Form: 10-K

Annual report pursuant to Section 13 and 15(d)

March 31, 1999

Documents

ANNUAL REPORT

Published on March 31, 1999



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===========================
SELECTED FINANCIAL DATA
===========================


The following summary financial information should be read in conjunction with
the Consolidated Financial Statements and the notes thereto presented on pages
28 to 48 in this Annual Report.



(in thousands, except per share data) 1998 1997 1996 1995 1994
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Income Statement Data
Gross premiums written $ 270,460 $228,287 $269,913 $292,607 $273,481
Net premiums written 195,019 195,752 251,564 289,928 269,954
Net premiums earned 204,947 211,490 252,828 288,886 242,762
Net investment income 52,834 49,573 44,280 32,320 14,942
Total revenues 260,527 254,726 294,959 326,566 261,392

Claims and claim expenses 112,752 50,015 86,945 110,555 114,095
Acquisition and operating expenses 61,031 50,358 42,893 39,734 35,378
Net income 74,577 139,249 156,160 162,786 96,419

Earnings per Common Share - basic $3.39 $6.19 $6.15 $6.84 $4.24
Earnings per Common Share - diluted 3.33 6.06 6.01 6.75 4.24
Dividends per share 1.20 1.00 0.80 0.16 --
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Balance Sheet Data
Total investments $ 826,608 $736,538 $603,484 $528,836 $284,493
Cash and cash equivalents 115,701 122,929 198,982 139,163 153,049
Total assets 1,356,164 960,749 904,764 757,060 509,410
Reserve for claims and claim expenses 298,829 110,037 105,421 100,445 63,268
Capital Securities(1) 100,000 100,000 -- -- --
Shareholders' equity 612,232 598,703 546,203 486,336 265,247

Book value per Common Share $ 28.28 $ 26.68 $ 23.21 $ 18.99 $ 11.79
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Operating Ratios
Claims and claim expense ratio 55.0% 23.7% 34.3% 38.3% 47.0%
Underwriting expense ratio 29.8% 23.8% 17.0% 13.7% 14.6%
Combined ratio 84.8% 47.5% 51.3% 52.0% 61.6%


(1)Represents minority interest - company obligated, mandatorily redeemable
capital securities of a subsidiary trust holding solely junior subordinated
debentures of the Company.

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14 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT



RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 15
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================================================
MANAGEMENT'S
DISCUSSION AND ANALYSIS
================================================

of Results of Operations and Financial Condition

GENERAL

RenaissanceRe Holdings Ltd. ("RenaissanceRe") is a Bermuda based holding company
with operating subsidiaries engaged in reinsurance and insurance.
RenaissanceRe's principal operating subsidiary, Renaissance Reinsurance Ltd.
("Renaissance Reinsurance") provides property catastrophe reinsurance coverage
to insurers and reinsurers, primarily on an excess of loss basis. During 1998,
Renaissance Reinsurance wrote $207.2 million of premium and based on gross
premiums written, Renaissance Reinsurance is one of the largest providers of
this coverage in the world. Excess of loss catastrophe coverage generally
provides coverage for claims arising from large natural catastrophes, such as
earthquakes and hurricanes, in excess of a specified loss. In connection with
the coverage it provides, Renaissance Reinsurance is also exposed to claims
arising from other natural and man-made catastrophes such as winter storms,
freezes, floods, fires and tornadoes.

RenaissanceRe is continuing to expand its primary insurance business
through internal growth and acquisition. In 1996 RenaissanceRe incorporated
Glencoe Insurance Ltd. ("Glencoe"). Glencoe provides primary catastrophe-exposed
property coverage on an excess and surplus lines basis, and is eligible to write
business in 29 states. During 1998, Glencoe wrote $5.6 million of primary
insurance premium.

In January 1998, RenaissanceRe began to provide personal lines coverages
through DeSoto Insurance Company ("DeSoto"), a wholly owned subsidiary of
Glencoe. DeSoto is a special purpose Florida homeowners insurance company that
is licensed to assume and renew homeowner policies from the Florida JUA, a state
sponsored insurance company. During 1998, DeSoto wrote $26.7 million of primary
homeowners insurance coverage.

On June 25, 1998, RenaissanceRe, through it's U.S. holding company,
Renaissance U.S. Holdings, Inc. ("Renaissance U.S.") completed its acquisition
of the U.S. operating subsidiaries of Nobel Insurance Limited, a Bermuda company
("Nobel Limited"), for $56.1 million. During the fourth quarter of 1998,
RenaissanceRe recorded after tax charges of $40.1 million related to Nobel
Insurance Company ("Nobel"). As a result of these charges, RenaissanceRe adopted
a plan to exit each of Nobel's current businesses. Nobel will continue to
operate these business units during the sales process. See Financial Condition -
Nobel.

In October 1998, Renaissance Reinsurance of Europe ("Renaissance Europe")
was incorporated under the laws of Ireland as a wholly owned subsidiary of
Renaissance Reinsurance to provide certain property catastrophe reinsurance
coverage in Europe.

On December 31, 1998, RenaissanceRe entered into an agreement to purchase a
10 percent interest in Inter-Ocean Holdings Ltd. Also, effective January 11,
1999, RenaissanceRe entered into a joint venture, Top Layer Re, with State Farm
Mutual Automobile Insurance Company ("State Farm") to provide high layer
coverage for non-U.S. risks.

RenaissanceRe and its subsidiaries' (the "Company") results depend to a
large extent on the frequency and severity of catastrophic events, and the
coverage offered to clients impacted thereby. In addition, from time to time,
the Company may consider opportunistic diversification into new ventures, either
through organic growth or the acquisition of other companies or books of
business. In evaluating such new ventures, the Company seeks an attractive
return on equity, the ability to develop or capitalize on a competitive
advantage and opportunities that will not detract from its core reinsurance
operations. Accordingly, the Company regularly reviews strategic opportunities
and periodically engages in discussions regarding possible transactions.


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SAFE HARBOR DISCLOSURE

In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward-looking statements in the
following discussion and elsewhere in this Annual Report. Forward-looking
statements are necessarily based on estimates and assumptions that are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company. In particular, statements using verbs such as "expect", "anticipate",
"intends", "believe" or words of similar impact generally involve
forward-looking statements.

In light of the risks and uncertainties inherent in all future projections,
the inclusion of forward-looking statements in this report should not be
considered as a representation by the Company or any other 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) uncertainties with respect to the Company's planned
reinsurance or distribution of certain operating units of Nobel Insurance
Company; (xiii) risks relating to the Year 2000 issue; or (xiv) a contention by
the United States Internal Revenue Service that the Company or Renaissance
Reinsurance is engaged in the conduct of a trade or business within the U.S. The
foregoing review of important factors should not be construed as exhaustive; the
Company undertakes no obligation to release publicly the results of any future
revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

RESULTS OF OPERATIONS

Year Ended December 31, 1998

Compared to Year Ended December 31, 1997

Net operating income, excluding the Nobel fourth quarter $40.1 million after tax
charge and excluding realized investment gains and losses, for the year ended
December 31, 1998 was $121.5 million compared to $142.1 million for the year
ended December 31, 1997. The decrease was primarily related to a decrease in net
premiums earned, an increase in net claims and claim expenses and an increase in
operating expenses, partially offset by an increase in investment income and an
increase in other income. The above factors resulted in a decrease in operating
earnings per Common Share to $5.42 for the year ended December 31, 1998 from
$6.19 for the year ended December 31, 1997. Earnings, excluding the Nobel
charge, but including realized gains and losses on investments, decreased to
$114.7 million in 1998 from $139.2 million in 1997.

Including the Nobel charge, net operating income for the year ended
December 31, 1998 was $81.5 million compared to $142.1 million for the year
ended December 31, 1997. The decrease was primarily due to the fourth quarter
Nobel charge. The Nobel charge included after tax amounts of $29.6 million for
adverse development on Nobel's casualty and surety books of business, a goodwill
write-down of $6.6 million, and other related costs of $3.9 million. Earnings
per Common Share decreased to $3.33 per share in 1998, compared with $6.06 in
1997 primarily as a result of the Nobel charge. See Financial Condition - Nobel.

Gross premiums written for the year ended December 31, 1998 increased 18.5
percent to $270.5 million from $228.3 million for the year ended December 31,
1997. The increase


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16 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 17
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resulted from the inclusion of $30.9 million of premiums from Nobel, which was
acquired in June 1998, and of $26.7 million of premiums from DeSoto, which began
providing coverage in January of 1998. Partially offsetting the growth in the
primary insurance premiums was a 6.3 percent decrease in the Company's
reinsurance operations from $221.2 million in 1997 to $207.2 million in 1998.

The property catastrophe reinsurance market and the primary insurance
market continued to be highly competitive in 1998. Because the property
catastrophe reinsurance business has been one of the most profitable segments of
the market, it is the focus of much competition, which has resulted in lower
premiums measured on a risk-adjusted basis.

The 6.3 percent premium decrease from the Company's reinsurance operations
was the result of a 16.4 percent decrease in premiums due to the Company or the
cedent not renewing coverage and a 14.0 percent decrease related to changes in
pricing, participation levels and coverage on renewed business, partially offset
by a 24.1 percent increase in premiums related to new business. The decrease in
premiums resulted in part from consolidation of the Company's customers.

During 1998, consistent with its risk management practices and the
availability of coverage responsive to the Company's risk profile, the Company
increased the level of property catastrophe reinsurance coverage purchased for
its own account. Ceded premiums written in the Company's reinsurance operations
during 1998 were $47.7 million compared to $31.6 million in 1997. Additionally,
the Company's primary operations had ceded written premiums of $27.7 million
(1997 - $.9 million). To the extent that appropriately priced coverage is
available, the Company anticipates continued use of reinsurance to reduce the
potential volatility of its results.

The Company's gross premiums written by geographic region were as follows:

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(in thousands)

Year ended December 31, 1998 1997
-------------------------
Geographic Region
United States - reinsurance $128,387 $116,676
United States - primary 63,271 7,041
Worldwide 20,584 27,930
Worldwide
(excluding U.S.) 26,380 32,005
Europe (including the
United Kingdom) 18,532 21,007
Other 9,374 16,738
Australia and New Zealand 3,932 6,890
-------------------------
Total Gross Premiums
Written $270,460 $228,287
-------------------------

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The category "Worldwide (excluding U.S.)" consists of contracts that cover
more than one geographic region (other than the U.S.). The exposure in this
category for gross premiums written to date is predominately from Europe and
Japan.

The table below sets forth the Company's combined ratio and components
thereof:

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Year ended December 31, 1998 1997
-------------------------
Claims and claim expenses 55.0% 23.7%
Underwriting expense ratio 29.8 23.8
-------------------------
Combined ratio 84.8% 47.5%
-------------------------

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The Company's combined ratio and components thereof, excluding the Nobel
charge, were as follows:

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Year ended December 31, 1998 1997
-------------------------
Claims and claim expenses 33.1% 23.7%
Underwriting expense ratio 29.3 23.8
-------------------------
Combined ratio 62.4% 47.5%
-------------------------

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This claims ratio does not reflect the benefits of a recovery on a
non-indemnity catastrophe index transaction which is included in other income.

In the fourth quarter of 1998, the Company recorded pre tax charges of
$45.0 million for claims and claim expenses on the casualty and surety books of
business of Nobel. See Financial Condition - Nobel.

Excluding the Nobel charge, the claims and claim expenses

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incurred for the year ended December 31, 1998 were $67.8 million, or 33.1
percent of net premiums earned. In comparison, claims and claim expenses
incurred for the year ended December 31, 1997 were $50.0 million, or 23.7
percent of net premiums earned. The primary reasons for the increase in the loss
ratios are 1) a decrease in the net earned premiums, which is primarily related
to an increase in ceded premiums written and 2) the inclusion of the operations
of Nobel and DeSoto during 1998, whose loss ratios, based on the nature of those
businesses, are normally higher than those of Renaissance Reinsurance.

The year ended December 31, 1998 was the third worst year for insured U.S.
catastrophe losses. In comparison, the year ended December 31, 1997 was a
relatively light year for natural catastrophe losses. However, largely due to
Renaissance Reinsurance's reinsurance protection, the net loss ratio of
Renaissance Reinsurance was not significantly impacted by the 1998 catastrophe
loss events. Net reinsurance claims for Renaissance Reinsurance in 1998 were
$42.4 million, or 25.0 percent of net premiums earned as compared with $49.0
million in 1997 or 23.6 percent of net premiums earned. Gross claims in 1998
included claims on a number of aggregate stop loss and excess of loss contracts,
as well as claims related to Hurricane Georges, the January Canadian Freeze,
Hurricane Bonnie and additional claims from various U.S. wind, hail, tornado and
flood claims. Due to the high severity and low frequency of claims related to
the property catastrophe reinsurance business, there can be no assurance that
Renaissance Reinsurance will continue to experience this level of net claims in
future years.

Excluding the Nobel charge, the Company's primary operations produced a
loss ratio of 72.1 percent. Including the Nobel charge, the incurred loss ratio
of the primary operations was 200 percent. See Financial Condition - Nobel. In
connection with the Company's acquisition of Nobel, Nobel purchased a
retroactive reinsurance contract to cover $38 million of adverse loss
development on certain prior year casualty reserves. Accounting guidelines
require that adverse development of the reserves covered by this contract be
reflected in the Company's statement of income at the time of the adjustment.
However, the offsetting recovery under the contract is required to be deferred
and recognized into income as payments are received from the reinsurer. During
1998, Nobel recognized $27.6 million of adverse development on the business
covered by this contract with the offsetting recovery reflected on the balance
sheet as a deferred gain. In future years, as payments are received from the
reinsurer, the deferred gain will be reflected as a reduction in claims and
claim expenses in the Company's statement of income.

For the Company's reinsurance operations, estimates of claims and claim
expenses incurred are based in part upon the estimation of claims resulting from
catastrophic events. Estimation by the Company of claims resulting from
catastrophic events based upon its own historical claim experience is inherently
difficult because of the Company's short operating history and the possible
severity of property catastrophe claims. Therefore, the Company utilizes both
proprietary and commercially available models, as well as historical reinsurance
industry property catastrophe claims experience, for purposes of evaluating
future trends and providing an estimate of ultimate claims costs.

For both the Company's reinsurance and primary operations, the Company uses
statistical and actuarial methods to estimate ultimate expected claims and claim
expenses. The period of time from the reporting of a loss to the Company through
the settlement of the Company's liability may be several years. During this
period, additional facts and trends will be revealed. As these factors become
apparent, case reserves will be adjusted, sometimes requiring an increase in the
overall reserves of the Company, while at other times the Company may affect a
reallocation of IBNR reserves to specific case reserves. Reserve estimates are
reviewed regularly, and such adjustments, if any, are reflected in results of
operations in the period in which they become known and are accounted for as
changes in estimates. See Notes 2 and 5 to the Consolidated Financial
Statements.

Acquisition and operational expenses, consisting of brokerage commissions,
excise taxes and other costs directly related to the underwriting operations of
the Company, for the year ended December 31, 1998 were $61.0 million, or 29.8
percent of net premiums earned, compared to $50.4 million, or 23.8 percent for
the year ended December 31, 1997. The primary contributors to the increase in
underwriting expenses were the inclusion of Nobel and DeSoto, which operate with
a greater expense ratio than that of Renaissance Reinsurance. Further, the
increased purchase of reinsurance, which in turn reduces net premiums earned,
causes acquisition and operational costs to increase as a percentage of net
premiums earned.



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18 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT





RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 19
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Net investment income (excluding net realized investment gains and losses)
for the year ended December 31, 1998 was $52.8 million, compared to $49.6
million for the year ended December 31, 1997. The increase in investment income
resulted primarily from the increase in the amount of invested assets which was
primarily the result of cash flows provided by operations and the assets
purchased in the Nobel acquisition, partially offset by amounts used to pay
dividends, purchase common stock and fund the acquisition of Nobel during the
year.

During 1998, the Company reported other income of $9.8 million. The
majority of the other income relates to a recovery on a non-indemnity
catastrophe index transaction. See Financial Condition - Derivative Instruments.

During 1998, net realized losses were $6.9 million, compared with $2.9
million in 1997. The 1998 losses were primarily generated from the sale of a
portion of the Company's emerging market debt securities. See Financial
Condition - Investments.

Excluding the Nobel charge, corporate expenses were $4.0 million in 1998,
compared with $3.2 million in 1997. The primary increase related to the
amortization of goodwill associated with the purchase of Nobel during 1998.
Including the Nobel charge, corporate expenses, on a pre tax basis, were $18.9
million, which included a write-down of goodwill of $9.9 million and additional
costs and charges related to the expected sale of certain aspects of the Nobel
operations of $5.0 million. See Financial Condition - Nobel.

For the year ended December 31, 1998, the Company realized net foreign
exchange losses of $0.2 million compared to $3.4 million for the year ended
December 31, 1997. The foreign exchange losses recorded in 1997 resulted
primarily from the strengthening of the U.S. dollar against the British pound
and the German mark.

During the year ended December 31, 1998, the Company recorded expenses of
$8.5 million related to the Capital Securities that were issued in March 1997,
compared with $7.0 million in 1997. Interest expense for the year ended December
31, 1998 was $4.5 million as compared with $4.3 million for the year ended
December 31, 1997.

RESULTS OF OPERATIONS

Year Ended December 31, 1997

Compared to Year Ended December 31, 1996

For the year ended December 31, 1997, net operating income, excluding realized
investment gains and losses, available to common shareholders was $142.1 million
compared to $159.1 million for the year ended December 31, 1996. The decrease
was primarily due to a decrease in gross premiums written, an increase in ceded
reinsurance premiums, an increase in operating expenses and an increase in
foreign exchange losses, which were partially offset by a decrease in claims and
claim expenses incurred and an increase in net investment income. The above
factors, combined with a 12 percent decrease in the number of weighted average
shares outstanding, as a result of the purchase of Common Shares during late
December 1996 and during 1997, resulted in an increase in operating earnings per
Common Share on a diluted basis, to $6.19 for the year ended December 31, 1997
from $6.12 for the year ended December 31, 1996. Earnings including realized
gains and losses on investments, decreased during 1997 to $139.2 million for the
year ended December 31, 1997 from $156.2 million for the same period in 1996.

Gross premiums written for the year ended December 31, 1997 decreased 15.4
percent to $228.3 million from $269.9 million for the year ended December 31,
1996. In 1997, the property catastrophe reinsurance market was highly
competitive due to the increased capital in the reinsurance market and the
limited opportunities to profitably deploy such capital. The property
catastrophe business has been among the most profitable segments of the market,
and accordingly it was the focus of much competition which resulted in lower
premiums measured on a risk adjusted basis.

The 15.4 percent premium decrease was the result of a 17.4 percent decrease
in premiums due to the Company not renewing coverage and a 9.6 percent decrease
related to changes in pricing, participation levels and coverage on renewed
business, partially offset by an 11.6 percent increase in premiums related to
new business. A majority of the decline in premiums written related to
reductions in the Company's book of assumed retrocessional premiums which were
$59.5 million in 1997 compared to $103.7 million in 1996.

During 1997, consistent with its risk management practices and the
availability of coverage responsive to the Company's risk profile, the Company
increased the level of property catastrophe reinsurance coverage purchased for
its own account. Ceded premiums written in 1997 were $32.5 million compared to
$18.3 million in 1996.

Property catastrophe reinsurance premiums accounted for approximately 91
percent of the Company's gross premiums written in 1997. The remaining gross
premiums written in


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1997 consisted primarily of excess and surplus lines primary premiums written by
Glencoe, and premiums on aviation and marine coverages. The Company's gross
premiums written by geographic region were as follows:

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(in thousands)

Year ended December 31, 1997 1996
-------------------------
Geographic Region
United States - reinsurance $116,676 $125,059
United States - primary 7,041 1,552
Worldwide 27,930 44,460
Worldwide
(excluding U.S.) 32,005 38,746
Europe (including the
United Kingdom) 21,007 31,534
Other 16,738 18,958
Australia and New Zealand 6,890 9,604
-------------------------
Total Gross Premiums
Written $228,287 $269,913
-------------------------

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The category "Worldwide (excluding U.S.) consists of contracts that cover
more than one geographic region (other than the U.S.). The exposure in this
category for gross premiums written to date is predominately from Europe and
Japan.

The table below sets forth the Company's combined ratio and components
thereof.

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Year ended December 31, 1997 1996
-------------------------
Claims and claim expenses 23.7% 34.3%
Underwriting expense ratio 23.8 17.0
-------------------------
Combined ratio 47.5% 51.3%
-------------------------

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Claims and claim expenses incurred for the year ended December 31, 1997
were $50.0 million compared to $86.9 million for the year ended December 31,
1996. Compared to historical averages, the year ended December 31, 1997 was a
relatively light year for natural catastrophes worldwide. Accordingly, the
reduced level of catastrophe losses resulted in a significantly lower loss ratio
in 1997 compared to 1996 and therefore positively affected the Company's results
from operations.

Included in the claims expenses for the year ended December 31, 1996 were
provisions of $15.0 million for claims incurred from Hurricane Fran, $9.3
million for claims incurred related to severe wind and hail storms, $8.3 million
for claims related to the Northeast U.S. winter storms, and a provision of $7.0
million for Northwestern U.S. floods. Also, during 1996, there was $12.1 million
of development on prior year claims, which primarily related to a $3.2 million
development on claims related to the 1994 Northridge Earthquake and a net
development of $3.5 million for Hurricanes Luis, Marilyn and Opal which occurred
in 1995.

Underwriting expenses, consisting of brokerage commissions, excise taxes
and other costs directly related to underwriting, for the year ended December
31, 1997 were $50.4 million or 23.8 percent of net premiums earned, compared to
$42.9 million or 17.0 percent for the year ended December 31, 1996. The primary
contributors to the increase in underwriting expenses were the increased
operating costs related to the hiring of additional professional staff and
continued investment in modeling technology. Also, since there was no reduction
in acquisition expenses related to the purchase of reinsurance, the purchase of
reinsurance caused acquisition costs to be a higher percentage of net premiums
earned. Additionally, premiums written by Glencoe, due to the nature of the
business, had a higher ratio of acquisition costs.

Net investment income (excluding net realized investment gains and losses)
for the year ended December 31, 1997 was $49.6 million, compared to $44.3
million for the year ended December 31, 1996. The increase in investment income
resulted primarily from the increase in the amount of invested assets which was
primarily the result of cash flows provided by operations, partially offset by
amounts used to purchase common stock during 1997. Invested assets at December
31, 1997 were $859.5 million compared to $802.5 million at December 31, 1996.

During each of 1997 and 1996, the Company recorded net realized losses on
investments of $2.9 million. Included in the 1997 net realized loss figure was a
provision of $3.8 million for what the Company believed to be an other than
temporary impairment of certain securities of Asian issuers held by the Company
as at December 31, 1997.

During 1997 the Company realized net foreign exchange losses of $3.4
million compared to net realized foreign exchange gains of $0.8 million for the
year ended December 31, 1996. The foreign exchange losses recorded in 1997
resulted primarily in the strengthening of the U.S. dollar against the British
pound and the German mark. The exchange gains in 1996 resulted primarily in the
weakening


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20 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 21
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of the U.S. dollar against the British pound.

During the year ended December 31, 1997 net income available to common
shareholders was reduced by $7.0 million for minority interests related to the
Capital Securities that were issued in March 1997. The proceeds from the Capital
Securities were utilized to partially reduce the amount outstanding under the
Company's Revolving Credit Facility and accordingly, interest expense for the
year ended December 31, 1997 decreased to $4.3 million from $6.6 million for the
year ended December 31, 1996.

FINANCIAL CONDITION

Liquidity and Capital Requirements

As a holding company, RenaissanceRe relies on investment income, cash dividends
and other permitted payments from its subsidiaries to make principal payments,
interest payments, cash distributions on outstanding obligations and to pay
quarterly dividends, if any, to its shareholders. The payment of dividends by
RenaissanceRe's subsidiaries is, under certain circumstances, limited under U.S.
statutory regulations and Bermuda insurance law. U.S. statutory regulations and
The Bermuda Insurance Act 1978, amendments thereto and related regulations of
Bermuda (the "Act"), require RenaissanceRe's Bermuda subsidiaries to maintain
certain measures of solvency and liquidity. As at December 31, 1998, the
statutory capital and surplus of RenaissanceRe's subsidiaries was $680.5
million, and the amount required to be maintained was $101.0 million. During
1998, Renaissance Reinsurance paid aggregate cash dividends of $102.1 million to
RenaissanceRe, compared to $117.5 million in 1997. See Note 17 to the
Consolidated Financial Statements.

RenaissanceRe's operating subsidiaries have historically produced
sufficient cash flows to meet expected claims payments and operational expenses
and to provide dividend payments to RenaissanceRe. RenaissanceRe's subsidiaries
also maintain a concentration of investments in high quality liquid securities,
which management believes will provide sufficient liquidity to meet
extraordinary claims payments should the need arise. Additionally, the Company
maintains a credit facility from which $150 million is currently unborrowed and
available to meet the liquidity needs of the Company.

Nobel

On June 25, 1998, the Company completed its acquisition of the U.S. operating
subsidiaries of Nobel Insurance Limited, a Bermuda company ("Nobel Limited"),
for $56.1 million. Between September and December 1998, the Company contributed
an additional $9 million of capital to Nobel. As part of the transaction, the
Company provided Nobel Limited with a limited recourse loan of $8.9 million to
support the liquidation of Nobel Limited. The Company currently estimates that
Nobel Limited, after satisfying its liabilities, will have the ability to repay
$7.9 million of this loan. The gross assets and gross liabilities purchased in
the transaction were $188.1 million and $155.9 million, respectively, thereby
resulting in the recognition of $23.9 million of goodwill, which is being
amortized on a straight line basis over a 20 year period. The Company has
accounted for this acquisition using the purchase method of accounting. The
Company issued no shares as part of the purchase.

During the fourth quarter of 1998, the Company recorded an after tax charge
of $40.1 million, consisting of $29.6 million of adverse development on Nobel
Insurance Company's ("Nobel") casualty and surety books of business, a goodwill
write-down of $6.6 million, and other related costs of $3.9 million. As a result
of Nobel's operating performance, A.M. Best reduced the credit rating of Nobel
from "A-" to "B+" and Nobel is seeking to sell or reinsure the remaining Nobel
businesses and reserves, specifically the casualty, surety, low-value dwelling
and bail bond businesses. While the Company intends to vigorously pursue a sale,
there can be no assurance that the Company will complete these sale transactions
and, if sales transactions do occur, there can be no assurance that the Company
will receive its estimated fair value of the Nobel businesses. Nobel will
continue to operate these business units during the sales process. Subsequent to
the sale of the businesses, Renaissance U.S. will retain ownership of Nobel
along with its licenses in the 50 states of America.

In conjunction with the fourth quarter charges, Renaissance U.S. has
recorded a deferred tax asset of $22.0 million. The Company believes the future
operations of Nobel, combined with other operating subsidiaries of Renaissance
U.S., will enable it to utilize the net operating loss carry-forward.

In connection with the Nobel acquisition, Renaissance U.S. borrowed $35
million from a syndicate of banks. In addition, the banks have provided a $15
million revolving credit facility which had been fully utilized as of December
31, 1998. RenaissanceRe has guaranteed these arrangements. See Note


- - --------------------------------------------------------------------------------





- - --------------------------------------------------------------------------------

6 to the Consolidated Financial Statements.

Contemporaneously with the Nobel acquisition, Nobel entered into a
retroactive reinsurance contract. This contract provides Nobel with $38 million
of protection from adverse development on its pre October 1, 1997 casualty book
of business. During the third and fourth quarters of 1998, Nobel recognized
pre-tax loss development on this book of business of $27.6 million, which is
recoverable under this contract. In accordance with SFAS No. 113, "Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts",
Nobel must record recoveries on these retroactive reinsurance contracts over the
remaining settlement period. Accordingly, although the Company has reflected in
its 1998 statement of operations a $27.6 million loss from adverse development
on Nobel's pre October 1, 1997 casualty book of business, the Company has also
recorded a $27.6 million deferred gain which will be offset against claims and
claim expenses incurred in future years consolidated statements of income. The
deferred gain will be recognized into income by multiplying the amount of such
gain by a fraction, the numerator being the cash recoveries collected from the
reinsurers under the contract, and the denominator being the total losses ceded
to the contract.

Other Cash Flows

In January 1996, RenaissanceRe capitalized a new subsidiary, Glencoe, with a
$50.0 million capital contribution and in June 1996 RenaissanceRe sold a 29.9
percent interest in Glencoe. During 1997 and 1998 the Company repurchased the
minority interest and accordingly, Glencoe is currently a wholly owned
subsidiary of RenaissanceRe.

Cash flows from operating activities resulted principally from premium and
investment income, net of paid losses, acquisition costs and underwriting
expenses. Cash flows from operations in 1998 were $102.5 million, compared to
$153.3 million in 1997. The 1998 cash flows from operations plus the proceeds
from bank loans were used to purchase $42.7 million of the Company's Common
Shares, pay aggregate quarterly dividends of $26.7 million and purchase Nobel
for $56.1 million. The 1997 cash flows from operations were utilized to purchase
$53.5 million of the Company's Common Shares and pay aggregate quarterly
dividends of $22.6 million.

The operating results of the Company have generated cash flows from
operations in 1998 and 1997 significantly in excess of its commitments. To the
extent that capital is not utilized in the Company's reinsurance business, the
Company will consider using such capital to invest in new opportunities or will
consider returning such capital to its shareholders.

Because of the potential high severity and low frequency of losses on the
coverages written by the Company, (which constitutes the majority of its
coverages) and the seasonality of the Company's business, it is not possible to
accurately predict the Company's future cash flows from operating activities. As
a consequence, cash flows from operating activities may fluctuate, perhaps
significantly, between individual quarters and years.

Capital Resources

The total capital of the Company as at December 31, 1998 and 1997 was as
follows:

- - --------------------------------------------------------------------------------
(in thousands) 1998 1997
-------------------------
Revolving Credit Facility -
Borrowed $ 50,000 $ 50,000
Term Loan & Credit Facility 50,000 --
Revolving Credit Facility -
Unborrowed 150,000 150,000
Minority interest -
Capital Securities 100,000 100,000
Shareholders' equity 612,232 598,703
-------------------------
Total Capital Resources $962,232 $898,703
-------------------------

- - --------------------------------------------------------------------------------

The Company has a $200 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 have averaged 6.12 percent during 1998
(6.07 percent in 1997). The credit agreement contains certain financial
covenants including requirements of a consolidated debt to capital ratio of
0.35:1; a consolidated net worth of not less than 125 percent of consolidated
debt; and 80 percent of invested assets to be rated BBB- or better. As at
December 31, 1998, and 1997, the Company had $50 million outstanding under the
facility. Under the terms of the agreement, and if the Company is in compliance
with the covenants thereunder, the Company has access to an additional $150
million should the need arise. The Company was in compliance with all the
covenants of this revolving credit and term loan agreement as at December 31,
1998.

In conjunction with the purchase of Nobel, Renaissance U.S. has a $35
million term loan and $15 million revolving loan facility with a syndicate of
commercial banks. Interest


- - --------------------------------------------------------------------------------
22 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 23
- - --------------------------------------------------------------------------------


rates on the facility are based upon a spread above LIBOR, and averaged 6.03
percent. 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 two through five.
The Company was in compliance with all the covenants of this term loan and
revolving loan facility as at December 31, 1998.

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 Company shall be in default under the
Indenture. The Company was in compliance with all of the covenants of the
Indenture at December 31, 1998. The Capital Securities mature on March 1, 2027.
Such securities are required to be classified as minority interest, rather than
as a component of shareholders' equity of the Company.

Under the terms of certain reinsurance contracts, the Company may be
required to provide letters of credit to reinsureds in respect of reported
claims and/or unearned premiums. The Company has obtained a facility providing
for the issuance of letters of credit. This facility is secured by a lien on a
portion of the Company's investment portfolio. At December 31, 1998 the Company
had outstanding letters of credit aggregating $42.0 million (1997 $24.7
million). Also in connection with the Top Layer Re investment, the Company has
committed $50 million of collateral in the form of a letter of credit.

In order to encourage employee ownership of Common Shares, the Company has
guaranteed certain loan and pledge agreements (collectively, the "Employee
Credit Facility") between certain employees of the Company (the "Participating
Employees") and Bank of America Illinois ("BofA"). Pursuant to the terms of the
Employee Credit Facility, BofA has agreed to loan the Participating Employees up
to an aggregate of $25 million and the balance outstanding as of December 31,
1998 was $19.1 million. Each loan under the Employee Credit Facility is required
to be initially collateralized by the respective Participating Employee with
Common Shares or other collateral acceptable to BofA. If the value of the
collateral provided by a Participating Employee subsequently decreases, such
Participating Employee is required to contribute additional collateral in the
amount of such deficiency. Loans under the Employee Credit Facility are
otherwise non-recourse to the Participating Employees. Given the level of
collateral, the Company does not presently anticipate that it will be required
to honor any guarantees under the Employee Credit Facility, although there can
be no assurance that the Company will not be so required in the future.

Shareholders' Equity

During 1998, shareholders' equity increased by $13.5 million, from $598.7
million at December 31, 1997, to $612.2 million at December 31, 1998. The
significant components of the increase included net income from continuing
operations of $74.6 million, a decrease in the unrealized depreciation on
investments of $5.0 million and share option and restricted stock movement of
$3.3 million partially offset by the payment of dividends of $26.7 million and
the purchase of common stock of $42.7 million.

In May 1998, the Company announced a $25 million share repurchase program.
An additional $25 million share repurchase program was announced in September
1998. Through December 31, 1998, the Company had repurchased an aggregate of
1,020,670 shares under these programs at a total cost of $42.7 million.

Significant capital transactions during 1997 included:

o On June 23, 1997, in conjunction with a secondary offering for the
Company's founding institutional shareholders, the Company purchased and
cancelled 700,000 Common Shares at $36.29 per share for an aggregate purchase
price of $25.4 million from the Company's founding institutional shareholders or
their successors.

o On December 13, 1996, the Board of Directors approved a capital plan,
which was comprised of two components. First the Company purchased and cancelled
2,085,361 Common shares at $34.50 per share from its founding institutional
investors or their successors for an aggregate purchase price of $71.9 million.
Second, on January 22, 1997, the Company completed a fixed price tender offer
and purchased and cancelled 813,190 Common Shares from its public shareholders
at $34.50 per share for an aggregate purchase price of $28.1 million.

Investments

As of December 31, 1998, the Company held investments and cash totaling
$942.3 million with net unrealized depreciation of $5.1 million.


- - --------------------------------------------------------------------------------




- - --------------------------------------------------------------------------------

Primarily because of the potential for large claims payments, the Company's
investment portfolio is structured to provide a high level of liquidity.

The table below shows the aggregate amounts of investments available for
sale, equity securities and cash and cash equivalents comprising the Company's
portfolio of invested assets:

- - --------------------------------------------------------------------------------
(in thousands) 1998 1997
-------------------------
Investments available for
sale, at fair value $799,995 $700,665
Equity securities,
at fair value 1,630 26,372
Cash, cash equivalents and
short term investments 140,684 132,430
-------------------------
Total Invested Assets $942,309 $859,467
-------------------------

- - --------------------------------------------------------------------------------

The growth in the Company's portfolio of invested assets for the year ended
December 31, 1998 resulted primarily from net cash provided by operating
activities of $102.5 million, partially offset by realized losses generated by
the sale of securities from the Company's emerging market debt portfolio. The
Company's investment income also increased during this period, largely as a
result of the increased size of the fixed income portfolio.

The Company's current investment guidelines call for the invested asset
portfolio, including cash and cash equivalents, to have at least an AA rating as
measured by Standard & Poor's Ratings Group. At December 31, 1998, the Company's
invested asset portfolio had a dollar weighted average rating of AA, an average
duration of 2.76 years and an average yield to maturity of 5.45 percent, before
investment expenses.

During 1998, the Company reduced it's exposure to emerging market debt
securities from $144.5 million at December 31, 1997 to $58.8 million at December
31, 1998. The Company's investment portfolio, specifically the remaining
allocation of emerging market debt securities, is subject to the risks of
further declines in realizable value. The Company attempts to mitigate this risk
through the active management of its portfolio.

Derivative Instruments

The Company has assumed risk through catastrophe and weather linked securities
and derivative instruments under which losses could be triggered by an industry
loss index or natural parameters. For the year ended December 31, 1998, the
Company's activities with respect to these securities has approximated $3
million of fees and risk premiums. To date the Company has not experienced any
losses from such securities or derivatives. In the fourth quarter of 1998, the
Company recorded a recovery of $7.5 million on a non-indemnity catastrophe index
transaction. This amount was included in other income. The Company may in the
future utilize other derivative instruments.

MARKET SENSITIVE INSTRUMENTS

In accordance with the Securities and Exchange Commission's Financial Reporting
Release No. 48, the Company's investment portfolio includes investments which
are subject to changes in market values with changes in interest rates. The
aggregate hypothetical loss generated from an immediate adverse parallel shift
in the treasury yield curve of 100 basis points would cause a decrease in total
return of 3.2 percent, which equates to a decrease in market value of
approximately $28 million on a portfolio valued at $877 million at December 31,
1998. An immediate time horizon was used as this presents the worst-case
scenario.

CURRENCY

The Company's functional currency is the United States ("U.S.") dollar. The
Company writes a substantial portion of its business in currencies other than
U.S. dollars and may, from time to time, experience significant exchange gains
and losses and incur underwriting losses in currencies other than U.S. dollars,
which will in turn affect the Company's financial statements. See Note 2 to the
Consolidated Financial Statements.

The Company's foreign currency policy is to hold foreign currency assets,
including cash and receivables, that approximate the net monetary foreign
currency liabilities, including loss reserves and reinsurance balances payable.
All changes in the exchange rates are recognized currently in the Company's
statement of income. As a result of the Company's exposure to foreign currency
fluctuations, it is anticipated that during periods in which the U.S. dollar
appreciates, the Company will likely recognize foreign exchange losses.

EFFECTS OF INFLATION

The potential exists, after a catastrophe loss, for the development of
inflationary pressures in a local economy. The anticipated effects on the
Company are implicitly considered in the


- - --------------------------------------------------------------------------------
24 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 25
- - --------------------------------------------------------------------------------


Company's catastrophe loss models. The effects of inflation are also considered
in pricing and in estimating reserves for unpaid claims and claim adjustment
expenses. The actual effects of inflation on the results of the Company cannot
be accurately known until claims are ultimately settled.

YEAR 2000 READINESS DISCLOSURES

Certain computer programs and embedded computer chips use only the last two
digits to refer to a year. Therefore, during computer operations, the "00" may
be interpreted as being the year 1900, instead of the Year 2000. If not
corrected, many computer systems could fail or create erroneous results.
Computer systems, equipment and programs that are free from the Year 2000
problem are generally referred to as being compliant.

Year 2000 - Internal Systems

The Company has completed an assessment of its internal business applications
and computer systems, including those used in underwriting, policy processing
and recording policy details. The Company believes that all critical business
applications and systems will function properly with respect to dates associated
with the Year 2000 problem. The Company has backup systems in place for power,
certain infrastructure facilities and computer systems in the event of such
system failures. While there can be no assurance that these systems will be free
from failure, the Company believes that any failure from its internal systems
will not materially impact the Company's results of operations or financial
condition.

Year 2000 Exposure from Third Parties; Contingency Plan

The Company has evaluated its potential exposures from the non-compliance,
if any, of its vendors' and customers' systems with the Year 2000. The Company
does not believe that there will be any significant disruption of business from
such vendors and customers. However, there can be no assurance that the systems
of its vendors and customers, on which the Company relies for supporting
information and certain services, will be Year 2000 compliant and will not have
an adverse effect on the Company's business operations, financial results or
financial condition.

The Company has a contingency plan in the event that certain communication
systems, key utilities, or vendor systems prove not to be Year 2000 compliant.
However, the Company realizes that any reasonable contingency plan cannot
accurately account for all possible scenarios which may arise as a result of
Year 2000 related computer problems. The Company evaluates the status of its
Year 2000 exposures and modifies its contingency plan as needed.

Year 2000 Policy Coverage

In addition to the risks and costs associated with its internal systems and
third party vendors, the Company continues to evaluate its underwriting risk
arising from potential losses associated with Year 2000 failures. Variables
which may affect the pervasiveness and severity of Year 2000 problem include,
but are not limited to, the magnitude of the amount of costs and expenses
directly attributable to Year 2000 failures, the portion of such amount, if any,
that constitutes insurable losses, and the extent of governmental intervention.
The Company does not believe that Year 2000 losses should be covered under the
standard forms of contracts that it provides. However, some Year 2000 related
losses may or may not be determined to be covered under standard insurance and
reinsurance contracts, depending upon the specific contract language, the
applicable case law, and the facts and circumstances of each loss. The Company's
Year 2000 initiative seeks to minimize its potential Year 2000 underwriting
exposure by (1) performing an underwriting evaluation of potential Year 2000
exposures; (2) non-renewing certain contracts where the Company believes the
potential risk from Year 2000 losses is too great, and (3) structuring
reinsurance contractual language to mitigate potential exposure. The Company
cannot be certain that these steps will adequately minimize its Year 2000
underwriting exposures, and given the potential magnitude of the Year 2000
problem, it is possible, the Company may incur Year 2000 insurance coverage
related losses. The Company believes it is taking reasonable and appropriate
measures in the course of its business operations and client relationship to
mitigate such Year 2000 related exposures.

CURRENT OUTLOOK

As discussed in Note 8 to the Consolidated Financial Statements, and in
Financial Condition - Nobel, during the fourth quarter of 1998, Nobel recorded
an after tax charge of $40.1 million. As a result of this charge, the Company
has decided to sell or reinsure the remaining businesses and reserves of Nobel.
Based on the above, it is anticipated that the gross premiums written in 1999
related to Nobel will be substantially lower than the $31 million of gross
premiums


- - --------------------------------------------------------------------------------


- - --------------------------------------------------------------------------------


written in 1998. At this time, there can be no guaranty, that the completion of
the sale and reinsurance transactions will occur, and if they do occur, there
can be no guaranty that the Company will receive its estimated fair value of the
Nobel businesses. Accordingly, the future results of the Company's operations
could be adversely affected by a potential write-down of goodwill, a partial
write-off of the deferred tax asset and other costs or loss in value which could
occur during the transaction process.

It is anticipated that the competitive pressures in the property
catastrophe reinsurance market that have existed since 1995 will continue
through 1999. During the past four years, these pressures have suppressed the
premiums for property catastrophe coverages. However, partially as a result of
the $10.1 billion of U. S. catastrophe losses reported in 1998, as estimated by
Property Claims Services, the Company believes that the rate reductions, which
have been evident in the past four years, may subside. Also, the Company
believes that opportunities in certain select markets will continue to exist
which, because of the Company's competitive advantages, including its
technological capabilities and its relationships with leading brokers and ceding
companies, should enable the Company to find additional opportunities in the
property catastrophe reinsurance business that otherwise would not be available.

The Company has entered the primary insurance business, focusing
particularly on catastrophe exposed business, with a view to leveraging the risk
assessment skills of the core reinsurance business. In addition, the Company
will continue to evaluate other new business opportunities, which may be related
or unrelated to its current insurance or reinsurance businesses.

The Company's financial strength has enabled it to pursue these
opportunities outside of the property catastrophe reinsurance market and 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, however, there can be no assurance that the Company's pursuit of
such opportunities will materially impact the Company's financial condition and
results of operations.

During recent fiscal years, there has been considerable consolidation among
the leading reinsurance brokerage firms; whereby 64.2 percent of the Company's
assumed premiums are sourced from five reinsurance brokers. Although there can
be no assurance as to how this consolidation may affect the property catastrophe
reinsurance business and the business of the Company, the Company believes that
its valued relationships with the brokers will minimize any effect on the
Company's business.

Also, during recent fiscal years, there has been considerable consolidation
among the Company's customers which has been a partial contributor to the
reduction of the Company's premiums. Although this consolidation may continue to
occur, the Company believes that its financial strength, its position as one of
the market leaders in the property catastrophe reinsurance industry and its
ability to provide innovative products to the industry will minimize any effect
on the Company's business.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all fiscal years beginning after June 15, 1999.
Currently, the Company does not expect the adoption of SFAS No. 133 to have a
material impact on its consolidated financial statements.



- - --------------------------------------------------------------------------------
26 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 27
- - --------------------------------------------------------------------------------

========================================

MANAGEMENT'S RESPONSIBILITY FOR

FINANCIAL STATEMENTS

========================================

Management is responsible for the integrity of the consolidated financial
statements and other financial information presented in this annual report. The
accompanying consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States, applying certain
estimates and judgements as required.

The Company's internal controls are designed so that transactions are
authorized and executed in accordance with management's authorization, to
provide reasonable assurance as to the integrity and reliability of the
financial statements and to adequately safeguard the assets against unauthorized
use or disposition. Such controls are based on established policies and
procedures and are implemented by qualified personnel with an appropriate
segregation of duties.

Ernst & Young, independent auditors, are retained to audit the Company's
consolidated financial statements and express their opinion thereon. Their
accompanying report is based on audits conducted in accordance with auditing
standards generally accepted in the United States, which includes the
consideration of the Company's internal controls and an examination, on a test
basis, of evidence supporting the amounts and disclosures in the financial
statements. These procedures enable them to obtain a reasonable assurance about
whether the financial statements are free of material misstatement and provide a
reasonable basis for their opinion.

The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee. The Audit Committee meets periodically
with the independent auditors, both privately and with management present, to
review accounting, auditing, internal controls and financial reporting matters.

/s/ James N. Stanard /s/ John M. Lummis

James N. Stanard John M. Lummis
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer


========================================

REPORT OF INDEPENDENT AUDITORS

========================================

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF RENAISSANCERE HOLDINGS LTD.:

We have audited the accompanying consolidated balance sheets of RenaissanceRe
Holdings Ltd. and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
RenaissanceRe Holdings Ltd. and Subsidiaries as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
accounting principles generally accepted in the United States.

/s/ Ernst & Young

Hamilton, Bermuda
January 26, 1999

- - --------------------------------------------------------------------------------



Consolidated
- - --------------------------------------------------------------------------------
====================
BALANCE SHEETS
====================
RenaissanceRe Holdings Ltd. and Subsidiaries




At December 31, (in thousands of United States dollars, except per share amounts) 1998 1997
- - ---------------------------------------------------------------------------------------------------------------------------

Assets
Investments and cash
Fixed maturity investments available for sale, at fair value $ 799,995 $ 700,665
(Amortized cost $804,968 and $712,946 at December 31, 1998
and 1997, respectively)(Note 3)
Equity securities, at fair value (cost $1,801 and $24,229 at
December 31, 1998 and 1997, respectively)(Note 3) 1,630 26,372
Short term investments, at cost 24,983 9,501
Cash and cash equivalents 115,701 122,929
---------------------------------
Total investments and cash 942,309 859,467
Reinsurance premiums receivable 96,761 56,568
Ceded reinsurance balances 41,370 17,454
Losses and premiums recoverable (Note 4) 200,379 --
Accrued investment income 9,968 12,762
Deferred acquisition costs 10,997 5,739
Other assets 54,380 8,759
---------------------------------
Total Assets $ 1,356,164 $ 960,749
---------------------------------
Liabilities, Minority Interests and Shareholders' Equity
Liabilities
Reserve for claims and claim expenses (Note 5) $ 298,829 $ 110,037
Reserve for unearned premiums 94,466 57,008
Bank loans (Note 6) 100,000 50,000
Reinsurance balances payable 121,658 21,778
Other 28,979 9,541
---------------------------------
Total Liabilities 643,932 248,364
---------------------------------

Minority interest - Company obligated, mandatorily redeemable capital securities
of a subsidiary trust holding solely junior subordinated
debentures of the Company (Note 7) 100,000 100,000
Minority interest - Glencoe -- 13,682

Commitments and contingencies (Note 18)
Shareholders' Equity (Note 9)

Common Shares: $1 par value-authorized 225,000,000 shares;
issued and outstanding at December 31, 1998 - 21,645,913
shares (1997 - 22,440,901 shares) 21,646 22,441
Additional paid-in capital 17,389 52,481
Unearned stock grant compensation (Note 16) (8,183) (4,731)
Accumulated other comprehensive income (5,144) (10,155)
Retained earnings 586,524 538,667
---------------------------------
Total Shareholders' Equity 612,232 598,703
---------------------------------
Total Liabilities, Minority Interests and Shareholders' Equity $ 1,356,164 $ 960,749
---------------------------------
Book value per Common Share $ 28.28 $ 26.68
---------------------------------


See accompanying notes to the consolidated financial statements.


- - --------------------------------------------------------------------------------
28 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 29
- - --------------------------------------------------------------------------------

Consolidated
- - --------------------------------------------------------------------------------
========================
STATEMENTS OF INCOME
========================
RenaissanceRe Holdings Ltd. and Subsidiaries



Years Ended December 31, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------
(in thousands of United States dollars, except per share amounts)


Revenues
Gross premiums written $ 270,460 $ 228,287 $ 269,913
-------------------------------------------------
Net premiums written $ 195,019 $ 195,752 $ 251,564
Decrease in unearned premiums 9,928 15,738 1,264
-------------------------------------------------
Net premiums earned 204,947 211,490 252,828
Net investment income (Note 3) 52,834 49,573 44,280
Foreign exchange gains (losses) (153) (3,442) 789
Other income 9,789 -- --
Net realized losses on investments (Note 3) (6,890) (2,895) (2,938)
-------------------------------------------------
Total Revenues 260,527 254,726 294,959
-------------------------------------------------
Expenses
Claims and claim expenses incurred (Note 5) 112,752 50,015 86,945
Acquisition costs 26,506 25,227 26,162
Operational expenses 34,525 25,131 16,731
Corporate expenses 18,924 3,218 2,298
Interest expense 4,473 4,271 6,553
-------------------------------------------------
Total Expenses 197,180 107,862 138,689
-------------------------------------------------
Income before minority interests and taxes 63,347 146,864 156,270
Minority interest - Company obligated, mandatorily
redeemable capital securities of a subsidiary trust
holding solely junior subordinated debentures of the
Company (Note 7) (8,540) (6,998) --

Minority interest - Glencoe (705) (617) (110)
-------------------------------------------------
Income before taxes 54,102 139,249 156,160

Income tax benefit (Note 13) 20,475 -- --
-------------------------------------------------

Net Income Available to Common Shareholders $ 74,577 $ 139,249 $ 156,160
-------------------------------------------------
Earnings per Common Share - basic $ 3.39 $ 6.19 $ 6.15

Earnings per Common Share - diluted $ 3.33 $ 6.06 $ 6.01
-------------------------------------------------


See accompanying notes to the consolidated financial statements.

- - --------------------------------------------------------------------------------




Consolidated
- - --------------------------------------------------------------------------------
======================================
STATEMENTS OF SHAREHOLDERS' EQUITY
======================================
RenaissanceRe Holdings Ltd. and Subsidiaries



Years Ended December 31, (in thousands of United States dollars) 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------

Common stock

Balance -- January 1 $ 22,441 $ 23,531 $ 25,605
Exercise of stock options 104 248 11
Net stock grants awarded 122 175 --
Repurchase of shares (1,021) (1,513) (2,085)
-------------------------------------------------
Balance -- December 31 21,646 22,441 23,531
-------------------------------------------------
Paid-in capital
Balance -- January 1 52,481 102,902 174,370
Exercise of stock options 769 (3,640) (93)
Secondary registration costs -- (1,300) (515)
Net stock grants awarded 5,842 6,464 --
Repurchase of shares (41,703) (51,945) (70,860)
-------------------------------------------------
Balance -- December 31 17,389 52,481 102,902
-------------------------------------------------

Unearned stock grant compensation & loans to officers

Balance -- January 1 (4,731) (3,868) (2,728)
Net stock grants awarded (5,964) (4,731) --
Amortization / reduction on loans 2,512 3,868 (1,140)
-------------------------------------------------
Balance -- December 31 (8,183) (4,731) (3,868)
-------------------------------------------------
Accumulated other comprehensive income
Balance -- January 1 (10,155) 1,577 2,699

Net unrealized gains (losses) on securities, net of
adjustment (see disclosure) 5,011 (11,732) (1,122)
-------------------------------------------------
Balance -- December 31 (5,144) (10,155) 1,577
-------------------------------------------------
Retained earnings
Balance -- January 1 538,667 422,061 286,390
Net income 74,577 139,249 156,160
Dividends paid (26,720) (22,643) (20,489)
-------------------------------------------------
Balance -- December 31 586,524 538,667 422,061
-------------------------------------------------
Total shareholders' equity $ 612,232 $ 598,703 $ 546,203
-------------------------------------------------
Comprehensive Income

Net income $ 74,577 $ 139,249 $ 156,160
Change in comprehensive income 5,011 (11,732) (1,122)
-------------------------------------------------
Comprehensive income $ 79,588 $ 127,517 $ 155,038
-------------------------------------------------
Disclosure Regarding Net Unrealized Gains (Losses)

Net unrealized holding losses arising during period $ (1,879) $ (14,627) $ (4,060)
Net realized losses included in net income 6,890 2,895 2,938
-------------------------------------------------
Net unrealized gains (losses) on securities $ 5,011 $ (11,732) $ (1,122)
-------------------------------------------------


See accompanying notes to the consolidated financial statements.


- - --------------------------------------------------------------------------------
30 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 31
- - --------------------------------------------------------------------------------

Consolidated
- - --------------------------------------------------------------------------------
============================
STATEMENTS OF CASH FLOWS
============================
RenaissanceRe Holdings Ltd. and Subsidiaries



Years Ended December 31, (in thousands of United States dollars) 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------

Cash Flows Provided by Operating Activities:
Net income $ 74,577 $ 139,249 $ 156,160
Adjustments to reconcile net income to cash
provided by operating activities:

Depreciation and amortization 14,488 1,121 296
Realized loss on investments 6,890 2,895 2,938
Reinsurance balances, net 54,187 3,823 16,906
Ceded reinsurance balances (34,245) 2,328 (17,756)
Accrued investment income 3,572 1,151 938
Reserve for unearned premiums 5,132 (8,610) 5,173
Reserve for claims and claim expenses, net (8,530) 4,617 4,976
Other, net (13,579) 6,710 2,197
-------------------------------------------------
Net cash provided by operating activities 102,492 153,284 171,828
-------------------------------------------------

Cash Flows Applied to Investing Activities:
Proceeds from maturities and sales of investments 783,735 697,532 317,582
Purchase of investments available for sale (828,299) (829,193) (404,888)
Net sales (purchases) of short-term investments (2,189) -- 4,988
Purchase of equities -- (81,452) --
Proceeds from sale of equities 30,550 57,958 --
Purchase of minority interest in Glencoe (15,204) (5,185) --
Proceeds from sale of minority interest in Glencoe -- 3,000 15,126
-------------------------------------------------
Net cash applied to investing activities (31,407) (157,340) (67,192)
-------------------------------------------------

Cash Flows Applied to Financing Activities:
Purchase of Common Shares (42,724) (53,458) (73,460)
Net proceeds from (repayment of) bank loan 50,000 (100,000) 50,000
Acquisition of subsidiary, net of cash acquired (58,869) -- --
Proceeds from issuance of Capital Securities -- 100,000 --
Dividends paid (26,720) (22,643) (20,489)
Repayments from (loans to) officers -- 4,104 (868)
-------------------------------------------------
Net cash applied to financing activities (78,313) (71,997) (44,817)
-------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (7,228) (76,053) 59,819
Cash and Cash Equivalents, Beginning of Year 122,929 198,982 139,163
-------------------------------------------------
Cash and Cash Equivalents, End of Year $ 115,701 $ 122,929 $ 198,982
-------------------------------------------------



See accompanying notes to the consolidated financial statements.

- - --------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------

========================
NOTES

TO CONSOLIDATED

FINANCIAL STATEMENTS
========================

(amounts in tables in thousands of dollars, except per share amounts)

Note 1. Organization

- - --------------------------------------------------------------------------------

RenaissanceRe Holdings Ltd. ("RenaissanceRe"), was formed under the laws of
Bermuda on June 7, 1993 and serves as the holding company for its subsidiaries,
Renaissance Reinsurance Ltd., ("Renaissance Reinsurance"), Glencoe Insurance
Ltd., ("Glencoe"), Renaissance U.S. Holdings, Inc. ("Renaissance U.S.") and
RenaissanceRe Capital Trust (the "Trust"). Renaissance Reinsurance commenced
underwriting operations on June 15, 1993 and provides property catastrophe and
reinsurance coverage to insurers and reinsurers on a worldwide basis. Glencoe
commenced insurance underwriting operations on January 2, 1996 and provides
catastrophe exposed property coverage on an insurance and reinsurance basis.

In January 1998, the Company began to provide personal lines coverages
through DeSoto Insurance Company ("DeSoto"), a wholly owned subsidiary of
Glencoe. DeSoto is a special purpose Florida homeowners insurance company that
is licensed to assume and renew homeowners policies from the Florida Joint
Underwriting Association, a state sponsored insurance company.

On June 25, 1998, Renaissance U.S. completed its acquisition of the U.S.
operating subsidiaries of Nobel Insurance Limited, a Bermuda company ("Nobel
Limited"), for $56.1 million. See Note 8.

In October 1998, Renaissance Reinsurance of Europe ("Renaissance Europe")
was incorporated under the laws of Ireland as a wholly owned subsidiary of
Renaissance Reinsurance to provide certain property catastrophe reinsurance
coverage in Europe.

Note 2. Significant Accounting Policies

- - --------------------------------------------------------------------------------

Basis of presentation

The consolidated financial statements have been prepared on the basis of United
States generally accepted accounting principles ("GAAP") and include the
accounts of RenaissanceRe and its subsidiaries, which are collectively referred
to herein as the "Company". All intercompany transactions and balances have been
eliminated on consolidation. Minority interests represent the interests of
external parties in respect of net income and shareholders' equity of Glencoe
and the Trust (See Note 7). Certain comparative information has been
reclassified to conform with the current year presentation.

Use of estimates in financial statements

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported and
disclosed amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

Premiums and related expenses

Premiums are recognized as income, net of any applicable retrocessional
coverage, over the terms of the related contracts and policies. Premiums written
are based on policy and contract terms and include estimates based on
information received from both insureds and ceding companies. Subsequent
differences arising on such estimates are recorded in the period in which they
are determined. Reserve for unearned premiums represents the portion of premiums
written that relate to the unexpired terms of contracts and



- - --------------------------------------------------------------------------------
32 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 33
- - --------------------------------------------------------------------------------

policies in force. Such reserves are computed by pro-rata methods based on
statistical data or reports received from ceding companies.

Acquisition costs, consisting principally of commissions and brokerage
expenses incurred at the time a contract or policy is issued, are deferred and
amortized over the period in which the related premiums are earned. Deferred
policy acquisition costs are limited to their estimated realizable value based
on the related unearned premiums. Anticipated claims and claim expenses, based
on historical and current experience, and anticipated investment income related
to those premiums are considered in determining the recoverability of deferred
acquisition costs.

Reinsurance

Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policies. The Company
evaluates the financial condition of its reinsurers through internal evaluation
by senior management. For retroactive reinsurance contracts, the amount by which
liabilities associated with the reinsured policies exceed the amount paid for
reinsurance coverage is deferred and amortized into income using the recovery
method.

Claims and claim expenses

The reserve for claims and claim expenses includes estimates for unpaid claims
and claim expenses on reported losses as well as an estimate of losses incurred
but not reported. The reserve is based on individual claims, case reserves, and
other reserve estimates reported by insureds and ceding companies as well as
management estimates of ultimate losses. Inherent in the estimates of ultimate
losses are expected trends in claim severity and frequency and other factors
which could vary significantly as claims are settled. Accordingly, ultimate
losses may vary materially from the amounts provided in the consolidated
financial statements. These estimates are reviewed regularly and, as experience
develops and new information becomes known, the reserves are adjusted as
necessary. Such adjustments, if any, are reflected in the consolidated statement
of income in the period in which they become known and are accounted for as
changes in estimates.

Investments and cash

Investments are considered available for sale and are reported at fair value.
The net unrealized appreciation or depreciation on investments is included in
accumulated other comprehensive income. Investment transactions are recorded on
the trade date with balances pending settlement reflected in the balance sheet
as a component of other assets.

Realized gains or losses on the sale of investments are determined on the
basis of the specific identification method and include adjustments to the net
realizable value of investments for declines in value that are considered to be
other-than-temporary. Net investment income includes interest and dividend
income together with amortization of market premiums and discounts and is net of
investment management and custody fees. The amortization of premium and
accretion of discount for fixed maturity securities is computed utilizing the
interest method. The effective yield utilized in the interest method is adjusted
when sufficient information exists to estimate the probability and timing of
prepayments. Fair values of investments are based on quoted market prices, or
when such prices are not available, by reference to broker or underwriter bid
indications.

Short term investments, which have a maturity of one year or less when
purchased, are carried at cost which approximates fair value. For the purposes
of the statements of cash flows, cash equivalents include money market
instruments with a maturity of ninety days or less when purchased.

Goodwill

The Company amortizes goodwill recorded in connection with its business
combinations on a straight-line basis over the expected recovery period,
principally twenty years. Goodwill is periodically reviewed for impairment and
amounts deemed unrecoverable are adjusted accordingly. Goodwill is included in
other assets on the consolidated balance sheet and is expensed through corporate
expenses in the consolidated statement of income.

Earnings per share

Basic earnings per share is based on weighted average common shares and excludes
any dilutive effects of options and restricted stock. Diluted earnings per share
assumes the exercise of all dilutive stock options and restricted stock grants.
See Note 10.


- - --------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------


Foreign exchange

The Company's functional currency is the United States dollar. Revenues and
expenses denominated in foreign currencies are translated at the prevailing
exchange rate at the transaction date. Monetary assets and liabilities
denominated in foreign currencies are translated at exchange rates in effect at
the balance sheet date, which may result in the recognition of exchange gains or
losses which are included in the determination of net income.

Stock incentive compensation plans

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. The alternative
fair value accounting provided for under SFAS No. 123 requires the use of option
valuation models that were not necessarily developed for use in valuing employee
stock options. It is the opinion of management that disclosure of the pro-forma
impact of fair values provides a more relevant and informative presentation of
the impact of stock options issued to employees than financial statement
recognition of such amounts. Under APB 25, the Company recognizes compensation
expense for stock option grants to the extent that the fair value of the stock
exceeds the stock option exercise price at the measurement date.

Taxation

The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is established for any portion of a deferred tax asset that
management believes will not be realized.

New accounting pronouncements

As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires an enterprise to (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately in the
equity section of a statement of financial position. SFAS No. 130 requires net
unrealized appreciation (depreciation) on the Company's available for sale
investments, which were previously reported separately in shareholders' equity,
to be included in other comprehensive income. Prior year financial statements
have been reclassified to conform to the 1998 presentation. The adoption of this
accounting statement had no financial impact on the Company's net income or
shareholders' equity. Currently, other than the net unrealized loss on the
Company's investments available for sale, there are no other Company balances
which are required to be included as a component of other comprehensive income.

In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which revises disclosure requirements
about operating segments and establishes standards for related disclosures about
geographic areas and major customers. SFAS No. 131 requires that public business
enterprises report financial and descriptive information about their reportable
operating segments. The Company's reportable operating segments are the
reinsurance and primary insurance segments. The statement requires presentation
of prior year comparative information.

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, 1999.
Currently, the Company does not expect the adoption of SFAS No. 133 to have a
material impact on its consolidated financial statements.


- - --------------------------------------------------------------------------------
34 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 35
- - --------------------------------------------------------------------------------


Note 3. Investments

- - --------------------------------------------------------------------------------

The amortized cost, fair value and related unrealized gains and losses on fixed
maturity investments are as follows:



- - ---------------------------------------------------------------------------------------------------------------
Gross Gross
December 31, 1998 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------

U.S. Government bonds $560,068 $5,183 $ (641) $564,610
Non-U.S. government bonds 34,694 -- (4,067) 30,627
Non-U.S. corporate bonds 73,192 1,822 (8,044) 66,970
U.S. corporate bonds 137,014 1,599 (825) 137,788
------------------------------------------------------------------
$804,968 $8,604 $(13,577) $799,995
------------------------------------------------------------------



Gross Gross
December 31, 1997 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------

U.S. Government bonds $248,287 $ 15 $ (18) $248,284
Non-U.S. government bonds 263,463 1,892 (8,512) 256,843
Non-U.S. corporate bonds 194,320 1,808 (7,513) 188,615
Non-U.S. mortgage-backed securities 6,876 47 -- 6,923
------------------------------------------------------------------

$712,946 $3,762 $(16,043) $700,665
------------------------------------------------------------------

- - ---------------------------------------------------------------------------------------------------------------


The gross unrealized gains and losses on equity securities were as follows:



- - ---------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
- - ---------------------------------------------------------------------------------------------------------------

Equity securities, December 31, 1998 $ 1,801 $ -- $ (171) $ 1,630
- - ---------------------------------------------------------------------------------------------------------------
Equity securities, December 31, 1997 $ 24,229 $ 3,777 $ (1,634) $ 26,372
- - ---------------------------------------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------


Contractual maturities of fixed maturity securities are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.

- - --------------------------------------------------------------------------------
December 31, 1998 Amortized Fair
Cost Value
------------------------
Due within one year $192,392 $193,680
Due after one through
five years 393,213 393,750
Due after five through
ten years 123,355 121,388
Due after ten years 96,008 91,177
-------------------------
$804,968 $799,995
-------------------------
- - --------------------------------------------------------------------------------

The following table summarizes the composition of the fair value of the fixed
maturity portfolio by ratings assigned by rating agencies (e.g. Standard &
Poor's Corporation) or, with respect to non-rated issues, as estimated by the
Company's investment managers.

- - --------------------------------------------------------------------------------
At December 31, 1998 1997
-----------------------
AAA 70.9% 56.9%
AA 4.3 12.2
A 9.2 14.9
BBB 3.7 5.0
BB 5.2 4.9
B 2.2 6.1
NR 4.5 --
----------------------
100.0% 100.0%
----------------------
- - --------------------------------------------------------------------------------

Investment income

The components of net investment income are as follows:

- - --------------------------------------------------------------------------------
Year Ended December 31, 1998 1997 1996
---------------------------------------
Fixed
maturities $45,392 $42,183 $36,335
Short term
investments 2,354 -- 53
Cash and cash
equivalents 6,831 9,338 9,460
--------------------------------------
54,577 51,521 45,848
Investment
expenses 1,743 1,948 1,568
--------------------------------------
Net investment
income $52,834 $49,573 $44,280
--------------------------------------
- - --------------------------------------------------------------------------------

The analysis of realized gains (losses) and the change in unrealized gains
(losses) on investments is as follows:

- - --------------------------------------------------------------------------------
Year Ended December 31, 1998 1997 1996
---------------------------------------
Gross realized gains $ 13,192 $ 4,741 $ 1,240
Gross realized losses (20,082) (7,636) (4,178)
---------------------------------------

Net realized losses
on investments (6,890) (2,895) (2,938)
Unrealized gains
(losses) 5,011 (11,732) (1,122)
---------------------------------------

Total realized and
unrealized losses
on investments $ (1,879) $(14,627) $ (4,060)
---------------------------------------
- - --------------------------------------------------------------------------------

Proceeds from maturities and sales of fixed maturity investments were $783.7
million, $697.5 million and $317.6 million for the years ended December 31,
1998, 1997 and 1996, respectively. Proceeds from the sales of equity securities
were $30.5 million and $58.0 million for the years ended December 31, 1998 and
1997.

At December, 31 1998 and 1997 approximately $21.0 million and $15.0 million,
respectively, of cash and investments at fair value were on deposit with various
regulatory authorities as required by law.


- - --------------------------------------------------------------------------------
36 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 37
- - --------------------------------------------------------------------------------

Derivative Instruments

The Company has assumed and ceded risk through catastrophe and weather linked
securities and derivative instruments under which losses or recoveries are
triggered by an industry loss index or geological or physical variables. Net
related fees and risk premiums assumed and ceded are not material to the
Company's operations. During 1998, the Company recognized a gain on a
non-indemnity catastrophe index transaction of $7.5 million which is included as
a component of other income.

NOTE 4. CEDED REINSURANCE

- - --------------------------------------------------------------------------------

The Company utilizes reinsurance to reduce its exposure to large losses. The
Company currently has in place contracts that provide for recovery of a portion
of certain claims and claim expenses from reinsurers in excess of various
retentions and loss warranties. The Company would remain liable to the extent
that any reinsurance company fails to meet its obligations . The earned
reinsurance premiums ceded were $68.1 million, $25.1 million and $12.9 million
for 1998, 1997 and 1996, respectively.

Other than loss recoveries, certain of the Company's ceded reinsurance
contracts also provide for recoveries of additional premiums, reinstatement
premiums and lost no claims bonuses which are incurred when losses are ceded to
these reinsurance contracts. Total recoveries netted against premiums and claims
and claim expenses incurred for the year ended December 31, 1998 were $110.1
million.

Included in losses and premiums recoverable are recoverables of $79.4
million related to retroactive reinsurance agreements. In accordance with SFAS
No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts", adverse development related to these retroactive
reinsurance contracts is required to be included in claims and claim expenses
incurred as it becomes known. However, the offsetting recoverable is deferred
and reflected in the statement of income based on the recovery method. As of
December 31, 1998, the Company has deferred $27.6 million of recoveries related
to retroactive reinsurance contracts. This has been included in reinsurance
balances payable on the consolidated balance sheet. In future years, as the
amounts are recovered, the recoveries will offset claims and claim expenses
incurred in the consolidated statement of income.

NOTE 5. RESERVE FOR CLAIMS
AND CLAIM EXPENSES

- - --------------------------------------------------------------------------------

For the Company's reinsurance operations estimates of claims and claim expenses
are based in part upon the estimation of claims resulting from catastrophic
events. Estimation by the Company of claims resulting from catastrophic events
based upon its own historical claim experience is inherently difficult because
of the Company's short operating history and the potential severity of property
catastrophe claims. Therefore, the Company utilizes both proprietary and
commercially available models, as well as historical reinsurance industry
property catastrophe claims experience, for purposes of evaluating future trends
and providing an estimate of ultimate claims costs.

On both the Company's reinsurance and primary operations, the Company uses
statistical and actuarial methods to reasonably estimate ultimate expected
claims and claim expenses. The period of time from the reporting of a loss to
the Company, and the settlement of the Company's liability may be several years.
During this period, additional facts and trends will be revealed. As these
factors become apparent, case reserves will be adjusted, sometimes requiring an
increase in the overall reserves of the Company, and at other times requiring a
reallocation of IBNR reserves to specific case reserves. These estimates are
reviewed regularly, and such adjustments, if any, are reflected in results of
operations in the period in which they become known and are accounted for as
changes in estimates.


- - --------------------------------------------------------------------------------


- - --------------------------------------------------------------------------------


Activity in the liability for unpaid claims and claim expenses is summarized as
follows:



- - ---------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 1997 1996
--------------------------------------------

Reserves as of January 1 $110,037 $105,421 $100,445

Net reserves assumed in respect of acquired company 55,317 -- --
Net incurred related to:
Current year 96,431 50,015 75,118
Prior years 16,321 -- 11,827
--------------------------------------------
Total net incurred 112,752 50,015 86,945
--------------------------------------------

Net paid related to:

Current year 49,671 3,740 26,415
Prior years 30,923 41,659 55,554
--------------------------------------------

Total net paid 80,594 45,399 81,969
--------------------------------------------

Total net reserves as of December 31 197,512 110,037 105,421

Losses recoverable as of December 31 101,317 -- --
--------------------------------------------

Total gross reserves as of December 31 $298,829 $110,037 $105,421
--------------------------------------------
- - ---------------------------------------------------------------------------------------------------------


The prior year development in 1998 was due primarily to adverse development in
the Nobel Insurance Company ("Nobel") surety and casualty losses partially
offset by favorable development on property catastrophe reserves for 1997 and
prior years. The Company had no development of prior year reserves in 1997.
During 1996, the Company incurred $11.8 million of claims and claim expenses for
1995 and prior periods primarily as a result of reserve increases for claims
related to the Northridge, California earthquake and a retrocessional quota
share contract. The additional development on both of these claims was partially
offset by additional premiums received under the reinsured contracts. The
Company's total gross reserve for incurred but not reported claims was $135.4
million as of December 31, 1998 (1997- $66.5 million).

NOTE 6. BANK LOANS

- - --------------------------------------------------------------------------------

The Company has a $200 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 have averaged 6.12 percent during 1998
(6.07 percent in 1997). The credit agreement contains certain financial
covenants including requirements of a consolidated debt to capital ratio of
0.35:1; a consolidated net worth of not less than 125 percent of consolidated
debt; and 80 percent of invested assets to be rated BBB- or better. As at
December 31, 1998, and 1997, the Company had $50 million outstanding under the
facility. Under the terms of the agreement, and if the Company is in compliance
with the covenants thereunder, the Company has access to an additional $150
million should the need arise. The Company was in compliance with all the
covenants of this revolving credit and term loan agreement as at December 31,
1998.

In conjunction with the purchase of Nobel, Renaissance U.S. has a $35 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 6.03 percent during 1998. 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


- - --------------------------------------------------------------------------------
38 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 39
- - --------------------------------------------------------------------------------


five year term loan has mandatory repayment provisions approximating 25 percent
in each of years two through five. The Company was in compliance with all the
covenants of this term loan and revolving loan facility as at December 31, 1998.

Interest payments on the above loans totaled $4.4 million, $4.6 million and
$6.9 million for the years ended December 31, 1998, 1997 and 1996, respectively.
Fair value of bank loans approximate the carrying values, because such loans
reprice frequently.

NOTE 7. CAPITAL SECURITIES

- - --------------------------------------------------------------------------------

On March 7, 1997 the Company issued $100 million of "Company Obligated,
Mandatorily Redeemable Capital Securities of a Subsidiary Trust holding solely
$103,092,783 of the Company's 8.54 percent Junior Subordinated Debentures due
March 1, 2027" ("Capital Securities") issued by the Trust. The Capital
Securities pay cumulative cash distributions at an annual rate of 8.54 percent,
payable semi-annually. Proceeds from the offering were used to repay a portion
of the Company's outstanding indebtedness. Effective September 11, 1997 the
Trust exchanged the Capital Securities for substantially the same securities
registered under the Securities Act of 1933. The Trust is a wholly owned
subsidiary of the Company and is consolidated into the Company's consolidated
financial statements. The Capital Securities and the related accrued dividends,
are reflected in the consolidated financial statements as a minority interest.

NOTE 8. ACQUISITION

- - --------------------------------------------------------------------------------

On June 25, 1998, the Company completed its acquisition of the U.S. operating
subsidiaries of Nobel Limited, for $56.1 million. The Company also provided
Nobel Limited with a limited recourse loan of $8.9 million to support the
liquidation of Nobel Limited. The Company currently estimates that Nobel
Limited, after satisfying its liabilities, will have the ability to repay $7.9
million of this loan, which is reflected in other assets. The gross assets and
gross liabilities purchased in the transaction were $188.1 million and $155.9
million, respectively, thereby resulting in the recognition of $23.9 million of
goodwill (subsequently written down to $14.0 million due to the fourth quarter
charge described below). The Company issued no shares as part of the purchase
and has accounted for this acquisition using the purchase method of accounting.
The Company partially financed the acquisition with bank debt. See Note 6.

During the fourth quarter of 1998, the Company recorded an after tax charge
of $40.1 million, consisting of $29.6 million of adverse development on Nobel
Insurance Company's ("Nobel") casualty and surety books of business, a goodwill
write-down of $6.6 million, and other related costs of $3.9 million. As a result
of these charges, the Company concluded that it was in the best interest of
shareholders to sell or reinsure the remaining Nobel businesses and reserves,
specifically the casualty, surety, low-value dwelling and bail bond businesses.
Nobel will continue to operate these business units during the sales process.
Subsequent to the sale of the remaining businesses, Renaissance U.S will retain
ownership of Nobel along with its licenses in the 50 states of America.

In conjunction with the fourth quarter charges, Renaissance U.S. has
recorded a deferred tax asset of $22.0 million, which is reflected in other
assets on the consolidated balance sheet. The Company believes the future
operations of Nobel, combined with other operating subsidiaries of Renaissance
U.S., will enable it to utilize the net operating loss carry-forward.

Contemporaneously with the Nobel acquisition, Nobel entered into a
retroactive reinsurance contract. This contract provides Nobel with $38 million
of protection from adverse development on its pre October 1, 1997 casualty book
of business. See Note 4.

NOTE 9. SHAREHOLDERS' EQUITY

- - --------------------------------------------------------------------------------

On May 5, 1998, the shareholders voted to increase the authorized capital to an
aggregate of 325,000,000 shares consisting of 225,000,000 Common Shares and
100,000,000 Preference Shares. The Company's 225,000,000 authorized $1.00 par
value Common Shares consist of three separate series with differing voting
rights as follows:


- - --------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------


- - --------------------------------------------------------------------------------
December 31, 1998 Issued and
Authorized Outstanding
-------------------------------

Full Voting Common
Shares (the
Common Shares) 206,570,583 18,879,196
(includes all shares
registered and available
to the public)

Diluted Voting Class I
Common Shares 16,789,776 2,448,504
(the Diluted Voting
I Shares)
Diluted Voting Class II
Common Shares 1,639,641 318,213
(the Diluted Voting -------------------------------
II Shares)
225,000,000 21,645,913
-------------------------------
- - --------------------------------------------------------------------------------

The Diluted Voting I Shares and the Diluted Voting II Shares (together the
Diluted Voting Shares) were authorized at a special general meeting of
shareholders on December 23, 1996 and subsequent to the authorization,
affiliates of General Electric Investment Corporation exchanged 5.7 million
Common Shares for 4.2 million Diluted Voting I Shares and 1.5 million Diluted
Voting II Shares, and as such are the sole holders of such diluted voting
securities.

The Diluted Voting Shareholders vote together with the common shareholders.
The Diluted Voting I Shares are limited to a fixed voting interest in the
Company of up to 9.9 percent on most corporate matters. Each Diluted Voting II
Share has a one-third vote on most corporate matters. The Diluted Voting
Shareholders are entitled to the same rights, including receipt of dividends and
the right to vote on certain significant corporate matters, and are subject to
the same restrictions as the common shareholders. The Company currently does not
intend to register or list the Diluted Voting Shares on the New York Stock
Exchange.

In May and September of 1998 the Company announced share repurchase
programs of $25 million each. For the year ended December 31, 1998 the Company
repurchased a total of 1,020,670 Common Shares of the Company for an aggregate
price of $42.7 million.

On June 23, 1997, concurrent with a secondary offering, the Company
purchased for cancellation 700,000 Common Shares at $36.29 per share for an
aggregate price of $25.4 million from the Company's founding institutional
shareholders or their successors.

On December 13, 1996, the Board of Directors approved a capital plan which
was comprised of two components. First, the Company purchased 2,085,361 Common
Shares at $34.50 per share for an aggregate price of $71.9 million on a pro-rata
basis from its founding institutional investors. Second, on January 22, 1997 the
Company completed a fixed price tender offer for 813,190 Common Shares at $34.50
per share for an aggregate price of $28.1 million.

In November 1997, June 1997 and February 1996, the Company paid for the
costs of secondary offerings of the Company's Common Shares sold by the founding
institutional investors. The Company incurred costs of $0.6, $0.7 and $0.5
million, respectively, with respect to the registrations which are reflected as
a reduction to additional paid-in capital on the consolidated balance sheet.

NOTE 10. EARNINGS PER SHARE

- - --------------------------------------------------------------------------------

As of December 31, 1997, the Company adopted SFAS No. 128, "Earnings per Share."
The numerator in both the Company's basic and diluted earnings per share
calculations is identical. The following table sets forth the reconciliation of
the denominator from basic to diluted weighted average shares outstanding (in
thousands of per share amounts):

- - --------------------------------------------------------------------------------
Year Ended December 31, 1998 1997 1996
------------------------------------
Weighted average
shares - basic 22,021 22,496 25,388

Per share equivalents
of employee stock
options and
restricted shares 407 471 607
------------------------------------
Weighted average
shares - diluted 22,428 22,967 25,995
------------------------------------
- - --------------------------------------------------------------------------------


- - --------------------------------------------------------------------------------
40 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 41
- - --------------------------------------------------------------------------------


NOTE 11. RELATED PARTY TRANSACTIONS AND MAJOR CUSTOMERS

- - --------------------------------------------------------------------------------

The Company has in force several treaties with subsidiaries of The St. Paul
Companies, and affiliates of General Electric Investments ("GEI") covering
property catastrophe risks in several geographic regions. The terms of these
treaties were determined in arms length negotiations and the Company believes
that such terms are comparable to terms the Company would expect to negotiate in
similar transactions with unrelated parties. For the years ended December 31,
1998, 1997 and 1996, the Company received $13.7 million, $19.2 million and $27.9
million in reinsurance premiums and deposits related to these treaties,
respectively.

The Company currently has in place an investment advisory agreement with GE
Investment Management, an affiliate of GEI. GE Investment Management currently
manages 68.1 percent of the Company's investment portfolio, subject to the
Company's investment guidelines. The terms of the investment advisory agreement
was determined in arms length negotiations. The performance of, and the fees
paid to GE Investment Management are reviewed periodically by the Board. Such
fees paid to related party investment advisors aggregated to $0.4 million, $1.2
million and $1.1 million for the years ended December 31, 1998, 1997 and 1996,
respectively.

During the years ended December 31, 1998, 1997 and 1996, the Company
received 64.2%, 70.1%, and 58.5%, respectively, of its premium assumed from its
five largest reinsurance brokers. Subsidiaries and affiliates of E. W. Blanch &
Co., J&H Marsh & McLennan, Inc., AON Re Group, Herbert Clough Inc., and Bates
Turner L.L.C. (a GE Capital Services Company, an affiliate of GEI) accounted for
approximately 23.2%, 18.8%, 12.6%, 5.4% and 4.2%, respectively, of the Company's
premiums written in 1998.

NOTE 12. DIVIDENDS

- - --------------------------------------------------------------------------------

During 1998, four regular quarterly dividends of $0.30 per share were paid to
shareholders of record as of February 18, May 20, August 19, and November 19.
During 1997, four regular quarterly dividends of $0.25 per share were paid to
shareholders of record as of February 19, May 22, August 20, and November 20.
During 1996, four regular quarterly dividends of $0.20 per share were paid to
shareholders of record as of February 20, May 16, August 20, and November 19.
The total amount of dividends paid to Common Shareholders during 1998, 1997 and
1996 was $26.7 million, $22.6 million and $20.5 million, respectively.

NOTE 13. TAXATION

- - --------------------------------------------------------------------------------

Under current Bermuda law, neither RenaissanceRe, Renaissance Reinsurance, nor
Glencoe are required to pay taxes in Bermuda on either income or capital gains.
Income from U.S. company operations is subject to taxes imposed by U.S.
authorities. Renaissance Europe will be subject to the taxation laws of Ireland.

The U.S. companies have a net operating loss carryforward of $16.1 million
which will be available to offset regular taxable U.S. income during the
carryforward period (through 2018). As of December 31, 1998 a deferred tax asset
of $22.0 million is included in other assets on the consolidated balance sheet.


- - --------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------

The income tax expense (benefit) consists of:

- - --------------------------------------------------------------------------------
Year Ended December 31, 1998
Current Deferred Total
-----------------------------------------
U.S. federal $ 1,580 $(22,191) $(20,611)
U.S. state and local 136 -- 136
-----------------------------------------
$ 1,716 $(22,191) $(20,475
-----------------------------------------
- - --------------------------------------------------------------------------------

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 are
presented below:

- - --------------------------------------------------------------------------------
1998
--------
Deferred tax assets:

Allowance for doubtful accounts $ 258
Unearned premiums 1,342
Claims reserves, principally due
to discounting for tax 4,497
Retroactive reinsurance gain 9,384
Net operating loss carryforwards 5,483
Accrued expenses 2,040
Other 711
--------
23,715

Deferred tax liabilities:

Deferred policy acquisition costs (643)
Unrealized gains (166)
Other (881)
--------
Net deferred tax asset $ 22,025
--------
- - --------------------------------------------------------------------------------

NOTE 14. GEOGRAPHIC INFORMATION

- - --------------------------------------------------------------------------------

Financial information relating to gross premiums by geographic region is as
follows:


Year Ended
December 31, 1998 1997 1996
- - --------------------------------------------------------------------------------
United States $191,658 $123,717 $126,611
Worldwide (exclu-
ding U.S.) 26,380 32,005 38,746
Worldwide 20,584 27,930 44,460
Europe (including
the United
Kingdom) 18,532 21,007 31,534
Other 9,374 16,738 18,958
Australia and
New Zealand 3,932 6,890 9,604
----------------------------------------
Total Gross
Premiums
Written $270,460 $228,287 $269,913
----------------------------------------
- - --------------------------------------------------------------------------------

The category "Worldwide (excluding U.S.)" consists of contracts that cover more
than one geographic region (other than the U.S.). The exposure in this category
for gross premiums written is predominantly from Europe and Japan.

NOTE 15. SEGMENT REPORTING

- - --------------------------------------------------------------------------------

As of December 31, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company has two
reportable segments: reinsurance operations and primary operations. The
reinsurance segment provides property catastrophe reinsurance as well as other
reinsurance to selected insurers and reinsurers on a worldwide basis. The
primary segment provides insurance both on a direct and on a surplus lines basis
for commercial and homeowners catastrophe-exposed property business. Also
included in the primary segment are commercial auto and general liability covers
as well as surety business which provides coverage to small and mid-size
contractors. Data for the three years ended December 31, 1998, 1997 and 1996 was
as follows:


- - --------------------------------------------------------------------------------
42 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 43
- - --------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Reinsurance Primary Other Total
--------------------------------------------------------------

Gross premiums written $ 207,189 $ 63,271 $ -- $ 270,460
Total revenues 216,976 42,229 1,322 260,527
Pre-tax profit (loss) 126,768 (51,438) (21,228) 54,102

Assets 897,656 369,801 88,707 1,356,164
--------------------------------------------------------------

Claims and claim expense ratio 25.0% 200.2% -- 55.0%
Underwriting expense ratio 28.1% 37.1% -- 29.8%
--------------------------------------------------------------
Combined ratio 53.1% 237.3% -- 84.8%
--------------------------------------------------------------

Year Ended December 31, 1997
--------------------------------------------------------------
Gross premiums written $ 221,246 $ 7,041 $ -- $ 228,287
Total revenues 242,076 6,909 5,741 254,726
Pre-tax profit (loss) 146,209 2,421 (9,381) 139,249

Assets 795,043 84,211 81,495 960,749
--------------------------------------------------------------

Claims and claim expense ratio 23.6% 25.0% -- 23.7%
Underwriting expense ratio 22.6% 86.1% -- 23.8%
--------------------------------------------------------------
Combined ratio 46.2% 111.1% -- 47.5%
--------------------------------------------------------------

Year Ended December 31, 1996
--------------------------------------------------------------
Gross premiums written $ 268,361 $ 1,552 $ -- $ 269,913
Total revenues 289,645 2,780 2,534 294,959
Pre-tax profit (loss) 161,855 900 (6,595) 156,160

Assets 778,122 52,478 74,164 904,764
--------------------------------------------------------------

Claims and claim expense ratio 34.4% -- -- 34.3%
Underwriting expense ratio 16.2% * -- 17.0%
--------------------------------------------------------------
Combined ratio 50.6% -- -- 51.3%
--------------------------------------------------------------

* Primary expense ratio is not relevant for 1996, as this was the initial year of operations
and earned premium was $.2 million.

- - --------------------------------------------------------------------------------------------------


The activities of the Company's Bermuda and U.S. holding companies are the
primary contributors to the results reflected in the other segment. The pre tax
loss of the holding companies primarily consisted of interest expense on bank
loans, the minority interest on the Capital Securities, goodwill amortization
and goodwill writedowns related to Nobel, and realized investment losses on the
sales of investments, partially offset by investment income on the assets of the
holding companies.


- - --------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------

NOTE 16. STOCK INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS

- - --------------------------------------------------------------------------------

The Company has a stock option plan under which all employees of the Company and
its subsidiaries may be granted stock options. A stock option award under the
Company's stock option plan allows for the purchase of the Company's Common
Shares at a price that is generally equal to the five day average closing price
of the Common Shares prior to the date of grant. Options to purchase Common
Shares are granted periodically by the Board of Directors and generally expire
ten years from the date of grant.

The Company adopted the disclosure-only method under SFAS No. 123,
"Accounting for Stock Based Compensation", as of December 31, 1996, and
continues to account for stock-based compensation plans under Accounting
Principles Board Opinion No. 25. In accordance with SFAS No. 123, the fair value
of option grants is estimated on the date of grant using the Black-Scholes
option pricing model for pro-forma footnote purposes with the following weighted
average assumptions used for grants in 1998, 1997 and 1996, respectively;
dividend yield of 2.7, 2.5 and 2.5 percent, expected option life of five years
for all years, and expected volatility of 24.94, 25.09 and 25.09 percent. The
risk-free interest rate was assumed to be 5.5 percent in 1998, 6.0 percent in
1997 and 6.5 percent in 1996. If the compensation cost had been determined based
upon the fair value method recommended in SFAS No. 123, the Company's net income
would have been $71.8 million, $135.4 million and $155.4 million for each of
1998, 1997 and 1996, respectively, and the Company's earnings per share on a
diluted basis would have been $3.20, $5.89 and $5.98 for each of 1998, 1997 and
1996, respectively.

The following is a table of the changes in options outstanding for 1998,
1997 and 1996, respectively:



- - ------------------------------------------------------------------------------------------------------------------------------------
Options Weighted
available Options average exercise Fair value Range of exercise
for grant outstanding price of options prices
----------------------------------------------------------------------------------

Balance, December 31, 1995 1,998,350 901,650 $13.59
Options granted:
Exercise price at market price (424,349) 424,349 $29.41 $ 7.86 $29.25 - $29.55
Options exercised (28,738) $14.91
----------------------------------------------------------------------------------
Balance, December 31, 1996 1,574,001 1,297,261 $18.74
Authorized 1,000,000
Options granted:
Exercise price at market price (705,949) 705,949 $37.49 $ 9.67 $34.18 - $44.61
Options forfeited 144,436 (144,436) $28.91
Options exercised (571,967) $15.23
Shares turned in or withheld 114,287
Restricted stock issued (174,704)
Restricted stock forfeited 8,249
----------------------------------------------------------------------------------
Balance, December 31, 1997 1,960,320 1,286,807 $26.67
Options granted:
Exercise price at market price (486,079) 486,079 $45.05 $10.84 $34.97 - $48.00
Options forfeited 16,225 (16,225) $33.45
Options exercised (136,891) $17.69
Shares turned in or withheld 59,928
Restricted stock issued (136,313)
Restricted stock forfeited 461
----------------------------------------------------------------------------------
Balance, December 31, 1998 1,414,542 1,619,770 $35.62
----------------------------------------------------------------------------------
Total options exercisable at
December 31, 1998 581,227
- - ------------------------------------------------------------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------
44 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 45
- - --------------------------------------------------------------------------------

During 1997, the shareholders approved an increase of 1,000,000 shares under the
Company's 1993 Amended Stock Incentive Plan. The total number of shares
available under the plan is 4,000,000 shares. The shareholders also approved the
issuance of share-based awards, the issuance of restricted Common Shares under
the plan and an adjustment in the calculation of shares available for issuance
thereunder by deeming the number of shares tendered to, or withheld by the
Company in connection with certain option exercises and in satisfaction of tax
withholding liabilities to be so available.

In 1996, the Company established a Non-Employee Director Stock Plan to
issue stock options and shares of restricted stock. In 1997, the shareholders
approved an increase of authorized shares available for issuance thereunder from
100,000 Common Shares to 200,000 Common Shares. In 1998, 6,000 options to
purchase Common Shares and 939 restricted Common Shares were granted. In 1997,
24,000 options to purchase Common Shares and 1,870 restricted Common Shares were
issued. The options and restricted Common Shares vest ratably over three years.

During 1997, the Company's Board of Directors approved an employee stock
bonus plan. Under the plan, eligible employees may elect to receive a grant of
Common Shares of up to 50 percent of their bonus in lieu of cash, with an
associated grant from the Company of an equal number of restricted shares. The
restricted Common Shares vest ratably over three years. During the restricted
period, the employee receives dividends and votes the restricted Common Shares,
but the restricted shares may not be sold, transferred or assigned. In 1998, the
Company issued 33,036 shares with a value of $1.5 million under this plan and in
1997, the Company issued 46,424 shares with a value of $1.7 million.
Additionally, during 1998 the Board of Directors granted 103,277 restricted
shares with a value of $4.5 million to certain executive officers. In 1997,
128,279 restricted shares with a value of $4.9 million were awarded to certain
executive officers. The shares granted to executive officers vest ratably over
four years. At the time of grant, the market value of the shares awarded under
these plans is recorded as unearned stock grant compensation and is presented as
a separate component of shareholders' equity. The unearned compensation is
charged to operations over the vesting period. Compensation expense related to
these plans was $2.5 million in 1998.

All of the Company's employees are eligible for defined contribution
pension plans. Contributions are primarily based upon a percentage of eligible
compensation.

NOTE 17. STATUTORY REQUIREMENTS

- - --------------------------------------------------------------------------------

Under the Insurance Act, 1978, amendments thereto and related regulations of
Bermuda ("The Act"), Renaissance Reinsurance and Glencoe are required to prepare
statutory financial statements and to file in Bermuda a statutory financial
return. The Act also requires Renaissance Reinsurance and Glencoe to maintain
certain measures of solvency and liquidity during the period. As at December 31,
1998 the statutory capital and surplus of the Bermuda subsidiaries was $655.3
million and the amount required to be maintained under Bermuda law was $101
million.

Under the Act, Renaissance Reinsurance is classified as a Class 4 insurer,
and is therefore restricted as to the payment of dividends in the amount of 25
percent of the prior year's statutory capital and surplus, unless at least two
members of the board of directors attest that a dividend in excess of this
amount would not cause Renaissance Reinsurance to fail to meet its relevant
margins. During 1998, Renaissance Reinsurance paid aggregate cash dividends of
$102.1 million to RenaissanceRe.

Glencoe is also eligible as an excess and surplus lines insurer in a number
of states in America. There are various capital and surplus requirements in
these states, with the most onerous requiring the Company to maintain a minimum
of $15 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 $25.2 million at


- - --------------------------------------------------------------------------------




- - --------------------------------------------------------------------------------


December 31, 1998 and the amount required to be maintained was $20.7 million.

NOTE 18. COMMITMENTS AND CONTINGENCIES

- - --------------------------------------------------------------------------------

Concentration of credit risk

Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of investments, cash and reinsurance balances.
The Company limits the amount of credit exposure to any one financial
institution and except for U.S. Government bonds, none of the Company's
investments exceeded 10 percent of shareholders' equity at December 31, 1998.
Concentrations of credit risk with respect to reinsurance balances are limited
due to their dispersion across various companies and geographies.

Financial instruments with off-balance sheet risk

Except for the derivatives discussed in Note 3, as of December 31, 1998 the
Company was not a party to any financial instruments that exposed the Company to
any off-balance sheet risks.

Letters of credit

As of December 31, 1998 the Company's bankers have issued letters of credit of
approximately $42.0 million in favor of certain ceding companies. The letters of
credit are secured by cash and investments of similar amounts.

Employment agreements

The Board of Directors has authorized the execution of employment agreements
between the Company and certain officers. These agreements provide for severance
payments under certain circumstances, as well as accelerated vesting of options
and restricted stock grants, under a change in control, as defined therein and
by the Company's stock option plan.

Employee Credit Facility

In June of 1997, the Company executed a credit facility in order to encourage
direct, long-term ownership of the Company's stock, and to facilitate purchases
of the Company's stock by officers of the Company. Under the terms of the
facility, the purchases are financed by personal loans to the officers from the
bank. Such loans are collateralized by the stock purchased. The Company
guarantees the loans, but has recourse to the collateral if it incurs a loss
under the guarantee. In addition, the Company has agreed to provide loans to the
officers for interest payments under the bank loans. At December 31, 1998, the
bank loans guaranteed by the Company totaled $19.1 million. At December 31,
1998, the common stock that collateralizes the loans had a fair value of $33.2
million.

Litigation

The Company is party to various lawsuits arising in the normal course of
business. The Company does not believe that any of the litigation will have a
material impact on its consolidated financial statements.

NOTE 19. SUBSEQUENT EVENT

- - --------------------------------------------------------------------------------

Effective January 11, 1999, Top Layer Reinsurance Ltd. was formed as a joint
venture between the Company and State Farm Mutual Automobile Insurance Company
to provide property catastrophe reinsurance for high layer, non-U.S. risks. In
connection with this joint venture, the Company has provided capital of $0.6
million and has provided a $50 million letter of credit. The letter of credit is
secured by a portion of the Company's investments.


- - --------------------------------------------------------------------------------
46 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 47
- - --------------------------------------------------------------------------------


NOTE 20. QUARTERLY FINANCIAL RESULTS (UNAUDITED)



- - ------------------------------------------------------------------------------------------------------------------------------------
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31, June 30, September 30, December 31,
1998 1997 1998 1997 1998 1997 1998* 1997
- - -----------------------------------------------------------------------------------------------------------------------------------

Net premiums earned $46,097 $55,901 $47,041 $51,463 $58,666 $52,995 $ 53,143 $51,131
Net investment income 13,629 12,125 12,629 12,216 13,305 12,653 13,271 12,579
Net foreign exchange
gains (losses) (24) (1,643) (827) 479 49 (356) 649 (1,922)
Other income -- -- 347 -- 642 -- 8,800 --
Net realized investment
gains (losses) 1,236 166 (2,163) (302) (5,833) 1,053 (130) (3,812)
-----------------------------------------------------------------------------------------------
Total revenue $60,938 $66,549 $57,027 $63,856 $66,829 $66,345 $75,733 $57,976
-----------------------------------------------------------------------------------------------
Claims and claim
expenses incurred $ 7,876 $14,238 $10,294 $11,106 $26,696 $14,673 $ 67,886 $ 9,998
Net income (loss) $35,674 $35,437 $28,538 $37,005 $20,372 $35,408 $(10,007) $31,399

Earnings (loss) per share-basic $ 1.60 $ 1.56 $ 1.28 $ 1.63 $ 0.93 $ 1.59 $ (0.46) $ 1.41
Earnings (loss) per share-diluted $ 1.57 $ 1.52 $ 1.26 $ 1.59 $ 0.91 $ 1.56 $ (0.46) $ 1.38

Weighted average shares-basic 22,298 22,779 22,237 22,700 21,962 22,233 21,568 22,271
Weighted average shares-diluted 22,708 23,295 22,728 23,201 22,393 22,699 21,874 22,673

Claims and claim expense ratio 17.1% 25.5% 21.9% 21.6% 45.5% 27.7% 127.7% 19.6%
Underwriting expense ratio 27.7% 22.0% 28.2% 23.4% 29.2% 24.1% 33.7% 25.9%
-----------------------------------------------------------------------------------------------
Combined ratio 44.8% 47.5% 50.1% 45.0% 74.7% 51.8% 161.4% 45.5%
-----------------------------------------------------------------------------------------------

* Loss in fourth quarter of 1998 was principally from Nobel operations. See Note 8.
- - ------------------------------------------------------------------------------------------------------------------------------------



- - --------------------------------------------------------------------------------


NOTE 21. CONSOLIDATED UNAUDITED

PRO FORMA STATEMENTS

- - --------------------------------------------------------------------------------

Operating results of Nobel and its affiliates acquired by the Company have been
included in the consolidated financial statements from their date of
acquisition. As required by Accounting Principles Board Opinion No.16, the
following selected unauditted pro forma information is being provided to present
a summary of the combined results of the Company and Nobel and its affiliates
assuming the acquisition of Nobel and its affiliates had occurred as of January
1 of each year. The pro forma data is for informational purposes only and does
not necessarily represent results which would have occurred if the acquisition
had taken place on the basis assumed above.

- - --------------------------------------------------------------------------------
Pro forma Statements:
Years Ended December 31, 1998 1997
--------------------------

Total revenues $294,239 $305,239
Net income 60,320 142,426

Earnings per Common
Share-basic $ 2.74 $ 6.33
Earnings per Common
Share-diluted $ 2.69 $ 6.20
--------------------------
- - --------------------------------------------------------------------------------
48 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT




RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT 49
- - --------------------------------------------------------------------------------

==========================
DIRECTORS AND OFFICERS
==========================

(as of March 1, 1999)



BOARD OF DIRECTORS OFFICERS OF RENAISSANCERE Kevin J. O'Donnell
HOLDINGS LTD. AND Vice President
James N. Stanard (3)(4) SUBSIDIARIES Renaissance Reinsurance Ltd.
Chairman of the Board
James N. Stanard Russell M. Smith
Arthur S. Bahr (1)(2) Chairman of the Board Vice President
Retired President Renaissance Reinsurance Ltd.
General Electric Investment Corporation Chief Executive Officer
RenaissanceRe Holdings Ltd. J. Alex Richards
Assistant Vice President
Thomas A. Cooper (1)(2)(4) William I. Riker Renaissance Services Ltd.
TAC Associates President
Chief Operating Officer John R. Wineinger
Edmund B. Greene Renaissance Reinsurance Ltd. Assistant Vice President
Retired Renaissance Services Ltd.
General Electric Company David A. Eklund
Executive Vice President Craig W. Tillman
Chief Underwriting Officer Assistant Vice President
Gerald L. Igou (3) Renaissance Reinsurance Ltd. Glencoe Insurance Ltd.
General Electric Investment Corporation
John M. Lummis Robert L. Ricker
Senior Vice President President
Kewsong Lee (1) Chief Financial Officer DeSoto Insurance Company
E. M. Warburg, Pincus & Co., L.L.C. RenaissanceRe Holdings Ltd.
Ian D. Branagan
Paul J. Liska (1)(3) Yves Dujardin Divisional Director
The St. Paul Companies, Inc. Vice President Renaissance Reinsurance of Europe
Renaissance Reinsurance Ltd.
Lisa J. Marshall
Conyers, Dill and Pearman Robert E. Hykes
Vice President
Howard H. Newman (2)(3)(4) Renaissance Services Ltd.
E. M. Warburg, Pincus & Co., L.L.C.
Martin J. Merritt
Scott E. Pardee (1)(3)(4) Vice President
Massachusetts Institute of Technology Controller
Company Secretary
William I. Riker RenaissanceRe Holdings Ltd.
Renaissance Reinsurance Ltd.
John D. Nichols, Jr.
Committees of the Board: Vice President
Renaissance Reinsurance Ltd.
(1) Audit
(2) Compensation
(3) Investment
(4) Transaction



- - --------------------------------------------------------------------------------


==========================
FINANCIAL AND INVESTOR

INFORMATION
==========================


For general information about the Company or for copies of the annual report,
quarterly earnings releases and Forms 10-K and 10-Q, please contact:

Martin J. Merritt
Vice President, Controller and Company Secretary
Tel. 441-299-7230
Internet: mjm@renre.com

STOCK INFORMATION

The Company's stock is listed on The New York Stock Exchange under the symbol
RNR.

The following table sets forth the high and low closing sales prices per
share, as reported on The New York Stock Exchange Composite Tape for the four
fiscal quarters of 1998 and 1997:


1998 Price Range 1997 Price Range
High Low High Low
--------------------------------------------------
First Quarter 50.06 40.00 40.00 32.63
Second Quarter 50.25 43.25 39.63 34.13
Third Quarter 47.63 41.50 45.88 37.88
Fourth Quarter 42.88 34.81 49.94 39.88
--------------------------------------------------

INDEPENDENT AUDITORS

Ernst & Young
Hamilton, Bermuda

TRANSFER AGENT

ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
USA
Web site: www.chasemellon.com


All written requests should be sent to:
The Company Secretary
RenaissanceRe Holdings Ltd.
Renaissance House
8-12 East Broadway
P.O. Box HM2527
Hamilton HMGX, Bermuda



- - --------------------------------------------------------------------------------
50 RenaissanceRe Holdings Ltd. 1998 ANNUAL REPORT


Concept & Project Supervision: Investor Access Corporation, NYC
Design: George/Gerard Design, Inc., NYC