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Acquisition of Tokio Millennium Re | 12 Months Ended
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Dec. 31, 2020
Business Combinations [Abstract] |
Acquisition of Tokio Millennium Re | ACQUISITION OF TOKIO MILLENNIUM RE Overview The aggregate consideration for the TMR Stock Purchase, which closed on March 22, 2019, was $1.6 billion, consisting of cash, RenaissanceRe common shares and a special dividend from TMR, as described in more detail below. The aggregate consideration paid at closing for the TMR Stock Purchase was based on the closing tangible book value of TMR, subject to a post-closing adjustment under the terms of the TMR Stock Purchase Agreement. The parties determined that no closing adjustment was required. In connection with the closing of the TMR Stock Purchase, Tokio, RREAG and RenaissanceRe UK entered into a reserve development agreement whereby RREAG and RenaissanceRe UK agreed to cede to Tokio, and Tokio agreed to indemnify and reimburse RREAG and RenaissanceRe UK for, substantially all of RREAG and RenaissanceRe UK’s adverse development on stated reserves at time of the closing, including unearned premium reserves, subject to certain terms and conditions. The reserve development agreement provides the Company with indemnification on stated reserves, including unearned premium reserves, for RREAG and RenaissanceRe UK, on a whole-account basis, and takes into consideration adverse performance across the Company’s reportable segments. To the extent the combined performance of acquired reserves for claims and claim expenses or unearned premiums is worse than expected on an aggregate basis across reportable segments, the Company is indemnified under the terms of the reserve development agreement and would expect to collect under the reserve development agreement. At closing, RREAG and Tokio entered into a retrocessional agreement pursuant to which RREAG ceded to Tokio all of its liabilities arising from certain stop loss reinsurance contracts RREAG entered into with third-party capital partners which were either in force as of the closing date or which incept prior to December 31, 2021. The Company recorded $9.1 million of corporate expenses associated with the acquisition of TMR during 2020 (2019 - $49.7 million). Included in these expenses are compensation, transaction and integration-related costs. Purchase Price The Company's total purchase price for TMR was calculated as follows:
| Special Dividend |  |  |  |
| Special Dividend paid to common shareholders of Tokio and holders of Tokio equity awards |  |  | $ | 500,000 |  |
| RenaissanceRe Common Shares |  |  |  |
| Common shares issued by RenaissanceRe to Tokio | 1,739,071 |  |  |  |
| Common share price of RenaissanceRe (1) | $ | 143.75 |  |  |  |
| Market value of RenaissanceRe common shares issued by RenaissanceRe to Tokio |  |  | 249,998 |  |
| Cash Consideration |  |  |  |
| Cash consideration paid by RenaissanceRe as acquisition consideration |  |  | 813,595 |  |
| Total purchase price |  |  | 1,563,593 |  |
| Less: Special Dividend paid to Tokio |  |  | (500,000) |  |
| Net purchase price |  |  | $ | 1,063,593 |  |
(1) RenaissanceRe common share price was based on the 30-day trailing volume weighted average price of $143.7539 as of market close on March 15, 2019, which approximates fair value. Fair Value of Net Assets Acquired and Liabilities Assumed The purchase price was allocated to the acquired assets and liabilities of the Company based on estimated fair values on March 22, 2019, the date the transaction closed, as detailed below. During the quarter ended March 31, 2019, the Company recognized goodwill of $13.1 million, based on foreign exchange rates on March 22, 2019, attributable to the excess of the purchase price over the fair value of the net assets of TMR. The Company recognized identifiable finite lived intangible assets of $11.2 million, which will be amortized over a weighted average period of 10.5 years, identifiable indefinite lived intangible assets of $6.8 million, and certain other adjustments to the fair values of the assets acquired, liabilities assumed and shareholders’ equity of TMR at March 22, 2019, based on foreign exchange rates on March 22, 2019, as summarized in the table below:
| Shareholders’ equity of TMR at March 22, 2019 | $ | 1,032,961 |  |
| Adjustments for fair value, by applicable balance sheet caption: |  |
| Net deferred acquisition costs and value of business acquired | (56,788) |  |
| Net reserve for claims and claim expenses | 67,782 |  |
| Goodwill and intangible assets at March 22, 2019 of TMR | (6,569) |  |
| Total adjustments for fair value by applicable balance sheet caption before tax impact | 4,425 |  |
| Other assets - net deferred tax liability related to fair value adjustments and value of business acquired | (2,606) |  |
| Total adjustments for fair value by applicable balance sheet caption, net of tax | 1,819 |  |
| Adjustments for fair value of the identifiable intangible assets: |  |
| Identifiable indefinite lived intangible assets (insurance licenses) | 6,800 |  |
| Identifiable finite lived intangible assets (top broker relationships and renewal rights) | 11,200 |  |
| Identifiable intangible assets before tax impact | 18,000 |  |
| Other assets - deferred tax liability on identifiable intangible assets | (2,281) |  |
| Total adjustments for fair value of the identifiable intangible assets and value of business acquired, net of tax | 15,719 |  |
| Total adjustments for fair value by applicable balance sheet caption, identifiable intangible assets and value of business acquired, net of tax | 17,538 |  |
| Shareholders’ equity of TMR at fair value | 1,050,499 |  |
| Total net purchase price paid by RenaissanceRe | 1,063,593 |  |
| Excess purchase price over the fair value of net assets acquired assigned to goodwill | $ | 13,094 |  |
An explanation of the significant fair value adjustments and related future amortization is as follows: •Net deferred acquisition costs and VOBA - to reflect the elimination of TMR’s net deferred acquisition costs, partially offset by the establishment of the value of business acquired asset, which represents the present value of the expected underwriting profit within the unearned premiums liability, net of reinsurance, less costs to service the related policies and a risk premium. The adjustment for VOBA will be amortized to acquisition expenses over approximately two years, as the contracts for business in-force as of the acquisition date expire. VOBA at March 22, 2019 was $287.6 million; •Reserve for claims and claim expenses - to reflect a decrease related to the present value of the net unpaid claims and claim expenses based on the estimated payout pattern, partially offset by an increase in net claims and claim expenses related to the estimated market based risk margin. The risk margin represents the estimated cost of capital required by a market participant to assume the net claims and claim expenses. This will be amortized using the projected discount and risk margin patterns of the net claims and claims expenses as of the acquisition date; •Identifiable indefinite lived and finite lived intangible assets - to establish the fair value of identifiable intangible assets related to the acquisition of TMR described in detail below; and •Other assets - to reflect the net deferred tax liability on identifiable intangible assets. Identifiable intangible assets consisted of the following and are included in goodwill and other intangible assets on the Company’s consolidated balance sheet:
|  | Amount |  | Economic Useful Life |
| Top broker relationships | $ | 10,000 |  |  | 10.0 years |
| Renewal rights | 1,200 |  |  | 15.0 years |
| Insurance licenses | 6,800 |  |  | Indefinite |
| Gross identifiable intangible assets related to the acquisition of TMR, at March 22, 2019 | 18,000 |  |  |  |
| Accumulated amortization (from March 22, 2019 through December 31, 2020), net of foreign exchange | 1,715 |  |  |  |
| Impairment loss on insurance licenses | 6,800 |  |  |  |
| Net identifiable intangible assets related to the acquisition of TMR at December 31, 2020 | $ | 9,485 |  |  |  |
An explanation of the identifiable intangible assets is as follows: •Top broker relationships - the value of TMR’s relationships with their top four brokers (Marsh & McLennan Companies, Inc., Aon plc, Willis Group Holdings Public Limited Company and Jardine Lloyd Thompson Group plc.) after taking into consideration the expectation of the renewal of these relationships and the associated expenses. These will be amortized on a straight-line basis over the economic useful life as of the acquisition date; •Renewal rights - the value of policy renewal rights after taking into consideration written premiums 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. These will be amortized on a straight-line basis over the economic useful life as of the acquisition date; and •Insurance licenses - the value of acquired insurance licenses, which provide the ability to write reinsurance in all 50 states of the U.S. and the District of Columbia. During the year ended December 31, 2020, the Company recorded an impairment of $6.8 million related to the insurance licenses. See “Note 4. Goodwill and Other Intangible Assets” in the Company’s “Notes to the Consolidated Financial Statements” for additional information. As part of the allocation of the purchase price, included in the adjustment to other assets in the table above is a deferred tax liability of $2.3 million related to the estimated fair value of the intangible assets recorded, as well as a net deferred tax liability of $2.6 million related to certain other adjustments to the fair values of the assets acquired, VOBA, liabilities assumed and shareholders’ equity. Other net deferred tax liabilities recorded primarily relate to differences between financial reporting and tax bases of the acquired assets and liabilities as of the acquisition date, March 22, 2019. 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 net contribution from the acquisition of TMR since March 22, 2019 that was included in the Company's consolidated statements of operations and comprehensive income for the year ended December 31, 2019. Operating activities of TMR from the acquisition date, March 22, 2019, through December 31, 2019 are included in the Company’s consolidated statements of operations for the year ended December 31, 2019. The unaudited net contribution of the acquisition and integration of TMR is provided for informational purposes only and is not necessarily, and should not be assumed to be, an indication of the results that may be achieved in the future. These results are not used as a part of management’s analysis of the financial performance of the Company’s business. These results primarily reflect items recorded directly by TMR through December 31, 2019, including: 1) net earned premium and net underwriting income on the in-force portfolio acquired with the acquisition of TMR and previously retained on TMR entities’ balance sheets; 2) net earned premium and net underwriting income for those contracts which renewed post-acquisition on one of the acquired TMR entities’ balance sheets; 3) net investment income and net realized and unrealized gains recorded directly by TMR; and 4) certain direct costs incurred directly by TMR. In addition, these results, where possible, were adjusted for transaction and integration related costs incurred by the Company. However, these results do not reflect on-going operating costs incurred by the Company in supporting TMR unless such costs were incurred directly by TMR. These results also do not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies or asset dispositions that may be achieved in the future. These results involve significant estimates and are not indicative of the future results of the acquired TMR entities which have been, and will continue to be impacted by potential changes in targeted business mix, investment management strategies, and synergies recognized from changes in the combined entity’s operating structure, as well as the impact of changes in other business and capital management strategies. Since the acquisition date, a growing number of underlying policies have been underwritten onto different legal entities, staffing has been allocated to new activities, and reinsurance has been purchased to cover combined risks, only some of which would have been reflected in the underlying legacy TMR results. As a result, for the year ended December 31, 2020, it is impracticable to produce summarized financial results, and any such information would not be indicative of the results of the acquired TMR entities, given the significant estimates involved and the nature and pace of the integration activities, which were substantially completed in 2019.
|  |  |  | Year ended December 31, 2019 (1) |
| Total revenues |  |  | $ | 922,727 |  |
| Net income available to RenaissanceRe common shareholders (2) |  |  | $ | 99,169 |  |
(1) Includes the net contribution from the acquisition of TMR since March 22, 2019 that has been included in the Company’s consolidated statements of operations and comprehensive income through December 31, 2019. (2) Includes $49.7 million of corporate expenses associated with the acquisition and integration of TMR for the year ended December 31, 2019. Taxation At the date of acquisition and in conjunction with the acquisition of TMR, the Company established a net deferred tax liability of $5.7 million and recorded a valuation allowance against TMR’s deferred tax assets of $35.7 million in its consolidated financial statements. A predominant amount of the valuation allowance related to the U.S. operations of TMR was recorded by TMR prior to the acquisition. Supplemental Pro Forma Information The following table presents unaudited pro forma consolidated financial information for the years ended December 31, 2019 and 2018, respectively, and assumes the acquisition of TMR occurred on January 1, 2018. 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, 2018 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 TMR. 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 TMR, as they are nonrecurring.
| Year ended December 31, |  |  |  |  | 2019 |  | 2018 |
| Total revenues |  |  |  |  | $ | 4,542,979 |  |  | $ | 3,338,903 |  |
| Net income available to RenaissanceRe common shareholders |  |  |  |  | $ | 768,719 |  |  | $ | 281,974 |  |
Among other adjustments, and in addition to the fair value adjustments and recognition of goodwill, VOBA and identifiable intangible assets noted above, other material nonrecurring pro forma adjustments directly attributable to the acquisition of TMR principally included certain adjustments to recognize transaction related costs, align accounting policies, and amortize fair value adjustments, VOBA, and identifiable definite lived intangible assets, net of related tax impacts. Defined Benefit Pension Plan The RREAG Group entities have a contributory defined benefit pension plan for certain employees, which was not material to RenaissanceRe’s results of operations, financial condition or cash flows for the year ended December 31, 2020. The plan offers mandatory benefits as prescribed by the applicable law, as well as voluntary benefits. These mandatory benefits include guarantees regarding the level of interest paid annually on accrued pension savings. The RREAG Group entities and the members of the plan contribute a defined percentage of salary to the pension arrangement and credit accumulation is granted on these contributions. At retirement, the accumulated contributions are converted into a pension. A full independent actuarial valuation is prepared annually. At December 31, 2020, the net balance sheet liability was $6.4 million, comprising $20.1 million of projected benefit obligation and $13.6 million of plan assets at fair value (2019 - $6.5 million, $20.4 million and $13.9 million, respectively).

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