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The following is a discussion and analysis of our results of operations for the three and nine months endedSeptember 30, 2021 and 2020, respectively, as well as our liquidity and capital resources atSeptember 30, 2021 . This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this filing and the audited consolidated financial statements and notes thereto contained in our Form 10-K for the fiscal year endedDecember 31, 2020 . This filing contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the results described or implied by these forward-looking statements. See "Note on Forward-Looking Statements." In this Form 10-Q, references to "RenaissanceRe" refer toRenaissanceRe Holdings Ltd. (the parent company) and references to "we," "us," "our" and the "Company" refer toRenaissanceRe Holdings Ltd. together with its subsidiaries, unless the context requires otherwise. All dollar amounts referred to in this Form 10-Q are inU.S. dollars unless otherwise indicated. Due to rounding, numbers presented in the tables included in this Form 10-Q may not add up precisely to the totals provided. 53 --------------------------------------------------------------------------------
INDEX OF DISCUSSION AND ANALYSIS BY THE FINANCIAL POSITION AND RESULTS DEPARTMENT
OPERATIONS
Page OVERVIEW 55 SUMMARY OF CRITICAL ACCOUNTING ESTIMATES 57 SUMMARY RESULTS OF OPERATIONS 70 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES 81 Financial Condition 81 Liquidity and Cash Flows 82 Capital Resources 86 Reserve for Claims and Claim Expenses 88 Investments 88 Ratings 90 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION 90 EFFECTS OF INFLATION 92 OFF-BALANCE SHEET AND SPECIAL PURPOSE ENTITY ARRANGEMENTS 92 CONTRACTUAL OBLIGATIONS 92 CURRENT OUTLOOK 92 54
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PREVIEW
property and casualty and specialized reinsurance and certain insurance solutions for
customers, mainly through intermediaries. Established in 1993, we have
offices at
the
US Reinsurance Inc.
Speciality
Europe Unlimited Company
(“Syndicate 1458”). We also underwrite reinsurance on behalf of joint ventures,
including
Layer Re “),
(“Vermeer”). In addition, through
invest in a variety of insurance-based investment vehicles that have returns
mainly related to the risk of real estate catastrophe.
Our mission is to match desirable and well-structured risks with effective sources
of capital to achieve our vision of being the best underwriter. We believe this
this will allow us to produce superior returns for our shareholders over the
in the long term, and to protect communities and promote prosperity. We are looking to
achieve these goals by being a long-term trusted partner for our customers
to assess and manage risks, offer reactive and innovative solutions,
by leveraging our core risk assessment and information management capabilities,
invest in these core capabilities in order to serve our customers through
market cycles and keep our promises. Our strategy focuses on higher risk
selection, superior customer relationships and superior capital management. We
bring value to our clients and to our joint ventures and managed fund partners in
in the form of financial security, innovative products and responsive service. We
are known as a leader in prompt payment of valid claims. We mainly measure
our financial success through long-term growth in tangible book value per share
plus the change in accumulated dividends. We think this metric is the
most appropriate measure of our financial performance, and with respect to which
we believe we have provided superior performance over time. The main
the drivers of our profits are underwriting income, investment income and commission income
generated by our capital management activities on behalf of third parties.
Our core products include property and casualty and specialty reinsurance, and
certain insurance products distributed mainly through intermediaries, with
with whom we have cultivated strong long-term relationships. We believe we have been
one of the world’s leading providers of catastrophe reinsurance since our
founder. In recent years, thanks to the strategic execution of several
initiatives, including organic growth and acquisitions, we have expanded and
diversified our platform and our accident and specialty products, and believe that we are
a leader in certain non-life and specialty business sectors. We are also pursuing a
number of other opportunities, such as the creation and management of our joint ventures
and managed funds, by executing personalized reinsurance transactions to assume or
cede the risk and manage certain strategic investments intended for categories of
risk other than catastrophe reinsurance. From time to time we consider
diversification into new companies, either through organic growth or through training
new joint ventures or managed funds, or acquisition or investment
in, other companies or business books of other companies.
We have determined that our business consists of the following reportable segments:
(1) Property, which includes catastrophe reinsurance and other property
and insurance policies taken out on behalf of our operating subsidiaries and certain
companies and managed funds, and (2) civil and specialized liability insurance, which includes
of reinsurance and civil and specialized liability insurance taken out in the name of our
operating subsidiaries and certain joint ventures and managed funds.
To best serve our customers where they do business, we have
subsidiaries, branches, joint ventures, managed funds and underwriting platforms
around the world. We underwrite property and casualty and specialized reinsurance
through our wholly owned operating subsidiaries, joint ventures, managed funds
and Syndicate 1458 and certain insurance products primarily through Syndicate
Specialty 1458 and RenaissanceRe
Lloyd’s extensive distribution network and its worldwide licenses, and also writes
business through delegation of authority agreements. The underwriting results of
our operating subsidiaries and our subscription platforms are included in our
results of the P&C and Specialties segment, if applicable.
55 -------------------------------------------------------------------------------- A meaningful portion of the reinsurance and insurance we write provides protection from damages relating to natural and man-made catastrophes. Our results depend to a large extent on the frequency and severity of these catastrophic events, and the coverages we offer to customers affected by these events. We are exposed to significant losses from these catastrophic events and other exposures we cover, which primarily impact our Property segment, in both the property catastrophe and other property lines of business. Accordingly, we expect a significant degree of volatility in our financial results and our financial results may vary significantly from quarter-to-quarter and from year-to-year, based on the level of insured catastrophic losses occurring around the world. Our Casualty and Specialty business, which represents approximately half of our gross premiums written annually, is an efficient use of capital that is generally less correlated with our Property business. It allows us to bring additional capacity to our clients, across a wider range of product offerings, while continuing to be good stewards of our shareholders' capital. We continually explore appropriate and efficient ways to address the risk needs of our clients and the impact of various regulatory and legislative changes on our operations. We have created and managed, and continue to manage, multiple capital vehicles across several jurisdictions and may create additional risk bearing vehicles or enter into additional jurisdictions in the future. In addition, our differentiated strategy and capabilities position us to pursue bespoke or large solutions for clients, which may be non-recurring. This, and other factors including the timing of contract inception, could result in significant volatility of premiums in both our Property and Casualty and Specialty segments. As our product and geographical diversity increases, we may be exposed to new risks, uncertainties and sources of volatility. Our revenues are principally derived from three sources: (1) net premiums earned from the reinsurance and insurance policies we sell; (2) net investment income and net realized and unrealized gains from the investment of our capital funds and the investment of the cash we receive on the policies which we sell; and (3) fee income received from our joint ventures and managed funds, advisory services and various other items. Our expenses primarily consist of: (1) net claims and claim expenses incurred on the policies of reinsurance and insurance we sell; (2) acquisition costs which typically represent a percentage of the premiums we write; (3) operating expenses which primarily consist of personnel expenses, rent and other operating expenses; (4) corporate expenses which include certain executive, legal and consulting expenses, costs for research and development, transaction and integration-related expenses, and other miscellaneous costs, including those associated with operating as a publicly traded company; (5) redeemable noncontrolling interests, which represent the interests of third parties with respect to the net income ofDaVinciRe Holdings Ltd. ("DaVinciRe"), Medici and Vermeer; and (6) interest and dividend costs related to our debt and preference shares. We are also subject to taxes in certain jurisdictions in which we operate. Since the majority of our income is currently earned inBermuda , which does not have a corporate income tax, the tax impact to our operations has historically been minimal. In the future, our net tax exposure may increase as our operations expand geographically, or as a result of adverse tax developments. The underwriting results of an insurance or reinsurance company are discussed frequently by reference to its net claims and claim expense ratio, underwriting expense ratio, and combined ratio. The net claims and claim expense ratio is calculated by dividing net claims and claim expenses incurred by net premiums earned. The underwriting expense ratio is calculated by dividing underwriting expenses (acquisition expenses and operational expenses) by net premiums earned. The combined ratio is the sum of the net claims and claim expense ratio and the underwriting expense ratio. A combined ratio below 100% indicates profitable underwriting prior to the consideration of investment income. A combined ratio over 100% indicates unprofitable underwriting prior to the consideration of investment income. We also discuss our net claims and claim expense ratio on a current accident year basis and a prior accident years basis. The current accident year net claims and claim expense ratio is calculated by taking current accident year net claims and claim expenses incurred, divided by net premiums earned. The prior accident years net claims and claim expense ratio is calculated by taking prior accident years net claims and claim expenses incurred, divided by net premiums earned. Segments Our reportable segments are defined as follows: (1) Property, which is comprised of catastrophe and other property reinsurance and insurance written on behalf of our operating subsidiaries and certain joint ventures and managed funds, and (2) Casualty and Specialty, which is comprised of casualty and specialty 56 -------------------------------------------------------------------------------- reinsurance and insurance written on behalf of our operating subsidiaries and certain joint ventures and managed funds. In addition to our two reportable segments, we have an Other category, which primarily includes our strategic investments, investments unit, corporate expenses, capital servicing costs, noncontrolling interests and certain expenses related to acquisitions and disposals. COVID-19 Pandemic Due to the ongoing and rapidly evolving nature of the COVID-19 pandemic, we are continuing to evaluate the impact of the COVID-19 pandemic on our business, operations and financial condition, including our potential loss exposures. It is not yet possible to give an estimate of all of the Company's potential reinsurance, insurance or investment exposures, or any other effects that the COVID-19 pandemic may have on our results of operations or financial condition. We continue to evaluate industry trends and information received from or reported by clients, brokers, industry actuaries, regulators, courts, and others, and expect historically significant industry losses to emerge over time as the full impact of the pandemic and its effects on the global economy are realized. SUMMARY OF CRITICAL ACCOUNTING ESTIMATES Our critical accounting estimates include "Claims and Claim Expense Reserves," "Premiums and Related Expenses," "Reinsurance Recoverables," "Fair Value Measurements and Impairments" and "Income Taxes," and are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year endedDecember 31, 2020 . There have been no material changes to our critical accounting estimates as disclosed in our Form 10-K for the year endedDecember 31, 2020 . 57
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