RenaissanceRe to Restate 2001-03 Earnings; Best, S&P Put Ratings Under Review

Bermuda-based RenaissanceRe Holdings Ltd. announced that it is planning to restate its financial statements for the years ended December 31, 2001, 2002 and 2003 “to correct accounting errors associated with reinsurance ceded by the Company.”

RenRe said the “net effect of these corrections is to increase 2001 net income by $20.6 million, to decrease 2002 net income by $21.9 million, and to increase 2003 net income by $1.3 million.”

It added that the “amounts reflect: (1) the timing of the recognition of reinsurance recoverables (with the impact of increasing net income by $26.4 million in 2001; decreasing net income by $25 million in 2002; and decreasing net income by $1.4 million in 2003), and (2) the timing of premium ceded on multi-year contracts (with the impact of decreasing net income by $5.8 million in 2001; increasing net income by $3.1 million in 2002; and increasing net income by $2.7 million in 2003). The corrections have no effect on the most recently issued balance sheet of the Company, dated September 30, 2004.”

It also noted “that it had discovered an error in the timing of the recognition of premium on multi-year ceded reinsurance contracts for the first three quarters of 2004. In the Company’s final 2004 presentation, this premium will be restated resulting in a decrease of $1.5 million in first quarter net income, an increase of $5.0 million in second quarter net income and an increase of $9.0 million in third quarter net income, as compared with the previously released results. These changes will result in an increase of $12.5 million to the shareholders’ equity of the Company as of September 30, 2004.”

The accounting errors were discovered in connection with an ongoing review initiated by the Company. RenRe plans to release its fourth quarter 2004 earnings after close of market today, Wednesday, Feb. 23, 2005, and will hold its fourth quarter earnings call on Thursday, February 24, 2005 at 8:30 a.m. (EST). Live broadcast of the conference call will be available through the Investor Section of RenRe’s website at www.renre.com. It is possible, however, that such review could delay the issuance of the Company’s audited financial results.

Both A.M. Best and Standard & Poor’s reacted to the news with announcements that they had placed the financial strength and debt ratings of the insurance and reinsurance subsidiaries of RenaissanceRe under review with negative implications.

Best noted that while “the currently proposed adjustments are not material to the financial condition of RenaissanceRe, the status of the review is ongoing and may cause a delay for the company in filing its audited financial statements. Should this review be completed without significant adjustments to RenaissanceRe’s financial condition, A.M. Best will affirm the current ratings with a stable outlook.”

S&P also placed its ‘A’ counterparty credit and financial strength ratings on DaVinci Reinsurance Ltd. on CreditWatch with negative implications. “The CreditWatch action reflects RNR’s announcement that the company plans to restate financial statements and the uncertainties surrounding this event,” explained S&P credit analyst Damien Magarelli. “The restatements are related to the timing and recognition of premiums and recoverables–this will affect financials statements from 2001 through 2004.”

S&P noted that the potential effect on RenRe’s “competitive position, including reputation risk and the ability to meet filing and regulatory requirements, remains unclear,” and “supports the CreditWatch.

The rating agency added that RenRe’s current “AA-” ratings “are based on very strong operating performance, robust cash flow, very strong financial flexibility, very strong competitive position, technical modeling skills, and a very strong and well-regarded management team.” It indicated that from discussions with management the company intends to maintain capital adequacy at that level with a capital adequacy ratio of 160 percent.

S&P warned, however, that “offsetting these strengths is uncertainty about the long-term performance of the specialty reinsurance and individual risk business, considerable exposure to high-frequency and high-severity events, and correlated risks between the operating company and some other holding company investments.”