Form: 8-K/A

Current report filing

May 15, 2015

Documents

Exhibit 99.3

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

On November 23, 2014, RenaissanceRe Holdings Ltd. (“RenaissanceRe”) and Platinum Underwriters Holdings, Ltd. (“Platinum”) entered into a definitive merger agreement (the “Merger Agreement”), pursuant to which RenaissanceRe would acquire Platinum. On March 2, 2015, RenaissanceRe completed the acquisition of Platinum. The following unaudited pro forma consolidated financial information combines the separate historical consolidated financial information of RenaissanceRe and Platinum after giving effect to the acquisition of Platinum, and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma consolidated financial information. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2014 is presented as if the acquisition of Platinum had occurred on December 31, 2014. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014 is presented as if the acquisition of Platinum had occurred on January 1, 2014. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the acquisition of Platinum and, with respect to the statement of operations only, expected to have a continuing impact on the consolidated results of operations.

The preparation of the unaudited pro forma consolidated financial information and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma consolidated financial information should be read together with:

 

  •   The accompanying notes to the unaudited pro forma consolidated financial information;

 

  •   RenaissanceRe’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2014, included in RenaissanceRe’s Annual Report on Form 10-K for the year ended December 31, 2014; and

 

  •   Platinum’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2014, included in RenaissanceRe’s Current Report on Form 8-K filed on March 6, 2015.

The unaudited pro forma consolidated financial information has been prepared using the acquisition method of accounting for business combinations under U.S. generally accepted accounting principles. RenaissanceRe is the acquirer for accounting purposes.

In connection with the plan to integrate the operations of RenaissanceRe and Platinum, RenaissanceRe anticipates that nonrecurring charges will be incurred. RenaissanceRe is not able to determine the timing, nature, and amount of these charges as of the date of the unaudited pro forma consolidated financial information. However, these charges will affect the results of operations of the combined company, in the period in which they are incurred. The unaudited pro forma consolidated financial information does not include the effects of costs associated with any restructuring or integration activities resulting from the transaction, as they are nonrecurring in nature and not factually supportable at the time that the unaudited pro forma consolidated financial information was prepared.

The unaudited pro forma consolidated financial information is provided for informational purposes only. Additionally, the unaudited pro forma consolidated financial information is not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The estimates of fair value are dependent upon certain valuations and other studies. Accordingly, actual adjustments could differ, perhaps materially, from those reflected in the unaudited pro forma consolidated financial information. In addition, the unaudited pro forma consolidated financial information does not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies or asset dispositions that may result from the acquisition of Platinum.

 

1

Pro Forma Condensed Consolidated Balance Sheet

As of December 31, 2014

 

 

           
(in thousands, except per share amounts)      RenaissanceRe            Platinum              Adjustments                  Pro Forma      
Assets    (audited)      (audited)      (unaudited)          (unaudited)  

Fixed maturity investments trading, at fair value

    $ 4,756,685       $ 90,569       $ 1,298,938      (a)    $ 6,146,192   

Fixed maturity investments available for sale, at fair value

      26,885         1,782,485         (1,782,485 )    (b)      26,885   

Short term investments, at fair value

      1,013,222         —         1,178,848      (c)      2,192,070   

Equity investments trading, at fair value

      322,098         —         (12,949 )    (d)      309,149   

Other investments, at fair value

      504,147         —         —           504,147   

Investments in other ventures, under equity method

      120,713         —         —           120,713   
    

 

 

     

 

 

     

 

 

       

 

 

  

Total investments

      6,743,750         1,873,054         682,352           9,299,156   

Cash and cash equivalents

      525,584         1,434,984         (1,586,278 )    (e)      374,290   

Premiums receivable

      440,007         125,400         32,194      (f)      597,601   

Prepaid reinsurance premiums

      94,810         1,979         —           96,789   

Funds held by ceding companies

      —         89,581         (89,581 )    (g)      —   

Reinsurance recoverable

      66,694         2,943         —           69,637   

Accrued investment income

      26,509         18,815         —           45,324   

Deferred acquisition costs

      110,059         27,592         (27,592 )    (h)      110,059   

Receivable for investments sold

      52,390         —         204      (i)      52,594   

Reinsurance deposit assets

      —         82,937         (82,937 )    (j)      —   

Deferred tax assets

      —         17,523         (17,523 )    (k)      —   

Other assets

      135,845         12,281         214,537      (l)      362,663   

Goodwill and other intangible assets

      7,902         —         287,517      (m)      295,419   
    

 

 

     

 

 

     

 

 

       

 

 

  

Total assets

    $ 8,203,550       $ 3,687,089       $ (587,107 )       $ 11,303,532   
    

 

 

     

 

 

     

 

 

       

 

 

  

Liabilities, Noncontrolling Interests and Shareholders’ Equity

                

Liabilities

                

Reserve for claims and claim expenses

    $ 1,412,510       $ 1,435,698       $ 26,827      (n)    $ 2,875,035   

Unearned premiums

      512,386         111,348         32,194      (o)      655,928   

Debt

      249,522         250,000         328,600      (p)      828,122   

Reinsurance balances payable

      454,580         50,258         4,946      (q)      509,784   

Payable for investments purchased

      203,021         —         47,999      (r)      251,020   

Other liabilities

      374,108         101,760         (39,985 )    (s)      435,883   
    

 

 

     

 

 

     

 

 

       

 

 

  

Total liabilities

      3,206,127         1,949,064         400,581           5,555,772   
    

 

 

     

 

 

     

 

 

       

 

 

  

Redeemable noncontrolling interests

      1,131,708         —         —           1,131,708   

Shareholders’ Equity

                

Preference shares

      400,000         —         —           400,000   

Common shares

      38,442         248         7,187      (t)      45,877   

Additional paid-in capital

      —         2,415         751,969      (u)      754,384   

Accumulated other comprehensive income

      3,416         92,689         (92,689 )    (v)      3,416   

Retained earnings

      3,423,857         1,642,673         (1,654,155 )    (w)      3,412,375   
    

 

 

     

 

 

     

 

 

       

 

 

  

Total shareholders’ equity

      3,865,715         1,738,025         (987,688 )         4,616,052   
    

 

 

     

 

 

     

 

 

       

 

 

  

Total liabilities, noncontrolling interests and shareholders’ equity

    $ 8,203,550       $ 3,687,089       $ (587,107 )       $ 11,303,532   
    

 

 

     

 

 

     

 

 

       

 

 

  
                 

Selected Share Data

                

Common shares outstanding

      38,442         24,841         (17,406 )    (x)      45,877   

Book value per common share

 

    $

 

 90.15

 

   

 

    $

 

 69.97

 

   

 

     

 

 n/m

 

   

 

        $

 

 91.90

 

   

 

n/m - not meaningful.

See accompanying notes to the unaudited pro forma consolidated financial information.

 

2

Pro Forma Condensed Consolidated Statement of Operations

For the Year Ended December 31, 2014

 

           
(in thousands, except per share data)      RenaissanceRe           Platinum             Adjustments                 Pro Forma      
Revenues    (audited)     (audited)     (unaudited)         (unaudited)  

Gross premiums written

    $ 1,550,572      $ 509,127      $ 32,194      (y)   $ 2,091,893   
    

 

 

    

 

 

    

 

 

      

 

 

  

Net premiums written

    $ 1,068,236      $ 492,068      $ 32,194      (z)   $ 1,592,498   
    

 

 

    

 

 

    

 

 

      

 

 

  

Net premiums earned

    $ 1,062,416      $ 506,636      $ —      (aa)   $ 1,569,052   

Net investment income

      124,316        69,421        (10,078 )    (ab)     183,659   

Net foreign exchange gains

      6,260        512        —          6,772   

Equity in earnings of other ventures

      26,075        —        —          26,075   

Other (loss) income

      (423 )      3,180        —          2,757   

Net realized and unrealized gains on investments and net other-than-temporary impairments

      41,433        1,922        47,305      (ac)     90,660   
    

 

 

    

 

 

    

 

 

      

 

 

  

Total revenues

      1,260,077        581,671        37,227          1,878,975   
    

 

 

    

 

 

    

 

 

      

 

 

  

Expenses

              —   

Net claims and claim expenses incurred

      197,947        183,401        (6,309 )    (ad)     375,039   

Acquisition expenses

      144,476        113,804        (6,452 )    (ae)     251,828   

Operational expenses

      190,639        83,309        (25,280 )    (af)     248,668   

Corporate expenses

      22,987        —        28,890      (ag)     51,877   

Interest expense

      17,164        19,155        3,028      (ah)     39,347   
    

 

 

    

 

 

    

 

 

      

 

 

  

Total expenses

      573,213        399,669        (6,123 )        966,759   
    

 

 

    

 

 

    

 

 

      

 

 

  

Income before taxes

      686,864        182,002        43,350          912,216   

Income tax expense

      (608 )      (17,234 )      (6,439 )    (ai)     (24,281 ) 
    

 

 

    

 

 

    

 

 

      

 

 

  

Net income

      686,256        164,768        36,911          887,935   

Net income attributable to noncontrolling interests

      (153,538 )      —        —          (153,538 ) 
    

 

 

    

 

 

    

 

 

      

 

 

  

Net income attributable to controlling interest

      532,718        164,768        36,911          734,397   

Dividends on preference shares

      (22,381 )      —        —          (22,381 ) 
    

 

 

    

 

 

    

 

 

      

 

 

  

Net income available to common shareholders

    $ 510,337      $ 164,768      $ 36,911        $ 712,016   
    

 

 

    

 

 

    

 

 

      

 

 

  
   

Per Share Data

             

Income from continuing operations available to common shareholders per common share - basic (Note 4)

    $ 12.77      $ 6.28        n/m        $ 15.05   

Income from continuing operations available to common shareholders per common share - diluted (Note 4)

    $ 12.60      $ 6.21        n/m        $ 14.88   

Average shares outstanding - basic (Note 4)

      39,425        26,207        (18,773 )        46,859   

Average shares outstanding - diluted (Note 4)

      39,968        26,524        (19,090 )        47,402   

Dividends per common share

 

    $

 

 1.16

 

   

 

   $

 

 0.32

 

   

 

    

 

 n/m

 

   

 

       $

 

 1.16

 

   

 

n/m - not meaningful.

See accompanying notes to the unaudited pro forma consolidated financial information.

 

3

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

Note 1.  Pro Forma Basis of Presentation

The unaudited pro forma consolidated balance sheet as of December 31, 2014 and the unaudited pro forma consolidated statement of operations for the year ended December 31, 2014 are based on the historical financial statements of RenaissanceRe and Platinum after giving effect to the completion of the acquisition of Platinum and the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2014 is presented as if the acquisition of Platinum had occurred on December 31, 2014. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014 is presented as if the acquisition of Platinum had occurred on January 1, 2014. The unaudited pro forma consolidated financial information does not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies, strategy modifications, asset dispositions or other actions.

The transaction will be accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic Business Combinations, with RenaissanceRe as the acquiring entity. In business combination transactions in which the consideration given is not in the form of cash (that is, in the form of non-cash assets, liabilities incurred, or equity interests issued), measurement of the acquisition consideration is based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable.

Under FASB ASC Topic Business Combinations, all of the Platinum assets acquired and liabilities assumed in this business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Changes in deferred tax asset valuation allowances and income tax uncertainties, if any, after the acquisition date will generally affect income tax expense. RenaissanceRe is in the process of finalizing an integration plan, which will affect how the assets acquired, including intangible assets, will be utilized by the combined company.

The estimated fair value adjustments, and amounts allocated to goodwill, could change significantly from those allocations used in the unaudited pro forma consolidated financial information. The unaudited pro forma adjustments, including the allocations of the acquisition consideration, have been made based on estimates solely for the purpose of providing unaudited pro forma consolidated financial information.

The estimated identifiable finite lived intangible assets include non-contractual relationships, renewal rights, value of business acquired, trade name, internally developed and used computer software and covenants not to compete. The weighted average useful life of the estimated identifiable finite lived intangible assets is estimated to be 8.0 years. There is significant uncertainty regarding the valuation of the identifiable intangible assets and the determination of the weighted average useful life, as such these items could change significantly from those used in the unaudited pro forma consolidated financial information presented herein and could result in a material change in the amortization of acquired intangible assets. The estimated indefinite lived identifiable intangible assets represent insurance licenses which are estimated to have an indefinite life and are therefore not amortized, but will be subject to periodic impairment testing and is subject to the same risks and uncertainties noted for the identifiable finite lived intangible assets. Goodwill represents the excess of the estimated purchase price over the estimated fair value of Platinum’s assets and liabilities, including the fair value of the estimated identifiable finite and indefinite lived intangible assets, and will not be amortized, but will be subject to periodic impairment testing.

In connection with the plan to integrate the operations of RenaissanceRe and Platinum, RenaissanceRe anticipates that nonrecurring charges will be incurred. RenaissanceRe is not able to determine the timing, nature, and amount of these charges as of the date of this unaudited pro forma consolidated financial information. However, these charges will affect the results of operations of the combined company, in the period in which they are incurred. The unaudited pro forma consolidated financial information does not include the effects of the costs associated with any restructuring or integration activities resulting from the transaction, as they are nonrecurring in nature and not factually supportable at the time that the unaudited pro forma consolidated financial information was prepared.

 

4

The unaudited pro forma consolidated financial information is presented solely for informational purposes and is not necessarily indicative of the consolidated results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company.

Note 2. Acquisition Consideration

Pursuant to the terms of the Merger Agreement, as a result of the acquisition of Platinum, each common share of Platinum issued and outstanding immediately prior to the effective time of the acquisition of Platinum (other than Platinum common shares owned by Platinum, RenaissanceRe or any of their respective subsidiaries) was canceled and converted, at the holder’s election in accordance with the procedures set forth in the Merger Agreement, into the right to receive, subject to proration pursuant to the terms of the Merger Agreement, either the “cash election consideration”, (ii) the “share election consideration”, or (iii) the “standard election consideration”. Holders of Platinum options, restricted Platinum Shares, Platinum time-based restricted share units and Platinum market-based restricted share units (the “Platinum Awards”), also had the right under the Merger Agreement to make elections regarding their preference as to the form of acquisition consideration they received in connection with the acquisition of Platinum; the acquisition consideration election results set forth below include the election results from holders of Platinum Awards.

In addition, prior to the effective time of the acquisition of Platinum, Platinum paid a special dividend of $10.00 per Platinum common share to the holders of record of outstanding Platinum common shares on February 27, 2015, and a cash payment to the holders of Platinum Awards based on the Special Dividend and the number of Platinum common shares underlying or issuable upon net exercise of such awards (the “Special Dividend”).

Based on the election results and the proration mechanics of the Merger Agreement, (i) each Platinum common share for which a valid election to receive the “cash election consideration” was made was converted into the right to receive $66.00 in cash, (ii) each Platinum common share for which a valid election to receive the “share election consideration” was made was converted into the right to receive approximately $24.66 in cash and 0.4073 RenaissanceRe common shares and (iii) each Platinum common share for which a valid election to receive the “standard election consideration” was made or for which a valid election was not made was converted into the right to receive $35.96 in cash and 0.2960 RenaissanceRe common shares, subject in each case to reduction for any tax withholding. No fractional RenaissanceRe common shares were issued and in lieu of fractional shares, former Platinum shareholders and former holders of Platinum Awards received cash.

The aggregate consideration for the acquisition of Platinum was comprised of the Special Dividend, RenaissanceRe common shares and the cash consideration. RenaissanceRe issued 7,434,561 RenaissanceRe common shares in the transaction, after taking into account reductions for tax withholding.

Calculation of Acquisition Consideration; Funding of Acquisition Consideration and Estimate of Goodwill and Intangible Assets Acquired

The acquisition consideration, funding of acquisition consideration and estimate of goodwill and intangible assets acquired noted below, have been calculated using audited consolidated financial information of RenaissanceRe and Platinum as at December 31, 2014, except for the number of Platinum common shares and Platinum Awards that were canceled in the acquisition of Platinum and the closing price of RenaissanceRe’s common shares, which is based on the transaction effective date of March 2, 2015.

 

     
(in thousands, except shares and per share amounts)              

Acquisition Consideration

        

Special Dividend

        

Number of Platinum common shares and Platinum Awards canceled in the acquisition of Platinum

      25,320,312        

Special Dividend per outstanding common share of Platinum and Platinum Awards

    $ 10.00        
    

 

 

       

Special Dividend paid to common shareholders of Platinum and holders of Platinum Awards

       $  253,203   

RenaissanceRe common shares

        

Common shares issued by RenaissanceRe

      7,434,561        

Common share price of RenaissanceRe as of March 2, 2015

    $ 102.47        
    

 

 

       

Market value of RenaissanceRe common shares issued by RenaissanceRe to common shareholders of Platinum and holders of Platinum Awards

         761,819   

Platinum common shares

        

Fair value of Platinum common shares owned by RenaissanceRe and canceled in connection with the acquisition of Platinum

         12,950   

 

5

Cash consideration

       

Number of Platinum common shares and Platinum Awards canceled in the acquisition of Platinum

      25,320,312       

Platinum common shares owned by RenaissanceRe and canceled in connection with the acquisition of Platinum

      (169,220 )     
    

 

 

      

Number of Platinum common shares and Platinum Awards canceled in the acquisition of Platinum excluding those owned by RenaissanceRe and canceled in connection with the acquisition of Platinum

      25,151,092       

Agreed cash price paid to common shareholders of Platinum and holders of Platinum Awards

    $ 35.96       
    

 

 

      

Cash consideration paid by RenaissanceRe to common shareholders of Platinum and holders of Platinum Awards

        904,433   
      

 

 

  

Total acquisition consideration

      $  1,932,405   
      

 

 

  
        

Funding of Acquisition Consideration

       

Special Dividend

       

Special Dividend paid to common shareholders of Platinum and holders of Platinum Awards from Platinum’s available cash resources

      $ 253,203   

RenaissanceRe common shares

       

Market value of RenaissanceRe common shares issued by RenaissanceRe as acquisition consideration based on the common share price of RenaissanceRe as of March 2, 2015 of $102.47

        761,819   

Platinum common shares

       

Platinum common shares owned by RenaissanceRe and canceled in connection with the acquisition of Platinum

        12,950   

Cash consideration

       

Cash consideration funded by the proceeds of a $300.0 million bridge loan

      300,000       

Cash consideration funded through the sale of a portion of RenaissanceRe’s fixed maturity investments trading (determined as 80% of the portion of the cash consideration funded by the total of the sale of a portion of RenaissanceRe’s fixed maturity investments trading and available cash resources)

      483,547       

Cash consideration funded by available cash resources (determined as 20% of the portion of the cash consideration funded by the total of the sale of a portion of RenaissanceRe’s fixed maturity investments trading and available cash resources)

      120,886       
    

 

 

      

Total cash consideration paid by RenaissanceRe as acquisition consideration

        904,433   
      

 

 

  

Total acquisition consideration

      $ 1,932,405   
      

 

 

  
        

Estimate of Goodwill and Intangible Assets Acquired

       

Shareholders’ equity of Platinum

      $ 1,738,025   

Cash and cash equivalents (estimated Platinum transaction costs)

        (21,858 ) 
      

 

 

  

Adjusted shareholders’ equity of Platinum

        1,716,167   

Adjustments for fair value, by applicable balance sheet caption (see Note 3 for description):

       

Deferred acquisition costs

        (32,538 ) 

Debt

        (28,600 ) 

Reserve for claims and claim expenses

        (21,725 ) 

Other assets - deferred debt issuance costs

        (1,107 ) 
      

 

 

  

Total adjustments for fair value by applicable balance sheet caption before tax impact

        (83,970 ) 

Other assets - net deferred tax asset related to fair value adjustments

        25,807   
      

 

 

  

Total adjustments for fair value by applicable balance sheet caption

        (58,163 ) 

Adjustments for fair value of the identifiable intangible assets:

       

Identifiable indefinite lived intangible assets (insurance licenses)

        8,400   

Identifiable finite lived intangible assets (non-contractual relationships, renewal rights, value of business acquired, trade name, internally developed and used computer software and covenants not to compete)

        75,200   
      

 

 

  

Identifiable intangible assets before tax impact

        83,600   

Other liabilities - deferred tax liability on identifiable intangible assets

        (13,116 ) 
      

 

 

  

Total adjustments for fair value of the identifiable intangible assets

        70,484   
      

 

 

  

Total adjustments for fair value by applicable balance sheet caption and identifiable intangible assets

        12,321   
      

 

 

  

Estimated shareholders’ equity of Platinum at fair value

        1,728,488   

Total acquisition consideration

        1,932,405   
      

 

 

  

Estimated purchase price over the fair value of net assets acquired assigned to goodwill

      $ 203,917   
            

 

 

  

 

6

Identifiable Intangible Assets

The allocation to identifiable intangible assets is as follows:

 

     
          Amount          Economic Useful Life

Key non-contractual relationships

    $ 30,400       10 years

Value of business acquired

      20,200       2 years

Renewal rights

      15,800       15 years

Insurance licenses

      8,400       Indefinite

Internally developed and used computer software

      3,500       2 years

Other non-contractual relationships

      2,300       3 years

Non-compete agreements

      1,900       2.5 years

Trade name

      1,100       6 months
    

 

 

       

Total identifiable intangible assets

    $ 83,600        
    

 

 

       

 

7

Note 3.  Unaudited Pro Forma Adjustments

The unaudited pro forma consolidated financial information is not necessarily indicative of what the financial position and results from operations actually would have been had the acquisition of Platinum been completed at the date indicated and includes adjustments which may be revised. Such revisions may result in material changes. The financial position shown herein is not necessarily indicative of what the past financial position of the combined companies would have been, nor necessarily indicative of the financial position of the post-acquisition periods. The unaudited pro forma consolidated financial information does not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies, strategy modifications, asset dispositions or other actions that may result from the acquisition of Platinum.

The following unaudited pro forma adjustments result from accounting for the acquisition of Platinum, including the determination of fair value of the assets, liabilities and commitments which RenaissanceRe, as the acquirer for accounting purposes, acquired from Platinum. The descriptions related to these unaudited pro forma adjustments are as follows:

Adjustments to the Pro Forma Condensed Consolidated Balance Sheet

 

(in thousands)    Increase
(decrease) as of
December 31,
2014		  

Assets

  

(a)

  

Adjustments to fixed maturity investments trading, at fair value:

     
   

To reflect the portion of the cash consideration paid by RenaissanceRe to effect the acquisition of Platinum funded through the sale of a portion of RenaissanceRe’s fixed maturity investments trading.

    $ (483,547 ) 
   

To reclassify Platinum’s fixed maturity investments available for sale to fixed maturity investments trading to conform to RenaissanceRe’s accounting policies.

      1,782,485   
      

 

 

  
         1,298,938   
      

 

 

  

(b)

  

To reclassify Platinum’s fixed maturity investments available for sale to fixed maturity investments trading to conform to RenaissanceRe’s accounting policies.

      (1,782,485 ) 

(c)

  

To reclassify a portion of Platinum’s cash equivalents to short term investments to conform to RenaissanceRe’s accounting policies.

      1,178,848   

(d)

  

To reflect the elimination of the fair value of Platinum common shares owned by RenaissanceRe and canceled in connection with the acquisition of Platinum.

      (12,949 ) 

(e)

  

Adjustments to cash and cash equivalents:

     
   

To reflect the Special Dividend.

      (253,203 ) 
   

To reflect cash inflow from a $300.0 million bridge loan, to fund part of the cash consideration paid to effect the acquisition of Platinum.

      300,000   
   

To reflect the portion of the cash consideration paid by RenaissanceRe to effect the acquisition of Platinum funded by the proceeds of a $300.0 million bridge loan.

      (300,000 ) 
   

To reflect the portion of the cash consideration paid by RenaissanceRe to effect the acquisition of Platinum funded by available cash resources.

      (120,886 ) 
   

To reclassify a portion of Platinum’s cash equivalents to short term investments to conform to RenaissanceRe’s accounting policies.

      (1,178,848 ) 
   

To reflect estimated transaction costs to be paid by RenaissanceRe.

      (11,483 ) 
   

To reflect estimated transaction costs to be paid by Platinum.

      (21,858 ) 
      

 

 

  
         (1,586,278 ) 
      

 

 

  

(f)

  

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      32,194   

(g)

  

Adjustment to reclassify the balance to other assets to conform with RenaissanceRe’s presentation.

      (89,581 ) 

(h)

  

Adjustments to deferred acquisition costs:

     
   

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      4,946   
   

To reflect deferred acquisition costs at fair value which is estimated to be $Nil.

      (32,538 ) 
      

 

 

  
         (27,592 ) 
      

 

 

  

(i)

  

Adjustment to reclassify the balance from other assets to conform with RenaissanceRe’s presentation.

      204   

(j)

  

Adjustment to reclassify the balance to other assets to conform with RenaissanceRe’s presentation.

      (82,937 ) 

(k)

  

Adjustment to reclassify the balance to other assets to conform with RenaissanceRe’s presentation.

      (17,523 ) 

(l)

  

Adjustments to other assets:

     
   

To reflect the elimination of deferred debt issuance costs related to Platinum’s existing senior notes which have an estimated fair value of $Nil.

      (1,107 ) 
   

To reflect deferred tax assets related to fair value pro forma adjustments using the U.S. statutory rate of 35% for adjustments impacting the U.S. operations and using the Bermuda statutory rate of 0% for adjustments impacting the Bermuda operations.

      27,758   

 

8

(in thousands)    Increase
(decrease) as of
December 31,
2014		  
   

To reflect the elimination of a deferred tax asset related to Platinum’s share-based compensation.

      (1,951 ) 
   

Adjustment to reclassify the balance to other assets to conform with RenaissanceRe’s presentation.

      89,581   
   

Adjustment to reclassify the balance from other assets to conform with RenaissanceRe’s presentation.

      (204 ) 
   

Adjustment to reclassify the balance to other assets to conform with RenaissanceRe’s presentation.

      82,937   
   

Adjustment to reclassify the balance to other assets to conform with RenaissanceRe’s presentation.

      17,523   
      

 

 

  
         214,537   
      

 

 

  

(m)

  

Adjustments to goodwill and other intangible assets:

     
   

To reflect the estimated fair value of identifiable indefinite lived intangible assets resulting from the acquisition of Platinum (insurance licenses).

      8,400   
   

To reflect the estimated fair value of identifiable finite lived intangible assets resulting from the acquisition of Platinum (non-contractual relationships, renewal rights, value of business acquired, trade name, internally developed and used computer software and covenants not to compete).

      75,200   
   

To reflect goodwill determined as the acquisition consideration paid to effect the acquisition of Platinum in excess of the estimated fair value of the net assets acquired.

      203,917   
      

 

 

  
         287,517   
      

 

 

  
   

Total adjustments to assets

    $ (587,107 ) 
      

 

 

  

Liabilities

  

(n)

  

Adjustments to reserve for claims and claim expenses:

     
   

To reflect net claims and claim expenses at fair value. The adjustments reflect an increase in net claims and claim expenses due to the addition of an estimated market based risk margin which represents the estimated cost of capital required by a market participant to assume the net claims and claim expenses, partially offset by a deduction which represents the discount due to the present value calculation of the unpaid claims and claim expenses based on an estimated payout of the net unpaid claims and claim expenses.

    $ 21,725   
   

Adjustment to reclassify the balance from other liabilities to conform with RenaissanceRe’s presentation.

      5,102   
      

 

 

  
         26,827   
      

 

 

  

(o)

  

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      32,194   

(p)

  

Adjustments to debt:

     
   

To reflect $300.0 million bridge loan to fund a portion of the cash consideration paid to effect the acquisition of Platinum.

      300,000   
   

To reflect Platinum’s existing senior notes at fair value using indicative market pricing obtained from third-party service providers.

      28,600   
      

 

 

  
         328,600   
      

 

 

  

(q)

  

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      4,946   

(r)

  

Adjustment to reclassify the balance from other liabilities to conform with RenaissanceRe’s presentation.

      47,999   

(s)

  

Adjustments to other liabilities:

     
   

Adjustment to reclassify the balance from other liabilities to conform with RenaissanceRe’s presentation.

      (47,999 ) 
   

Adjustment to reclassify the balance from other liabilities to conform with RenaissanceRe’s presentation.

      (5,102 ) 
   

To reflect deferred tax liabilities related to identifiable intangible assets using the U.S. statutory rate of 35% for adjustments impacting the U.S. operations and using the Bermuda statutory rate of 0% for adjustments impacting the Bermuda operations.

      13,116   
      

 

 

  
         (39,985 ) 
      

 

 

  
   

Total adjustments to liabilities

    $ 400,581   
      

 

 

  

Shareholders’ Equity

  

(t)

  

Adjustments to common shares:

     
   

To reflect the par value of the RenaissanceRe common shares issued as part of the consideration paid to effect the acquisition of Platinum.

    $ 7,435   
   

To reflect the elimination of the par value of Platinum’s common shares outstanding.

      (248 ) 
      

 

 

  
         7,187   
      

 

 

  

(u)

  

Adjustments to additional paid-in capital:

     
   

To reflect additional-paid in capital from RenaissanceRe common shares issued as part of the consideration paid to effect the acquisition of Platinum.

      754,384   
   

To reflect the elimination of Platinum’s additional paid-in capital.

      (2,415 ) 
      

 

 

  
         751,969   
      

 

 

  

(v)

  

To reflect the elimination of Platinum’s accumulated other comprehensive income in connection with the reclassification of Platinum’s fixed maturity investments available for sale to fixed maturity investments trading to conform with RenaissanceRe’s accounting policies.

      (92,689 ) 

(w)

  

Adjustments to retained earnings:

     
   

To reflect estimated transaction costs to be paid by RenaissanceRe.

      (11,483 ) 
   

To reflect estimated transaction costs to be paid by Platinum.

      (21,858 ) 
   

To reflect the recognition of Platinum’s accumulated other comprehensive income through retained earnings in connection with the reclassification of Platinum’s fixed maturity investments available for sale to fixed maturity investments trading to conform with RenaissanceRe’s accounting policies.

      92,689   

 

9

(in thousands)    Increase
(decrease) as of
December 31,
2014		  
   

To reflect the elimination of Platinum’s retained earnings, net of adjustments.

      (1,713,503 ) 
      

 

 

  
         (1,654,155 ) 
      

 

 

  
   

Total adjustments to shareholders’ equity

      (987,688 ) 
      

 

 

  
   

Total adjustments to liabilities and shareholders’ equity

    $ (587,107 ) 
      

 

 

  

(x)  

  

Adjustments to common shares outstanding (in thousands of shares):

     
   

To reflect elimination of Platinum’s common shares outstanding.

      (24,841 ) 
   

To reflect RenaissanceRe common shares issued as part of the consideration paid to effect the acquisition of Platinum.

      7,435   
      

 

 

  
         (17,406 ) 
        

 

 

  

Adjustments to the Pro Forma Condensed Consolidated Statement of Operations

 

(in thousands)    Increase
(decrease) for
the year ended
December 31,
2014		  

Revenues

  

(y)

  

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

    $ 32,194   

(z)

  

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      32,194   

(aa)

  

Adjustments to net premiums earned:

     
   

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      32,194   
   

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      (32,194 ) 
      

 

 

  
   

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      —   
      

 

 

  

(ab)

  

To reflect the estimated impact on net investment income due to decreases in fixed maturity investments trading and cash and cash equivalents as a result of cash consideration paid by RenaissanceRe to effect the acquisition of Platinum and transaction costs incurred by RenaissanceRe and Platinum (see footnote (2)).

      (10,078 ) 

(ac)

  

To reclassify the change in net unrealized gains (losses) in conjunction with the reclassification of Platinum’s fixed maturity investments available for sale to fixed maturity investments trading to conform to RenaissanceRe’s accounting policies.

      47,305   
      

 

 

  
   

Total adjustments to revenues

      37,227   
      

 

 

  

Expenses

  

(ad)

  

To amortize the adjustments resulting from the difference between the estimated fair value and the historical carrying value of Platinum’s net reserve for claims and claim expenses.

      (6,309 ) 

(ae)

  

Adjustments to acquisition expenses:

     
   

Adjustment to conform balance to RenaissanceRe’s accounting policies (see footnote (1)).

      (37,203 ) 
   

To amortize certain identifiable intangible assets (i.e., non-contractual relationships, renewal rights and value of business acquired) using a weighted average useful life of 8.6 years.

      30,751   
      

 

 

  
         (6,452 ) 
      

 

 

  

(af)

  

Adjustments to operational expenses:

     
   

Adjustment to reclassify the balance from operating expenses to corporate expenses to conform balance to RenaissanceRe’s presentation.

      (28,890 ) 
   

To amortize certain identifiable intangible assets (i.e., trade name, internally developed and used computer software and covenants not to compete) using a weighted average useful life of 1.5 years.

      3,610   
      

 

 

  
         (25,280 ) 
      

 

 

  

(ag)

  

Adjustment to reclassify the balance to corporate expenses from operating expenses to conform balance to RenaissanceRe’s presentation.

      28,890   

(ah)

  

Adjustments to interest expense:

     
   

To amortize the fair value adjustment of Platinum’s existing senior notes to the expected maturity date of the senior notes.

      (8,371 ) 
   

To reflect estimated interest expense on $300.0 million debt issuance which replaced the bridge loan utilized by RenaissanceRe to fund part of the consideration paid to effect the acquisition of Platinum.

      11,100   
   

To amortize the debt issuance costs of $3.0 million on the $300.0 million debt issuance which replaced the bridge loan utilized by RenaissanceRe to fund part of the consideration paid to effect the acquisition of Platinum. The debt issuance costs are being amortized over the 10 year term of the debt.

      299   
      

 

 

  
         3,028   
      

 

 

  
   

Total adjustments to expenses

      (6,123 ) 
      

 

 

  

(ai)

  

To reflect the income tax impact on unaudited pro forma adjustments using the U.S. statutory rate of 35% for adjustments impacting the U.S. operations and using the Bermuda statutory rate of 0% for adjustments impacting the Bermuda operations.

      6,439   
      

 

 

  
   

Total adjustments to net income

    $ 36,911   
        

 

 

  

 

10

(1) The entries to conform the accounting policies relate to aligning the methodologies for recognizing gross premiums written for excess of loss reinsurance contracts under U.S. generally accepted accounting principles. RenaissanceRe recognizes the estimated annual gross premiums written on excess of loss reinsurance contracts at the reinsurance contract inception date while Platinum recognizes gross premiums written over the policy exposure period. Both methods are acceptable under U.S. generally accepted accounting principles and since RenaissanceRe and Platinum both earn the premium and related acquisition expenses consistently over the policy exposure period, the conforming accounting policy entries do not impact net income.

 

     The entries include increasing premiums receivable, deferred acquisition costs, unearned premium and reinsurance balances payable on the pro forma condensed consolidated balance sheet to reflect the gross premiums written due to Platinum and related acquisition costs payable by Platinum, which would have been recognized over the policy exposure period by Platinum. In the pro forma condensed consolidated statement of operations, there is a related increase in gross and net premiums written, but as the premium and related acquisition expenses are unearned there is no impact to net income related to conforming this accounting policy.

 

(2) The table below outlines the calculation to determine the estimated impact on net investment income due to decreases in fixed maturity investments trading and cash and cash equivalents as a result of the cash consideration paid by RenaissanceRe to effect the acquisition of Platinum, inclusive of the Special Dividend, and estimated transaction costs to be paid by RenaissanceRe and Platinum:

 

(in thousands, except percentages)   Annualized
return		     Impact on assets     Impact on net
investment
income		  

Reductions to fixed maturity investments trading, at fair value:

    

To reflect the portion of the cash consideration paid by RenaissanceRe to effect the acquisition of Platinum funded through the sale of a portion of RenaissanceRe’s fixed maturity investments trading.

     2.00 %    $ (483,547 )    $ (9,671 ) 

Reductions to cash and cash equivalents:

    

To reflect the Special Dividend.

     0.10 %      (253,203 )      (253 ) 

To reflect the portion of the cash consideration paid by RenaissanceRe to effect the acquisition of Platinum funded by available cash resources.

     0.10 %      (120,886 )      (121 ) 

To reflect estimated transaction costs to be paid by RenaissanceRe.

     0.10 %      (11,483 )      (11 ) 

To reflect estimated transaction costs to be paid by Platinum.

     0.10 %      (21,858 )      (22 ) 
       

 

 

  

Impact on net investment income for the year ended December 31, 2014

     $ (10,078 ) 
                   

 

 

  

Note 4. Earnings per Share

Pro forma earnings per common share for the year ended December 31, 2014 have been calculated using RenaissanceRe’s historical weighted average common shares outstanding, plus 7,434,561 RenaissanceRe common shares issued as acquisition consideration under the Merger Agreement.

The following table sets forth the calculation of basic and diluted earnings per common share and the calculation of the basic and diluted weighted average common shares outstanding for the year ended December 31, 2014:

 

      Year ended December 31, 2014  
(in thousands, except per share data)    Basic     Diluted  

Pro forma net income available to RenaissanceRe common shareholders

    $ 712,016      $ 712,016   

Pro forma amounts allocated to RenaissanceRe participating common shareholders (1)

      (6,760 )      (6,760 ) 
    

 

 

    

 

 

  

Pro forma net income

    $ 705,256      $ 705,256   
    

 

 

    

 

 

  

Average common shares outstanding:

       

RenaissanceRe historical

      39,425        39,968   

RenaissanceRe common shares issued as acquisition consideration to effect the acquisition of Platinum

      7,435        7,435   
    

 

 

    

 

 

  

Pro forma average common shares outstanding

      46,860        47,403   
    

 

 

    

 

 

  

Pro forma income from continuing operations available to common shareholders per common share

 

    $

 

 15.05

 

   

 

   $

 

 14.88

 

   

 

  (1)    Represents estimated earnings attributable to holders of unvested restricted shares.

 

11