10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 14, 2000
UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number: 34-0-26512
RENAISSANCERE HOLDINGS LTD.
---------------------------
(Exact name of registrant as specified in its charter)
BERMUDA 98-013-8020
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
RENAISSANCE HOUSE
8-12 EAST BROADWAY
PEMBROKE, BERMUDA HM 19
(Address of principal executive offices) (Zip Code)
(441) 295-4513
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
The number of outstanding shares of RenaissanceRe Holding Ltd.'s common stock,
par value US $1.00 per share, as of June 30, 2000 was 19,245,764
Total number of pages in this report: 25
RenaissanceRe Holdings Ltd.
INDEX TO FORM 10-Q
PART I -- Financial Information
ITEM 1 -- Financial Statements
Consolidated Balance Sheets as of June 30, 2000 3
(Unaudited) and December 31, 1999
Unaudited Consolidated Statements of Operations for 4
the three and six month periods ended June 30, 2000 and 1999
Unaudited Consolidated Statements of Changes in Shareholders' 5
Equity for the six month periods ended June 30, 2000 and 1999
Unaudited Consolidated Statements of Cash Flows 6
for the six month periods ended June 30, 2000 and 1999
Notes to Unaudited Consolidated Financial Statements 7
ITEM 2 -- Management's Discussion and Analysis of 13
Results of Operations and Financial Condition
ITEM 3 -- Quantitative and Qualitative Disclosures About Market Risk 23
PART II -- Other Information 24
ITEM 1 -- Legal Proceedings
ITEM 2 -- Changes in Securities
ITEM 3 -- Defaults Upon Senior Securities
ITEM 4 -- Submission of Matters to a Vote of Security Holders
ITEM 5 -- Other Information ITEM 6 -- Exhibits and Reports on Form 8-K
Signature - RenaissanceRe Holdings Ltd. 25
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Part I - Financial information
Item 1 - Financial statements
RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands of United States Dollars, except per share amounts)
The accompanying notes are an integral part of these financial statements
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RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2000
and 1999 (in thousands of United States Dollars,
except per share amounts)
(Unaudited)
The accompanying notes are an integral part of these financial statements
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands of United States Dollars)
(Unaudited)
(1) Note - comprehensive income (loss) for the quarters ended June 30, 2000 and
1999 were $1.9m and $(6.9m), respectively.
The accompanying notes are an integral part of these financial statements
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RENAISSANCERE HOLDINGS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands of United States Dollars in thousands)
(Unaudited)
The accompanying notes are an integral part of these financial statements
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RenaissanceRe Holdings Ltd., and Subsidiaries
Notes to Consolidated Financial Statements
(Expressed in United States Dollars)
(Unaudited)
1. The consolidated financial statements have been prepared on the basis of
United States generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. The
consolidated financial statements include the accounts of RenaissanceRe
Holdings Ltd. ("RenaissanceRe") and its wholly owned subsidiaries,
including Renaissance Reinsurance Ltd. ("Renaissance Reinsurance"), Glencoe
Insurance Ltd. ("Glencoe"), Renaissance U.S. Holdings, Inc. ("Renaissance
U.S."), Renaissance Underwriting Managers, Ltd. ("Renaissance Managers"),
and RenaissanceRe Capital Trust (the "Trust"). Other consolidated entities
include DeSoto Insurance Company ("DeSoto"), a wholly owned subsidiary of
Glencoe; Nobel Insurance Company ("Nobel"), a wholly owned subsidiary of
Renaissance U.S.; and Renaissance Reinsurance of Europe ("Renaissance
Europe"), a subsidiary of Renaissance Reinsurance. RenaissanceRe and its
subsidiaries are collectively referred to herein as the "Company". All
intercompany transactions and balances have been eliminated on
consolidation. Minority interests represent the interests of external
parties in respect of net income and shareholders' equity of the Trust.
Certain comparative information has been reclassified to conform to the
current presentation. Because of the seasonality of the Company's business,
the results of operations for any interim period will not necessarily be
indicative of results of operations for the full fiscal year.
2. Significant Accounting Policies
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal
years beginning after June 15, 2000. Currently, the Company does not expect
the adoption of SFAS No. 133 to have a material impact on its consolidated
financial statements.
3. The Company utilizes reinsurance to reduce its exposure to large losses.
The Company currently has in place contracts that provide for recovery of a
portion of certain claims and claims expenses from reinsurers in excess of
various retentions and loss warranties. The Company would remain liable to
the extent that any third party reinsurance company fails to meet its
obligations. The earned reinsurance premiums ceded were $75.5 million and
$50.8 million for the six months ended June 30, 2000 and 1999,
respectively. Other than loss recoveries, certain of the Company's ceded
reinsurance contracts provide for
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recoveries of additional premiums, reinstatement premiums and coverage for
lost no claims bonuses which are incurred when losses are ceded to those
reinsurance contracts.
Total recoveries (reductions) netted against premiums and claims and claim
expenses incurred for the six months ended June 30, 2000 were $(0.5)
million compared to $78.5 million for the six months ended June 30, 1999.
Included in losses and premiums recoverable are recoverables of $20.2
million which are related to retroactive reinsurance agreements. In
accordance with SFAS No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," losses related to retroactive
reinsurance agreements are required to be included in claims and claim
expenses incurred as they become known. However, offsetting recoverables,
if any, are deferred and reflected in the statement of operations in future
periods, based on the recovery method. As of June 30, 2000, the Company has
deferred $11.0 million of recoveries related to a retroactive reinsurance
contract. This has been included in other liabilities on the consolidated
balance sheet. As the amounts are recovered, the recoveries will offset
claims and claim expenses incurred in the consolidated statement of
operations.
4. The Company paid interest on its outstanding loans of $8.6 million for the
six month period ended June 30, 2000 and $3.1 million for the same period
in the previous year. The increase in interest expense is due to additional
borrowings of $150 million in 1999. See "Financial Condition - Capital
Resources and Shareholders' Equity" for further discussion.
On March 1, 2000, the Company paid a semi-annual dividend of $4.3 million
on the Company obligated mandatorily redeemable capital securities of a
subsidiary trust holding solely junior subordinated debentures of the
Company ("Capital Securities").
5. Basic earnings per share is based on weighted average common shares and
excludes any dilutive effects of options and restricted stock. Diluted
earnings per share assumes the exercise of all dilutive stock options and
restricted stock grants. The following table sets forth the computation of
basic and diluted earnings per share:
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- --------------------------------------------------------------------------------
Quarter ended June 30,
2000 1999
- --------------------------------------------------------------------------------
(in thousands of U.S. dollars except share and per share data)
- --------------------------------------------------------------------------------
Numerator:
Net income $ 29,720 $ 24,049
=========================
Denominator:
Denominator for basic earnings per share -
Weighted average shares 18,851,094 20,523,988
Per share equivalents of employee stock
Options and restricted shares 295,593 179,164
-------------------------
Denominator for diluted earnings per share -
Adjusted weighted average shares and
Assumed conversions 19,146,787 20,703,151
=========================
Basic earnings per share $ 1.58 $ 1.17
Diluted earnings per share $ 1.55 $ 1.16
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Six months to June 30,
2000 1999
- --------------------------------------------------------------------------------
(in thousands of U.S. dollars except share and per share data)
- --------------------------------------------------------------------------------
Numerator:
Net income $ 53,795 $ 54,067
=========================
Denominator:
Denominator for basic earnings per share -
Weighted average shares 19,058,553 20,830,500
Per share equivalents of employee stock
Options and restricted shares 252,595 181,133
-------------------------
Denominator for diluted earnings per share -
Adjusted weighted average shares and
Assumed conversions 19,311,148 21,011,633
=========================
Basic earnings per share $2.82 $2.60
Diluted earnings per share $2.79 $2.57
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7. The Board of Directors of the Company declared, and the Company paid, a
dividend of $0.375 per share to shareholders of record on each of February
17 and May 18, 2000. On August 3, 2000, the Board of Directors declared a
dividend of $0.375 per share payable on August 31, 2000 to shareholders of
record on August 17, 2000.
8. In May 2000, the Company announced an additional authorization of $25
million under its share repurchase program. Through June 30, 2000 the
Company repurchased 671,900 shares at an aggregate cost of $25.1 million.
9. The Company has two reportable segments: reinsurance operations and primary
operations. The reinsurance segment provides property catastrophe
reinsurance as well as other reinsurance to selected insurers and
reinsurers on a worldwide basis. The primary segment provides insurance
both on a direct and on a surplus lines basis for commercial
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and homeowners catastrophe-exposed property business. Data for the three
and six month periods ended June 30, 2000 and 1999 are as follows:
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The Company's Bermuda holding company is the primary contributor to the
results reflected in the "Other" category. The pre-tax loss of the holding
company primarily consisted of interest expense on bank loans, the minority
interest on the Capital Securities, and realized investment losses on the
sales of investments, partially offset by investment income on the assets
of the holding company.
9. The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences
between financial and tax reporting. Deferred tax assets and liabilities
are determined based on the difference between the financial statement
bases and tax bases of assets and liabilities using enacted tax rates.
The Company's U.S. subsidiaries are subject to U.S. tax. Included in other
assets is a net deferred tax asset of $23.6 million. These net operating loss
carryforwards and future tax deductions will be available to offset regular
taxable U.S. income during the carryforward period (through 2018), subject to
certain limitations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is a discussion and analysis of the Company's results of
operations for the three months and six months ended June 30, 2000 and 1999 and
financial condition as of June 30, 2000. This discussion and analysis should be
read in conjunction with the attached unaudited consolidated financial
statements and notes thereto and the audited consolidated financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
GENERAL
The Company provides reinsurance and insurance where risk of natural catastrophe
represents a significant component of the overall exposure. The Company's
results depend to a large extent on the frequency and severity of catastrophic
events, and the concentration and coverage offered to clients impacted thereby.
In addition, from time to time, the Company may consider opportunistic
diversification into new ventures, either through organic growth or the
acquisition of other companies or books of business. In evaluating such new
ventures, the Company seeks an attractive return on equity, the ability to
develop or capitalize on a competitive advantage and opportunities that will not
detract from its core reinsurance operations. Accordingly, the Company regularly
reviews strategic opportunities and periodically engages in discussions
regarding possible transactions.
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2000 COMPARED TO THE QUARTER ENDED JUNE 30, 1999
For the quarter ended June 30, 2000, net income available to common shareholders
was $29.7 million or $1.55 per share, compared to $24.0 million or $1.16 per
share for the same quarter in 1999.
Gross premiums written for the second quarter of 2000 and 1999 were as follows:
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Quarter ended
(in thousands) 30-Jun-00 30-Jun-99
---------------------------------
Reinsurance $ 86,666 $ 56,575
---------------------------------
Primary 10,984 10,799
---------------------------------
$97,690 $67,374
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The majority of the increase in premiums written by Renaissance Reinsurance
company during the second quarter was due to three items: 1) finite and non-cat
premiums written; 2) an increase of reinstatement premiums received; and 3)
increased premiums related to timing differences of premiums recorded in the
second quarter of 2000 compared with the same premiums being recorded in the
third quarter of 1999.
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The Company expects that premiums from its non-catastrophe and finite contracts
will continue to increase in the future. Also, the Company believes that there
is potential for increased reinstatement premiums to the extent that there is
additional development of the 1999 losses from the European storms.
During the second quarter of 2000, ceded premiums written were $33.2 million,
compared with $32.4 million for the same quarter in 1999. The ceded reinsurance
for the reinsurance company was $18.4 million for the quarter ended June 30,
2000 compared with $23.4 million for the same period in the prior year. Ceded
reinsurance for the primary companies was $14.5 million for the quarter ended
June 30, 2000 compared with $12.3 million for the same period of the previous
year.
The table below sets forth the Company's combined ratio and components thereof,
split by segment for the quarters ended June 30, 2000 and 1999:
The loss ratio on the reinsurance business primarily increased due to the
Company's increase in IBNR related to the fourth quarter 1999 European storm
losses. Offsetting such development were reinstatement premiums received by the
Company during the quarter. Also adding to the increase in the loss ratio was
the Company's increased writings of finite premiums which normally will produce
a higher loss and combined ratio than the property catastrophe business
predominantly written by the reinsurance company. Since the Company expects to
continue to write additional finite premiums in the future, the Company expects
that the combined ratio of the reinsurance segment will modestly increase in the
future.
Because the Company cedes the majority of the premiums written by its primary
companies, any one time adjustments to the net written premiums, claim and claim
adjustment expenses incurred, acquisition expenses or operating expenses can
cause unusual fluctuations in the insurance ratios of the primary operations.
Accordingly, a decrease in the prior year loss reserves of DeSoto was a primary
source of the fluctuations in the insurance ratios at the primary companies for
the quarter. Net earned premiums of the primary companies were $1.5 million in
the second quarter of 2000 compared with $8.2 million for the same quarter of
1999.
Net investment income, excluding realized investment gains and losses, for the
second quarter of 2000 was $19.2 million, compared to $14.0 million for the same
period in 1999. The increase in investment income primarily relates to an
increase in invested assets from additional drawings under the Company's line of
credit facility of $150 million during 1999 and an increase in investment yields
during the second quarter of 2000 as compared with the second quarter of 1999.
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Corporate expenses decreased to $2.5 million for the quarter ended June 30,
2000, compared with $3.9 million for the same period in 1999. Included in the
second quarter of 1999 was a write-off of $3.2 million of goodwill related to
the purchase of the operating subsidiaries of Nobel Limited.
Interest expense and minority interest for the quarter ended June 30, 2000
increased to $6.3 million from $3.8 million for the same period in 1999. The
increase was primarily related to increased borrowings in 1999 under the
Company's revolving credit facility and higher interest rates.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1999
For the six months ended June 30, 2000, net income available to common
shareholders was $53.8 million or $2.79 per share, compared to $54.1 million or
$2.57 per share for the same period in 1999. Gross premiums written for the six
months ended June 30, 2000 and 1999 were as follows:
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Six months ended
(in thousands) 30-Jun-00 30-Jun-99
----------------------------
Reinsurance $ 231,418 $ 190,222
Primary 26,703 32,247
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$ 258,121 $ 222,469
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The majority of the increase in premiums written by Renaissance Reinsurance
company during the first six months was due to three items: 1) finite and
non-cat premiums written; 2) an increase of reinstatement premiums received; and
3) increased premiums related to timing differences of premiums recorded in the
first six months of 2000 compared with the same premiums being recorded in the
third quarter of 1999.
During the first six months of 2000, ceded premiums written were $90.6 million,
compared with $71.3 million for the same period in 1999. The increase in ceded
premiums primarily relates to two items; 1) Renaissance Reinsurance ceded a
greater amount of premium for the first six months of 2000 ($62.6 million),
compared with the first six months of 1999 ($49.7 million), and 2) with the
reduction in the operations at Nobel, Nobel has ceded the majority of its gross
premiums written, totaling $20.6 million of ceded premium in the first six
months of 2000 compared with $12.1 million for the first six months of 1999.The
table below sets forth the Company's combined ratio and components thereof,
split by segment for the six months ended June 30, 2000 and 1999:
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The loss ratio on the reinsurance business increased primarily as a result of
loss development arising out of the fourth quarter 1999 European storm losses
and estimates for loss events that occurred during the first quarter of 2000,
which were greater than the estimates related to the events occurring in the
first quarter of 1999. The decrease in the loss ratio on the Company's Primary
Operations is primarily related to reduced loss costs from Nobel's operations
due to the reduction and/or elimination of the majority of its business, as well
as a reduction in the loss reserves of DeSoto.
Underwriting expenses are comprised of acquisition expenses and operational
expenses. The expense ratio for the reinsurance book of business has remained
relatively flat in comparison to prior year. The increase in premiums earned had
no corresponding increase in the costs to operate the reinsurance operations.
The increase in the expense ratio for the primary book of business was primarily
related to increased costs of reinsurance ceded in Nobel and DeSoto which
lowered the net premiums earned without reducing the acquisition costs of the
companies.
Total acquisition costs were $14.8 million for the six months ended June 30,
2000 and $12.8 million for the same period in 1999. Operating expenses decreased
to $16.9 million compared to $18.6 million in the same period of 1999 primarily
because of the decrease of operations in Nobel as a result of the sale and
reinsurance of the primary business units of Nobel during 1999.
Net investment income, excluding realized investment gains and losses, for the
six months ended June 30, 2000 was $37.7 million, compared to $27.1 million for
the same period in 1999. The increase in investment income relates to an
increase in invested assets from additional drawings under the Company's line of
credit facility of $150.0 million during 1999 and an increase in investment
yields during the first six months of 2000 as compared with the first six months
of 1999.
Corporate expenses decreased to $4.9 million for the six months ended June 30,
2000, compared with $7.9 million for the same period in 1999. Included in the
first six months of 1999 was a write-off of $6.6 million of goodwill related to
the purchase of the operating subsidiaries of Nobel Limited. Excluding goodwill,
the overall increase in corporate expenses relates to expenses arising from the
Primary Operations and certain one-time expenses.
Interest expense and minority interest for the six months ended June 30, 2000
increased to $12.4 million from $7.4 million for the same period in 1999. The
increase was primarily related to increased borrowings in 1999 under the
Company's revolving credit facility and higher interest rates.
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FINANCIAL CONDITION
LIQUIDITY AND CAPITAL REQUIREMENTS
As a holding company, RenaissanceRe relies on investment income and cash
dividends and permitted payments from its subsidiaries to make principal
payments, interest payments, cash distributions on outstanding obligations and
quarterly dividend payments, if any, to its shareholders. The payment of
dividends by the Company's Bermuda subsidiaries to RenaissanceRe is, under
certain circumstances, limited under Bermuda insurance law. The Bermuda
Insurance Act of 1978, amendments thereto (the "Act") and related regulations of
Bermuda require the Company's Bermuda subsidiaries to maintain certain measures
of solvency and liquidity. As at June 30, 2000 the statutory capital and surplus
of the Company's Bermuda subsidiaries was $660.6 million, and the amount
required to be maintained was $101.0 million. Through June 30, 2000, Renaissance
Reinsurance paid aggregate cash dividends of $22.6 million compared to $21.6 for
the same period in 1999. Glencoe is eligible as an excess and surplus lines
insurer in a number of states in the U.S. There are various capital and surplus
requirements in these states, with the most onerous requiring Glencoe to
maintain a minimum of $15 million in capital and surplus. In this regard, the
declaration of dividends from retained earnings and distributions from
additional paid-in capital are limited to the extent that the above requirements
are met. The Company's U.S. insurance subsidiaries are subject to various
statutory and regulatory restrictions regarding the payment of dividends. The
restrictions are primarily based upon statutory surplus and statutory net
income. The U.S. insurance subsidiaries' combined statutory surplus amounted to
$33.3 million at June 30, 2000 and the amount required to be maintained was
$22.4 million.
Cash Flows
- ----------
The Company's operating subsidiaries have historically produced sufficient cash
flows to meet expected claims payments and operational expenses and to provide
dividend payments to RenaissanceRe. RenaissanceRe's subsidiaries also maintain a
concentration of investments in high quality liquid securities, which management
believes will provide sufficient liquidity to meet extraordinary claims payments
should the need arise. Additionally, the Company maintains a $310.0 million
credit facility which is available to the holding company, RenaissanceRe, to
meet the liquidity needs of the Company's subsidiaries should the need arise.
Approximately $208.0 million was outstanding under the credit facility as of
June 30, 2000.
Cash flows from operations in the first six months of 2000 were $129.6 million,
compared to $53.1 million for the same period in 1999. The significant increase
arose partly due to paid loss recoveries received from the Company's reinsurers.
The Company has produced cash flows from operations for the full years of 1999
and 1998 significantly in excess of its commitments. To the extent that capital
is not utilized in the Company's reinsurance business, the Company will consider
using such capital to invest in new opportunities or will consider returning
such capital to its shareholders.
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Because of the potential high severity and low frequency of losses on the
coverages written by the Company, and the seasonality of the Company's business,
it is not possible to accurately predict the Company's future cash flows from
operating activities. As a consequence, cash flows from operating activities may
fluctuate, perhaps significantly, between individual quarters and years.
RESERVES
During the six months ended June 30, 2000 the Company incurred net claims of
$42.6 million and paid net losses of $(0.3) million. The Company's policy of
purchasing reinsurance coverage continues to have a favorable impact on net
incurred claims. Due to the high severity and low frequency of losses related to
the property catastrophe insurance and reinsurance business, there can be no
assurance that the Company will continue to experience this level of losses.
For the Company's reinsurance operations, estimates of claims and claim expenses
and the related recoveries are based in part upon estimation of claims resulting
from catastrophic events. Estimation by the Company of claims resulting from
catastrophic events based upon its own historical claim experience is inherently
difficult because of the potential severity of property catastrophe claims.
Therefore, the Company utilizes both proprietary and commercially available
models, as well as historical reinsurance industry property catastrophe claims
experience, for purposes of evaluating future trends and providing an estimate
of ultimate claims costs.
On both the Company's reinsurance and primary operations, the Company uses
statistical and actuarial methods to reasonably estimate ultimate expected
claims and claim expenses and the related recoveries. The period of time between
the reporting of a loss to the Company and the settlement of the Company's
liability may be several years. During this period, additional facts and trends
may be revealed. As these factors become apparent, case reserves may be
adjusted, sometimes requiring an increase in the overall reserves of the
Company, and at other times requiring a reallocation of IBNR reserves to
specific case reserves. These estimates are reviewed regularly and such
adjustments, if any, are reflected in results of operations in the period in
which they become known and are accounted for as changes in estimates.
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CAPITAL RESOURCES AND SHAREHOLDERS' EQUITY
The total capital resources of the Company as at June 30, 2000 and December 31,
1999 was as follows:
The Company has a $310.0 million committed revolving credit and term loan
agreement with a syndicate of commercial banks. Interest rates on the facility
are based on a spread above LIBOR, and averaged approximately 6.8 percent during
the first six months of 2000 (5.5 percent for the same period in 1999). The
credit agreement contains certain financial covenants including requirements
that the ratio of consolidated debt to capital does not exceed 0.35:1;
consolidated net worth must exceed the greater of $100.0 million or 125 percent
of consolidated debt; and 80 percent of invested assets must be rated BBB- by
S&P or Baa3 by Moody's Investor Service or better. The Company was in compliance
with all the covenants of this revolving credit and term loan agreement as at
June 30, 2000.
Renaissance U.S. has a $27 million term loan and $15 million revolving loan
facility with a syndicate of commercial banks. Interest rates on the facility
are based upon a spread above LIBOR, and averaged 6.7 percent during the first
six months of 2000 (5.8 percent for the first six months of 1999). The Credit
Agreement contains certain financial covenants, the primary one being that
RenaissanceRe, being its principal guarantor, maintain a ratio of liquid assets
to debt service of 4:1. This five year term loan has mandatory repayment
provisions approximating 25 percent in each of years 2000 through 2003. Under
the terms, the Company repaid $8.0 million of the loan in June 2000. The Company
was in compliance with all the covenants of this term loan and revolving loan
facility as at June 30, 2000.
The Capital Securities pay cumulative cash distributions at an annual rate of
8.54 percent, payable semi-annually. The Indenture relating to the Capital
Securities contains certain covenants, including a covenant prohibiting the
payment of dividends by the Company if the
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Company shall be in default under the Indenture. The Company was in compliance
with all of the covenants of the Indenture at June 30, 2000.
During the first six months of 2000, shareholders' equity increased by $24.9
million, from $600.3 million at December 31, 1999 to $625.2 million at June 30,
2000. The significant components of the change included, the payment of
dividends of $14.6 million and the repurchase of common shares of $24.4 million,
offset by net income from continuing operations of $53.8 million and a decrease
in the unrealized depreciation on investments of $6.7 million.
INVESTMENTS
The table below shows the aggregate amounts of investments available for sale,
equity securities and cash and cash equivalents comprising the Company's
portfolio of invested assets:
At June 30, 2000, the invested asset portfolio had a dollar weighted average
rating of AA, an average duration of 2.6 years and an average yield to maturity
of 7.9 percent, prior to investment expenses.
All fixed income securities in the Company's investment portfolio are classified
as securities available for sale and are carried at fair value. Any unrealized
gains or losses as a result of changes in fair value over the period such
investments are held are not reflected in the Company's statement of operations,
but rather are reflected in accumulated other comprehensive income in the
consolidated statement of shareholders' equity, in accordance with SFAS No. 115
and 130.
As at June 30, 2000 the Company held investments and cash totaling $1.2 billion
with a net unrealized depreciation balance of $11.8 million. The Company's
investment portfolio is subject to the risks of declines in realizable value.
The Company attempts to mitigate this risk through the diversification and
active management of its portfolio.
At June 30, 2000, $17.5 million of cash and cash equivalents were invested in
currencies other than the U.S. dollar, which represented 1.5 percent of the
Company's invested assets.
The Company has entered into forward purchase agreements allowing it to acquire
certain foreign currencies to fund the payment of non-dollar losses.
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EFFECTS OF INFLATION
The potential exists, after a catastrophe loss, for the development of
inflationary pressures in a local or regional economy. The anticipated effects
on the Company are implicitly considered in the Company's catastrophe loss
models. The effects of inflation are also considered in pricing and in
estimating reserves for unpaid claims and claim expenses. The actual effects of
this post event inflation on the results of the Company cannot be accurately
known until claims are ultimately settled.
CURRENT OUTLOOK
Due to industry losses in 1999, and the related contraction of capacity in the
market, prices have stabilized, and prices in the Company's markets on certain
programs have increased significantly. However, even where prices have
increased, the Company believes that there continues to be numerous transactions
in the market that are under-priced relative to expected losses.
The Company believes that because of its competitive advantages, including its
technological capabilities and its relationships with leading brokers and ceding
companies, it is able to identify contracts that are adequately priced and will
continue to find opportunities in the property catastrophe reinsurance markets.
Because of prior year loss activity, the Company's aggregate cost for
reinsurance protection has increased during the current year and accordingly, in
certain geographic regions the Company has retained a greater level of net risk
in the current year as compared with the previous year.
The Company's financial strength has enabled it to pursue opportunities outside
of the property catastrophe reinsurance market into the catastrophe exposed
primary insurance market. The Company believes that its financial strength will
enable it to continue to pursue other opportunities in the future. There can be
no assurance that the Company's pursuit of such opportunities will materially
impact the Company's financial condition and results of operations.
SAFE HARBOUR DISCLOSURE
- -----------------------
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward-looking statements contained
in this report. Forward-looking statements are necessarily based on estimates
and assumptions that are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which, with respect to
future business decisions, are subject to change. These uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. In particular, statements using verbs such as "expect",
"anticipate", "intends", "believe" or words of similar impact generally involve
forward-looking statements. In light of the risks and uncertainties inherent in
all future
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projections, the inclusion of forward-looking statements in this report should
not be considered as a representation by the Company or any other person that
the objectives or plans of the Company will be achieved.
Numerous factors could cause the Company's actual results to differ materially
from those in the forward-looking statements, including the following: (i) the
occurrence of catastrophic events with a frequency or severity exceeding the
Company's estimates; (ii) a decrease in the level of demand for the Company's
reinsurance or insurance business, or increased competition in the industry;
(iii) the lowering or loss of one of the financial or claims-paying ratings of
the Company or one or more of its subsidiaries; (iv) risks associated with
implementing business strategies of the Company; (v) uncertainties in the
Company's reserving process; (vi) failure of the Company's reinsurers to honor
their obligations; (vii) actions of competitors including industry
consolidation; (viii) loss of services of any one of the Company's key executive
officers; (ix) the passage of federal or state legislation subjecting
Renaissance Reinsurance to supervision or regulation, including additional tax
regulation, in the United States or other jurisdictions in which the Company
operates; (x) challenges by insurance regulators in the United States to
Renaissance Reinsurance's claim of exemption from insurance regulation under the
current laws; (xi) changes in economic conditions, including currency rate
conditions which could affect the Company's investment portfolio; (xii) a
contention by the United States Internal Revenue Service that Renaissance
Reinsurance is engaged in the conduct of a trade or business within the U.S.; or
(xiii) slower than anticipated growth in the Company's fee-based operations. The
foregoing review of important factors should not be construed as exhaustive; the
Company undertakes no obligation to release publicly the results of any future
revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET SENSITIVE INSTRUMENTS
The Company's investment portfolio includes investments which are available for
trading purposes and which are subject to changes in market values with changes
in interest rates. The aggregate hypothetical loss generated from an immediate
adverse parallel shift in the treasury yield curve of 100 basis points would
cause a decrease in total return of 2.6 percent, which equates to a decrease in
market value of approximately $29.3 million on a portfolio valued at $1,126.0
million at June 30, 2000. An immediate time horizon was used, as this presents
the worst-case scenario.
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PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings
None
Item 2 -- Changes in Securities and Use of Proceeds
None
Item 3 -- Defaults Upon Senior Securities
None
Item 4 -- Submission of Matters to a Vote of Security Holders
(a) The registrant's 2000 Annual General Meeting of Shareholders was held
on May 3, 2000.
(b) Proxies were solicited by the Company's management pursuant to
Regulation 14A under the Securities Exchange Act of 1934; there was no
solicitation in opposition to management's nominees as listed in the
proxy statement; all of such nominees were elected for a one year term.
(c) The following matters were voted upon at the Annual General Meeting
with the voting results as indicated:
(1) The Company Board Proposal.
The Company's Bye-Laws provide for a classified Board, consisting of eleven
members (which the Board may determine to expand to twelve members) divided
into three classes of approximately equal size. At the Annual Meeting, the
shareholders elected four of the eleven directors as Class II Directors,
who shall serve until the Company's 2003 Annual Meeting.
Class II Directors (whose
terms will expire (if
elected) in 2003)
Nominee Votes for Votes withheld
------- --------- --------------
Thomas A. Cooper 17,736,674 93,367
Kewsong Lee 17,736,794 93,247
W. James MacGinnitie 17,736,194 93,847
James N. Stanard 17,736,894 93,147
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(2) The Company's Auditors Proposal.
Proposal to appoint Ernst & Young independent auditors of the Company for
the 2000 fiscal year.
Votes For Votes Against Votes withheld
--------- ------------- --------------
17,827,219 110 2,712
(3) The Renaissance Board Proposal.
In accordance with the Company's Bye-Laws, shareholders of the Company are
entitled to vote on proposals to be considered by the Company, as the
holder of all outstanding capital shares of Renaissance Reinsurance Ltd.,
("Renaissance"), at all general meetings of shareholders of Renaissance.
Four directors of Renaissance were to be elected at the Annual Meeting. The
Bye-Laws of Renaissance provide for a classified Board, consisting of
eleven members (which the Renaissance Board may determine to expand to
twelve members) divided into three classes of approximately equal size. At
the Annual Meeting, the shareholders elected four Class II Directors of
Renaissance, who shall serve until the Renaissance 2003 Annual Meeting.
Class II Directors (whose
terms will expire (if
elected) in 2003)
Nominee Votes for Votes withheld
------- --------- --------------
Thomas A. Cooper 17,813,801 16,240
Kewsong Lee 17,820,551 9,490
W. James MacGinnitie 17,811,351 18,690
James N. Stanard 17,814,651 15,390
-----------------------------------
(4) The Renaissance Auditors Proposal.
Proposal to appoint Ernst & Young independent auditors of Renaissance for
the 2000 fiscal year.
Votes For Votes Against Votes Withheld
--------- ------------- --------------
17,827,419 110 2,512
Item 5 -- Other Information
None
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Item 6 -- Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit 10.1 - Employment Agreement dated as of June 1, 2000 between
the Company and John M. Lummis.
Exhibit 27 - Financial Data Schedule.
b. Current Reports on Form 8-K:
The Registrant did not file any reports on Form 8-K during the period
beginning April 1, 2000 and ending June 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
RENAISSANCERE HOLDINGS LTD.
By: /s/ John M. Lummis
------------------
John M. Lummis
Senior Vice President and
Chief Financial Officer
Date: August 14, 2000
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