RenaissanceRe announced that it expects two significant fourth quarter charges:
— A charge which would result in a full reduction of the Company’s carried value in ChannelRe, which was $126.7 million at September 30, 2007, and
— A $55.0 million charge to increase IBNR reserves for sub-prime-related exposures in the casualty clash reinsurance book of business.
RenRe indicated, however, that it nonetheless “anticipates a profitable fourth quarter and full year.”
The Company explained that its investment in ChannelRe Holdings Ltd., a privately held financial guaranty reinsurer, has in fact become worthless. According to ChannelRe’s recent estimate, which RenRe said it has received, its “fourth quarter unrealized mark-to-market losses from financial guaranty contracts, accounted for as derivatives under generally accepted accounting principles…will contribute to a fourth quarter loss exceeding its GAAP shareholders’ equity.”
RenRe said it “accounts for its 32.7 percent interest in ChannelRe under the equity method of accounting, and its share of these charges results in a reduction in its carried value of ChannelRe to $nil. RenaissanceRe’s charge, which represents the Company’s full economic exposure to ChannelRe, will be reflected in the Company’s net income and book value per share, but will not be reflected in operating income.”
ChannelRe was formed in 2004. RenRe’s stake is the largest. Other shareholders include Koch Financial, through its affiliate Koch Financial Re – 29.9 percent, Partner Re (who is expected to make a similar announcement) – 20.0 percent, and MBIA – 17.4 percent. See also IJ web site – https://www.insurancejournal.com/news/international/2004/02/16/36835.htm
In addition to the write down on ChannelRe, RenRe explained that it “expects to increase its incurred but not reported (“IBNR”) reserves in its Reinsurance segment by $55.0 million to reflect estimated losses associated with exposure to sub-prime casualty losses.”
The bulletin added that “typically, casualty clash reinsurance provides coverage for casualty losses stemming from an aggregation of losses from a single event. This provision will be reflected in the Company’s net income and book value per share, as well as the Company’s operating income.”
RenRe expects to issue its earnings release and financial supplement following the close of market on Tuesday, February 5, 2008.
Source: Renaissance Re – www.renre.com
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