ACQUISITION OF VALIDUS

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Overview

On November 1, 2023, the Company completed its acquisition in accordance with the Stock Purchase Agreement, dated May 22, 2023 (as amended, the “Stock Purchase Agreement”), between RenaissanceRe and American International Group, Inc., (“AIG”), pursuant to which, upon the terms and subject to the conditions thereof, RenaissanceRe, or one of its subsidiaries, purchased, acquired and accepted from certain subsidiaries of AIG, all of their right, title and interest in the shares of Validus Holdings, Ltd. (“Validus Holdings”), and Validus Specialty, LLC (“Validus Specialty”). Substantially all of the assets of Validus Holdings is comprised of its equity interest in its wholly-owned subsidiary, Validus Reinsurance, Ltd. (“Validus Re”). The Company also acquired the renewal rights, records and customer relationships of the assumed treaty reinsurance business of Talbot Underwriting Limited, an affiliate of AIG (“Talbot”), a specialty (re)insurance group operating within the Lloyd’s market. The acquisitions under the Stock Purchase Agreement, together with the other transactions contemplated in the Stock Purchase Agreement, are referred to herein as the “Validus Acquisition.” Validus Holdings, Validus Specialty, and their respective subsidiaries that were acquired in the Validus Acquisition (including Validus Re and Validus Holdings (UK) Ltd) collectively are referred to herein as “Validus.” Pursuant to the Validus Acquisition, the Company acquired 100% voting equity interest in each of Validus Holdings and Validus Specialty.

In connection with the Validus Acquisition, on November 1, 2023, the Company paid to AIG aggregate consideration of $2.985 billion, consisting of the following: (i) cash consideration of $2.735 billion; and (ii) 1,322,541 common shares, which were valued at approximately $250.0 million based on a value of $189.03 per share at signing, pursuant to the Stock Purchase Agreement. The value of the acquisition consideration was $3.020 billion as of the closing date. The parties determined that no post-closing adjustment was required to the value of the acquisition consideration as of the closing date.

In connection with the closing of the Validus Acquisition, the Company entered into a reserve development cover whereby the Validus risk-bearing entities agreed to cede to AIG substantially all of their adverse or favorable development on stated reserves at the time of the closing, subject to certain terms and conditions. Under the reserve development agreement AIG assumes substantially all of any favorable or adverse development on the stated reserves, on a whole-account basis, and takes into consideration adverse or favorable performance across the Company’s reportable segments. To the extent the combined performance of acquired reserves for claims and claim expenses 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 substantially all of the adverse development under the reserve development agreement. To the extent the combined performance of acquired reserves for claims and claim expenses is better than expected on an aggregate basis across reportable segments, the Company would expect to pay substantially all of the favorable development to AIG under the reserve development agreement.

The acquisition of Validus is expected to benefit the Company through expanded underwriting capabilities and providing access to additional reinsurance business.

The Company recorded $76.4 million of corporate expenses associated with the acquisition of Validus during 2023. Included in these expenses are compensation, transaction and integration-related costs.

Acquisition Consideration

The Company’s total consideration for Validus was calculated as follows:





RenaissanceRe Common Shares
Common shares issued by RenaissanceRe to AIG	1,323
Common share price of RenaissanceRe (1)	$	215.62
Market value of RenaissanceRe common shares issued by RenaissanceRe to AIG			$	285,168
Cash Consideration
Cash consideration funded by net proceeds from the issuance of common shares of RenaissanceRe to the public market	$	1,351,608
Cash consideration funded by net proceeds from the issuance of Senior Notes	740,581
Cash consideration funded by available cash resources	642,811
Total cash consideration paid by RenaissanceRe as acquisition consideration			2,735,000
Total purchase price			$	3,020,168

(1) The common share price of RenaissanceRe is based on the closing price of $226.97 per RenaissanceRe common share on the closing date of the Validus Acquisition, November 1, 2023 with a 5% discount to reflect restrictions on the transfer of those shares.

Preliminary Fair Value of Net Assets Acquired and Liabilities Assumed

The fair value of assets and liabilities are preliminary and may change with offsetting adjustments to goodwill. RenaissanceRe may make further adjustments to its purchase price allocation through the end of the permissible one-year measurement period. The purchase price was allocated to the acquired assets and liabilities of the Company based on estimated fair values on November 1, 2023, the date the transaction closed, as detailed in the table below:



Assets:
Cash and cash equivalents	$	301,253
Investments trading	3,248,242
Short term investments	1,659,902
Investments in other ventures, under equity method	3,997
Reinsurance premiums receivable	2,014,359
Prepaid reinsurance premiums	126,750
Losses recoverable (1)	1,297,270
Accrued investment income	21,441
Deferred acquisition costs and value of business acquired	617,000
Other assets	70,557

Identifiable intangible assets	460,884
Total assets	9,821,655

Liabilities:
Reserve for claims and claim expenses (1)	4,628,952
Reserve for unearned premiums	1,804,029
Reinsurance balances payable	298,003
Accounts payable and accrued liabilities	120,994
Deferred tax liability	39,157
Total liabilities	6,891,135
Total identifiable net assets acquired	2,930,520
Total purchase price	3,020,168
Goodwill	$	89,648

(1)Includes the net fair value adjustment of $192.0 million to net claims and claim expenses on November 1, 2023, which was made up of a $76.8 million decrease to losses recoverable and a $268.9 million decrease to reserve for claims and claim expenses.

The goodwill represents the excess of the purchase price over the fair value of the underlying net assets acquired and liabilities assumed.

The significant fair value adjustments and related future amortization are as follows:

•Deferred acquisition costs and value of business acquired (“VOBA”) - to reflect the elimination of Validus’ net deferred acquisition costs, and 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 fair value of VOBA was determined after taking into consideration certain key assumptions, including the estimated cost of capital, investment yield, loss ratio and related expenses. 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;

•Net 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. The fair value of net reserve for claims and claim expenses was determined using certain key assumptions, including the estimated cost of capital and investment yield. 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 Validus described in detail below; and

•Deferred tax liability - to reflect the net deferred tax liability on the intangible assets and the other fair value adjustments.

Identifiable indefinite lived and finite lived 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
Agent relationships - top four	$	195,000	15 years
Agent relationships - other	$	9,000	5 years
Managing General Agent (“MGA”) relationships	$	3,000	15 years
Trade name	5,000		0.5 years
Renewal rights	215,000		15 years
Asset management contracts	20,000		4 years
Insurance licenses	13,884		Indefinite
Gross identifiable intangible assets related to the acquisition of Validus, at November 1, 2023	460,884
Accumulated amortization (from November 1, 2023 through December 31, 2023), net of foreign exchange	7,818

Net identifiable intangible assets related to the acquisition of Validus at December 31, 2023	$	453,066

Amortization from the acquisition date, November 1, 2023, through December 31, 2023 was included in the Company's consolidated statements of operations for the year ended December 31, 2023.

An explanation of the identifiable indefinite and finite intangible assets is as follows:

•Agent relationships – top four – the value of Validus’ relationships with their top four brokers (Marsh & McLennan Companies, Inc., Aon Benfield Group Ltd., Willis Towers Watson Plc and Arthur J. Gallagher & Co.) after taking into consideration certain key assumptions, including the estimated cost of capital, investment yield, loss ratio, related expenses, effective tax rates and capital charges. These will be amortized based on an economic benefit pattern over its useful life as of the acquisition date, the majority of which is expected to be within the first 10 years;

•Renewal rights – the value of policy renewal rights was determined after taking into consideration certain key assumptions, including the estimated cost of capital, investment yield, loss ratio, related expenses, effective tax rates and capital charges that would impact the expected cash flows from these renewals over the expected life of these policies. These will be amortized based on an economic benefit pattern over its useful life as of the acquisition date, the majority of which is expected to be within the first 10 years;and

•Insurance licenses – the value of acquired insurance licenses.

Financial Results

The following table summarizes the net contribution from the acquisition of Validus since November 1, 2023 that was included in the Company’s consolidated statements of operations and comprehensive income for the year ended December 31, 2023. Operating activities of Validus from the acquisition date, November 1,

2023, through December 31, 2023 are included in the Company’s consolidated statements of operations for the year ended December 31, 2023.

The unaudited net contribution of the acquisition and integration of Validus 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 Validus from November 1, 2023 through December 31, 2023, including: 1) net premiums earned and net underwriting income on the in-force portfolio acquired with the acquisition of Validus and previously retained on Validus entities’ balance sheets; 2) net premiums earned and net underwriting income for those contracts which renewed post-acquisition on one of the acquired Validus entities’ balance sheets; 3) net investment income and net realized and unrealized gains recorded directly by Validus; and 4) certain direct costs incurred directly by Validus. 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 Validus unless such costs were incurred directly by Validus. 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 Validus 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.



	Year ended December 31, 2023 (1)
Total revenues	$	696,888
Net income (loss) available (attributable) to RenaissanceRe common shareholders (2)	$	307,802

(1) Includes the net contribution from the acquisition of Validus since November 1, 2023 that was included in the Company’s consolidated statements of operations and comprehensive income through December 31, 2023.

(2) Includes $76.4 million of corporate expenses associated with the acquisition and integration of Validus for the year ended December 31, 2023.

Taxation

At the date of the acquisition the Company established a net deferred tax asset of $73.0 million and recorded a valuation allowance against Validus’ deferred tax assets of $66.0 million resulting in a net acquired deferred tax asset of $7.0 million. A net deferred tax liability of $46.2 million was also recorded related to the estimated fair value of intangible assets recorded, VOBA and other adjustments to the fair values of the assets acquired and liabilities assumed. This resulted in a net deferred tax liability of $39.2 million recorded in conjunction with the acquisition of Validus. The Company estimated that goodwill related to the acquisition of Validus Specialty of approximately $24 million will be deductible for U.S. tax purposes resulting in an estimated future tax benefit of approximately $5 million.

Supplemental Pro Forma Information

The following table presents unaudited pro forma consolidated financial information for the years ended December 31, 2023 and 2022, respectively, and assumes the acquisition of Validus occurred on January 1, 2022. 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, 2022 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 Validus. 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 Validus, as they are nonrecurring.



Year ended December 31,	2023		2022
Total revenues	$	11,611,682	$	7,169,338
Net income (loss) available (attributable) to RenaissanceRe common shareholders	$	2,926,518	$	(1,552,425)

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 Validus 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 Validus group entities have a contributory defined benefit pension plan for employees, which was not material to RenaissanceRe’s results of operations, financial condition or cash flows for the year ended December 31, 2023.

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 Validus 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, 2023, the net balance sheet liability was $1.1 million, comprising $9.8 million of projected benefit obligation and $8.7 million of plan assets at fair value.