UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 2, 2006
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| RenaissanceRe Holdings Ltd. | ||||||||||
| (Exact name of registrant as specified in its charter) | ||||||||||
| Bermuda | |
34-0-26512 | |
98-014-1974 | ||||||
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or other jurisdiction of incorporation) |
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(Commission File Number) | |
(IRS Employer Identification No.) |
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| Renaissance
House 8-20 East Broadway, Pembroke Bermuda |
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HM 19 | ||||
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(Zip Code) | ||||
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Registrant's telephone number, including area code: (441) 295-4513
Not
Applicable
(Former
name or former address, if changed since last
report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
![[ ]](https://cdn.kscope.io/ad8cdcb0f8a1a55cf5cecae3be08f5c7-ebox.gif){kind=small}
Written communications pursuant to Rule
425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under
the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition.
On May 2, 2006, RenaissanceRe Holdings Ltd. (the ‘‘Company’’) issued a press release announcing its financial results for the quarter ended March 31, 2006. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K. This Form 8-K and Exhibit 99.1 hereto are each being furnished to the Securities and Exchange Commission (the ‘‘SEC’’) pursuant to Item 2.02 of Form 8-K and are therefore not to be considered ‘‘filed’’ with the SEC.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
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| Exhibit # | |
Description | ||||
| 99.1* | |
Copy of the Company’s press release, issued May 2, 2006 | ||||
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| * | Exhibit 99.1 is being furnished to the SEC pursuant to Item 2.02 and is not being filed with the SEC. Therefore, this exhibit is not incorporated by reference in any of the registrant's other SEC filings. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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RENAISSANCERE HOLDINGS LTD. | |||||||||
| Date: May 3, 2006 | |
By: | |
\s\ John M. Lummis | ||||||
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Name: John M. Lummis | ||||||||
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Title: Executive Vice President, Chief | ||||||||
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Operating Officer and Chief Financial | ||||||||
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Officer | ||||||||
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INDEX TO EXHIBITS
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| Exhibit No. | |
Description | ||||
| 99.1* | |
Copy of the Company’s press release, issued May 2, 2006 | ||||
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| * | Exhibit 99.1 is being furnished to the SEC pursuant to Item 2.02 and is not being filed with the SEC. Therefore, this exhibit is not incorporated by reference in any of the registrant's other SEC filings. |
[RENAISSANCERE LOGO] RENAISSANCERE REPORTS RECORD OPERATING INCOME OF $195.7 MILLION FOR THE FIRST QUARTER OF 2006; RECORD OPERATING INCOME PER COMMON SHARE OF $2.73 VS. $0.76 FOR THE FIRST QUARTER OF 2005. $179.0 MILLION OF NET INCOME FOR THE FIRST QUARTER OF 2006; $2.49 NET INCOME PER COMMON SHARE VS. $0.62 FOR THE FIRST QUARTER OF 2005. PEMBROKE, BERMUDA, MAY 2, 2006 -- RenaissanceRe Holdings Ltd. (NYSE: RNR) today reported $195.7 million in first quarter operating income available to common shareholders compared to $54.5 million in the first quarter of 2005. Operating income excludes net realized investment losses of $16.8 million and $10.2 million in the first quarters of 2006 and 2005, respectively. Operating income per common share was $2.73 in the first quarter of 2006, compared to $0.76 in the first quarter of 2005. Net income available to common shareholders was $179.0 million or $2.49 per common share in the quarter, compared to net income available to common shareholders of $44.3 million or $0.62 per common share for the same quarter of 2005. Neill A. Currie, CEO, commented, "We had a strong first quarter with over 8% growth in our book value per common share. Our first quarter results benefited from light catastrophe losses and lower than expected reported claims on prior year reserves within our Reinsurance segment, but also demonstrate the ongoing strength of the RenaissanceRe business and franchise." Mr. Currie continued, "Given improving pricing and terms for catastrophe reinsurance, we grew our managed catastrophe reinsurance premium by 23% in the quarter; for the year, we continue to expect growth of over 15%, but recognize that there is substantial uncertainty - and potential upside - depending largely upon the ultimate magnitude of our opportunities in Florida. Conversely, we are seeing fewer attractive opportunities within specialty reinsurance than we had hoped. Our specialty premium declined by 43% which is more pronounced than our 2006 guidance of a 35% decline, although our specialty premium can fluctuate from quarter to quarter. Our Individual Risk segment is on track with our expectations of 15% top line growth for the year and generated solid underwriting income for the quarter." Mr. Currie added, "Overall, we are pleased with the performance for the quarter. The team is energized, and we are well positioned to participate in the hardening property catastrophe market we now see for this year." FIRST QUARTER 2006 RESULTS - -------------------------- PREMIUMS - -------- Gross premiums written for the first quarter of 2006 were $748.4 million, compared to $694.3 million for the same quarter of 2005. Gross premiums written include $577.7 million in gross premiums written for the Company's Reinsurance segment in the first quarter of 2006, compared to $585.3 million for the same quarter of 2005; and $170.7 million in gross premiums written for the Company's Individual Risk segment in the first quarter of 2006, compared to $109.0 million for the same quarter of 2005. Net premiums written for the first quarter of 2006 were $697.8 million, compared to $615.8 million for the same quarter of 2005. Net premiums written include $548.5 million in net premiums written for the Company's Reinsurance segment in the first quarter of 2006, compared to $528.1 million for the same quarter of 2005; and $149.4 million in net premiums written for the Company's Individual Risk segment in the first quarter of 2006, compared to $87.7 million for the same quarter of 2005. 1 Net premiums earned for the first quarter of 2006 were $351.7 million, compared to $301.5 million for the same quarter of 2005. Net premiums earned include $213.4 million in net premiums earned for the Company's Reinsurance segment in the first quarter of 2006, compared to $200.4 million for the same quarter of 2005; and $138.3 million in net premiums earned for the Company's Individual Risk segment in the first quarter of 2006, compared to $101.1 million for the same quarter of 2005. Premiums for the first quarter of 2006 include $174.1 million of gross premiums written, $176.7 million of net premiums written and $60.8 million of net premiums earned by the Company's consolidated joint venture, DaVinci Reinsurance Ltd. ("DaVinci"), during the first quarter of 2006, compared to $104.7 million of gross premiums written, $119.4 million of net premiums written and $40.9 million of net premiums earned by DaVinci during the first quarter of 2005. Since December, 2005, DaVinci has raised $374.3 million in equity capital (December 2005 and February 2006) and has increased its funded bank debt by $60.0 million (April 2006) to support its growth. UNDERWRITING RATIOS, RESERVE DEVELOPMENT - ---------------------------------------- For the first quarter of 2006, the Company generated a combined ratio of 53.7%, a loss ratio of 28.2% and an underwriting expense ratio of 25.5%, compared to a combined ratio, loss ratio and underwriting expense ratio of 90.2%, 66.9% and 23.3%, respectively, for the first quarter of 2005. During the first quarter of 2006, the Company recorded favorable development on prior year reserves of $41.9 million or a decrease of 11.9 percentage points in the Company's quarterly loss ratio. Net paid losses for the quarter were $247.0 million compared to $159.5 million in the first quarter of 2005. Reinsurance Segment The Company's Reinsurance segment generated a loss ratio of 17.2% and an underwriting expense ratio of 19.2% for the first quarter of 2006, compared to a loss ratio and underwriting expense ratio of 70.8% and 17.4%, respectively, for the first quarter of 2005. The results for the first quarter of 2006 include $75.7 million of current accident year net claims and claim expenses resulting in a current accident year loss ratio of 35.5%, compared to current accident year net claims and claim expenses and a current accident year loss ratio of $160.0 million and 79.9%, respectively, for the first quarter of 2005. The first quarter of 2005 was negatively impacted by European windstorm Erwin which generated $60.7 million of net claims and claim expenses in the first quarter of 2005 and added 30.3 percentage points to the 2005 first quarter loss ratio. During the first quarter of 2006, the Company's Reinsurance segment contributed $39.0 million of favorable development on prior year reserves or a decrease of 18.3 percentage points to the Company's quarterly loss ratio. The favorable development was driven by lower than expected reported claims on prior year reserves in the Company's specialty reinsurance unit. Individual Risk Segment The Company's Individual Risk segment generated a loss ratio of 45.2% and an underwriting expense ratio of 35.2% for the first quarter of 2006, compared to a loss ratio and underwriting expense ratio of 59.0% and 35.2%, respectively, for the first quarter of 2005. The results for the first quarter of 2006 include $65.4 million of current accident year net claims and claim expenses resulting in a current accident year loss ratio of 47.3%, compared to current accident year net claims and claim expenses and a current accident year loss ratio of $59.2 million and 58.5%, respectively, in the first quarter of 2005. During the quarter, the Company's Individual Risk segment contributed $2.9 million of favorable development on prior year reserves. EQUITY IN EARNINGS OF OTHER VENTURES - ------------------------------------ Equity in earnings of other ventures generated $6.6 million in income in the first quarter of 2006 compared to $7.6 million in income in the first quarter of 2005. In 2006 this included the Company's equity in the earnings of its 2 investments in Top Layer Reinsurance Ltd. ("Top Layer Re"), ChannelRe Holdings Ltd. ("ChannelRe") and Tower Hill Capital Holdings Inc. ("Tower Hill"). In 2005, it included the Company's equity in the earnings of its interests in Top Layer Re and ChannelRe. The decrease was principally due to a $0.7 million and a $0.4 million reduction of equity in earnings from Top Layer Re and ChannelRe, respectively. OTHER INCOME - ------------ During the first quarter of 2006 the Company recognized a $1.7 million net loss on fees and other items compared to a $3.5 million net loss in the first quarter of 2005. Fee income remained stable at $1.0 million in the first quarter of 2006 compared to the first quarter of 2005. Other items generated a loss of $2.7 million in the first quarter of 2006, principally driven by a $3.3 million mark-to-market loss on the Company's warrant to purchase 2.5 million shares of Platinum Underwriters Holding Ltd. ("Platinum") common stock, compared with a loss of $4.5 million in the first quarter of 2005, which included a $2.1 million mark-to-market loss on the Platinum warrant and a $2.0 million mark-to-market loss on the Company's short position in credit derivatives. NET INVESTMENT INCOME AND NET REALIZED GAINS AND LOSSES ON INVESTMENTS - ---------------------------------------------------------------------- Net investment income for the first quarter of 2006 was $80.4 million, compared to $51.2 million for the same quarter in 2005 reflecting a higher yield on our portfolio of fixed maturity investments available for sale and short term investments, partially offset by our decreased allocation to higher yield fixed maturity investments. Other investments, which include the Company's hedge fund and private equity investments, generated $26.7 million of net investment income in the first quarter of 2006 compared with $18.7 million in the first quarter of 2005. During the first quarter of 2006, the Company recorded $16.8 million of net realized losses compared to $10.2 million in the first quarter of 2005. Included in net realized losses are other than temporary impairment charges of $18.8 million and $2.8 million in the first quarter of 2006 and 2005, respectively, with respect to the Company's portfolio of fixed maturity investments available for sale. OTHER ITEMS - ----------- Corporate expenses of $5.7 million were incurred during the first quarter of 2006 compared to $11.3 million in the first quarter of 2005. The difference in such expenses principally relates to the difference in costs incurred related to the Company's internal review and the ongoing investigations into the Company and certain of its present and former executive officers by governmental authorities, which totaled $1.2 million in the first quarter of 2006 compared to $7.4 million in the first quarter of 2005. The Company's cash flows from operations were $146.1 million for the first quarter of 2006, compared to $253.2 million for the first quarter of 2005. Shareholders' equity attributable to common shareholders was $1.9 billion at March 31, 2006, compared to $1.8 billion at December 31, 2005. Book value per common share at March 31, 2006 was $26.65, compared to $24.52 per common share at December 31, 2005. This press release includes certain non-GAAP financial measures including "operating income," "operating income per common share," "operating return on average common equity (annualized)" and "managed catastrophe premium". A reconciliation of such measures to the most comparable GAAP figures in accordance with Regulation G is presented in the attached supplemental financial data. RenaissanceRe Holdings Ltd. will host a conference call on Wednesday, May 3, 2006 at 8:30 a.m. (EDT) to discuss this release. Live broadcast of the conference call will be available through the Investor Section of RenaissanceRe's website at www.renre.com. 3 RenaissanceRe Holdings Ltd. is a global provider of reinsurance and insurance. Our business consists of two segments: (1) Reinsurance, which includes catastrophe reinsurance, specialty reinsurance and certain joint ventures and other investments managed by our subsidiary RenaissanceRe Ventures Ltd., and (2) Individual Risk, which includes primary insurance and quota share reinsurance. Cautionary Statement under "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995: Statements made in this news release contain information about the Company's future business prospects. These statements may be considered "forward-looking." These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements. For further information regarding cautionary statements and factors affecting future results, please refer to RenaissanceRe Holdings Ltd.'s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2005. INVESTOR CONTACT: MEDIA CONTACT: Todd R. Fonner David Lilly or Dawn Dover Senior Vice President - Treasurer Kekst and Company RenaissanceRe Holdings Ltd. (212) 521-4800 (441) 239-4801 4 RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended March 31, 2006 and 2005 (in thousands of United States Dollars, except per share amounts) (Unaudited) THREE MONTHS ENDED ------------------------------------ MARCH 31, 2006 MARCH 31, 2005 -------------- -------------- REVENUES Gross premiums written $ 748,392 $ 694,333 ============== ============== Net premiums written $ 697,835 $ 615,793 Increase in unearned premiums (346,163) (314,292) -------------- -------------- Net premiums earned 351,672 301,501 Net investment income 80,434 51,215 Net foreign exchange gains 3,023 714 Equity in earnings of other ventures 6,552 7,567 Other loss (1,679) (3,515) Net realized losses on investments (16,756) (10,189) -------------- -------------- TOTAL REVENUES 423,246 347,293 -------------- -------------- EXPENSES Net claims and claim expenses incurred 99,178 201,648 Acquisition expenses 68,814 51,508 Operational expenses 20,931 18,843 Corporate expenses 5,739 11,339 Interest expense 9,301 6,605 -------------- -------------- TOTAL EXPENSES 203,963 289,943 -------------- -------------- Income before minority interest and taxes 219,283 57,350 Minority interest - DaVinciRe 31,457 4,384 -------------- -------------- Income before taxes 187,826 52,966 Income tax expense (183) - -------------- -------------- NET INCOME 187,643 52,966 Dividends on preference shares 8,663 8,663 -------------- -------------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 178,980 $ 44,303 ============== ============== Operating income available to common shareholders per Common Share - diluted (1) $ 2.73 $ 0.76 Net income available to common shareholders per Common Share - basic $ 2.52 $ 0.63 Net income available to common shareholders per Common Share - diluted $ 2.49 $ 0.62 Average shares outstanding - basic 70,935 70,358 Average shares outstanding - diluted 71,786 71,951 Net claims and claim expense ratio 28.2% 66.9% Underwriting expense ratio 25.5% 23.3% -------------- -------------- Combined ratio 53.7% 90.2% ============== ============== Operating return on average common equity (annualized) (1) 42.7% 10.2% ============== ============== (1) Excludes net realized losses on investments (see - "Comments on Regulation G") 5 RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES SUMMARY CONSOLIDATED BALANCE SHEETS (in thousands of United States Dollars, except per share amounts) AT ----------------------------------------- MARCH 31, 2006 DECEMBER 31, 2005 ------------------ ----------------- (Unaudited) (Audited) ASSETS Fixed maturity investments available for $ 3,101,935 $ 2,872,294 sale, at fair value Short term investments, at cost 1,621,623 1,653,618 Other investments, at fair value 506,974 586,467 Investments in other ventures, under equity method 172,618 178,774 ------------------ ----------------- Total investments 5,403,150 5,291,153 Cash and cash equivalents 240,684 174,001 Premiums receivable 566,956 363,105 Ceded reinsurance balances 62,856 57,134 Losses recoverable 625,697 673,190 Accrued investment income 31,785 25,808 Deferred acquisition costs 138,802 107,951 Other assets 88,332 178,919 ------------------ ----------------- TOTAL ASSETS $ 7,158,262 $ 6,871,261 ================== ================= LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY LIABILITIES Reserve for claims and claim expenses $ 2,419,252 $ 2,614,551 Reserve for unearned premiums 853,629 501,744 Debt 500,000 500,000 Subordinated obligation to capital trust 103,093 103,093 Reinsurance balances payable 268,620 292,307 Other liabilities 65,850 142,815 ------------------ ----------------- TOTAL LIABILITIES 4,210,444 4,154,510 ------------------ ----------------- Minority interest - DaVinciRe 531,929 462,911 SHAREHOLDERS' EQUITY Preference shares 500,000 500,000 Common shares and additional paid-in capital 352,055 351,285 Accumulated other comprehensive income 2,088 4,760 Retained earnings 1,561,746 1,397,795 ------------------ ----------------- TOTAL SHAREHOLDERS' EQUITY 2,415,889 2,253,840 ------------------ ----------------- TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY $ 7,158,262 $ 6,871,261 ================== ================= BOOK VALUE PER COMMON SHARE $ 26.65 $ 24.52 ================== ================= COMMON SHARES OUTSTANDING 71,881 71,523 ================== ================= 6 RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES UNAUDITED SUPPLEMENTAL FINANCIAL DATA - SEGMENT INFORMATION (in thousands of United States Dollars) THREE MONTHS ENDED MARCH 31, 2006 ------------------------------------------------------------------ REINSURANCE INDIVIDUAL RISK OTHER TOTAL ------------- --------------- ------------- ------------- Gross premiums written (1) $ 577,668 $ 170,724 $ - $ 748,392 ============= =============== ============= Net premiums written $ 548,457 $ 149,378 - $ 697,835 ============= =============== ============= Net premiums earned $ 213,373 $ 138,299 - $ 351,672 Net claims and claim expenses incurred 36,680 62,498 - 99,178 Acquisition expenses 28,506 40,308 - 68,814 Operational expenses 12,544 8,387 - 20,931 ------------- --------------- ------------- ------------- Underwriting income $ 135,643 $ 27,106 - 162,749 ============= =============== Net investment income 80,434 80,434 Equity in earnings of other ventures 6,552 6,552 Other loss (1,679) (1,679) Interest and preference share dividends (17,964) (17,964) Minority interest - DaVinciRe (31,457) (31,457) Other items, net (2,899) (2,899) Net realized losses on investments (16,756) (16,756) ------------- ------------- Net income available to common shareholders $ 16,231 $ 178,980 ============= ============= Net claims and claim expenses incurred - current accident year $ 75,713 $ 65,367 $ 141,080 Net claims and claim expenses incurred - prior years (39,033) (2,869) (41,902) ------------- --------------- ------------- Net claims and claim expenses incurred - total $ 36,680 $ 62,498 $ 99,178 ============= =============== ============= Net claims and claim expense ratio - accident year 35.5% 47.3% 40.1% ============= =============== ============= Net claims and claim expense ratio - calendar year 17.2% 45.2% 28.2% Underwriting expense ratio 19.2% 35.2% 25.5% ------------- --------------- ------------- Combined ratio 36.4% 80.4% 53.7% ============= =============== ============= (1) Reinsurance segment gross premiums written excludes $6.1 million of premiums assumed from the Individual Risk segment. THREE MONTHS ENDED MARCH 31, 2005 ------------------------------------------------------------------ REINSURANCE INDIVIDUAL RISK OTHER TOTAL ------------- --------------- ------------- ------------- Gross premiums written (1) $ 585,284 $ 109,049 $ - $ 694,333 ============= =============== ============= Net premiums written $ 528,133 $ 87,660 - $ 615,793 ============= =============== ============= Net premiums earned $ 200,370 $ 101,131 - $ 301,501 Net claims and claim expenses incurred 141,944 59,704 - 201,648 Acquisition expenses 20,538 30,970 - 51,508 Operational expenses 14,227 4,616 - 18,843 ------------- --------------- ------------- ------------- Underwriting income $ 23,661 $ 5,841 - 29,502 ============= =============== Net investment income 51,215 51,215 Equity in earnings of other ventures 7,567 7,567 Other loss (3,515) (3,515) Interest and preference share dividends (15,268) (15,268) Minority interest - DaVinciRe (4,384) (4,384) Other items, net (10,625) (10,625) Net realized losses on investments (10,189) (10,189) ------------- ------------- Net income available to common shareholders $ 14,801 $ 44,303 ============= ============= Net claims and claim expenses incurred - current accident year $ 160,036 $ 59,202 $ 219,238 Net claims and claim expenses incurred - prior years (18,092) 502 (17,590) ------------- --------------- ------------- Net claims and claim expenses incurred - total $ 141,944 $ 59,704 $ 201,648 ============= =============== ============= Net claims and claim expense ratio - accident year 79.9% 58.5% 72.7% ============= =============== ============= Net claims and claim expense ratio - calendar year 70.8% 59.0% 66.9% Underwriting expense ratio 17.4% 35.2% 23.3% ------------- --------------- ------------- Combined ratio 88.2% 94.2% 90.2% ============= =============== ============= (1) Reinsurance segment gross premiums written excludes $11.5 million of premiums assumed from the Individual Risk segment. 7 RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES UNAUDITED SUPPLEMENTAL FINANCIAL DATA (in thousands of United States Dollars) GROSS WRITTEN PREMIUMS THREE MONTHS ENDED - ---------------------- ------------------------------------ MARCH 31, 2006 MARCH 31, 2005 -------------- -------------- Renaissance catastrophe premiums $ 281,725 $ 253,019 Renaissance specialty premiums 121,843 227,525 -------------- -------------- Total Renaissance Reinsurance premiums 403,568 480,544 -------------- -------------- DaVinci catastrophe premiums 152,879 82,638 DaVinci specialty premiums 21,221 22,102 -------------- -------------- Total DaVinci Reinsurance premiums 174,100 104,740 -------------- -------------- Total Reinsurance premiums (1) 577,668 585,284 Individual Risk premiums 170,724 109,049 -------------- -------------- Total premiums $ 748,392 $ 694,333 ============== ============== Total managed catastrophe premiums (2) $ 460,389 $ 375,438 ============== ============== Total specialty premiums $ 143,064 $ 249,627 ============== ============== (1) Reinsurance gross premiums written excludes $6.1 million of premiums assumed from the Individual Risk segment for the three months ended March 31, 2006 and $11.5 million of premiums assumed from the Individual Risk segment for the three months ended March 31, 2005. (2) Total managed catastrophe premiums include Renaissance and DaVinci catastrophe premium, as above, and catastrophe premium of $25.8 million and $39.8 million for the three months ended March 31, 2006 and 2005, respectively, written on behalf of our joint venture, Top Layer Re. (see - "Comments on Regulation G") 8 COMMENTS ON REGULATION G In addition to the GAAP financial measures set forth in this Press Release, the Company has included certain non-GAAP financial measures in this Press Release within the meaning of Regulation G. The Company has consistently provided these financial measurements in previous investor communications and the Company's management believes that these measurements are important to investors and other interested persons, and that investors and such other persons benefit from having a consistent basis for comparison between quarters and for the comparison with other companies within the industry. These measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry. Investors are cautioned not to place undue reliance on these non-GAAP measures in assessing the Company's overall financial performance. The Company uses "operating income" as a measure to evaluate the underlying fundamentals of its operations and believes it to be a useful measure of its corporate performance. "Operating income" as used herein differs from "net income available to common shareholders", which the Company believes is the most directly comparable GAAP measures, by the exclusion of net realized gains and losses on investments. In addition, the Company's management believes that "operating income" is useful to investors because they more accurately measure and predict the Company's results of operations by removing the variability arising from fluctuations in the Company's investment portfolio, which is not considered by management to be a relevant indicator of business operations. The Company also uses "operating income" to calculate "operating income per common share" and "operating return on average common equity (annualized)". The following is a reconciliation of 1) net income available to common shareholders to operating income available to common shareholders; 2) net income available to common shareholders per common share to operating income available to common shareholders per common share; and 3) return on average common equity (annualized) to operating return on average common equity (annualized): THREE MONTHS ENDED ------------------------------------ (In thousands of U.S. dollars, except for per share amounts) MARCH 31, 2006 MARCH 31, 2005 -------------- -------------- Net income available to common shareholders $ 178,980 $ 44,303 Adjustment for net realized losses on investments 16,756 10,189 -------------- -------------- Operating income available to common shareholders $ 195,736 $ 54,492 ============== ============== Net income available to common shareholders per common share $ 2.49 $ 0.62 Adjustment for net realized losses on investments 0.24 0.14 -------------- -------------- Operating income available to common shareholders per common share - diluted $ 2.73 $ 0.76 ============== ============== Return on average common equity (annualized) 39.0% 8.3% Adjustment for net realized losses on investments 3.7% 1.9% -------------- -------------- Operating return on average common equity (annualized) 42.7% 10.2% ============== ============== The Company has also included in this Press Release "managed catastrophe premium". "Managed catastrophe premium" is defined as gross catastrophe premium written by Renaissance Reinsurance and its related joint ventures. "Managed catastrophe premium" differs from total catastrophe premium, which the Company believes is the most directly comparable GAAP measure, due to the inclusion of catastrophe premium written on behalf of the Company's joint venture Top Layer Re, which is accounted for under the equity method of accounting. The Company's management believes "managed catastrophe premium" is useful to investors and other interested parties because it provides a measure of total catastrophe reinsurance premium assumed by the Company through its consolidated subsidiaries and related joint ventures. 9