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Text: Yesterday after the market closed, we issued our quarterly release.
The passcode you will need for both numbers is 4277895.
Today's call is also available through the Investor Information section of www.
renre.com and will be archived on RenaissanceRe's website through midnight on February 27, 2021.
Additional information regarding the factors shaping these outcomes can be found in RenaissanceRe's SEC filings to which we direct you.
With us to discuss today's results are Kevin O'Donnell, President and Chief Executive Officer and Bob Qutub, Executive Vice President and Chief Financial Officer.
I wanted to begin today by giving you a quick summary of what we accomplished at January 1 and how 2021 is shaping up.
I made several promises then, which I can now definitively say were kept.
This January 1, was one of the most important renewals in our history, and I'm very pleased with the performance and the outcome we achieved.
At January 1, we saw opportunities for profitable growth in both of our segments and across our platforms, resulting in the full deployment into our underwriting portfolio of the $1.1 billion raised last June.
We also raised and deployed additional capital in our joint venture business.
As a result, in 2021, we expect to grow our net premiums written by approximately $1 billion and believe that we've materially increased the profitability of our underwriting book.
Importantly, we expect to achieve these outcomes while keeping our tail risk consistent with last year's on a percentage of equity basis, and due to the efficiency and diversity of our portfolio continuing to have ample dry powder to deploy into new opportunities.
Looking back at 2020, at the beginning of the year, I told you that with the TMR integration behind us, we were a more resilient company and a broader, deeper partner to our customers.
In our business, you learn to expect the unexpected, but I don't think any of us envisioned the year would unfold in quite the way it did or just how critical, how resilience would prove to be.
As the year progressed, we encountered a variety of challenges.
I am proud of how our employees responded rapidly and effectively to each of these, enabling us to grow our business, substantially and profitably.
At the end of each year, I like to review our performance by responding to two questions.
The first is, how did we do financially, and the second is, have we executed our strategy effectively.
Starting with the first question, how did we do financially.
In a year, impacted by the global COVID-19 pandemic and multiple weather-related catastrophic losses, we grew book value per share by 15% and tangible book value per share plus change in accumulated dividends by 18%.
For the year, our return on equity was 11.7% and our operating return on equity was 0.2%.
Bob will walk you through our financial results in greater detail, but I believe, we have done the hard work to recognize our losses early, build a fortress balance sheet and enter 2021 financially and operationally stronger as a company than we have ever been.
Moving to the second question, have we executed our strategy effectively.
While our strategy continues to evolve, it remains focused on serving our customers.
At its core, this strategy is in into -- is to employ our integrated system to match desirable risk with efficient capital.
While this may appear simple or even common sense, the difficulty lies in its long-term, consistent applications in all market cycles.
You have witnessed this consistency in our execution over the years.
As we have grown, we have broadened our access to risk, we're adding more lines of business on more platforms.
We have also diversified our sources of capital through various owned and joint venture balance sheets as well as equity, debt and ILS markets.
This has afforded us significant flexibility to react when the world changes, which it did quite drastically in March.
As COVID-19 started developing, our confidence in understanding our potential exposure across all aspects of our business enabled us to pivot our focus on the needs of our customers and brokers.
We were one of the first to raise capital with a highly successful common equity offering.
To be clear, this capital raise was exclusively offensive and as I mentioned, has now been fully deployed into our underwriting portfolio.
Consistent with our message during the capital raise, we have deployed the capital through a combination of two main activities, growing into an improving market and retaining more risk.
Starting with organic growth, we began planning for the January renewal early in the year with focused and coordinated approach across the company.
This allowed us to expand our value proposition to our customers and brokers and in an evolving market providing a clear message around appetite and tolerance.
Our fortress balance sheet permitted us to engage our customers early in the renewal cycle, understand their needs and have productive conversations about how we could help solve their biggest problems.
Heading into the renewal, we expected retro and U.S. property cat markets to provide us with the greatest opportunities.
While this was the case up until mid-December, ultimately the market dynamics in retro and property cat reinsurance were not as strong as the market initially expected.
In part, I think this was because investment portfolios were disconnected from the financial reality of COVID-19 and the economic recession.
The resulting boost to book values decreased relative reinsurance demand by giving many companies the confidence to retain more risk.
Supply was also elevated as new capital enter the retro and property cat markets and increasing amounts of collateral were released and available for underwriting.
Throughout the renewal, however, both casualty and specialty lines as well as property and has continue to experience extremely favorable pricing dynamics.
In general, both outperformed our expectations with increased rates as well as improved terms and conditions.
Because of our broad access to risk, we were able to emphasize growth into these areas.
Several years ago, we began initiating small positions on desirable programs which we used to build strong customer relationships over time.
This year, as rates improved, we've positioned to grow on these programs, add more profitable expected returns.
So while the January 1 renewal may have been disappointing to those who approached it in a transactional manner, our focus on superior customer relationships and building efficient portfolios through risk allocation and sharing meant that we were once again able to select the best business at the strongest returns.
The second opportunity for deploying capital was by retaining more risk.
At January 1, we reduced the ceded protection that we purchased as a percentage of our gross premium by several percentage points.
In line with retaining more risk, we increased our ownership in DaVinci and Medici, and now have $1 billion co-invested in various joint ventures consistent with our strategy of strong alignment with our partners.
As I mentioned already, the result of this diligent planning and strong execution is that we now believe that we will grow net written premiums in 2021 by about $1 billion with an increase in expected profit.
I should caution you however that these estimates were derived from model predictions of future outcomes based on reasonable assumptions and actual premiums may differ materially from those discussed.
So when I look back on 2020, I think we had a number of accomplishments, each of these would have been impressive under normal conditions.
They were even more so in the context of working from home.
In conclusion, I'm very pleased with the steps that we took to advance our strategy during the year.
Shannon joined us in Bermuda at the beginning of January and is a strong addition to our leadership team.
I'll provide more detailed update on the renewal and our segments at the end of the call, but first, Bob will discuss our financial performance for the quarter.
As Kevin discussed, both our fourth quarter and year-end results were impacted by large weather events and COVID-19.
Despite this above-normal activity, we reported positive net income for the quarter and positive net and operating income for the year.
Today I'll divide my remarks between our fourth quarter and year-end 2020 results.
I'll first cover our consolidated performance and then provide more detail on our three drivers of profit, underwriting income, fee income and investment income.
Starting with our consolidated results and beginning with the fourth quarter where we reported an annualized return on average common equity of 10.9%, benefiting from mark-to-market gains in our strategic investment and fixed-income portfolios.
Annualized operating return on average common equity was negative 4.4%, primarily driven by weather-related losses in the COVID-19 pandemic.
We grew our book value per common share by $3.33 or 2.5% and tangible book value per common share plus change in accumulated dividends by $3.84 or 3%.
Net income for the quarter was a $190 million or $3.74 per diluted common share.
Reported an operating loss of $77 million or $1.59 per diluted common share.
This excludes $268 million of net realized and unrealized gains on investments and $23 million of net foreign exchange gains.
This includes an operating result with a net negative impact of $166 million from weather-related losses and $173 million from the COVID-19 pandemic.
As a reminder, net negative impact is the impact on net income available to common shareholders after taking into account our best estimate of net incurred losses along with related adjustments for assumed and ceded reinstatement premiums, profit commissions and redeemable non-controlling interests.
Now moving on to the full year 2020, where we grew our book value per share by 14.9% and tangible book value per share plus change in accumulated dividends by 17.9%.
We reported a return on average common equity of 11.7% and an operating return on average common equity of 0.2%.
Net income for the year was $732 million or $15.31 per diluted common share and operating income was $15 million or $0.12 per diluted common share.
Included in this operating income was a net negative impact of $494 million from weather-related losses and $287 million from the COVID-19 pandemic.
I'm now going to shift to our three drivers of profit.
Starting with underwriting income and will focus my comments on key points impacting our results.
While we reported underwriting losses of $152 million in the quarter driven predominantly by weather-related losses and COVID-19.
I would like to spend some time walking you through both of these estimates.
As I mentioned, weather-related losses had a $166 million net negative impact on our results for the quarter.
Of this, $100 million relates to events in the quarter as well as aggregate contracts.
The remaining $66 million was from continuing development on the Q3 2020 were the related catastrophe events.
The costliest storms for us in the fourth quarter were Hurricane Zeta and Delta, both of which made landfall in Louisiana as category 2 hurricanes and Hurricane Ada which made landfall in Florida as a tropical storm.
The increase in our third quarter estimates was primarily from Hurricane Laura.
Not surprisingly, COVID-19 restrictions coupled with damaged infrastructure made it more difficult for insurers to access impacted areas to adjust losses.
Additionally, Hurricanes Delta and Zeta chartered a similar path to Hurricane Laura with Delta making landfall within about 10 miles.
This combination of temporal and geographic proximity complicated the loss adjustment process.
Now moving on to the $173 million net negative impact from COVID-19.
As you know because of the uncertainty related to the pandemic, we have approached our COVID exposures in three categories.
While we have not received a significant number of formal claim advisories to-date, the information that we obtained during the renewal process provided us with a reasonable basis to update our estimate of potential losses in category 3, which we refer to as the known-unknowns and includes business interruptions.
The majority of the COVID losses in the quarter related to category 3.
We took a rigorous process involving either a top-down or a bottom-up review depending on client and geography.
The recent U.K. Supreme Court decision on the FCA case did not have a material impact on our estimate.
The net negative impact of COVID-19 for the year stands at $287 million and represents our best estimate based on information available of the aggregate impact of the pandemic on our business as a whole.
Moving now to our Property segment, where we grew gross written premiums by 26% in the fourth quarter and 23% in the year.
As a reminder, we do not typically write much property cat premium in the fourth quarter.
About half of the property cat growth in the quarter stemmed from an increase in reinstatement premiums from our weather-related losses.
The continued growth in our other property book, both in the quarter and the year comes predominantly from our successful efforts to expand our access to primary property E&S business.
We reported a property combined ratio of 126% for the quarter and 99% for the year with COVID-19 and weather-related losses being significant drivers of our results.
Specifically, weather-related losses at 47 points to the property-combined ratio for the quarter and 35 points for the year.
COVID-19 added 46 points to the combined ratio for the quarter and 12 points for the year.
These losses occurred across both property catastrophe and other property.
Our losses in the Property segment during the quarter were partially offset by 25 points of favorable development.
Now moving onto our casualty results, where the fourth quarter gross premiums written decreased by 5% in the quarter and grew by 18% in the year.
The decrease in the quarter is primarily related to selected non-renewals of business acquired from TMR, premium adjustments and the relatively minor premium impact from COVID-19 on a few lines of business.
We continue to meaningfully grow our casualty business and our full-year growth rate of 18% is more indicative of our plans for this business going forward.
The combined ratio for casualty was 104% for both the quarter and the year.
These results were driven impart by the impact of COVID-19, which increased the combined ratio by 1.7 points in the quarter primarily in accident and health and 6 points for the year.
During the quarter, we also experienced 1.4 points of weather-related losses related primarily in the specialty lines.
For the year, weather-related losses had 8.8 impact on the casualty combined ratio.
Now moving onto our second driver of profit, fee income.
Total fee income was $36 million for the quarter and $145 million for the year.
This reflects an increase of both management and performance fees that represents growth in our third-party capital and improved performance.
As we grow our joint ventures, management fees should be steadily increasing over time.
Performance fees will fluctuate year-over-year based on the results of our joint ventures.
We are pleased with our results in 2020 especially given the elevated level of catastrophe activity.
For the year, the net redeemable noncontrolling interest attributable to DaVinci, Medici and Vermeer was $231 million.
This represents a portion of our underwriting and investment income that we share with our joint venture partners, which is up 14% from 2019.
Now turning to our third driver of profit, investment income.
We reported strong investment results in the quarter and finished the year with total investment results of $1.2 billion.
This is comprised of $354 million in net investment income and mark-to-market gains of $821 million.
Mark-to-market gains were predominantly in our fixed maturity and equity investment portfolios with equity gains driven by our strategic investment portfolio.
After adding materially to investment grade credit in the second quarter, we reduced this exposure by about 13% in the fourth quarter with an emphasis on shorter-dated maturities as credit spreads approach relatively tight levels.
The average duration of our managed portfolio was unchanged at 2.9 years, while the duration of the retained portfolio moved modestly lower in the fourth quarter to 3.6% of years.
At this point, I will provide additional information on our expenses in foreign exchange gains, and starting with the acquisition expense ratio was 23% for both the quarter and the year.
This is within our current expectations.
However, you will notice that there were some noise across the segments in the quarter, where the acquisition expense ratio declined 5 points in the Property segment against the comparable quarter.
This was from an increase in the profit commissions we earned in our third-party capital business and came primarily related to favorable development.
For casualty, the acquisition expense ratio increased by 8 points against the comparable quarter.
This was driven primarily by two items, about a third was associated with a purchase accounting adjustment in last year's results and another third comes from changes in estimated profit commissions in our mortgage book, and to be clear, this is unrelated to the impact of forbearance we discussed last quarter.
The current expected run rate of our casualty acquisition expense ratio is in the upper 20s.
Our direct expense ratio, which is the sum of our operational and corporate expenses divided by net premiums earned has continued to decline and was 6% for the quarter and 8% for the year.
The decline in the direct expense ratio primarily relates to reduced operational expenses and continued leverage of our platform.
In the fourth quarter, reduced performance-based compensation expense specifically contributed to the decline in operational expense.
At 2%, the corporate expense ratio was largely flat relative to the comparable quarter and year.
Corporate expenses did increase $3 million in the quarter.
However, this increase was driven by $7 million charge from the impairment of certain U.S. insurance licenses related to the restructuring of the TMR operating subsidiaries as well as non-recurring severance-related expense.
These expenses were partially offset by a reduction in transition expenses related to the acquisition and integration of TMR that occurred in 2019.
We also reported a $23 million foreign exchange gain in the quarter, approximately one-third of this gain relates to Medici and has no impact on our bottom-line, as it is backed out through noncontrolling interest.
The remainder relates to our underwriting activities and operations denominated non-U.S. dollar currencies.
Finally, let me conclude with some comments on our capital management activities.
As Kevin mentioned, we have had a very successful joint venture capital raise in preparation for the January renewal, raising over $700 million across DaVinci, Upsilon and Medici for 2021, and this includes $131 million of our own capital.
This is an addition to the $1 billion in capital that we raised across our various joint ventures in 2020, which also included $138 million of our own capital.
On top of these investments, we also purchased $117 million of DaVinci shares from third-party investors.
In aggregate, we have increased our stake in both DaVinci and Medici to 28.7% and 15.4% respectively.
Having the ventures capital in place early, along with our capital -- equity capital, put our underwriting team in a strong position to negotiate with clients at the renewal, and as Kevin noted, we deployed significant capital at January 1st.
Even after adjusting for the substantial capital we deployed at January 1 and allowances for additional deployment opportunities during the course of 2021, we remained in a strong capital position.
Our fortress balance sheet has served us well and we typically hold excess capital.
That said, our preference is always to deploy capital into the business and we envision many opportunities in 2021 to do so profitably.
As usual, I will divide my comments between our Property and Casualty segment.
Before I get into segment-specific information, I would like to provide my perspective on the ongoing impact of COVID-19 on our industry.
As Bob explained, we undertook a very rigorous process in estimating our potential COVID-19 losses this quarter.
In the first quarter of 2020, I first defined our three category approach to evaluating our COVID-19 exposure.
As you recall, we initially recorded $104 million reserve primarily for category 1.
We also adjusted loss picks for category 2 exposures to reflect the likelihood of increased claim activity due to the pandemic and the resulting economic slowdowns.
We've now received enough information to update our COVID estimate, and this resulted in $173 million net negative impact for the quarter, primarily rated two property exposure in category 3.
Even as COVID-19 continues to spread, there has been some speculation that it will not prove as impactful to the insurance industry as originally foreseen.
I do not believe this to be the case.
In many instances, our industry is yet to recognize the losses that will inevitably arise from the pandemic particularly, with respect to business interruption.
Like -- likely this lack of recognition occurred because it made renewals smoother at January 1.
I believe, that we still have a long way to go before the true scale of COVID-19 industry losses are fully apparent.
In the U.S., the risk of widespread court leakage where courts imply coverage when it is not expressly provided currently appears low, but is something we continue to monitor.
While individual court rulings have been relatively favorable to the insurance industry, cases will take years to work through the system and some recent decisions have been adverse.
In the U.K., Europe and Australia, we've seen a trend of more affirmative contractual cover and in situations of uncertainty, court's ruling in favor of the policyholder.
Now moving to our Property segments and starting with property.
Following an active third quarter, natural catastrophe persisted into the fourth.
As Bob mentioned, the most impactful events for us in the quarter were Hurricane's Zeta, Delta and Eta.
2020 was an extraordinary year in many ways.
We experienced a record 30 name storms, 12 of these made landfall in the U.S., six is hurricanes, including one major.
The previous record was in 1916 with nine land-falling storms.
We also saw record wildfire.
In terms of acreage burned, five of the six largest fires in California's history occurred in 2020.
It is safe to say that 2020 was anything but a normal year.
As I discussed on the call last quarter, we expect that the warming climate will make extreme events more frequent and more severe.
However, this does not mean that we expect every year going forward to be like 2020.
Of course, the world will continue to experience variability in weather events, what has increased, however, is the likelihood of extreme events relative to the long-term record.
The insurance industry has always used the past to predict the future, but now the future no longer resembles the past.
Our ability to understand this shift in future risk provides us a competitive advantage, allowing us to position ourselves favorably for a changing climate.
About 50% of our property business renews at January 1st, and as I discussed, we had a very successful renewal.
By almost any measure, our property portfolio has gotten better and is indicative of a materially improving market.
A significant amount of this growth was in our other property business.
As I discussed on the call this time last year, we have been growing our other property portfolio and targeting risks that are more cat-exposed particularly, in the U.S. E&S market.
We've bill -- been building our reputation in this market for many years and have attained first call status on several accounts.
In part, this is because we have the platforms, capabilities and relationships to move quickly and add scale into much -- the much improved market for E&S.
With rates up 20% to 25%, we found many attractive opportunities to grow, both existing and new customers at January 1 renewal and believe that the market will continue to harden through 2021.
Our growth in traditional property cat was relatively muted, demand was flat with rate increases across the book averaging about 10%, with loss impacted U.S. business enjoying larger increases and non-loss impacted European business up single-digits.
We saw better opportunities in other areas and are pleased with the increase we achieved in our property portfolio overall, as we believe we constructed very attractive portfolios for us and our partners.
Shifting now to the retro market.
Heading into the renewal, our goals were to push for further rate increases, improve contractual terms and grow, if possible.
While rates in the retro market were up 5% to 15%, as I discussed earlier, additional supply against suppressing rate increases as the renewal progressed.
We demonstrated discipline by choosing to write a slightly smaller retro book.
That said, the retro market has experienced four consecutive years of rate enhancement, resulting in cumulative average rate increases approaching 50%, so while a little smaller, our retro book is attractive.
Moving now to our Casualty Specialty business.
The Casualty and Specialty renewal proceeded particularly well exceeding our already high expectations.
A significant portion of our Casualty and Specialty business renews at January 1st.
We saw opportunities in various classes across this segment with several experiencing dislocation that should provide further opportunities in 2021.
As a result, we will grow our gross written premiums in Casualty and Specialty for the year by approximately $500 million with lines like general liability and D&O being particularly attractive.
At this renewal, we continue to leverage years of relationship, building with key customers into preferred access to desirable business.
Our conviction in consistent and independent view of risk was an advantage in this changing market and we're able to provide customers and brokers with early and material solutions, which resulted in our successful growth.
We're also a market leader and largely successful in implementing communicable disease exclusions when necessary, and demonstrated our resolve by non-renewing several deals that did not incorporate a necessary exclusion.
In our casualty book, about half of the growth came from existing programs, with the other half coming from new programs with existing customers.
We continue to be the first call on several private deals, which typically garner better than market terms.
In addition to premium growth, we realized significant improvement in expected underwriting margins, which are principally driven by strong underlying insurance rate increases.
The specialty in credit book renewals were also successful and we found that our stability, underwriting expertise and strong relationships were an advantage in securing additional business this year.
Reinsurance terms and conditions adjusted where appropriate to account for increasing view of risk in areas such as mortgage and surety and strong underlying insurance rates added to growth and increased underwriting margin in classes such as marine and energy.
This quarter, we once again demonstrated the strength of our ventures group.
As Bob mentioned, including our own participation, we raised over $700 million across our joint venture vehicles.
While each of our vehicles enjoyed strong renewals, we particularly demonstrated both disciplined and superior capital management in our Upsilon joint venture.
We're able to materially improve its portfolio, consistent with our track record so as to return unused capital to investors rather than deploy it at on attractive rates of return.
As we predicted, when we raised our equity capital last June, Upsilon wrote a slightly smaller portfolio but with higher expected profit.
We are leaders in ILS management and believe we acted accordingly, upholding the highest underwriting standards while putting the interests of our partners first.
Finally, another milestone for the year was our public announcement of an environmental, social and governance strategy.
Our strategy focuses on promoting climate resilience, closing the protection gap and inducing positive societal change.
We chose these three priorities because we believe they lie at the intersection of our risk acumen and ability to make a meaningful impact on society.
As part of this strategy, we will be tracking and offsetting our operational carbon footprint, more information about our broader ESG strategies available on our newly launched webpage, found on renre.com under ESG/Sustainability.
In conclusion, for most perspective's, 2020 was a difficult year.
Across our industry, COVID-19 strained normal business practices and stressed employees.
Climate change fueled record-breaking hurricanes and wildfires.
Decreasing interest rates impacted future returns on investment portfolios.
There were others receive only problems.
The best underwriter recognized outsized opportunities.
We raised a material amounts of expensive capital in anticipation of these opportunities and executed strongly in one of the best January 1 renewals in many years, growing expected profit across our business lines and geographies.
As we head into 2021, I believe we will continue to find outsize opportunities to create shareholder value.

user
compname reports q4 2020 net income available to common shareholders of $189.8 mln, or $3.74 per diluted share.
compname reports fourth quarter 2020 net income available to common shareholders of $189.8 million, or $3.74 per diluted common share.
operating loss attributable to common shareholders of $77.1 million, or $1.59 per diluted common share.
q4 operating loss per share $1.59.
q4 earnings per share $3.74.
qtrly total revenue $1.4 billion versus $1.11 billion.

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