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 4, 2004 ------------ RENAISSANCERE HOLDINGS LTD. --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Bermuda 34-0-26512 98-014-1974 ------------- -------------------- -------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) Renaissance House 8-12 East Broadway, Pembroke Bermuda HM 19 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (441) 295-4513 -------------------- Not Applicable ---------------------------------------------------------------- (Former name or former address, if changed since last report)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Not applicable. (b) Not applicable. (c) Exhibits. The following exhibits are filed as part of this report: Exhibit # Description --------- ----------- 99.1* Copy of the Company's press release, issued May 4, 2004. * Exhibit 99.1 is being furnished to the Securities and Exchange Commission (the "SEC") pursuant to Item 12 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. ITEM 12. RESULTS OF OPERATION AND FINANCIAL CONDITION. On May 4, 2004, RenaissanceRe Holdings Ltd. (the "Company") issued a press release (the "Press Release") announcing the Company's preliminary results for the quarter ended March 31, 2004. A copy of the Press Release is attached hereto as Exhibit 99.1 to this Form 8-K. This Form 8-K and Exhibit 99.1 hereto are each being furnished pursuant to Item 12 of Form 8-K and are therefore not to be considered "filed" with the SEC. Non-GAAP Financial Measures In addition to the GAAP financial measures set forth in the Press Release, the Company has included certain non-GAAP financial measures in the Press Release within the meaning of Regulation G. The Company has consistently provided these financial measurements in previous earnings releases 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 comparison with other companies in the industry. These measures may not, however, be comparable to similarly titled measures used by companies outside of the insurance industry, or by other insurers. Investors are cautioned not to place undue reliance on these non-GAAP measure in assessing the Company's overall financial performance. The Company has included in the Press Release "net operating income available to common shareholders" of $137.8 million in the first quarter of 2004 (as compared with $130.2 million in the first quarter of 2003). The Company has also included in the Press Release "operating income per common share" of $1.93 during the first quarter of 2004 2
(as compared with $1.84 per common share during the first quarter of 2003). Each of these measures is a non-GAAP financial measure. 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 in the Press Release and herein, differs from "net income," which the Company believes is the most directly comparable GAAP measure, by the exclusion of net realized gains and losses on investments. In the Press Release, the Company provides that "net income available to common shareholders" during the first quarter of 2004 was $170.4 million (as compared with $151.3 million during the first quarter of 2003). In the Press Release, the Company also provides that "net income per common share" during the first quarter of 2004 was $2.38 (as compared with $2.14 per common share during the first quarter of 2003). In addition to the reasons for this presentation set forth above, the Company's management also believes that presentation of "operating income" is useful to investors because it presents the Company's results of operations without the variability arising from fluctuations in the Company's investment portfolio, which is not considered by the Company's management to be a relevant indicator of business operations. The Company has also included in the Press Release "managed catastrophe premium" of $441.4 million in the first quarter of 2004 (as compared with $464.7 million in the first quarter of 2003), which is a non-GAAP financial measure. The principal difference between "managed catastrophe premium" and "total catastrophe premium," which the Company believes is the most directly comparable GAAP measure, is the inclusion in "manual catastrophe premium" of catastrophe premium written by Top Layer Reinsurance Ltd., a joint venture which is accounted for under the equity method of accounting. In the Press Release, the Company provides that "total catastrophe premium" was $402.3 million in the first quarter of 2004 (as compared with $415.5 million during the first quarter of 2003). The Company has also included in the Press Release "summary of income from joint venture relationships" of $33.7 million in the first quarter of 2004 (as compared with $36.1 million in the first quarter of 2003), which is a non-GAAP financial measure. The principal differences between "summary of income from joint venture relationships" and "other income and equity in earnings of unconsolidated ventures," which the Company believes is the most directly comparable GAAP measure, are that the results of DaVinci Reinsurance Ltd., a joint venture the financial results of which are consolidated in the Company's financial statements, are reflected in "summary of income from joint venture relationships" as if reported under the equity accounting method, and that this presentation also includes fees earned on certain quota share cessions of catastrophe business by the Company which are reflected on its income statement as a reduction of acquisition and operational expenses. In the Press Release, the Company provides that "other income and equity in earnings of unconsolidated ventures" was $7.6 million in the first quarter of 2004 (as compared with $5.5 million during the first quarter of 2003). The Company has also included in the Press Release "operating return on average common equity (annualized)" of 25.5% for the first quarter of 2004 (as compared with 33.3% for the first quarter of 2003), which is a non-GAAP financial measure. 3
The principal difference between "operating return on average common equity (annualized)" and "return on average common equity (annualized)," which the Company believes is the most directly comparable GAAP measure, is that "operating return on average common equity (annualized)" excludes net realized gains and losses on investments. In the Press Release, the Company provides that "return on average common equity (annualized)" was 31.5% in the first quarter of 2004 (as compared with 38.7% for the first quarter of 2003). 4
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. RENAISSANCERE HOLDINGS LTD. Date: May 4, 2004 By: /s/ John M. Lummis ----------- ------------------------------- Name: John M. Lummis Title: Executive Vice President and Chief Financial Officer 5
INDEX TO EXHIBITS Exhibit No. Description - ----------- ----------- 99.1* Copy of the Company's press release, issued May 4, 2004. * Exhibit 99.1 is being furnished to the SEC pursuant to Item 12 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.
EXHIBIT 99.1 [GRAPHIC OMITTED] RENAISSANCERE REPORTS OPERATING INCOME OF $137.8 MILLION FOR 2004 FIRST QUARTER; OPERATING EPS OF $1.93 PER COMMON SHARE FOR THE FIRST QUARTER OF 2004 VS. $1.84 FOR THE FIRST QUARTER OF 2003 $170.4 MILLION NET INCOME FOR THE FIRST QUARTER OF 2004; EPS OF $2.38 FOR THE FIRST QUARTER OF 2004 VS. EPS OF $2.14 FOR THE FIRST QUARTER OF 2003 MANAGED SPECIALTY REINSURANCE PREMIUM GROWS TO $258.0 MILLION COMPARED TO $205.8 MILLION IN 2003 INDIVIDUAL RISK SEGMENT PREMIUM GROWS TO $119.9 MILLION FOR THE FIRST QUARTER OF 2004 COMPARED TO $63.8 MILLION IN 2003 ACHIEVES FIRST QUARTER 2004 ANNUALIZED OPERATING RETURN ON EQUITY OF 25.5% PEMBROKE, BERMUDA, MAY 4, 2004 -- RenaissanceRe Holdings Ltd. (NYSE: RNR) today reported $137.8 million in first quarter net operating income available to common shareholders, compared to $130.2 million in the first quarter of 2003. Operating income excludes realized investment gains of $32.5 million and $21.1 million in the first quarters of 2004 and 2003, respectively. Operating income per common share grew to $1.93 in the first quarter of 2004, from $1.84 per common share in the first quarter of 2003. Net income available to common shareholders rose 13% to $170.4 million or $2.38 per common share in the quarter, from $151.3 million or $2.14 per common share for the same quarter of 2003. James N. Stanard, Chairman and CEO, commented: "This quarter demonstrates the increasing diversification of RenaissanceRe's business mix. Strong first quarter growth in Individual Risk and specialty reinsurance positions us well to meet our targeted 2004 growth rates in these lines of 30% and 20%, respectively, and more than offset the 5% decline in gross managed cat premium, which was in line with our expectations. We also benefited from another quarter of light catastrophes, and continued to deliver strong returns on equity and growth in book value per share." FIRST QUARTER 2004 RESULTS: - --------------------------- PREMIUMS - -------- Gross premiums written for the first quarter of 2004 were $780.3 million, compared to $685.2 million for the same quarter of 2003. Gross premiums written include $660.4 million in gross premiums written for the Company's Reinsurance segment in the first quarter of 2004, compared to $621.3 million for the same quarter of 2003; and $119.9 million in gross premiums written for the Company's Individual Risk segment in the first quarter of 2004, compared to $63.8 million for the same quarter of 2003. Net premiums written for the first quarter of 2004 were $706.0 million, versus $590.4 million for the same quarter of 2003. Net premiums written include $596.2 million in net premiums written for the Company's Reinsurance segment in the first quarter of 2004, compared to $557.9 million for the same quarter of 2003; and $109.8 million in net premiums written for the Company's Individual Risk segment in the first quarter of 2004, compared to $32.5 million for the same quarter of 2003. 1
Net premiums earned for the first quarter of 2004 were $309.6 million, compared to $263.5 million for the same quarter of 2003. Net premiums earned include $208.8 million in net premiums earned for the Company's Reinsurance segment in the first quarter of 2004, compared to $200.4 million for the same quarter of 2003; and $100.8 million in net premiums earned for the Company's Individual Risk segment in the first quarter of 2004, compared to $63.0 million for the same quarter of 2003. Premiums for the first quarter of 2004 include $130.8 million of gross written premiums and $128.7 million of net written premiums and $47.0 million of net premiums earned by the Company's consolidated joint venture, DaVinci Re during the first quarter of 2004, compared to $126.5 million of gross and net written premiums and $49.1 million of net premiums earned by DaVinci Re during the first quarter of 2003. Total managed cat premiums written, representing gross catastrophe premiums written by Renaissance Reinsurance and by related joint ventures, were $441.4 million for the first quarter of 2004, compared to $464.7 million for the same quarter of 2003, representing a decrease of approximately 5%, which was in line with management's expectations. See the attached supplemental financial data for additional information regarding managed premiums. JOINT VENTURE INCOME - -------------------- During the quarter, the income from the DaVinci joint venture and other fee income was $33.7 million, compared to $36.1 million during the first quarter of 2003. Of this, $16.9 million reflects fees and profit commissions, compared to $20.2 million in the first quarter of 2003, and $16.8 million reflects equity in earnings of unconsolidated ventures and DaVinci, versus $17.7 million in the comparable quarter of 2003. Also during the quarter, the Company consummated its $119.7 million investment in ChannelRe Holdings Ltd. This investment has been reflected in the balance sheet under the caption "investments in other ventures, under the equity method", which also includes our investment in Top Layer Reinsurance Ltd. The earnings on our investment in ChannelRe Holdings Ltd. will be recorded one quarter in arrears, therefore the first quarterly earnings impact of this investment will be recorded in our consolidated statements of income in the second quarter. UNDERWRITING RATIOS, RESERVE DEVELOPMENT: - ----------------------------------------- For the first quarter of 2004, the Company generated a combined ratio of 59.0%, a loss ratio of 36.2% and an expense ratio of 22.8%, compared to a combined ratio, loss ratio and expense ratio of 53.0%, 31.4% and 21.6% for the first quarter of 2003, respectively. The increase in the loss and expense ratios primarily relates to the increased scale of the Company's Individual Risk segment, which typically generates higher loss and expense ratios than the Reinsurance segment. For the quarter, the Company's Reinsurance segment generated a loss ratio of 28.0% and an expense ratio of 14.3%, compared to 28.4% and 17.4%, respectively, during the first quarter of 2003. The expense ratio includes the benefit of a reversal of an accrual for incentive compensation expense and in future periods management expects this expense ratio to return to higher levels. For the quarter, the Company's Individual Risk segment generated a loss ratio of 53.2% and an expense ratio of 40.2%, compared to 41.1% and 35.1%, respectively during the first quarter of 2003. During the quarter, the Company recorded favorable development on prior year reserves of $21.7 million or a benefit of 7.0 points to the Company's quarterly loss ratio. The Company's Reinsurance segment contributed $16.9 million and the Individual Risk segment contributed $4.8 million of favorable development on prior year reserves. Net paid losses for the quarter were $59.4 million. See the attached supplemental financial data for additional information regarding claims and claim expenses incurred and loss ratios by segment. INVESTMENTS: - ------------ Net investment income for the first quarter of 2004 was $35.1 million, compared to $31.4 million for the same quarter in 2003. Net investment income includes appreciation related to investments in hedge funds and private equity funds recorded during the first quarter of 2004 of $6.3 million compared to $3.3 million of net appreciation recorded during the first quarter of 2003. 2
The Company's cash flows from operations were $228.0 million for the first quarter of 2004. SHAREHOLDERS' EQUITY: - --------------------- Shareholders' equity attributable to common shareholders was $2.2 billion at March 31, 2004, compared to $2.1 billion at December 31, 2003. Book value per common share at March 31, 2004 was $31.78 compared to $29.61 per common share at December 31, 2003. In March 2004, we issued $250.0 million of Series C Preference Shares, a perpetual security. The Preferred Shares pay cumulative dividends at a rate of 6.08% per year. ------------------------------------------------- This Press Release includes certain non-GAAP financial measures including "operating income," "operating EPS or operating income per common share," "annualized operating return on equity," "managed cat premium" and "summary of income from joint venture relationships." 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 5, 2004 at 8:00 a.m. (EST) 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. 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 structured relationships managed by our subsidiary Renaissance Underwriting Managers, and (2) Individual Risk business, 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, 2003. INVESTOR CONTACT: MEDIA CONTACT: Martin J. Merritt David Lilly or Dawn Dover Senior Vice President - Finance Kekst and Company RenaissanceRe Holdings Ltd. (212) 521-4800 (441) 299-7230 3
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES SUMMARY CONSOLIDATED STATEMENTS OF INCOME For the quarters ended March 31, 2004 and 2003 (in thousands of United States Dollars, except per share amounts) QUARTERS ENDED ---------------------------------------------- MARCH 31, 2004 MARCH 31, 2003 -------------------- --------------------- (Unaudited) REVENUES Gross premiums written $ 780,288 $ 685,167 Net premiums written $ 706,021 $ 590,370 Increase in unearned premiums (396,452) (326,896) --------------- ---------------- Net premiums earned 309,569 263,474 Net investment income 35,050 31,434 Net foreign exchange gains 2,087 3,951 Equity in earnings of unconsolidated ventures 6,520 6,068 Other income (expenses) 1,109 (563) Net realized gains on investments 32,521 21,112 --------------- ---------------- TOTAL REVENUES 386,856 325,476 EXPENSES Claims and claim expenses incurred 112,178 82,780 Acquisition expenses 58,031 42,133 Operational expenses 12,376 14,907 Corporate expenses 4,552 3,468 Interest expense 6,271 4,499 --------------- ---------------- TOTAL EXPENSES 193,408 147,787 Income before minority interest and taxes 193,448 177,689 Minority interest - Capital Securities -- 1,455 Minority interest - DaVinci 17,990 20,885 --------------- ---------------- Income before taxes 175,458 155,349 Income tax benefit -- 55 NET INCOME 175,458 155,404 Dividends on preference shares 5,104 4,119 --------------- ---------------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 170,354 $ 151,285 =============== ================ Operating Income per Common Share - diluted * $ 1.93 $ 1.84 Net income available to common shareholders per Common Share - basic $ 2.45 $ 2.21 Net income available to common shareholders per Common Share - diluted $ 2.38 $ 2.14 Average shares outstanding - basic 69,444 68,593 Average shares outstanding - diluted 71,592 70,564 Claims and claim expense ratio 36.2% 31.4% Expense ratio 22.8% 21.6% --------------- ---------------- Combined ratio 59.0% 53.0% =============== ================ Operating return on average common equity (annualized) * 25.5% 33.3% =============== ================ * Excludes realized gains on investments (see page 8) 4
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES SUMMARY CONSOLIDATED BALANCE SHEETS (in thousands of United States Dollars, except per share amounts) AT ------------------------------------------------------- MARCH 31, 2004 DECEMBER 31, 2003 -------------------- ---------------------- (Unaudited) (Audited) ASSETS Fixed maturity investments available for sale, at fair value $ 3,115,232 $ 2,947,841 Short term investments 722,158 660,564 Other investments 448,227 369,242 Cash and cash equivalents 91,148 63,397 -------------------- ---------------------- Total managed investment portfolio and cash 4,376,765 4,041,044 Equity investments in reinsurance company, at fair value 156,638 145,535 Investments in other ventures, under equity method 193,532 41,130 -------------------- ---------------------- Total investments and cash 4,726,935 4,227,709 Premiums receivable 434,222 167,996 Ceded reinsurance balances 71,728 56,852 Losses recoverable 131,955 149,201 Accrued investment income 23,386 22,793 Deferred acquisition costs 122,214 75,261 Other assets 32,766 29,890 -------------------- ---------------------- TOTAL ASSETS $ 5,543,206 $ 4,729,702 ==================== ====================== LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY LIABILITIES Reserve for claims and claim expenses $ 1,013,448 $ 977,892 Reserve for unearned premiums 768,352 349,824 Debt 350,000 350,000 Subordinated obligation to capital trust 103,093 103,093 Reinsurance balances payable 88,240 131,629 Other liabilities 91,066 52,123 -------------------- ---------------------- TOTAL LIABILITIES 2,414,199 1,964,561 -------------------- ---------------------- Minority interest - DaVinci 388,274 430,498 SHAREHOLDERS' EQUITY Preference shares 500,000 250,000 Common shares and additional paid-in capital 308,379 314,414 Accumulated other comprehensive income 118,606 113,382 Retained earnings 1,813,748 1,656,847 -------------------- ---------------------- TOTAL SHAREHOLDERS' EQUITY 2,740,733 2,334,643 -------------------- ---------------------- TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY $ 5,543,206 $ 4,729,702 ==================== ====================== BOOK VALUE PER COMMON SHARE $ 31.78 $ 29.61 ==================== ====================== COMMON SHARES OUTSTANDING 70,497 70,399 -------------------- ---------------------- 5
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA (in thousands of United States Dollars) SEGMENT INFORMATION - ------------------- QUARTER ENDED MARCH 31, 2004 ---------------------------------------------------------------- REINSURANCE INDIVIDUAL RISK OTHER TOTAL --------------- ----------------- ----------- --------------- Gross premiums written $ 660,350 $ 119,938 $ - $ 780,288 =============== ================= =============== Net premiums written $ 596,238 $ 109,783 - $ 706,021 =============== ================= =============== Net premiums earned $ 208,793 $ 100,776 - $ 309,569 Claims and claim expenses incurred 58,539 53,639 - 112,178 Acquisition expenses 23,811 34,220 - 58,031 Operational expenses 6,126 6,250 - 12,376 --------------- ----------------- ----------- --------------- Underwriting income $ 120,317 $ 6,667 - 126,984 =============== ================= Other items $ 43,370 43,370 =========== --------------- Net income available to common shareholders $ 170,354 =============== Claims and claim expenses incurred - current accident year $ 75,410 $ 58,457 $ 133,867 Claims and claim expenses incurred - prior years (16,871) (4,818) (21,689) --------------- ----------------- ----------- --------------- Net claims and claim expenses incurred - total $ 58,539 $ 53,639 $ 112,178 =============== ================= =============== Claims and claim expense ratio - accident year 36.1% 58.0% 43.2% =============== ================= =============== Claims and claim expense ratio - calendar year 28.0% 53.2% 36.2% Underwriting expense ratio 14.3% 40.2% 22.8% --------------- ----------------- --------------- Combined ratio 42.3% 93.4% 59.0% =============== ================= =============== QUARTER ENDED MARCH 31, 2003 ---------------------------------------------------------------- REINSURANCE INDIVIDUAL RISK OTHER TOTAL --------------- ----------------- ----------- --------------- Gross premiums written (1) $ 621,324 $ 63,843 $ - $ 685,167 =============== ================= =============== Net premiums written $ 557,853 $ 32,517 - $ 590,370 =============== ================= =============== Net premiums earned $ 200,433 $ 63,041 - $ 263,474 Claims and claim expenses incurred 56,896 25,884 - 82,780 Acquisition expenses 22,857 19,276 - 42,133 Operational expenses 12,084 2,823 - 14,907 --------------- ----------------- ----------- --------------- Underwriting income $ 108,596 $ 15,058 - 123,654 =============== ================= Other items $ 27,631 27,631 =========== --------------- Net income available to common shareholders $ 151,285 =============== Claims and claim expenses incurred - current accident year $ 69,514 $ 24,992 $ 94,506 Claims and claim expenses incurred - prior years (12,618) 892 (11,726) --------------- ----------------- --------------- Net claims and claim expenses incurred - total $ 56,896 $ 25,884 $ 82,780 Claims and claim expense ratio - accident year 34.7% 39.6% 35.9% =============== ================= =============== Claims and claim expense ratio - calendar year 28.4% 41.1% 31.4% =============== ================= =============== Underwriting expense ratio 17.4% 35.1% 21.6% --------------- ----------------- --------------- Combined ratio 45.8% 76.2% 53.0% =============== ================= =============== (1) Reinsurance segment gross premiums written excludes $4.7 million of premiums ceded from the Individual Risk segment. 6
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA (in thousands of United States Dollars) GROSS WRITTEN PREMIUMS QUARTERS ENDED - ---------------------- --------------------------------------- MARCH 31, 2004 MARCH 31, 2003 ------------------ -------------------- Renaissance cat premium $ 299,136 $ 308,719 Renaissance specialty premium 230,455 186,082 ------------------ -------------------- Total Renaissance Reinsurance premium 529,591 494,801 ------------------ -------------------- DaVinci cat premium 103,196 106,816 DaVinci specialty premium 27,563 19,707 ------------------ -------------------- Total DaVinci Reinsurance premium 130,759 126,523 ------------------ -------------------- Total Reinsurance premium 660,350 621,324 Individual Risk premium (1) 119,938 63,843 ------------------ -------------------- Total premiums $ 780,288 $ 685,167 ================== ==================== Total Managed Cat Premiums (2) $ 441,387 $ 464,735 ================== ==================== Total Managed Specialty Premiums $ 258,018 $ 205,789 ================== ==================== (1) Includes combined premium ceded to Renaissance and DaVinci of $4.7 million for the quarter ended March 31, 2003. Such amounts of premium are excluded from the Renaissance and DaVinci premiums shown above. (2) Total Managed Cat Premiums include Renaissance and DaVinci Cat Premium, as above, and Cat Premium of $39.1 million and $49.2 million for the quarters ended March 31, 2004 and 2003, respectively, written on behalf of our joint venture, Top Layer Re. OTHER INCOME AND EQUITY IN EARNINGS OF UNCONSOLIDATED VENTURES QUARTERS ENDED - -------------------------------------------------------------- ------------------------------------- MARCH 31, 2004 MARCH 31, 2003 ------------------ -------------------- As Reported - ----------- Fee income $ 1,115 $ 1,228 Other items (6) (1,791) ------------------ -------------------- Total other income - as reported 1,109 (563) Equity in earnings of unconsolidated ventures 6,520 6,068 ------------------ -------------------- Total $ 7,629 $ 5,505 ================== ==================== Summary of income from joint venture relationships (1) - -------------------------------------------------- Fee income (2) $ 16,968 $ 20,204 Other items (6) (1,791) ------------------ -------------------- Total other income 16,962 18,413 Equity in earnings of unconsolidated ventures and DaVinci 16,779 17,702 ------------------ -------------------- Total $ 33,741 $ 36,115 ================== ==================== (1) Reported GAAP presentation adjusted to reflect: - fee income and the Company's interest in DaVinci as if DaVinci were accounted for under the equity method. - other fee income on managed cat business which is reflected on the income statement as a reduction of acquisition and operational expenses. (2) Excludes fee income received on capital invested by RenaissanceRe Holdings. 7
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 measure, 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 it more accurately measures and predicts the Company's results of operations by removing the variability arising from fluctuations in the registrant'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. The following is a reconciliation of 1) net income available to common shareholders to operating income; 2) net income available to common shareholders per common share to operating income per common share; and 3) return on average common equity to operating return on average common equity: QUARTERS ENDED -------------------------------------------- (In thousands of U.S. dollars) MARCH 31, 2004 MARCH 31, 2003 -------------------- ---------------------- Net income available to common shareholders $ 170,354 $ 151,285 Adjustment for net realized gains on investments (32,521) (21,112) -------------------- ---------------------- Operating income $ 137,833 $ 130,173 ==================== ====================== Net income available to common shareholders per common share - diluted $ 2.38 $ 2.14 Adjustment for net realized gains on investments (0.45) (0.30) -------------------- ---------------------- Operating income per common share - diluted $ 1.93 $ 1.84 ==================== ====================== Return on average common equity (annualized) 31.5% 38.7% Adjustment for net realized gains on investments (6.0%) (5.4%) -------------------- ---------------------- Operating return on average common equity (annualized) 25.5% 33.3% ==================== ====================== 8
The Company has also included in this Press Release "managed cat premium". "Managed cat premium" is defined as gross catastrophe premium written by Renaissance Reinsurance and its related joint ventures. "Managed cat 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 our joint venture Top Layer Re, which is accounted for under the equity method of accounting. Refer to supplemental financial data on gross written premiums. The Company has also included in this Press Release "summary of income from joint venture relationships" which is a non-GAAP financial measure. The principal differences between "summary of income from joint venture relationships" and "other income and equity in earnings of unconsolidated ventures," which the Company believes is the most directly comparable GAAP measure, are that the results of DaVinci Reinsurance Ltd., a joint venture the financial results of which are consolidated in the Company's financial statements, are reflected in "summary of income from joint venture relationships" as if reported under the equity accounting method, and that this presentation also includes fees earned on certain quota share cessions of catastrophe business by the Company which are reflected on its income statement as a reduction of acquisition and operational expenses. 9