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Acquisition of Platinum | 6 Months Ended
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Jun. 30, 2015
Business Combinations [Abstract] |
Acquisition of Platinum | ACQUISITION OF PLATINUM Overview On March 2, 2015, RenaissanceRe acquired 100% of the outstanding common shares of Platinum for $76 per Platinum common share, or aggregate consideration of $1.93 billion. In connection with an intercompany restructuring, effective July 1, 2015, Platinum was merged with RenaissanceRe, with RenaissanceRe continuing as the surviving company. Prior to the closing of the acquisition of Platinum, Platinum was a publicly traded company listed on the New York Stock Exchange and headquartered in Bermuda. Platinum, through its wholly owned subsidiaries, provided property and casualty reinsurance coverage through reinsurance brokers to insurers and select reinsurers on a worldwide basis. The acquisition of Platinum is expected to benefit the combined companies’ clients through an expanded product offering and enhanced broker relationships and it is also expected to accelerate the growth of the Company’s U.S. specialty and casualty reinsurance platform. The aggregate consideration for the transaction consisted of the issuance of 7.435 million RenaissanceRe common shares valued at $761.8 million (based on the share price as of March 2, 2015) and $1.16 billion of cash. The cash consideration was partially funded through a pre-closing dividend from Platinum of $10.00 per share, or $253.2 million (the “Special Dividend”), RenaissanceRe available funds of $604.4 million and a short term bridge loan of $300.0 million. On March 24, 2015, RenaissanceRe Finance Inc. (“RenaissanceRe Finance”), a wholly owned subsidiary of RenaissanceRe, issued $300.0 million of its 3.700% Senior Notes due 2025 (together with cash on hand) to replace the short term bridge loan used to fund part of the cash consideration. Refer to “Note 7. Debt and Credit Facilities” for additional information related to the 3.700% Senior Notes due 2025. In connection with the acquisition of Platinum, RenaissanceRe incurred transaction-related expenses of $48.2 million in the six months ended June 30, 2015, which includes $12.5 million related to transaction costs, including due diligence, legal, accounting and investment banking fees and expenses, $3.7 million of costs related to the integration of Platinum within the RenaissanceRe organization, and $32.0 million of compensation-related costs associated with terminating employees of Platinum. In the fourth quarter of 2014, RenaissanceRe also incurred $6.7 million of transaction-related expenses. These expenses have all been reported as a component of corporate expenses. Purchase Price The Company's total purchase price for Platinum at March 2, 2015 was calculated as follows:
| Special Dividend |  |  |  |
| Number of Platinum common shares and Platinum equity awards canceled in the acquisition of Platinum | 25,320,312 |  |  |  |
| Special Dividend per outstanding common share of Platinum and Platinum equity award | $ | 10.00 |  |  |  |
| Special Dividend paid to common shareholders of Platinum and holders of Platinum equity awards |  |  | $ | 253,203 |  |
| RenaissanceRe common shares |  |  |  |
| Common shares issued by RenaissanceRe | 7,434,561 |  |  |  |
| Common share price of RenaissanceRe as of March 2, 2015 | $ | 102.47 |  |  |  |
| Market value of RenaissanceRe common shares issued by RenaissanceRe to common shareholders of Platinum and holders of Platinum equity awards |  |  | 761,819 |  |
| Platinum common shares |  |  |  |
| Fair value of Platinum common shares owned by RenaissanceRe and canceled in connection with the acquisition of Platinum |  |  | 12,950 |  |
| Cash consideration |  |  |  |
| Number of Platinum common shares and Platinum equity awards canceled in the acquisition of Platinum | 25,320,312 |  |  |  |
| Platinum common shares owned by RenaissanceRe and canceled in connection with the acquisition of Platinum | (169,220 | ) |  |  |
| Number of Platinum common shares and Platinum equity awards canceled in the acquisition of Platinum excluding those owned by RenaissanceRe and canceled in connection with the acquisition of Platinum | 25,151,092 |  |  |  |
| Agreed cash price paid to common shareholders of Platinum and holders of Platinum equity awards | $ | 35.96 |  |  |  |
| Cash consideration paid by RenaissanceRe to common shareholders of Platinum and holders of Platinum equity awards |  |  | 904,433 |  |
| Total purchase price |  |  | 1,932,405 |  |
| Less: Special Dividend paid by Platinum |  |  | (253,203 | ) |
| Net purchase price |  |  | $ | 1,679,202 |  |
Fair Value of Net Assets Acquired and Liabilities Assumed The purchase price was allocated to the acquired assets and liabilities of Platinum based on estimated fair values on March 2, 2015, the date the transaction closed, as detailed below. The Company recognized goodwill of $191.7 million primarily attributable to Platinum’s assembled workforce and synergies expected to result upon integration of Platinum into the Company’s operations. There were no other adjustments to carried goodwill during the period ended June 30, 2015 reflected on the Company’s consolidated balance sheet at June 30, 2015. The Company recognized identifiable finite lived intangible assets of $75.2 million, which will be amortized over a weighted average period of 8 years, identifiable indefinite lived intangible assets of $8.4 million, and certain other adjustments to the fair values of the assets acquired, liabilities assumed and shareholders’ equity of Platinum at March 2, 2015 as summarized in the table below:
| Shareholders’ equity of Platinum prior to Special Dividend |  |  | $ | 1,737,278 |  |
| Cash and cash equivalents (Special Dividend on Platinum common shares and Platinum equity awards) |  |  | (253,203 | ) |
| Adjusted shareholders’ equity of Platinum at March 2, 2015 |  |  | 1,484,075 |  |
| Adjustments for fair value, by applicable balance sheet caption: |  |  |  |
| Deferred acquisition costs |  |  | (44,486 | ) |
| Debt |  |  | (28,899 | ) |
| Reserve for claims and claim expenses |  |  | (21,725 | ) |
| Other assets - deferred debt issuance costs |  |  | (1,046 | ) |
| Total adjustments for fair value by applicable balance sheet caption before tax impact |  |  | (96,156 | ) |
| Other assets - net deferred tax asset related to fair value adjustments |  |  | 29,069 |  |
| Total adjustments for fair value by applicable balance sheet caption |  |  | (67,087 | ) |
| Adjustments for fair value of the identifiable intangible assets: |  |  |  |
| Identifiable indefinite lived intangible assets (insurance licenses) |  |  | 8,400 |  |
| Identifiable finite lived intangible assets (non-contractual relationships, renewal rights, value of business acquired, trade name, internally developed and used computer software and covenants not to compete) |  |  | 75,200 |  |
| Identifiable intangible assets before tax impact |  |  | 83,600 |  |
| Other liabilities - deferred tax liability on identifiable intangible assets |  |  | (13,115 | ) |
| Total adjustments for fair value of the identifiable intangible assets |  |  | 70,485 |  |
| Total adjustments for fair value by applicable balance sheet caption and identifiable intangible assets |  |  | 3,398 |  |
| Shareholders’ equity of Platinum at fair value |  |  | 1,487,473 |  |
| Total net purchase price paid by RenaissanceRe |  |  | 1,679,202 |  |
| Excess purchase price over the fair value of net assets acquired assigned to goodwill |  |  | $ | 191,729 |  |
An explanation of the significant fair value adjustments is as follows:
• | Deferred acquisition costs - to eliminate Platinum’s deferred acquisition costs;
• | Debt - to reflect Platinum’s existing senior notes at fair value using indicative market pricing obtained from third-party service providers;
• | Reserve for claims and claim expenses - to reflect an increase in net claims and claim expenses due to the addition of a market based risk margin which represents the cost of capital required by a market participant to assume the net claims and claim expenses of Platinum, partially offset by a deduction which represents the discount due to the present value calculation of the unpaid claims and claim expenses based on the expected payout of the net unpaid claims and claim expenses;
• | Other assets - to eliminate deferred debt issuance costs related to Platinum’s existing senior notes and to reflect net deferred tax assets related to fair value adjustments;
• | Identifiable indefinite lived and finite lived intangible assets - to establish the fair value of identifiable intangible assets related to the acquisition of Platinum described in detail below; and
• | Other liabilities - to reflect the deferred tax liability on identifiable intangible assets.
Identifiable intangible assets at March 2, 2015 and at June 30, 2015, consisted of the following, and are included in goodwill and other intangible assets on the Company’s consolidated balance sheet:
|  | Amount |  | Economic Useful Life |
| Key non-contractual relationships | $ | 30,400 |  |  | 10 years |
| Value of business acquired | 20,200 |  |  | 2 years |
| Renewal rights | 15,800 |  |  | 15 years |
| Insurance licenses | 8,400 |  |  | Indefinite |
| Internally developed and used computer software | 3,500 |  |  | 2 years |
| Other non-contractual relationships | 2,300 |  |  | 3 years |
| Non-compete agreements | 1,900 |  |  | 2.5 years |
| Trade name | 1,100 |  |  | 6 months |
| Identifiable intangible assets, before amortization, at March 2, 2015 | 83,600 |  |  |  |
| Amortization (from March 2, 2015 through June 30, 2015) | (7,385 | ) |  |  |
| Net identifiable intangible assets at June 30, 2015 related to the acquisition of Platinum | $ | 76,215 |  |  |  |
An explanation of the identifiable intangible assets is as follows:
• | Key non-contractual relationships - these relationships included Platinum’s top four brokers (Aon plc, Marsh & McLennan Companies, Inc., Willis Group Holdings plc. and Jardine Lloyd Thompson Group plc.) and consideration was given to the expectation of the renewal of these relationships and the associated expenses;
• | Value of business acquired (“VOBA”) - the expected future losses and expenses associated with the policies that were in-force as of the closing date of the transaction were estimated and compared to the future premium remaining expected to be earned. The difference between the risk-adjusted future loss and expenses, discounted to present value and the unearned premium reserve, was estimated to be the VOBA;
• | Renewal rights - the value of policy renewal rights taking into consideration written premium on assumed retention ratios and the insurance cash flows and the associated equity cash flows from these renewal policies over the expected life of the renewals;
• | Insurance licenses - the value of insurance licenses acquired providing the ability to write reinsurance in all 50 states of the U.S. and the District of Columbia;
• | Internally developed and used computer software - represents the value of internally developed and used computer software to be utilized by the Company;
• | Other non-contractual relationships - these relationships consisted of Platinum’s brokers with the exception of those previously listed above as key non-contractual relationships and consideration was given to the expectation of the renewal of these relationships and the associated expenses;
• | Non-compete agreements - represent non-compete agreements with key employees of Platinum; and
• | Trade name - represents the value of the Platinum brand acquired.
As part of the allocation of the purchase price, included in the adjustment to other assets in the table above is a deferred tax asset of $29.1 million related to certain other adjustments to the fair values of the assets acquired, liabilities assumed and shareholders’ equity, summarized in the table above, which was partially offset by a deferred tax liability of $13.1 million related to the estimated fair value of the intangible assets recorded. Other net deferred tax assets recorded primarily relate to differences between financial reporting and tax bases of the acquired assets and liabilities as of the acquisition date, March 2, 2015. The Company estimates that none of the goodwill that was recorded will be deductible for income tax purposes. Financial Results The following table summarizes the results of Platinum since March 2, 2015 that have been included in the Company's consolidated statements of operations and comprehensive income.
|  | Three months ended June 30, 2015 |  | Six months ended June 30, 2015 |
| Total revenues | $ | 106,691 |  |  | $ | 146,830 |  |
| Net loss attributable to RenaissanceRe common shareholders (1) | $ | 5,004 |  |  | $ | (14,435 | ) |
(1) | Includes $5.8 million and $34.2 million of transaction, integration and compensation-related costs associated with the acquisition of Platinum for the three and six months ended June 30, 2015, respectively.
Taxation During the six months ended June 30, 2015, the income tax benefit recorded by the Company was primarily the result of a reduction in the Company’s U.S. deferred tax asset valuation allowance of $47.4 million. A valuation allowance was previously provided against the Company’s U.S. deferred tax assets as in the opinion of management, it was then more likely than not that a portion of the deferred tax asset would not be realized. However, with the acquisition of Platinum and the expected profits in its U.S.-based operations, the Company believes that it is more likely than not that the U.S. deferred tax asset will be realized and has reduced its valuation allowance against such asset. A valuation allowance continues to be provided against deferred tax assets in Ireland, the U.K., and Singapore. These deferred tax assets relate primarily to net operating loss carryforwards and deferred underwriting results. Supplemental Pro Forma Information Platinum’s results have been included in the Company's consolidated financial statements from March 2, 2015 to June 30, 2015. The following table presents unaudited pro forma consolidated financial information for the three and six months ended June 30, 2015 and 2014 and assumes the acquisition of Platinum occurred on January 1, 2014. The unaudited pro forma consolidated financial information is provided for informational purposes only and is not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of January 1, 2014 or that may be achieved in the future. The unaudited pro forma consolidated financial information does not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies or asset dispositions that may result from the acquisition of Platinum. In addition, unaudited pro forma consolidated financial information does not include the effects of costs associated with any restructuring or integration activities resulting from the acquisition of Platinum, as they are nonrecurring.
|  | Three months ended |  | Six months ended |
|  | June 30, 2015 |  | June 30, 2014 |  | June 30, 2015 |  | June 30, 2014 |
| Total revenues | $ | 397,567 |  |  | $ | 488,999 |  |  | $ | 858,120 |  |  | $ | 1,003,016 |  |
| Net income available to RenaissanceRe common shareholders | 73,233 |  |  | 174,678 |  |  | 256,039 |  |  | 373,772 |  |
Among other adjustments, and in addition to the fair value adjustments and recognition of goodwill and identifiable intangible assets noted above, other material nonrecurring pro forma adjustments directly attributable to the acquisition of Platinum principally included certain adjustments to recognize transaction related costs, align accounting policies, amortize fair value adjustments, amortize identifiable indefinite lived intangible assets and recognize related tax impacts.

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