UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number: 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 Identification No.)
incorporation or organization)
RENAISSANCE HOUSE
8-12 EAST BROADWAY
PEMBROKE, BERMUDA HM 19
(Address of principal executive offices) (Zip Code)
(441) 295-4513
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
The number of outstanding shares of RenaissanceRe Holding Ltd.'s common stock,
par value US $1.00 per share, as of June 30, 2000 was 19,245,764
Total number of pages in this report: 25
RenaissanceRe Holdings Ltd.
INDEX TO FORM 10-Q
PART I -- Financial Information
ITEM 1 -- Financial Statements
Consolidated Balance Sheets as of June 30, 2000 3
(Unaudited) and December 31, 1999
Unaudited Consolidated Statements of Operations for 4
the three and six month periods ended June 30, 2000 and 1999
Unaudited Consolidated Statements of Changes in Shareholders' 5
Equity for the six month periods ended June 30, 2000 and 1999
Unaudited Consolidated Statements of Cash Flows 6
for the six month periods ended June 30, 2000 and 1999
Notes to Unaudited Consolidated Financial Statements 7
ITEM 2 -- Management's Discussion and Analysis of 13
Results of Operations and Financial Condition
ITEM 3 -- Quantitative and Qualitative Disclosures About Market Risk 23
PART II -- Other Information 24
ITEM 1 -- Legal Proceedings
ITEM 2 -- Changes in Securities
ITEM 3 -- Defaults Upon Senior Securities
ITEM 4 -- Submission of Matters to a Vote of Security Holders
ITEM 5 -- Other Information ITEM 6 -- Exhibits and Reports on Form 8-K
Signature - RenaissanceRe Holdings Ltd. 25
-2-
Part I - Financial information
Item 1 - Financial statements
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands of United States Dollars, except per share amounts)
AS AT
-----------------------------------------
JUNE 30, 2000 DECEMBER 31, 1999
-------------------- ------------------
Assets (Unaudited)
Fixed maturity investments available for sale, at fair value
(Amortized cost $942,093 and $926,176 at June 30, 2000 and
December 31, 1999, respectively) $ 930,330 $ 907,706
Short term investments, at cost 11,054 12,759
Other investments 35,208 22,204
Cash and cash equivalents 184,427 132,112
-------------------- ------------------
Total investments and cash 1,161,019 1,074,781
Premiums receivable 167,248 80,455
Ceded reinsurance balances 63,564 50,237
Losses and premiums recoverable 219,745 328,627
Accrued investment income 13,755 13,456
Deferred acquisition costs 14,412 14,221
Other assets 56,306 55,466
-------------------- ------------------
TOTAL ASSETS $ 1,696,049 $ 1,617,243
==================== ==================
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
LIABILITIES
Reserve for claims and claim expenses $ 436,146 $ 478,601
Reserve for unearned premiums 165,684 98,386
Bank loans 250,000 250,000
Reinsurance balances payable 89,523 50,157
Other 39,825 50,140
-------------------- ------------------
TOTAL LIABILITIES 981,178 927,284
-------------------- ------------------
Minority Interest - Company obligated mandatorily redeemable
Capital Securities of a subsidiary trust holding solely junior
subordinated debentures of the Company 89,630 89,630
SHAREHOLDERS' EQUITY
Common shares and additional paid-in capital 27,686 19,686
Unearned stock grant compensation (14,562) (10,026)
Accumulated other comprehensive income (11,763) (18,470)
Retained earnings 623,880 609,139
-------------------- ------------------
TOTAL SHAREHOLDERS' EQUITY 625,241 600,329
-------------------- ------------------
TOTAL LIABILITIES, MINORITY INTEREST, AND
SHAREHOLDERS' EQUITY $ 1,696,049 $ 1,617,243
==================== ==================
BOOK VALUE PER COMMON SHARE $ 32.49 $ 30.50
==================== ==================
COMMON SHARES OUTSTANDING 19,246 19,686
==================== ==================
The accompanying notes are an integral part of these financial statements
-3-
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2000
and 1999 (in thousands of United States Dollars,
except per share amounts)
(Unaudited)
QUARTERS ENDED YEAR TO DATE
----------------------------------- -----------------------------------
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
----------------- ---------------- ------------------ ---------------
Revenues
Gross Premiums Written $ 97,650 $ 67,374 $ 258,121 $ 222,469
================= ================ ================== ===============
Net premiums written $ 64,765 $ 34,929 $ 168,129 $ 151,213
Decrease (increase) in unearned premiums (2,246) 22,739 (52,845) (35,557)
----------------- ---------------- ------------------ ---------------
Net premiums earned 62,519 57,668 115,284 115,656
Net investment income 19,240 14,039 37,707 27,145
Net foreign exchange gains (losses) (169) 394 (306) (272)
Other income 1,709 460 3,111 191
Net realized losses on investments (3,594) (5,030) (10,381) (5,527)
----------------- ---------------- ------------------ ---------------
TOTAL REVENUES 79,705 67,531 145,415 137,193
----------------- ---------------- ------------------ ---------------
EXPENSES
Claims and claim expenses incurred 24,878 21,005 42,591 36,700
Acquisition expenses 7,602 6,025 14,844 12,809
Operational expenses 9,065 9,092 16,872 18,608
Corporate expenses 2,532 3,936 4,874 7,897
Interest expense 4,358 1,712 8,610 3,118
----------------- ---------------- ------------------ ---------------
TOTAL EXPENSES 48,435 41,770 87,791 79,132
----------------- ---------------- ------------------ ---------------
Income before minority interest and taxes 31,270 25,761 57,624 58,061
Minority interest - Company obligated mandatorily
redeemable Capital Securities of a subsidiary
trust holding solely junior subordinated
debentures of the Company 1,938 2,128 3,797 4,239
----------------- ---------------- ------------------ ---------------
Income before taxes 29,332 23,633 53,827 53,822
Income tax expense (benefit) (388) (416) 32 (245)
----------------- ---------------- ------------------ ---------------
NET INCOME $ 29,720 $ 24,049 $ 53,795 $ 54,067
================= ================ ================== ===============
Earnings per Common Share - basic $ 1.58 $ 1.17 $ 2.82 $ 2.60
Earnings per Common Share - diluted $ 1.55 $ 1.16 $ 2.79 $ 2.57
Operating earnings per Common Share - diluted $ 1.74 $ 1.40 $ 3.32 $ 2.84
Average shares outstanding - basic 18,851 20,524 19,059 20,831
Average shares outstanding - diluted 19,147 20,703 19,311 21,012
Claims and claim expense ratio 39.8% 36.4% 36.9% 31.7%
Expense ratio 26.7% 26.2% 27.5% 27.2%
----------------- ---------------- ------------------ ---------------
Combined ratio 66.5% 62.6% 64.4% 58.9%
================= ================ ================== ===============
The accompanying notes are an integral part of these financial statements
-4-
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands of United States Dollars)
(Unaudited)
2000 1999
--------- ---------
Common Stock & additonal paid-in capital
Balance -- January 1 $ 19,686 $ 39,035
Exercise of options, and issuance of stock and restricted
stock awards 8,672 6,295
Repurchase of capital securities -- 885
Repurchase of shares (672) (18,223)
--------- ---------
Balance -- June 30 27,686 27,992
--------- ---------
Unearned stock grant compensation
Balance -- January 1 (10,026) (8,183)
Restricted stock grants awarded, net (7,141) (5,372)
Amortization 2,605 1,618
--------- ---------
Balance -- June 30 (14,562) (11,937)
--------- ---------
Accumulated other comprehensive income (1)
Balance -- January 1 (18,470) (5,144)
Net unrealized gains (losses) on securities, net of
adjustment (see disclosure) 6,707 (11,091)
--------- ---------
Balance -- June 30 (11,763) (16,235)
--------- ---------
Retained earnings
Balance -- January 1 609,139 586,524
Net income 53,795 54,067
Dividends paid (14,618) (14,830)
Repurchase of shares (24,436) (17,526)
--------- ---------
Balance -- June 30 623,880 608,235
--------- ---------
Total Shareholders' Equity $ 625,241 $ 608,055
========= =========
COMPREHENSIVE INCOME
Net income $ 53,795 $ 54,067
Other comprehensive income 6,707 (11,091)
--------- ---------
Comprehensive income $ 60,502 $ 42,976
========= =========
DISCLOSURE REGARDING NET UNREALIZED GAINS (LOSSES)
Net unrealized holding losses arising during period $ (3,674) $ (16,618)
Net realized losses included in net income 10,381 5,527
--------- ---------
Change in net unrealized gains (losses) on securities $ 6,707 $ (11,091)
========= =========
(1) Note - comprehensive income (loss) for the quarters ended June 30, 2000 and
1999 were $1.9m and $(6.9m), respectively.
The accompanying notes are an integral part of these financial statements
-5-
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands of United States Dollars in thousands)
(Unaudited)
YEAR TO DATE
----------------------------------
JUNE 30, 2000 JUNE 30, 1999
--------------- ---------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income $ 53,795 $ 54,067
ADJUSTMENTS TO RECONCILE NET INCOME TO
CASH PROVIDED BY OPERATING ACTIVITIES
Amortization and depreciation (891) 1,653
Net realized investment losses 10,381 5,527
Amortization/ writeoff of goodwill 1,515 6,669
Change in:
Reinsurance balances, net (47,427) (114,719)
Ceded reinsurance balances (13,327) (22,657)
Deferred acquisition costs (191) (7,040)
Reserve for claims and claim expenses, net 66,427 76,307
Reserve for unearned premiums 67,298 59,480
Other 442 (6,227)
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 138,022 53,060
--------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds from sale of investments 1,032,239 980,331
Purchase of investments available for sale (1,078,425) (996,734)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (46,186) (16,403)
--------------- ---------------
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from bank loan -- 25,000
Purchase of capital securities -- (5,015)
Dividends paid (14,618) (14,830)
Purchase of Common Shares (25,108) (35,749)
--------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (39,726) (30,594)
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 52,315 6,063
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 132,112 115,701
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 184,427 $ 121,764
=============== ===============
The accompanying notes are an integral part of these financial statements
-6-
RenaissanceRe Holdings Ltd., and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)
1. The consolidated financial statements have been prepared on the basis of
United States generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. The
consolidated financial statements include the accounts of RenaissanceRe
Holdings Ltd. ("RenaissanceRe") and its wholly owned subsidiaries,
including 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"). Other consolidated entities
include DeSoto Insurance Company ("DeSoto"), a wholly owned subsidiary of
Glencoe; Nobel Insurance Company ("Nobel"), a wholly owned subsidiary of
Renaissance U.S.; and Renaissance Reinsurance of Europe ("Renaissance
Europe"), a subsidiary of Renaissance Reinsurance. RenaissanceRe and its
subsidiaries 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 the Trust.
Certain comparative information has been reclassified to conform to the
current presentation. Because of the seasonality of the Company's business,
the results of operations for any interim period will not necessarily be
indicative of results of operations for the full fiscal year.
2. Significant Accounting Policies
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.
3. 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 claims expenses from reinsurers in excess of
various retentions and loss warranties. The Company would remain liable to
the extent that any third party reinsurance company fails to meet its
obligations. The earned reinsurance premiums ceded were $75.5 million and
$50.8 million for the six months ended June 30, 2000 and 1999,
respectively. Other than loss recoveries, certain of the Company's ceded
reinsurance contracts provide for
-7-
recoveries of additional premiums, reinstatement premiums and coverage for
lost no claims bonuses which are incurred when losses are ceded to those
reinsurance contracts.
Total recoveries (reductions) netted against premiums and claims and claim
expenses incurred for the six months ended June 30, 2000 were $(0.5)
million compared to $78.5 million for the six months ended June 30, 1999.
Included in losses and premiums recoverable are recoverables of $20.2
million which are related to retroactive reinsurance agreements. In
accordance with SFAS No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," losses related to retroactive
reinsurance agreements are required to be included in claims and claim
expenses incurred as they become known. However, offsetting recoverables,
if any, are deferred and reflected in the statement of operations in future
periods, based on the recovery method. As of June 30, 2000, the Company has
deferred $11.0 million of recoveries related to a retroactive reinsurance
contract. This has been included in other liabilities on the consolidated
balance sheet. As the amounts are recovered, the recoveries will offset
claims and claim expenses incurred in the consolidated statement of
operations.
4. The Company paid interest on its outstanding loans of $8.6 million for the
six month period ended June 30, 2000 and $3.1 million for the same period
in the previous year. The increase in interest expense is due to additional
borrowings of $150 million in 1999. See "Financial Condition - Capital
Resources and Shareholders' Equity" for further discussion.
On March 1, 2000, the Company paid a semi-annual dividend of $4.3 million
on the Company obligated mandatorily redeemable capital securities of a
subsidiary trust holding solely junior subordinated debentures of the
Company ("Capital Securities").
5. 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. The following table sets forth the computation of
basic and diluted earnings per share:
-8-
- --------------------------------------------------------------------------------
Quarter ended June 30,
2000 1999
- --------------------------------------------------------------------------------
(in thousands of U.S. dollars except share and per share data)
- --------------------------------------------------------------------------------
Numerator:
Net income $ 29,720 $ 24,049
=========================
Denominator:
Denominator for basic earnings per share -
Weighted average shares 18,851,094 20,523,988
Per share equivalents of employee stock
Options and restricted shares 295,593 179,164
-------------------------
Denominator for diluted earnings per share -
Adjusted weighted average shares and
Assumed conversions 19,146,787 20,703,151
=========================
Basic earnings per share $ 1.58 $ 1.17
Diluted earnings per share $ 1.55 $ 1.16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Six months to June 30,
2000 1999
- --------------------------------------------------------------------------------
(in thousands of U.S. dollars except share and per share data)
- --------------------------------------------------------------------------------
Numerator:
Net income $ 53,795 $ 54,067
=========================
Denominator:
Denominator for basic earnings per share -
Weighted average shares 19,058,553 20,830,500
Per share equivalents of employee stock
Options and restricted shares 252,595 181,133
-------------------------
Denominator for diluted earnings per share -
Adjusted weighted average shares and
Assumed conversions 19,311,148 21,011,633
=========================
Basic earnings per share $2.82 $2.60
Diluted earnings per share $2.79 $2.57
- --------------------------------------------------------------------------------
7. The Board of Directors of the Company declared, and the Company paid, a
dividend of $0.375 per share to shareholders of record on each of February
17 and May 18, 2000. On August 3, 2000, the Board of Directors declared a
dividend of $0.375 per share payable on August 31, 2000 to shareholders of
record on August 17, 2000.
8. In May 2000, the Company announced an additional authorization of $25
million under its share repurchase program. Through June 30, 2000 the
Company repurchased 671,900 shares at an aggregate cost of $25.1 million.
9. 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
-9-
and homeowners catastrophe-exposed property business. Data for the three
and six month periods ended June 30, 2000 and 1999 are as follows:
- ------------------------------------------------------------------------------------------------
(IN THOUSANDS)
QUARTER ENDED JUNE 30, 2000
REINSURANCE PRIMARY OTHER TOTAL
----------------------------------------------------------
Gross premiums written $ 86,666 $ 10,984 $ - $ 97,650
Total revenues 74,188 2,487 3,030 79,705
Income (loss) before taxes 33,441 (887) (3,222) 29,332
ASSETS 1,238,032 255,310 202,707 1,696,049
----------------------------------------------------------
Claims and claim expense ratio 41.0% -11.1% - 39.8%
Expense ratio 25.7% 64.7% - 26.7%
----------------------------------------------------------
Combined ratio 66.7% 53.6% - 66.5%
----------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
QUARTER ENDED JUNE 30, 1999
REINSURANCE PRIMARY OTHER TOTAL
----------------------------------------------------------
Gross premiums written $ 56,575 $ 10,799 $ - $ 67,374
Total revenues 57,108 9,420 1,003 67,531
Income (loss) before taxes 27,530 (87) (3,810) 23,633
ASSETS 1,014,379 295,989 103,391 1,413,759
----------------------------------------------------------
Claims and claim expense ratio 33.7% 52.6% - 36.4%
Expense ratio 26.6% 24.1% - 26.2%
----------------------------------------------------------
Combined ratio 60.3% 76.7% - 62.6%
----------------------------------------------------------
- ------------------------------------------------------------------------------------------------
-10-
- -----------------------------------------------------------------------------------------------
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 2000
REINSURANCE PRIMARY OTHER TOTAL
----------------------------------------------------------
Gross premiums written $ 231,418 $ 26,703 $ - $ 258,121
Total revenues 133,718 6,291 5,406 145,415
Income (loss) before taxes 61,621 997 (8,791) 53,827
Assets 1,238,032 255,310 202,707 1,696,049
----------------------------------------------------------
Claims and claim expense ratio 37.9% 11.1% - 36.9%
Expense ratio 26.9% 39.2% - 27.5%
----------------------------------------------------------
Combined ratio 64.8% 50.3% - 64.4%
----------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
REINSURANCE PRIMARY OTHER TOTAL
----------------------------------------------------------
Gross premiums written $ 190,222 $ 32,247 $ - $ 222,469
Total revenues 112,367 23,017 1,809 137,193
Income (loss) before taxes 58,735 2,666 (7,579) 53,822
Assets 1,014,379 295,989 103,391 1,413,759
----------------------------------------------------------
Claims and claim expense ratio 29.5% 42.7% - 31.7%
Expense ratio 26.1% 29.2% - 27.2%
----------------------------------------------------------
Combined ratio 55.6% 71.9% - 58.9%
----------------------------------------------------------
- -----------------------------------------------------------------------------------------------
The Company's Bermuda holding company is the primary contributor to the
results reflected in the "Other" category. The pre-tax loss of the holding
company 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 company.
9. The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences
between financial and tax reporting. Deferred tax assets and liabilities
are determined based on the difference between the financial statement
bases and tax bases of assets and liabilities using enacted tax rates.
The Company's U.S. subsidiaries are subject to U.S. tax. Included in other
assets is a net deferred tax asset of $23.6 million. These net operating loss
carryforwards and future tax deductions will be available to offset regular
taxable U.S. income during the carryforward period (through 2018), subject to
certain limitations.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is a discussion and analysis of the Company's results of
operations for the three months and six months ended June 30, 2000 and 1999 and
financial condition as of June 30, 2000. This discussion and analysis should be
read in conjunction with the attached unaudited consolidated financial
statements and notes thereto and the audited consolidated financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
GENERAL
The Company provides reinsurance and insurance where risk of natural catastrophe
represents a significant component of the overall exposure. The Company's
results depend to a large extent on the frequency and severity of catastrophic
events, and the concentration and coverage offered to clients impacted thereby.
In addition, 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.
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2000 COMPARED TO THE QUARTER ENDED JUNE 30, 1999
For the quarter ended June 30, 2000, net income available to common shareholders
was $29.7 million or $1.55 per share, compared to $24.0 million or $1.16 per
share for the same quarter in 1999.
Gross premiums written for the second quarter of 2000 and 1999 were as follows:
---------------------------------------------------------------------
Quarter ended
(in thousands) 30-Jun-00 30-Jun-99
---------------------------------
Reinsurance $ 86,666 $ 56,575
---------------------------------
Primary 10,984 10,799
---------------------------------
$97,690 $67,374
---------------------------------------------------------------------
The majority of the increase in premiums written by Renaissance Reinsurance
company during the second quarter was due to three items: 1) finite and non-cat
premiums written; 2) an increase of reinstatement premiums received; and 3)
increased premiums related to timing differences of premiums recorded in the
second quarter of 2000 compared with the same premiums being recorded in the
third quarter of 1999.
-12-
The Company expects that premiums from its non-catastrophe and finite contracts
will continue to increase in the future. Also, the Company believes that there
is potential for increased reinstatement premiums to the extent that there is
additional development of the 1999 losses from the European storms.
During the second quarter of 2000, ceded premiums written were $33.2 million,
compared with $32.4 million for the same quarter in 1999. The ceded reinsurance
for the reinsurance company was $18.4 million for the quarter ended June 30,
2000 compared with $23.4 million for the same period in the prior year. Ceded
reinsurance for the primary companies was $14.5 million for the quarter ended
June 30, 2000 compared with $12.3 million for the same period of the previous
year.
The table below sets forth the Company's combined ratio and components thereof,
split by segment for the quarters ended June 30, 2000 and 1999:
----------------------------------------------------------------------------------
REINSURANCE PRIMARY TOTAL
----------------------------------------------------------------------------------
QUARTER ENDED: 30-Jun-00 30-Jun-99 30-Jun-00 30-Jun-99 30-Jun-00 30-Jun-99
----------------------------------------------------------------------------------
Loss ratio 41.0% 33.7% -11.1% 52.6% 39.8% 36.4%
Expense ratio 25.7% 26.6% 64.7% 24.1% 26.7% 26.2%
----------------------------------------------------------------------------------
Combined ratio 66.7% 60.3% 53.6% 76.7% 66.5% 62.6%
----------------------------------------------------------------------------------
The loss ratio on the reinsurance business primarily increased due to the
Company's increase in IBNR related to the fourth quarter 1999 European storm
losses. Offsetting such development were reinstatement premiums received by the
Company during the quarter. Also adding to the increase in the loss ratio was
the Company's increased writings of finite premiums which normally will produce
a higher loss and combined ratio than the property catastrophe business
predominantly written by the reinsurance company. Since the Company expects to
continue to write additional finite premiums in the future, the Company expects
that the combined ratio of the reinsurance segment will modestly increase in the
future.
Because the Company cedes the majority of the premiums written by its primary
companies, any one time adjustments to the net written premiums, claim and claim
adjustment expenses incurred, acquisition expenses or operating expenses can
cause unusual fluctuations in the insurance ratios of the primary operations.
Accordingly, a decrease in the prior year loss reserves of DeSoto was a primary
source of the fluctuations in the insurance ratios at the primary companies for
the quarter. Net earned premiums of the primary companies were $1.5 million in
the second quarter of 2000 compared with $8.2 million for the same quarter of
1999.
Net investment income, excluding realized investment gains and losses, for the
second quarter of 2000 was $19.2 million, compared to $14.0 million for the same
period in 1999. The increase in investment income primarily relates to an
increase in invested assets from additional drawings under the Company's line of
credit facility of $150 million during 1999 and an increase in investment yields
during the second quarter of 2000 as compared with the second quarter of 1999.
-13-
Corporate expenses decreased to $2.5 million for the quarter ended June 30,
2000, compared with $3.9 million for the same period in 1999. Included in the
second quarter of 1999 was a write-off of $3.2 million of goodwill related to
the purchase of the operating subsidiaries of Nobel Limited.
Interest expense and minority interest for the quarter ended June 30, 2000
increased to $6.3 million from $3.8 million for the same period in 1999. The
increase was primarily related to increased borrowings in 1999 under the
Company's revolving credit facility and higher interest rates.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1999
For the six months ended June 30, 2000, net income available to common
shareholders was $53.8 million or $2.79 per share, compared to $54.1 million or
$2.57 per share for the same period in 1999. Gross premiums written for the six
months ended June 30, 2000 and 1999 were as follows:
- ---------------------------------------------------------------------------
Six months ended
(in thousands) 30-Jun-00 30-Jun-99
----------------------------
Reinsurance $ 231,418 $ 190,222
Primary 26,703 32,247
----------------------------
$ 258,121 $ 222,469
----------------------------
- ---------------------------------------------------------------------------
The majority of the increase in premiums written by Renaissance Reinsurance
company during the first six months was due to three items: 1) finite and
non-cat premiums written; 2) an increase of reinstatement premiums received; and
3) increased premiums related to timing differences of premiums recorded in the
first six months of 2000 compared with the same premiums being recorded in the
third quarter of 1999.
During the first six months of 2000, ceded premiums written were $90.6 million,
compared with $71.3 million for the same period in 1999. The increase in ceded
premiums primarily relates to two items; 1) Renaissance Reinsurance ceded a
greater amount of premium for the first six months of 2000 ($62.6 million),
compared with the first six months of 1999 ($49.7 million), and 2) with the
reduction in the operations at Nobel, Nobel has ceded the majority of its gross
premiums written, totaling $20.6 million of ceded premium in the first six
months of 2000 compared with $12.1 million for the first six months of 1999.The
table below sets forth the Company's combined ratio and components thereof,
split by segment for the six months ended June 30, 2000 and 1999:
-14-
----------------------------------------------------------------------------------
REINSURANCE PRIMARY TOTAL
----------------------------------------------------------------------------------
SIX MONTHS ENDED: 30-Jun-00 30-Jun-99 30-Jun-00 30-Jun-99 30-Jun-00 30-Jun-99
----------------------------------------------------------------------------------
Loss ratio 37.9% 29.5% 11.1% 42.7% 36.9% 31.7%
Expense ratio 26.9% 26.1% 39.2% 29.2% 27.5% 27.2%
----------------------------------------------------------------------------------
Combined ratio 64.8% 55.6% 50.3% 71.9% 64.4% 58.9%
----------------------------------------------------------------------------------
The loss ratio on the reinsurance business increased primarily as a result of
loss development arising out of the fourth quarter 1999 European storm losses
and estimates for loss events that occurred during the first quarter of 2000,
which were greater than the estimates related to the events occurring in the
first quarter of 1999. The decrease in the loss ratio on the Company's Primary
Operations is primarily related to reduced loss costs from Nobel's operations
due to the reduction and/or elimination of the majority of its business, as well
as a reduction in the loss reserves of DeSoto.
Underwriting expenses are comprised of acquisition expenses and operational
expenses. The expense ratio for the reinsurance book of business has remained
relatively flat in comparison to prior year. The increase in premiums earned had
no corresponding increase in the costs to operate the reinsurance operations.
The increase in the expense ratio for the primary book of business was primarily
related to increased costs of reinsurance ceded in Nobel and DeSoto which
lowered the net premiums earned without reducing the acquisition costs of the
companies.
Total acquisition costs were $14.8 million for the six months ended June 30,
2000 and $12.8 million for the same period in 1999. Operating expenses decreased
to $16.9 million compared to $18.6 million in the same period of 1999 primarily
because of the decrease of operations in Nobel as a result of the sale and
reinsurance of the primary business units of Nobel during 1999.
Net investment income, excluding realized investment gains and losses, for the
six months ended June 30, 2000 was $37.7 million, compared to $27.1 million for
the same period in 1999. The increase in investment income relates to an
increase in invested assets from additional drawings under the Company's line of
credit facility of $150.0 million during 1999 and an increase in investment
yields during the first six months of 2000 as compared with the first six months
of 1999.
Corporate expenses decreased to $4.9 million for the six months ended June 30,
2000, compared with $7.9 million for the same period in 1999. Included in the
first six months of 1999 was a write-off of $6.6 million of goodwill related to
the purchase of the operating subsidiaries of Nobel Limited. Excluding goodwill,
the overall increase in corporate expenses relates to expenses arising from the
Primary Operations and certain one-time expenses.
Interest expense and minority interest for the six months ended June 30, 2000
increased to $12.4 million from $7.4 million for the same period in 1999. The
increase was primarily related to increased borrowings in 1999 under the
Company's revolving credit facility and higher interest rates.
-15-
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL REQUIREMENTS
As a holding company, RenaissanceRe relies on investment income and cash
dividends and permitted payments from its subsidiaries to make principal
payments, interest payments, cash distributions on outstanding obligations and
quarterly dividend payments, if any, to its shareholders. The payment of
dividends by the Company's Bermuda subsidiaries to RenaissanceRe is, under
certain circumstances, limited under Bermuda insurance law. The Bermuda
Insurance Act of 1978, amendments thereto (the "Act") and related regulations of
Bermuda require the Company's Bermuda subsidiaries to maintain certain measures
of solvency and liquidity. As at June 30, 2000 the statutory capital and surplus
of the Company's Bermuda subsidiaries was $660.6 million, and the amount
required to be maintained was $101.0 million. Through June 30, 2000, Renaissance
Reinsurance paid aggregate cash dividends of $22.6 million compared to $21.6 for
the same period in 1999. Glencoe is eligible as an excess and surplus lines
insurer in a number of states in the U.S. There are various capital and surplus
requirements in these states, with the most onerous requiring Glencoe to
maintain a minimum of $15 million in capital and surplus. In this regard, the
declaration of dividends from retained earnings and distributions from
additional paid-in capital are limited to the extent that the above requirements
are met. 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 amounted to
$33.3 million at June 30, 2000 and the amount required to be maintained was
$22.4 million.
Cash Flows
- ----------
The Company'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 $310.0 million
credit facility which is available to the holding company, RenaissanceRe, to
meet the liquidity needs of the Company's subsidiaries should the need arise.
Approximately $208.0 million was outstanding under the credit facility as of
June 30, 2000.
Cash flows from operations in the first six months of 2000 were $129.6 million,
compared to $53.1 million for the same period in 1999. The significant increase
arose partly due to paid loss recoveries received from the Company's reinsurers.
The Company has produced cash flows from operations for the full years of 1999
and 1998 significantly in excess of its commitments. To the extent that capital
is not utilized in the Company's reinsurance business, the Company will consider
using such capital to invest in new opportunities or will consider returning
such capital to its shareholders.
-16-
Because of the potential high severity and low frequency of losses on the
coverages written by the Company, and the seasonality of the Company's business,
it is not possible to accurately predict the Company's future cash flows from
operating activities. As a consequence, cash flows from operating activities may
fluctuate, perhaps significantly, between individual quarters and years.
RESERVES
During the six months ended June 30, 2000 the Company incurred net claims of
$42.6 million and paid net losses of $(0.3) million. The Company's policy of
purchasing reinsurance coverage continues to have a favorable impact on net
incurred claims. Due to the high severity and low frequency of losses related to
the property catastrophe insurance and reinsurance business, there can be no
assurance that the Company will continue to experience this level of losses.
For the Company's reinsurance operations, estimates of claims and claim expenses
and the related recoveries are based in part upon 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 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 and the related recoveries. The period of time between
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
may be revealed. As these factors become apparent, case reserves may 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.
-17-
CAPITAL RESOURCES AND SHAREHOLDERS' EQUITY
The total capital resources of the Company as at June 30, 2000 and December 31,
1999 was as follows:
--------------------------------------------------------------------------------------------------------------
June 30, December 31,
(in thousands) 2000 1999
--------------------------------------------------------------------------------------------------------------
Term loan payable $ 42,000 $ 50,000
Revolving Credit Facility-- borrowed 208,000 200,000
Revolving Credit Facility-- unborrowed 102,000 100,000
Minority interest-- Company obligated mandatorily 89,630 89,630
redeemable capital securities of a subsidiary trust
Shareholders' Equity 625,241 600,329
--------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL RESOURCES $1,066,871 $1,039,959
--------------------------------------------------------------------------------------------------------------
The Company has a $310.0 million committed revolving credit and term loan
agreement with a syndicate of commercial banks. Interest rates on the facility
are based on a spread above LIBOR, and averaged approximately 6.8 percent during
the first six months of 2000 (5.5 percent for the same period in 1999). The
credit agreement contains certain financial covenants including requirements
that the ratio of consolidated debt to capital does not exceed 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. The Company was in compliance
with all the covenants of this revolving credit and term loan agreement as at
June 30, 2000.
Renaissance U.S. has a $27 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 6.7 percent during the first
six months of 2000 (5.8 percent for the first six months of 1999). The Credit
Agreement contains 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. Under
the terms, the Company repaid $8.0 million of the loan in June 2000. The Company
was in compliance with all the covenants of this term loan and revolving loan
facility as at June 30, 2000.
The Capital Securities pay cumulative cash distributions at an annual rate of
8.54 percent, payable semi-annually. The Indenture relating to the Capital
Securities contains certain covenants, including a covenant prohibiting the
payment of dividends by the Company if the
-18-
Company shall be in default under the Indenture. The Company was in compliance
with all of the covenants of the Indenture at June 30, 2000.
During the first six months of 2000, shareholders' equity increased by $24.9
million, from $600.3 million at December 31, 1999 to $625.2 million at June 30,
2000. The significant components of the change included, the payment of
dividends of $14.6 million and the repurchase of common shares of $24.4 million,
offset by net income from continuing operations of $53.8 million and a decrease
in the unrealized depreciation on investments of $6.7 million.
INVESTMENTS
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:
------------------------------------------------------------------------------------------------------
June 30, December 31,
(in thousands) 2000 1999
------------------------------------------------------------------------------------------------------
Investments available for sale, at fair value $ 930,330 $ 907,706
Short term investments 11,054 12,759
Other investments 35,208 22,204
Cash and cash equivalents 184,427 132,112
------------------------------------------------------------------------------------------------------
TOTAL INVESTED ASSETS $1,161,019 $1,074,781
------------------------------------------------------------------------------------------------------
At June 30, 2000, the invested asset portfolio had a dollar weighted average
rating of AA, an average duration of 2.6 years and an average yield to maturity
of 7.9 percent, prior to investment expenses.
All fixed income securities in the Company's investment portfolio are classified
as securities available for sale and are carried at fair value. Any unrealized
gains or losses as a result of changes in fair value over the period such
investments are held are not reflected in the Company's statement of operations,
but rather are reflected in accumulated other comprehensive income in the
consolidated statement of shareholders' equity, in accordance with SFAS No. 115
and 130.
As at June 30, 2000 the Company held investments and cash totaling $1.2 billion
with a net unrealized depreciation balance of $11.8 million. The Company's
investment portfolio is subject to the risks of declines in realizable value.
The Company attempts to mitigate this risk through the diversification and
active management of its portfolio.
At June 30, 2000, $17.5 million of cash and cash equivalents were invested in
currencies other than the U.S. dollar, which represented 1.5 percent of the
Company's invested assets.
The Company has entered into forward purchase agreements allowing it to acquire
certain foreign currencies to fund the payment of non-dollar losses.
-19-
EFFECTS OF INFLATION
The potential exists, after a catastrophe loss, for the development of
inflationary pressures in a local or regional economy. The anticipated effects
on the Company are implicitly considered in the Company's catastrophe loss
models. The effects of inflation are also considered in pricing and in
estimating reserves for unpaid claims and claim expenses. The actual effects of
this post event inflation on the results of the Company cannot be accurately
known until claims are ultimately settled.
CURRENT OUTLOOK
Due to industry losses in 1999, and the related contraction of capacity in the
market, prices have stabilized, and prices in the Company's markets on certain
programs have increased significantly. However, even where prices have
increased, the Company believes that there continues to be numerous transactions
in the market that are under-priced relative to expected losses.
The Company believes that because of its competitive advantages, including its
technological capabilities and its relationships with leading brokers and ceding
companies, it is able to identify contracts that are adequately priced and will
continue to find opportunities in the property catastrophe reinsurance markets.
Because of prior year loss activity, the Company's aggregate cost for
reinsurance protection has increased during the current year and accordingly, in
certain geographic regions the Company has retained a greater level of net risk
in the current year as compared with the previous year.
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. The Company believes that its financial strength will
enable it to continue to pursue other opportunities in the future. There can be
no assurance that the Company's pursuit of such opportunities will materially
impact the Company's financial condition and results of operations.
SAFE HARBOUR 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 contained
in this 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
-20-
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;
(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 Revenue 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'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.
-21-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET SENSITIVE INSTRUMENTS
The Company's investment portfolio includes investments which are available for
trading purposes and 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 2.6 percent, which equates to a decrease in
market value of approximately $29.3 million on a portfolio valued at $1,126.0
million at June 30, 2000. An immediate time horizon was used, as this presents
the worst-case scenario.
-22-
PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings
None
Item 2 -- Changes in Securities and Use of Proceeds
None
Item 3 -- Defaults Upon Senior Securities
None
Item 4 -- Submission of Matters to a Vote of Security Holders
(a) The registrant's 2000 Annual General Meeting of Shareholders was held
on May 3, 2000.
(b) Proxies were solicited by the Company's management pursuant to
Regulation 14A under the Securities Exchange Act of 1934; there was no
solicitation in opposition to management's nominees as listed in the
proxy statement; all of such nominees were elected for a one year term.
(c) The following matters were voted upon at the Annual General Meeting
with the voting results as indicated:
(1) The Company Board Proposal.
The Company's Bye-Laws provide for a classified Board, consisting of eleven
members (which the Board may determine to expand to twelve members) divided
into three classes of approximately equal size. At the Annual Meeting, the
shareholders elected four of the eleven directors as Class II Directors,
who shall serve until the Company's 2003 Annual Meeting.
Class II Directors (whose
terms will expire (if
elected) in 2003)
Nominee Votes for Votes withheld
------- --------- --------------
Thomas A. Cooper 17,736,674 93,367
Kewsong Lee 17,736,794 93,247
W. James MacGinnitie 17,736,194 93,847
James N. Stanard 17,736,894 93,147
-23-
(2) The Company's Auditors Proposal.
Proposal to appoint Ernst & Young independent auditors of the Company for
the 2000 fiscal year.
Votes For Votes Against Votes withheld
--------- ------------- --------------
17,827,219 110 2,712
(3) The Renaissance Board Proposal.
In accordance with the Company's Bye-Laws, shareholders of the Company are
entitled to vote on proposals to be considered by the Company, as the
holder of all outstanding capital shares of Renaissance Reinsurance Ltd.,
("Renaissance"), at all general meetings of shareholders of Renaissance.
Four directors of Renaissance were to be elected at the Annual Meeting. The
Bye-Laws of Renaissance provide for a classified Board, consisting of
eleven members (which the Renaissance Board may determine to expand to
twelve members) divided into three classes of approximately equal size. At
the Annual Meeting, the shareholders elected four Class II Directors of
Renaissance, who shall serve until the Renaissance 2003 Annual Meeting.
Class II Directors (whose
terms will expire (if
elected) in 2003)
Nominee Votes for Votes withheld
------- --------- --------------
Thomas A. Cooper 17,813,801 16,240
Kewsong Lee 17,820,551 9,490
W. James MacGinnitie 17,811,351 18,690
James N. Stanard 17,814,651 15,390
-----------------------------------
(4) The Renaissance Auditors Proposal.
Proposal to appoint Ernst & Young independent auditors of Renaissance for
the 2000 fiscal year.
Votes For Votes Against Votes Withheld
--------- ------------- --------------
17,827,419 110 2,512
Item 5 -- Other Information
None
-24-
Item 6 -- Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit 10.1 - Employment Agreement dated as of June 1, 2000 between
the Company and John M. Lummis.
Exhibit 27 - Financial Data Schedule.
b. Current Reports on Form 8-K:
The Registrant did not file any reports on Form 8-K during the period
beginning April 1, 2000 and ending June 30, 2000.
-25-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
RENAISSANCERE HOLDINGS LTD.
By: /s/ John M. Lummis
------------------
John M. Lummis
Senior Vice President and
Chief Financial Officer
Date: August 14, 2000
-26-
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of June 1, 2000 and is entered into
between RenaissanceRe Holdings Ltd., a Bermuda company (the "Company"), and John
Lummis ("Employee").
WHEREAS, Employee is currently employed by the Company; and
WHEREAS, Employee and the Company desire to embody in this Agreement the
terms and conditions under which Employee shall continue to be employed by the
Company.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I.
EMPLOYMENT, DUTIES AND RESPONSIBILITIES
1.01 Employment. During the Term (as defined below), Employee shall serve
as a key employee of the Company. Employee agrees to devote his full time and
efforts to promote the interests of the Company.
1.02 Duties and Responsibilities. Employee shall have such duties and
responsibilities as specified by the person to which the Employee directly
reports and who supervises the Employee's work an a regular basis (the "Direct
Supervisor"). These duties and responsibilities may be modified from time to
time and as are consistent with the Employee's position.
1.03 Base of Operation. Employee's principal base of operation for the
performance of his duties and responsibilities under this Agreement shall be the
offices of the Company in Bermuda; provided, however, that Employee shall
perform such duties and responsibilities outside of Bermuda as shall from time
to time be reasonably necessary to fulfill his obligations hereunder. Employee's
performance of any duties and responsibilities outside of Bermuda shall be
conducted in a manner consistent with any guidelines provided to Employee by the
Board of Directors of the Company (the "Company's Board").
ARTICLE II.
TERM
2.01 Term. Subject to Article V, the employment of the Employee under this
Agreement shall be for a term (the "Term") commencing as of the date first
written above and continuing until the first anniversary of the commencement of
employment; provided, however, that the Term shall be extended for successive
one-year
1
periods as of each anniversary date of the commencement of employment(each, a
"Renewal Date") unless, with respect to any such Renewal Date, either party
hereto gives the other party at least 30 days prior written notice of its
election not to so extend the Term.
ARTICLE III.
COMPENSATION AND EXPENSES
3.01 Salary, Incentive Awards and Benefits. As compensation and
consideration for the performance by Employee of his obligations under this
Agreement, Employee 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 Employee a base salary at a
rate to be determined by the Company's Board, upon recommendation of the
Direct Supervisor, or if such Direct Supervisor is not an officer of the
Company, an officer of the Company. Bonuses shall be payable at the
discretion of the Company. Salary and bonuses shall be 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.
(b) Awards. Employee may participate in the Second Amended and
Restated 1993 Stock Incentive Plan (the "Plan") of RenaissanceRe Holdings
Ltd. ("Holdings"), the Company's ultimate parent company. Employee may
receive grants from time to time as determined by the Compensation
Committee of the Holdings Board of Directors. Employee 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. Employee 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 employees of the Company, subject to the terms and
provisions of such plan or program.
(d) Vacation. Employee shall be entitled to reasonable paid vacation
periods, in accordance with Company policy, 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 Employee's supervisor at the Company.
(e) Indemnification/Liability Insurance. The Company shall indemnify
Employee as required by the Bye-laws, and may maintain customary insurance
policies providing for indemnification of Employee.
2
3.02 Expenses; Perquisites. During the Term, the Company shall provide
Employee with the following expense reimbursements and perquisites:
(a) Business Expenses. The Company will reimburse Employee 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) Other benefits. The Company may also provide for other benefits
for Employee as it determines from time to time.
ARTICLE IV.
EXCLUSIVITY, ETC._
4.01 Exclusivity. Employee agrees to perform his duties, responsibilities
and obligations hereunder efficiently and to the best of his ability. Employee
agrees that he will devote his entire working time, care and attention and best
efforts to such duties, responsibilities and obligations throughout the Term.
4.02 Other Business Ventures. Employee 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, Employee may own, directly or indirectly, up to 1% of the
outstanding capital stock of any business having a class of capital stock which
is traded on any major stock exchange or in a national over-the-counter market.
4.03 Confidential Information. Employee 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 include any information designated as
confidential by the Company's Board and as to which Employee receives notice,
provided that Employee 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. Employee'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 Employee; (iii) is known to Employee prior to his receipt of such
information from the Company, as evidenced by written records of Employee or
(iv) is hereafter disclosed to Employee by a third party not under an obligation
of confidence to the Company. Employee 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
3
specifically permitted in writing by the Company's Board, any document or other
object containing or reflecting any such confidential information. Employee
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, Employee shall forthwith deliver to the
Company all such confidential information, including without limitation all
lists of customers, correspondence, accounts, records and any other documents or
property made or held by him or under his control in relation to the business or
affairs of the Company or its subsidiaries or affiliates, and no copy of any
such confidential information shall be retained by him.
4.04 Non-Competition Obligations. During the Term and, other than in the
case of the death or disability of the Employee, upon any termination of the
employment of the Employee (including a termination by reason of either party's
election not to extend the Term as provided in Section 2.01), the Employee shall
not, during the Non-Competition Period (as defined below), directly or
indirectly, whether as an employee consultant, independent contractor, partner,
joint venture or otherwise, (A) engage in any business a - activities relating
to catastrophe modeling, or underwriting catastrophe risks, on behalf of any
person that competes, to a material extent, with the Company or its affiliates,
or engage in other business activities reasonably determined by the Company's
board to be competitive, to a material extent, with any substantial type of kind
of business activities conducted by the Company or any of its affiliates at the
time of 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) any termination of employment by
the Company or the Employee, and(ii) an election by the Company or the Employee
not to extend the term as provided in Section 2.01, the Company may elect within
30 days after such termination, to waive the Employee's non-competition
obligations in which case it shall not be required to make payments to the
Employee during the Non-Competition Period, as provided in section 5.05(a).
Non-Competition Period means the period of one year following the date of
termination of employment, or such shorter period as the Company may elect
within 30 days after such termination.
4.05 Remedies. Employee 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 Employee 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
4
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
5.01 Termination for Cause. The Company shall have the right to terminate
Employee's employment at any time for "Cause". For purposes of this Agreement,
"Cause" shall mean (a) Employee's failure to perform his duties under this
Agreement, (b) the engaging by Employee in misconduct which is injurious to the
Company or any of its divisions, subsidiaries or affiliates, monetarily or
otherwise, (c) the commission by Employee of any act of fraud or embezzlement
(d) the conviction of Employee of a felony, or (e) Employee's material breach of
the provisions of any of Sections 4.01, 4.02, 4.03, or 4.04 of this Agreement,
provided Employee has received prior written notice of such breach.
5.02 Death. In the event Employee dies during the Term, the Employee's
employment shall automatically terminate, such termination to be effective on
the date of Employee's death.
5.03 Disability. In the event that Employee suffers a disability which
prevents him from substantially performing his duties under this Agreement for a
period of at least 90 consecutive days, or 18d non-consecutive days within any
365-day period, and Employee becomes eligible for the Company's long-term
disability plan, the Company shall have the right to terminate the Employee's
employment, such termination to be effective upon the giving of notice to
Employee in accordance with Section 6.03 of this Agreement.
5.04 Termination Without Cause. The Company may at any time terminate
Employee's employment for reasons other than Cause.
5.05 Effect of Termination.
(a) Obligations of Company. In the event of any termination of the
Employee's employment hereunder, the Company shall pay Employee any earned
but unpaid base salary up to the date of termination. In addition, upon a
termination of Employee's employment for any reason other than the
Employee's death or disability (including a termination by reason of either
party's election not to extend the Term as provided in Section 2.01), the
Company shall continue to pay Employee during the NonCompetition Period his
then current base salary (except that, in the event of a
5
Termination without Cause, or in the event that the Company elects not to
extend the Term as provided in Section 2.01, the continued monthly payments
shall be based on base salary plus a pro rata amount (proportionate to the
duration of the Non-Competition Period) of the highest regular bonus during
the prior 3 years). Such amounts shall be payable in equal monthly
installments commencing on the date which is one month after the date of
such termination and continuing for the term of the Non-Competition Period.
The preceding sentence notwithstanding, in the event of a termination of
employment described in the penultimate sentence of Section 4.04 of this
Agreement, if the Company elects to waive the Employee's noncompetition
obligation within 30 days after the date of such termination, the Company
shall not be required to make the payments described in the preceding
sentence.
(b) Awards. Employee'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 Employee in connection with the Plan.
(c) Obligations of Employee. Employee may terminate his employment at
any time by 10 days' written notice to the Company. Employee shall have no
obligations to the Company under this Agreement after the termination of
his employment, except and to the extent Sections 4.03, 4.04 or 4.05 shall
apply.
5.06 Termination Following a Change in Control. In the event that a Change
in Control occurs (as hereinafter defined) and, on or within 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).
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
6
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 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
6.01 Life Insurance. Employee agrees that the Company or any of its
divisions, subsidiaries or affiliates may apply for and secure and own insurance
on Employee's life (in amounts determined by the Company). Employee agrees to
cooperate
7
fully in the application for and securing of such insurance, including the
submission by Employee to such physical and other examinations, and the
answering of such questions and furnishing of such information by Employee, 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 Employee.
6.02 Benefit of Agreement; Assignment; Beneficiary.
(a) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns, including, without limitation,
any corporation or person which may acquire all or substantially all of the
Company's assets or business, or with or into which the Company may be
consolidated or merged. This Agreement shall also inure to the benefit of,
and be enforceable by, Employee and his personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
(b) The Company shall require any successor (whether direct or
indirect, by operation of law, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform
it if no such succession had taken place.
6.03 Notices. Any notice required or permitted hereunder shall be in
writing and shall be sufficiently given if personally delivered or if sent by
telegram or telex or by registered or certified mail, postage prepaid, with
return receipt requested, addressed: (a) in the case of the Company to
Renaissance Services 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 Employee; and
(b) in the case of Employee, to Employee at his then current home address as
shown on the Company's books, or to such other address as Employee shall
designate by written notice to the Company. Any notice given hereunder shall be
deemed to have been given at the time of receipt thereof by the person to whom
such notice is given.
6.04 Entire Agreement; Amendment. This Agreement contains the entire
agreement of the parties hereto with respect to the terms and conditions of
Employee'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. T-his Agreement may not be
changed or modified except by an instrument in writing signed by both of the
parties hereto.
6.05 Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate or be construed as a continuing waiver or as a
consent to or waiver of any subsequent breach hereof.
8
6.06 Headings. The Article and Section headings herein are for convenience
of reference only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
6.07 Enforcement. If any action at law or in equity is brought by either
party hereto to enforce or interpret any of the terms of this Agreement, the
prevailing party shall be entitled to reimbursement by the other party of the
reasonable costs and expenses incurred in connection with such action (including
reasonable attorneys' fees), in addition to any other relief to which such party
may be entitled. Employee shall have no right to enforce any of his rights
hereunder by seeking or obtaining injunctive or other equitable relief and
acknowledges that damages are an adequate remedy for any breach by the Company
of this Agreement.
6.08 Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the internal laws of Bermuda without reference
to the principles of conflict of laws. The parties submit to the non-exclusive
jurisdiction of the courts of Bermuda.
6.09 Agreement to Take Actions. Each party to this Agreement shall execute
and deliver such documents, certificates, agreements and other instruments, and
shall take such other actions, as may be reasonably necessary or desirable in
order to perform his or its obligations under this Agreement or to effectuate
the purposes hereof.
6.10 No Mitigation; No Offset. Employee 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 Employee.
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 Employee'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. Employee represents and warrants to the Company that
to the best of his knowledge, neither the execution and delivery of this
9
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 Employee serves as an employee under this Agreement, to the extent such
obligations relate to Employee'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 Employee serves as an
employee under this Agreement, to the extent such rights relate to
Employee'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 Employee have duly executed this
Agreement as of the date first above written.
RENAISSANCERE HOLDINGS LTD.
By: /s/ James Stanard
----------------------------------------
Name: James Stanard
Title: President and CEO
EMPLOYEE
By: /s/ John Lummis
----------------------------------------
Name: John Lummis
Title: Senior Vice President and CFO
EMPLOYMENT AGREEMENT ADDENDUM
This addendum supplements the terms of the Employment Agreement (the
"Agreement") dated June 1, 2000 between Renaissance Holdings Ltd., a Bermuda
company (the "Company"), and John Lummis ("Employee"). (All defined terms set
forth in the Agreement shall have the same meaning in this Addendum.)
WHEREAS, the Company and the Employee desire to provide for the minimum payment
to be received by the Employee in the event of a termination without Cause.
10
NOW THEREFORE, the parties agree:
Notwithstanding anything in the Agreement to the contrary, in the event that the
Employee is terminated by the Company without Cause, then
1. The Company shall make monthly payments to the Employee in an aggregate
amount equal to $457,100 (the "Required Amount").
2. The Company shall be deemed to have elected a Non-Competition Period equal
to one year multiplied by a fraction, the numerator of which is the
Required Amount and the Denominator of which is the full amount that would
otherwise be due pursuant to section 5.05 (a) of the Agreement in the event
of a Termination without Cause and an election by the Company to have a
Non-Competition Period of one year. In no event shall more than a one year
Non-Competition Period be required.
3. The only amount due to the Employee for the Non-Competition Obligations set
forth in section 4.04 of the Agreement shall be the Required Amount, except
that if the Company elects a longer period than that contemplated under
paragraph 2 above then the full amount specified in section 5.05 (a) of the
Agreement shall be due.
RENAISSANCERE HOLDINGS LTD.
By: /s/ James N. Stanard
---------------------------------
Name: James N. Stanard
Title: President and CEO
EMPLOYEE
By: /s/ John M. Lummis
---------------------------------
Name: John M. Lummis
Title: Senior Vice President and CFO
7
1,000
6-MOS
DEC-31-1999
JUN-30-2000
930,330
0
0
0
0
0
941,384
184,427
219,745
14,412
1,696,049
436,146
165,684
0
0
250,000
0
0
19,246
8,440
1,696,049
258,121
37,707
(10,381)
3,111
42,591
14,844
16,872
53,827
32
53,795
0
0
0
53,795
2.82
2.79
0
0
0
0
0
0
0
