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 Company believes the acquisition of Platinum has benefited the combined companies’ clients through an expanded product offering and enhanced broker relationships and it has also accelerated 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 9. 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, integration and compensation related expenses totaling $2.1 million during 2016 (2015 - $53.5 million). 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 December 31, 2016 reflected on the Company’s consolidated balance sheet at December 31, 2016. The Company recognized identifiable finite lived intangible assets of $75.2 million, which are being amortized over a weighted average period of eight 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 that represented 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 December 31, 2016, 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 December 31, 2016)	(31,873		)
Net identifiable intangible assets at December 31, 2016 related to the acquisition of Platinum	$	51,727

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 basis 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

FASB ASC Topic Business Combinations prescribes disclosure of the amounts of revenue and earnings of the acquiree since the acquisition date included in the consolidated statement of operations for the reporting period. However, the Company believes this disclosure has become impracticable given the acquired subsidiaries of Platinum have been fully integrated into the Company’s organizational structure through an internal reorganization, resulting in capital and assets being reallocated throughout the organization. In addition, reinsurance contracts have been renewed using both previously existing and acquired subsidiaries and the Company does not discretely manage the Platinum subsidiaries acquired, thereby rendering it impracticable to accurately estimate the amounts of revenue and earnings of Platinum since March 2, 2015 included in the consolidated statement of operations for the reporting period.

Supplemental Pro Forma Information

Platinum’s results are included in the Company's consolidated financial statements from March 2, 2015 to December 31, 2015 and for the year ended December 31, 2016. As such, the following table presents unaudited pro forma consolidated financial information for the years ended December 31, 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.




Year ended December 31,	2015		2014
Total revenues	$	1,593,735	$	1,872,612
Net income available to RenaissanceRe common shareholders	423,768		685,735

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.