UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- -------------- Commission file number: 34-0-26512 RenaissanceRe Holdings Ltd. --------------------------- (Exact name of registrant as specified in its charter) Bermuda 98-013-8020 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Renaissance House 8--12 East Broadway Pembroke, Bermuda HM 19 (Address of principal executive offices) (Zip Code) (441) 295-4513 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of outstanding shares of RenaissanceRe Holding Ltd.'s common stock, par value US $1.00 per share as of September 30, 1997 was 22,447,110 Total number of pages in this report: 15
RenaissanceRe Holdings Ltd. INDEX TO FORM 10-Q <TABLE> <CAPTION> Part I -- Financial Information Item 1 -- Financial Statements <S> <C> Consolidated Balance Sheets as of September 30, 1997 3 (unaudited) and December 31, 1996 Unaudited Consolidated Statements of Operations for 4 the Nine Months Ended September 30, 1997 and 1996. Unaudited Consolidated Statements of Cash Flows 5 for the Nine Months Ended September 30, 1997 and 1996 Notes to Unaudited Consolidated Financial Statements 6 Item II -- Management's Discussion and Analysis of 9 Financial Condition and Results of Operations Part II -- Other Information 14 Item 1 -- Legal Proceedings Item 2 -- Changes in Securities Item 3 -- Defaults Upon Senior Securities Item 4 -- Submission of Matters to a Vote of Security Holders Item 5 -- Other Information Item 6 -- Exhibits and Reports on Form 8-K Signature - RenaissanceRe Holdings Ltd. 15 </TABLE> 2
Part I - Financial Information Item 1 - Financial Statements RenaissanceRe Holdings Ltd. and Subsidiaries Consolidated Balance Sheets (United States Dollars) (in thousands, except per share amounts) <TABLE> <CAPTION> As at ------------------------------------------------- September 30, 1997 December 31, 1996 ------------------------ --------------------- <S> <C> <C> Assets (Unaudited) Fixed maturities available for sale, at fair value (Amortized cost $674,496 and $601,907, at September 30, 1997 and December 31, 1996, respectively) $ 678,408 $ 603,484 Equity securities at market (Cost $49,169) 55,544 -- ------------------------ --------------------- Total investments 733,952 603,484 Cash and cash equivalents 123,828 198,982 Reinsurance premiums receivable 88,603 56,685 Ceded reinsurance balances 22,512 19,783 Accrued investment income 16,686 13,913 Deferred acquisition costs 10,656 6,819 Other assets 10,571 5,098 ------------------------ --------------------- Total assets $ 1,006,808 $ 904,764 ======================== ===================== <CAPTION> Liabilities, Capital Securities, Minority Interest and Shareholders' Equity <S> <C> <C> Liabilities Reserve for claims and claim adjustment expenses $ 113,748 $ 105,421 Reserve for unearned premiums 103,407 65,617 Bank loan 50,000 150,000 Reinsurance balances payable 27,762 18,072 Other 5,547 4,215 ------------------------ --------------------- Total liabilities 300,464 343,325 ------------------------ --------------------- Company obligated mandatorily redeemable capital securities of a subsidiary trust holding solely junior subordinated debentures of the Company (Note 7) 100,000 -- Minority interest in consolidated subsidiary 10,672 15,236 Shareholders' Equity Common shares 22,447 23,531 Additional paid-in capital 53,423 102,902 Loans to officers (3,364) (3,868) Net unrealized appreciation on investments 10,287 1,577 Retained earnings 512,879 422,061 ------------------------ --------------------- Total shareholders' equity 595,672 546,203 ------------------------ --------------------- Total liabilities, capital securities, minority interest, and shareholders' equity $ 1,006,808 $ 904,764 ======================== ===================== Book value per Common Share $ 26.54 $ 23.21 ======================== ===================== Common Shares outstanding 22,447 23,531 ======================== ===================== </TABLE> The accompanying notes are an integral part of these financial statements. 3
RenaissanceRe Holdings Ltd. and Subsidiaries Consolidated Statements of Operations (United States Dollars) (in thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> Quarters Ended September 30, Year-to-Date September 30, ---------------------------------- --------------------------------- 1997 1996 1997 1996 ---------------- ---------------- --------------- ---------------- <S> <C> <C> <C> <C> Gross Premiums Written $ 60,411 $ 73,591 $ 215,574 $ 253,157 ================ ================ =============== ================ Revenues Net premiums written $ 46,740 $ 65,238 $ 184,964 $ 236,635 Decrease (increase) in unearned premiums 6,255 (1,785) (24,605) (49,468) ---------------- ---------------- --------------- ---------------- Net premiums earned 52,995 63,453 160,359 187,167 Net investment income 12,653 12,620 36,994 32,945 Net foreign exchange gains (losses) (356) 266 (1,520) (386) Net realized gains (losses) on investments 1,053 (660) 917 (2,791) ---------------- ---------------- --------------- ---------------- Total revenues 66,345 75,679 196,750 216,935 ---------------- ---------------- --------------- ---------------- Expenses Claims and claim expenses incurred 14,673 26,298 40,017 65,615 Acquisition costs 6,663 6,606 18,978 19,018 Operating expenses 6,116 4,456 18,133 11,594 Corporate expenses 295 307 2,857 1,440 Interest expense 786 1,453 3,488 4,246 ---------------- ---------------- --------------- ---------------- Total expenses 28,533 39,120 83,473 101,913 ---------------- ---------------- --------------- ---------------- Income before minority interest and taxes 37,812 36,559 113,277 115,022 Minority interest - Company obligated mandatorily redeemable capital securities of a subsidiary trust holding solely junior subordinated debentures of the Company (Note 7) (2,088) -- (4,816) -- Minority interest - Glencoe (316) (96) (611) (107) ---------------- ---------------- --------------- ---------------- Income before taxes 35,408 36,463 107,850 114,915 Income tax expense -- -- -- -- ---------------- ---------------- --------------- ---------------- Net income $ 35,408 $ 36,463 $ 107,850 $ 114,915 ================ ================ =============== ================ Net income per Common Share $ 1.55 $ 1.40 $ 4.66 $ 4.41 ================ ================ =============== ================ Weighted average Common Shares and common equivalent shares outstanding 22,856 26,084 23,137 26,082 ================ ================ =============== ================ Claims and claim expense ratio 27.7% 41.5% 25.0% 35.1% Expense ratio 24.1% 17.4% 23.1% 16.3% ---------------- ---------------- --------------- ---------------- Combined ratio 51.8% 58.9% 48.1% 51.4% ================ ================ =============== ================ </TABLE> The accompanying notes are an integral part of these financial statements. 4
RenaissanceRe Holdings Ltd. and Subsidiaries Consolidated Statements of Cash Flows (United States Dollars in thousands) (Unaudited) <TABLE> <CAPTION> Year-to-Date September 30, ---------------------------------- 1997 1996 --------------- ---------------- <S> <C> <C> Cash Flows from Operating Activities Net income $ 107,850 $ 114,915 Adjustments to reconcile net income to cash provided by operating activities Amortization and depreciation 797 398 Realized investment (gains) losses (917) 2,791 Minority share of income 611 107 Change in: Reinsurance balances, net (22,228) (22,568) Ceded reinsurance balances receivable (2,729) (21,347) Deferred acquisition costs (3,837) (5,390) Reserve for claims and claim adjustment expenses 8,327 5,729 Reserve for unearned premiums 37,790 49,467 Other (337) 8,864 --------------- ---------------- Cash provided by operating activities 125,327 132,966 --------------- ---------------- Cash flows from investing activities Proceeds from sale of investments 359,530 237,135 Purchase of investments available for sale (483,438) (312,448) Proceeds from sale of (purchase of) minority interest in Glencoe (5,185) 15,126 --------------- ---------------- Cash applied to investing activities (129,093) (60,187) --------------- ---------------- Cash flows from financing activities Proceeds from issuance of Company obligated mandatorily redeemable capital securities of a subsidiary trust holding solely junior subordinated debentures of the Company (Note 7) 98,500 -- Proceeds from (repayment of) bank loan (100,000) 50,000 Dividends paid (17,031) (15,366) Proceeds from repayment of officer loan 601 -- Purchase of Common Shares (53,458) (613) --------------- ---------------- Cash provided by (used in) financing activities (71,388) 34,021 --------------- ---------------- Net increase (decrease) in cash and cash equivalents (75,154) 106,800 Cash and cash equivalents, balance at beginning of period 198,982 139,163 --------------- ---------------- Cash and cash equivalents, balance at end of period $ 123,828 $ 245,963 =============== ================ </TABLE> The accompanying notes are an integral part of these financial statements. 5
RenaissanceRe Holdings Ltd. and Subsidiaries Notes to Consolidated Financial Statements (Expressed in United States Dollars) (unaudited) 1. The consolidated financial statements have been prepared on the basis of United States generally accepted accounting principles ("GAAP") and include the accounts of RenaissanceRe Holdings Ltd. (the "Company") and its subsidiaries, including Renaissance Reinsurance Ltd. ("Renaissance Reinsurance") and Glencoe Insurance Ltd. ("Glencoe"). In the opinion of management, these financial statements reflect all the normal recurring adjustments necessary for a fair presentation of the Company's financial position at September 30, 1997, its results of operations for the three month and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine month periods ended September 30, 1997 and 1996. These consolidated financial statements should be read in conjunction with the 1996 audited consolidated financial statements and related notes thereto. Certain comparative information has been reclassified to conform to current presentation. Because of the seasonality of the Company's business the results of operations for any interim period will not necessarily be indicative of results of operations for the full fiscal year. 2. Earnings Per Share is calculated by dividing net income by the weighted average number of common shares and common share equivalents outstanding. For the three month period ended September 30, 1997, the Company had 22,856,000 weighted average common shares outstanding consisting of 22,409,000 weighted average common shares and 447,000 weighted average common share equivalents issuable pursuant to the Company's stock option plans. For the three month period ended September 30, 1996, the Company had 26,084,000 weighted average common shares outstanding consisting of 25,614,000 weighted average common shares and 470,000 weighted average common share equivalents issuable pursuant to the Company's stock option plans. For the nine months ended September 30, 1997, the Company had 23,137,000 weighted average common shares outstanding, consisting of 22,704,000 weighted average common shares and 433,000 weighted average common share equivalents issuable pursuant to the Company's stock option plans. For the nine months ended September 30, 1996, the Company had 26,082,000 weighted average common shares outstanding, consisting of 25,609,000 weighted average common shares and 473,000 weighted average common share equivalents issuable pursuant to the Company's stock option plans. Total Common Shares outstanding as at September 30, 1997 and 1996 were 22,447,110 and 25,615,977, respectively. 3. The Board of Directors of the Company declared, and the Company paid, dividends of $.25 per share to shareholders of record on each of August 20, May 22, and February 19, 1997. On October 22, 1997, the Board of Directors of the Company declared a dividend of $.25 per share payable on December 5, 1997 to shareholders of record on November 20, 1997. 4. During the third quarter of 1997, the Company executed the First Amendment to the Third Amended and Restated Credit Agreement dated as of December 12, 1996 (the "Credit Facility"). The amendments became effective on September 8, 1997, except for the amendments relating to invested assets which were effective on June 30, 1997. The Credit Facility was amended to a) extend the termination date from December 1, 1999 to December 1, 2001, b) specifically define the Capital Securities as a component of Net 6
Worth, c) amend the definition of invested assets and the covenants related to invested assets, d) amend certain restrictions regarding acquisitions and e) amend certain fee schedules. 5. During the third quarter of 1997 the Company increased its ownership of Glencoe through the purchase of an additional 9.9 percent interest in Glencoe. The Company paid $5.2 million for the additional shares in Glencoe and increased its ownership from 70.1 percent to 80 percent. 6. On June 23, 1997 the Company completed a secondary offering of 3.4 million common shares at $38.00 per share. All shares sold were owned by the Company's founding institutional shareholders or their successors, and the Company did not receive any of the proceeds of the offering. Concurrent with the secondary offering on June 23, 1997, the Company also purchased, for cancellation, an aggregate of 700,000 common shares at $36.29 per share or an aggregate purchase price of $25.4 million from the Company's founding institutional shareholders or their successors (the "Company Purchase"). Expenses of $700,000 related to the offerings were charged to additional paid in capital during the second quarter of 1997. 7. On March 7, 1997 the Company completed the sale of $100 million of "Company Obligated, Mandatorily Redeemable Capital Securities of a Subsidiary Trust holding solely $103,092,783.51 of the Company's 8.54% Junior Subordinated Debentures due March 1, 2027" ("Capital Securities") issued by RenaissanceRe Capital Trust (the "Trust"), a newly created subsidiary business trust of the Company. The Capital Securities pay cumulative cash distributions at an annual rate of 8.54 percent, payable semi-annually commencing September 1, 1997. Proceeds from the offering were used to repay a portion of the Company's outstanding indebtedness. Effective September 11, 1997 the Trust exchanged the Capital Securities for substantially the same securities registered under the Securities Act of 1933, as amended. The Trust is a wholly owned subsidiary of the Company. The financial statements of the Trust are consolidated into the Company's consolidated financial statements, and the Capital Securities and the related accrued dividends are reflected in the financial statements as a minority interest. 8. In January 1997, the Company completed a fixed price tender offer and repurchased and cancelled 813,190 Common Shares from its public shareholders at $34.50 per share, or an aggregate purchase price of $28.1 million (the "Tender Offer"). 9. Interest paid was $3.1 million for the nine months ended September 30, 1997 and $4.2 million for the same period in the previous year. On September 1, 1997 the Company paid $4.1 million of dividends on the Capital Securities. 10. During 1997 the Company renegotiated and extended employment agreements with certain key employees. 11. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings per Share. SFAS No. 128 simplifies the standards for computing earnings per share ("EPS") previously found in APB Opinion No. 15, Earnings per Share. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. Management does not believe this new pronouncement will materially affect the Company's current disclosures as the Company's capital structure is not considered complex nor is there significant dilution from other securities or other contracts to issue 7
common stock. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods and requires restatement of all prior-period EPS data presented. Earlier application is not permitted. If SFAS No. 128 had been effective for the current reporting period, the pro forma affects would be as follows: <TABLE> <CAPTION> Three Months Ended September 30, - -------------------------------- 1997 1996 ---- ---- <S> <C> <C> Basic EPS $1.58 $1.42 Diluted EPS $1.55 $1.40 Nine Months Ended September 30, - -------------------------------- 1997 1996 ---- ---- Basic EPS $4.75 $4.49 Diluted EPS $4.66 $4.41 Year Ended December 31, - ----------------------- 1996 1995 ---- ---- Basic EPS $6.12 $6.84 Diluted EPS $6.01 $6.75 </TABLE> In June 1997 the Financial Accounting Standards Board issued SFAS 130 and SFAS 131. SFAS 130 establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. This statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. The Company is presently considering its disclosure alternatives. SFAS 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 is effective for financial periods beginning after December 15, 1997. The Company is presently considering its disclosure alternatives. 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the quarter ended September 30, 1997 compared to the quarter ended September 30, 1996 For the quarter ended September 30, 1997, net income was $35.4 million or $1.55 per share, compared to $36.5 million or $1.40 per share for the same quarter in 1996. The decrease in reported net income was primarily related to lower net premiums earned, resulting from lower in force gross premiums as well as increased ceded reinsurance premiums resulting from the expansion of the Company's ceded retrocessional programs, offset by lower claims and claim expenses attributable to a light Atlantic hurricane season. Per share amounts for 1997 benefited from a lower number of common shares outstanding as a result of the Company's purchase of 3.6 million common shares since December 13, 1996. Gross premiums written for the third quarter of 1997 declined 17.9 percent to $60.4 million, and included $2.6 million of premiums written by Glencoe. Gross premiums written for the same period in 1996 were $73.6 million. The decline in gross premiums written was primarily related to the Company's decision not to renew certain contracts due to the competitive market for property catastrophe reinsurance as well as lower overall pricing on reinsurance contracts. The 17.9 percent premium decrease was the result of a 13.3 percent decrease in premiums due to the Company not renewing coverage and a 11.1 percent decrease related to changes in pricing, participation levels and coverage on renewed business, partially offset by a 6.5 percent increase in premiums related to new business. Net premiums written for the third quarter of 1997 were $46.7 million compared to $65.2 million for the third quarter of 1996. Net premiums earned for the third quarter of 1997 were $53.0 million, compared to $63.5 million for the same quarter of 1996, a decrease of 16.5 percent. Total revenues for the third quarter of 1997 decreased to $66.3 million from $75.7 million reported for the same quarter of 1996. During 1997, consistent with its risk diversification and risk management practices and the availability of coverage responsive to the Company's risk profile, the Company increased the level of property catastrophe reinsurance coverage purchased for its own account. During the third quarter of 1997, ceded premiums written were $13.7 million compared to $8.4 million for the same quarter in 1996. The table below sets forth the Company's combined ratio and components thereof for the quarters ended September 30, 1997 and 1996: <TABLE> <CAPTION> Quarters Ended September 30, ---------------------------- 1997 1996 ---- ---- <S> <C> <C> Loss ratio 27.7% 41.5% Expense ratio 24.1% 17.4% - -------------------------------------------------------------------------------- Combined ratio 51.8% 58.9% ================================================================================ </TABLE> Claims and claim expenses incurred for the quarter ended September 30, 1997 were $14.7 million or 27.7 percent of net premiums earned. In comparison, claims and claim expenses incurred for the quarter ended September 30, 1996 were $26.3 million 9
or 41.5 percent of net premiums earned, and included a provision of $15 million for Hurricane Fran. Underwriting expenses are comprised of acquisition expenses and operational expenses. Acquisition expenses were $6.7 million for the quarter ended September 30, 1997 compared to $6.6 million for the same quarter in 1996. The increase in acquisition costs as a percentage of net premiums earned is primarily related to the increase in reinsurance purchased, which provides no reduction in the associated acquisition expenses, and an increase in premiums written by Glencoe, which have a higher ratio of acquisition costs. Operating expenses for the third quarter of 1997 increased to $6.1 million compared with $4.5 million for the same quarter of 1996 as a result of increased staffing at Renaissance Reinsurance, the development of Glencoe and the Company's continuing investment in modeling technology. Net investment income (excluding net realized and unrealized investment gains and losses) was $12.7 million for the quarter ended September 30, 1997 compared to $12.6 million for the same period in 1996. During the quarter ended September 30, 1997, the Company accrued $2.1 million for dividends related to the Capital Securities that were issued in March 1997. Interest expense for the quarter ended September 30, 1997 decreased to $.8 million from $1.5 million for the same period in 1996 as a result of a decreased amount outstanding under the Company's Revolving Credit Facility. For the nine months ended September 30, 1997 compared to the nine months ended September 30, 1996 For the nine months ended September 30, 1997, net income available to common shareholders was $107.9 million or $4.66 per share, compared to $114.9 million or $4.41 per share for the same period in 1996. The decrease in reported net income was primarily related to lower net premiums earned, resulting from lower in force gross premiums as well as higher ceded reinsurance premiums, partially offset by lower claims and claim expenses incurred. Per share amounts for 1997 benefited from a lower number of common shares outstanding as a result of the Company's purchase of 3.6 million common shares since December 13, 1996. Gross premiums written for the first nine months of 1997 declined 14.8 percent to $215.6 million, and included $5.2 million of premiums written by Glencoe. Gross premiums written for the same period in 1996 were $253.2 million. The decline in gross premiums written was primarily related to the Company's decision not to renew certain contracts due to the competitive market for property catastrophe reinsurance as well as lower overall pricing on reinsurance contracts. The premium decrease of 14.8 percent was the result of a 17.6 percent decrease in premiums due to the Company not renewing coverage and a 8.4 percent decrease related to changes in pricing, participation level and coverage on renewed business, partially offset by a 11.2 percent increase in premiums related to new business. During 1997, consistent with its risk diversification and risk management practices and the availability of coverage responsive to the Company's risk profile, the Company increased the level of property catastrophe reinsurance coverage purchased for its own account. During the first nine months of 1997, ceded premiums written were $30.6 million compared to $16.5 million for the same period in 1996. Net premiums written for the first nine months of 1997 were $185.0 million compared with $236.6 million for the same period in 1996. Net premiums earned for first nine 10
months of 1997 were $160.4 million, compared to $187.2 million for the same period in 1996, a decrease of 14.2 percent. Total revenues for the first nine months of 1997 decreased to $196.8 million from $216.9 million reported for the same period in 1996. The table below sets forth the Company's combined ratio and components thereof for the nine months ended September 30, 1997 and 1996: <TABLE> <CAPTION> Nine Months Ended September 30, 1997 1996 ---- ---- <S> <C> <C> Loss ratio 25.0% 35.1% Expense ratio 23.1% 16.3% - -------------------------------------------------------------------------------- Combined ratio 48.1% 51.4% ================================================================================ </TABLE> Claims and claim expenses incurred for the nine months ended September 30, 1997 were $40.0 million or 25.0 percent of net premiums earned. In comparison, claims and claim expenses incurred for the nine months ended September 30, 1996 were $65.6 million or 35.1 percent of net premiums earned. Underwriting expenses are comprised of acquisition expenses and operational expenses. Acquisition expenses were $19.0 million for the nine months ended September 30, 1997 and 1996. The increase in acquisition costs as a percentage of net premiums earned is primarily related to the increase in reinsurance purchased, which provides no reduction in the associated acquisition expenses, and an increase in premiums written by Glencoe, which have a higher ratio of acquisition costs. Operating expenses for the first nine months of 1997 increased to $18.1 million compared with $11.6 million for the same period in 1996 as a result of increased staffing at Renaissance Reinsurance, the continued development of Glencoe and the Company's continuing investment in modeling technology. Corporate expenses for the first nine months of 1997 were $2.9 million and included one-time fees of $1.5 million related to the issuance of the $100 million of Capital Securities in March of 1997. Net investment income (excluding net realized and unrealized investment gains and losses) was $37.0 million for the nine months ended September 30, 1997 compared to $32.9 million for the same period in 1996. The increase in net investment income for the first nine months of 1997 was the result of higher average invested assets, primarily related to cash provided by operations, which was partially offset by amounts used to purchase common stock. During the nine months ended September 30, 1997, the Company accrued $4.8 million for dividends related to the Capital Securities that were issued in March 1997. Interest expense for the nine months ended September 30, 1997 decreased to $3.5 million from $4.2 million for the same period in 1996 as a result of a decreased amount outstanding under the Company's Revolving Credit Facility. RECENT DEVELOPMENTS On October 20, 1997, the Company announced that it intends to file a registration statement with the Securities and Exchange Commission for the sale of up to 4,600,000 common shares (including up to 600,000 shares solely to cover overallotment options) in an underwritten secondary offering, subject to market and other customary conditions, at the request of the Company's initial institutional investors. All of the shares to be sold in 11
the offering will be sold by the Company's initial institutional investors or their successors, and the Company will not receive any of the proceeds of the offering. The Company expects to incur approximately $600,000 in expenses related to the offering, which will be charged to additional paid in capital. LIQUIDITY AND CAPITAL RESOURCES As a holding company, the Company relies on cash dividends and other permitted payments from its subsidiaries to make principal payments, interest payments and cash distributions on outstanding obligations and pay dividends, if any, to the Company's shareholders. The payment of dividends by the Company's subsidiaries to the Company is, under certain circumstances, limited under Bermuda insurance law. The Bermuda Insurance Act of 1978, amendments thereto and related regulations of Bermuda, require the Company's subsidiaries to maintain a minimum solvency margin and a minimum liquidity ratio. Presently, restrictions on the payment of dividends by the Company's subsidiaries to the Company are not material relative to the capital of the subsidiaries. The Company anticipates that the primary insurance operations of Glencoe, combined with other primary insurance opportunities, may become an increasingly important element of the Company over time. The growth of the Company's primary insurance business may require additional capital, either to support organic growth of the business or possible acquisitions. The Company currently believes that internally generated capital will be sufficient to support this business, but external financing may be needed to facilitate a substantial strategic acquisition or significant growth of this business. The Company periodically reviews strategic acquisition opportunities and from time to time engages in discussions regarding possible acquisitions. Any future acquisitions by the Company could result in, among other things, the incurrence of additional debt and/or amortization of expenses related to goodwill and intangible assets that could adversely affect the Company's liquidity and/or profitability. However, the Company has not presently entered into any definitive agreements with respect to future acquisitions and there can be no assurance that it will do so in the future. Cash flows from operating activities resulted principally from premium and investment income, net of paid losses, acquisition costs and other related expenses. Because of the high severity and low frequency of the coverages written by the Company and the seasonality of the Company's business, it is not possible to accurately predict the future cash flows from operating activities. As a consequence, cash flows from operating activities may fluctuate between individual quarters and years. Neither the Company nor its subsidiaries have material commitments for capital expenditures. Based on its current operating plans, the Company believes that its liquidity will be adequate in both the short and long term. On June 23, 1997 the Company completed a secondary offering of 3.4 million common 12
shares at $38.00 per share. All shares sold were owned by the Company's founding institutional shareholders or their successors, and the Company did not receive any of the proceeds of the offering. Concurrent with the secondary offering on June 23, 1997, the Company also purchased, for cancellation, an aggregate of 700,000 common shares at $36.29 per share or an aggregate purchase price of $25.4 million from the Company's founding institutional shareholders or their successors. Expenses of $700,000 related to the offerings were charged to additional paid in capital during the second quarter of 1997. On March 7, 1997 the Company completed the sale of $100 million of Capital Securities issued by RenaissanceRe Capital Trust (the Trust), a newly created subsidiary business trust of the Company. The Capital Securities pay cumulative cash distributions at an annual rate of 8.54 percent, payable semi-annually commencing September 1, 1997. Proceeds from the offering were used to repay a portion of the Company's outstanding indebtedness. In January 1997, the Company repurchased and cancelled 813,190 Common Shares for a total value of $28.1 million through the completion of the Company's Tender Offer. During 1997 the Company allocated $50.0 million of its fixed maturity investments towards the purchase of non-U.S. equity securities. At September 30, 1997, the Company's investments in equity securities had a fair value of $55.5 million and an unrealized gain position of $6.4 million. The Company's investment portfolio had a fair value of $857.7 million at September 30, 1997 and consisted of fixed maturity investments of $678.4 million, equity security investments of $55.5 million, and cash and cash equivalents of $123.8 million. At September 30, 1997, the fixed maturity investment portfolio had an average rating of AA as measured by Standard & Poor's Ratings Group, an average duration of 2.3 years and an average yield to maturity of 6.6 percent before investment expenses. The Company's equity securities and its investment in cash and cash equivalents include $55.1 million and $16.9 million of investments denominated in currencies other than the U.S. Dollar, respectively, representing approximately 8.4 percent of total invested assets. The remaining 91.6 percent of the Company's invested assets are invested in U.S. Dollar denominated investments. The portfolio does not contain any direct investments in real estate or mortgage loans. The Company believes that its readily marketable portfolio of investments and available credit line will provide it with adequate liquidity to fund its operating cash needs. 13
Part II -- OTHER INFORMATION Item 1 -- Legal Proceedings None. Item 2 -- Changes in Securities None Item 3 -- Defaults Upon Senior Securities None Item 4 -- Submission of Matters to a Vote of Security Holders None Item 5 -- Other Information None Item 6 -- Exhibits and Reports on Form 8-K a. Exhibits: Exhibit 10 -- Material Contracts 10.1 Guaranty, dated as of June 23, 1997, between RenaissanceRe Holdings Ltd. and Bank of America National Illinois 10.2 First Amendment Agreement, dated as of September 8, 1997 to the Third Amended and Restated Credit Agreement, dated as of December 12, 1996. 10.3 Employment Agreement, dated as of June 23, 1997 between Renaissance Reinsurance Ltd. And James N. Stanard 10.4 Form of Employment Agreement, dated as of May 27, 1997 between Renaissance Reinsurance Ltd. And Keith S. Hynes* * - A substantially similar Form of Employment Agreement has been entered into by Renaissance Reinsurance and each of Messrs. Riker & Eklund. Exhibit 27.1 -- Financial Data Schedule b. Current Reports on Form 8-K: The Registrant filed a Current Report on Form 8-K on July 11, 1997. 14
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. RENAISSANCERE HOLDINGS LTD. Date: October 22, 1997 By: /s/ John M. Lummis ------------------------------- John M. Lummis Senior Vice President and Chief Financial Officer 15