims and claim expenses for 1994 and prior
periods primarily as a result of reserve increases for claims related to the
Northridge, California earthquake, reserve changes related to a retrocessional
quota share contract and a large industrial catastrophe that occurred late in
1994. The additional development on these claims was partially offset by
additional premiums received under the reinsured contracts. The Company's total
reserve for incurred but not reported claims was $66.5 million at the end of
1997 compared to $42.7 million at the end of 1996.
NOTE 6. BANK LOAN
On December 12, 1996, the Company amended and restated its unsecured Revolving
Credit Facility with a syndicate of commercial banks. The amended and restated
Revolving Credit Facility provides for the borrowing of up to $200 million on
terms generally extended to prime borrowers. Effective September 8, 1997 the
Revolving Credit Facility was amended to extend the termination date from
December 1, 1999 to December 1, 2001. The full amount of the Revolving Credit
Facility is available with two optional one year extensions, if requested by the
Company and approved by the lenders, subject to certain maximum leverage ratios
and other covenants. As of December 31, 1997, $50 million was outstanding under
this agreement.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 35 ]
<PAGE>
Interest payments on the Company's Revolving Credit Facility totaled $4.6
million, $6.9 million and $5.8 million for the years ended December 31, 1997,
1996 and 1995, respectively.
NOTE 7. CAPITAL SECURITIES
On March 7, 1997 the Company completed the sale of $100 million of "Company
Obligated, Mandatorily Redeemable Capital Securities of a Subsidiary Trust
holding solely $103,092,783.51 of the Company's 8.54 percent Junior Subordinated
Debentures due March 1, 2027" ("Capital Securities") issued by the Trust, a
newly created subsidiary business trust of the Company. The Capital Securities
pay cumulative cash distributions at an annual rate of 8.54 percent, payable
semi-annually. Proceeds from the offering were used to repay a portion of the
Company's outstanding indebtedness. Effective September 11, 1997 the Trust
exchanged the Capital Securities for substantially the same securities
registered under the Securities Act of 1933.
The Trust is a wholly owned subsidiary of the Company and is consolidated into
the Company's consolidated financial statements. The Capital Securities and the
related accrued dividends, are reflected in the consolidated financial
statements as a minority interest.
NOTE 8. SHAREHOLDERS' EQUITY
The Company's 100,000,000 authorized $1.00 par value Common Shares consist of
three separate series with differing voting rights as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ISSUED AND
AUTHORIZED OUTSTANDING
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Full Voting Common Shares (the Common Shares)
(includes all shares registered and available to the public) 81,570,583 19,674,184
Diluted Voting Class I Common Shares
(the Diluted Voting I Shares) 16,789,776 2,448,504
Diluted Voting Class II Common Shares
(the Diluted Voting II Shares) 1,639,641 318,213
- ----------------------------------------------------------------------------------------------------
100,000,000 22,440,901
====================================================================================================
</TABLE>
The Diluted Voting I Shares and the Diluted Voting II Shares (together the
Diluted Voting Shares) were authorized at a special general meeting of
shareholders on December 23, 1996 and subsequent to the authorization,
affiliates of General Electric Investment Corporation exchanged 5.7 million
Common Shares for 4.2 million Diluted Voting I Shares and 1.5 million Diluted
Voting II Shares, and as such are the sole holders of such diluted voting
securities.
The Diluted Voting Shareholders vote together with the common shareholders. The
Diluted Voting I Shares are limited to a fixed voting interest in the Company of
up to 9.9 percent on most corporate matters. Each Diluted Voting II Share has a
one-third vote on most corporate matters. The Diluted Voting Shareholders are
entitled to the same rights, including receipt of dividends and the right to
vote on certain significant corporate matters, and are subject to the same
restrictions as the common shareholders. The Company currently does not intend
to register or list the Diluted Voting Shares on the New York Stock Exchange.
On June 23, 1997, concurrent with a secondary offering, the Company purchased
for cancellation 700,000 Common Shares at $36.29 per share, for an aggregate
price of $25.4 million from the
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 36 ]
<PAGE>
Company's founding institutional shareholders or their successors.
On May 8, 1997 the shareholders voted to reduce the authorized number of Common
Shares from 200,000,000 to 100,000,000. Subsequent to that vote, shareholders
approved the authorization of 100,000,000 shares of preference stock.
On December 13, 1996, the Board of Directors approved a capital plan which was
comprised of two components. First, the Company purchased 2,085,361 Common
Shares at $34.50 per share for an aggregate price of $71.9 million on a pro-rata
basis from its founding institutional investors. Second, on January 22, 1997 the
Company completed a fixed price tender offer for 813,190 Common Shares at $34.50
per share for an aggregate price of $28.1 million.
In November 1997, June 1997 and February 1996, the Company paid for the costs of
secondary offerings of the Company's Common Shares sold by the founding
institutional investors. The Company incurred costs of $0.6, $0.7 and $0.5
million, respectively, with respect to the registrations which are reflected as
a reduction to additional paid-in capital on the balance sheet.
On July 26, 1995, the Company issued 3,105,000 Common Shares for proceeds, net
of fees, discounts and commissions, of approximately $56.3 million in an initial
public offering (the "IPO"). Costs associated with the IPO, totaling
approximately $2.0 million were deducted from the related proceeds. The net
amount received in excess of Common Share par value was recorded as additional
paid-in capital.
In March 1995, the Company adopted a plan of recapitalization (the
"Recapitalization") and completed certain other transactions designed to produce
a capital structure comprised entirely of Common Shares. In connection
therewith:
- - The Company effected a consolidation and subdivision of its authorized share
capital allocated to Common Shares of $1.00 par value each and reallocated
the entire $200 million authorized capital of the Company to its Common
Shares. The Company issued a stock dividend of one fully-paid Common Share
for each two issued and outstanding Common Shares (the "Stock Dividend").
This issuance reclassified $7.5 million to the Company's Common Shares from
additional paid-in capital.
- - The Series A Preference Shares were converted into 21,037,500 Common Shares.
- - 673,500 Common Shares were issued to USF&G in the form of a stock dividend.
575,584 of such Shares were issued to restore USF&G's economic position in
the Company (i.e., ownership percentage) to the level immediately preceding
the Recapitalization. 99,416 of such Shares were granted in the form of a
special stock dividend, in exchange for USF&G's surrender of certain rights
as holder of all the then-outstanding Common Shares in connection with
conversion of the Series A Preference Shares. In connection with the 99,416
Shares granted, the approximately $1.2 million fair value of such Shares, as
determined by the Company's Board of Directors, has been reflected in the
financial statements as a non-cash organizational expense for the year ended
December 31, 1995.
In May, 1994 the Company received $100 million with respect to the issuance of
1,000,000 Series B Preference Shares at a price of $100 each to the founding
institutional investors. Dividends related to the Series B Preference Shares
amounted to $2.5 million in 1994. In December, 1994 the Company redeemed 575,414
Series B Preference Shares, and in April 1995 all remaining Series B Preference
Shares and accumulated dividends were redeemed.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 37 ]
<PAGE>
NOTE 9. EARNINGS PER SHARE
As discussed in Note 2, the Company adopted SFAS No. 128 - "Earnings per Share",
as of December 31, 1997. The numerator in both the Company's basic and diluted
earnings per share calculations are identical. The following table sets forth
the reconciliation of the denominator from basic to diluted weighted average
shares outstanding:
<TABLE>
<CAPTION>
================================================================================================
(in thousands of per share amounts) 1997 1996 1995
================================================================================================
<S> <C> <C> <C>
Weighted average shares - basic 22,496 25,388 23,794
Per share equivalents of employee
stock options and restricted shares 471 607 327
- ------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES - DILUTED 22,967 25,995 24,121
================================================================================================
</TABLE>
NOTE 10. RELATED PARTY TRANSACTIONS AND MAJOR CUSTOMERS
The Company has in force several treaties with USF&G, subsidiaries of USF&G and
affiliates of General Electric Investments ("GEI") covering property catastrophe
risks in several geographic regions. The terms of these treaties were determined
in arms length negotiations and the Company believes that such terms are
comparable to terms the Company would expect to negotiate in similar
transactions with unrelated parties. For the years ended December 31, 1997, 1996
and 1995, the Company received $19.2 million, $27.9 million and $45.7 million in
reinsurance premiums and deposits related to these treaties, respectively.
Renaissance Reinsurance has entered into Investment Advisory Agreements with
each of Warburg, Pincus Investments International (Bermuda) Ltd.,
("Counselors"), an affiliate of Warburg, Pincus, GE Investment Management, an
affiliate of GEI, and Falcon Asset Management (Bermuda), Ltd. ("Falcon"), an
affiliate of USF&G. Counselors, GE Investment Management and Falcon currently
manage approximately 95 percent of the Company's investment portfolio, subject
to the Company's investment guidelines. The terms of the Investment Advisory
Agreements were determined in arms length negotiations. The performance of, and
the fees paid to, Counselors, GE Investment Management and Falcon under the
Investment Advisory Agreements are reviewed periodically by the Board. Such fees
paid to Counselors, GE Investment Management and Falcon aggregated to $1.2
million, $1.1 million and $1.4 million for the years ended December 31, 1997,
1996 and 1995, respectively.
During the years ended December 31, 1997, 1996 and 1995, the Company received
70.1%, 58.5%, and 47.9%, respectively, of its premium assumed from its five
largest reinsurance brokers. Subsidiaries and affiliates of J&H Marsh &
McLennan, Inc., E. W. Blanch & Co., Benfield Greig Ltd., AON Re Group and Bates
Turner, L.L.C. (a GE Capital Services Company, an affiliate of GEI) accounted
for approximately 23.5%, 21.2%, 13.1%, 7.9% and 4.4%, respectively, of the
Company's net premiums written in 1997.
NOTE 11. DIVIDENDS
During 1997, four regular quarterly dividends of $0.25 per share were paid to
shareholders of record as of February 19, May 22, August 20, and November 20.
During 1996, four regular quarterly dividends of $0.20 per share were paid to
shareholders of record as of February 20, May 16, August 20, and November 19.
During 1995 the Company paid a dividend of $0.16 per share, payable to
shareholders of record as of November 21. The total amount of dividends paid to
common shareholders during 1997, 1996 and 1995 was $22.6 million, $20.5 million
and $4.1 million, respectively.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 38 ]
<PAGE>
NOTE 12. TAXATION
Under current Bermuda law, neither RenaissanceRe, Renaissance Reinsurance nor
Glencoe are required to pay taxes in Bermuda on either income or capital gains.
NOTE 13. GEOGRAPHIC INFORMATION
Financial information relating to gross premiums by geographic region is as
follows:
<TABLE>
<CAPTION>
==================================================================================================
YEARS ENDED DECEMBER 31,
(amounts expressed in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $123,717 $126,611 $144,077
Worldwide 27,930 44,460 59,137
Worldwide (excluding U.S.) 32,005 38,746 41,311
Europe (including the United Kingdom) 21,007 31,534 25,365
Other 16,738 18,958 11,720
Australia and New Zealand 6,890 9,604 10,997
- --------------------------------------------------------------------------------------------------
TOTAL GROSS PREMIUMS WRITTEN $228,287 $269,913 $292,607
==================================================================================================
</TABLE>
The category "Worldwide (excluding U.S.)" consists of contracts that cover more
than one geographic region (other than the U.S.). The exposure in this category
for gross premiums written to date is predominantly from Europe and Japan.
NOTE 14. EMPLOYEE BENEFIT PLANS
Pension plans
The Company's employees that are not subject to U.S. taxation may participate in
a contributory savings and investment plan. Each employee in the non-U.S. plan
may contribute to the plan. Employee contributions are matched at a rate of 100
percent of the first 6 percent of compensation contributed to the plan. The
Company's employees that are subject to U.S. taxation participate in a defined
contribution savings and investment plan. Employee contributions are matched at
a rate of 50 percent, subject to IRS and ERISA regulations. In addition the
Company provides a health benefit plan providing hospital, medical and other
health benefits.
NOTE 15. STOCK INCENTIVE COMPENSATION PLANS
The Company has a stock option plan under which all employees of the Company and
its subsidiaries may be granted stock options. A stock option award under the
Company's stock option plan allows for the purchase of the Company's Common
Shares at a price that is generally equal to the market price of the Common
Shares on the date of grant. Options to purchase Common Shares are granted
periodically by the Board of Directors and generally expire ten years from the
date of grant.
The Company adopted the disclosure-only method under SFAS No. 123, "Accounting
for Stock Based Compensation", as of December 31, 1996. In accordance with SFAS
No. 123, the fair value of option grants is estimated on the date of grant using
the Black-Scholes option pricing model for pro forma footnote purposes with the
following assumptions used for grants in all years; dividend yield of 2.5
percent, expected option life of five years, and expected volatility of 25.09
percent per annum. The risk-free interest rate was assumed to be 6.50 percent in
1996 and 6.00 percent in 1997. If the compensation cost had been determined
based upon the fair value method recommended in SFAS No. 123, the Company's net
income would have been $135.4 million, $155.4
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 39 ]
<PAGE>
million and $161.8 million for each of 1997, 1996 and 1995, respectively, and
the Company's earnings per share on a diluted basis would have been $5.89, $5.98
and $6.71 for each of 1997, 1996 and 1995, respectively.
The following is a table of the changes in options outstanding for 1997, 1996
and 1995:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED FAIR RANGE
OPTIONS AVERAGE VALUE OF
AVAILABLE OPTIONS EXERCISE OF EXERCISE
FOR GRANT OUTSTANDING PRICE OPTIONS PRICES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 -- 100,000 $ 1.00
Authorized 2,900,000
Options granted
Exercise price at market price (877,650) 877,650 $13.43 $ 3.59 $13.00-$15.55
Exercise price below market price (24,000) 24,000 $19.50 $ 10.37 $19.50
Options exercised (100,000) $ 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,998,350 901,650 $13.59
Options granted
Exercise price at market price (424,349) 424,349 $29.41 $ 7.86 $29.25-$29.55
Options exercised (28,738) $14.91
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,574,001 1,297,261 $18.74
Authorized 1,000,000
Shares turned in or withheld 114,287
Options granted
Exercise price at market price (705,949) 705,949 $37.49 $ 9.67 $34.18-$44.61
Options forfeited 144,436 (144,436) $28.91
Options exercised (571,967) $15.23
Restricted stock issued (174,704)
Restricted stock forfeited 8,249
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,1997 1,960,320 1,286,807 $26.67
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS EXERCISABLE AT
DECEMBER 31, 1997 149,285
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1996, the Company established a Non-Employee Director Stock Plan to issue
stock options and shares of restricted stock. The maximum number of shares which
may be issued under the plan shall not exceed 100,000 Common Shares. Under this
plan, 24,000 options to purchase Common Shares and 1,870 restricted Common
Shares have been issued. The options and restricted Common Shares vest ratably
over three years.
Under the Company's 1993 Stock Incentive Plan, options for 100,000 Common Shares
(base options) were issued to employees. The exercise price of the base options
was one U.S. dollar per share, which approximated fair value at the date of
grant for 85,000 of the base options. The remaining 15,000 base options were
granted when the exercise price was below the estimated fair value per share,
and, as such, the difference of approximately $1 million between the estimated
fair value at the date of grant, as determined by the Company's Board of
Directors and the exercise price was reflected in the accompanying financial
statements as a non-cash compensation charge. In connection with the
Recapitalization, the base option plan was amended to allow for the immediate
exercise of all base options into 787,500 restricted Common Shares with a
vesting schedule identical to the original base option plan. In connection with
the issuance of the restricted Common Shares in 1995, the $2.5 million fair
value of such shares, based on the fair value as determined by the Company's
Board of Directors, has been reflected in the financial
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 40 ]
2
<PAGE>
statements as a non-cash compensation expense. There was no compensation expense
in 1997 or 1996. Compensation expense for this plan was $2.8 million in 1995.
During 1997, the shareholders approved an increase in the number of authorized
shares by 1,000,000 shares, the issuance of share-based awards, the issuance of
restricted Common Shares and an adjustment in the calculation of shares
available for issuance thereunder by deeming the number of shares tendered to,
or withheld by the Company in connection with certain option exercises and in
satisfaction of tax withholding liabilities to be so available.
During 1997, the Company's Board of Directors approved an employee stock bonus
plan. Under the plan, eligible employees may elect to receive a grant of Common
Shares of up to 50 percent of their bonus in lieu of cash, with an associated
grant of an equal number of restricted shares. The restricted Common Shares vest
ratably over three years. During the restricted period, the employee receives
dividends and votes the restricted Common Shares, but the restricted shares may
not be sold, transferred or assigned. In 1997, the Company issued 46,424
restricted shares with a value of $1.7 million under this plan. Additionally,
the Board of Directors granted 128,279 restricted shares with a value of $4.9
million to certain executive officers of the Company. The shares granted to
executive officers vest ratably over four years. At the time of grant, the
market value of the shares awarded under these plans is recorded as unearned
stock grant compensation and is presented as a separate component of
shareholders' equity. The unearned compensation is charged to operations over
the vesting period. Compensation expense related to these plans was $0.7 million
in 1997.
NOTE 16. STATUTORY REQUIREMENTS
Under the Insurance Act, 1978, amendments thereto and related regulations of
Bermuda ("the Act"), Renaissance Reinsurance and Glencoe are required to prepare
statutory financial statements and to file in Bermuda a statutory financial
return. The Act also requires Renaissance Reinsurance and Glencoe to maintain
certain measures of solvency and liquidity during the period. As at December 31,
1997 the statutory capital and surplus of the Company's subsidiaries was $665
million and the amount required to be maintained was $115 million.
Under the Act, Renaissance Reinsurance is classified as a Class 4 insurer, and
is therefore restricted as to the payment of dividends in the amount of 25
percent of the prior year's statutory capital and surplus, unless at least two
members of the board of directors attest that a dividend in excess of this
amount would not cause Renaissance Reinsurance to fail to meet its relevant
margins. During 1997, Renaissance Reinsurance paid aggregate cash dividends of
$117.5 million to RenaissanceRe.
Glencoe is also eligible as an excess and surplus lines insurer in a number of
states in America. There are various capital and surplus requirements in these
states, with the most onerous requiring the Company to maintain a minimum of $15
million in capital and surplus. In this regard the declaration of dividends from
retained earnings and distributions from additional paid-in capital are limited
to the extent that the above requirements are met.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Lease commitments and fixed assets
The Company maintains an operating lease with respect to its offices. Rent
payments totaled $0.6 million in 1997 which will continue through September 30,
2001. In addition, the Company is
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 41 ]
<PAGE>
party to certain lease commitments with respect to housing on behalf of certain
officers of the Company.
Financial instruments with off-balance sheet risk
As of December 31, 1997, the Company did not maintain any financial instruments
that exposed the Company to any off-balance sheet risks.
Concentration of credit risk
None of the Company's investments exceeded 10 percent of shareholders' equity at
December 31, 1997.
Letters of credit
Effective as of December 31, 1997 the Company's bankers have issued letters of
credit of approximately $24.7 million in favor of certain ceding companies. The
letters of credit are secured by cash and cash equivalents of similar amounts.
Employment agreements
The Board of Directors has authorized the execution of employment agreements
between the Company and certain officers. These agreements provide for severance
payments under certain circumstances, as well as accelerated vesting of options
and restricted stock under a change in control, as defined therein and by the
Company's stock option plan.
Employee credit facility
In June of 1997, the Company executed a credit facility in order to encourage
direct, long-term ownership of the Company's stock, and to facilitate purchases
of the Company's stock by officers of the Company. Under the terms of the
facility, the purchases are financed by personal loans to the officers from the
bank. Such loans are collateralized by the stock purchased. The Company
guarantees the loans, but has recourse to the collateral if it incurs a loss
under the guarantee. In addition, the Company has agreed to provide loans to the
officers for interest payments under the bank loans. At December 31, 1997, the
bank loans guaranteed by the Company totaled $7.9 million. At December 31, 1997,
the common stock that collateralizes the loans had a fair value of $20.4
million.
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 42 ]
<PAGE>
NOTE 18. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
(amounts expressed in thousands, ------------------- ------------------- ------------------- -------------------
except per share amounts) 1997 1996 1997 1996 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net premiums earned $ 55,901 $ 61,699 $ 51,463 $ 62,015 $ 52,995 $ 63,453 $ 51,131 $ 65,661
Net investment income 12,125 10,058 12,216 10,267 12,653 12,620 12,579 11,335
Net foreign exchange
gains (losses) (1,643) (94) 479 (558) (356) 266 (1,922) 1,175
Net realized investment
gains (losses) 166 (617) (302) (1,514) 1,053 (660) (3,812) (147)
- --------------------------------------------------------------------------------------------------------------------------
Total revenue $ 66,549 $ 71,046 $ 63,856 $ 70,210 $ 66,345 $ 75,679 $ 57,976 $ 78,024
- --------------------------------------------------------------------------------------------------------------------------
Claims and claim
expenses incurred $ 14,238 $ 19,981 $ 11,106 $ 19,336 $ 14,673 $ 26,298 $ 9,998 $ 21,330
Net income $ 35,437 $ 39,171 $ 37,005 $ 39,281 $ 35,408 $ 36,463 $ 31,399 $ 41,245
Earnings per share - basic $ 1.56 $ 1.54 $ 1.63 $ 1.54 $ 1.59 $ 1.43 $ 1.41 $ 1.64
Earnings per share - diluted $ 1.52 $ 1.50 $ 1.59 $ 1.51 $ 1.56 $ 1.40 $ 1.38 $ 1.60
Weighted average shares - basic 22,779 25,443 22,700 25,445 22,233 25,532 22,271 25,130
Weighted average shares - diluted 23,295 26,088 23,201 26,076 22,699 26,084 22,673 25,732
Claims and claim expense ratio 25.5% 32.4% 21.6% 31.2% 27.7% 41.5% 19.6% 32.5%
Underwriting expense ratio 22.0% 15.6% 23.4% 16.0% 24.1% 17.4% 25.9% 18.7%
Combined ratio 47.5% 48.0% 45.0% 47.2% 51.8% 58.9% 45.5% 51.2%
==========================================================================================================================
</TABLE>
All earnings per share amounts have been restated to conform to the requirements
of Financial Accounting Standards Board Statement No. 128, "Earnings per Share".
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 43 ]
<PAGE>
DIRECTORS AND OFFICERS (as of March 1, 1998)
BOARD OF DIRECTORS
RenaissanceRe Holdings Ltd.
JAMES N. STANARD(3)
Chairman of the Board
ARTHUR S. BAHR(1) (2)
Retired
General Electric Investment Corporation
THOMAS A. COOPER(1) (2)
TAC Associates
EDMUND B. GREENE
General Electric Company
DAN L. HALE(1) (2)
USF&G
GERALD L. IGOU(3)
General Electric Investment Corporation
KEWSONG LEE(1)
E. M. Warburg, Pincus & Co., L.L.C.
HOWARD H. NEWMAN(2)
E. M. Warburg, Pincus & Co., L.L.C.
SCOTT E. PARDEE(1) (3)
Massachusetts Institute of Technology
JOHN C. SWEENEY(3)
Falcon Asset Management
DAVID A. TANNER(3)
E. M. Warburg, Pincus & Co., L.L.C.(4)
Committees of the Board:
(1) Audit
(2) Compensation
(3) Investment
(4)through December 1, 1997
OFFICERS
RenaissanceRe Holdings Ltd.
JAMES N. STANARD
Chairman of the Board,
President & Chief Executive Officer
KEITH S. HYNES
Executive Vice President
WILLIAM I. RIKER
Executive Vice President
JOHN M. LUMMIS
Senior Vice President
& Chief Financial Officer
MARTIN J. MERRITT
Vice President & Controller
JOHN D. NICHOLS, JR.
Vice President, Secretary & Treasurer
Renaissance Reinsurance Ltd.
JAMES N. STANARD
Chairman of the Board
WILLIAM I. RIKER
President & Chief Operating Officer
DAVID A. EKLUND
Executive Vice President
ROBERT E. HYKES
Vice President
JAYANT S. KHADILKAR
Vice President
KEVIN J. O'DONNELL
Vice President
RUSSELL M. SMITH
Vice President
Glencoe Insurance Ltd.
JAMES N. STANARD
Chairman of the Board
KEITH S. HYNES
President & Chief Executive Officer
ALBERT J. COLOSIMO
Vice President
CRAIG W. TILLMAN
Assistant Vice President
DeSoto Insurance Company
KEITH S. HYNES
Chairman of the Board
ROBERT L. RICKER
President
JOHN D. MCCONNELL
Chief Financial Officer
RenaissanceRe Holdings Ltd. 1997 Annual Report [ 44 ]
<PAGE>
FINANCIAL AND INVESTOR INFORMATION
For general information about the Company or for copies of the annual report,
quarterly earnings releases and Forms 10-K and 10-Q, please contact:
John D. Nichols, Jr.
Vice President, Secretary & Treasurer
Tel: 441-299-7215
Internet: [email protected]
STOCK INFORMATION
The Company's stock is listed on The New York Stock Exchange under the symbol
RNR.
The following table sets forth the high and low closing sales prices per share,
as reported on the New York Stock Exchange Composite Tape for the four fiscal
quarters of 1997 and 1996:
- --------------------------------------------------------------------------------
1997 PRICE RANGE 1996 PRICE RANGE
HIGH LOW HIGH LOW
- --------------------------------------------------------------------------------
First quarter 40.00 32.63 31.75 26.88(1)
Second quarter 39.63 34.13 31.00 26.88(1)
Third quarter 45.88 37.88 30.88 26.75
Fourth quarter 49.94 39.88 36.00 27.88
- --------------------------------------------------------------------------------
(1) The Company's stock was traded on the Nasdaq National Market ("NNM") through
July 23, 1996. For this period the prices above represent the NNM high ask and
low bid information.
INDEPENDENT AUDITORS
Ernst & Young
Hamilton, Bermuda
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
USA
Web site: www.chasemellon.com
All written requests should be sent to:
Shareholder Services
RenaissanceRe Holdings Ltd.
Renaissance House
8-12 East Broadway
P.O. Box HM2527
Hamilton HMGX, Bermuda
<PAGE>
RENAISSANCERE HOLDINGS LTD.
Renaissance House
8-12 East Broadway
Pembroke HM19, Bermuda
Tel: 441-295-4513
Fax: 441-292-9453
Internet: jdn(a)renre.com
Web site: www.renre.com
Exhibit 21.1
SUBSIDIARIES OF RENAISSANCERE HOLDINGS LTD.
1. 100% of the issued and outstanding capital shares of Renaissance
Reinsurance Ltd., a company organized under the laws of Bermuda, is
owned by RenaissanceRe Holdings Ltd.
2. 80% of the issued and outstanding capital shares of Glencoe Insurance
Ltd., a company organized under the laws of Bermuda, is owned by
RenaissanceRe Holdings Ltd.
3. 100% of the issued and outstanding capital shares of DeSoto Insurance
Company, a company organized under the laws of Florida, is owned by
Glencoe Insurance Ltd.
4. 100% of the issued and outstanding capital shares of Renaissance U.S.
Holdings, Inc., a corporation organized under the laws of Delaware, is
owned by RenaissanceRe Holdings Ltd.
Exhibit 23.1
CONSENT OF ERNST & YOUNG
To the Board of Directors of
RenaissanceRe Holdings Ltd.
We consent to the incorporation by reference in the registration statement (No.
333-06339) on Form S-8 of RenaissanceRe Holdings Ltd. of our report dated
January 14, 1998, relating to the consolidated financial statements of
RenaissanceRe Holdings Ltd. and Subsidiaries as of and for the years ended
December 31, 1997 and 1996 and for each of the years in the three year period
ended December 31, 1997 and our report dated January 14, 1998 on the schedules
included in the Company's 1997 Annual Report on Form 10-K, which reports are
incorporated by reference/included in the December 31, 1997 Annual Report on
Form 10-K of RenaissanceRe Holdings Ltd.
/s/ Ernst & Young
Hamilton, Bermuda
March 26, 1998
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