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UNITED STATES
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, 1999 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 of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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
NAME OF EACH EXCHANGE ON WHICH REGISTERED: NEW YORK STOCK EXCHANGE
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. ( )
The aggregate market value of Common Shares held by nonaffiliates of the
Registrant as of March 15, 2000 was $468,195,452 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 15, 2000 was
19,614,655.
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DOCUMENTS INCORPORATED BY REFERENCE
Sections of the Registrant's Annual Report to Shareholders mailed to
shareholders on or about March 25, 2000 (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 filed on March 24,
2000 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 3, 2000
(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
Page
PART I
Item 1. Business............................................................ 1
Item 2. Properties......................................................... 22
Item 3. Legal Proceedings.................................................. 22
Item 4. Submission of Matters to a Vote of Security Holders................ 22
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters............................................................ 22
Item 6. Selected Consolidated Financial Data............................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 22
Item 7a. Quantitative and Qualitative Disclosures about Market Risk......... 22
Item 8. Financial Statements and Supplementary Data........................ 22
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure........................................... 23
PART III
Item 10. Directors and Executive Officers of the Company.................... 23
Item 11. Executive Compensation............................................. 23
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 23
Item 13. Certain Relationships and Related Transactions..................... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 23
SIGNATURES .................................................................. 27
(i)
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PART I
Unless the context otherwise requires, references herein to the "Company"
include RenaissanceRe Holdings Ltd. ("RenaissanceRe") and its subsidiaries,
which principally include Renaissance Reinsurance Ltd. ("Renaissance
Reinsurance"), DeSoto Insurance Company ("DeSoto"), Nobel Insurance Company
("Nobel"), Glencoe Insurance Ltd. ("Glencoe"), Renaissance Services Ltd.
("Services"), Renaissance Reinsurance of Europe ("Renaissance Europe"),
Renaissance U.S. Holdings, Inc. ("Renaissance U.S."), Renaissance Underwriting
Managers Ltd. ("Renaissance Managers"), Pembroke Managing Agents, Inc.
("Pembroke") and Paget Insurance Agency, LLC ("Paget"). Certain terms used below
are defined in the "Glossary of Selected Insurance Terms" appearing on pages
19-21 of this Report.
NOTE ON FORWARD-LOOKING STATEMENTS
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 on Form 10-K.
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,
theCompany. In particular, statements using verbs such as "expect",
"anticipate", "intends", "believe" or words of similar impact generally involve
forward-looking statements. 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 the Company's reinsurance
or insurance business, or increased competition in the industry or from other
products which provide similar coverages; (iii) the lowering or loss of one of
the financial or claims-paying ratings of the Company or one or more of its
subsidiaries; (iv) risks associated with implementing business strategies of the
Company; (v) uncertainties in the Company's reserving process; (vi) a failure of
the Company's reinsurers to honor their obligations; (vii) actions of
competitors including industry consolidation; (viii) loss of services of any one
of the Company's key executive officers; (ix) the passage of federal or state
legislation subjecting the Company's Bermuda subsidiaries to supervision or
regulation in the United States or other jurisdictions in which the Company
operates; (x) challenges by insurance regulators in the United States to
Renaissance Reinsurance's claim of exemption from insurance regulation under
current laws; (xi) changes in economic conditions, including currency rate
conditions which could affect the Company's investment portfolio; (xii) a
contention by the United States Internal Revenue Service that Renaissance
Reinsurance is engaged in the conduct of a trade or business within the U.S.;
(xiii) changes in the U.S. laws or regulations relating to Bermuda insurance
companies which could adversely affect the Company; or (xiv) slower than
anticipated growth in the Company's fee-based operations. 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
RenaissanceRe Holdings Ltd. ("RenaissanceRe") is a Bermuda based holding
company with operating subsidiaries engaged in reinsurance, insurance and
related services. RenaissanceRe's principal operating subsidiary, Renaissance
Reinsurance Ltd. ("Renaissance Reinsurance") provides property catastrophe
reinsurance coverage to insurers and reinsurers, primarily on an excess of loss
basis. During 1999, Renaissance Reinsurance wrote $282.3 million of premium
(1998 - $207.2 million) and, based on gross premiums written, Renaissance
Reinsurance is one of the largest providers of property catastrophe reinsurance
coverage in the world. Excess of loss catastrophe coverage generally provides
coverage for claims arising from large natural catastrophes, such as earthquakes
and
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hurricanes, in excess of a specified loss. In connection with the coverage it
provides, Renaissance Reinsurance is also exposed to claims arising from other
natural and man-made catastrophes such as winter storms, freezes, floods, fires
and tornadoes.
Renaissance Reinsurance of Europe ("Renaissance Europe") was incorporated
in 1998 under the laws of Ireland as a wholly owned subsidiary of Renaissance
Reinsurance. Renaissance Europe was formed to provide certain property
catastrophe reinsurance coverage in Europe.
Glencoe Insurance Ltd. ("Glencoe") was incorporated in 1996 as a wholly
owned subsidiary of RenaissanceRe. Glencoe provides primary catastrophe exposed
property coverage on an excess and surplus lines basis, and is eligible to write
business in 29 states. During 1999, Glencoe wrote $5.0 million of primary
insurance premium (1998 - $5.6 million).
DeSoto Insurance Company ("DeSoto") was incorporated in 1997 as 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. During 1999, DeSoto wrote
$14.3 million of primary homeowners insurance premium (1998 - $26.7 million).
RenaissanceRe owns a U.S. holding company, Renaissance U.S. Holdings, Inc.
("Renaissance U.S."), whose principal subsidiary was Nobel Insurance Company, a
Texas-domiciled insurance company ("Nobel"). Following a 1998 fourth quarter
after-tax charge of $40.1 million, Nobel disposed of its principal business
lines in 1999. Nobel continues to be a licensed insurer in all 50 states,
although there can be no assurance such licenses can be retained. Currently,
Renaissance U.S. also owns Paget Insurance Agency, L.L.C., Pembroke Managing
Agents, Inc. and DeSoto Prime Insurance Company, all of which are active in the
Florida homeowners market.
In January 1999, Renaissance Reinsurance entered into a joint venture, Top
Layer Reinsurance Ltd. ("Top Layer Re"), with SPAN State Farm Mutual Automobile
Insurance Company ("State Farm") to provide high layer coverage for non-U.S.
risks.
In November 1999, RenaissanceRe incorporated Renaissance Underwriting
Managers Ltd. ("Renaissance Managers") to act as underwriting manager to
Overseas Partners Cat Ltd. ("OPCat"), a subsidiary of Overseas Partners Ltd.
Renaissance Managers will underwrite worldwide property catastrophe reinsurance
programs for OPCat.
RenaissanceRe and its subsidiaries' (the "Company") results depend to a
large extent on the frequency and severity of catastrophic events, and the
coverage offered to clients impacted thereby. In addition, 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. Accordingly, the Company regularly reviews strategic opportunities and
periodically engages in discussions regarding possible transactions, however
there can be no assurance that the Company will complete any such transactions
and that any such transaction would contribute materially to the Company's
results of operations or financial condition.
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. ("A.M. 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.
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.
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"A (Excellent)" and "A- (Excellent)" are the third and fourth highest of
A.M. Best's sixteen 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.
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 80% of the Company's gross premiums written in 1999, 77% in
1998 and 91% in 1997, respectively.
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(Copyright), a proprietary, computer-based
pricing and exposure management system. The Company utilizes
REMS(Copyright) to assess property catastrophe risks, price treaties and
limit aggregate exposure. The Company combines the analyses generated by
REMS(Copyright) 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,
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 19 years of
experience for the four senior executives of the Company.
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 15, 2000, the Company, including Nobel, had 78 employees. See
"Regulation."
o Leverage the Company's modeling expertise by expanding into other insurance
markets with significant natural catastrophe exposures. The Company is
reviewing opportunities in the United States to write new lines of business
including primary insurance, where natural catastrophe exposures represent
a significant component of the overall exposure.
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INDUSTRY TRENDS
The competitive pressures that have existed since 1995 continued in the
property catastrophe market through 1998. However, due to industry losses in
1999 and the related contraction of capacity in the market, the Company has seen
price increases in certain pockets of the property catastrophe market, which
contributed to the Company's increased gross written premiums during this past
year.
Because of continued catastrophic loss activity, the Company anticipates
that additional price increases may occur in other pockets of the property
catastrophe market. At this time, the Company does not believe that price
increases will become prevalent across all market segments, and believes that
there continues to be numerous transactions in the market that are under-priced.
The Company believes that because of its competitive advantages, including
its technological capabilities and its relationships with leading brokers and
ceding companies, it will continue to find additional opportunities in the
property catastrophe reinsurance markets.
Because of recent loss activity, the Company believes that its aggregate
cost for reinsurance protection will continue to increase during the upcoming
year. It is also likely that a portion of the Company's reinsurance protection
may become uneconomical and that the Company would determine to purchase less of
such reinsurance. Accordingly, it is possible that the Company will retain a
greater level of net risk in the upcoming year as compared with the previous
year.
Nobel has completed the sale and/or reinsurance of its principal operating
units, although Nobel continues to operate a portion of such businesses on a
transitional basis. Accordingly, the Company believes that its future
consolidated results will reflect a reduced impact from Nobel and its
affiliates. During 1999, the Company recorded $49.6 million of gross written
premiums, $20.0 million of net premiums earned and net income of $2.9 million
related to Nobel and its affiliates. The Company expects that Nobel and its
affiliates will continue to conduct certain functions on a transitional basis
and the Company expects to continue to maintain ownership of Nobel along with
its licenses in the 50 U.S. states, although there can be no assurance that such
licenses can be successfully maintained.
During 1999 nine significant worldwide catastrophic events occurred: the
hail storms in Sydney, Australia in April; the mid-western ("Oklahoma")
tornadoes in May; Hurricane Floyd in September; Typhoon Bart which struck Japan
in September; Turkish and Taiwanese earthquakes in August and September,
respectively; the Danish windstorm Anatol; and the French windstorms, Lothar
and Martin in December. At least seven of these events are each expected to
cause over $1 billion of insured damages. These events caused net incurred
losses for Renaissance Reinsurance to increase to $64.4 million for 1999 or a
loss ratio of 32.7 percent, compared with $42.4 million for 1998 or a loss ratio
of 25.0 percent. Due to the potential high severity of claims related to the
property catastrophe reinsurance business, there can be no assurance that
Renaissance Reinsurance will continue to experience this level of net claims in
future years.
The Company's financial strength has enabled it to pursue opportunities
outside of the property catastrophe reinsurance market into other markets,
including the catastrophe exposed primary insurance market, and the Company will
continue to pursue other opportunities in the upcoming year. 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
leading brokerage firms and also among the Company's customers. Although
consolidations may continue to occur, the Company believes that its financial
strength, its position as one of the market leaders in the property catastrophe
reinsurance industry and its ability to provide innovative products to the
industry will minimize any adverse effect of such consolidation on the Company's
business.
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. 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. The foregoing new, proposed or potential
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initiatives may affect the demand for the Company's products or the risks which
may be available for the Company to consider underwriting.
SEGMENT INFORMATION
Certain information regarding the Company's segments of operations are
provided on the following pages. Further information regarding the Company's
segments of operations are contained in Note 15 to the Consolidated Financial
Statements of the Company commencing on page 48 of the Company's Annual Report
to Shareholders for the year ended December 31, 1999, and is incorporated herein
by reference thereto.
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.
Because of the 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.
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Type of Reinsurance
The following table sets forth the Company's gross premiums written and
number of programs written by type of reinsurance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1999 1998 1997
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GROSS NUMBER GROSS NUMBER GROSS NUMBER
PREMIUMS OF PREMIUMS OF PREMIUMS OF
TYPE OF REINSURANCE WRITTEN PROGRAMS WRITTEN PROGRAMS WRITTEN PROGRAMS
- ------------------- ------- -------- ------- -------- ------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Catastrophe excess of loss. $173.6 242 $137.0 249 $150.8 311
Excess of loss retrocession 84.1 85 39.8 64 37.6 74
Proportional retrocession of
catastrophe excess of loss 21.2 8 20.3 13 21.9 11
Marine, aviation and other. 3.4 13 10.1 15 10.9 25
------- ------ ------- ------ ------- ------
Total Reinsurance... $282.3 348 $207.2 341 $221.2 421
======= ====== ======= ====== ======= ======
</TABLE>
Catastrophe Excess of Loss Reinsurance. Catastrophe excess of loss
reinsurance provides coverage to primary insurers when aggregate claims and
claim 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 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.
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
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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, DESOTO, AND NOBEL
The Company is reviewing opportunities in the United States to write
primary insurance where natural catastrophe exposures represent a significant
component of the overall exposure.
Glencoe -- 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 29 states. For the year ended December 31, 1999, Glencoe
generated gross premiums written of $5.0 million and net income of $2.8 million.
For the year ended December 31, 1998, Glencoe generated gross premiums written
of $5.6 million and net income of $4.0 million. For the year ended December 31,
1997, Glencoe generated gross premiums written of $7.0 million and net income of
$2.4 million.
DeSoto -- 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. For the year ended December 31, 1999, DeSoto generated $14.3 million of
gross written premium and net loss of $0.1 million. For the year ended December
31, 1998, DeSoto generated $26.7 million of gross written premium and net income
of $2.4 million.
Nobel -- On June 25, 1998, the Company completed its acquisition of the
U.S. operating subsidiaries of Nobel Limited for $56.1 million. The Company
accounted for this acquisition using the purchase method of accounting and
issued no shares as part of the purchase.
During the fourth quarter of 1998, the Company recorded an after tax charge
of $40.1 million, consisting of $29.6 million of adverse development on Nobel's
casualty and surety books of business, a goodwill write-down of $6.6 million,
and other related costs of $3.9 million. Consequently, at the end of 1998,
RenaissanceRe adopted a plan to exit each of Nobel's business units. During
1999, Nobel completed the reinsurance of the casualty and surety books of
business and signed agreements under which its bail and low-value dwelling books
of business have been assumed by third parties, with obligations to make certain
future payments to Nobel based on future revenues and/or profitability of these
businesses. Also, Nobel has completed the sale of its IAS/Cat Crew subsidiary to
its management team in an earn-out transaction.
Nobel and its affiliates have continued to conduct certain functions of the
casualty, surety, low-value dwelling and bail businesses on a transitional
basis. Renaissance U.S. expects to retain ownership of Nobel along with its
licenses in the 50 U.S. states, although there can be no assurance that such
licenses can be successfully maintained following the disposition of the
business units.
For the year ended December 31, 1999, Nobel generated $49.6 million of
gross written premium and net income of $2.9 million. As a result of the
Company's disposition of the principal businesses of Nobel, it is anticipated
that the future consolidated results of the Company will reflect a reduced
impact from Nobel.
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. Accordingly, the Company regularly
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reviews strategic opportunities and periodically engages in discussions
regarding possible transactions. However, 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 exposures 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
insurance and reinsurance premiums written allocated to the territory of
coverage exposure.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
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
- --------------- ------- ------- ------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
United States - reinsurance $160.2 45.6% $128.4 47.5% $116.7 54.2%
United States - primary.... 69.0 19.6 63.3 23.4 7.0 3.1
Worldwide.................. 49.5 14.1 20.6 7.6 27.9 12.2
Worldwide (excluding U.S.)(1) 27.3 7.8 26.4 9.8 32.0 14.0
Europe (including U.K.).... 26.4 7.5 18.5 6.8 21.0 9.2
Other...................... 15.7 4.5 9.4 3.5 16.8 7.4
Australia and New Zealand.. 3.2 0.9 3.9 1.4 6.9 3.0
------ --- ------ ----- ------ -----
Total...................... $351.3 100.0% $270.5 100.0% $228.3 100.0%
====== ===== ====== ===== ====== =====
</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.
PROGRAM LIMITS
The following table sets forth the number of the Company's reinsurance
programs in force at December 31, 1999 by aggregate program limits.
<TABLE>
<CAPTION>
AGGREGATE
PROGRAM NUMBER OF
LIMIT PROGRAMS
------- --------
<S> <C>
$50-70 million..................................... 7
$40-50 million..................................... 9
$30-40 million..................................... 8
$20-30 million..................................... 14
$10-20 million..................................... 43
Less than $10 million.............................. 267
-----
Total......................................... 348
=====
</TABLE>
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(Copyright), a proprietary, computer-based pricing
and exposure management system.
8
<PAGE>
Management utilizes REMS(Copyright) 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(Trademark) system.
REMS(Copyright) 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(Copyright) a number of 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(Copyright) 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(Copyright) 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(Copyright) provides more precise exposure information than is generally
analyzed currently throughout the property catastrophe reinsurance industry.
REMS(Copyright) 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(Copyright) then uses simulation
techniques to generate 40,000 years of catastrophic event activity, including
events causing in excess of $300 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(Copyright) 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 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.
During 1999, 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 the Company's reinsurance operations
during 1999 were $77.2 million compared to $47.7 million in 1998. Additionally,
the Company's primary operations had ceded premiums of $60.6 million (compared
to $27.7 million in 1998). To the extent that appropriately priced coverage is
available, the Company anticipates continued use of its reinsurance to reduce
potential volatility of its results. See "Industry Trends," above.
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
9
<PAGE>
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.
Glencoe markets its products through a diverse group of surplus lines brokers
operating primarily in cat exposed states.
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., AON Re Group, E. W. Blanch & Co., Greig Fester,
and Willis Faber accounted for approximately 24.5%, 20.5%, 20.3%, 7.1% and 6.4%,
respectively, of the Company's premiums written in 1999. During 1999,
Renaissance Reinsurance issued authorization for coverage on programs submitted
by 33 brokers worldwide. The Company received approximately 1,474 program
submissions during 1999. The Company is highly selective and, from such
submissions, the Company issued authorizations for coverage in 1999 for only 348
programs, or 23.6 percent of the program submissions received.
RESERVES
The Company incurred claims of $77.1 million, $112.8 million, and $50.0
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
reserve for claims and claim expenses includes estimates for unpaid claims and
claim expenses on reported losses as well as an estimate of losses incurred but
not reported. The reserve is based on individual claims, case reserves and other
reserve estimates reported by insureds and 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 the consolidated statement
of income in the period in which they become known and are accounted for as
changes in estimates.
For the Company's reinsurance operations, estimates of claims and claim
expenses and losses recoverable 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 variability and uncertainty
associated with 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.
On both the Company's reinsurance and primary operations, the Company uses
statistical and actuarial methods to reasonably estimate ultimate expected
claims and claim expenses. The period of time from the reporting of a loss to
the Company to the settlement of the Company's liability may be significant.
During this period, additional facts and trends will be revealed. As these
factors become apparent, case reserves will be adjusted, sometimes requiring an
increase in the overall reserves of the Company, and at other times requiring a
reallocation of IBNR reserves to specific case reserves. These estimates are
reviewed regularly, and 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.
10
<PAGE>
Claim reserves and losses recoverable 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 or recovery on a claim either
upward or downward. Even after such adjustments, ultimate liability or recovery
may exceed or be less than the revised estimates. Moreover, reserve estimates by
relatively new property catastrophe reinsurers, such as the Company, may be
inherently more volatile than the reserve estimates of a reinsurer with a more
established claims history.
INVESTMENTS
As of December 31, 1999, the Company held investments and cash totaling
$1,074.8 million with net unrealized depreciation of $18.5 million. 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 preservation
of capital, market liquidity, and diversification of risk. 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" as measured by Standard & Poor's Ratings Group.
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,
---------------------------------------
1999 1998 1997
-------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Investments available for sale, at fair value............. $920.5 $825.0 $710.2
Other investments, at fair value.......................... 22.2 1.6 26.4
Cash and cash equivalents................................. 132.1 115.7 122.9
-------- ------ ------
Total invested assets..................................... $1,074.8 $942.3 $859.5
======== ====== ======
</TABLE>
The growth in the Company's portfolio of invested assets for the year ended
December 31, 1999 resulted primarily from net cash provided by operating
activities of $130.3 million, compared with $102.5 million in 1998. The 1999
cash flows from operations were primarily utilized to purchase $80.1 million of
the Company's Common Shares and pay aggregate dividends of $28.9 million. Also
during 1999, the Company borrowed an additional $150.0 million under its
revolving credit facility, which was primarily used to purchase additional fixed
income securities for the holding company's portfolio of investments.
At December 31, 1999, the Company's invested asset portfolio had a dollar
weighted average rating of AA, an average duration of 2.7 years and an average
yield to maturity of 7.15 percent before investment expenses.
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 capacity from one of
its primary lenders for the issuance of letters of credit. Issued letters of
credit are secured by a lien on a portion of the Company's investment portfolio.
At December 31, 1999 the Company had outstanding letters of credit aggregating
$73.2 million. Also, in connection with the Company's January 6, 1999 investment
in Top Layer Reinsurance Ltd., the Company has committed $37.5 million of
collateral in the form of a letter of credit. This letter of credit is also
secured by a portion of the Company's investments.
11
<PAGE>
Derivative Instruments
The Company has assumed risk through catastrophe and weather linked
securities and derivative instruments under which losses could be triggered by
an industry loss index or natural parameters. To date the Company has not
experienced any losses from such securities or derivatives although there can be
no assurance this performance will continue. In each of the fourth quarters of
1999 and 1998, the Company recorded recoveries on non-indemnity catastrophe
index transactions. These recoveries are included in other income. In the
future, the Company may also utilize other derivative instruments.
Market Sensitive Instruments
The Company's investment portfolio includes investments whicha re subject
to changes in market values with changes in interest rates. The aggregate
hypothetical loss generated from an immediate adverse parallel shift in the
treasury yield curve of 100 basis points would cause a decrease in total return
of 2.70 percent, which equates to a decrease in market value of approximately
$28.4 million on a portfolio valued at $1,052.6 million at December 31, 1999. As
of December 31, 1998, the decrease in total return would have been 2.76 percent,
which equates to a decrease in market value of approximately $25.5 million on a
portfolio valued at $942.3 million. The foregoing reflects the use of an
immediate time horizon, since this presents the worst-case scenario. Credit
spreads are assumed to remain constant in these hypothetical examples.
Investment Agreements
During 1999, the Company had in place an investment advisory agreement with
GE Investment Management, an affiliate of General Electric Company. GE
Investment Management managed approximately 15.0 percent of the Company's
portfolio, subject to the Company's investment guidelines. The terms of the
investment advisory agreement were determined in arms length negotiations. The
performance of, and the fees paid to GE Investment Management were reviewed
periodically by the Board. Such fees paid to GE advisors aggregated to $0.2
million, $0.4 million and $1.2 million for the years ended December 31, 1999,
1998 and 1997, respectively. This agreement expired on December 31, 1999 and was
not renewed.
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>
AT DECEMBER 31,
---------------------------------------
TYPE OF INVESTMENT 1999 1998 1997
------------------ -------- ------ ------
(IN MILLIONS)
Fixed Maturities Available for Sale:
<S> <C> <C> <C>
U.S. Government and agency debt securities........... $295.7 $564.6 $248.3
U.S. Corporate debt securities....................... 356.6 137.8 --
Non-U.S. government debt securities.................. 54.4 30.6 256.9
Non-U.S. corporate debt securities................... 54.0 67.0 188.6
Non-U.S. mortgage backed securities.................. -- -- 6.9
U.S. mortgage backed securities...................... 147.0 -- --
Subtotal....................................... 907.7 800.0 700.7
Other investments.................................... 22.2 1.6 26.4
Short-term investments.................................... 12.8 25.0 9.5
Cash and cash equivalents................................. 132.1 115.7 122.9
-------- ------ ------
Total fixed maturity investments, equity
securities, short-term investments and cash
and cash equivalents........................ $1,074.8 $942.3 $859.5
======== ====== ======
</TABLE>
The following table summarizes the fair value by contractual maturities of
the Company's fixed maturity investment portfolio as of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------
1999 1998 1997
-------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Due in less than one year................................. $ 2.8 $ 193.7 $ 74.6
Due after one through five years.......................... 456.4 393.7 473.0
12
<PAGE>
Due after five through ten years.......................... 226.1 121.4 90.9
Due after ten years....................................... 75.4 91.2 62.2
U.S. mortgage backed securities........................... 147.0 -- --
-------- ------ ------
Total..................................................... $907.7 $800.0 $700.7
======== ====== ======
</TABLE>
Maturity and Duration of Fixed Maturity Portfolio
Currently, the Company maintains a target duration of approximately three
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. From time to time,
the Company expects to reevaluate the target duration in light of estimates of
the duration of its liabilities and market conditions, including then prevailing
levels of interest rates.
Quality of Debt Securities in Portfolio
The Company's guidelines for its various investment classes have strict
restrictions on credit quality, duration and benchmark relative exposures.
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.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
RATING 1999 1998 1997
- ------ ---- ---- ----
<S> <C> <C> <C>
AAA 72.9% 70.9% 56.9%
AA 5.0 4.3 12.2
A 5.9 9.2 14.9
BBB 4.8 3.7 5.0
BB 3.7 5.2 4.9
B 5.3 2.2 6.1
NR 2.4 4.5 --
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
FOREIGN CURRENCY EXPOSURES
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.
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.
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
13
<PAGE>
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 or brand recognition 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.
The primary insurance business is also highly competitive. Primary insurers
compete on the basis of factors including selling effort, product, price,
service and financial strength. The Company generally seeks to adjust its
overall primary insurance pricing and pricing to individual customers to achieve
underwriting profits and, as a result, may lose primary insurance business to
competition offering competitive insurance products at lower prices. The
Company's competitors in the primary insurance market include independent
insurance companies, subsidiaries or affiliates of major worldwide insurance
companies, underwriting syndicates and others, many of which have greater
financial resources, brand equity and more diversified primary insurance
products than the Company.
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. Among other things, over the last several years
capital markets participants, including exchanges and financial intermediaries,
have developed financial products intended to compete with traditional
reinsurance, the usage of which has grown in volume. In addition, the tax
policies of the countries where the Company's clients operate can affect demand
for reinsurance. 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 15, 2000, the Company and its subsidiaries employed 78 people.
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.
Many Bermuda based employees of RenaissanceRe and Renaissance Reinsurance,
including all of the Company's senior management, are employed pursuant to work
permits granted by the Bermuda authorities. These permits expire at various
times over the next few years. The Company has no reason to believe that these
permits would not be extended at expiration upon request, although no assurance
can be given in this regard.
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 (including the
business of reinsurance) in or from within Bermuda unless registered as an
insurer under the Insurance Act by the Bermuda Minister of Finance (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
14
<PAGE>
applicant's registration, the Minister may impose conditions relating to the
writing of certain types of insurance. Further, the Insurance Act stipulates
that no person shall, in or from within Bermuda, act as an insurance manager,
broker, agent or salesman unless registered for the purpose by the Minister.
Rennaissance Managers is registered as an insurance manager under the Insurance
Act.
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. Certain 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, both of
which, in the case of each of a Class 3 insurer and a Class 4 insurer, are
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. Each 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 the insurer's approved 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. The Statutory Financial Statements and
the Statutory Financial Return do not form part of the public records maintained
by the Registrar.
Minimum Solvency Margin and Restrictions on Dividends and Distributions.
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 registration of the insurer under
the Insurance Act and the insurer's net premiums written and loss reserve level.
The 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.
The Insurance Act mandates certain actions and filings with the Minister
and the Registrar if a Class 3 insurer or a Class 4 insurer fails to meet and or
maintain the required minimum solvency margin. Both Class 3 insurers and Class 4
insurers are prohibited from declaring or paying any dividends if in breach of
the required minimum
15
<PAGE>
solvency margin or minimum liquidity ratio (the relevant margins) or if the
declaration or payment of such dividend would cause the insurer to fail to meet
the relevant margins. Where an insurer fails to meet its relevant margins on the
last day of any financial year it is prohibited from declaring or paying any
dividends during the next financial year without the approval of the Minister.
Further, a Class 4 insurer is prohibited from declaring or paying in any
financial year dividends of more than 25% of its total statutory capital and
surplus (as shown on its previous financial year's statutory balance sheet)
unless it files (at least seven days before payment of such dividends) with the
Registrar an affidavit stating that it will continue to meet its relevant
margins. Class 3 insurers and Class 4 insurers must obtain the Minister's prior
approval for a reduction by 15% or more of the total statutory capital as set
forth in its previous year's financial statements. These restrictions on
declaring or paying dividends and distributions under the Insurance Act are in
addition to those under the Companies Act 1981 which apply to all Bermuda
companies.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity
ratio for general business insurers. 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. Class 3 and Class 4 insureres are
required to file with the Registrar a Statutory Financial Return no later than
four months after the insurer's financial year end (unless specifically
extended). The Statutory Financial Return includes, among other items, 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 in respect of the loss and loss expense provisions and, only
in the case of Class 4 insurers, 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. 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, or that the insurer is in breach of the Insurance Act or any
conditions or its registration under the Insurance Act, 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, or
transfer to the custody of a specified 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 each of Renaissance Reinsurance and
Glencoe is at the Company's offices at Renaissance House, 8-12 East Broadway,
Pembroke HM 19 Bermuda and Mr. John D. Nichols, the Company's Senior Vice
President, is the principal representative of Renaissance Reinsurance and
Glencoe. 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
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<PAGE>
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 a reportable 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 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.
Certain other Bermuda Law Considerations. As "exempted companies,"
RenaissanceRe and its Bermuda subsidiaries are exempt from certain Bermuda laws
restricting the percentage of share capital that may be held by non-Bermudians.
However, as exempted companies, RenaissanceRe and its Bermuda subsidiaries may
not participate in certain business transactions, including (1) the acquisition
or holding of land in Bermuda (except that required for their business and held
by way of lease or tenancy for terms of not more than 50 years) without required
authorization, (2) the taking of mortgages on land in Bermuda to secure an
amount in excess of $50,000 without the consent of the Minister, (3) the
acquisition of any bonds or debentures secured by any land in Bermuda, other
than certain types of Bermuda government securities or (4) the carrying on of
business of any kind in Bermuda, except in furtherance of their business carried
on outside Bermuda or under license granted by the Minister. Generally it is not
permitted without a special licence granted by the Minister to insure Bermuda
domestic risks or risks of persons of, in or based in Bermuda.
RenaissanceRe and its Bermuda subsidiaries must comply with the provisions
of the Companies Act regulating the payment of dividends and making
distributions from contributed surplus. A company shall not declare or pay a
dividend, or make a distribution out of contributed surplus, if there are
reasonable grounds for believing that: (a) the company is, or would after the
payment be, unable to pay its liabilities as they become due; or (b) the
realizable value of the company's assets would thereby be less than the
aggregate of its liabilities and its issued share capital and share premium
accounts.
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 29 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 Nobel is subject to regulation
in all 50 U.S. states and the District of Columbia. The Company's U.S.
operations 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 directly underwritten insurance with the insurance
department of each state in which they operate on an admitted basis; however,
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, currently requires that dividends be paid only out of earned
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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 Nobel, 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.
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 stricter 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, if any, in 2000 to be material.
The expansion of the Company's primary insurance operations, together with
the potential of further expansion 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 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."
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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 reinsurance A form of excess of loss reinsurance that, 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 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 pre-negotiated 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.
Generally accepted
accounting
principles Accounting principles as set forth in opinions 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
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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.
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;
Retrocessionaire A transaction whereby a reinsurer cedes to 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.
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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 ("SAP") Recording transactions and preparing financial statements in
accordance with the rules and procedures prescribed or
permitted by Bermuda and/or the 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.
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ITEM 2. PROPERTIES
The Company leases office space in Bermuda, where its executive offices are
located.
Nobel owns a 39,000 square foot building at 8001 LBJ Freeway, Dallas,
Texas. Approximately 10,000 square feet of this building is leased to unrelated
tenants. Additionally, Nobel owns a 24,000 square foot building at 6923 North
Trenholm Road, Columbia, South Carolina. Since Nobel has sold or reinsured a
substantial portion of its operating businesses, it is considering the sale of
these properties.
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 is likely to
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 1999.
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 page 56 of the Company's Annual Report to Shareholders
for the year ended December 31, 1999 (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 20 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 21 through 32 of the Annual Report and is incorporated
herein by reference thereto in response to this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information with regard to Quantitative and Qualitative Disclosures
About Market Risk is contained on page 12 of this Form 10-K under the caption
"Investments - Market Sensitive Instruments."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company are contained on pages
34 through 54 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.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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 4 through 7 of the Company's Definitive Proxy Statement in respect of
the Annual General Meeting of Shareholders to be held on May 3, 2000 (the "Proxy
Statement") and "Proposal 1" on page 25 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 17 through
24 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 7 through 9 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 10 through 12 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 34 through 54 of the Company's 1999 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.*
3.2 Amended and Restated Bye-Laws.##
3.3 Memorandum of Increase in Share Capital of Company.##
4.1 Specimen Common Share certificate.*
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10.1 Investment Management Agreement, dated as of November 1, 1993, between GE
Investment Management Incorporated and Renaissance Reinsurance Ltd.*
10.2 RenaissanceRe Holdings Ltd. Restricted Stock Plan.*
10.3 Agreement and Plan of Recapitalization, dated as of March 26, 1995, by
and among RenaissanceRe Holdings, Ltd., Renaissance Reinsurance Ltd. and
Investors named therein.*
10.4 Third Amended and Restated Employment Agreement, dated as of July 1,
1997, between Renaissance Reinsurance Ltd. and James N. Stanard, amended
and restated as of June 3, 1998.#
10.5 Employment Agreement, dated as of February 4, 1998, between Renaissance
Reinsurance Ltd. and William I. Riker.###
10.6 Employment Agreement, dated as of July 1, 1999, between Renaissance
Reinsurance Ltd. and David A. Eklund.
10.7 Employment Agreement, dated as of October 17, 1997, between Renaissance
Reinsurance Ltd. John M. Lummis.
10.8 Credit Agreement, dated as of October 5, 1999, among RenaissanceRe
Holdings Ltd., various financial institutions which are, or may become,
parties thereto (the "Lenders"), Deutsche Bank AG, as LC Issuer and
Syndication Agent, Fleet National Bank,as Co-Agents, and Bank of America,
National Association, as Administrative Agent for the Lenders.+++
10.9 Accession Agreement dated as of November 8, 1999, among RenaissanceRe
Holdings Ltd. (the "Borrower"), Bank of America, National Association, as
Administrative Agent (the "Administrative Agent"), Deutsche Bank AG, New
York Branch, as LC Issuer (the "LC Issuer") and Mellon Bank, N.A.,
relating to the Credit Agreement dated as of October 5, 1999, among the
Borrower, certain financial institutions which are signatories thereto,
the LC Issuer and the 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.###
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, 1998,
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,
1998, 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.###
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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.^^
10.21 Credit Agreement between Renaissance U.S. Holdings, Inc., the Lenders
named therein, and Bank of America National Trust and Savings Association
as Administrative Agent, dated as of June 24, 1998.#
10.22 First Amendment to Credit Agreement between Renaissance U.S. Holdings
Inc. the Lenders named therein, and Bank of America National Trust and
Savings Association as Administrative Agent, dated as of December 31,
1998. @
10.23 Guaranty, dated as of June 24, 1998, among RenaissanceRe Holdings, Ltd.,
as Guarantor, and Bank of America National Trust & Savings Association.#
10.24 Share Purchase Agreement, dated as of November 17, 1999, between
RenaissanceRe Holdings Ltd. And The St. Paul Companies, Inc.
13.1 Annual Report to Shareholders of RenaissanceRe Holdings Ltd. for the year
ended December 31, 1999 (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, 1999.
(b) Reports on Form 8-K
The Company filed no Current Reports on Form 8-K with the Commission
during the fourth quarter of 1999.
- --------------------------------------------------------------------------------
* 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 Company's Current Report on Form 8-K,
filed with the Commission on December 16, 1996, relating to an event
which occurred on December 31, 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.
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+ 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.
++++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1999, filed with the Commission on
November 15, 1999.
# Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998, filed with the Commission on August
4, 1998.
## Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1998, filed with the Commission on May 14,
1998.
### Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, filed with the Commission on March 31,
1999.
@ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, filed with the Commission on March 31,
1999.
26
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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 30, 2000.
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 and March 30, 2000
- -----------------------------
James N. Stanard Chairman of the Board of Directors
/s/ John M. Lummis Senior Vice President and Chief Financial March 30, 2000
- ---------------------------
John M. Lummis Officer (Principal Accounting Officer)
/s/ Arthur S. Bahr Director March 30, 2000
- ----------------------
Arthur S. Bahr
/s/ Thomas A. Cooper Director March 30, 2000
- ----------------------
Thomas A. Cooper
/s/ Edmund B. Greene Director March 30, 2000
- ----------------------
Edmund B. Greene
/s/ Brian Hall Director March 30, 2000
- ----------------------
Brian Hall
/s/ Gerald L. Igou Director March 30, 2000
- ----------------------
Gerald L. Igou
/s/ Kewsong Lee Director March 30, 2000
- ----------------------
Kewsong Lee
/s/ Paul J. Liska Director March 30, 2000
- ----------------------
Paul J. Liska
/s/ W. James MacGinnitie Director March 30, 2000
- ----------------------
W. James MacGinnitie
27
<PAGE>
/s/ Howard H. Newman Director March 30, 2000
- ----------------------
Howard H. Newman
/s/ Scott E. Pardee Director March 30, 2000
- ----------------------
Scott E. Pardee
/s/ William I. Riker Director & Executive Vice President March 30, 2000
- ----------------------
William I. Riker
</TABLE>
28
<PAGE>
RENAISSANCERE HOLDINGS LTD AND SUBSIDIARIES.
INDEX TO SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Auditors on Schedules................................. S-2
I Summary of Investments other than Investments in Related
Parties at December 31, 1999......................................... S-3
III Condensed Financial Information of the Registrant.................... S-4
V Supplementary Insurance Information for the years ended
December 31, 1999, 1998 and 1997..................................... S-7
VI Reinsurance for the years ended December 31, 1999, 1998 and 1997..... 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.
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, 1999 and 1998, and for each of
the three years in the period ended December 31, 1999, and have issued our
report thereon dated January 28, 2000; 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 Registration Statement. These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
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 28, 2000
S-2
<PAGE>
SCHEDULE I
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(MILLIONS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
----------------------- AMOUNT AT
WHICH SHOWN
AMORTIZED MARKET IN THE
TYPE OF INVESTMENT: COST VALUE BALANCE SHEET
- ------------------- --------- -------- -------------
Fixed Maturities Available for Sale:
<S> <C> <C> <C>
U.S. Government bonds................................ $298.7 $295.7 $295.7
U.S. corporates...................................... 371.6 356.6 356.6
Non U.S. sovereign government bonds.................. 55.3 54.4 54.4
Non U.S. corporate debt securities................... 50.5 54.0 54.0
U.S. mortgage backed securities...................... 150.0 147.0 147.0
-------- -------- --------
Subtotal....................................... 926.1 907.7 907.7
Other investments......................................... 8.6 8.6 8.6
Short-term investments.................................... 12.8 12.8 12.8
Cash and cash equivalents................................. 132.1 132.1 132.1
-------- -------- --------
Total investments, short-term
investments, cash and cash
equivalents.......................... $1,079.6 $1,061.2 $1,061.2
======== ======== ========
</TABLE>
S-3
<PAGE>
SCHEDULE III
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENAISSANCERE HOLDINGS LTD. BALANCE SHEETS
(PARENT COMPANY)
(THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Cash....................................................... $ 48,483 $ 7,702
Investments available for sale............................. 144,739 80,487
Investment in subsidiaries................................. 673,229 650,515
Dividend receivable........................................ 30,637 24,294
Other assets............................................... 942 4,262
------------ ------------
Total assets...................................... $ 898,030 $ 767,260
============ ============
LIABILITIES
Loans payable.............................................. $ 200,000 $ 50,000
Minority interest - Company obligated, manditorily redeemable
capital securities of a subsidiary trust holding solely
junior subordinated debentures of the Company............ 89,630 100,000
Other liabilities.......................................... 8,071 5,028
------------ ------------
Total liabilities................................. 297,701 155,028
============ ============
SHAREHOLDERS' EQUITY
Common Shares: $1 par value-authorized 225,000,000 shares
issued and outstanding at December 31, 1999 - 19,686,480
(1998 - 21,645,913)...................................... 19,686 21,646
Additional paid-in capital................................. -- 17,389
Unearned Stock Grant Compensation.......................... (10,026) (8,183)
Accumulated other comprehensive income..................... (18,470) (5,144)
Retained earnings.......................................... 609,139 586,524
------------ ------------
Total shareholders' equity........................ 600,329 612,232
------------ ------------
Total liabilities and shareholders' equity. $ 898,030 $ 767,260
============ ============
</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)
(THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
Income:
<S> <C> <C> <C>
Investment income........................................... $ 5,945 $ 1,364 $ 5,723
--------- --------- ----------
Total income................................................ 5,945 1,364 5,723
--------- --------- ----------
Expenses:
Interest expense............................................ 6,805 3,059 4,271
Corporate expenses.......................................... 3,120 3,317 3,218
--------- --------- ----------
Total expenses.............................................. 9,925 6,376 7,489
--------- --------- ----------
Loss before equity in net income of subsidiaries & taxes.... (3,980) (5,012) (1,766)
Equity in net income of Renaissance Reinsurance............. 117,408 126,768 146,209
Equity in net income of Renaissance U.S..................... (2,746) (44,274) --
Equity in net income of Glencoe............................. 2,809 6,340 2,421
Equity in net income of Renaissance Services................ (962) -- --
--------- --------- ----------
Income before minority interests & taxes 112,529 83,822 146,864
Minority interest - Company obligated,
mandatorily redeemable capital securities of a
subsidiary trust holding solely junior subordinated
debentures of the Company ................................. (8,288) (8,540) (6,998)
Minority interest - Glencoe................................. -- (705) (617)
--------- --------- ----------
Net income before taxes .................................... 104,241 74,577 139,249
Income tax expense.......................................... -- -- --
--------- --------- ----------
Net income ................................................. $ 104,241 $ 74,577 $ 139,249
========= ========= ==========
</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)
(THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
Cash flows provided by (applied to) operating activities:
<S> <C> <C> <C>
Net income................................................. $ 104,241 $ 74,577 $ 139,249
Less equity in net income of subsidiaries.................. 116,509 88,129 148,013
--------- --------- ----------
(12,268) (13,552) (8,764)
Adjustments to reconcile net loss to net cash provided by
(applied to) operating activities
Other...................................................... 13,172 2,085 (4,013)
--------- --------- ----------
Net cash provided by (applied to) operating activities..... 904 (11,467) (12,777)
--------- --------- ----------
Cash flows provided by investing activities:
Contributions to subsidiary................................ (14,846) (22,516) (12,000)
Proceeds from sales of investments......................... 199,562 76,770 73,793
Purchases of investments................................... (265,979) (109,295) (105,223)
Dividends from subsidiary.................................. 88,714 102,061 124,770
Purchase of minority interest in subsidiary................ -- -- (5,185)
--------- --------- ----------
Net cash provided by investing activities.................. 7,451 47,020 76,155
--------- --------- ----------
Cash flows provided by (applied to) financing activities:
Proceeds from issuance (purchase) of Capital Securities.... (8,591) -- 100,000
Repurchase of Common Shares................................ (80,098) (42,724) (53,458)
Dividend to Common Shareholders............................ (28,885) (26,720) (22,643)
Net proceeds from (repayment of) bank loan................. 150,000 -- (100,000)
Repayments of officer loans................................ -- -- 4,104
--------- --------- ----------
Net cash provided by (applied to) financing activities..... 32,426 (69,444) (71,997)
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents....... 40,781 (33,891) (8,619)
Balance at beginning of year............................... 7,702 41,593 50,212
--------- --------- ----------
Balance at end of year..................................... $ 48,483 $ 7,702 $ 41,593
--------- --------- ----------
</TABLE>
S-6
<PAGE>
SCHEDULE V
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1999
--------------------------------- --------------------------------------------------------------------------------
FUTURE
POLICY
BENEFITS, BENEFITS, AMORTIZATION
DEFERRED LOSSES, CLAIMS, OF DEFERRED
POLICY CLAIMS AND NET LOSSES 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... $ 14,221 $ 478,601 $ 98,386 $ 221,117 $ 60,334 $ 77,141 $ 25,500 $ 36,768 $213,513
========== ========= ========== ========= ========== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1998
--------------------------------- --------------------------------------------------------------------------------
FUTURE
POLICY
BENEFITS, BENEFITS, AMORTIZATION
DEFERRED LOSSES, CLAIMS, OF DEFERRED
POLICY CLAIMS AND NET LOSSES 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... $ 10,997 $ 298,829 $ 94,466 $ 204,947 $ 52,834 $ 112,752 $ 26,506 $ 34,525 $195,019
========== ========= ========== ========= ========== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1997
--------------------------------- --------------------------------------------------------------------------------
FUTURE
POLICY
BENEFITS, BENEFITS, AMORTIZATION
DEFERRED LOSSES, CLAIMS, OF DEFERRED
POLICY CLAIMS AND NET LOSSES 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>
S-7
<PAGE>
SCHEDULE VI
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
REINSURANCE
(THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED 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, 1999
Property Premiums Written.............. $ 68,961 $ 137,792 $ 282,344 $ 213,513 132%
======== ========= ========= =========
Year ended December 31, 1998
Property Premiums Written.............. $ 63,271 $ 75,441 $ 207,189 $ 195,019 106%
======== ========= ========= =========
Year ended December 31, 1997
Property Premiums Written.............. $ 7,041 $ 32,535 $ 221,246 $ 195,752 113%
======== ========= ========= =========
</TABLE>
S-8
<PAGE>
SCHEDULE X
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
(EXPRESSED IN UNITED STATES DOLLARS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Reserve for Unpaid Net
Deferred Policy Claims Discount Unearned Earned Investment
Affiliation with Registrant Acquisition Costs and Claims Expenses if any, Deducted Premiums Premiums Income
- --------------------------- ----------------- ------------------- ---------------- -------- -------- ------
Consolidated Subsidiaries
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999 $ 14,221 $478,601 $ -- $ 98,386 $221,117 $ 60,334
======== ======== ====== ======== ======== ========
Year ended December 31, 1998 $ 10,997 $298,829 $ -- $ 94,466 $204,947 $ 52,834
======== ======== ====== ======== ======== ========
Year ended December 31, 1997 $ 5,739 $110,037 $ -- $ 57,008 $211,490 $ 49,573
======== ======== ====== ======== ======== ========
<CAPTION>
Claims and Claims
Expense Incurred
Related to Amortization of
--------------------------- Deferred Policy Paid Claim and Net
Affiliation with Registrant Current Year Prior Years Acquisition Costs Claims Expenses Premiums Written
- --------------------------- ------------ ----------- ----------------- --------------- ----------------
Consolidated Subsidiaries
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 $ 111,720 $(34,579) $ 25,500 $ 99,740 $213,513
========= ======== ======== ======== ========
Year ended December 31, 1998 $ 96,431 $ 16,321 $ 26,506 $ 80,594 $195,019
========= ======== ======== ======== ========
Year ended December 31, 1997 $ 50,015 $ 0 $ 25,227 $ 45,399 $195,752
========= ======== ======== ======== ========
</TABLE>
S-9
<PAGE>
UNITED STATES
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, 1999
RenaissanceRe Holdings Ltd.
<PAGE>
1. The Consolidated Financial Statements of the Company and related Notes
thereto are contained on pages 34 through 54 of the Company's 1999 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.*
3.2 Amended and Restated Bye-Laws.#
3.3 Memorandum of Increase in Share Capital of Company.##
4.1 Specimen Common Share certificate.*
10.1 Investment Management Agreement, dated as of November 1, 1993, between GE
Investment Management Incorporated and Renaissance Reinsurance Ltd.*
10.2 RenaissanceRe Holdings Ltd. Restricted Stock Plan.*
10.3 Agreement and Plan of Recapitalization, dated as of March 26, 1995, by
and among RenaissanceRe Holdings, Ltd., Renaissance Reinsurance Ltd. and
Investors named therein.*
10.4 Third Amended and Restated Employment Agreement, dated as of July 1,
1997, between Renaissance Reinsurance Ltd. and James N. Stanard, amended
and restated as of June 3, 1998.#
10.5 Employment Agreement, dated as of February 4, 1998, between Renaissance
Reinsurance Ltd. and William I. Riker.###
10.6 Employment Agreement, dated as of July 1, 1999, between Renaissance
Reinsurance Ltd. and David A. Eklund.
10.7 Employment Agreement, dated as of October 17, 1997, between Renaissance
Reinsurance Ltd. and John M. Lummis.
10.8 Credit Agreement, dated as of October 5, 1999, among RenaissanceRe
Holdings Ltd., various financial institutions which are, or may become,
parties thereto (the "Lenders"), Deutsche Bank AG, as LC Issuer and
Syndication Agent, Fleet National Bank, as Co-Agents, and Bank of
America, National Association, as Administrative Agent for the
Lenders.+++
10.9 Accession Agreement dated as of November 8, 1999, among RenaissanceRe
Holdings Ltd. (the "Borrower"), Bank of America, National Association, as
Administrative Agent (the "Administrative Agent"), Deutsche Bank AG, New
York Branch, as LC Issuer (the "LC Issuer") and Mellon Bank, N.A.,
relating to the Credit Agreement dated as of October 5, 1999, among the
Borrower, certain financial institutions which are signatories thereto,
the LC Issuer and the 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.###
-2-
<PAGE>
10.12 RenaissanceRe Holdings Ltd. Amended and Restated Non-Employee Director
Stock Plan.###
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, 1998,
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,
1998, 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.^^
10.21 Credit Agreement between Renaissance U.S. Holdings, Inc., the Lenders
named therein, and Bank of America National Trust and Savings Association
as Administrative Agent, dated as of June 24, 1998.#
10.22 First Amendment to Credit Agreement between Renaissance U.S. Holdings
Inc. the Lenders named therein, and Bank of America National Trust and
Savings Association as Administrative Agent, dated as of December 31,
1998. @
10.23 Guaranty, dated as of June 24, 1998, among RenaissanceRe Holdings, Ltd.,
as Guarantor, and Bank of America National Trust & Savings Association.#
10.24 Share Purchase Agreement, dated as of November 17, 1999, between
RenaissanceRe Holdings Ltd. And The St. Paul Companies, Inc.
13.1 Annual Report to Shareholders of RenaissanceRe Holdings Ltd. for the year
ended December 31, 1999 (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, 1999.
- --------------------------------------------------------------------------------
-3-
<PAGE>
* 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 Company's Current Report on Form 8-K,
filed with the Commission on December 16, 1996, relating to an event
which occurred on December 31, 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.
++++ Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1999, filed with the Commission on
November 15, 1999.
# Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998, filed with the Commission on August
14, 1998.
## Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1998, filed with the Commission on May 14,
1998.
### Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, filed with the Commission on March 31,
1998.
@ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, filed with the Commission on March 31,
1999.
-4-
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of July 1, 1999, and is entered
into between Renaissance Reinsurance Ltd., a Bermuda company (the "Company"),
and David A. Eklund ("Executive").
WHEREAS, Executive is currently employed as Executive 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
1.1. Employment. During the Term (as defined below), Executive shall
serve as Executive Vice President and Chief Underwriting Officer of the Company.
Executive agrees to devote his full time and efforts to promote the interests of
the Company.
1.2. 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.
1.3. 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
2.1. 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
3.1. 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) 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) Restricted Stock. 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 May 14, 2000, and shall be subject to the terms
of the Plan and Restricted Stock Agreement with respect to the Restricted Stock
to be entered into at the date herewith.
(d) 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
- 2 -
<PAGE>
other officers of the Company and subject to the terms and provisions of such
plan or program.
(e) 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.
(f) 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.
3.2. 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) Housing. The Company shall reimburse Executive for all
reasonable expenses incurred in connection with Executive's maintenance of a
place of residence in Bermuda, as approved from time to time by the Board.
(c) 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.
(d) 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.
- 3 -
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ARTICLE IV.
Exclusivity, Etc.
4.1. 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.
4.2. 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 business having a class of capital stock
which is traded on any major stock exchange or in a national over-the-counter
market.
4.3. 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
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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.
4.4. 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 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).
4.5. 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
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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
5.1. 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.
5.2. 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.
5.3. 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.
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5.4. Termination Without Cause. The Company may at any time terminate
Executive's employment for reasons other than Cause.
5.5. 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 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.
5.6. 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:
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(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, 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
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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 Change in Control shall be
governed by the provisions of Section of 5.05.
ARTICLE VI.
Miscellaneous
6.1. 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.
6.2. 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,
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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.
6.3. 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.
6.4. 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.
6.5. 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.
6.6. Headings. The Article and Section headings herein are for
convenience of reference only, do not constitute a
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part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
6.7. 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.
6.8. 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.
6.9. 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 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.
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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.
IN WITNESS WHEREOF, the Company and Executive have duly executed this
Agreement as of the date first above written.
RENAISSANCE REINSURANCE LTD.
By: /s/ James N. Stanard
------------------------------
Name: James N. Stanard
Title: Chairman, President and CEO
/s/ David A. Eklund
------------------------------
David A. Eklund
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of October 17, 1997 and is
entered into between Renaissance Reinsurance Ltd., a Bermuda company (the
"Company"), and John M. Lummis ("Executive").
WHEREAS, Executive is currently employed as a Senior Vice President and
Chief Financial Officer 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
1.1. Employment. During the Term (as defined below), Executive shall
serve as a Senior Vice President and Chief Financial Officer 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.
1.2. 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.
1.3. 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
2.1. Term. Subject to Article V, the employment of the Executive under
this Agreement shall be for a term (the
<PAGE>
"Term") commencing as of the date first written above and continuing until July
1, 1998; provided, however, that the Term 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
3.1. 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.
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(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.
3.2. 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.
4.1. 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.
4.2. 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
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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.
4.3. 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.
4.4. 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
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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 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).
4.5. 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
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<PAGE>
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
5.1. 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.
5.2. 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.
5.3. 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.
5.4. Termination Without Cause. The Company may at any time terminate
Executive's employment for reasons other than Cause.
5.5. 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
- 6 -
<PAGE>
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 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.
5.6. Termination Following a Change in Control. In the event that a
Change in Control occurs (as hereinafter defined) and, on or within one year
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).
- 7 -
<PAGE>
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;
(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 of 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 and 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 Holdings' outstanding equity
securities (the "Outstanding Equity Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition by the 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
or 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 result of such transaction, owns Holdings or
all or substantially all of Holding's assets either directly or through one or
more subsidiaries) in
- 8 -
<PAGE>
substantially the same proportions as their ownership immediately prior to
such Corporate Even, of the Outstanding Equity Securities, and (b) no Person
other than (1) one of 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 Change in Control shall be
governed by the provisions of Section of 5.05.
Article VI.
Miscellaneous
6.1. 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.
6.2. 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.
- 9 -
<PAGE>
6.3. 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.
6.4. 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.
6.5. 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.
6.6. 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.
6.7. 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.
6.8. 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
- 10 -
<PAGE>
of conflict of laws. The parties submit to the non-exclusive jurisdiction of the
courts of Bermuda.
6.9. 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 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.
- 11 -
<PAGE>
(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.
RenaissanceRe Holdings LTD.
By: /s/ James N. Stanard
--------------------------------
James N. Stanard
Chairman, President & CEO
/s/ John M. Lummis
-----------------------------------
Name: John M. Lummis
Title: Senior Vice President &
Chief Financial Officer
<PAGE>
ACCESSION AGREEMENT
This ACCESSION AGREEMENT dated November 8, 1999 among RenaissanceRe
Holdings Ltd. (the "Borrower"), Bank of America, National Association, as
Administrative Agent (the "Administrative Agent"), Deutsche Bank AG, New York
Branch, as LC Issuer (the "LC Issuer") and Mellon Bank, N.A. (the "Additional
Lender") supplements the Credit Agreement dated as of October 5, 1999 (the
"Credit Agreement") among the Borrower, certain financial institutions which are
signatories thereto (the "Lenders"), the LC Issuer and the Administrative Agent.
1. Reference is made to the Credit Agreement. All terms defined therein
shall have the meanings set forth therein when used in this Accession Agreement
unless otherwise defined herein.
2. Effective as of any day on or after the date set forth above and on or
before April 10, 2000 selected by the Borrower upon five Business Days' notice
to the Administrative Agent and the Additional Lender (the "Effective Date"),
the Additional Lender shall be added as a Lender pursuant to the terms of
Section 2.13(b) of the Credit Agreement and shall have all the rights and
obligations as a Lender under the Credit Agreement.
3. The commitment of the Additional Lender shall be $25,000,000 and after
giving effect hereto the aggregate Commitments of all Lenders under the Credit
Agreement shall be $300,000,000.
4. As of the Effective Date, Schedule 2.1 of the Credit Agreement is
amended in its entirety as set forth on Schedule 2.1 hereto.
5. The Additional Lender represents and warrants that:
(i) It is duly organized and existing, has full power and authority to
take, and has taken, all action necessary to execute and deliver this Accession
Agreement and any other documents required or permitted to be executed or
delivered by it in connection with this Accession Agreement and to fulfill its
obligations hereunder and under the Credit Agreement;
(ii) This Accession Agreement has been duly executed and delivered by it
and constitutes the legal, valid and binding obligation of the Additional
Lender, enforceable against the Additional Lender in accordance with the terms
hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to and effecting
creditors' rights and to general equitable principles.
(iii) It has received a copy of the Credit Agreement and the Schedules and
Exhibits thereto, together with copies of the most recent financial statements
referred to in Section 6.1 of the Credit Agreement, and such other documents and
information as it has deemed appropriate to make its own credit and legal
analysis and decision to enter into this Accession Agreement.
<PAGE>
(iv) None of the Agents, the LC Issuer or any Lender has made any
representations or warranties about the creditworthiness of the Borrower or with
respect to the legality, validity, sufficiency or enforceability of the Credit
Agreement or any other Loan Document.
6. In order to induce the Additional Lender, the Issuing Bank and the
Administrative Agent to execute and deliver this Accession Agreement, the
Borrower hereby represents and warrants that no Default or Event of Default has
occurred and is continuing.
7. As hereby supplemented, the Credit Agreement shall remain in full force
and effect.
8. This Accession Agreement is a Loan Document and shall be governed by and
construed in accordance with, the laws of the State of Illinois.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Accession Agreement
to be executed by the proper and duly authorized officers as of the day and year
first above written.
RENAISSANCERE HOLDINGS LTD.
By: /s/ John M. Lummis
--------------------------------------
Title: CFO - Senior Vice President
-----------------------------------
DEUTSCHE BANK AG, NEW YORK BRANCH,
as LC Issuer
By: /s/ John S. McGill /s/ Alex Krouk
--------------------------------------
Title: Director / Assistant Vice President
-----------------------------------
BANK OF AMERICA, NATIONAL
ASSOCIATION, as Administrative Agent
By: /s/ Debra J. Basler
--------------------------------------
Title: Vice President
-----------------------------------
MELLON BANK, N.A., as Additional Lender
By: /s/ Susan M. Whitewood
--------------------------------------
Title: Vice President
-----------------------------------
3
<PAGE>
SCHEDULE 2.1
COMMITMENTS
Commitment Pro Rata
Lender Amount Share
- ------ ------ -----
Bank of America, $ 89,000,000.00 29.666666666%
National Association
Fleet National Bank $ 50,000,000.00 16.666666667%
Deutsche Bank $ 60,000,000.00 20.000000000%
Bank of Bermuda $ 35,000,000.00 11.666666667%
First Union National $ 15,000,000.00 5.000000000%
Bank
The Bank of N.T. $ 26,000,000.00 8.666666667%
Butterfield & Son
Limited
Mellon Bank, N.A. $ 25,000,000.00 8.333333333%
--------------- -------------
$300,000,000.00 100.000000000%
<PAGE>
[Letterhead of RenaissanceRe Holdings Ltd.]
November 11, 1999
The St. Paul Companies, Inc.
385 Washington Street
St. Paul, MN 55102-1396
Attn: Mr. Thomas Bradley
Gentlemen:
The St. Paul Companies, Inc. ("St. Paul") hereby agrees to sell to
RenaissanceRe Holdings Ltd. (the "Company") and the Company hereby agrees to
repurchase from St. Paul, 700,000 of the Company's full voting Common Shares,
par value $1.00 per share (the "Common Shares"), for an aggregate purchase price
of $26,600,000.00. The closing of such purchase and sale shall occur on November
17, 1999.
St. Paul represents and warrants to the Company that it has valid and
marketable title to the Common Shares to be sold by it hereunder, free and clear
of any liens or other impairments, and that the transactions contemplated hereby
have been carried on by St. Paul without the intervention of any broker, finder
or other person acting on its behalf in such manner as to give rise to any valid
claim by any person against the Company for a finder's fee, brokerage commission
or other similar payment.
For so long as St. Paul and its affiliates own at least 8% of the voting
rights of the Company, the Company agrees to notify St. Paul of any proposed
share repurchase authorizations, and to provide to St. Paul the estimated change
that such authorizations will have on the voting rights of St. Paul.
If you are in accordance with the terms set forth herein, please
acknowledge and agree by signing in the space provided below.
Very truly yours,
RENAISSANCERE HOLDINGS LTD.
By: /s/ James N. Stanard
---------------------------------
Name: James N. Stanard
Title: Chairman, President and Chief
Executive Officer
Acknowledged and Agreed to by:
THE ST. PAUL COMPANIES, INC.
By: /s/ Thomas A. Bradley
---------------------------
Name: Thomas A. Bradley
Title: Senior Vice President - Finance
<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 three largest providers of this coverage in the world. We provide
reinsurance to insurance companies and other reinsurers primarily on an excess
of loss basis. This means that we begin paying when our customers' claims 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, and we are also exposed to claims arising from other
natural and man-made catastrophes such as winter storms, freezes, floods, fires
and tornadoes. In addition, we opportunistically write other classes of risk,
which in the past has included aviation, satellite and marine reinsurance.
We also 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.
RenaissanceRe Holdings Ltd. 1 1999 Annual Report
<PAGE>
Table of Contents
Financial Highlights .................................. 3
Letter to Shareholders ................................ 4
Review of Operations .................................. 9
Finance ............................................... 15
Intelligent Use of Modeling ........................... 18
Selected Financial Data ............................... 20
Management's Discussion and Analysis .................. 21
Management's Responsibility for Financial Statements .. 33
Report of Independent Auditors ........................ 33
Consolidated Financial Statements ..................... 34
Notes to Consolidated Financial Statements ............ 38
Directors and Officers ................................ 55
Financial and Investor Information .................... 56
RenaissanceRe Holdings Ltd. 2 1999 Annual Report
<PAGE>
Financial Highlights
RenaissanceRe Holdings Ltd. and Subsidiaries
<TABLE>
<CAPTION>
(amounts in thousands, except per share amounts) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Gross premiums written $ 351,305 $270,460 $228,287 $269,913 $292,607
Operating income* 119,961 121,547 142,144 159,098 160,471
Net income 104,241 74,577 139,249 156,160 162,786
Common dividends declared and paid 28,885 26,720 22,643 20,489 4,096
Per share amounts
Operating income - diluted $ 5.82 $ 5.42 $ 6.19 $ 6.12 $ 6.65
Net income - diluted 5.05 3.33 6.06 6.01 6.75
Book value 30.50 28.28 26.68 23.21 18.99
Dividends declared 1.40 1.20 1.00 0.80 0.16
Operating return on average
shareholders' equity 19.8% 19.2% 25.0% 29.8% 43.2%
Operating ratios
Claims and claim expense ratio* 34.9% 33.1% 23.7% 34.3% 38.3%
Underwriting expense ratio 28.1% 29.3% 23.8% 17.0% 13.7%
Combined ratio 63.0% 62.4% 47.5% 51.3% 52.0%
</TABLE>
* Operating income excludes net realized gains (losses) on investments.
Operating income and operating ratios exclude 1998 fourth quarter charges
relating to Nobel Insurance Company. (See note 8 to the Consolidated Financial
Statements.)
<TABLE>
<CAPTION>
Operating Return on Average Book Value per Share Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43.2% 29.8% 25.0% 19.2% 19.8% $18.99% $23.21% $26.68 $28.28 $30.50
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
</TABLE>
RenaissanceRe Holdings Ltd. 3 1999 Annual Report
<PAGE>
Letter to Shareholders
Jim Stanard
Chairman, President and
Chief Executive Officer
Dear Fellow Shareholder:
RenaissanceRe turned in a very strong performance in 1999, a year with the
second largest amount of insured catastrophe losses in history. Our 20% return
on average equity ("ROE") ranked us number one--by a wide margin--when compared
with our competitors. This marks the seventh year in a row in which we have been
the top performer among our peers.
Producing consistently superior returns comes down to execution. Ours
is explained by three "success factors":
o superior risk selection. This is based on our proprietary REMS(C) risk
modeling system, the deep experience of our underwriters and their effectiveness
at using REMS(C) as a decision support tool. The tutorial on page 18 discusses
practical issues in the effective use of catastrophe models.
o customer focused marketing. We are aggressive and responsive, known to our
market for the speed with which we offer quotes and pay claims.
o shareholder focused capital management. We have always actively managed our
capital, seeking to maximize value for our shareholders.
The Underwriting Cycle:
The prolonged slide in reinsurance pricing, combined with a year with
above-average loss activity, produced the worst results across the worldwide
RenaissanceRe Holdings Ltd. 4 1999 Annual Report
<PAGE>
reinsurance industry since 1992. This year many insurance and reinsurance
companies are reporting unsatisfactory results, and have begun to cut their
total premium by shedding underpriced business. Although it was an above-average
year for insured cat losses, it was also a year of near misses. While winds over
100 mph on December 26 were truly unusual for Paris, Hurricanes Bret and Floyd
could easily have taken much more destructive paths, which would have turned
1999 into a record setting loss year for the industry. (For a detailed
description of this year's industry catastrophes, see the review of operations
on page 9.)
In this very active year of catastrophes, RenaissanceRe delivered an
outstanding underwriting profit and an attractive ROE. In addition, our core
reinsurance business showed significant growth both in gross and net written
premium income. How did we manage to deliver that performance?
To explain, let me start with a little history. We have always been
willing to be contrarian, and have been out of step with the market at several
points since we were formed:
o In 1993, as one of eight newly formed catastrophe companies, and the one with
the smallest capital, we were very active in our marketing. Our management team
had been through pricing cycles before; we knew that prices were very high, so
it was the right time to grow quickly. We also began to invest millions of
dollars to develop our REMS(C) pricing and exposure management system, before
cat modeling became fashionable.
o In 1996, as some competitors were just hitting their growth stride, we began
to cut back business as prices fell. We also began to buy retrocessional
protection for ourselves, even though these actions cut our top line and reduced
our earnings per share ("EPS") in years with low losses. Our ROE was still at a
very high level, and at this stage of the cycle we, as shareholders, felt the
right move was to reduce our risk--because we were not getting paid as much for
bearing that risk as we had been in 1993 through 1995.
o We allowed net premium to fall from 1996 through 1998. Although we still had
the best ROE of our peer group in 1996 and 1997, our margin of out-performance
was narrowing because we were hedging our risk by buying more reinsurance
(reducing net premium). These years were low loss years, which did not truly
test the quality of anyone's reinsurance portfolio (see graph on page 9).
o Beginning in the fall of 1998, the environment changed. A series of
catastrophes tested the effectiveness of reinsurance company risk management.
Our net losses were small, while many reinsurers experienced six disappointing
quarters from various
RenaissanceRe Holdings Ltd. 5 1999 Annual Report
<PAGE>
events: Hurricane Georges, the record Australian hailstorm, the Oklahoma
tornadoes, Hurricane Floyd and Typhoon Bart, earthquakes in Turkey and Taiwan,
and the windstorms Anatol, Lothar and Martin in Europe.
During 1999, we maintained our operating ROE at about 20% because we had let
business go rather than follow pricing down and had carefully protected
ourselves by buying reinsurance. We were not surprised by our results from any
of these events, and we did not have underpriced business that we needed to cut.
Accordingly, as markets began to react to this string of losses, we were there
to provide coverage--at our prices. That is how we have achieved our premium
growth in 1999.
Although we have renewed a significant amount of our own reinsurance coverage,
we will have less protection and therefore will be keeping a larger net risk
position in 2000. Although reinsurance coverage will be costing us more, we
expect to get corresponding price increases on the business that we are writing,
so the combined effect should allow us to maintain the quality (the risk/reward
balance) of our net portfolio.
Primary Operations:
Our primary operations produced a satisfactory return in 1999. One
accomplishment was dealing with the problems at Nobel. We sold all of the old
lines of business, and we believe that the charge we took in fourth quarter 1998
is still adequate. The silver lining from the Nobel situation is that after the
initial problems were recognized, we moved quickly and effectively to address
them, and now have a 50-state-licensed company that we can use to expand
cat-exposed primary property business--when market conditions warrant. DeSoto
and Glencoe have been profitable, but have allowed their premium to shrink, due
to the current competitive conditions in the primary markets.
Capital Management:
We have always been active managers of our capital, and our depressed stock
price gave us the opportunity during 1999 to buy back 10% of the Company at an
average of 119% of year-end 1999 book value. We evaluate buybacks by looking at
the book value dilution that results and assessing how many quarters we expect
it will take to earn back the dilution. For 1999 the payback period was quite
short, and all buybacks have been accretive to EPS.
During the year we also initiated two significant joint ventures that enhanced
our capital base. State Farm Mutual Automobile Insurance Company, the largest
property/casualty insurer in the United States, is our partner in the first
venture, Top Layer Re. This vehicle, which has $3 billion of capital, is devoted
to writing high-layer international cat busi-
RenaissanceRe Holdings Ltd. 6 1999 Annual Report
<PAGE>
ness. Overseas Partners Ltd. is our partner in the second venture, known as
OPCat, which has $450 million in capital. OPCat will write "side-by-side" with
Renaissance in our core cat reinsurance business. These ventures provide us with
both additional presence in the market as well as fee income. They allow us to
leverage our access to business and our underwriting capability on a larger
capital base while still actively managing our equity base in Renaissance to
maximize value to our shareholders.
Our founding institutional shareholders sold some of their Renaissance stock
during the year. In light of the increasing public ownership of our stock, Brian
Hall and James MacGinnitie joined our Board as independent directors. Howard
Newman of Warburg Pincus will be resigning from our Board; we owe Howard a debt
of gratitude for his counsel and support to the Company since our formation.
Challenges:
We succeeded in the challenges that I laid out last year: to maintain the
positive momentum in our core business and to carefully build our start-ups, all
with a view to getting our ROE back up to our target levels. If it ain't broke,
don't fix it; so our focus in 2000 is more of the same. In addition, we will
manage our joint ventures to meet our commitments to both our shareholders and
our partners. The basic challenge of our business is to be agile and aggressive
in our marketing while maintaining high underwriting standards in a hardening
market environment. Our track record indicates that our management team is well
equipped to meet this challenge.
/s/ James N. Stanard
James N. Stanard
Chairman, President and Chief Executive Officer
RenaissanceRe Holdings Ltd. 7 1999 Annual Report
<PAGE>
Quarterly Underwriting Review
The RenaissanceRe management team meets
in one of its quarterly underwriting sessions to review
the reinsurance portfolio.
RenaissanceRe Holdings Ltd. 8 1999 Annual Report
<PAGE>
REVIEW OF OPERATIONS
Reinsurance
A Year of Substantial Catastrophe Losses
for the Industry
The insurance industry experienced a large number of significant catastrophe
losses in 1999 including losses from the following events:
<TABLE>
<CAPTION>
Event Date Insurance Industry
Loss (in billions*)
<S> <C> <C>
Sydney hailstorm 4/14 $1.0
Oklahoma tornado 5/3 $1.5
Turkey earthquake 8/17 $2.0
Southeast US hurricane (Floyd) 9/13 $2.3
Taiwan earthquake 9/21 $1.0
Japanese typhoon (Bart) 9/24 $3.0
Danish windstorm (Anatol) 12/4 $0.5
European windstorms (Lothar & Martin) 12/26-27 $6.7
*Catastrophe loss data source: sigma No. 2/2000
</TABLE>
Measured in current dollars, 1999 is estimated to have been the second worst
year on record, with estimates of total insured natural catastrophe losses at
over $24 billion. The year was distinguished by a relatively large number of
events, compared with other high loss years in which a single large event has
represented a larger proportion of the total (e.g., Hurricane Andrew's $19
billion of losses in 1992).
From the standpoint of the reinsurance industry, this type of year
stresses portfolios in a different way. No single event explains the industry's
poor performance; it was the accumulation of these events that caused the pain.
The impact of multiple events was accentuated by "second event" reinsurance
contracts, under which reinsurance coverage is triggered only if there are two
loss events of a specified magnitude.
Superior Underwriting Results at Renaissance In this environment of heavy loss
activity, Renaissance delivered a 20% ROE. In the following chart, we look at
the difference (shown by the yellow bars) between Renaissance's actual ROE and
the average of our peer group of reinsurance companies. This measure of
out-performance is compared with the level of insurance industry losses
(represented by the red line).
[GRAPHIC OMITTED]
This chart shows that our superior underwriting was most apparent in years of
higher losses: a larger industry loss translated into a greater difference
between Renaissance and the industry average. This past year of high frequency
was one that
RenaissanceRe Holdings Ltd. 9 1999 Annual Report
<PAGE>
[Photo] (left to right):
Jon Paradine,
Russell Smith,
Bill Riker and
Craig Tillman
Underwriting
exposed underpriced portfolios. One of the insights from our modeling is that
the risk to a reinsurance portfolio comes as much from multiple, moderate events
as from single large events.
1999 reinforced our view that success in our business simply cannot be
achieved by taking the industry average. Our superior performance derives from
better risk selection and overall portfolio management. We assess our portfolio
management skill--understanding the correlation of reinsurance contracts with
each other--to be even more important to our performance than individual risk
selection:
Return on Equity
- ---------------------------- RenaissanceRe ROE
/\
/ \ Attributable to
/_ _\ Optimal Portfolio
|| Construction
||
|| Attributable to
Individual Risk
Section
- ---------------------------- Industry Average ROE
Part of our success this past year can be ascribed to our knowledge of
the retrocessional market (referring to transactions in which one reinsurance
company reinsures another). Our exposure management system has a unique capacity
to assess the reinsurance that we purchase to evaluate the portfolio benefit.
These purchases do not represent a simple arbitrage of one assumed contract
against one ceded contract, but rather involve the complex problem of
understanding how our assumed portfolio fits with our ceded portfolio. We
purchase reinsurance to enhance capacity (not to allow us to write bad
business). We dynamically manage our portfolio so that we are not over-reliant
on the retrocessional market.
On the other side of the retrocessional market, we are also active in
assuming premium from other reinsurance companies. Here we believe that there
are important challenges to good underwriting because the ultimate reinsurer is
at least one additional step
RenaissanceRe Holdings Ltd. 10 1999 Annual Report
<PAGE>
[Photo] (left to right):
Ian Branagan,
Dave Eklund,
Kevin O'Donnell and
Alex Richards
Underwriting
removed from the underlying primary insurance risks. There continues to be wide
disparity in the quality of the retrocessional transactions in the market, so a
rigorous assessment of the risk is critical. We have built a proprietary system
for analyzing these risks, and since our inception, we have been active and
successful in assuming retrocessional business.
Structured Products--Leveraging Our Skills
In 1998, we formed our structured products unit to focus on joint ventures,
investment opportunities within the insurance and reinsurance industries and
non-traditional structured reinsurance. Most of the transactions executed to
date have focused on supporting the core catastrophe reinsurance business.
During 1999, in addition to our efforts in the catastrophe-linked financial
markets, we executed two notable joint ventures. Our business partners in these
ventures are State Farm Mutual Automobile Insurance Company and Overseas
Partners Ltd.
In January of this year, we formed Top Layer Re as a Bermuda domiciled
reinsurer, owned equally by State Farm and Renaissance Reinsurance. Each partner
contributed $50 million to capitalize the company. State Farm enhanced this
capacity with a $2.9 billion annual aggregate stop loss; strong enough support
to achieve a AAA rating from Standard and Poor's and an A++ rating from A. M.
Best. Top Layer Re combines the underwriting skill and discipline of Renaissance
with the financial strength of State Farm to offer significant capacity to
high-layer property catastrophe reinsurance programs in all territories outside
the United States.
In November, we entered into an agreement with Overseas Partners Cat
Ltd., a subsidiary of Overseas Partners Ltd., both domiciled in Bermuda. With
this agreement, OPCat, a new entity capitalized by its parent with $450 million
of equity and rated A+ by
RenaissanceRe Holdings Ltd. 11 1999 Annual Report
<PAGE>
STRUCTURED PRODUCTS
[Photograph of Jay Nichols (standing) and Monte Combe]
A.M. Best, appointed Renaissance as its sole underwriting manager. By offering
companion layers with Renaissance Reinsurance, this partnership has established
a significant new entrant in the property catastrophe reinsurance marketplace--a
participant that is both stable and disciplined.
We are excited about these joint ventures for three reasons. First, our
partners have a long-term commitment to the business and share our optimism
about the future opportunities. Second, we believe that these two partnerships
will further validate our leadership in the business of underwriting property
catastrophe risk. We have consistently pointed to our track record in this
marketplace, and we are confident these ventures will broaden that track record
beyond the operating results of Renaissance Reinsurance. Third, these
partnerships offer a significant commercial opportunity for Renaissance. Both
ventures are structured with significant risk and premium sharing between the
partners, and they also compensate Renaissance with underwriting fee income. We
have formed Renaissance Underwriting Managers, Ltd. to provide services to these
ventures.
We continued to participate in the catastrophe-linked securities market
in 1999, participating in both the new issue and secondary market. We evaluate
catastrophe-linked securities using the same methodologies we use to evaluate
traditional reinsurance. However, these offerings provide less exposure
information than a typical reinsurance submission and also contain different
structural risks. We model each deal with the information provided, and
participate in offerings that provide the appropriate portfolio return with
acceptable structural risk. We are very selective in purchasing these
securities, participating in less than one third of the transactions
underwritten in 1999.
Marketing Success
Our gross reinsurance premium grew 36% and net reinsurance premium grew 21%,
comparing 1999 with 1998. While our focus will always be on portfolio quality
rather than on simple premium growth, the increase in premium this year reflects
our ability to access business when market conditions harden and more contracts
meet our hurdle rate.
To ensure our access to business, our underwriters are also active in
their marketing roles. Over the
RenaissanceRe Holdings Ltd. 12 1999 Annual Report
<PAGE>
course of 1999, they met with over 500 brokers and 400 clients or potential
clients. Our reputation is that we make quick decisions on submissions, and we
are proactive in offering alternative structures to our brokers and clients.
Because of our effective desktop systems, we are able to provide very rapid, but
still rigorous, underwriting decisions.
Premium grew in our reinsurance of primary companies, but even more
profoundly in our assumed retrocessional business, where our 1999 premium
doubled from the amount that we wrote in 1998. Here our success is a function
not only of our access to business, but also of our confidence in our
underwriting systems, as described above. Other companies needed to focus on
re-underwriting their books of business, while we were expanding into a
hardening market.
Market Outlook
Investors and senior executives in the reinsurance business are focusing on the
past two years of heavy loss activity. The industry is recognizing that success
in the catastrophe business is difficult to achieve--as a result of three
interrelated factors:
o Catastrophe risks are difficult to understand. Underwriters must assess the
risks based on their absolute exposure as well as their relative exposures.
Given the low frequency of the events covered by catastrophe reinsurance, these
risks must be considered by looking at the tails of the probability
distributions, which are sensitive to key model assumptions and subject to
uncertainty.
[Photo]
MARKETING & OPERATIONS
(left to right): Charles Hollis, Michelle Johnson and Bob Hykes
o Efficiently utilizing capital in the cat business requires a detailed
understanding of cat risk. The property/casualty industry is often viewed as
over-capitalized by as much as 20-30%. Yet, ironically, the solvency of some
companies may be threatened by a single catastrophe event in one region, even
while the same companies could support more risk in other regions. So the real
question is having access to the portfolio management skills to efficiently
manage capital.
o Available talent is in short supply. There are only a few underwriters with a
successful track record writing catastrophe reinsurance. Recently, investors
have become reluctant to support people who do not have successful track
records.
We are optimistic that much of the naive capaci-
RenaissanceRe Holdings Ltd. 13 1999 Annual Report
<PAGE>
INFORMATION TECHNOLOGY
[Photograph of (left to right): John Gill, John Wineinger and Dion Tucker]
ty has dried up for the long run, given the poor results of many players over
the past two years and a greater appreciation of the complexity of achieving
success in this business. Against this backdrop, we saw an increasing level of
opportunities in catastrophe reinsurance in 1999, and see the positive market
environment continuing into 2000.
PRIMARY INSURANCE
Our primary operations consist of: (1) DeSoto, writing Florida homeowner
business, (2) Glencoe, writing commercial "E&S" coverage in the U.S., and (3)
Nobel, which is in run-off, but has licenses in 50 states. During 1999, bottom
line contribution from our primary business was limited, and the focus of each
of these businesses was to maintain and develop an operating platform for future
growth.
Market conditions are beginning to show signs of firming. However, we
remain very disciplined in the primary area and will grow only to pursue
attractive opportunities. One area with potential is developing new distribution
systems for the primary product, and we are exploring various ways to
efficiently provide primary insurance in catastrophe-exposed areas that are
underserved by traditional carriers.
Our primary business units can provide value in two ways. First,
particularly if market conditions improve, we can expand our access to
catastrophe-exposed insurance risks. Second, we are using insights gained from
running our primary operations to be more effective in our reinsurance business.
For example, knowledge gained from our DeSoto venture helped us understand the
unique circumstances facing the new Florida companies, and allowed us to design
better products for them. Glencoe provides us additional insight into conditions
in the catastrophe-exposed commercial property market.
RenaissanceRe Holdings Ltd. 14 1999 Annual Report
<PAGE>
FINANCE
[Photograph of (left to right): Simon Jack, Preston Hutchings, John Lummis,
Marty Merritt and Diana Petty]
Expanding capital resources
Our traditional capital resources include common equity, preferred and bank
debt. Over time these resources have expanded significantly:
[GRAPHIC OMITTED]
The growth in 1999 arose principally from the renewal and expansion of our bank
credit facility from $200 million to $300 million. The facility has a five-year
term, and is available for general corporate purposes.
It is important to understand that financial leverage is not the driver
of our high returns on equity. At year-end 1999, we had over $200 million of
liquidity at the parent holding company, which was available to us to pay down
debt. We made a tactical decision that we would retain this liquidity, which
serves as stand-by capital that we could contribute to the capital of our
operating units following a large catastrophe year (a year much worse than this
past one).
Perhaps the most important theme for capital resources in 1999 is our
newly developed off-balance-sheet financing capacity: the combination of Top
Layer Re and OPCat (described in the Review of Operations on page 11) gives us
access to an additional $3.4 billion of capital. The innovation in this approach
is that we can maintain our equity base at a moderate size, and ensure its
efficient use,
RenaissanceRe Holdings Ltd. 15 1999 Annual Report
<PAGE>
at the same time that we have access to much larger amounts of capital. This
additional pool of capital is viewed as equity-like from the standpoint of
customers and ratings agencies--without diluting our common equity. With total
capital resources of $4.4 billion, we believe that we have more capital
available for the catastrophe reinsurance business than all but a very small
number of competitors--each with a much larger common equity base.
By assembling these long-term capital resources, we are convinced that
we have more than adequate financial scale to support our growing operational
scale as one of the three largest writers of catastrophe reinsurance in the
world.
Active management of our common equity
1999 was another year of active management of our equity capital. We repurchased
a total of 2.2 million shares for $80 million. The average price per share was
$36.26 for the year, compared with our book value per share of $30.50 at the end
of the year. The benefit of this for our remaining shareholders is clear: we
project that our 1999 repurchases will result in accretion to book value per
share within two years.
Turning to our dividend, in February 1999, our Board increased our
quarterly dividend from $.30 to $.35, our fifth consecutive annual increase. As
re-cently announced, in February 2000, we again in-creased our quarterly
dividend, from $.35 to $.375. With a payout ratio of approximately 25%, we
continue to focus capital management around repurchases, given their tax
efficiency for many of our shareholders, as well as greater flexibility for the
Company.
Over the course of this year, our three founding shareholders each
exited portions of their positions. The St. Paul Companies sold 700,000 shares
to the Company. The Warburg Limited Partnership distributed 1.3 million shares
to its partners, and we now view those shares as being part of the public float.
An affiliate of General Electric's pension fund sold over 300,000 shares into
the public market. Together, these transactions represent important progress
toward expanding the public float for Renaissance, which has grown over time as
depicted below:
[GRAPHIC OMITTED]
Investments
Our investment strategy balances the need for liquidity in the event of large
catastrophe losses with the desire to enhance the attractive return on equity
already provided by our underwriting activities. Consequently, the Company
maintains a diversified portfolio of U. S. dollar, fixed-income securities with
a short average duration and a very high average credit quality. This portfolio,
though highly liquid, should provide an attractive return over time. At
year-end, the portfolio had a yield to maturity of
RenaissanceRe Holdings Ltd. 16 1999 Annual Report
<PAGE>
7.15% and an effective duration of 2.7 years.
Given the rising interest rate environment of the past year, our
portfolio's total return delivered less than cash for the year, understandable
but disappointing nonetheless. Offsetting that result, we were pleased that, on
a relative basis, our investment managers generally outperformed their
benchmarks, and that the total portfolio outperformed a comparable duration U.S.
Treasury index. We believe that a consistent approach to our investment strategy
will enhance value over time.
At year-end our investment portfolio was allocated as follows:
Treasuries & Agencies 28%
Asset Backed (AAA) 17%
Mortgage Backed (AAA) 14%
Other 3%
Sovereigns & Supra-Nationals (AA/AAA) 6%
Global High Yield 9%
Investment Grade Corporate Debt 10%
Cash & Cash Equivalents 13%
RenaissanceRe Holdings Ltd. 17 1999 Annual Report
<PAGE>
INTELLIGENT USE OF MODELING
A distinguishing element in the successful management of catastrophe exposure is
the intelligent use of computer models. Over the past two decades, catastrophe
(or "cat") models have evolved to become important decision tools in property
underwriting. Our use of these cat models enables each Renaissance business
segment to assess risk (and reward for bearing risk) on a consistent basis. The
several major vendors of these models have spent tens of millions of dollars on
model development and employ hundreds of engineers, scientists and statisticians
to develop cat models for many areas around the world. We evaluate and use
models from all major vendors and have developed a unique perspective on the
applicability of these models to underwriting cat risk. By comparing and
contrasting different models, we are able to determine which model results are
most relevant to the different risks we evaluate.
Using Cat Models
Cat models are software applications that simulate the interaction between
exposure (e.g., insured value of properties), vulnerability (e.g., how much
damage different wind speeds will cause) and hazards (e.g., the chance of a
windstorm hitting a particular location) to estimate risk (e.g., the dollar loss
that a reinsurer will suffer). Understanding the cat models' strengths and
limitations requires a detailed knowledge of how they are developed and the
level of science they capture. The goal is a probabilistic description of
complex natural phenomena. Misuse of modeling information is prevalent due to
the tendency to attribute precision to output that is generated by computers. It
is important to understand the trade-offs between different levels of resolution
in the analysis (e.g. by county, by zip code, by individual property location)
and the need to collect accurate data about the insured risks. A cat model
should not be seen as exact, but rather as an educated scientific estimate of
the loss potential. Renaissance works closely with the vendors, especially when
there are opportunities for validating the models by drawing upon our own loss
experience and modeling knowledge.
The Evolution of Cat Models
In the past two decades, we have witnessed three stages of modeling
sophistication.
o First, deterministic models evaluated the impact of large catastrophes to
understand the potential worst case scenarios.
o Second, probabilistic models were used to evaluate many different scenarios on
a particular exposure to create a picture of the probability distribution of
potential loss.
o Third, and currently, models are increasingly descriptive of not only scenario
risk, but also the uncertainty associated with that risk--acknowledging that our
understanding of hurricanes and associated property vulnerability, for example,
is inexact.
Multiple Models
Many property underwriting operations employ a single
RenaissanceRe Holdings Ltd. 18 1999 Annual Report
<PAGE>
model for gauging the risk on both individual reinsurance contracts and
portfolios of contracts. This is an important step forward compared to past
practices in catastrophe risk underwriting. However, since any single model is
necessarily biased towards the judgments of its developers, reliance on a single
model will incorporate those same biases during the underwriting and portfolio
selection process. Our own experience shows that models vary considerably,
depending upon the underlying characteristics of the exposures simulated.
Without a second or third opinion of the exposure and risk posed, it is
impossible to gauge the variability in potential outcomes of natural hazard
modeling. Effective risk management requires the anticipation of all credible
estimates of loss, so the use of multiple models results in fewer surprises and
can highlight hidden exposures.
Moreover, no one vendor model covers all perils for all areas. Although our
largest exposure is to hurricane/typhoon and our next largest is earthquake,
many other events such as hail, freeze and brushfire can cause losses. Also,
some vendor models do not reflect the expenses of settling losses, or the
localized inflation in rebuilding costs that follows a large event. Using models
for decision making without adjusting for these "unmodeled" exposures can be
worse than not modeling at all.
Helping Our Clients
One of our roles as a reinsurer is to use our modeling experience to help our
clients identify the best models to use in their own risk management decisions.
We continually test, compare and critique models to assist our clients in their
own loss reduction and prevention efforts. Renaissance's unique model-based
approach has afforded us a very prominent role in guiding model development.
Effective Management Systems
We could have access to the best modeling systems in the world but, if our
underwriters did not actually use these results to make better decisions, the
models would be pointless. Getting the "traders" (in our business, the
underwriters) working effectively with the "quants" (the modelers) is a weak
link in many financial organizations. Our underwriters, who are making the
day-to-day pricing and risk-taking decisions, understand the inner workings of
the models, and their strengths and weaknesses. When an answer comes out of the
computer that differs from the underwriter's intuition, the underwriter neither
believes nor discards it. He drills back into the model to find out where the
difference lies. Is it a problem with the input data? Is there a weakness in
some aspect of the model? Is the model giving the underwriter a new insight?
Effective use of catastrophe models is a key factor in our ability to
consistently produce industry-leading results. But it is vital to understand the
weaknesses along with the strengths of these models. Perhaps these models should
come with warning labels: "improper use can be hazardous to your financial
health--don't try this at home."
RenaissanceRe Holdings Ltd. 19 1999 Annual Report
<PAGE>
SELECTED FINANCIAL DATA
RenaissanceRe Holdings Ltd. and Subsidiaries
The following summary financial information should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
presented on pages 34 to 54 in this Annual Report.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Gross premiums written $ 351,305 $ 270,460 $ 228,287 $ 269,913 $ 292,607
Net premiums written 213,513 195,019 195,752 251,564 289,928
Net premiums earned 221,117 204,947 211,490 252,828 288,886
Net investment income 60,334 52,834 49,573 44,280 32,320
Total revenue 270,235 260,527 254,726 294,959 326,566
Claims and claim expenses 77,141 112,752 50,015 86,945 110,555
Acquisition and operating expenses 62,268 61,031 50,358 42,893 39,734
Net income 104,241 74,577 139,249 156,160 162,786
Earnings per Common Share - basic $ 5.10 $ 3.39 $ 6.19 $ 6.15 $ 6.84
Earnings per Common Share - diluted 5.05 3.33 6.06 6.01 6.75
Dividends per share 1.40 1.20 1.00 0.80 0.16
- -----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total investments $ 942,669 $ 826,608 $ 736,538 $ 603,484 $ 528,836
Cash and cash equivalents 132,112 115,701 122,929 198,982 139,163
Total assets 1,617,243 1,356,164 960,749 904,764 757,060
Reserve for claims and claim expenses 478,601 298,829 110,037 105,421 100,445
Capital Securities(1) 89,630 100,000 100,000 -- --
Shareholders' equity 600,329 612,232 598,703 546,203 486,336
Book value per Common Share $ 30.50 $ 28.28 $ 26.68 $ 23.21 $ 18.99
- -----------------------------------------------------------------------------------------------------------------
OPERATING RATIOS
Claims and claim expense ratio 34.9% 55.0% 23.7% 34.3% 38.3%
Underwriting expense ratio 28.1% 29.8% 23.8% 17.0% 13.7%
Combined ratio 63.0% 84.8% 47.5% 51.3% 52.0%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Minority interest - Company obligated, mandatorily redeemable capital
securities of a subsidiary trust holding solely junior subordinated debentures
of the Company.
RenaissanceRe Holdings Ltd. 20 1999 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
GENERAL
RenaissanceRe Holdings Ltd. ("RenaissanceRe") is a Bermuda based holding company
with operating subsidiaries engaged in reinsurance, insurance and related
services. RenaissanceRe's principal operating subsidiary, Renaissance
Reinsurance Ltd. ("Renaissance Reinsurance") provides property catastrophe
reinsurance coverage to insurers and reinsurers, primarily on an excess of loss
basis. During 1999, Renaissance Reinsurance wrote $282.3 million of premium
(1998 - $207.2 million) and based on gross premiums written, Renaissance
Reinsurance is one of the largest providers of this coverage in the world.
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,
Renaissance Reinsurance is also exposed to claims arising from other natural and
man-made catastrophes such as winter storms, freezes, floods, fires and
tornadoes.
Renaissance Reinsurance of Europe ("Renaissance Europe") was incorporated in
1998 under the laws of Ireland as a wholly owned subsidiary of Renaissance
Reinsurance. Renaissance Europe was formed to provide certain property
catastrophe reinsurance coverage in Europe.
Glencoe Insurance Ltd. ("Glencoe") was incorporated in 1996 as a wholly
owned subsidiary of RenaissanceRe. Glencoe provides primary catastrophe exposed
property coverage on an excess and surplus lines basis, and is eligible to write
business in 29 states. During 1999, Glencoe wrote $5.0 million of primary
insurance premium (1998 - $5.6 million).
DeSoto Insurance Company ("DeSoto") was incorporated in 1997 as 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. During 1999,
DeSoto wrote $14.3 million of primary homeowners insurance coverage (1998 -
$26.7 million).
RenaissanceRe owns a U.S. holding company, Renaissance U.S. Holdings,
Inc. ("Renaissance U.S."), whose principal subsidiary was primarily Nobel
Insurance Company, a Texas-domiciled insurance company ("Nobel"). Following a
1998 fourth quarter after-tax charge of $40.1 million, Nobel disposed of its
business lines in 1999. Nobel continues to be a licensed insurer in all 50
states, although there can be no assurance such licenses can be retained. See
Financial Condition - Nobel. Currently, Renaissance U.S. also owns Paget
Insurance Services, Pembroke Managing Agents and DeSoto Prime Insurance Company
all of which are active in the Florida homeowners market.
In January 1999, Renaissance Reinsurance entered into a joint venture,
Top Layer Reinsurance Ltd. ("Top Layer Re"), with State Farm Mutual Automobile
Insurance Company ("State Farm") to provide high layer coverage for non-U.S.
risks.
In November 1999, RenaissanceRe incorporated Renaissance Underwriting
Managers ("Renaissance Managers") to act as underwriting manager to Overseas
Partners Cat Ltd. ("OP Cat"), a subsidiary of Overseas Partners Ltd. Renaissance
Managers will underwrite worldwide property catastrophe reinsurance programs for
OP Cat.
RenaissanceRe and its subsidiaries' (the "Company") results depend to a
large extent on the frequency and severity of catastrophic events, and the
coverage offered to clients impacted thereby. In addition, 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, the ability to develop or capitalize on a competitive
advantage and opportunities that will not detract from its core reinsurance
operations. Accordingly, the Company regularly reviews strategic opportunities
and periodically engages in discussions regarding possible transactions,
although there can be no assurance that the Company will complete any such
transactions or that any such transaction would contribute materially to the
Company's results of operations or financial condition.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net operating income for the year ended December 31, 1999 was $120.0 million
compared with $121.5 million for the year ended December 31, 1998. Operating
earnings per Common Share were $5.82 for the year ended December 31, 1999
compared with $5.42 for the year ended December 31, 1998.
RenaissanceRe Holdings Ltd. 21 1999 Annual Report
<PAGE>
The Company's net operating income excludes the impact of realized investment
gains and losses, as well as, in the case of 1998, the fourth quarter charge of
$40.1 million related to Nobel. See Financial Condition - Nobel.
Gross premiums written for the year ended December 31, 1999 increased by
$80.8 million, or 29.9 percent to $351.3 million from $270.5 million for the
year ended December 31, 1998. Gross premiums written by segment were:
(in thousands)
Year ended December 31, 1999 1998
-------------------------
Reinsurance $282,344 $207,189
Primary 68,961 63,271
-------------------------
Total $351,305 $270,460
-------------------------
Increased reinsurance premiums resulted primarily from the numerous industry
losses which occurred late in 1998 and during 1999 and the related contraction
in capacity in the property catastrophe reinsurance market, which resulted in
increased prices in certain pockets of the property catastrophe reinsurance
market during 1999. The $75.2 million or 36.3 percent increase in premiums from
the reinsurance operations was the result of a 26.8 percent increase in premiums
related to new business and a 25.3 percent increase related to changes in
pricing, participation levels and coverage on renewed business, partially offset
by a 15.8 percent decrease in premiums due to the Company or the cedant not
renewing coverage.
Premiums written by the primary companies increased in 1999, largely because
such results reflect a full year of premiums written for Nobel, compared with
only six months of Nobel premium during 1998. This increase was partially offset
by reduced premiums written for DeSoto. The reduction in DeSoto premiums was due
to the one-time initial premiums assumed from the Florida JUA during 1998 of
approximately $10 million. During 1999 Nobel sold its principal operating units
and, as a result, the Company expects a decrease in future premium volume from
the primary businesses. See Financial Condition - Nobel.
During 1999, the Company continued to purchase reinsurance to reduce its
exposure to certain losses. During 1999, the consolidated ceded premiums were as
follows:
(in thousands)
Year ended December 31, 1999 1998
-------------------------
Reinsurance $ 77,152 $ 40,036
Primary 60,640 33,405
-------------------------
Total $137,792 $ 75,441
-------------------------
The increase in ceded reinsurance was the result of 1) increased costs of ceded
reinsurance contracts renewed by Renaissance Reinsurance; 2) increased purchases
of reinsurance by Renaissance Reinsurance; and 3) Nobel ceding the large
majority of its 1999 gross premiums written as part of the planned reduction of
its operations. Nobel's ceded reinsurance was $41.5 million in 1999 compared
with $21.8 million during 1998. See Financial Condition - Nobel. To the extent
that appropriately priced coverage is available, the Company anticipates
continued use of reinsurance to reduce the potential volatility of its results.
The Company's gross premiums written by geographic region were as follows:
(in thousands)
Year ended December 31, 1999 1998
-------------------------
Geographic Region
United States - reinsurance $160,195 $128,387
United States - primary 68,961 63,271
Worldwide 49,482 20,584
Worldwide
(excluding U.S.) 27,276 26,380
Europe (including the
United Kingdom) 26,437 18,532
Other 15,742 9,374
Australia and New Zealand 3,212 3,932
-------------------------
Total Gross Premiums
Written $351,305 $270,460
-------------------------
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, excluding, in the case of 1998, the Nobel charge:
RenaissanceRe Holdings Ltd. 22 1999 Annual Report
<PAGE>
Year ended December 31, 1999 1998
---------------------------
Claims and claim expenses 34.9% 33.1%
Underwriting expense ratio 28.1 29.3
---------------------------
Combined ratio 63.0% 62.4%
---------------------------
The net claims and claim expenses incurred for the year ended December 31, 1999
were $77.1 million, or 34.9 percent of net premiums earned. In comparison,
claims and claim expenses incurred for the year ended December 31, 1998 were
$67.8 million, or 33.1 percent of net premiums earned. The primary reason for
the increase in the net incurred losses was the significant catastrophe losses
that occurred during 1999. During 1999 nine significant worldwide catastrophic
events occurred: the hail storms in Sydney Australia in April; the mid-western
("Oklahoma") tornadoes in May; Hurricane Floyd in September; Typhoon Bart which
struck Japan in September; Turkish and Taiwanese earthquakes in August and
September, respectively; and the Danish windstorm Anatol and the French
windstorms, Lothar and Martin in December. Seven of these events are each
expected to cause over $1 billion of insured damages. These events caused net
incurred losses for Renaissance Reinsurance to increase to $64.4 million for
1999 or a loss ratio of 32.7 percent, compared with $42.4 million for 1998 or a
loss ratio of 25.0 percent. Due to the potential high severity of claims related
to the property catastrophe reinsurance business, there can be no assurance that
Renaissance Reinsurance will continue to experience this level of net claims in
future years.
Renaissance Reinsurance's net incurred losses in 1998 included claims
on a number of aggregate stop loss and excess of loss contracts, as well as
claims related to Hurricane Georges, the January Canadian Freeze, Hurricane
Bonnie and additional claims from various U.S. wind, hail, tornado and flood
events.
The claims and claim expenses incurred from the Company's primary operations
for the year ended December 31, 1999 were $12.7 million, or a loss ratio of 52.2
percent of net premiums earned. In comparison, claims and claim expenses
incurred from the Company's primary operations for the year ended December 31,
1998 were $25.4 million, or a loss ratio of 72.1 percent. During 1999, DeSoto
and Glencoe continued to perform within targeted loss ratios. The primary factor
contributing to the reduction in net losses from the primary operations was the
recognition of a portion of a deferred gain related to a retroactive reinsurance
contract entered into by Nobel during 1998. The Company's 1998 combined ratio
and components thereof exclude the 1998 Nobel charge. See Financial Condition -
Nobel.
For the Company's reinsurance operations, estimates of claims and claim
expenses incurred and losses recoverable 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 variability and uncertainty
associated with 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.
For both the Company's reinsurance and primary operations, the Company uses
statistical and actuarial methods to estimate ultimate expected claims and claim
expenses. The period of time from the reporting of a loss to the Company through
the settlement of the Company's liability may be several years. During this
period, additional facts and trends will be revealed. As these factors become
apparent, case reserves will be adjusted, sometimes requiring an increase in the
overall reserves of the Company, while at other times the Company may affect a
reallocation of IBNR reserves to specific case reserves. Reserve estimates are
reviewed regularly, and 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. See Notes 2 and 5 to the Consolidated Financial
Statements.
Acquisition and operational expenses, consisting of brokerage commissions,
excise taxes and other costs directly related to the underwriting operations of
the Company, for the year ended December 31, 1999 were $62.3 million, or 28.1
percent of net premiums earned, compared with $60.1 million, or 29.3 percent of
net premiums earned for the year ended December 31, 1998, excluding the 1998
Nobel charge. The primary contributor to the decrease in the underwriting
expense ratio was the increase in premiums earned by Renaissance Reinsurance
with no corresponding increase in the costs to operate the reinsurance
operations. This was slightly offset by increased costs at Nobel, primarily
related to severance costs, and increased costs at DeSoto for additional hires.
RenaissanceRe Holdings Ltd. 23 1999 Annual Report
<PAGE>
Net investment income (excluding net realized investment gains and
losses) for the year ended December 31, 1999 was $60.3 million, compared with
$52.8 million for the year ended December 31, 1998. The increase in investment
income resulted primarily from an increase in interest rates during 1999 plus
the $132.5 million increase in the amount of invested assets during the year,
which was primarily the result of cash flows provided by operations of $130.3
million and an increase in the borrowings under the Company's line of credit of
$150.0 million, partially offset by dividends paid and share repurchases of
$28.9 million and $80.1 million, respectively.
During 1999, the Company reported other income of $4.9 million,
compared with $9.8 million for the year ended December 31, 1998. The majority of
the other income relates to recoveries on non-indemnity catastrophe index
transactions. See Financial Condition - Derivative Instruments.
During 1999, net realized losses on investments were $15.7 million,
compared with $6.9 million in 1998. The 1999 losses were primarily the result of
increased interest rates during 1999 and the subsequent sale of fixed income
securities. See Financial Condition - Investments.
Excluding a write-off of goodwill attributable to Nobel, corporate
expenses were $3.1 million in 1999, compared with $4.2 million in 1998. During
1999, in conjunction with the sale and reinsurance of the primary business units
of Nobel, the Company wrote off $6.7 million of goodwill. The 1998 amount
excludes charges related to Nobel. See Financial Condition - Nobel.
During the year ended December 31, 1999, the Company recorded interest
expense of $9.9 million on its outstanding debt and $8.3 million on its Capital
Securities, compared with $4.5 million and $8.5 million in 1998, respectively.
The increase in interest expense on the Company's outstanding debt was primarily
related to an increase in borrowing rates and the additional borrowings of
$150.0 million during 1999, $125.0 million of which was drawn on August 17,
1999.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net operating income, excluding the Nobel fourth quarter $40.1 million after tax
charge and excluding realized investment gains and losses, for the year ended
December 31, 1998 was $121.5 million compared with $142.1 million for the year
ended December 31, 1997. The decrease was primarily related to a decrease in net
premiums earned, an increase in net claims and claim expenses and an increase in
operating expenses, partially offset by an increase in investment income and an
increase in other income. The above factors resulted in a decrease in operating
earnings per Common Share to $5.42 for the year ended December 31, 1998 from
$6.19 for the year ended December 31, 1997. Earnings, excluding the Nobel
charge, but including realized gains and losses on investments, decreased to
$114.7 million in 1998 from $139.2 million in 1997.
Including the Nobel charge, net operating income for the year ended December
31, 1998 was $81.5 million compared with $142.1 million for the year ended
December 31, 1997. The decrease was primarily due to the fourth quarter Nobel
charge. The Nobel charge included after tax amounts of $29.6 million for adverse
development on Nobel's casualty and surety books of business, a goodwill
write-down of $6.6 million, and other related costs of $3.9 million. Earnings
per Common Share decreased to $3.33 per share in 1998, compared with $6.06 in
1997 primarily as a result of the Nobel charge. See Financial Condition - Nobel.
Gross premiums written for the year ended December 31, 1998 increased 18.5
percent to $270.5 million from $228.3 million for the year ended December 31,
1997. The increase resulted from the inclusion of $30.9 million of premiums from
Nobel, which was acquired in June 1998, and of $26.7 million of premiums from
DeSoto, which began providing coverage in January of 1998. Partially offsetting
the growth in the primary insurance premiums was a 6.3 percent decrease in the
Company's reinsurance operations from $221.2 million in 1997 to $207.2 million
in 1998.
The property catastrophe reinsurance market and the primary insurance market
were highly competitive in 1998. Because the property catastrophe reinsurance
business has been one of the most profitable segments of the market, it is the
focus of much competition, which resulted in lower premiums measured on a
risk-adjusted basis. The 6.3 percent
RenaissanceRe Holdings Ltd. 24 1999 Annual Report
<PAGE>
premium decrease from the Company's reinsurance operations was the result of a
16.4 percent decrease in premiums due to the Company or the cedent not renewing
coverage and a 14.0 percent decrease related to changes in pricing,
participation levels and coverage on renewed business, partially offset by a
24.1 percent increase in premiums related to new business. The decrease in
premiums resulted in part from consolidation of the Company's customers.
During 1998, 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 the Company's reinsurance operations
during 1998 were $40.0 million compared with $35.4 million in 1997.
Additionally, the Company's primary operations had ceded written premiums of
$27.7 million (1997 - $0.9 million).
The Company's gross premiums written by geographic region were as follows:
(in thousands)
Year ended December 31, 1998 1997
-----------------------
Geographic Region
United States - reinsurance $128,387 $116,676
Unites States - primary 63,271 7,041
Worldwide 20,584 27,930
Worldwide
(excluding U.S.) 26,380 32,005
Europe (including the
United Kingdom) 18,532 21,007
Other 9,374 16,738
Australia and New Zealand 3,932 6,890
-----------------------
Total Gross Premiums
Written $270,460 $228,287
-----------------------
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, excluding the Nobel charge:
Year ended December 31, 1998 1997
----------------------------
Claims and claim expenses 33.1% 23.7%
Underwriting expense ratio 29.3 23.8
----------------------------
Combined ratio 62.4% 47.5%
----------------------------
The Company's combined ratio and components thereof, including the Nobel charge,
were as follows:
Year ended December 31, 1998 1997
--------------------------
Claims and claim expenses 55.0% 23.7%
Underwriting expense ratio 29.8 23.8
--------------------------
Combined ratio 84.8% 47.5%
--------------------------
The 1998 claims ratio does not reflect the benefits of a $7.5 million recovery
on a non-indemnity catastrophe index transaction, which is included in other
income.
In the fourth quarter of 1998, the Company recorded pre tax charges of
$45.0 million for claims and claim expenses on the casualty and surety books of
business of Nobel. See Financial Condition - Nobel.
Excluding the Nobel charge, the claims and claim expenses incurred for
the year ended December 31, 1998 were $67.8 million, or 33.1 percent of net
premiums earned. In comparison, claims and claim expenses incurred for the year
ended December 31, 1997 were $50.0 million, or 23.7 percent of net premiums
earned. The primary reasons for the increase in the loss ratios were 1) a
decrease in net earned premiums, which is primarily related to an increase in
ceded premiums written and 2) the inclusion of the operations of Nobel and
DeSoto during 1998, whose loss ratios, based on the nature of those businesses,
are normally higher than those of Renaissance Reinsurance.
The year ended December 31, 1998 was the third worst year for insured
U.S. catastrophe losses. In comparison, the year ended December 31, 1997 was a
relatively light year for natural catastrophe losses. However, largely due to
Renaissance Reinsurance's reinsurance protection, the net loss ratio of
Renaissance Reinsurance was not significantly impacted by the 1998 catastrophe
loss events. Net reinsurance claims for Renaissance Reinsurance in 1998 were
$42.4 million, or 25.0 percent of net premiums earned as compared with $49.0
million in 1997 or 23.6 percent of net premiums earned. Gross claims in 1998
included claims on a number of aggregate stop loss and excess of loss contracts,
as well as claims related to Hurricane Georges, the January Canadian Freeze,
Hurricane Bonnie and additional claims from various U.S. wind, hail, tornado and
flood events.
Excluding the Nobel charge, the Company's primary operations produced a
loss ratio of 72.1 percent. Including the Nobel charge, the loss ratio of the
primary operations was
RenaissanceRe Holdings Ltd. 25 1999 Annual Report
<PAGE>
200.0 percent. See Financial Condition - Nobel. In connection with the Company's
acquisition of Nobel, Nobel purchased a retroactive reinsurance contract to
cover $38.0 million of adverse loss development on certain prior year casualty
reserves. Accounting guidelines require that adverse development of the reserves
covered by this contract be reflected in the Company's statement of income at
the time of the adjustment. However, the offsetting recovery under the contract
is required to be deferred and recognized into income as payments are received
from the reinsurer. During 1998, Nobel recognized $27.6 million of adverse
development on the business covered by this contract with the offsetting
recovery reflected on the balance sheet as a deferred gain. In future years, as
payments are received from the reinsurer, the gain will be pro-rated and
reflected in the statement of income as a reduction to claims and claim
expenses.
For additional information on the Company's reserves and reserving
methodology, see Notes 2 and 5 to the Consolidated Financial Statements.
Acquisition and operational expenses, consisting of brokerage commissions,
excise taxes and other costs directly related to the underwriting operations of
the Company, for the year ended December 31, 1998 were $60.1 million, or 29.3
percent of net premiums earned, compared with $50.4 million, or 23.8 percent for
the year ended December 31, 1997. The primary contributors to the increase in
underwriting expenses were the inclusion of Nobel and DeSoto, which operate with
a greater expense ratio than that of Renaissance Reinsurance. Further, the
increased purchase of reinsurance, which in turn reduces net premiums earned,
causes acquisition and operational costs to increase as a percentage of net
premiums earned.
Net investment income (excluding net realized investment gains and losses) for
the year ended December 31, 1998 was $52.8 million, compared with $49.6 million
for the year ended December 31, 1997. 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 and the assets purchased in the
Nobel acquisition, partially offset by amounts used to pay dividends, purchase
common stock and fund the acquisition of Nobel during the year.
During 1998, the Company reported other income of $9.8 million. The majority
of the other income related to a recovery on a non-indemnity catastrophe index
transaction. See Financial Condition - Derivative Instruments. During 1998, net
realized losses were $6.9 million, compared with $2.9 million in 1997. The 1998
losses were primarily generated from the sale of a portion of the Company's
emerging market debt securities. See Financial Condition - Investments.
Excluding the Nobel charge, corporate expenses were $4.0 million in 1998,
compared with $3.2 million in 1997. The increase primarily related to the
amortization of goodwill related to the purchase of Nobel during 1998. Including
the Nobel charge, corporate expenses, on a pre tax basis, were $18.9 million,
which included a write-down of goodwill of $9.9 million and additional costs and
charges related to the expected sale of certain aspects of the Nobel operations
of $5.0 million. See Financial Condition - Nobel.
For the year ended December 31, 1998, the Company realized net foreign
exchange losses of $0.2 million compared with $3.4 million for the year ended
December 31, 1997. The foreign exchange losses recorded in 1997 resulted
primarily from the strengthening of the U.S. dollar against the British pound
and the German mark.
During the year ended December 31, 1998, the Company recorded expenses of $8.5
million related to the Capital Securities that were issued in March 1997,
compared with $7.0 million in 1997. Interest expense for the year ended December
31, 1998 was $4.5 million as compared with $4.3 million for the year ended
December 31, 1997.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
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 to pay
quarterly dividends to its shareholders. The payment of dividends by
RenaissanceRe's subsidiaries is, under certain circumstances, limited under U.S.
statutory regulations and Bermuda insurance law. U.S. statutory regulations and
The Bermuda Insurance Act 1978, amendments thereto and related regulations of
Bermuda (the "Act"), require RenaissanceRe's Bermuda subsidiaries to maintain
certain measures of solvency and liquidity. As at December 31, 1999, the
statutory capital and surplus of RenaissanceRe's Bermuda subsidiaries was $653.9
million, and the amount required to be maintained by the Act, was $103.1
million.
RenaissanceRe Holdings Ltd. 26 1999 Annual Report
<PAGE>
During 1999, Renaissance Reinsurance paid aggregate cash dividends of $95.1
million to RenaissanceRe, compared with $102.1 million in 1998.
RenaissanceRe's operating subsidiaries have historically produced
sufficient cash flows to meet expected claims payments and operational expenses
and to provide dividend payments to RenaissanceRe. RenaissanceRe'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. Additionally, the Company
maintains a $300.0 million credit facility from which $200.0 million has been
borrowed and is available at the holding company, RenaissanceRe, to meet the
liquidity needs of the Company's subsidiaries.
NOBEL
On June 25, 1998, the Company completed its acquisition of the U.S. operating
subsidiaries of Nobel Insurance Limited, a Bermuda company ("Nobel Limited"),
for $56.1 million. The Company accounted for this acquisition using the purchase
method of accounting. The Company did not issue shares as part of the purchase.
During the fourth quarter of 1998, the Company recorded an after tax charge of
$40.1 million, consisting of $29.6 million of adverse development on Nobel's
casualty and surety books of business, a goodwill write-down of $6.6 million,
and other related costs of $3.9 million. Consequently, RenaissanceRe adopted a
plan to exit each of Nobel's business units. During 1999, Nobel completed the
reinsurance of the casualty and surety books of business and signed agreements
under which its bail and low-value dwelling books of business have been assumed
by third parties, with obligations to make certain future payments to Nobel
based on future revenues and/or profitability of these businesses. Also, Nobel
has completed the sale of its IAS/Cat Crew subsidiary to its management team in
an earn-out transaction.
Nobel and its affiliates have continued to conduct certain functions of the
casualty, surety, low-value dwelling and bail businesses on a transitional
basis. Renaissance U.S. expects to retain ownership of Nobel along with its
licenses in the 50 U.S. states, although there can be no assurance that such
licenses can be successfully maintained following the disposition of the
business units.
Contemporaneously with the Nobel acquisition, Nobel purchased a retroactive
reinsurance contract. This contract provides Nobel with $38.0 million of
protection from adverse development on its pre October 1, 1997 casualty book of
business plus $22.0 million on transferred reserves. SFAS No. 113, "Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts",
requires that adverse development of the reserves covered by this contract be
reflected in the Company's statement of income when the adverse development
becomes known. However, the offsetting recovery under the contract is required
to be deferred and recognized into income as payments are received from the
reinsurer. During 1998, Nobel recognized in its statement of income $27.6
million of adverse development on the business covered by this contract with the
offsetting recovery reflected on the balance sheet as a deferred gain. During
1999 and in future years, as payments are received from the reinsurer, the gain
will be pro-rated and reflected in the statement of income as a reduction to
claims and claim expenses.
Primarily as a result of the losses from Nobel, Renaissance U.S. has recorded
a deferred tax asset, the balance of which is $23.5 million as of December 31,
1999. The Company believes the future operations of Nobel, combined with other
operating subsidiaries of Renaissance U.S., will enable it to utilize the net
operating loss carry-forward.
In connection with the Nobel acquisition, Renaissance U.S. borrowed $35.0
million from a syndicate of banks. In addition, the banks provided a $15.0
million revolving loan facility which has been fully utilized as of December 31,
1999. RenaissanceRe has guaranteed these borrowings. See Note 6 to the
Consolidated Financial Statements.
CASH FLOWS
Cash flows from operating activities resulted principally from premiums and
investment income, net of paid losses, acquisition costs and underwriting
expenses. Cash flows from operations in 1999 were $130.3 million, compared with
$102.5 million in 1998. The 1999 cash flows from operations were primarily
utilized to purchase $80.1 million of the Company's Common Shares and pay
aggregate quarterly dividends of $28.9 million. Also during 1999, the Company
borrowed an additional $150.0 million under its revolving credit facility, which
was primarily used to purchase additional fixed income securities for the
holding company's portfolio of investments. The 1998 cash flows from operations
of $102.5 million, plus the proceeds from bank loans of $50.0 million were
primarily used to purchase $42.7 million of the Company's Common Shares, pay
aggregate quarterly dividends of $26.7 million
RenaissanceRe Holdings Ltd. 27 1999 Annual Report
<PAGE>
and purchase Nobel for $56.1 million.
The Company has generated cash flows from operations in 1999 and 1998
significantly in excess of its operating 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 nature of the coverages provided by the Company, which
typically can produce losses of high severity and low frequency, 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.
In 1999, the Company formed Top Layer Re with State Farm and organized
Renaissance Managers to act as underwriting manager to OPCat. The Company
believes that Top Layer Re and the activities of Renaissance Managers will
provide the Company with growing fee-based income in future periods. However,
there can be no assurance that such income will contribute materially to the
Company's cash flows, results of operations or financial condition.
CAPITAL RESOURCES
The total capital of the Company as at December 31, 1999 and 1998 was as
follows:
(in thousands) 1999 1998
-----------------------------
Revolving Credit Facility -
Borrowed $ 200,000 $ 50,000
Term Loan & Loan Facility 50,000 50,000
Revolving Credit Facility -
Unborrowed 100,000 150,000
Minority interest -
Capital Securities 89,630 100,000
Shareholders' equity 600,329 612,232
-----------------------------
Total Capital Resources $1,039,959 $962,232
-----------------------------
The Company has a revolving credit and term loan agreement with a syndicate of
commercial banks. During 1999, the Company re-negotiated its revolving credit
facility and among other things, increased the commitment to $300.0 million from
$200.0 million. The Company also increased its borrowings under the facility to
$200.0 million as of December 31, 1999 from $50.0 million as of December 31,
1998. The additional funds drawn during the year have increased the liquidity at
the holding company, RenaissanceRe, and are available if necessary, to be
contributed to the operating subsidiaries following a large catastrophic event.
Interest rates on the facility are based on a spread above LIBOR and averaged
5.76 percent during 1999 (6.12 percent in 1998). The credit agreement contains
certain financial covenants including requirements that consolidated debt to
capital does not exceed a ratio of 0.35:1; consolidated net worth must exceed
the greater of $100.0 million or 125 percent of consolidated debt; and 80
percent of invested assets to be rated BBB- or better. Under the terms of the
agreement, and if the Company is in compliance with the covenants thereunder,
the Company has access to an additional $100.0 million should the need arise.
The Company was in compliance with all the covenants of this revolving credit
and term loan agreement as of December 31, 1999.
Renaissance U.S. has a $35.0 million term loan and $15.0 million
revolving loan facility with a syndicate of commercial banks, each of which is
guaranteed by RenaissanceRe. Interest rates on the facility are based upon a
spread above LIBOR, and averaged 5.91 percent during 1999 (6.03 percent in
1998). The agreements contain certain financial covenants, the primary one being
that, RenaissanceRe, being its principal guarantor, maintain a ratio of liquid
assets to debt service of 4:1. This five year term loan has mandatory repayment
provisions approximating 25 percent in each of years 2000 through 2003. The
Company was in compliance with all the covenants of this term loan and revolving
loan facility as of December 31, 1999.
The Company's Capital Securities pay cumulative cash distributions at an
annual rate of 8.54 percent, payable semi-annually. During 1999 the Company
purchased $10.4 million of its Capital Securities recognizing a gain of $1.8
million which has been reflected in shareholders' equity. The Indenture relating
to the Capital Securities contains certain covenants, including a covenant
prohibiting the payment of dividends by the Company if the Company is in default
under the Indenture. The Company was in compliance with all of the covenants of
the Indenture at December 31, 1999. The Capital Securities mature on March 1,
2027. Such securities are required by accounting principles to be classified as
minority interest, rather than as a component of shareholders' equity of the
Company.
Under the terms of certain reinsurance contracts, the Company may be required
to provide letters of credit to rein-
RenaissanceRe Holdings Ltd. 28 1999 Annual Report
<PAGE>
sureds 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, 1999 the Company had outstanding letters of credit
aggregating $73.2 million (1998 $42.0 million). Also, in connection with the Top
Layer Re joint venture, the Company has committed $37.5 million of collateral in
the form of a letter of credit.
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 $25.0 million and the balance outstanding as of December 31,
1999 was $24.1 million (1998 - $19.1 million). Each loan under the Employee
Credit Facility is required to be initially collateralized by the respective
Participating 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 non-recourse 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.
SHAREHOLDERS' EQUITY
During 1999, shareholders' equity decreased by $11.9 million, from $612.2
million at December 31, 1998, to $600.3 million at December 31, 1999. The
significant components of the change in shareholders' equity included net income
from continuing operations of $104.2 million, less an increase in unrealized
depreciation on investments of $13.3 million, the payment of dividends of $28.9
million and the purchase of common stock of $80.1 million.
In each of February, May and November of 1999, the Company announced $25
million share repurchase programs. During 1999, the Company repurchased
2,226,700 shares of stock for an aggregate value of $80.1 million. For the year
ended December 31, 1998, the Company had repurchased an aggregate of 1,020,670
shares at a total cost of $42.7 million. Significant capital transactions during
1999 included:
o On November 17, 1999, the Company purchased and canceled 700,000 Common Shares
at $38.00 per share for an aggregate purchase price of $26.6 million from one of
the Company's founding institutional shareholders.
o On December 1, 1999, one of the Company's founding institutional shareholders
sold 318,213 Diluted Voting Class II Common Shares into the public market, where
they were subsequently converted into full voting Common Shares.
INVESTMENTS
As of December 31, 1999, the Company held investments and cash totaling $1,074.8
million (1998 - $942.3 million) with net unrealized depreciation of $18.5
million (1998 - $5.1 million).
Because the Company primarily provides coverage for damages resulting from
natural and man-made catastrophes, the Company may become liable for substantial
claim payments. Accordingly, 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,
other investments and cash and cash equivalents comprising the Company's
portfolio of invested assets:
(in thousands) 1999 1998
------------------------------
Investments available for
sale, at fair value $ 907,706 $ 799,995
Other investments 22,204 1,630
Cash, cash equivalents and
short term investments 144,871 140,684
------------------------------
Total Invested Assets $1,074,781 $ 942,309
------------------------------
The growth in the Company's portfolio of invested assets for the year ended
December 31, 1999 resulted primarily from net cash provided by operating
activities of $130.3 million and increased borrowings under the Company's
revolving credit facility of $150.0 million, partially offset by $28.9 million
of dividends paid and $80.1 million of Common Share repurchases. The Company's
investment income also increased during this period, largely as a result of the
increased size of the fixed income portfolio and an increase in interest rates.
The Company's current investment guidelines call for the invested asset
portfolio, including cash and cash equivalents, to have at least an average AA
rating as measured by
RenaissanceRe Holdings Ltd. 29 1999 Annual Report
<PAGE>
Standard & Poor's Ratings Group. At December 31, 1999, the Company's invested
asset portfolio had a dollar weighted average rating of AA, an average duration
of 2.7 years and an average yield to maturity of 7.15 percent.
LOSSES RECOVERABLE AND RESERVES FOR CLAIMS
AND CLAIM EXPENSES
As of December 31, 1999, losses recoverable and reserves for claims and claim
expenses increased by $128.3 million and $179.8 million, respectively, from the
balances as of December 31, 1998. The increases primarily related to the
occurrence of seven major catastrophes from September through December 1999. As
discussed in the results of the Company's operations, the estimates of losses
recoverable and of claims and claim expenses are based in part upon the
estimation of claims resulting from catastrophic events such as these. During
the period of time between the reserving for the losses and the settlement of
the losses, additional facts and trends will be revealed. As these factors
become apparent, losses recoverable and case reserves will be adjusted as
needed. These adjustments may require an increase in the reserves or a reduction
in the losses recoverable of the Company. At other times the Company may affect
a reallocation of IBNR reserves to specific case reserves. The recoverable and
reserve estimates are reviewed regularly, and adjustments, if any, will be
reflected in the statements of income in the period in which they become known
and will be accounted for as changes in estimates.
DERIVATIVE INSTRUMENTS
The Company has assumed risk through catastrophe and weather linked securities
and derivative instruments under which losses could be triggered by an industry
loss index or natural parameters. To date the Company has not experienced any
losses from such securities or derivatives although there can be no assurance
this performance will continue. In each of the fourth quarters of 1999 and 1998,
the Company recorded recoveries on non-indemnity catastrophe index transactions.
These recoveries are included in other income. In the future, the Company may
also utilize other derivative instruments.
MARKET SENSITIVE INSTRUMENTS
The Company's investment portfolio includes investments which are subject to
changes in market values with changes in interest rates. The aggregate
hypothetical loss generated from an immediate adverse parallel shift in the
treasury yield curve of 100 basis points would cause a decrease in total return
of 2.70 percent, which equates to a decrease in market value of approximately
$28.4 million on a portfolio valued at $1,052.6 million at December 31, 1999. As
of December 31, 1998, the decrease in total return would have been 3.20 percent,
which equates to a decrease in market value of approximately $28.1 million on a
portfolio valued at $877.0 million. The foregoing reflects the use of an
immediate time horizon, since this presents the worst-case scenario. Credit
spreads are assumed to remain constant in these hypothetical examples.
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 possible that during periods in which the U.S.
dollar appreciates, the Company will 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 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 expenses. The actual effects of inflation on the results of the
Company cannot be accurately known until claims are ultimately settled.
CURRENT OUTLOOK
The competitive pressures that have existed since 1995 continued in the property
catastrophe market through 1998. However, due to industry losses in 1999, and
the related con-
RenaissanceRe Holdings Ltd. 30 1999 Annual Report
<PAGE>
traction of capacity in the market, the Company has seen price increases in
certain pockets of the property catastrophe market, which contributed to the
Company's increased gross written premiums during this past year.
Because of continued catastrophic loss activity, the Company anticipates that
additional price increases may occur in other pockets of the property
catastrophe market. At this time, the Company does not believe that there will
be a large upswing in pricing across all market segments, and believes that
there continues to be numerous transactions in the market that are under priced.
Identifying and avoiding such transactions requires significant underwriting
skill, which the Company believes it possesses.
The Company believes that because of its competitive advantages, including its
technological capabilities and its relationships with leading brokers and ceding
companies, it will continue to find additional opportunities in the property
catastrophe reinsurance business.
Because of recent loss activity, the Company believes that its aggregate cost
for reinsurance protection will continue to increase during the upcoming year.
It is also likely that a portion of the Company's reinsurance protection may
become uneconomical and that the Company would determine to purchase less of
such reinsurance. Accordingly it is possible that the Company will retain a
greater level of net risk in the upcoming year as compared with the previous
year.
Nobel has completed the sale and/or reinsurance of its principal operating
units, although Nobel continues to operate a portion of such businesses on a
transitional basis. Accordingly, the Company believes that its future
consolidated results will reflect a reduced impact from Nobel and its
affiliates. During 1999, the Company recorded $49.6 million of gross written
premiums, $19.9 million of net premiums earned and net income of $2.9 million
related to Nobel and its affiliates. The Company expects that Nobel and its
affiliates will continue to conduct certain functions on a transitional basis
and that the Company will continue to maintain ownership of Nobel along with its
licenses in the 50 U.S. states, although there can be no assurance that such
licenses can be successfully maintained.
The Company's financial strength has enabled it to pursue opportunities
outside of the property catastrophe reinsurance market into the catastrophe
exposed primary insurance market and the Company will continue to pursue other
opportunities in the upcoming year. 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
leading brokerage firms and also among the Company's customers. Although
consolidations may continue to occur, the Company believes that its financial
strength, its position as one of the market leaders in the property catastrophe
reinsurance industry and its ability to provide innovative products to the
industry will minimize any adverse effect of such consolidation on the Company's
business.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all fiscal years beginning after June 15, 2000.
Currently, the Company does not expect the adoption of SFAS No. 133 to have a
material impact on its consolidated financial statements.
SAFE HARBOR DISCLOSURE
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 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. In particular, statements using verbs such as "expect", "anticipate",
"intends", "believe" or words of similar impact generally involve
forward-looking statements. 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
RenaissanceRe Holdings Ltd. 31 1999 Annual Report
<PAGE>
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 the Company's reinsurance
or insurance business, or increased competition in the industry; (iii) the
lowering or loss of one of the financial or claims-paying ratings of the Company
or one or more of its subsidiaries; (iv) risks associated with implementing
business strategies of the Company; (v) uncertainties in the Company's reserving
process; (vi) failure of the Company's reinsurers to honor their obligations;
(vii) actions of competitors including industry consolidation; (viii) loss of
services of any one of the Company's key executive officers; (ix) the passage of
federal or state legislation subjecting Renaissance Reinsurance to supervision
or regulation, including additional tax regulation, in the United States or
other jurisdictions in which the Company operates; (x) challenges by insurance
regulators in the United States to Renaissance Reinsurance's claim of exemption
from insurance regulation under the current laws; (xi) changes in economic
conditions, including currency rate conditions which could affect the Company's
investment portfolio; (xii) a contention by the United States Internal Rev-enue
Service that Renaissance Reinsurance is engaged in the conduct of a trade or
business within the U.S.; or (xiii) slower than anticipated growth in the
Company fee based operations. 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.
RenaissanceRe Holdings Ltd. 32 1999 Annual Report
<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 /s/ John M. Lummis
- ----------------------- -----------------------
James N. Stanard John M. Lummis
Chairman, President and Senior Vice President and
Chief Executive Officer 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, 1999 and 1998 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1999. 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, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young
Hamilton, Bermuda
January 28, 2000
RenaissanceRe Holdings Ltd. 33 1999 Annual Report
<PAGE>
CONSOLIDATED BALANCE SHEETS
RenaissanceRe Holdings Ltd. and Subsidiaries
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
At December 31, (in thousands of United States dollars, except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments and cash
Fixed maturity investments available for sale, at fair value $ 907,706 $ 799,995
(Amortized cost $926,176 and $804,968 at December 31, 1999
and 1998, respectively) (Note 3)
Short term investments, at cost 12,759 24,983
Other investments 22,204 1,630
Cash and cash equivalents 132,112 115,701
- ----------------------------------------------------------------------------------------------------------------
Total investments and cash 1,074,781 942,309
Reinsurance premiums receivable 80,455 96,761
Ceded reinsurance balances 50,237 41,370
Losses and premiums recoverable (Note 4) 328,627 200,379
Accrued investment income 13,456 9,968
Deferred acquisition costs 14,221 10,997
Other assets 55,466 54,380
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,617,243 $ 1,356,164
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
Liabilities
Reserve for claims and claim expenses (Note 5) $ 478,601 $ 298,829
Reserve for unearned premiums 98,386 94,466
Bank loans (Note 6) 250,000 100,000
Reinsurance balances payable 50,157 94,058
Other liabilities 50,140 56,579
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities 927,284 643,932
- ----------------------------------------------------------------------------------------------------------------
Minority interest - Company obligated, mandatorily redeemable capital
securities of a subsidiary trust holding solely junior subordinated
debentures of the Company (Note 7) 89,630 100,000
Commitments and contingencies (Note 18)
Shareholders' Equity (Note 9)
Common Shares and additional paid-in capital: $1 par value-authorized
225,000,000 shares; issued and outstanding at December 31, 1999
- 19,686,480 shares (1998 - 21,645,913 shares) 19,686 39,035
Unearned stock grant compensation (Note 16) (10,026) (8,183)
Accumulated other comprehensive income (18,470) (5,144)
Retained earnings 609,139 586,524
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 600,329 612,232
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY $ 1,617,243 $ 1,356,164
- ----------------------------------------------------------------------------------------------------------------
BOOK VALUE PER COMMON SHARE $ 30.50 $ 28.28
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
RenaissanceRe Holdings Ltd. 34 1999 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
RenaissanceRe Holdings Ltd. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(in thousands of United States dollars, except per share amounts)
<S> <C> <C> <C>
REVENUES
Gross premiums written $ 351,305 $ 270,460 $ 228,287
- --------------------------------------------------------------------------------------------------------------------------
Net premiums written $ 213,513 $ 195,019 $ 195,752
Decrease in unearned premiums 7,604 9,928 15,738
- --------------------------------------------------------------------------------------------------------------------------
Net premiums earned 221,117 204,947 211,490
Net investment income (Note 3) 60,334 52,834 49,573
Foreign exchange losses (411) (153) (3,442)
Other income 4,915 9,789 --
Net realized losses on investments (Note 3) (15,720) (6,890) (2,895)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 270,235 260,527 254,726
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES
Claims and claim expenses incurred (Note 5) 77,141 112,752 50,015
Acquisition costs 25,500 26,506 25,227
Operational expenses 36,768 34,525 25,131
Corporate expenses 9,888 18,924 3,218
Interest expense 9,934 4,473 4,271
- --------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 159,231 197,180 107,862
- --------------------------------------------------------------------------------------------------------------------------
Income before minority interests and taxes 111,004 63,347 146,864
Minority interest - Company obligated, mandatorily redeemable capital securities
of a subsidiary trust holding solely junior subordinated debentures of
the Company (Note 7) (8,288) (8,540) (6,998)
Minority interest - Glencoe -- (705) (617)
- --------------------------------------------------------------------------------------------------------------------------
Income before taxes 102,716 54,102 139,249
Income tax benefit (Note 13) 1,525 20,475 --
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 104,241 $ 74,577 $ 139,249
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC $ 5.10 $ 3.39 $ 6.19
EARNINGS PER COMMON SHARE - DILUTED $ 5.05 $ 3.33 $ 6.06
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
RenaissanceRe Holdings Ltd. 35 1999 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
RenaissanceRe Holdings Ltd. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
(in thousands of United States dollars, except per share amounts)
<S> <C> <C> <C>
Common stock & additional paid-in capital
Balance-- January 1 $ 39,035 $ 74,922 $ 126,433
Exercise of stock options & restricted stock awards 6,461 6,837 3,247
Repurchase of shares (26,695) (42,724) (53,458)
Other 885 -- (1,300)
- -----------------------------------------------------------------------------------------------------------
Balance-- December 31 19,686 39,035 74,922
- -----------------------------------------------------------------------------------------------------------
Unearned stock grant compensation
Balance-- January 1 (8,183) (4,731) (3,868)
Stock grants awarded (5,382) (5,964) (4,731)
Amortization 3,539 2,512 3,868
- -----------------------------------------------------------------------------------------------------------
Balance-- December 31 (10,026) (8,183) (4,731)
- -----------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income
Balance-- January 1 (5,144) (10,155) 1,577
Net unrealized gains (losses) on securities, net of
adjustment (see disclosure below) (13,326) 5,011 (11,732)
- -----------------------------------------------------------------------------------------------------------
Balance-- December 31 (18,470) (5,144) (10,155)
- -----------------------------------------------------------------------------------------------------------
Retained earnings
Balance-- January 1 586,524 538,667 422,061
Net income 104,241 74,577 139,249
Dividends paid (28,885) (26,720) (22,643)
Repurchase of shares (53,403) -- --
Other 662 -- --
- -----------------------------------------------------------------------------------------------------------
Balance-- December 31 609,139 586,524 538,667
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 600,329 $ 612,232 $ 598,703
- -----------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
Net income $ 104,241 $ 74,577 $ 139,249
Other comprehensive income (13,326) 5,011 (11,732)
- -----------------------------------------------------------------------------------------------------------
Comprehensive income $ 90,915 $ 79,588 $ 127,517
- -----------------------------------------------------------------------------------------------------------
DISCLOSURE REGARDING NET UNREALIZED GAINS (LOSSES)
Net unrealized holding losses arising during period $ (29,046) $ (1,879) $ (14,627)
Net realized losses included in net income 15,720 6,890 2,895
- -----------------------------------------------------------------------------------------------------------
Change in net unrealized gains (losses) on securities $ (13,326) $ 5,011 $ (11,732)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
RenaissanceRe Holdings Ltd. 36 1999 Annual Report
<PAGE>
STATEMENTS OF CASH FLOWS
RenaissanceRe Holdings Ltd. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31, (in thousands of United States dollars) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 104,241 $ 74,577 $ 139,249
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 9,810 14,488 1,121
Net realized losses on investments 15,720 6,890 2,895
Reinsurance balances, net (27,595) 54,187 3,823
Ceded reinsurance balances (8,867) (34,245) 2,328
Accrued investment income (3,488) 3,572 1,151
Reserve for unearned premiums 3,920 5,132 (8,610)
Reserve for claims and claim expenses, net 51,524 (8,530) 4,617
Other, net (14,960) (13,579) 6,710
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 130,305 102,492 153,284
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS APPLIED TO INVESTING ACTIVITIES:
Proceeds from maturities and sales of investments 1,986,498 783,735 697,532
Purchase of investments available for sale (2,146,361) (828,299) (829,193)
Net sales (purchases) of short term investments 12,224 (2,189) --
Proceeds from sales of equities 1,319 30,550 57,958
Purchase of equities -- -- (81,452)
Purchase of minority interest in Glencoe -- (15,204) (5,185)
Acquisition of subsidiary, net of cash acquired -- (58,869) --
Proceeds from sale of minority interest in Glencoe -- -- 3,000
- -----------------------------------------------------------------------------------------------------------------
Net cash applied to investing activities (146,320) (90,276) (157,340)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (APPLIED TO) FINANCING ACTIVITIES:
Purchase of Common Shares (80,098) (42,724) (53,458)
Net proceeds from (repayment of) bank loan 150,000 50,000 (100,000)
Proceeds from issuance (purchase) of Capital Securities (8,591) -- 100,000
Dividends paid (28,885) (26,720) (22,643)
Repayments of officer loans -- -- 4,104
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (applied to) financing activities 32,426 (19,444) (71,997)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,411 (7,228) (76,053)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 115,701 122,929 198,982
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 132,112 $ 115,701 $ 122,929
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
RenaissanceRe Holdings Ltd. 37 1999 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in tables in thousands of dollars, except per share amounts)
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 subsidiaries,
Renaissance Reinsurance Ltd., ("Renaissance Reinsurance"), Glencoe Insurance
Ltd., ("Glencoe"), Renaissance U.S. Holdings, Inc. ("Renaissance U.S."),
Renaissance Underwriting Managers, Ltd. ("Renaissance Managers"), and
RenaissanceRe Capital Trust (the "Trust").
o Renaissance Reinsurance commenced underwriting operations on June 15, 1993 and
provides property catastrophe and reinsurance coverage to insurers and
reinsurers on a worldwide basis.
o Glencoe commenced insurance underwriting operations in January 1996 and
provides catastrophe exposed property coverage on an insurance and reinsurance
basis.
o In January 1998, the Company began to provide personal lines 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 homeowners policies from the Florida Joint
Underwriting Association, a state sponsored insurance company.
o In June 1998, Renaissance U.S. completed its acquisition of the U.S. operating
subsidiaries of Nobel Insurance Limited, a Bermuda company ("Nobel Limited"),
for $56.1 million. See Note 8.
o In October 1998, Renaissance Reinsurance of Europe ("Renaissance Europe") was
incorporated under the laws of Ireland as a wholly owned subsidiary of
Renaissance Reinsurance to provide certain property catastrophe and reinsurance
coverage in Europe.
o Effective January 6, 1999, Top Layer Reinsurance Ltd., ("Top Layer Re") was
formed as a joint venture between Renaissance Reinsurance and State Farm Mutual
Automobile Insurance Company to provide property catastrophe reinsurance for
high layer, non-U.S. risks. In connection with this joint venture, the Company
has provided capital of $13.0 million and has provided a $37.5 million letter of
credit.
o On November 27, 1999, Renaissance Managers was incorporated under the laws of
Bermuda as a wholly owned subsidiary of RenaissanceRe to provide underwriting
management services to non-related parties.
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, which 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 with the current year 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. Actual results could
differ from those estimates. The significant estimates reflected in the
Company's financial statements, include, but are not limited to, the reserve for
claims and claim expenses and the related losses and premiums recoverable.
PREMIUMS 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 based on policy and contract terms and include estimates based on informa-
RenaissanceRe Holdings Ltd. 38 1999 Annual Report
<PAGE>
tion received from both insureds and ceding companies. Subsequent differences
arising on such estimates are recorded in the period in which they are
determined. Reserve for unearned premiums represents 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 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.
REINSURANCE
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policies. The Company
evaluates the financial condition of its reinsurers through internal evaluation
by senior management. For retroactive reinsurance contracts, the amount by which
liabilities associated with the reinsured policies exceed the amount paid for
reinsurance coverage is deferred and amortized into income using the recovery
method.
CLAIMS AND CLAIM EXPENSES
The reserve for claims and claim expenses includes estimates for unpaid claims
and claim expenses on reported losses as well as an estimate of losses incurred
but not reported. The reserve is based on individual claims, case reserves and
other reserve estimates reported by insureds and 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 the consolidated statement
of income in the period in which they become known and are accounted for as
changes in estimates.
INVESTMENTS AND CASH
Investments are considered available for sale and are reported at fair value.
The net unrealized appreciation or depreciation on investments is included in
accumulated other comprehensive income. Investment transactions are recorded on
the trade date with balances pending settlement reflected in the balance sheet
as a component of other assets or other liabilities.
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.
Short term investments, which have a maturity of one year or less when
purchased, are carried at cost which approximates fair value. 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.
GOODWILL
The Company amortizes goodwill recorded in connection with its business
combinations on a straight-line basis over the expected recovery period,
principally twenty years. Goodwill is periodically reviewed for impairment and
amounts deemed unrecoverable are adjusted accordingly. Goodwill is included in
other assets on the consolidated balance sheet and is expensed through corporate
expenses in the consolidated statement of income.
RenaissanceRe Holdings Ltd. 39 1999 Annual Report
<PAGE>
EARNINGS PER SHARE
Basic earnings per share is based on weighted average Common Shares and excludes
any dilutive effects of options and restricted stock. Diluted earnings per share
assumes the exercise of all dilutive stock options and restricted stock grants.
See Note 10.
FOREIGN EXCHANGE
The Company's functional currency is the United States dollar. Revenues and
expenses denominated in foreign currencies are translated at the prevailing
exchange rate at the transaction date. Monetary assets and liabilities
denominated in foreign currencies are translated at exchange rates in effect at
the balance sheet date, which may result in the recognition of exchange gains or
losses which are included in the determination of net income.
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 measurement date.
TAXATION
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for all fiscal years beginning after
June 15, 2000. Currently, the Company does not expect the adoption of SFAS No.
133 to have a material impact on its consolidated financial statements.
RenaissanceRe Holdings Ltd. 40 1999 Annual Report
<PAGE>
Notes to Consolidated Financial Statements
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, 1999 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government bonds $298,748 $ 115 $ (3,135) $295,728
Non-U.S. government bonds 55,308 - (835) 54,473
U.S. corporate bonds 371,631 895 (15,954) 356,572
Non-U.S. corporate bonds 50,456 3,540 (36) 53,960
U.S. mortgage backed securities 150,033 35 (3,095) 146,973
-----------------------------------------------------------------
$926,176 $ 4,585 $ (23,055) $907,706
-----------------------------------------------------------------
Gross Gross
December 31, 1999 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
U.S. Government bonds $560,068 $ 5,183 $ (641) $564,610
Non-U.S. government bonds 34,694 - (4,067) 30,627
Non-U.S. corporate bonds 73,192 1,822 (8,044) 66,970
U.S. corporate bonds 137,014 1,599 (825) 137,788
-----------------------------------------------------------------
$804,968 $ 8,604 $ (13,577) $799,995
-----------------------------------------------------------------
</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.
December 31, 1999 Amortized Fair
Cost Value
--------------------------------
Due within one year $ 2,801 $ 2,787
Due after one through five years 460,462 456,408
Due after five through ten years 232,751 226,073
Due after ten years 80,129 75,465
U.S. mortgage backed securities 150,033 146,973
--------------------------------
$ 926,176 $ 907,706
--------------------------------
RenaissanceRe Holdings Ltd. 41 1999 Annual Report
<PAGE>
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.
At December 31, 1999 1998
-------------------------
AAA 72.9% 70.9%
AA 5.0 4.3
A 5.9 9.2
BBB 4.8 3.7
BB 3.7 5.2
B 5.3 2.2
NR 2.4 4.5
-------------------------
100.0% 100.0%
-------------------------
INVESTMENT INCOME
The components of net investment income are as follows:
Year Ended December 31, 1999 1998 1997
------------------------------
Fixed
maturities $52,470 $45,392 $42,183
Short term
investments 6,200 2,354 -
Cash and cash
equivalents 2,898 6,831 9,338
------------------------------
61,568 54,577 51,521
Investment
expenses 1,234 1,743 1,948
------------------------------
Net investment
income $60,334 $52,834 $49,573
------------------------------
The analysis of realized gains (losses) and the change in unrealized gains
(losses) on investments is as follows:
Year Ended December 31,
1999 1998 1997
----------------------------------------
Gross realized gains $ 4,619 $ 13,192 $ 4,741
Gross realized losses (20,339) (20,082) (7,636)
----------------------------------------
Net realized losses
on investments (15,720) (6,890) (2,895)
Unrealized gains
(losses) (13,326) 5,011 (11,732)
----------------------------------------
Total realized and
unrealized losses
on investments $(29,046) $ (1,879) $(14,627)
----------------------------------------
Proceeds from maturities and sales of fixed maturity investments were $1,986.5
million, $783.7 million and $697.5 million for the years ended December 31,
1999, 1998 and 1997, respectively. At December 31, 1999 and 1998 approximately
$15.0 million of cash and investments were on deposit with various regulatory
authorities as required by law.
Other investments include the investment in Top Layer Re of $14.9
million. Top Layer Re, which is 50% owned by Renaissance Reinsurance, is carried
using the equity method. Undistributed earnings from Top Layer Re of $1.9
million are included in other income. The carrying value approximates fair
value. Other investments also include available for sale equity securities
reported at fair value.
DERIVATIVE INSTRUMENTS
The Company has assumed and ceded risk through catastrophe and weather linked
securities and derivative instruments under which losses or recoveries are
triggered by an industry loss index or geological or physical variables. Net
related fees and risk premiums assumed and ceded are not material to the
Company's operations. During 1999 and 1998, the Company recognized gains on
non-indemnity catastrophe index transactions, which are included as a component
of other income.
RenaissanceRe Holdings Ltd. 42 1999 Annual Report
<PAGE>
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. The Company would remain liable to the extent
that any reinsurance company fails to meet its obligations. The earned
reinsurance premiums ceded were $128.1 million, $68.1 million and $25.1 million
for 1999, 1998 and 1997, respectively.
Other than loss recoveries, certain of the Company's ceded reinsurance
contracts also provide for recoveries of additional premiums, reinstatement
premiums and lost no claims bonuses which are incurred when losses are ceded to
reinsurance contracts. Total recoveries netted against premiums and claims and
claim expenses incurred for the year ended December 31, 1999 were $255.3 million
and $110.1 million in 1998.
Included in losses and premiums recoverable as of December 31, 1999, are
recoverables of $37.8 million (1998 - $50.4 million) which relate to a
retroactive reinsurance contract entered into by Nobel. This contract provides
Nobel with $38.0 million of protection from adverse development on its pre
October 1, 1997 casualty book of business plus $22.0 million of capacity on
transferred reserves. SFAS No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts", requires that adverse development
of the reserves covered by this contract be reflected in the Company's statement
of income when the adverse development becomes known. However, the offsetting
recovery under the contract is required to be deferred and recognized into
income as payments are received from the reinsurer. During 1998, Nobel in its
statement of income recognized $27.6 million of adverse development on the
business covered by this contract with the offsetting recovery reflected on the
balance sheet as a deferred gain. During 1999 and in future years, as payments
are received from the reinsurer, the gain will be pro-rated and reflected in the
statement of income as a reduction to claims and claim expenses.
NOTE 5. RESERVE FOR CLAIMS
AND CLAIM EXPENSES
For the Company's reinsurance operations, estimates of claims and claim 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 potential 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.
On both the Company's reinsurance and primary operations, the Company uses
statistical and actuarial methods to reasonably estimate ultimate expected
claims and claim expenses. The period of time from the reporting of a loss to
the Company, and the settlement of the Company's liability may be several years.
During this period, additional facts and trends will be revealed. As these
factors become apparent, case reserves will be adjusted, sometimes requiring an
increase in the overall reserves of the Company, and at other times requiring a
reallocation of IBNR reserves to specific case reserves. These estimates are
reviewed regularly, and 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.
RenaissanceRe Holdings Ltd. 43 1999 Annual Report
<PAGE>
Activity in the liability for unpaid claims and claim expenses is summarized
as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Net reserves as of January 1 $197,512 $110,037 $105,421
Net reserves assumed in respect of acquired company - 55,317 -
Net incurred related to:
Current year 111,720 96,431 50,015
Prior years (34,579) 16,321 -
-----------------------------------------
Total net incurred 77,141 112,752 50,015
-----------------------------------------
Net paid related to:
Current year 44,701 49,671 3,740
Prior years 55,039 30,923 41,659
-----------------------------------------
Total net paid 99,740 80,594 45,399
-----------------------------------------
Total net reserves as of December 31 174,913 197,512 110,037
Losses recoverable as of December 31 303,688 101,317 -
-----------------------------------------
Total gross reserves as of December 31 $478,601 $298,829 $110,037
-----------------------------------------
</TABLE>
The prior year development in 1999 was due primarily to favorable development on
property catastrophe reserves for 1998 and prior. The prior year development in
1998 was due primarily to adverse development of Nobel's surety and casualty
businesses, partially offset by favorable development on property catastrophe
reserves for 1997 and prior years. The Company's total gross reserve for
incurred but not reported claims was $293.2 million as of December 31, 1999
(1998- $135.4 million).
NOTE 6. BANK LOANS
The Company has a revolving credit and term loan agreement with a syndicate of
commercial banks. During 1999, the Company re-negotiated its revolving credit
facility and among other things, increased the commitment to $300.0 million from
$200.0 million. The Company also increased its borrowings under the facility to
$200.0 million as of December 31, 1999 from $50.0 million as of December 31,
1998. The additional funds drawn during the year have increased the liquidity at
the holding company, RenaissanceRe, and are available if necessary, to be
contributed to the operating subsidiaries following a large catastrophic event.
Interest rates on the facility are based on a spread above LIBOR and have
averaged 5.76 percent during 1999 (6.12 percent in 1998). The credit agreement
contains certain financial covenants including requirements that consolidated
debt to capital does not exceed a ratio of 0.35:1; consolidated net worth must
exceed the greater of $100.0 million or 125 percent of consolidated debt; and 80
percent of invested assets must be rated BBB- by S&P or Baa3 by Moody's Investor
Service or better. Under the terms of the agreement, and if the Company is in
compliance with the covenants thereunder, the Company has access to an
additional $100.0 million should the need arise. The Company was in compliance
with all the covenants of this revolving credit and term loan agreement as at
December 31, 1999. Renaissance U.S. has a $35.0 million term loan and $15
million revolving loan facility with a syndicate of commercial banks. Interest
rates on the facility are based upon a spread above LIBOR, and averaged 5.91
percent during 1999 (6.03 percent in 1998). The Credit Agreement contains
certain
RenaissanceRe Holdings Ltd. 44 1999 Annual Report
<PAGE>
financial covenants, the primary one being that, RenaissanceRe, being its
principal guarantor, maintain a ratio of liquid assets to debt service of 4:1.
This five year term loan has mandatory repayment provisions approximating 25
percent in each of years 2000 through 2003. The Company was in compliance with
all the covenants of this term loan and revolving loan facility as at December
31, 1999.
Interest payments on the above loans totaled $8.3 million, $4.4 million and
$4.6 million for the years ended December 31, 1999, 1998 and 1997, respectively.
Fair value of bank loans approximate the carrying values, because such loans
reprice frequently.
NOTE 7. CAPITAL SECURITIES
On March 7, 1997, the Company issued $100.0 million of "Company Obligated,
Mandatorily Redeemable Capital Securities of a Subsidiary Trust holding solely
$103,092,783 of the Company's 8.54 percent Junior Subordinated Debentures due
March 1, 2027" ("Capital Securities") issued by the Trust. 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.
During 1999 the Company repurchased $10.4 million of the Capital Securities
recognizing a gain of $1.8 million, which was reflected in shareholders' equity.
NOTE 8. ACQUISITION
On June 25, 1998, the Company completed its acquisition of the U.S. operating
subsidiaries of Nobel Insurance Limited, a Bermuda company ("Nobel Limited"),
for $56.1 million. The Company issued no shares as part of the purchase and
accounted for this acquisition using the purchase method of accounting.
During the fourth quarter of 1998, the Company recorded an after tax charge of
$40.1 million, consisting of $29.6 million of adverse development on Nobel's
casualty and surety books of business, a goodwill write-down of $6.6 million,
and other related costs of $3.9 million. Consequently, at the end of 1998,
RenaissanceRe adopted a plan to exit each of Nobel's business units. During
1999, Nobel completed the reinsurance of the casualty and surety books of
business and signed agreements under which its bail and low-value dwelling books
of business have been assumed by third parties, with obligations to make certain
future payments to Nobel based on future revenues and/or profitability of these
businesses. Also, Nobel has completed the sale of its IAS/Cat Crew subsidiary to
its management team in an earn-out transaction.
During 1999, in conjunction with the sale and reinsurance of the principal
business units of Nobel, the Company wrote off $6.7 million of goodwill which
was reflected in corporate expenses in the statement of income.
The Company expects that Nobel and its affiliates will continue to conduct
certain functions of the casualty, surety, low-value dwelling and bail
businesses on a transitional basis. Renaissance U.S. expects to retain ownership
of Nobel along with its licenses in the 50 U.S. states, although there can be no
assurance that such licenses can be successfully maintained following the
disposition of the business units.
Primarily as a result of the losses from Nobel, Renaissance U.S. has recorded
a deferred tax asset, the balance of which is $23.5 million as of December 31,
1999.
In connection with the Nobel acquisition, Renaissance U.S. borrowed $35.0
million from a syndicate of banks. In addition, the banks provided a $15.0
million revolving loan facility which has been fully utilized as of December 31,
1999. RenaissanceRe has guaranteed these arrangements. See Note 6.
Contemporaneously with the Nobel acquisition, Nobel entered into a retroactive
reinsurance contract. This contract provides Nobel with $38.0 million of
protection from adverse development on its pre October 1, 1997 casualty book of
business. See Note 4.
RenaissanceRe Holdings Ltd. 45 1999 Annual Report
<PAGE>
NOTE 9. SHAREHOLDERS' EQUITY
On May 5, 1998, the shareholders voted to increase the authorized capital to an
aggregate of 325,000,000 shares consisting of 225,000,000 Common Shares and
100,000,000 Preference Shares. The Company's 225,000,000 authorized $1.00 par
value Common Shares consist of three separate series with differing voting
rights as follows:
December 31, 1999 Issued and
Authorized Outstanding
-----------------------------------
Full Voting Common
Shares (the
Common Shares) 209,775,379 17,237,976
(includes all shares
registered and
available to the public)
Diluted Voting Class I
Common Shares 15,039,089 2,448,504
(the Diluted Voting
I Shares)
Diluted Voting Class II
Common Shares 185,532 -
(the Diluted Voting -----------------------------------
II Shares)
225,000,000 19,686,480
-----------------------------------
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.
In each of February, May and November of 1999, the Company announced share
repurchase programs of $25.0 million. For the year ended December 31, 1999, the
Company repurchased a total of 2,226,700 Common Shares of the Company for an
aggregate price of $80.1 million. During 1998, the Company repurchased a total
of 1,020,670 Common Shares of the Company for an aggregate price of $42.7
million.
On November 17, 1999, the Company purchased and cancelled 700,000 Common
Shares at $38.00 per share for an aggregate purchase price of $26.6 million from
one of the Company's founding institutional shareholders.
On December 1, 1999, one of the Company's founding institutional shareholders
sold 318,213 Diluted Voting Class II Common Shares into the public market, where
they were subsequently converted into Full Voting Common Shares.
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 Company's founding institutional shareholders or
their successors.
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 consolidated balance sheet.
RenaissanceRe Holdings Ltd. 46 1999 Annual Report
<PAGE>
NOTE 10. EARNINGS PER SHARE
The Company utilizes SFAS No. 128, "Earnings per Share" to account for its
weighted average shares. The numerator in both the Company's basic and diluted
earnings per share calculations is identical. The following table sets forth the
reconciliation of the denominator from basic to diluted weighted average shares
outstanding (in thousands of per share amounts):
Year Ended December 31, 1999 1998 1997
----------------------------------------
Weighted average
shares - basic 20,444 22,021 22,496
Per share equivalents
of employee stock
options and
restricted shares 184 407 471
----------------------------------------
Weighted average
shares - diluted 20,628 22,428 22,967
----------------------------------------
NOTE 11. RELATED PARTY TRANSACTIONS AND MAJOR CUSTOMERS
The Company has in force treaties with subsidiaries of The St. Paul Companies,
and affiliates of General Electric Investments ("GEI") covering property
catastrophe risks. 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, 1999, 1998 and 1997, the Company
received $11.1 million, $13.7 million and $19.2 million in reinsurance premiums
and deposits related to these treaties, respectively.
During 1999, the Company had in place an investment advisory agreement with GE
Investment Management, an affiliate of GEI. GE Investment Management managed
approximately 15.0 percent of the Company's portfolio, subject to the Company's
investment guidelines. The terms of the investment advisory agreement were
determined in arms length negotiations. The performance of, and the fees paid to
GE Investment Management were reviewed periodically by the Board of Directors.
Such fees paid to GE advisors aggregated to $0.2 million, $0.4 million, $1.2
million for the years ended December 31, 1999, 1998 and 1997. This agreement
expired on December 31, 1999, and was not renewed.
During the years ended December 31, 1999, 1998 and 1997, the Company received
78.8%, 64.2%, and 70.1%, respectively, of its premium assumed from its five
largest reinsurance brokers. Subsidiaries and affiliates of J&H Marsh &
McLennan, Inc., AON Re Group, E. W. Blanch & Co., Greig Fester, and Willis Faber
accounted for approximately 24.5%, 20.5%, 20.3%, 7.1% and 6.4%, respectively, of
the Company's premiums written in 1999.
NOTE 12. DIVIDENDS
During 1999, four regular quarterly dividends of $0.35 per share were paid to
shareholders of record as of February 18, May 28, August 19, and November 18.
During 1998, four regular quarterly dividends of $0.30 per share were paid to
shareholders of record as of February 18, May 20, August 19, and November 19.
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.
The total amount of dividends paid to Common Shareholders during 1999, 1998 and
1997 was $28.9 million, $26.7 million and $22.6 million, respectively.
NOTE 13. TAXATION
Under current Bermuda law, neither RenaissanceRe, Renaissance Reinsurance, nor
Glencoe are required to pay taxes in Bermuda on either income or capital gains.
Income from U.S. company operations is subject to taxes imposed by U.S.
authorities. Renaissance Reinsurance of Europe is subject to the taxation laws
of Ireland.
The U.S. companies have a net operating loss carryforward of $42.8 million which
will be available to offset regular taxable U.S. income during the carryforward
period (through 2019). As of December 31, 1999, a deferred tax
RenaissanceRe Holdings Ltd. 47 1999 Annual Report
<PAGE>
asset of $23.5 million is included in other assets on the consolidated balance
sheet.
The income tax expense (benefit) consists of:
Year Ended December 31, 1999
Current Deferred Total
----------------------------------
U.S. federal $ 487 $ - $ 487
U.S. state and local (61) (1,951) (2,012)
----------------------------------
$ 426 $(1,951) $(1,525)
----------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 are
presented below:
1999
---------
Deferred tax assets:
Allowance for doubtful accounts $ 127
Unearned premiums 288
Claims reserves, principally due
to discounting for tax 2,474
Retroactive reinsurance gain 4,613
Net operating loss carryforwards 14,553
Other 4,167
---------
26,222
---------
Deferred tax liabilities:
Deferred policy acquisition costs (848)
Other (1,871)
---------
Net deferred tax asset $23,503
---------
NOTE 14. GEOGRAPHIC INFORMATION
Financial information relating to gross premiums by geographic region is as
follows:
Year Ended
December 31, 1999 1998 1997
-------------------------------------
United States $229,156 $191,658 $123,717
Worldwide 49,482 20,584 27,930
Worldwide
(excluding U.S.) 27,276 26,380 32,005
Europe (including
the United
Kingdom) 26,437 18,532 21,007
Other 15,742 9,374 16,738
Australia and
New Zealand 3,212 3,932 6,890
-------------------------------------
Total Gross
Premiums
Written $351,305 $270,460 $228,287
-------------------------------------
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 15. SEGMENT REPORTING
The Company has two reportable segments: reinsurance operations and primary
operations. The reinsurance segment provides property catastrophe reinsurance as
well as other reinsurance to selected insurers and reinsurers on a worldwide
basis. The primary segment provides insurance both on a direct and on a surplus
lines basis for commercial and homeowners catastrophe exposed property business.
Also included in the primary segment are coverages written by Nobel for
commercial auto and general liability as well as surety business which provides
coverage to small and mid-size contractors. The majority of the Nobel business
has been substantially reinsured, and is expected to diminish in future years
based on the sale of the Nobel business units. See Note 8.
The activities of the Company's Bermuda and U.S. hold-
RenaissanceRe Holdings Ltd. 48 1999 Annual Report
<PAGE>
ing companies are the primary contributors to the results reflected in the other
category. The pre-tax loss of the holding companies primarily consisted of
interest expense on bank loans, the minority interest on the Capital Securities,
and realized investment losses on the sales of investments, partially offset by
investment income on the assets of the holding companies. Data for the three
years ended December 31, 1999 , 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Reinsurance Primary Other Total
------------------------------------------------------
<S> <C> <C> <C> <C>
Gross premiums written $ 282,345 $ 68,960 $ -- $ 351,305
Total revenues 232,715 31,377 6,143 270,235
Pre-tax profit (loss) 117,408 8,926 (23,618) 102,716
Assets 1,112,692 274,401 230,150 1,617,243
------------------------------------------------------
Claims and claim expense ratio 32.7% 52.2% -- 34.9%
Underwriting expense ratio 25.8% 12.4% -- 28.1%
------------------------------------------------------
Combined ratio 58.5% 64.6% -- 63.0%
------------------------------------------------------
Year Ended December 31, 1998
------------------------------------------------------
Gross premiums written $ 207,189 $ 63,271 $ -- $ 270,460
Total revenues 216,976 42,229 1,322 260,527
Pre-tax profit (loss) 126,768 (51,438) (21,228) 54,102
Assets 897,656 369,801 88,707 1,356,164
------------------------------------------------------
Claims and claim expense ratio 25.0% 200.2% -- 55.0%
Underwriting expense ratio 28.1% 37.1% -- 29.8%
------------------------------------------------------
Combined ratio 53.1% 237.3% -- 84.8%
------------------------------------------------------
Year Ended December 31, 1997
------------------------------------------------------
Gross premiums written $ 221,246 $ 7,041 $ -- $ 228,287
Total revenues 242,076 6,909 5,741 254,726
Pre-tax profit (loss) 146,209 2,421 (9,381) 139,249
Assets 795,043 84,211 81,495 960,749
------------------------------------------------------
Claims and claim expense ratio 23.6% 25.0% -- 23.7%
Underwriting expense ratio 22.6% 86.1% -- 23.8%
------------------------------------------------------
Combined ratio 46.2% 111.1% -- 47.5%
------------------------------------------------------
</TABLE>
RenaissanceRe Holdings Ltd. 49 1999 Annual Report
<PAGE>
NOTE 16. STOCK INCENTIVE COMPENSATION
AND EMPLOYEE BENEFIT PLANS
The Company has a stock incentive plan under which all employees of the Company
and its subsidiaries may be granted stock options and restricted stock awards. A
stock option award under the Company's stock incentive plan allows for the
purchase of the Company's Common Shares at a price that is generally equal to
the five day average closing price of the Common Shares immediately prior to the
date of grant. Options to purchase Common Shares are granted periodically by the
Board of Directors, generally vest over four years 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, and
continues to account for stock-based compensation plans under Accounting
Principles Board Opinion No. 25. 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 weighted
average assumptions used for grants in 1999, 1998 and 1997, respectively;
dividend yield of 3.4, 2.7 and 2.5 percent, expected option life of five years
for all years, and expected volatility of 27.41, 25.09 and 25.09 percent. The
risk-free interest rate was assumed to be 6.3 percent in 1999, 5.5 percent in
1998 and 6.0 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 $100.9 million, $71.8 million and $135.4 million for each of
1999, 1998 and 1997, respectively, and the Company's earnings per share on a
diluted basis would have been $4.89, $3.20 and $5.89 for each of 1999, 1998 and
1997, respectively. The following is a table of the changes in options
outstanding for 1999, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
Awards Weighted
available Options average exercise Fair value Range of exercise
for grant outstanding price of options prices
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,574,001 1,297,261 $ 18.74
Authorized 1,000,000
Options granted (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
Shares turned in or withheld 114,287
Restricted stock issued (174,704)
Restricted stock forfeited 8,249
--------------------------------------------------------------------------
Balance, December 31, 1997 1,960,320 1,286,807 $ 26.67
Options granted (486,079) 486,079 $ 45.05 $10.84 $34.97 - $48.00
Options forfeited 16,225 (16,225) $ 33.45
Options exercised (136,891) $ 17.69
Shares turned in or withheld 59,928
Restricted stock issued (136,313)
Restricted stock forfeited 461
--------------------------------------------------------------------------
Balance, December 31, 1998 1,414,542 1,619,770 $ 35.62
Options granted (363,139) 364,899 $ 36.42 $12.24 $33.19 - $41.29
Options forfeited 247,537 (247,537) $ 38.46
Options exercised (150,264) $ 16.41
Shares turned in or withheld 82,811
Restricted stock issued (186,625)
Restricted stock forfeited 16,335
--------------------------------------------------------------------------
Balance, December 31, 1999 1,211,461 1,586,868 $ 37.22
--------------------------------------------------------------------------
Total options exercisable at
December 31, 1999 750,482
</TABLE>
RenaissanceRe Holdings Ltd. 50 1999 Annual Report
<PAGE>
During 1997, the shareholders approved an increase of 1,000,000 shares under the
Company's 1993 Amended Stock Incentive Plan. The total number of shares
available under the plan is 4,000,000 shares. The shareholders also approved the
issuance of share-based awards, the issuance of restricted Common Shares under
the plan 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.
The Company has also established a Non-Employee Director Stock Incentive Plan
to issue stock options and shares of restricted stock. In 1997, the shareholders
approved an increase of authorized shares available for issuance thereunder from
100,000 Common Shares to 200,000 Common Shares. In 1999, 12,000 options to
purchase Common shares and 1,665 restricted Common Shares were granted. In 1998,
6,000 options to purchase Common Shares and 939 restricted Common Shares were
granted. In 1997, 24,000 options to purchase Common Shares and 1,870 restricted
Common Shares were issued. The options and restricted Common Shares vest ratably
over three years.
The Company has also established 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 from the
Company of an equal number of restricted shares. The restricted Common Shares
vest ratably over a three or four year period. 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 1999, 1998 and
1997 the Company issued 56,430, 33,036, and 46,424 restricted shares under this
plan, respectively, with values of $2.0, $1.5, and $1.7 million, respectively.
Additionally, in 1999, 1998 and 1997 the Board of Directors granted 130,195,
103,277 and 128,279 restricted shares with a value of $4.6, $4.5, and $4.9
million to certain employees. The shares granted to these employees vest ratably
over a four to five year period. 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 $3.4, $2.5, and $0.7 million in
1999, 1998 and 1997, respectively.
All of the Company's employees are eligible for defined contribution pension
plans. Contributions are primarily based upon a percentage of eligible
compensation.
NOTE 17. 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. As at December 31, 1999 the
statutory capital and surplus of the Bermuda subsidiaries was $653.9 million and
the amount required to be maintained under Bermuda law was $103.1 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 1999, Renaissance Reinsurance paid aggregate cash dividends of
$95.1 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
$15.0 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.
The Company's U.S. insurance subsidiaries are subject to various statutory and
regulatory restrictions regarding the payment of dividends. The restrictions are
primarily based upon statutory surplus and statutory net income. The U.S.
insurance subsidiaries' combined statutory surplus amount-
RenaissanceRe Holdings Ltd. 51 1999 Annual Report
<PAGE>
ed to $28.4 million at December 31, 1999 and the amount required to be
maintained was $25.0 million.
NOTE 18. COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of investments, cash and reinsurance balances.
The Company limits the amount of credit exposure to any one financial
institution and except for U.S. Government bonds, none of the Company's
investments exceeded 10 percent of shareholders' equity at December 31, 1999.
Concentrations of credit risk with respect to reinsurance balances are limited
due to their dispersion across various companies and geographies.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Except for the derivatives discussed in
Note 3, as of December 31, 1999 the Company was not a party to any financial
instruments that exposed the Company to any off-balance sheet risks.
LETTERS OF CREDIT
As of December 31, 1999 the Company's bankers have issued letters of credit of
approximately $73.2 million in favor of certain ceding companies. The letters of
credit are secured by cash and investments 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 grants, 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. At December 31, 1999, the bank loans guaranteed by the
Company totaled $24.1 million. At December 31, 1999, the common stock that
collateralizes the loans had a fair value of $51.9 million.
LITIGATION
The Company is party to various lawsuits arising in the normal course of
business. The Company does not believe that any of the litigation will have a
material impact on its consolidated financial statements.
RenaissanceRe Holdings Ltd. 52 1999 Annual Report
<PAGE>
NOTE 19. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Quarter Ended
March 31, June 30, September 30,
1999 1998 1999 1998 1999 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net premiums earned $ 57,988 $ 46,097 $ 57,668 $ 47,041 $ 54,123 $ 58,666
Net investment income 13,106 13,629 14,039 12,629 15,714 13,305
Net foreign exchange
gains (losses) (666) (24) 394 (827) 107 49
Other income (269) -- 460 347 882 642
Net realized investment
gains (losses) (497) 1,236 (5,030) (2,163) (6,020) (5,833)
-------- -------- -------- -------- -------- --------
Total revenue $ 69,662 $ 60,938 $ 67,531 $ 57,027 $ 64,806 $ 66,829
-------- -------- -------- -------- -------- --------
Claims and claim
expenses incurred $ 15,695 $ 7,876 $ 21,005 $ 10,294 $ 19,420 $ 26,696
Net income (loss) $ 30,018 $ 35,674 $ 24,049 $ 28,538 $ 23,974 $ 20,372
Earnings (loss) per share-basic $ 1.42 $ 1.60 $ 1.17 $ 1.28 $ 1.18 $ 0.93
Earnings (loss) per share-diluted $ 1.41 $ 1.57 $ 1.16 $ 1.26 $ 1.17 $ 0.91
Weighted average shares-basic 21,138 22,298 20,524 22,237 20,356 21,962
Weighted average shares-diluted 21,323 22,708 20,703 22,728 20,536 22,393
Claims and claim expense ratio 27.1% 17.1% 36.4% 21.9% 35.9% 45.5%
Underwriting expense ratio 28.1% 27.7% 26.2% 28.2% 30.1% 29.2%
-------- -------- -------- -------- -------- --------
Combined ratio 55.2% 44.8% 62.6% 50.1% 66.0% 74.7%
-------- -------- -------- -------- -------- --------
<CAPTION>
Quarter Ended
December 31,
1999 1998*
-------------------------
<S> <C> <C>
Net premiums earned $ 51,338 $ 53,143
Net investment income 17,475 13,271
Net foreign exchange
gains (losses) (246) 649
Other income 3,842 8,800
Net realized investment
gains (losses) (4,173) (130)
-------- --------
Total revenue $ 68,236 $ 75,733
-------- --------
Claims and claim
expenses incurred $ 21,021 $ 67,886
Net income (loss) $ 26,200 $(10,007)
Earnings (loss) per share-basic $ 1.33 $ (0.46)
Earnings (loss) per share-diluted $ 1.31 $ (0.46)
Weighted average shares-basic 19,759 21,568
Weighted average shares-diluted 19,949 21,874
Claims and claim expense ratio 41.0% 127.7%
Underwriting expense ratio 28.3% 33.7%
-------- --------
Combined ratio 69.3% 161.4%
-------- --------
</TABLE>
* Loss in fourth quarter of 1998 was principally from Nobel operations.
See Note 8.
RenaissanceRe Holdings Ltd. 53 1999 Annual Report
<PAGE>
NOTE 20. CONSOLIDATED UNAUDITED
PRO FORMA STATEMENTS
Operating results of Nobel and its affiliates acquired by the Company have been
included in the consolidated financial statements from their date of
acquisition. As required by Accounting Principles Board Opinion No. 16, the
following selected unaudited pro forma information is being provided to present
a summary of the combined results of the Company and Nobel and its affiliates
assuming the acquisition of Nobel and its affiliates had occurred as of January
1 of each year. The pro forma data is for informational purposes only and does
not necessarily represent results which would have occurred if the acquisition
had taken place on the basis assumed above.
Pro Forma Statements:
(in thousands except per share data)
Years Ended December 31, 1998 1997
-------------------------
Total revenues $ 294,239 $ 305,239
Net income 60,320 142,426
Earnings per
Common Share-basic $ 2.74 $ 6.33
Earnings per
Common Share-diluted $ 2.69 $ 6.20
RenaissanceRe Holdings Ltd. 54 1999 Annual Report
<PAGE>
<TABLE>
DIRECTORS AND OFFICERS
(as of March 1, 2000)
<CAPTION>
<S> <C> <C>
BOARD OF DIRECTORS OFFICERS OF RENAISSANCERE W. Preston Hutchings
James N. Stanard (4) HOLDINGS LTD. AND Vice President
Chairman of the Board SUBSIDIARIES Chief Investment Officer
RenaissanceRe Holdings Ltd.
Arthur S. Bahr (2) James N. Stanard
Retired Chairman of the Board Martin J. Merritt
General Electric Investment Corporation President Vice President
Chief Executive Officer Controller
Thomas A. Cooper (2), (4) RenaissanceRe Holdings Ltd. Company Secretary
TAC Associates RenaissanceRe Holdings Ltd.
William I. Riker
Edmund B. Greene (1) President Craig W. Tillman
Retired Chief Operating Officer Vice President
General Electric Company Renaissance Reinsurance Ltd. Glencoe Insurance Ltd.
Brian R. Hall (1) David A. Eklund Jonathan D. Paradine
Retired Executive Vice President Assistant Vice President
Johnson & Higgins (Bermuda) Ltd. Chief Underwriting Officer Renaissance Services Ltd.
Renaissance Reinsurance Ltd.
Gerald L. Igou (3) Diana R. Petty
General Electric Investment Corporation John M. Lummis Assistant Vice President
Senior Vice President RenaissanceRe Holdings Ltd.
Kewsong Lee (1) Chief Financial Officer
E.M. Warburg, Pincus & Co., L.L.C. RenaissanceRe Holdings Ltd. J. Alex Richards
Assistant Vice President
Paul J. Liska (2), (4) Robert E. Hykes Renaissance Services Ltd.
The St. Paul Companies, Inc. Senior Vice President
Renaissance Services Ltd. John R. Wineinger
W. James MacGinnitie (3), (4) Assistant Vice President
Independent Consultant John D. Nichols, Jr. Renaissance Services Ltd.
Senior Vice President
Howard H. Newman Renaissance Reinsurance Ltd. Mark Rickey
E.M. Warburg, Pincus & Co., L.L.C. Chief Executive Officer
Kevin J. O'Donnell Renaissance U.S. Holdings, Inc.
Scott E. Pardee (3) Senior Vice President
Middlebury College Renaissance Reinsurance Ltd. Robert L. Ricker
Department of Economics President
Russell M. Smith DeSoto Insurance Company
William I. Riker (3) Senior Vice President
Renaissance Reinsurance Ltd. Renaissance Reinsurance Ltd. Ian D. Branagan
Divisional Director
Committees of the Board: Renaissance Reinsurance of Europe
(1) Audit
(2) Compensation
(3) Investment
(4) Transaction
</TABLE>
RenaissanceRe Holdings Ltd. 55 1999 Annual Report
<PAGE>
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:
Martin J. Merritt
Vice President, Controller and Company Secretary
Tel. 441-299-7230
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 1999 and 1998:
1999 Price Range 1998 Price Range
High Low High Low
----------------------------------------------
First Quarter 36.81 31.69 50.06 40.00
Second Quarter 38.13 30.94 50.25 43.25
Third Quarter 37.31 34.69 47.63 41.50
Fourth Quarter 42.13 33.50 42.88 34.81
INDEPENDENT AUDITORS
Ernst & Young
Hamilton, Bermuda
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
USA
Tel. 1-800-756-3353
All requests should be directed to:
The Company Secretary
RenaissanceRe Holdings Ltd.
Renaissance House
8-12 East Broadway
P.O. Box HM2527
Hamilton HMGX, Bermuda
Tel. 441-295-4513
Fax 441-292-9453
RenaissanceRe Holdings Ltd. 56 1999 Annual Report
<PAGE>
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. 100% 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 Services
Ltd., a company organized under the laws of Bermuda, is owned by
RenaissanceRe Holdings Ltd.
5. 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.
6. 100% of the issued and outstanding capital shares of Nobel Insurance
Company, an insurance company organized under the laws of Texas, is owned
by Renaissance U.S. Holdings Inc.
7. 100% of the issued and outstanding capital shares of Nobel Service
Corporation, a corporation organized under the laws of Texas, is owned by
Nobel Insurance Company.
8. 100% of the issued and outstanding capital shares of Paget Insurance
Agency, Inc., a corporation organized under the laws of Florida, is owned
beneficially by Renaissance U.S. Holdings Inc.
9. 100% of the issued and outstanding capital shares of Pembroke Managing
Agents, Inc., a corporation organized under the laws of Florida, is owned
beneficially by Renaissance U.S. Holdings Inc.
10. 50% of the issued and outstanding capital shares of Top Layer Reinsurance
Ltd., a company organized under the laws of Bermuda, is owned by
Renaissance Reinsurance Ltd.
11. 99% of the issued and outstanding capital shares of Renaissance Reinsurance
of Europe, a company organized under the laws of Ireland, is owned by
Renaissance Reinsurance Ltd., with the remaining 1% owned by RenaissanceRe
Holdings Ltd.
12. 100% of the Common Securities of RenaissanceRe Capital Trust, a Delaware
statutory business trust, are owned by RenaissanceRe Holdings Ltd. Such
Common Securities represent approximately 3% of the outstanding beneficial
interests in the Trust, and 100% of the ordinary voting power.
<PAGE>
13. 100% of the issued and outstanding capital shares of Renaissance
Underwriting Managers, Ltd., a company organized under the laws of
Bermuda, is owned by RenaissanceRe Holdings Ltd.
14. 100% of the issued and outstanding capital shares of Renaissance Services,
Ltd., a company organized under the laws of Bermuda, is owned by
Renaissance U.S. Holdings, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
RenaissanceRe Holdings Ltd.
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 333-06339 and 333-61015) of RenaissanceRe Holdings Ltd. of our
report dated January 28, 2000, with respect to the consolidated financial
statements of RenaissanceRe Holdings Ltd. and Subsidiaries as of December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999 incorporated by reference in the Company's 1999 Form 10-K, and of our
report dated January 28, 2000 on the schedules included in the Company's 1999
Form 10-K.
/s/ Ernst & Young
Hamilton, Bermuda
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This Schedule contains summary financial information extracted from the Report
on Form 10-K of RenaissanceRe Holdings Ltd. for the year ended December 31,
1999 and is qualified in its entirety by reference to the financial statements
(and the notes thereto) contained in such Report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 907,706
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 942,669
<CASH> 132,112
<RECOVER-REINSURE> 328,627
<DEFERRED-ACQUISITION> 14,221
<TOTAL-ASSETS> 1,617,243
<POLICY-LOSSES> 478,601
<UNEARNED-PREMIUMS> 98,386
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 250,000
89,630
0
<COMMON> 19,686
<OTHER-SE> 580,643
<TOTAL-LIABILITY-AND-EQUITY> 1,617,243
221,117
<INVESTMENT-INCOME> 60,334
<INVESTMENT-GAINS> (15,720)
<OTHER-INCOME> 4,504
<BENEFITS> 77,141
<UNDERWRITING-AMORTIZATION> 25,500
<UNDERWRITING-OTHER> 36,768
<INCOME-PRETAX> 102,716
<INCOME-TAX> (1,525)
<INCOME-CONTINUING> 104,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,241
<EPS-BASIC> 5.10
<EPS-DILUTED> 5.05
<RESERVE-OPEN> 197,512
<PROVISION-CURRENT> 111,720
<PROVISION-PRIOR> (34,579)
<PAYMENTS-CURRENT> 44,701
<PAYMENTS-PRIOR> 55,039
<RESERVE-CLOSE> 478,601
<CUMULATIVE-DEFICIENCY> 34,579
</TABLE>
