Disasters Hit RenRe Bottom Line

Bermuda-based RenaissanceRe Holdings Ltd. yesterday [Feb.7] reported net income available to RenaissanceRe common shareholders of $81.8 million or $1.58 per diluted common share in the fourth quarter of 2011, compared to $122.6 million or $2.23, respectively, in the fourth quarter of 2010.

Operating income available to RenaissanceRe common shareholders was $58.0 million or $1.11 per diluted common share for the fourth quarter of 2011, compared to $189.1 million or $3.47 per diluted common share in the fourth quarter of 2010.

The company reported an annualized return on average common equity of 10.8% and an annualized operating return on average common equity of 7.7% in the fourth quarter of 2011, compared to 14.6% and 22.5%, respectively, in the fourth quarter of 2010.

Book value per common share increased $1.38, or 2.4%, in the fourth quarter of 2011 to $59.27, compared to a 3.3% increase in the fourth quarter of 2010.

Tangible book value per common share plus accumulated dividends increased $1.76, or 3.1%, in the fourth quarter of 2011 to $69.37, compared to a 3.9% increase in the fourth quarter of 2010.

For the year ended December 31, 2011, the company reported a net loss attributable to RenaissanceRe common shareholders of $92.2 million, or $1.84 per diluted common share, compared to net income available to RenaissanceRe common shareholders of $702.6 million, or $12.31 per diluted common share in 2010.

Operating loss attributable to RenaissanceRe common shareholders was $162.4 million, or $3.22 per diluted common share for 2011, compared to operating income available to RenaissanceRe common shareholders of $536.4 million, or $9.32 per diluted common share for 2010.

The company reported a negative return on average common equity of 3.0% and a negative operating return on average common equity of 5.3% for 2011, compared to positive 21.7% and positive 16.5%, respectively for 2010.

Book value per common share decreased $3.31, or 5.3%, to $59.27 in 2011, compared to a 21.1% increase in 2010. Tangible book value per common share plus accumulated dividends decreased $1.06, or 1.8%, in 2011 to $69.37, compared to a 23.8% increase in 2010.

Neill A. Currie, CEO, commented: “I am pleased to report growth in tangible book value per share plus dividends of over 3% in the fourth quarter, despite losses from the floods in Thailand.

“For the full year, we experienced a modest 1.8% decrease in tangible book value per share plus dividends in one of the most costly years in history for insured catastrophes.”

Mr. Currie added: “During the year, we supported our clients by paying valid claims with industry-leading speed and providing much needed capacity.

“We entered the January 1 renewal season with a strong balance sheet, industry-leading ratings and an experienced and disciplined underwriting team. We were able to assemble a high quality portfolio of risks at January 1 and one that reflects firmer pricing for property catastrophe reinsurance.

“We believe we are well positioned to grow in 2012.”

FOURTH QUARTER 2011 HIGHLIGHTS

• Underwriting income of $127.1 million and a combined ratio of 36.2%, compared to $152.2 million and 19.8%, respectively, was negatively impacted by $59.5 million of underwriting losses from the Thailand floods, which occurred in the fourth quarter of 2011 and resulted in $45.1 million of net negative impact(2), and partially offset by net decreases in underwriting losses related to certain major losses occurring in prior periods of 2011, as detailed in “Supplemental Financial Data – Summary Impact of Large Losses”. Favorable development on prior years reserves was $34.6 million, compared to $72.7 million.
• Gross premiums written increased $11.8 million, or 37.7%, to $43.0 million, primarily due to continued growth within the Company’s Lloyd’s segment.
• Total investment income of $76.8 million, which includes the sum of net investment income, net realized and unrealized gains on investments and net other-than-temporary impairments, compared to total investment losses of $18.8 million. The increase in total investment income was primarily due to higher total returns on the company’s fixed maturity investment portfolio, partially offset by weaker performance in the company’s hedge fund and private equity investment portfolio combined with a decrease in average invested assets.
• Other loss of $43.6 million, compared to other income of $26.0 million, was primarily from trading losses within the company’s weather and energy risk management operations due to the unusually warm weather experienced in the United Kingdom and certain parts of the United States during the fourth quarter of 2011. This unit reported a pre-tax loss of $41.3 million [after-tax loss of $31.0 million].
• Equity in losses of other ventures deteriorated $12.3 million, to a loss of $22.7 million, primarily due to equity in losses of Top Layer Re of $22.6 million as a result of Top Layer Re experiencing net adverse development related to the Tohoku earthquake during the fourth quarter of 2011.

Underwriting Results by Segment

Reinsurance Segment

Gross premiums written in the Reinsurance segment were $19.3 million, an increase of $1.4 million, or 7.5%, primarily due to improved market conditions.

The Reinsurance segment generated underwriting income of $135.3 million and a combined ratio of 23.2%, compared to $168.4 million and 12.5%, respectively, which included underwriting losses of $53.5 million related to the Thailand floods occurring in the fourth quarter of 2011, increases in underwriting losses related to the 2011 New Zealand earthquake and the large US tornadoes of $10.9 million and $11.9 million, respectively, and partially offset by a decrease in underwriting losses related to the Tohoku earthquake and tsunami [pictured below] of $56.5 million.

The Reinsurance segment experienced $32.0 million of favorable development on prior year reserves, compared to $65.7 million, including $26.6 million in the catastrophe unit primarily due to reductions in estimated ultimate losses on certain specific events occurring in prior accident years, and $5.3 million in the specialty unit primarily due to better than expected claims emergence.

Lloyd’s Segment

Gross premiums written in the Lloyd’s segment were $23.7 million, an increase of $15.1 million, or 176.3%, primarily due to continued growth within the segment. The Lloyd’s segment incurred an underwriting loss of $11.1 million and a combined ratio of 149.0%, compared to an underwriting loss of $5.6 million and a combined ratio of 144.6%. Net claims and claim expenses include $6.0 million related to the Thailand floods.

Other Items

• During the fourth quarter of 2011, the Company recognized $5.2 million of impairments on goodwill and other intangible assets. The impairment losses are included in corporate expenses.
• The company established a valuation allowance during the fourth quarter of 2011 against its US tax-paying subsidiaries’ net deferred tax asset which resulted in $22.6 million of income tax expense in the fourth quarter of 2011 within the company’s continuing operations and $3.8 million of income tax expense within discontinued operations.
• Loss from discontinued operations was $3.3 million, compared to income from discontinued operations of $11.1 million.
• During the fourth quarter of 2011, the company repurchased approximately 234 thousand common shares in open market transactions at an aggregate cost of $16.8 million and at an average share price of $71.87.

FULL YEAR 2011 HIGHLIGHTS

• Gross premiums written increased $269.7 million, or 23.1%, to $1,435.0 million, due in part to $160.3 million of reinstatement premiums written, principally within the catastrophe unit, compared to $28.0 million; improving market conditions experienced in the company’s catastrophe unit during the June and July 2011 renewals, compared to the June and July 2010 renewals; and an increase in premiums within the company’s Lloyd’s segment. Excluding the impact of $160.3 million and $28.0 million of reinstatement premiums written in 2011 and 2010, respectively, which increased in 2011 due to the large catastrophe losses, gross premiums written increased $137.4 million, or 12.1% for the year.
• Underwriting loss of $177.2 million and a combined ratio of 118.6%, compared to underwriting income of $474.6 million and 45.1%, respectively, was negatively impacted by underwriting losses of $725.2 million related to a number of large losses, namely the 2011 New Zealand and Tohoku earthquakes, the large US tornadoes, the Australian floods, losses arising from aggregate contracts, hurricane Irene and the Thailand floods — collectively referred to as the “Large 2011 Losses”) — which added 85.4 percentage points to the company’s combined ratio in 2011.
• Included in underwriting income for 2010 was $252.1 million of underwriting losses from the 2010 New Zealand and Chilean earthquakes, which added 32.0 percentage points to the combined ratio. Favorable development on prior accident years was $132.0 million, compared to $302.1 million, as discussed in more detail below.
• Total investment income of $180.1 million, which includes the sum of net investment income, net realized and unrealized gains on investments and net other-than-temporary impairments, compared to $320.9 million. The decrease in investment income was primarily due to lower total returns on the company’s fixed maturity investment portfolio. In addition, the company’s investment income was negatively impacted by a decrease in net investment income of $36.9 million from the company’s hedge fund and private equity investments due to relatively weaker performance, and a decrease of $30.8 million from certain non-investment grade allocations included in other investments.
• Other income deteriorated $41.8 million to a loss of $0.7 million, primarily as a result of a pre-tax loss of $45.0 million [after-tax loss of $34.3 million] within the Company’s weather and energy risk management operations due primarily to the unusually warm weather experienced in the United Kingdom and certain parts of the United States during the fourth quarter of 2011, and partially offset by the company’s ceded reinsurance contracts accounted for at fair value which generated $37.4 million in income in 2011, compared to $5.2 million in 2010, principally as a result of net recoverables from the Tohoku earthquake.
• Equity in losses of other ventures of $36.5 million compared to a loss of $11.8 million, primarily due to equity in losses of Top Layer Re of $37.5 million as a result of Top Layer Re experiencing net claims and claim expenses related to the 2011 New Zealand and Tohoku earthquakes.

Underwriting Results by Segment

Reinsurance Segment

Gross premiums written in the Reinsurance segment were $1,323.2 million, an increase of $199.6 million, or 17.8%, primarily due to an increase in gross premiums written in the catastrophe unit which was positively impacted by reinstatement premiums written on the Large 2011 Losses. Excluding the impact of $159.8 million and $28.0 million of reinstatement premiums written in 2011 and 2010, respectively, gross premiums written increased $67.8 million, or 6.2%, primarily due to improving market conditions in the company’s core markets during the June and July 2011 renewals, and partially offset by the then softer market conditions in the company’s core markets during the January 2011 renewals.

Managed catastrophe premiums were $1,260.7 million in 2011, an increase of $213.7 million, or 20.4%. Excluding the impact of $159.8 million and $28.0 million of reinstatement premiums written in 2011 and 2010, respectively, managed catastrophe premiums increased $82.0 million, or 8.0%.

The Reinsurance segment incurred an underwriting loss of $124.8 million and a combined ratio of 114.3%, compared to generating underwriting income of $517.0 million and 38.4%, respectively. The $641.9 million decrease in the underwriting result and 75.9 percentage point increase in the combined ratio was principally due to a $520.8 million increase in current accident year losses and a $149.1 million decrease in favorable development on prior years reserves. The increase in current accident year losses was primarily due to the Large 2011 Losses, which negatively impacted the Reinsurance segment’s underwriting result by $695.5 million.

The Reinsurance segment experienced favorable development on prior years reserves of $136.9 million, including $77.8 million and $59.1 million from the specialty and catastrophe units, respectively. Included within the specialty unit was $37.1 million due to lower than expected claims emergence, $26.8 million associated with actuarial assumption changes and $13.9 million due to reductions in the estimated ultimate losses on certain specific events occurring in prior accident years. The catastrophe unit experienced $59.1 million of favorable development on prior years reserves due to reductions in the estimated ultimate losses on certain specific events occurring in prior accident years.

Lloyd’s Segment

Gross premiums written in the Lloyd’s segment increased $45.4 million, or 68.5%, to $111.6 million. The Lloyd’s segment incurred an underwriting loss of $47.6 million and a combined ratio of 162.4%, compared to $11.1 million and 122.1%, respectively. The Lloyd’s segment was negatively impacted by the Large 2011 Losses which resulted in $29.7 million of underwriting losses and increased its combined ratio by 39.3 percentage points.

Other Items

• During 2011, the Company repurchased approximately 2.9 million common shares in open market transactions at an aggregate cost of $191.6 million and at an average share price of $66.31. Subsequent to December 31, 2011 and through the period ended February 6, 2012, the Company repurchased approximately 51 thousand common shares in open market transactions at an aggregate cost of $3.6 million and at an average share price of $71.81.
• [Loss] income from discontinued operations includes the financial results of substantially all of the company’s US-based insurance operations which were sold to QBE Holdings, Inc. in March 2011. Loss from discontinued operations of $15.9 million in 2011 is primarily due to the recognition of a $10.0 million expense related to a contractually agreed obligation to pay, or otherwise reimburse, QBE for amounts potentially up to $10.0 million in respect of net adverse development on prior accident years net claims and claims expenses for reserves that were sold to QBE in conjunction with the sale. Income from discontinued operations was $62.7 million in 2010.

The company generated an income tax benefit of $0.3 million, compared to $6.1 million.

Based in Hamilton, RenaissanceRe Holdings Ltd. is a global provider of reinsurance and insurance.

The company’s business consists of three segments: (i) Reinsurance, which includes catastrophe reinsurance, specialty reinsurance and certain property catastrophe and specialty joint ventures managed by the company’s ventures unit, (ii) Lloyd’s, which includes reinsurance and insurance business written through Syndicate 1458, and (iii) Insurance, which principally includes the company’s Bermuda-based insurance operations.

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