RenaissanceRe Holdings Ltd.: 10-K Risk Factor Changes

The (re)insurance industry has historically been cyclical by product and market. We are at a relatively attractive point in the cycle, characterized by price adequacy and stable terms and conditions. However, rates recently have, and may in the future, decrease in certain lines of business. If demand for our products falls or the supply of competing capacity continues to rise, our prospects for potential growth may be adversely affected. In particular, we might lose existing customers or suffer a decline in business during shifting market cycles, which we might not regain when industry conditions improve. We believe the reinsurance industry will remain cyclical, and that we may return to soft market conditions in the future. Additionally, it is possible that increased access to capital, new technologies, including artificial intelligence, and other factors may reduce the duration or eliminate or significantly lessen the impact of any current or future hard reinsurance underwriting market. The cumulative impact of these risks could negatively impact our profitability and ability to maintain or grow premiums.

The (re)insurance industry has historically been cyclical by product and market. After experiencing a prolonged soft market cycle years ago, we believe that the (re)insurance underwriting market has been in a hard market phase for many lines of business for the past several years, characterized by increased prices and improved terms and conditions. While we are at a relatively attractive point in the cycle, rates recently have, and may in the future, decrease in certain lines of business, and we cannot assure you that the higher premium rates will continue. If demand for our products falls or the supply of competing capacity continues to rise, our prospects for potential growth may be adversely affected. In particular, we might lose existing customers or suffer a decline in business during shifting market cycles, which we might not regain when industry conditions improve. We believe the hard/soft market cycle dynamic is likely to persist, and that we may return to soft market conditions in the future. Additionally, it is possible that increased access to capital, new technologies, including artificial intelligence, and other factors may reduce the duration or eliminate or significantly lessen the impact of any current or future hard reinsurance underwriting market. The cumulative impact of these risks could negatively impact our profitability and ability to maintain or grow premiums.

The OECD has published reports and launched a global dialog among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of jurisdictions perceived by the OECD to be tax havens or offering preferential tax regimes. In the past, Bermuda has been temporarily added to the EU “blacklist” of non-cooperative jurisdictions for tax purposes, as well as the “greylist” of jurisdictions that have made sufficient commitments to reform their tax policies but remain subject to close monitoring while they are executing on their commitments. In addition, in December 2021, the OECD/G20 Inclusive Framework on BEPS approved global anti-base erosion model rules (the “GloBE Rules”) that generally would require large multinational groups to calculate the effective tax rate in each of the jurisdictions in which they operate and pay an additional top-up tax where the group’s effective tax rate in a jurisdiction is below 15%. The OECD has issued and is expected to continue to issue commentary and administrative guidance interpreting and expanding the GloBE Rules. Certain jurisdictions where we operate have brought into effect laws implementing all or a portion of the Pillar II Rules or other changes in response to the Pillar II Rules, or are in the process of doing so, and other jurisdictions may do so in the future. Further, in response to the Pillar II Rules, Bermuda adopted the Corporate Income Tax Act 2023, the “CIT” on December 27, 2023. Effective January 1, 2025, the CIT generally imposes a 15% income tax on our profits generated in Bermuda (except for profits earned by our joint ventures and managed funds), notwithstanding any assurances that may have been provided pursuant to the Exempted Undertakings Tax Protection Act 1966. We generally expect that the profits generated in Bermuda on or after January 1, 2025 by our consolidated joint ventures and managed funds, except to the extent those profits are attributable to redeemable noncontrolling interests, will also be taxed at 15% as a result of the enactment or expected enactment of the Pillar II Rules by many of the jurisdictions in which we operate. On January 15, 2025, the OECD issued administrative guidance on Article 9.1 of the Pillar II Rules. This guidance, if incorporated into the laws of the jurisdictions in which we operate, could cause additional top-up taxes pursuant to the Pillar II Rules to the extent the net deferred tax asset we established upon enactment of the CIT in 2023 pursuant to the economic transition adjustment (approximately $640 million as of December 31, 2025) reverses after 2026. It is uncertain whether Bermuda or the other jurisdictions in which we operate will amend their laws as a result of this guidance. To the extent the jurisdictions in which we operate incorporate this guidance into their own laws, our future cash tax savings from the reversal of the deferred tax asset could be limited to the portion of the deferred tax asset that is expected to reverse in 2026. 47 47 47 Our tax liabilities and reporting obligations have increased and may continue to increase as a result of the implementation of the CIT in Bermuda and the Pillar II Rules in other jurisdictions where we operate. These and any other changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by taxation authorities in the jurisdictions in which we operate may materially adversely affect our results of operations.

The OECD has published reports and launched a global dialog among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of jurisdictions perceived by the OECD to be tax havens or offering preferential tax regimes. In the past, Bermuda has been temporarily added to the EU “blacklist” of non-cooperative jurisdictions for tax purposes, as well as the “greylist” of jurisdictions that have made sufficient commitments to reform their tax policies but remain subject to close monitoring while they are executing on their commitments. In addition, in December 2021, the OECD/G20 Inclusive Framework on BEPS approved global anti-base erosion model rules (the “GloBE Rules”) that generally would require large multinational groups to calculate the effective tax rate in each of the jurisdictions in which they operate and pay an additional top-up tax where the group’s effective tax rate in a jurisdiction is below 15%. Certain jurisdictions where we operate have brought into effect laws implementing the GloBE Rules or other changes in response to the GloBE Rules, or are in the process of doing so, and other jurisdictions may do so in the future. Further, in response to the GloBE Rules, Bermuda adopted the Corporate Income Tax Act 2023, the “CIT” on December 27, 2023. Effective January 1, 2025, the CIT generally will impose a 15% income tax on our profits generated in Bermuda (except for profits earned by our joint ventures and managed funds), notwithstanding any assurances that may have been provided pursuant to the Exempted Undertakings Tax Protection Act 1966. We generally expect that the profits generated in Bermuda on or after January 1, 2025 by our joint ventures and managed funds, except to the extent those profits are attributable to redeemable noncontrolling interests, will also be taxed at 15% as a result of the enactment or expected enactment of provisions similar to the GloBE Rules by many of the jurisdictions in which we operate. On January 15, 2025, the OECD issued administrative guidance on Article 9.1 of the GloBE Rules. This guidance, if incorporated into the laws of the jurisdictions in which we operate, could cause additional top-up taxes pursuant to the GloBE Rules to the extent the net deferred tax asset we established upon enactment of the CIT in 2023 pursuant to the economic transition adjustment (approximately $670 million as of December 31, 2024) reverses after 2026. It is uncertain whether the jurisdictions in which we operate will incorporate this guidance. Further, the amount of such deferred tax asset that reverses in any given year, if any, is uncertain. To the extent the jurisdictions in which we operate incorporate this guidance into their own laws, our overall cash tax savings from the reversal of the deferred tax asset could be limited to the lesser of 20% of the gross deferred tax asset or the portion of the deferred tax asset that reverses in 2025 and 2026. 45 45 45 We expect to incur increased tax liabilities and reporting obligations as a result of the implementation of the CIT in Bermuda and the GloBE Rules in other jurisdictions where we operate. These and any other changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by taxation authorities in the jurisdictions in which we operate may materially adversely affect our results of operations.

Our exposure to significant catastrophic events may cause significant volatility in our operating and capital needs. To the extent that our existing capital is insufficient to support our future operating requirements, we may need to raise additional funds through financings or limit our growth. Any further equity, debt or hybrid financings if available at all, may be on terms that are unfavorable to us. We are also exposed to the risk that the contingent capital facilities we have in place may not be available as expected. Changes to our credit ratings, or the capital models and rating methodologies used by ratings agencies, may also impact our ability to access capital. Our contracts generally require us to post such security via a letter of credit, a trust account, or where applicable, utilize a multi-beneficiary reinsurance trust, with the release of such security being controlled by the ceding insurance company and/or a regulator. If we are unable to obtain adequate capital when needed, we may not be able to grow and take advantage of favorable market conditions, or we may be required to reduce the amount of business that we write, impacting our results of operations and financial condition.

Our exposure to significant catastrophic events may cause significant volatility in our operating and capital needs. To the extent that our existing capital is insufficient to support our future operating requirements, we may need to raise additional funds through financings or limit our growth. Any further equity, debt or hybrid financings, or capacity needed for letters of credit, if available at all, may be on terms that are unfavorable to us. For example, in a relatively higher interest rate environment, such as the one prevailing throughout 2023 and 2024, our borrowing costs have and may continue to increase, relative to our existing debt which was issued in a relatively lower interest rate environment. Additionally, any indebtedness we incur at higher interest rates may require higher ongoing debt service payments than our existing debt arrangements, which could leave us with less cash available for our operations. We are also exposed to the risk that the contingent capital facilities we have in place may not be available as expected. Changes to our issuer credit ratings, or the capital models and rating methodologies used by ratings agencies, may also impact our ability to access capital. Our contracts generally require us to post such security via a letter of credit, a trust account, or where applicable, utilize a multi-beneficiary reinsurance trust, with the release of such security being controlled by the ceding insurance company and/or a regulator. If we are unable to obtain adequate capital when needed, we may not be able to grow and take advantage of favorable market conditions, or we may be required to reduce the amount of business that we write, impacting our results of operations and financial condition. In addition, we are exposed to the risk that we may be unable to raise new capital for our joint ventures, managed funds and other private alternative investment vehicles, which would reduce our future fee income and market capacity, and thus negatively affect our results of operations and financial condition. For example, it is possible that substantial losses ceded to the alternative capital sector over a period of years, and restraints on capital return and maintenance of collateral for prior loss periods by a number of market participants, may contribute to a reduction in investor appetite to this product class in the near term.

A slowdown in economic activity may result from macroeconomic volatility, central bank policies, and international events involving war or civil, political, or social unrest, or energy prices or from other factors outside of our control. For example, ongoing conflicts globally may expand, which could increase our potential exposures or have far-reaching impacts on the global economy. Additionally, governmental, business and societal responses to such events, such as sanctions, trade restrictions, increased unemployment, and supply chain disruptions could worsen the impact of such events and could have an impact on our business and on our customers’ businesses. Any such events could increase our probability of losses, which may be exacerbated by our exposure to certain lines of business that we write. These 43 43 43 events could also reduce the demand for insurance and reinsurance, which would reduce our premium volume and could have a material adverse effect on our business and results of operations.

An economic recession or slowdown in economic activity may result from international events involving war or civil, political, or social unrest, or from other factors outside of our control. For example, the ongoing conflicts between Russia and Ukraine, and in the Middle East, may expand, which could increase our potential exposures or have far-reaching impacts on the global economy. Additionally, governmental, business and societal responses to such events, such as sanctions, trade restrictions, increased unemployment, and supply chain disruptions could worsen the impact of such events and could have an impact on our business and on our customers’ businesses. Any such events could increase our probability of losses, which may be exacerbated by our exposure to certain lines of business that we write. These events could also reduce the demand for insurance and reinsurance, which would reduce our premium volume and could have a material adverse effect on our business and results of operations.

We have incurred indebtedness and may incur additional indebtedness in the future. For more details, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Capital Resources.” The agreements governing our indebtedness require us and/or certain subsidiaries to comply with covenants that impose financial or operational restrictions, including requirements to maintain specific financial ratios or contain cross-default provisions to our other indebtedness. Failure to comply with these or other covenants could result in an event of default, an acceleration of repayment obligations, cross-default, or a loss of borrowing capacity if not cured or waived. Any such event could have a material adverse effect on our liquidity, financial condition, and results of operations.

We have incurred indebtedness and may incur additional indebtedness in the future. Our indebtedness primarily consists of publicly traded notes, letters of credit and a revolving credit facility. For more details on our indebtedness, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Capital Resources.” The agreements governing our indebtedness contain covenants that limit our ability and the ability of some of our subsidiaries to make particular types of investments or other restricted payments, sell or place a lien on our or their respective assets, merge or consolidate. Some of these agreements also require us or our subsidiaries to maintain specific financial ratios or contain cross-defaults to our other indebtedness. Under certain circumstances, if we or our subsidiaries fail to comply with these covenants or meet these financial ratios, the noteholders or the lenders could declare a default and demand immediate repayment of all 39 39 39 amounts owed to them or, where applicable, trigger a cross-default, cancel their commitments to lend or issue letters of credit or, where the reimbursement obligations are unsecured, require us to pledge collateral or, where the reimbursement obligations are secured, require us to pledge additional or a different type of collateral.

In addition to the potential impacts that environmental events may have on our business, there are also risks to our business related to a transition to a lower carbon economy, including increased governmental and regulatory scrutiny related to climate-related risk and greenhouse gas emissions. Our investment assets may be affected by market shifts away from carbon-intensive sectors, increased costs of greenhouse gases, and reduced profitability in sectors that produce or rely on carbon-based fuels, or by societal or market shifts related to these trends. Additionally, demand for insurance coverage could be negatively impacted to the extent that carbon-intensive businesses are impacted by this transition, and claims and losses related to those industries could increase, either of which could have a material negative effect on our business and results of operations. Climate-related concerns have led, and may continue to lead, to new regulatory responses. New laws and regulations relating to sustainability and climate-related matters have been adopted and continue to be considered in various jurisdictions. These laws and regulations include specific disclosure requirements or obligations, that may result in additional investments and implementation of new practices and reporting processes, all entailing additional compliance costs and risk. For example, various jurisdictions are in the process of implementing the International Sustainability Standards Board requirements which requires enhanced disclosure of climate and sustainability-related risks, opportunities and impacts. This directive, along with other current or proposed regulations, could significantly increase compliance burdens and associated regulatory costs and complexity.

In addition to the impacts that environmental incidents have on our business, there are also risks to our business arising from the transition to a lower carbon economy, including from proliferation of governmental and regulatory scrutiny related to climate change and greenhouse gases. Our investment assets could be affected by a market shift away from carbon-intensive industries or businesses, increased costs or fees associated with the production of greenhouse gases, and decreased profitability in sectors that produce or use carbon-based fuels. Additionally, demand for insurance coverage could be negatively impacted to the extent that carbon-intensive businesses are impacted by this transition, and claims and losses related to those industries could increase, either of which could have a material negative effect on our business and results of operations. Concerns over the negative impacts of climate change have led and will continue to lead to new regulatory responses. New laws and regulations relating to sustainability and climate change have been adopted and continue to be considered. These laws and regulations include specific disclosure requirements or obligations, that may result in additional investments and implementation of new practices and reporting processes, all entailing additional compliance costs and risk. For example, the EU adopted the CSRD that will impose disclosure of the risks and opportunities arising from social and environmental issues, and on the impact of companies’ activities on people and the environment. This directive, along with other current or proposed regulations, could significantly increase compliance burdens and associated regulatory costs and complexity.