News Column

RENAISSANCERE HOLDINGS LTD - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 21, 2014

The following is a discussion and analysis of our results of operations for 2013, compared to 2012, and 2012, compared to 2011, respectively. The following also includes a discussion of our liquidity and capital resources at December 31, 2013. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto included in this filing. This filing contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the results described or implied by these forward-looking statements. See "Note on Forward-Looking Statements." OVERVIEW RenaissanceRe was established in Bermuda in 1993 to write principally property catastrophe reinsurance and today is a leading global provider of reinsurance and insurance coverages and related services. Our aspiration is to be the world's best underwriter by matching well-structured risks with efficient sources of capital. Through our operating subsidiaries, we seek to produce superior returns for our shareholders by being a trusted, long-term partner to our customers for assessing and managing risk, and by delivering responsive solutions. We accomplish this by leveraging our core capabilities of risk assessment and information management, by investing in our capabilities to serve our customers across the cycles that have historically characterized our markets and by keeping our promises. Overall, our strategy focuses on superior customer relationships, superior risk selection and superior capital management. We provide value to our customers and joint venture partners in the form of financial security, innovative products, and responsive service. We are known as a leader in paying valid reinsurance claims promptly. We principally measure our financial success through long-term growth in tangible book value per common share plus the change in accumulated dividends, which we believe is the most appropriate measure of our Company's financial performance, and believe we have delivered superior performance in respect of this measure over time. Our core products include property catastrophe reinsurance, which we primarily write through our principal operating subsidiary Renaissance Reinsurance, Syndicate 1458, and joint ventures, principally DaVinci, Upsilon RFO and Top Layer Re; specialty reinsurance written through Renaissance Reinsurance, RenaissanceRe Specialty Risks, RenaissanceRe Specialty U.S., Syndicate 1458 and DaVinci; and certain insurance products primarily written through Syndicate 1458 or on an excess and surplus lines basis. We believe that we are one of the world's leading providers of property catastrophe reinsurance. We also believe we have a strong position in certain specialty reinsurance lines of business and a growing presence in the Lloyd's marketplace. Our reinsurance and insurance products are principally distributed through intermediaries, with whom we seek to cultivate strong long-term relationships. We continually explore appropriate and efficient ways to address the risk needs of our clients. We have created, managed, and continue to manage capital vehicles and may create additional risk bearing vehicles in the future. As our product and geographical diversity increases, we may be exposed to new risks, uncertainties or sources of volatility. Since a substantial portion of the reinsurance and insurance we write provides protection from damages relating to natural and man-made catastrophes, our results depend to a large extent on the frequency and severity of such catastrophic events, and the coverages we offer to customers affected by these events. We are exposed to significant losses from these catastrophic events and other exposures that we cover. Accordingly, we expect a significant degree of volatility in our financial results and our financial results may vary significantly from quarter-to-quarter or from year-to-year, based on the level of insured catastrophic losses occurring around the world. Our revenues are principally derived from three sources: (1) net premiums earned from the reinsurance and insurance policies we sell; (2) net investment income and realized and unrealized gains from the investment of our capital funds and the investment of the cash we receive on the policies which we sell; and (3) other income received from our joint ventures, advisory services and various other items. Our expenses primarily consist of: (1) net claims and claim expenses incurred on the policies of reinsurance and insurance we sell; (2) acquisition costs which typically represent a percentage of the premiums we write; (3) operating expenses which primarily consist of personnel expenses, rent and other operating expenses; (4) corporate expenses which include certain executive, legal and consulting 63 -------------------------------------------------------------------------------- expenses, costs for research and development, and other miscellaneous costs, including those associated with operating as a publicly traded company; (5) redeemable noncontrolling interest, which represents the interest of third parties with respect to the net income (loss) of DaVinciRe and Medici; and (6) interest and dividend costs related to our debt and preference shares. We are also subject to taxes in certain jurisdictions in which we operate. Since the majority of our income is currently earned in Bermuda, which does not have a corporate income tax, the tax impact to our operations has historically been minimal, however, in the future, our net tax exposure may increase as our operations expand geographically. The underwriting results of an insurance or reinsurance company are discussed frequently by reference to its net claims and claim expense ratio, underwriting expense ratio, and combined ratio. The net claims and claim expense ratio is calculated by dividing net claims and claim expenses incurred by net premiums earned. The underwriting expense ratio is calculated by dividing underwriting expenses (acquisition expenses and operational expenses) by net premiums earned. The combined ratio is the sum of the net claims and claim expense ratio and the underwriting expense ratio. A combined ratio below 100% generally indicates profitable underwriting prior to the consideration of investment income. A combined ratio over 100% generally indicates unprofitable underwriting prior to the consideration of investment income. We also discuss our net claims and claim expense ratio on an accident year basis. This ratio is calculated by taking net claims and claim expenses, excluding development on net claims and claim expenses from events that took place in prior fiscal years, divided by net premiums earned. Segments In conjunction with changes in our management structure during 2013, including the appointment of a new Chief Executive Officer, and changes in the mix of our reinsurance business, we revised our reportable segments to: (1) Catastrophe Reinsurance, which includes catastrophe reinsurance and certain property catastrophe joint ventures managed by our ventures unit; (2) Specialty Reinsurance, which includes specialty reinsurance and certain specialty joint ventures managed by our ventures unit; and (3) Lloyd's, which includes reinsurance and insurance business written through Syndicate 1458. Previously, we disclosed Reinsurance and Lloyd's as our reportable segments. All prior periods presented have been reclassified to conform to this presentation. In addition, our Other category primarily reflects our strategic investments; investments unit; corporate expenses; capital servicing costs; noncontrolling interests; results of our discontinued operations; and the remnants of our Bermuda-based insurance operations not sold pursuant to our stock purchase agreement with QBE. Refer to "Part I, Item 1. Business, Overview and Segments" for more information about our segments. Catastrophe Reinsurance Segment Property catastrophe reinsurance is our traditional core business and is principally written for our own account, for DaVinci and for other joint ventures such as Upsilon RFO. We believe we are one of the world's leading providers of this coverage, based on total catastrophe gross premiums written. This coverage protects against large natural catastrophes, such as earthquakes, hurricanes and tsunamis, as well as claims arising from other natural and man-made catastrophes such as winter storms, freezes, floods, fires, wind storms, tornadoes, explosions and acts of terrorism. We offer this coverage to insurance companies and other reinsurers primarily on an excess of loss basis. This means that we begin paying when our customers' claims from a catastrophe exceed a certain retained amount. In recent periods, our catastrophe-exposed proportional reinsurance product offerings have grown and may continue to grow in the future. Our principal property catastrophe reinsurance products include catastrophe excess of loss reinsurance and excess of loss retrocessional reinsurance. Our catastrophe reinsurance premiums are prone to significant volatility due to the timing of contract inception and also due to the business being characterized by a relatively small number of relatively large transactions. 64 -------------------------------------------------------------------------------- Specialty Reinsurance Segment Our Specialty Reinsurance segment writes, for our own account and for DaVinci, certain targeted classes of business where we believe we have a sound basis for underwriting and pricing the risk that we assume. Our portfolio includes various classes of business, such as aviation, casualty clash, catastrophe exposed personal lines property, catastrophe exposed workers' compensation, crop, energy, financial, mortgage guaranty, political risk, surety, terrorism, trade credit, certain other casualty lines including directors and officers liability, general liability, medical malpractice and professional indemnity, and other specialty lines of reinsurance that we collectively refer to as specialty reinsurance. We believe that we are seen as a market leader in certain of these classes of business. We are seeking to expand our specialty reinsurance operations over time. In 2013, we organized RenaissanceRe Underwriting Managers U.S., a specialty reinsurance agency domiciled in Connecticut, to provide specialty treaty reinsurance solutions on both a quota share and excess of loss basis, as well as to write business on behalf of RenaissanceRe Specialty U.S., a Bermuda-domiciled reinsurer launched in June 2013 which operates subject to U.S. federal income tax, and Syndicate 1458. However, we cannot assure you that we will succeed in growing these operations or that any growth we do attain will be profitable and contribute meaningfully to our results or financial condition, particularly in light of current and forecasted market conditions. Our specialty reinsurance business may be significantly impacted by a comparably small number of relatively large transactions. Lloyd's Segment Our Lloyd's segment includes insurance and reinsurance business written for our own account through Syndicate 1458. The syndicate enhances our underwriting platform by providing access to Lloyd's extensive distribution network and worldwide licenses. RenaissanceRe CCL, an indirect wholly owned subsidiary of RenaissanceRe, is the sole corporate member of Syndicate 1458. RSML, a wholly owned subsidiary of RenaissanceRe, is the managing agent for Syndicate 1458. We anticipate that Syndicate 1458's absolute and relative contributions to our consolidated results of operations will have a meaningful impact over time, although we cannot assure you we will succeed in executing our growth strategy in respect of Syndicate 1458, or that its results will be favorable. Syndicate 1458 generally targets lines of business where we believe we can adequately quantify the risks assumed. We also seek to identify market dislocations and to write new lines of business whose risk and return characteristics are attractive and add to our portfolio of risks. Furthermore, we seek to manage the correlations of this business with our overall portfolio, including our aggregate exposure to single and aggregated catastrophe events. We believe that our underwriting and analytical capabilities have positioned us well to manage this business. Syndicate 1458 offers a range of property and casualty insurance and reinsurance products including, but not limited to, direct and facultative property, property catastrophe, agriculture, medical malpractice, general liability and professional indemnity. Syndicate 1458 may seek to expand its coverages and capacity over time. As with our catastrophe and specialty reinsurance businesses, Syndicate 1458 frequently provides coverage for relatively large limits or exposures, and thus it is subject to potential significant claims volatility. Other Our Other category primarily includes the results of: (1) our share of strategic investments in certain markets we believe offer attractive risk-adjusted returns or where we believe our investment adds value, and where, rather than assuming exclusive management responsibilities ourselves, we partner with other market participants; (2) our investment unit which manages and invests the funds generated by our consolidated operations; (3) corporate expenses, capital services costs and noncontrolling interests; (4) the results of our discontinued operations; and (5) the remnants of our Bermuda-based insurance operations. New Business From time to time we consider diversification into new ventures, either through organic growth, the formation of new joint ventures, or the acquisition of or the investment in other companies or books of business of other companies. This potential diversification includes opportunities to write targeted, additional classes of risk-exposed business, both directly for our own account and through possible new joint venture opportunities. We also regularly evaluate potential strategic opportunities that we believe might utilize our skills, capabilities, proprietary technology and relationships to support possible expansion 65 -------------------------------------------------------------------------------- into further risk-related coverages, services and products. Generally, we focus on underwriting or trading risks where reasonably sufficient data may be available, and where our analytical abilities may provide us a competitive advantage, so that we may seek to model estimated probabilities of losses and returns in accordance with our approach in respect of our then current portfolio of risks. We regularly review potential strategic transactions and investments that might improve our portfolio of business, enhance or focus our strategies, expand our distribution or capabilities, or to seek other benefits. In evaluating potential new ventures or investments, we generally seek an attractive estimated return on equity, the ability to develop or capitalize on a competitive advantage, and opportunities which we believe will not detract from our core operations. While we regularly review potential strategic transactions and investments, and periodically engage in discussions regarding possible transactions and investments, there can be no assurance that we will complete any such transaction or investment, or that any such transaction or investment would be successful or materially enhance our results of operations or financial condition. We believe that our ability to potentially attract investment and operational opportunities is supported by our strong reputation and financial resources, and by the capabilities and track record of our ventures unit. Risk Management We seek to develop and effectively utilize sophisticated computer models and other analytical tools to assess and manage the risks that we underwrite and attempt to optimize our portfolio of reinsurance and insurance contracts and other financial risks. Our policies, procedures, tools and resources to monitor and assess our operational risks companywide, as well as our global enterprise-wide risk management practices, are overseen by our Chief Risk Officer, who reports directly to our Chief Financial Officer. Since 1993, we have developed and continuously seek to improve our proprietary, computer-based pricing and exposure management system, REMS©. We believe that REMS©, as updated from time to time, is a more robust underwriting and risk management system than is currently commercially available elsewhere in the reinsurance industry and offers us a significant competitive advantage. REMS© was originally developed to analyze catastrophe risks, though we continuously seek ways to enhance the system in order to analyze other classes of risk. For information related to Risk Management, refer to "Part I, Item 1. Business, Underwriting and Enterprise Risk Management". Discontinued Operations REAL On August 30, 2013, we entered into a purchase agreement with Munich to sell REAL. REAL offered certain derivative-based risk management products primarily to address weather and energy risk and engaged in hedging and trading activities related to those transactions. On October 1, 2013, we closed the sale of REAL to Munich. We have classified the assets and liabilities associated with this transaction as held for sale and, at December 31, 2013, there were no remaining assets or liabilities related to REAL included on our consolidated balance sheet. The financial results for these operations have been presented in our consolidated financial statements as "discontinued operations" for all periods presented. Except as explicitly described as held for sale or as discontinued operations, and unless otherwise noted, all discussions and amounts presented herein relate to our continuing operations. Prior years presented have been reclassified to conform to this new presentation. Consideration for the transaction was $60.0 million, paid in cash at closing, subject to post-closing adjustments for certain tax and other items. We recorded a loss on sale of $8.8 million in conjunction with the sale, including related direct expenses to date. U.S.-Based Insurance Operations During the fourth quarter of 2010, we made the strategic decision to divest substantially all of our U.S.-based insurance operations in order to focus on the business encompassed within our then Reinsurance and Lloyd's segments and our other businesses. On November 18, 2010, we entered into a stock purchase agreement with QBE to sell substantially all of our U.S.-based insurance operations, including our U.S. property and casualty business underwritten through managing general agents, our crop insurance business underwritten through Agro National Inc. 66 -------------------------------------------------------------------------------- ("Agro National"), our commercial property insurance operations and our claims operations. We have classified the assets and liabilities associated with this transaction as held for sale and, at December 31, 2013, there were no remaining assets or liabilities related to our former U.S.-based insurance operations included on our consolidated balance sheet. The financial results for these operations have been presented as discontinued operations in our Consolidated Statements of Operations. Consideration for the transaction was book value at December 31, 2010, for the aforementioned businesses, payable in cash at closing and subject to adjustment for certain tax and other items. The transaction closed on March 4, 2011 and we received net consideration of $269.5 million. Pursuant to the stock purchase agreement, RenaissanceRe's U.S.-based insurance operations sold to QBE were subject to a post-closing review following December 31, 2011 of the net reserve for claims and claim expenses for loss events occurring on or prior to December 31, 2010 (the "Reserve Collar"). Effective May 23, 2012, RenaissanceRe and QBE reached an agreement in respect of the Reserve Collar, and RenaissanceRe paid QBE the sum of $9.0 million on June 1, 2012, representing full and final settlement of the Reserve Collar. See "Note 3. Discontinued Operations in our Notes to Consolidated Financial Statements" for additional information. SUMMARY OF CRITICAL ACCOUNTING ESTIMATES Claims and Claim Expense Reserves General Description We believe the most significant accounting judgment made by management is our estimate of claims and claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid claims and claim expenses arising from the insurance and reinsurance contracts we sell. We establish our claims and claim expense reserves by taking claims reported to us by insureds and ceding companies, but which have not yet been paid ("case reserves"), adding the costs for additional case reserves ("additional case reserves") which represent our estimates for claims previously reported to us which we believe may not be adequately reserved as of that date, and adding estimates for the anticipated cost of IBNR. The following table summarizes our claims and claim expense reserves by line of business and split between case reserves, additional case reserves and IBNR: Case Additional At December 31, 2013 Reserves Case Reserves IBNR Total (in thousands) Catastrophe Reinsurance $ 430,166$ 177,518$ 173,303$ 780,987 Specialty Reinsurance 113,188 81,251 311,829 506,268 Lloyd's 45,355 14,265 158,747 218,367 Other 14,915 2,324 40,869 58,108 Total $ 603,624$ 275,358$ 684,748$ 1,563,730 At December 31, 2012 (in thousands) Catastrophe Reinsurance $ 706,264$ 222,208$ 255,786$ 1,184,258 Specialty Reinsurance 111,234 80,971 286,108 478,313 Lloyd's 29,260 10,548 109,662 149,470 Other 17,016 8,522 41,798 67,336 Total $ 863,774$ 322,249$ 693,354$ 1,879,377 67

-------------------------------------------------------------------------------- Activity in the liability for unpaid claims and claim expenses is summarized as follows: Year ended December 31, 2013 2012 2011 (in thousands) Net reserves as of January 1 $ 1,686,865$ 1,588,325$ 1,156,132 Net incurred related to: Current year 315,241 483,180 993,168 Prior years (143,954 ) (157,969 ) (131,989 ) Total net incurred 171,287 325,211 861,179 Net paid related to: Current year 32,212 84,056 299,299 Prior years 363,235 142,615 129,687 Total net paid 395,447 226,671 428,986 Net reserves as of December 31 1,462,705 1,686,865



1,588,325

Reinsurance recoverable as of December 31 101,025 192,512

404,029

Gross reserves as of December 31$ 1,563,730$ 1,879,377$ 1,992,354

Our reserving methodology for each line of business uses a loss reserving process that calculates a point estimate for the Company's ultimate settlement and administration costs for claims and claim expenses. We do not calculate a range of estimates. We use this point estimate, along with paid claims and case reserves, to record our best estimate of additional case reserves and IBNR in our consolidated financial statements. Under GAAP, we are not permitted to establish estimates for catastrophe claims and claim expense reserves until an event occurs that gives rise to a loss. Reserving for our reinsurance claims involves other uncertainties, such as the dependence on information from ceding companies, which among other matters, includes the time lag inherent in reporting information from the primary insurer to us or to our ceding companies and differing reserving practices among ceding companies. The information received from ceding companies is typically in the form of bordereaux, broker notifications of loss and/or discussions with ceding companies or their brokers. This information can be received on a monthly, quarterly or transactional basis and normally includes estimates of paid claims and case reserves. We sometimes also receive an estimate or provision for IBNR. This information is often updated and adjusted from time to time during the loss settlement period as new data or facts in respect of initial claims, client accounts, industry or event trends may be reported or emerge in addition to changes in applicable statutory and case laws. Our estimates of losses from large events are based on factors including currently available information derived from the Company's claims information from certain customers and brokers, industry assessments of losses from the events, proprietary models, and the terms and conditions of our contracts. The uncertainty of our estimates for certain of these large events is additionally impacted by the preliminary nature of the information available, the magnitude and relative infrequency of the events, the expected duration of the respective claims development period, inadequacies in the data provided to the relevant date by industry participants and the potential for further reporting lags or insufficiencies (particularly in respect of our current reserves arising from the Chilean, 2010 New Zealand, 2011 New Zealand and Tohoku Earthquakes); and in the case of Storm Sandy and the Thailand Floods, significant uncertainty as to the form of the claims and legal issues, under the relevant terms of insurance and reinsurance contracts. In addition, a significant portion of the net claims and claim expenses associated with Storm Sandy and the New Zealand and Tohoku Earthquakes are concentrated with a few large clients and therefore the loss estimates for these events may vary significantly based on the claims experience of those clients. Loss reserve estimation in respect of our retrocessional contracts poses further challenges compared to directly assumed reinsurance. A significant portion of our reinsurance recoverable relates to the New Zealand and Tohoku Earthquakes. There is inherent uncertainty and complexity in evaluating loss reserve levels and reinsurance recoverable amounts, due to the nature of the losses relating to earthquake events, including that loss development time frames tend to take longer with respect to earthquake events. The contingent nature of business interruption and other exposures will also impact losses in a meaningful way, especially in respect of our current reserves with regard to Storm Sandy, the Tohoku Earthquake and the Thailand Floods, which we believe may give rise to significant complexity in respect of claims handling, claims 68 -------------------------------------------------------------------------------- adjustment and other coverage issues, over time. Given the magnitude and relatively recent occurrence of these large events, meaningful uncertainty remains regarding total covered losses for the insurance industry and, accordingly, several of the key assumptions underlying our loss estimates. In addition, our actual net losses from these events may increase if our reinsurers or other obligors fail to meet their obligations. Because of the inherent uncertainties discussed above, we have developed a reserving philosophy which attempts to incorporate prudent assumptions and estimates, and we have generally experienced favorable net development on prior year reserves in the last several years. However, there is no assurance that this will occur in future periods. Prior Year Development of Reserve for Net Claims and Claim Expenses Our estimates of claims and claim expense reserves are not precise in that, among other matters, they are based on predictions of future developments and estimates of future trends and other variable factors. Some, but not all, of our reserves are further subject to the uncertainty inherent in actuarial methodologies and estimates. Because a reserve estimate is simply an insurer's estimate at a point in time of its ultimate liability, and because there are numerous factors which affect reserves and claims payments that cannot be determined with certainty in advance, our ultimate payments will vary, perhaps materially, from our estimates of reserves. If we determine in a subsequent period that adjustments to our previously established reserves are appropriate, such adjustments are recorded in the period in which they are identified. As detailed in the table and discussed in further detail below, changes to prior year estimated claims reserves increased our net income by $144.0 million during the year ended December 31, 2013, (2012 - increased our net income by $158.0 million, 2011 - decreased our net loss by $132.0 million), excluding the consideration of changes in reinstatement premium, profit commissions, redeemable noncontrolling interest - DaVinciRe, equity in net claims and claim expenses of Top Layer Re and income tax. Year ended December 31, 2013 2012 2011 (in thousands) Catastrophe $ 102,037$ 110,568$ 59,137 Specialty 34,111 34,146 77,761 Lloyd's 8,256 16,202 (478 ) Other (450 ) (2,947 ) (4,431 ) Total favorable development of prior accident years net claims and claim expenses $ 143,954$ 157,969$ 131,989 Our reserving techniques, assumptions and processes differ between our Catastrophe Reinsurance, Specialty Reinsurance and Lloyd's segments. Following is a discussion of the risks we insure and reinsure, the reserving techniques, assumptions and processes we follow to estimate our claims and claim expense reserves, our current estimates versus our initial estimates of our claims reserves, and the sensitivity analysis we apply with respect to our key reserving judgments for each of our segments. Catastrophe Reinsurance Segment Within our Catastrophe Reinsurance segment, we principally write property catastrophe excess of loss reinsurance contracts to insure insurance and reinsurance companies against natural and man-made catastrophes. Under these contracts, we indemnify an insurer or reinsurer when its aggregate paid claims and claim expenses from a single occurrence of a covered peril exceed the attachment point specified in the contract, up to an amount per loss specified in the contract. In recent periods, our catastrophe-exposed proportional reinsurance product offerings have grown and may continue to grow in the future. Our most significant exposure is to losses from earthquakes and hurricanes and other windstorms, although we are also exposed to claims arising from other catastrophes, such as tsunamis, freezes, floods, fires, tornadoes, explosions and acts of terrorism. Our predominant exposure under such coverage is to property damage. However, other risks, including business interruption and other non-property losses, may also be covered under our property catastrophe reinsurance contracts when arising from a covered peril. Our coverages are offered on either a worldwide basis or are limited to selected geographic areas. 69 -------------------------------------------------------------------------------- Coverage can also vary from "all property" perils to limited coverage on selected perils, such as "earthquake only" coverage. We also enter into retrocessional contracts that provide property catastrophe coverage to other reinsurers or retrocedants. This coverage is generally in the form of excess of loss retrocessional contracts and may cover all perils and exposures on a worldwide basis or be limited in scope to selected geographic areas, perils and/or exposures. The exposures we assume from retrocessional business can change within a contract term as the underwriters of a retrocedant may alter their book of business after the retrocessional coverage has been bound. We also offer dual trigger reinsurance contracts which require us to pay claims based on claims incurred by insurers and reinsurers in addition to the estimate of insured industry losses as reported by referenced statistical reporting agencies. Our property catastrophe reinsurance business is generally characterized by loss events of low frequency and high severity. Initial reporting of paid and incurred claims in general, tends to be relatively prompt. We consider this business "short-tail" as compared to the reporting of claims for "long-tail" products, which tends to be slower. However, the timing of claims payment and reporting also varies depending on various factors, including: whether the claims arise under reinsurance of primary insurance companies or reinsurance of other reinsurance companies; the nature of the events (e.g., hurricanes, earthquakes or terrorism); the geographic area involved; post-event inflation which may cause the cost to repair damaged property to increase significantly from current estimates, or for property claims to remain open for a longer period of time, due to limitations on the supply of building materials, labor and other resources; complex policy coverage and other legal issues; and the quality of each client's claims management and reserving practices. Management's judgments regarding these factors are reflected in our reserve for claims and claim expenses. Reserving for most of our property catastrophe reinsurance business does not involve the use of traditional actuarial techniques. Rather, claims and claim expense reserves are estimated by management after a catastrophe occurs by completing an in-depth analysis of the individual contracts which may potentially be impacted by the catastrophic event. The in-depth analysis generally involves: 1) estimating the size of insured industry losses from the catastrophic event; 2) reviewing our portfolio of reinsurance contracts to identify those contracts which are exposed to the catastrophic event; 3) reviewing information reported by customers and brokers; 4) discussing the event with our customers and brokers; and 5) estimating the ultimate expected cost to settle all claims and administrative costs arising from the catastrophic event on a contract-by-contract basis and in aggregate for the event. Once an event has occurred, during the then current reporting period we record our best estimate of the ultimate expected cost to settle all claims arising from the event. Our estimate of claims and claim expense reserves is then determined by deducting cumulative paid losses from our estimate of the ultimate expected loss for an event and our estimate of IBNR is determined by deducting cumulative paid losses, case reserves and additional case reserves from our estimate of the ultimate expected loss for an event. Once we receive a notice of loss or payment request under a catastrophe reinsurance contract, we are generally able to process and pay such claims promptly. Because the events from which claims arise under policies written by our property catastrophe reinsurance business are typically prominent, public occurrences such as hurricanes and earthquakes, we are often able to use independent reports as part of our loss reserve estimation process. We also review catastrophe bulletins published by various statistical reporting agencies to assist us in determining the size of the industry loss, although these reports may not be available for some time after an event. In addition to the loss information and estimates communicated by cedants and brokers, we also use industry information which we gather and retain in our REMS© modeling system. The information stored in our REMS© modeling system enables us to analyze each of our policies in relation to a loss and compare our estimate of the loss with those reported by our policyholders. The REMS© modeling system also allows us to compare and analyze individual losses reported by policyholders affected by the same loss event. Although the REMS© modeling system assists with the analysis of the underlying loss and provides us with the information and ability to perform increased analysis, the estimation of claims resulting from catastrophic events is inherently difficult because of the variability and uncertainty associated with property catastrophe claims and the unique characteristics of each loss. For smaller events including localized severe weather events such as windstorms, hail, ice, snow, flooding, freezing and tornadoes, which are not necessarily prominent, public occurrences, we initially place greater reliance on catastrophe bulletins published by statistical reporting agencies to assist us in determining what events occurred during the reporting period than we do for large events. This includes reviewing 70 -------------------------------------------------------------------------------- catastrophe bulletins published by Property Claim Services for U.S. catastrophes. We set our initial estimates of reserves for claims and claim expenses for these smaller events based on a combination of our historical market share for these types of losses and the estimate of the total insured industry property losses as reported by statistical reporting agencies, although we may make significant adjustments based on our current exposure to the geographic region involved as well as the size of the loss and the peril involved. This approach supplements our approach for estimating losses for larger catastrophes, which as discussed above, includes discussions with brokers and ceding companies, reviewing individual contracts impacted by the event, and modeling the loss in our REMS© system. Approximately one year from the date of loss for these small events, we estimate IBNR for these events by using the paid Bornhuetter-Ferguson actuarial method. The loss development factors for the paid Bornhuetter-Ferguson actuarial method are selected based on a review of our historical experience and these factors are reviewed at least annually. There were no changes to our paid loss development factors over the last three years. In general, our property catastrophe reinsurance reserves for our more recent reinsured catastrophic events are subject to greater uncertainty and, therefore, greater potential variability, and are likely to experience material changes from one period to the next. This is due to the uncertainty as to the size of the industry losses from the event, uncertainty as to which contracts have been exposed to the catastrophic event, uncertainty due to complex legal and coverage issues that can arise out of large or complex catastrophic events such as the events of September 11, 2001, Hurricane Katrina and Storm Sandy, and uncertainty as to the magnitude of claims incurred by our customers. As our property catastrophe reinsurance claims age, more information becomes available and we believe our estimates become more certain, although there is no assurance this trend will continue in the future. Prior Year Development of Reserve for Net Claims and Claim Expenses Within our property catastrophe reinsurance business, we seek to review substantially all of our claims and claim expense reserves quarterly. Our quarterly review procedures include identifying events that have occurred up to the latest balance sheet date, determining our best estimate of the ultimate expected cost to settle all claims and administrative costs associated with those new events which have arisen during the reporting period, reviewing the ultimate expected cost to settle claims and administrative costs associated with those events which occurred during previous periods, and considering new estimation techniques, such as additional actuarial methods or other statistical techniques, that can assist us in developing a best estimate. This process is judgmental in that it involves reviewing changes in paid and reported losses each period and adjusting our estimates of the ultimate expected losses for each event if there are developments that are different from our previous expectations. If we determine that adjustments to an earlier estimate are appropriate, such adjustments are recorded in the period in which they are identified. As noted above, the level of our claims and claim expenses associated with certain catastrophes can be very large. As a result, small percentage changes in the estimated ultimate claims from large catastrophe events can significantly impact our reserves for claims and claim expenses in subsequent periods. 71 -------------------------------------------------------------------------------- The following table details the development of our liability for unpaid claims and claim expenses for the Catastrophe Reinsurance segment for the year ended December 31, 2013 split between catastrophe net claims and claim expenses and attritional net claims and claim expenses:



Catastrophe

Year ended December 31, 2013



Reinsurance Segment

(in thousands) Catastrophe net claims and claim expenses Large catastrophe events Storm Sandy (2012) $ 44,460 Tohoku Earthquake and Tsunami (2011) 18,033 Hurricanes Gustav & Ike (2008) 16,261 New Zealand Earthquake (2011) 10,944 Windstorm Kyrill (2007) 8,244 Hurricane Isaac (2012) (2,610 ) New Zealand Earthquake (2010) (11,040 ) Other 776 Total large catastrophe events 85,068 Small catastrophe events U.S. PCS 83 Wind and Thunderstorm (2012) 3,500 U.S. PCS 76 Wind and Thunderstorm (2012) 300 U.S. PCS 70 Wind and Thunderstorm (2012) (8,225 ) Other 21,394 Total small catastrophe events 16,969 Total favorable development of prior accident years net claims and claim expenses $ 102,037 The favorable development of prior accident years net claims and claim expenses within our Catastrophe Reinsurance segment in 2013 of $102.0 million was primarily due to $44.5 million, $18.0 million, $16.3 million and $10.9 million of favorable development related to reductions in the expected ultimate net loss for Storm Sandy, the Tohoku Earthquake, the 2008 Hurricanes and the 2011 New Zealand Earthquake, respectively, as reported claims came in better than expected, and $34.2 million of net favorable development related to a number of other catastrophes principally the result of reported claims coming in less than expected, resulting in decreases to the ultimate claims for these events through the application of our formulaic actuarial reserving methodology. Partially offsetting the reductions noted above was adverse development on the 2010 New Zealand Earthquake, U.S. PCS 70 and Hurricane Isaac of $11.0 million,$8.2 million and $2.6 million, respectively, associated with an increase in reported gross ultimate losses. 72

-------------------------------------------------------------------------------- The following table details the development of our liability for unpaid claims and claim expenses for our Catastrophe Reinsurance segment for the year ended December 31, 2012: Catastrophe Year ended December 31, 2012



Reinsurance Segment

(in thousands) Catastrophe net claims and claim expenses Large catastrophe events Chile Earthquake (2010) $ 24,575 Hurricanes Gustav & Ike (2008) 17,541 U.K. Floods (2007) 17,271 Hurricanes Katrina, Rita and Wilma (2005) 6,420 Hurricane Irene (2011) 4,630 Thailand Floods (2011) 3,933 Tohoku Earthquake and Tsunami (2011) 3,896 Windstorm Kyrill (2007) 3,417 New Zealand Earthquake (2010) (3,570 ) New Zealand Earthquake (2011) (17,912 ) Other 2,542 Total large catastrophe events 62,743 Small catastrophe events Danish Floods (2011) 5,000 U.S. PCS 63 Winter Storm (2011) 5,000 U.S. PCS 42 Winter Storm (2011) 2,560 U.S. PCS 53 Winter Storm (2011) 2,558 Other 32,707 Total small catastrophe events 47,825 Total favorable development of prior accident years claims and claim expenses $ 110,568 The favorable development of prior accident years claims and claim expenses within our Catastrophe Reinsurance segment in 2012 of $110.6 million was primarily due to net reductions of $84.2 million arising from the estimated ultimate claims of large catastrophe events, including the 2010 Chilean Earthquake, the 2008 Hurricanes, the 2007 U.K. Flooding, the 2005 Hurricanes, Hurricane Irene of 2011, the 2011 Thailand Floods and the Tohoku Earthquake, as reported claims came in better than expected. The remainder of the favorable development of prior accident years claims and claim expenses of $47.8 million was due to a reduction in ultimate claims on a number of relatively small catastrophes, all principally the result of reported claims coming in less than expected, principally resulting in formulaic decreases to the ultimate claims for these events. Partially offsetting the reductions noted above was a $17.9 million and $3.6 million increase in net claims and claim expenses from the 2011 and 2010 New Zealand Earthquake, respectively, primarily as a result of increased cedant gross ultimate loss estimates. 73 -------------------------------------------------------------------------------- The following table details the development of our liability for unpaid claims and claim expenses for our Catastrophe Reinsurance segment reinsurance unit for the year ended December 31, 2011:



Catastrophe

Year ended December 31, 2011



Reinsurance Segment

(in thousands) Catastrophe net claims and claim expenses Large catastrophe events Tropical Cyclone Tasha (2010) $ 13,922 Hurricanes Katrina, Rita and Wilma (2005) 10,008 Chilean Earthquake (2010) 8,455 World Trade Center (2001) 4,701 Hurricanes Charley, Francis, Ivan and Jeanne (2004) 4,076 U.K. Floods (2007) 3,635 Windstorm Kyrill (2007) 2,494 New Zealand Earthquake (2010) (15,179 ) Total large catastrophe events 32,112 Small catastrophe events U.S. PCS 21 Wildland Fire (2007) 4,554 U.S. PCS 33 Great Midwest Storm (2010) 3,125 U.S. PCS 31 Wind and Thunderstorm (2010) 3,039 U.S. PCS 96 Wind and Thunderstorm (2010) 2,288 Other 14,019 Total small catastrophe events 27,025 Total favorable development of prior accident years net claims and claim expenses $ 59,137 The favorable development of prior accident years net claims and claim expenses within our Catastrophe Reinsurance segment in 2011 of $59.1 million was due to net reductions of $47.3 million arising from the estimated ultimate claims of large catastrophe events, including the 2005 Hurricanes and the World Trade Center, for which the claims are principally paid and the amount of additional reported claims has slowed considerably and therefore the ultimate claims were reduced, and Tropical Cyclone Tasha and the Chilean Earthquake, as reported claims came in better than expected in 2011. Partially offsetting the above reductions in estimated ultimate claims during 2011, we increased our estimated ultimate claims for the 2010 New Zealand Earthquake by $15.2 million due to additional claims reporting information being available to us. The remainder of the favorable development of prior accident years claims and claim expenses of $27.0 million was due to a reduction in ultimate claims on a large number of relatively small catastrophes, all principally the result of reported claims coming in less than expected, resulting in formulaic decreases to the ultimate claims and claim expenses for these events. Actual Results vs. Initial Estimates The table below summarizes our initial assumptions and changes in those assumptions for claims and claim expense reserves within our Catastrophe Reinsurance segment. As discussed above, the key assumption in estimating reserves for our Catastrophe Reinsurance segment is our estimate of ultimate claims and claim expenses. The table shows our initial estimates of ultimate claims and claim expenses for each accident year and how these initial estimates have developed over time. The initial estimate of accident year claims and claim expenses represents our estimate of the ultimate settlement and administration costs for claims incurred from catastrophic events occurring during a particular accident year, and as reported as of December 31 of that year. The re-estimated ultimate claims and claim expenses as of December 31, 2011, 2012 and 2013, represent our revised estimates as reported as of those dates. The cumulative favorable (adverse) development shows how our most recent estimates as reported at December 31, 2013 differ from our initial accident year estimates. Favorable development implies that our current estimates are 74 -------------------------------------------------------------------------------- lower than our initial estimates while adverse development implies that our current estimates are higher than our original estimates. Total reserves as of December 31, 2013 reflect the unpaid portion of our estimates of gross ultimate claims and claim expenses. The table is presented on a gross basis and therefore does not include the benefit of reinsurance recoveries. It also does not consider the impact of loss related premium or redeemable noncontrolling interest - DaVinciRe. Actual vs. Initial Estimated Property Catastrophe Reinsurance Claims and Claim Expense Reserve Analysis Re-estimated Claims and (in thousands, Claim Expenses except percentages) as of December 31, Initial Estimate of Claims and % of Claims Accident Cumulative Claim



and Claim

Year Claims Favorable % Decrease Expense



Expenses

Accident and Claim



(Adverse) (Increase) from Reserves as of Unpaid as of

Year Expenses 2011 2012 2013



Development Initial Ultimate December 31, 2013December 31, 2013

1994 $ 100,816$ 137,498$ 137,130$ 137,093$ (36,277 ) (36.0 )% $

274



0.2 %

1995 72,561 61,345 61,345 61,404 11,157 15.4 % 15 - % 1996 67,671 45,209 45,219 45,217 22,454 33.2 % 11 - % 1997 43,050 9,040 9,041 9,041 34,009 79.0 % 5



0.1 %

1998 129,171 151,951 152,038 152,016 (22,845 ) (17.7 )% 546



0.4 %

1999 267,981 198,257 197,849 197,703 70,278 26.2 % 236



0.1 %

2000 54,600 17,803 17,787 17,747 36,853 67.5 % 12



0.1 %

2001 257,285 205,078 201,140 200,558 56,727 22.0 % 7,229



3.6 %

2002 155,573 65,436 65,118 65,008 90,565 58.2 % 164



0.3 %

2003 126,312 69,057 67,608 67,398 58,914 46.6 % 6 - % 2004 762,392 815,773 815,915 814,704 (52,312 ) (6.9 )% 595 0.1 % 2005 1,473,974 1,272,485 1,263,198 1,260,825 213,149 14.5 % 2,532 0.2 % 2006 121,754 60,313 58,392 57,456 64,298 52.8 % 1,301



2.3 %

2007 245,892 138,329 116,568 107,872 138,020 56.1 % 8,626



8.0 %

2008 599,481 481,878 455,909 436,055 163,426 27.3 % 18,183



4.2 %

2009 90,800 47,189 42,288 40,905 49,895 55.0 % 3,207



7.8 %

2010 385,207 355,564 321,522 332,845 52,362 13.6 % 151,665 45.6 % 2011 1,243,138 1,243,138 1,246,752 1,218,178 24,960 2.0 % 336,835 27.7 % 2012 345,776 - 345,776 284,279 61,497 17.8 % 153,528

54.0 % 2013 133,187 - - 133,187 - - % 96,017 72.1 % $ 6,676,621$ 5,375,343$ 5,620,595 $

5,639,491 $ 1,037,130 15.8 % $ 780,987 13.8 % As quantified in the table above, since the inception of the Company in 1993, while we have experienced adverse development from time to time, on a cumulative basis we have experienced $1,037.1 million of net favorable development on the run-off of our gross reserves within our Catastrophe Reinsurance segment. This represents 15.8% of our initial estimated gross claims and claim expenses for accident years 2012 and prior of $6.5 billion and is calculated based on our estimates of claims and claim expense reserves as of December 31, 2013, compared to our initial estimates of ultimate claims and claim expenses, as of the end of each accident year. As described above, given the complexity in reserving for claims and claims expenses associated with catastrophe losses for property catastrophe excess of loss reinsurance contracts, we have experienced development, both favorable and unfavorable, in any given accident year. For example, our 2005 accident year developed favorably by $213.1 million, which is 14.5% better than our initial estimates of claims and claim expenses for the 2005 accident year as estimated as of December 31, 2005, while our 2004 accident year developed unfavorably by $52.3 million, or negative 6.9%. On a net basis, our cumulative favorable or unfavorable development is generally reduced by offsetting changes in our reinsurance recoverables, as well as changes to loss related premiums such as reinstatement premiums, and redeemable noncontrolling interest for changes in claims and claim expenses that impact DaVinciRe, all of which generally move in the opposite direction to changes in our ultimate claims and claim expenses. 75 -------------------------------------------------------------------------------- The percentage of claims unpaid at December 31, 2013 for each accident year reflects both the speed at which claims and claim expenses for each accident year have been paid and our estimate of claims and claim expenses for that accident year. As seen above, claims and claim expenses for the 2005 and prior accident years have generally been paid, with the exception of 2001 which has 3.6% remaining unpaid. This is driven in part by the mix of our business, which primarily included property catastrophe excess of loss reinsurance for personal lines property coverage, rather than commercial property coverage or retrocessional coverage, and the speed of the settlement and payment of claims by our underlying cedants. In contrast, our 2001 accident year, which includes losses from the events of September 11, 2001, includes a higher mix of commercial business and retrocessional coverage where the underlying claims of our cedants tend to be settled and paid more slowly. In addition, our 2007 accident year has also paid out more slowly due to increased complexity surrounding claims of our underlying cedants as a result of the notable losses during 2007, including European windstorm Kyrill. As noted in the table above, the percentage of claims and claims expenses unpaid as of December 31, 2013 related to more recent years, such as 2010 through 2013, range from 45.6% to 72.1%, with higher percentages driven by the recency of these accident years, combined with the complexity surrounding claims of our underlying cedants and the nature of the events, such as the 2010 and 2011 New Zealand Earthquakes, the Tohoku Earthquake, the Thailand Floods and Storm Sandy. Sensitivity Analysis The table below shows the impact on our ultimate claims and claim expenses, net income and shareholders' equity as of and for the year ended December 31, 2013 of reasonably likely changes to our estimates of ultimate losses for claims and claim expenses incurred from catastrophic events within our Catastrophe Reinsurance segment. The reasonably likely changes are based on an historical analysis of the period-to-period variability of our ultimate costs to settle claims from catastrophic events, giving due consideration to changes in our reserving practices over time. In general, our claim reserves for our more recent catastrophic events are subject to greater uncertainty and, therefore, greater variability and are likely to experience material changes from one period to the next. This is due to the uncertainty as to the size of the industry losses from the event, uncertainty as to which contracts have been exposed to the catastrophic event, and uncertainty as to the magnitude of claims incurred by our clients. As our claims age, more information becomes available and we believe our estimates become more certain, although there is no assurance this trend will continue in the future. As a result, the sensitivity analysis below is based on the age of each accident year, our current estimated ultimate claims and claim expenses for the catastrophic events occurring in each accident year, and the reasonably likely variability of our current estimates of claims and claim expenses by accident year. The impact on net income and shareholders' equity assumes no increase or decrease in reinsurance recoveries, loss related premium or redeemable noncontrolling interest - DaVinciRe. Property Catastrophe Reinsurance Claims and Claim Expense Reserve Sensitivity Analysis $ Impact of % Impact of Change on Change Ultimate Claims on Reserve for % Impact of % Impact of Ultimate Claims and and Claim Claims Change on Net Change on Claim Expenses at Expenses and Claim Expenses Income for Shareholders'



(in thousands, except December 31, at December 31, at December 31, the Year Ended

Equity at percentages) 2013 2013 2013 December 31, 2013 December 31, 2013 Higher $ 6,145,076 $ 505,585 32.3 % (60.1 )% (12.9 )% Recorded 5,639,491 - - % - % - % Lower $ 5,133,906 $ (505,585 ) (32.3 )% 60.1 % 12.9 % We believe the changes we made to our estimated ultimate claims and claim expenses represent reasonably likely outcomes based on our experience to date and our future expectations. While we believe these are reasonably likely outcomes, we do not believe the reader should consider the above sensitivity analysis an actuarial reserve range. In addition, the sensitivity analysis only reflects reasonably likely changes in our underlying assumptions. It is possible that our estimated ultimate claims and claim expenses could be significantly higher or lower than the sensitivity analysis described above. For example, we could 76 -------------------------------------------------------------------------------- be liable for events for which we have not estimated claims and claim expenses or for exposures we do not currently believe are covered under our policies. These changes could result in significantly larger changes to our estimated ultimate claims and claim expenses, net income and shareholders' equity than those noted above. We also caution the reader that the above sensitivity analysis is not used by management in developing our reserve estimates and is also not used by management in managing the business. Specialty Reinsurance Segment Within our Specialty Reinsurance segment, we write a number of reinsurance lines such as aviation, casualty clash, catastrophe exposed personal lines property, catastrophe exposed workers' compensation, crop, energy, financial, mortgage guaranty, political risk, surety, terrorism, trade credit, certain other casualty lines including directors and officers liability, general liability, medical malpractice and professional indemnity, and other specialty lines of reinsurance that we collectively refer to as specialty reinsurance. We offer our specialty reinsurance products principally on an excess of loss basis, as described above with respect to our property catastrophe reinsurance products, and we also provide specialty protection or proportional coverage which we expect to grow on an absolute or relative basis within this segment in the future. In a proportional reinsurance arrangement (also referred to as quota share reinsurance or pro-rata reinsurance), the reinsurer shares a proportional part of the original premiums and losses of the reinsured. We offer our specialty reinsurance products to insurance companies and other reinsurance companies and provide coverage for specific geographic regions or on a worldwide basis. Our Specialty Reinsurance segment can generally be characterized as providing coverage for low frequency and high severity losses, similar to our property catastrophe reinsurance business. As with our property catastrophe reinsurance business, our specialty reinsurance contracts frequently provide coverage for relatively large limits or exposures. As a result of the foregoing, our specialty reinsurance business is subject to significant claims volatility. In periods of low claims frequency or severity, our results will generally be favorably impacted while in periods of high claims frequency or severity our results will generally be negatively impacted. We have more recently positioned RenaissanceRe Specialty Risks to accept a wider range of quota share risks, facilitating our efforts to expand trading relationships with core clients via a separate, highly-rated balance sheet. While we remain focused on underwriting discipline, and are seeking to remain focused on opportunities amenable to stochastic representation and supported by strong data and analytics, this expanded product suite through RenaissanceRe Specialty Risks may pose new, unmodelled or unforeseen risks for which we may not be adequately compensated and may also result in a higher level of attritional claims and claim expenses. Our processes and methodologies in respect of loss estimation for the coverages we offer through our specialty reinsurance operation differ from those used for our property catastrophe-oriented coverages. For example, our specialty reinsurance coverages are more likely to be impacted by factors such as long-term inflation and changes in the social and legal environment, which we believe gives rise to greater uncertainty in our claims reserves. Moreover, in reserving for our specialty reinsurance coverages we do not have the benefit of a significant amount of our own historical experience in certain lines of business and may have little or no related corporate reserving history in new lines of business. We believe this makes our Specialty Reinsurance segment reserving subject to greater uncertainty than our Catastrophe Reinsurance segment. When initially developing our reserving techniques for our specialty reinsurance coverages, we considered estimating reserves utilizing several actuarial techniques such as paid and reported loss development methods. We elected to use the Bornhuetter-Ferguson actuarial method because this method is appropriate for lines of business, such as our specialty reinsurance business, where there is a lack of historical claims experience. This method allows for greater weight to be applied to expected results in periods where little or no actual experience is available, and, hence, is less susceptible to the potential pitfall of being excessively swayed by one year or one quarter of actual paid and/or reported loss data. This method uses initial expected loss ratio expectations to the extent that the expected paid or reported losses are zero, and it assumes that past experience is not fully representative of the future. As our reserves for claims and claim expenses age, and actual claims experience becomes available, this method places less weight on expected experience and places more weight on actual experience. This experience, which represents the difference between expected reported claims and actual reported claims is reflected in the respective reporting period as a change in estimate. We reevaluate our actuarial reserving techniques on a periodic basis. 77 -------------------------------------------------------------------------------- The utilization of the Bornhuetter-Ferguson actuarial method requires us to estimate an expected ultimate claims and claim expense ratio and select an expected loss reporting pattern. We select our estimates of the expected ultimate claims and claim expense ratios and expected loss reporting patterns by reviewing industry results for similar business and adjusting for the terms of the coverages we offer. The estimated expected claims and claim expense ratio may be modified to the extent that reported losses at a given point in time differ from what would be expected based on the selected loss reporting pattern. Our estimate of IBNR is the product of the premium we have earned, the initial expected ultimate claims and claim expense ratio and the percentage of estimated unreported losses. In addition, certain of our specialty reinsurance coverages may be impacted by natural and man-made catastrophes. We estimate claim reserves for these losses after the event giving rise to these losses occurs, following a process that is similar to our Catastrophe Reinsurance segment described above. Prior Year Development of Reserve for Net Claims and Claim Expenses Within our specialty reinsurance business, we seek to review substantially all of our claims and claim expense reserves quarterly. Typically, our quarterly review procedures include reviewing paid and reported claims in the most recent reporting period, reviewing the development of paid and reported claims from prior periods, and reviewing our overall experience by underwriting year and in the aggregate. We monitor our expected ultimate claims and claim expense ratios and expected loss reporting assumptions on a quarterly basis and compare them to our actual experience. These actuarial assumptions are generally reviewed annually, based on input from our actuaries, underwriters, claims personnel and finance professionals, although adjustments may be made more frequently if needed. Assumption changes are made to adjust for changes in the pricing and terms of coverage we provide, changes in industry results for similar business, as well as our actual experience, to the extent we have enough data to rely on our own experience. If we determine that adjustments to an earlier estimate are appropriate, such adjustments are recorded in the period in which they are identified. The following table details the development of our liability for unpaid claims and claim expenses for our Specialty Reinsurance segment for the year ended December 31, 2013 split between catastrophe net claims and claim expenses and attritional net claims and claim expenses:



Specialty

Year ended December 31, 2013



Reinsurance Segment

(in thousands) Catastrophe net claims and claim expenses Large catastrophe events Tohoku Earthquake and Tsunami (2011) $ 1,000 New Zealand Earthquake (2010) (300 ) Other 1,763 Total large catastrophe events 2,463 Total catastrophe net claims and claim expenses $ 2,463 Attritional net claims and claim expenses Bornhuetter-Ferguson actuarial method - actual reported claims less than expected claims $ 21,216 Actuarial assumption changes 10,432 Total attritional net claims and claim expenses $ 31,648 Total favorable development of prior accident years net claims and claim expenses $ 34,111 The favorable development of prior accident years net claims and claim expenses within our Specialty Reinsurance segment in 2013 of $34.1 million was primarily driven by $10.4 million associated with actuarial assumption changes in the first quarter of 2013, principally in our casualty clash and casualty risk lines of business, and primarily as a result of revised initial expected claims ratios and claim development factors due to actual experience coming in better than expected and $23.7 million related to actual reported loss activity coming in better than expected, as a result of the application of our formulaic actuarial reserving methodology. 78 -------------------------------------------------------------------------------- The following table details the development of our liability for unpaid net claims and claim expenses for our Specialty Reinsurance segment for the year ended December 31, 2012 split between catastrophe net claims and claim expenses and attritional net claims and claim expenses:



Specialty

Reinsurance

Year ended December 31, 2012



Segment

(in thousands) Catastrophe net claims and claim expenses Large catastrophe events Hurricanes Katrina, Rita and Wilma (2005) $ 3,000 Total catastrophe net claims and claim expenses $ 3,000 Attritional net claims and claim expenses Bornhuetter-Ferguson actuarial method - actual reported claims less than expected claims $ 16,747 Actuarial assumption changes 14,399 Total attritional net claims and claim expenses $ 31,146 Total favorable development of prior accident years net claims and claim expenses $ 34,146 The favorable development of prior accident years net claims and claim expenses within our Specialty Reinsurance segment in the year ended December 31, 2012 of $34.1 million includes $14.4 million associated with actuarial assumption changes, principally in our casualty and medical malpractice lines of business, and primarily as a result of revised initial expected claims ratios and claim development factors due to actual experience coming in better than expected, $16.7 million related to actual reported loss activity coming in better than expected, as a result of the application of our formulaic actuarial reserving methodology, and $3.0 million due to a reduction in ultimate losses on the 2005 Hurricanes. The following table details the development of our liability for unpaid net claims and claim expenses for our Specialty Reinsurance segment for the year ended December 31, 2011 split between catastrophe net claims and claim expenses and attritional net claims and claim expenses:



Specialty

Reinsurance

Year ended December 31, 2011



Segment

(in thousands) Catastrophe net claims and claim expenses Hurricanes Katrina, Rita and Wilma (2005) $ 6,215 Chilean Earthquake (2010) 4,688 Tropical Cyclone Tasha (2010) 3,000 Total catastrophe net claims and claim expenses $ 13,903 Attritional net claims and claim expenses Bornhuetter-Ferguson actuarial method - actual reported claims less than expected claims $ 37,058 Actuarial assumption changes 26,800 Total attritional net claims and claim expenses $ 63,858 Total favorable development of prior accident years net claims and claim expenses $ 77,761 The favorable development on prior year reserves in 2011 within our Specialty Reinsurance segment of $77.8 million includes $26.8 million associated with actuarial assumption changes, principally in our workers' compensation quota share and risk, property risk and energy risk lines of business, and primarily as a result of revised initial expected claims ratios and claim development factors due to actual experience coming in better than expected, $13.9 million due to reductions in case reserves and additional case reserves for certain large catastrophe events and the remainder of $37.1 million due to reported claims 79 -------------------------------------------------------------------------------- coming in better than expected in 2011 on prior accident years events, as a result of the application of our formulaic actuarial reserving methodology. Actual Results vs. Initial Estimates The table below summarizes our key actuarial assumptions in reserving for our Specialty Reinsurance segment. As noted above, the key actuarial assumptions include the estimated ultimate claims and claim expense ratios and the estimated loss reporting patterns. The table shows our initial estimates of the ultimate claims and claim expense ratio by underwriting year. The table shows how our initial estimates of these ratios have developed over time, with the re-estimated ratios reflecting a combination of the amount and timing of paid and reported losses compared to our initial estimates. The initial estimate is based on the actuarial assumptions that were in place at the end of that year. A decrease in the ultimate claims and claim expense ratio implies that our current estimates are lower than our initial estimates while an increase in the ultimate claims and claim expense ratio implies that our current estimates are higher than our initial estimates. The result would be a corresponding favorable impact on shareholders' equity and net income or a corresponding unfavorable impact on shareholders' equity and net income, respectively. The table also shows how our initial estimated ultimate claims and claim expense ratios have changed from one underwriting year to the next. The table below reflects a summary of the weighted average assumptions for all classes of business written within our Specialty Reinsurance segment. The table is presented on a gross loss basis and therefore does not include the benefit of reinsurance recoveries or loss related premium. Actual vs. Initial Estimated Specialty Reinsurance Claims and Claim Expense Reserve Analysis - Estimated Ultimate Claims and Claim Expense Ratio Estimated Ultimate Claims and Claim Expenses Ratio Re-estimate at Underwriting Year Initial Estimate December 31, 2011 December 31, 2012 December 31, 2013 2002 77.2% 20.5% 19.6% 19.7% 2003 76.8% 26.2% 25.3% 25.4% 2004 78.2% 37.1% 37.2% 36.8% 2005 78.2% 29.1% 28.1% 28.3% 2006 76.6% 31.2% 29.3% 26.3% 2007 62.9% 55.6% 56.1% 55.8% 2008 57.9% 75.4% 64.5% 64.1% 2009 55.4% 36.9% 34.2% 29.5% 2010 56.5% 67.9% 61.3% 57.4% 2011 58.7% 67.5% 59.9% 49.2% 2012 56.3% -% 82.6% 59.8% 2013 57.6% -% -% 59.7% The table above shows our initial estimated ultimate claims and claim expense ratios for attritional losses for each new underwriting year within our Specialty Reinsurance segment. Until 2007, our initial estimated ultimate claims and claim expense ratios remained relatively constant between 76.6% in 2006 and 78.2% in 2004 and 2005. This reflects the fact that management had not made significant changes to its initial estimates of expected ultimate claims and claim expense ratios from one underwriting year to the next. The decrease in the initial estimated ultimate claims and claim expense ratio from 2006 and prior, to 2007 through 2013, reflects assumption changes made for certain classes of business where our experience, and the industry experience in general, has been better than expected and, as a result, we decreased our initial estimated ultimate claims and claim expense ratio for these classes of business. As each underwriting year has developed, our re-estimated expected ultimate claims and claim expense ratios have changed. In particular, our re-estimated ultimate claims and claim expense ratios decreased significantly from the initial estimates for the 2002 through 2006 underwriting years. This was principally due to our 2005 reserve review. During our 2005 reserve review, we further segmented the specialty 80 -------------------------------------------------------------------------------- business with the aim of grouping risks into more homogeneous categories which respond to the evolution of actual exposures. This became possible as the volume of this business increased over the three preceding years. This further segmentation required the selection of loss reporting patterns to be applied to these new groups. We also updated our assumptions for our original loss reporting patterns based on a combination of new industry information and actual experience accumulated over the three preceding years. The assumptions for the new loss reporting patterns were applied to all prior underwriting years. In addition, we made explicit allowances for commuted contracts whereas previously these were considered in the overall reserving assumptions. We also reviewed substantially all of our case reserves and additional case reserves. The result of the foregoing was a decrease in our specialty reinsurance re-estimated ultimate claims and claim expense reserves in 2005. Subsequent to this reserve review, the results of our specialty book of business have been mixed. The 2006 underwriting year includes favorable development as actual paid and reported losses during 2006 have overall been less than expected, which has resulted in a reduction in our expected ultimate claims and claim expense ratio for this year. However, the 2008, 2010, and 2012 underwriting years have performed worse than expected and our current estimates are higher than our initial estimates. This is due in part to the losses in our casualty clash line of business in 2008, associated with exposure to the deterioration of the credit and capital markets in 2008 as well as the Madoff matter discovered in the fourth quarter of 2008. In comparison, our 2010 and 2011 underwriting years were impacted by a number of relatively large catastrophe events, including the 2010 New Zealand and Chilean Earthquakes in 2010, and in 2011, the 2011 New Zealand and Tohoku Earthquakes, the large U.S. tornadoes, the Australian Floods, losses arising from certain aggregate contracts, Hurricane Irene and the Thailand Floods (collectively referred to as the "2011 Large Losses"). In addition, our 2012 underwriting year was impacted by Storm Sandy. As noted above, our specialty reinsurance business is in general characterized by events of low frequency and high severity which results in actual experience that can be significantly better or worse than long-term trends or industry results for similar business may imply. As noted above, some of our specialty reinsurance contracts are exposed to net claims and claim expenses from large natural and man-made catastrophes. Net claims and claim expenses from these large catastrophes are reserved for after the events which gave rise to the claims in a manner which is consistent with our property catastrophe reinsurance reserving practices as discussed above. The large catastrophes occurring during the period from 2002 to 2013 impacting our Specialty Reinsurance segment principally include Hurricanes Katrina, Rita and Wilma, which occurred in 2005. Our estimate of ultimate net claims and claim expenses from Hurricanes Katrina, Rita and Wilma, within our Specialty Reinsurance segment, net of reinsurance recoveries and assumed and ceded loss related premium, totaled $48.3 million at December 31, 2013 (2012 - $48.6 million, 2011 - $51.6 million). Sensitivity Analysis The table below quantifies the impact on our reserves for claims and claim expenses, net income and shareholders' equity as of and for the year ended December 31, 2013 of reasonably likely changes to the actuarial assumptions used to estimate our December 31, 2013 claims and claim expense reserves within our Specialty Reinsurance segment. The table quantifies reasonably likely changes in our initial estimated ultimate claims and claim expense ratios and estimated loss reporting patterns. The changes to the initial estimated ultimate claims and claim expense ratios represent percentage increases or decreases to our current estimated ultimate claims and claim expense ratios. The change to the reporting patterns represent claims reporting that is both faster and slower than our current estimated claims reporting patterns. The impact on net income and shareholders' equity assumes no increase or decrease in reinsurance recoveries, loss related premium or redeemable noncontrolling interest - DaVinciRe. 81 --------------------------------------------------------------------------------



Specialty Reinsurance Claims and Claim Expense Reserve Sensitivity Analysis

$ Impact of % Impact of % Impact of Change Change Change on % Impact of on Reserves for on Reserve for Net Income Change on Estimated Claims and Claim Claims and Claim for the Year Shareholders' Loss Expenses at Expenses at Ended Equity at (in thousands,except Reporting December 31, December 31, December 31, December 31, percentages) Pattern 2013 2013 2013 2013 Increase expected claims and claim expense ratio Slower by 25% reporting $ 178,230 11.4 % (21.2 )% (4.6 )% Increase expected claims and claim expense ratio Expected by 25% reporting 77,957 5.0 % (9.3 )% (2.0 )% Increase expected claims and claim expense ratio Faster by 25% reporting (8,454 ) (0.5 )% 1.0 % 0.2 % Expected claims and Slower claim expense ratio reporting 80,218 5.1 % (9.5 )% (2.1 )% Expected claims and Expected claim expense ratio reporting - - % - % - % Expected claims and Faster claim expense ratio reporting (69,129 ) (4.4 )% 8.2 % 1.8 % Decrease expected claims and claim expense ratio Slower by 25% reporting (17,794 ) (1.1 )% 2.1 % 0.5 % Decrease expected claims and claim expense ratio Expected by 25% reporting (77,957 ) (5.0 )% 9.3 % 2.0 % Decrease expected claims and claim expense ratio Faster by 25% reporting (129,804 ) (8.3 )% 15.4 % 3.3 % We believe that ultimate claims and claim expense ratios 25.0 percentage points above or below our estimated assumptions constitute reasonably likely outcomes based on our experience to date and our future expectations. In addition, we believe that the adjustments that we made to speed up or slow down our estimated loss reporting patterns are reasonably likely changes. While we believe these are reasonably likely changes, we do not believe the reader should consider the above sensitivity analysis an actuarial reserve range. In addition, we caution the reader that the above sensitivity analysis only reflects reasonably likely changes. It is possible that our initial estimated claims and claim expense ratios and loss reporting patterns could be significantly different from the sensitivity analysis described above. For example, we could be liable for events which we have not estimated reserves for or for exposures we do not currently think are covered under our contracts. These changes could result in significantly larger changes to reserves for claims and claim expenses, net income and shareholders' equity than those noted above. We also caution the reader that the above sensitivity analysis is not used by management in developing our reserve estimates and is also not used by management in managing the business. Lloyd's Segment Within our Lloyd's segment, we write property catastrophe excess of loss reinsurance contracts to insure insurance and reinsurance companies against natural and man-made catastrophes, and write a number of specialty reinsurance lines, insurance policies and quota share reinsurance that involves understanding the characteristics of the underlying insurance policy. We use the Bornhuetter-Ferguson actuarial method to estimate claims and claim expenses within our Lloyd's segment for our specialty reinsurance and insurance lines of business. The comments discussed above relating to our reserving techniques and processes for our Specialty Reinsurance segment apply to the specialty reinsurance and insurance lines of business within our Lloyd's segment. In addition, certain of our coverages may be impacted by natural and man-made catastrophes. We estimate claim reserves for these losses after the event giving rise to these losses occurs, following a process that is similar to our Catastrophe Reinsurance segment as noted above. 82 -------------------------------------------------------------------------------- Prior Year Development of Reserve for Net Claims and Claim Expenses The following table details the development of our liability for unpaid claims and claim expenses for our Lloyd's segment for the year ended December 31, 2013 split between catastrophe net claims and claim expenses and attritional net claims and claim expenses: Year ended December 31, 2013



Lloyd's Segment

(in thousands) Catastrophe net claims and claim expenses Large catastrophe events Storm Sandy (2012) $ 3,825 Other 1,442 Total large catastrophe events 5,267 Total catastrophe net claims and claim expenses $ 5,267 Attritional net claims and claim expenses Bornhuetter-Ferguson actuarial method - actual reported claims less than expected claims $ 3,263 Actuarial assumption changes (274 ) Total attritional net claims and claim expenses $ 2,989 Total favorable development of prior accident years net claims and claim expenses $ 8,256 The favorable development of prior accident years net claims and claim expenses within our Lloyd's segment of $8.3 million during 2013 was principally driven by a $5.3 million decrease in the estimated ultimate net claims and claim expenses related to large catastrophes, including $3.8 million related to Storm Sandy, and $3.3 million related to reported claims coming in lower than expected on prior accident years events as a result of the application of our formulaic actuarial reserving methodology and partially offset by adverse development of $0.3 million related to assumption changes. Year ended December 31, 2012



Lloyd's Segment

(in thousands) Catastrophe net claims and claim expenses Large catastrophe events Thailand Floods (2011) $ 5,500 Hurricane Irene (2011) 2,500 Other 1,476 Total large catastrophe events 9,476 Total catastrophe net claims and claim expenses $ 9,476 Attritional net claims and claim expenses Bornhuetter-Ferguson actuarial method - actual reported claims less than expected claims $ 8,011 Actuarial assumption changes (1,285 ) Total attritional net claims and claim expenses $ 6,726 Total favorable development of prior accident years net claims and claim expenses $ 16,202 The favorable development of prior accident years net claims and claim expenses within our Lloyd's segment of $16.2 million during 2012 was principally due to favorable development of $8.0 million due to reported claims coming in lower than expected on a number of prior accident years events, as a result of the application of the Company's formulaic actuarial reserving methodology, $5.5 million related to the 2011 Thailand Floods, $2.5 million related to Hurricane Irene, and $1.5 million due to lower than expected 83 -------------------------------------------------------------------------------- reported claims for catastrophe losses within our Lloyd's segment's property catastrophe reinsurance book of business, partially offset by $1.3 million of adverse development related to actuarial assumption changes. The Company commenced its Lloyd's operations in mid-2009 and the prior accident years reserve development in this segment for the year ended December 31, 2011 amounted to $0.5 million which principally related to the 2010 New Zealand Earthquake. Actual Results vs. Initial Estimates The table below summarizes our initial assumptions and changes in those assumptions for catastrophe claims and claim expense reserves associated with our property catastrophe reinsurance business within our Lloyd's segment. Similar to our Catastrophe Reinsurance segment, the key assumption in estimating reserves for property catastrophe reinsurance losses in our Lloyd's segment is our estimate of the ultimate claims and claim expenses. The table shows our initial estimates of ultimate claims and claim expenses for each accident year and how these initial estimates have developed over time. The initial estimate of accident year claims and claim expenses represents our estimate of the ultimate settlement and administration costs for claims incurred from catastrophic events occurring during a particular accident year, and as reported as of December 31 of that year. The re-estimated ultimate claims and claim expenses represent our revised estimates as reported as at the respective year end. The cumulative favorable (adverse) development shows how our most recent estimates as reported at December 31, 2013 differ from our initial accident year estimates. Favorable development implies that our current estimates are lower than our initial estimates while adverse development implies that our current estimates are higher than our original estimates. Total reserves as of December 31, 2013 reflect the unpaid portion of our estimates of ultimate claims and claim expenses. The table is presented on a gross basis and therefore does not include the benefit of reinsurance recoveries or loss related premium such as reinstatement premium. Actual vs. Initial Estimated Lloyd's Segment Catastrophe Claims and Claim Expense Reserve Analysis for Property Catastrophe Reinsurance Business (in thousands, except percentages) Initial Claims % of Estimate and Claim Claims and Claim of Accident Re-estimated Claims and Cumulative % Decrease Expense Expenses Year Claim Expenses Favorable (Increase) Reserves at Unpaid at Claims and as of December 31, (Adverse) from Initial December 31, December 31, Accident Year Claim Expenses 2011 2012 2013 Development Ultimate 2013 2013 2010 $ 5,277 $ 5,986$ 6,310$ 6,018 $ (741 ) (14.0 )% $ 5,491 91.2 % 2011 30,121 30,121 24,037 23,565 6,556 21.8 % 2,404 10.2 % 2012 10,957 - 10,957 8,770 2,187 20.0 % 6,334 72.2 % 2013 5,977 - - 5,977 - - % 5,929 99.2 % $ 52,332 $ 36,107$ 41,304$ 44,330$ 8,002 17.3 % $ 20,158 45.5 % As quantified in the table above, since our Lloyd's segment commenced writing business in mid-2009, we have experienced $8.0 million of net favorable development on our gross reserves related to catastrophe events for our property catastrophe reinsurance business within our Lloyd's segment. As described above and similar to our Catastrophe Reinsurance segment, given the complexity in reserving for claims and claims expenses associated with catastrophe losses for property catastrophe reinsurance business, we have experienced development, both favorable and unfavorable, in any given accident year. For example, our 2011 accident year has developed favorably by $6.6 million, which is 21.8% better than our initial estimates of claims and claim expenses for the 2011 accident year as estimated as of December 31, 2011, while our 2010 accident year has developed unfavorably by $0.7 million, or negative 14.0%. On a net basis, our cumulative favorable or unfavorable development is generally reduced by offsetting changes in our reinsurance recoverables, as well as changes to loss related premiums such as reinstatement premiums, all of which generally move in the opposite direction to changes in our ultimate claims and claim expenses. 84 -------------------------------------------------------------------------------- The percentage of claims unpaid at December 31, 2013 for each accident year reflects both the speed at which claims and claim expenses for each accident year have been paid and our estimate of claims and claim expenses for that accident year. This is driven in part by the mix of our business and the speed of the settlement and payment of claims by our underlying cedants. Actual vs. Initial Estimated Lloyd's Segment Attritional Claims and Claim Expense Reserve Analysis - Estimated Ultimate Claims and Claim Expense Ratio The table below summarizes our key actuarial assumptions in reserving for attritional losses for our specialty reinsurance and insurance lines of business in our Lloyd's segment. As noted above, the key actuarial assumptions include the estimated ultimate claims and claim expense ratios and the estimated loss reporting patterns. The table shows our initial estimates of the ultimate claims and claim expense ratio by underwriting year. The initial estimate is based on the actuarial assumptions that were in place at the end of that year. A decrease in the ultimate claims and claim expense ratio implies that our current estimates are lower than our initial estimates while an increase in the ultimate claims and claim expense ratio implies that our current estimates are higher than our initial estimates. The result would be a corresponding favorable impact on shareholders' equity and net income or a corresponding unfavorable impact on shareholders' equity and net income, respectively. The table below reflects a summary of the weighted average assumptions for all classes of specialty reinsurance and insurance business in our Lloyd's segment for which we reserve for attritional losses using the Bornhuetter-Ferguson actuarial method. The table is presented on a gross loss basis and therefore does not include the benefit of reinsurance recoveries or loss related premium such as reinstatement premium. Estimated Ultimate Claims and Claim Expenses Ratio Re-estimate at Underwriting Year Initial Estimate December 31, 2011 December 31, 2012 December 31, 2013 2010 63.3% 56.5% 53.5% 50.2 % 2011 66.0% 83.0% 60.6% 55.1 % 2012 58.4% -% 87.4% 69.5 % 2013 60.6% -% -% 67.9 % The table above shows our initial estimated ultimate claims and claim expense ratios for attritional losses for each new underwriting year within specialty insurance and reinsurance in our Lloyd's segment. The principal reason for changes from one underwriting year to the next is changes in the mix and relative volume of business. As each underwriting year has developed, our re-estimated expected ultimate claims and claim expense ratios have changed. In particular, our re-estimated ultimate claims and claim expense ratios decreased from the initial estimates for the 2010 and 2011 underwriting years and increased for the 2012 and 2013 underwriting years. The decrease in the re-estimated ultimate claims and claim expense ratio for the 2010 and 2011 underwriting years at December 31, 2013 was principally due to the application of our formulaic actuarial reserving methodology with the reductions being due to actual paid and reported claim activity being more favorable to date than what was originally anticipated when setting the initial reserves combined with reductions to estimated ultimate claims and claim expenses on certain large events. However, the increase in the re-estimated ultimate claims and claim expense ratio for the 2012 and 2013 underwriting years at December 31, 2013 was the result of those underwriting years performing worse than expected, due in part to experiencing claims and claim expenses related to large property losses, including Storm Sandy in 2012, and a number of smaller property-related loss events in 2013. As noted above, our specialty reinsurance and insurance lines of business are in general characterized by events of low frequency and high severity which results in actual experience that can be significantly better or worse than long-term trends or industry results for similar business may imply. 85 -------------------------------------------------------------------------------- Sensitivity Analysis The table below shows the impact on our ultimate claims and claim expenses, net income and shareholders' equity as of and for the year ended December 31, 2013 of reasonably likely changes to our estimates of ultimate losses for claims and claim expenses incurred from catastrophic events associated with property catastrophe reinsurance business within our Lloyd's segment. The reasonably likely changes are based on a historical analysis of the period-to-period variability of our ultimate costs to settle claims from catastrophic events, giving due consideration to changes in our reserving practices over time. In general, our claim reserves for our more recent catastrophic events are subject to greater uncertainty and, therefore, greater variability and are likely to experience material changes from one period to the next. This is due to the uncertainty as to the size of the industry losses from the event, uncertainty as to which contracts have been exposed to the catastrophic event, and uncertainty as to the magnitude of claims incurred by our clients. As our claims age, more information becomes available and we believe our estimates become more certain, although there is no assurance this trend will continue in the future. As a result, the sensitivity analysis below is based on the age of each accident year, our current estimated ultimate claims and claim expenses for the catastrophic events occurring in each accident year, and the reasonably likely variability of our current estimates of claims and claim expenses by accident year. Lloyd's Segment Property Catastrophe Reinsurance Claims and Claim Expense Reserve Sensitivity Analysis $ Impact of Change on Ultimate % Impact of % Impact of % Impact of Ultimate Claims Change Change Change Claims and and Claim on



Reserve for Claims on Net Income for on Shareholders'

Claim Expenses at Expenses and



Claim Expenses the Year Ended Equity at

(in thousands, December 31, at December 31, at December 31, December 31, December 31,

except percentages) 2013 2013 2013 2013 2013 Higher $ 53,657 $ 9,327 0.6 % (1.1 )% (0.2 )% Recorded 44,330 - - % - % - % Lower $ 35,003 $ (9,327 ) (0.6 )% 1.1 % 0.2 % We believe the changes we made to our estimated ultimate claims and claim expenses represent reasonably likely outcomes based on our experience to date and our future expectations. While we believe these are reasonably likely outcomes, we do not believe the reader should consider the above sensitivity analysis an actuarial reserve range. In addition, the sensitivity analysis only reflects reasonably likely changes in our underlying assumptions. It is possible that our estimated ultimate claims and claim expenses could be significantly higher or lower than the sensitivity analysis described above. For example, we could be liable for events for which we have not estimated claims and claim expenses or for exposures we do not currently believe are covered under our policies. These changes could result in significantly larger changes to our estimated ultimate claims and claim expenses, net income and shareholders' equity than those noted above. We also caution the reader that the above sensitivity analysis is not used by management in developing our reserve estimates and is also not used by management in managing the business. 86 -------------------------------------------------------------------------------- Lloyd's Segment Attritional Claims and Claim Expense Reserve Sensitivity Analysis $ Impact of % Impact of % Impact of Change Change Change on % Impact of on Reserves for on Reserves for Net Income Change on Estimated Claims and Claim Claims and Claim for the Year Shareholders' Loss Expenses at Expenses at Ended Equity at (in thousands,except Reporting December 31, December 31, December 31, December 31, percentages) Pattern 2013 2013 2013 2013 Increase expected claims and claim expense ratio Slower by 25% reporting $ 85,986 5.5 % (10.2 )% (2.2 )% Increase expected claims and claim expense ratio Expected by 25% reporting 38,456 2.5 % (4.6 )% (1.0 )% Increase expected claims and claim expense ratio Faster by 25% reporting (15,373 ) (1.0 )% 1.8 % 0.4 % Expected claims and Slower claim expense ratio reporting 38,025 2.4 % (4.5 )% (1.0 )% Expected claims and Expected claim expense ratio reporting - - % - % - % Expected claims and Faster claim expense ratio reporting (43,063 ) (2.8 )% 5.1 % 1.1 % Decrease expected claims and claim expense ratio Slower by 25% reporting (9,937 ) (0.6 )% 1.2 % 0.3 % Decrease expected claims and claim expense ratio Expected by 25% reporting (38,456 ) (2.5 )% 4.6 % 1.0 % Decrease expected claims and claim expense ratio Faster by 25% reporting (70,753 ) (4.5 )% 8.4 % 1.8 % We believe that ultimate claims and claim expense ratios 25.0 percentage points above or below our estimated assumptions constitute reasonably likely outcomes based on our experience to date and our future expectations. In addition, we believe that the adjustments that we made to speed up or slow down our estimated loss reporting patterns are reasonably likely changes. While we believe these are reasonably likely changes, we do not believe the reader should consider the above sensitivity analysis an actuarial reserve range. In addition, we caution the reader that the above sensitivity analysis only reflects reasonably likely changes. It is possible that our initial estimated claims and claim expense ratios and loss reporting patterns could be significantly different from the sensitivity analysis described above. For example, we could be liable for events which we have not estimated reserves for or for exposures we do not currently think are covered under our contracts. These changes could result in significantly larger changes to reserves for claims and claim expenses, net income and shareholders' equity than those noted above. We also caution the reader that the above sensitivity analysis is not used by management in developing our reserve estimates and is also not used by management in managing the business. Other Included in the Other category are the remnants of our Bermuda-based insurance operations not sold pursuant to the stock purchase agreement with QBE. These operations are in run-off and no new business is being underwritten. Our outstanding claims and claim expense reserves for these operations include insurance policies and quota share reinsurance with respect to risks including: 1) commercial property, which principally included catastrophe-exposed commercial property products; 2) commercial multi-line, which included commercial property and liability coverage, such as general liability, automobile liability and physical damage, building and contents, professional liability and various specialty products; and 3) personal lines property, which principally included homeowners personal lines property coverage and catastrophe exposed personal lines property coverage and totaled $58.1 million at December 31, 2013. We use the Bornhuetter-Ferguson actuarial method to estimate claims and claim expenses within the Other category for our property and casualty insurance and quota share reinsurance business. The comments discussed above relating to our reserving techniques and processes for our Specialty Reinsurance segment also apply to our Other category. In addition, certain of our coverages may be impacted by natural and 87 -------------------------------------------------------------------------------- man-made catastrophes. We estimate claim reserves for these losses after the event giving rise to these losses occurs, following a process that is similar to our Catastrophe Reinsurance segment. Development of Prior Year Liability for Unpaid Claims and Claim Expenses The following table details the development of our liability for unpaid claims and claim expenses for our Other category split between large catastrophe events and attritional claims and claim expenses: At December 31, 2013 2012 2011 (in thousands) Attritional claims and claim expenses $ (2,179 )$ 3,265$ 1,389 Catastrophe events 1,729 1,171 4,243 Loss portfolio transfer - (7,383 ) - Actuarial assumption changes - - (10,063 ) Total adverse development of prior accident years net claims and claim expenses $ (450 )$ (2,947 )$ (4,431 ) The net adverse development on prior accident years of $0.5 million for 2013 within our Other category was principally the result of $2.2 million related to the application of our formulaic actuarial reserving methodology with the increases being due to actual paid and reported claim activity coming in higher than what was originally anticipated when setting the initial reserves; partially offset by favorable development of $1.7 million related to prior period large catastrophe events. The net adverse development on prior accident years of $2.9 million for 2012 within our Other category was principally the result of a loss portfolio transfer entered into by us on October 1, 2012, in respect of our contractor's liability book of business within RenaissanceRe Specialty Risks, whereby we paid consideration of $36.5 million to transfer net liabilities of $29.1 million, resulting in a loss of $7.4 million which is recorded above as prior accident years attritional claims and claims expenses in our Other category, partially offset by reductions in reported losses on certain attritional loss contracts and favorable development related to catastrophe events, primarily the 2008 Hurricanes. The net adverse development on prior accident years of $4.4 million in 2011 within our Other category was principally due to the construction defect book of business, which experienced higher than expected reported losses, and was subsequently subject to a comprehensive actuarial review during the fourth quarter of 2011, which review resulted in an increase of $10.1 million to the estimated ultimate claims and claim expenses related to this book of business due to changes in the actuarial assumptions. Partially offsetting the adverse development on prior accident years within the construction defect book of business, noted above, was favorable development of $4.2 million related to large catastrophe events, of which $4.6 million related to the 2005 Hurricanes, and $1.4 million related to the application of our formulaic actuarial reserving methodology with the reductions being due to actual paid and reported claim activity being more favorable to date than what was originally anticipated when setting the initial reserves. Reinsurance Recoverables We enter into reinsurance agreements in order to help reduce our exposure to large losses and to help manage our risk portfolio. Amounts recoverable from reinsurers are estimated in a manner consistent with the claims and claim expense reserves associated with the related assumed reinsurance. For multi-year retrospectively rated contracts, we accrue amounts (either assets or liabilities) that are due to or from assuming companies based on estimated contract experience. If we determine that adjustments to earlier estimates are appropriate, such adjustments are recorded in the period in which they are determined. The estimate of reinsurance recoverables can be more subjective than estimating the underlying claims and claim expense reserves as discussed under the heading "Claims and Claim Expense Reserves" above. In particular, reinsurance recoverables may be affected by deemed inuring reinsurance, industry losses reported by various statistical reporting services, and other factors. Reinsurance recoverables on dual trigger reinsurance contracts require us to estimate our ultimate losses applicable to these contracts as well as estimate the ultimate amount of insured losses for the industry as a whole that will be reported by the applicable statistical reporting agency, as per the contract terms. In addition, the level of our additional case 88 -------------------------------------------------------------------------------- reserves and IBNR reserves has a significant impact on reinsurance recoverables. These factors can impact the amount and timing of the reinsurance recoverables to be recorded. The majority of the balance we have accrued as recoverable will not be due for collection until some point in the future. The amounts recoverable ultimately collected are open to uncertainty due to the ultimate ability and willingness of reinsurers to pay our claims, for reasons including insolvency and elective run-off, contractual dispute and various other reasons. In addition, because the majority of the balances recoverable will not be collected for some time, economic conditions as well as the financial and operational performance of a particular reinsurer may change, and these changes may affect the reinsurer's willingness and ability to meet their contractual obligations to us. To reflect these uncertainties, we estimate and record a valuation allowance for potential uncollectible reinsurance recoverable which reduces reinsurance recoverable and net income (loss). We estimate our valuation allowance by applying specific percentages against each reinsurance recoverable based on our counterparty's credit rating. The percentages applied are based on historical industry default statistics developed by major rating agencies and are then adjusted by us based on industry knowledge and our judgment and estimates. We also apply case-specific valuation allowances against certain recoveries that we deem unlikely to be collected in full. We then evaluate the overall adequacy of the valuation allowance based on other qualitative and judgmental factors. The valuation allowance recorded against reinsurance recoverable was $1.7 million at December 31, 2013 (2012 - $4.5 million). The reinsurers with the three largest balances accounted for 28.2%, 19.9% and 11.0%, respectively, of our reinsurance recoverable balance at December 31, 2013 (2012 - 14.3%, 14.3% and 12.6%, respectively). The three largest company-specific components of the valuation allowance represented 14.2%, 12.5% and 3.1%, respectively, of our total valuation allowance at December 31, 2013 (2012 - 44.1%, 26.7% and 6.1%, respectively). Fair Value Measurements and Impairments Fair Value The use of fair value to measure certain assets and liabilities with resulting unrealized gains or losses is pervasive within our financial statements. Fair value is defined under accounting guidance currently applicable to us to be the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between open market participants at the measurement date. We recognize the change in unrealized gains and losses arising from changes in fair value in our consolidated statements of operations, with the exception of changes in unrealized gains and losses on our fixed maturity investments available for sale, which are recognized as a component of accumulated other comprehensive income in shareholders' equity. FASB ASC Topic Fair Value Measurements and Disclosures prescribes a fair value hierarchy that prioritizes the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to valuation techniques that use at least one significant input that is unobservable (Level 3). The three levels of the fair value hierarchy are described below: • Fair values determined by Level 1 inputs utilize unadjusted quoted prices



obtained from active markets for identical assets or liabilities for which

we have access. The fair value is determined by multiplying the quoted price

by the quantity held by us;

• Fair values determined by Level 2 inputs utilize inputs other than quoted

prices included in Level 1 that are observable for the asset or liability,

either directly or indirectly. Level 2 inputs include quoted prices for

similar assets and liabilities in active markets, and inputs other than

quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals, broker quotes and certain pricing indices; and



• Level 3 inputs are based all or in part on significant unobservable inputs

for the asset or liability, and include situations where there is little, if

any, market activity for the asset or liability. In these cases, significant

management assumptions can be used to establish management's best estimate

of the assumptions used by other market participants in determining the fair

value of the asset or liability. 89

-------------------------------------------------------------------------------- In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement of the asset or liability. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and we consider factors specific to the asset or liability. In order to determine if a market is active or inactive for a security, we consider a number of factors, including, but not limited to, the spread between what a seller is asking for a security and what a buyer is bidding for the same security, the volume of trading activity for the security in question, the price of the security compared to its par value (for fixed maturity investments), and other factors that may be indicative of market activity. Other than the transaction noted below, there have been no material changes in the Company's valuation techniques, nor have there been any transfers between Level 1 and Level 2, or Level 2 and 3 during the periods represented by these consolidated financial statements. As discussed in greater detail below, the Company transferred its investment in the common shares of Essent, a U.S. mortgage guaranty insurance company, from Level 3 to Level 1, effective October 31, 2013, the date which Essent became a publicly traded company on the NYSE. The fair value transferred from Level 3 to Level 1 was $85.6 million. Below is a summary of the assets and liabilities that are measured at fair value on a recurring basis and also represents the carrying amount of such assets and liabilities on our consolidated balance sheet: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs At December 31, 2013 Total (Level 1) (Level 2) (Level 3) (in thousands) Fixed maturity investments U.S. treasuries $ 1,352,413$ 1,352,413 $ - $ - Agencies 186,050 - 186,050 - Non-U.S. government (Sovereign debt) 334,580 - 334,580 - Non-U.S. government-backed corporate 237,479 - 237,479 - Corporate 1,803,415 - 1,775,835 27,580 Agency mortgage-backed 341,908 - 341,908 - Non-agency mortgage-backed 257,938 - 257,938 - Commercial mortgage-backed 314,236 - 314,236 - Asset-backed 15,258 - 15,258 - Total fixed maturity investments 4,843,277 1,352,413 3,463,284 27,580 Short term investments 1,044,779 - 1,044,779 - Equity investments trading 254,776 254,776 - - Other investments Private equity partnerships 322,391 - - 322,391 Senior secured bank loan funds 18,048 - - 18,048 Catastrophe bonds 229,016 - 229,016 - Hedge funds 3,809 - - 3,809 Total other investments 573,264 - 229,016 344,248



Other assets and (liabilities)

Derivatives (1) 4,758 823 6,425 (2,490 ) Other (12,991 ) - (12,991 ) - Total other assets and (liabilities) (8,233 ) 823 (6,566 ) (2,490 ) $ 6,707,863$ 1,608,012$ 4,730,513$ 369,338



(1) See "Note 19. Derivative Instruments in our Notes to Consolidated Financial

Statements" for additional information related to the fair value by type of

contract, of derivatives entered into by us. 90

-------------------------------------------------------------------------------- As at December 31, 2013, we have classified $371.8 million and $2.5 million of our assets and liabilities, respectively, at fair value on a recurring basis using Level 3 inputs. This represented 4.5% and 0.1% of our total assets and liabilities, respectively. Level 3 fair value measurements are based on valuation techniques that use at least one significant input that is unobservable. These measurements are made under circumstances in which there is little, if any, market activity for the asset or liability. We use valuation models or other pricing techniques that require a variety of inputs including contractual terms, market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs, some of which may be unobservable, to value these Level 3 assets and liabilities. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment. In making the assessment, we considered factors specific to the asset or liability. In certain cases, the inputs used to measure fair value of an asset or a liability may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is determined based on the lowest level input that is significant to the fair value measurement of the asset or liability. See to "Note 6. Fair Value Measurements in our Notes to Consolidated Financial Statements" for additional information about fair value measurements. Impairments The amount and timing of asset impairment is subject to significant estimation techniques and asset impairment is a critical accounting estimate for us. The more significant impairment reviews we complete are for our equity method investments, goodwill and other intangible assets, and fixed maturity investments available for sale, as described in more detail below. Investments in Other Ventures, Under Equity Method Investments in which we have significant influence over the operating and financial policies of the investee are classified as investments in other ventures, under equity method, and are accounted for under the equity method of accounting. Under this method, we record our proportionate share of income or loss from such investments in our results for the period. Any decline in the value of investments in other ventures, under equity method, including goodwill and other intangible assets arising upon acquisition of the investee, considered by management to be other-than-temporary, is reflected in our consolidated statements of operations in the period in which it is determined. As of December 31, 2013, we had $105.6 million (2012 - $87.7 million) in investments in other ventures, under equity method on our consolidated balance sheets, including $12.5 million of goodwill and $16.7 million of other intangible assets (2012 - $10.8 million and $19.6 million). The carrying value of our investments in other ventures, under equity method, individually or in the aggregate, may, and likely will, differ from the realized value we may ultimately attain, perhaps significantly so. In determining whether an equity method investment is impaired, we look at a variety of factors including the operating and financial performance of the investee, the investee's future business plans and projections, recent transactions and market valuations of publicly traded companies where available, discussions with the investee's management, and our intent and ability to hold the investment until it recovers in value. In doing this, we make assumptions and estimates in assessing whether an impairment has occurred and if, in the future, our assumptions and estimates made in assessing the fair value of these investments change, this could result in a material decrease in the carrying value of these investments. This would cause us to write-down the carrying value of these investments and could have a material adverse effect on our results of operations in the period the impairment charge is taken. We do not have any current plans to dispose of these investments, and cannot assure you that we will in the future consummate transactions in which we realize the value at which these holdings are reflected in our financial statements. During the year ended December 31, 2013, we recorded $Nil (2012 - $Nil, 2011 - $Nil) other-than-temporary impairment charges related to investments in other ventures, under the equity method. 91 -------------------------------------------------------------------------------- Goodwill and Other Intangible Assets Goodwill and other intangible assets acquired are initially recorded at fair value. Subsequent to initial recognition, finite lived other intangible assets are amortized over their estimated useful life, subject to impairment, and goodwill and indefinite lived other intangible assets are carried at the lower of cost or fair value. If goodwill or other intangible assets are impaired, they are written down to their estimated fair values with a corresponding expense reflected in our consolidated statements of operations. We test goodwill and other intangible assets for impairment in the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. For purposes of the annual impairment evaluation, goodwill is assigned to the applicable reporting unit of the acquired entities giving rise to the goodwill and other intangible assets and is tested based on the cash flows they produce. There are generally many assumptions and estimates underlying the fair value calculation. Principally, we identify the reporting unit or business entity that the goodwill or other intangible asset is attributed to, and review historical and forecasted operating and financial performance and other underlying factors affecting such analysis, including market conditions. Other assumptions used could produce significantly different results which may result in a change in the value of goodwill or our other intangible assets and related charge in our consolidated statements of operations. An impairment charge could be recognized in the event of a significant decline in the implied fair value of those operations where the goodwill or other intangible assets are applicable. As at December 31, 2013, excluding the amounts recorded in investments in other ventures, under equity method, as noted above, our consolidated balance sheets include $5.9 million of goodwill (2012 - $5.9 million) and $2.3 million of other intangible assets (2012 - $2.6 million). Impairment charges were $Nil during the year ended December 31, 2013 (2012 - $Nil, 2011 - $5.2 million). In the future it is possible that we will hold more goodwill, which would increase the degree of judgment and uncertainty embedded in our financial statements, and potentially increase the volatility of our reported results. Fixed Maturity Investments Available For Sale At December 31, 2013, we had $34.2 million (2012 - $83.4 million) of fixed maturity investments available for sale on our consolidated balance sheet. Included in accumulated other comprehensive income at December 31, 2013 was $4.0 million of gross unrealized gains (2012 - $12.1 million) and $17 thousand of gross unrealized losses (2012 - $103 thousand), related to our portfolio of fixed maturity investments available for sale. Our quarterly process for assessing whether declines in the fair value of our fixed maturity investments available for sale represent impairments that are other-than-temporary includes reviewing each fixed maturity investment available for sale that is impaired and determining: (i) if we have the intent to sell the debt security or (ii) if it is more likely than not that we will be required to sell the debt security before its anticipated recovery; and (iii) whether a credit loss exists, that is, where we expect that the present value of the cash flows expected to be collected from the security are less than the amortized cost basis of the security. For the year ended December 31, 2013 we recognized $Nil (2012 - $0.3 million, 2011 - $0.6 million) of net other-than-temporary impairments in our consolidated statements of operations related to our portfolio of fixed maturity investments available for sale. Income Taxes Income taxes have been provided in accordance with the provisions of FASB ASC Topic Income Taxes. Deferred tax assets and liabilities result from temporary differences between the amounts recorded in our consolidated financial statements and the tax basis of the Company's assets and liabilities. Such temporary differences are primarily due to net operating loss carryforwards and GAAP versus tax basis accounting differences related to interest expense, underwriting results, accrued expenses and investments. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits related to deferred tax assets will not be realized. At December 31, 2013, our net deferred tax asset (prior to our valuation allowance) and valuation allowance were $56.3 million (2012 - $34.9 million) and $56.1 million (2012 - $35.1 million), respectively (see "Note 15. Taxation in our Notes to Consolidated Financial Statements" for additional information). At each balance sheet date, we assess the need to establish a valuation allowance that reduces the net deferred tax asset when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The 92 -------------------------------------------------------------------------------- valuation allowance is based on all available information including projections of future GAAP taxable income from each tax-paying component in each tax jurisdiction. Losses incurred within our U.S. tax-paying subsidiaries in the fourth quarter of 2011 were significant enough to result in a cumulative GAAP taxable loss at the U.S. tax-paying subsidiaries for the three year period ended December 31, 2011. We reassess our valuation allowance on a quarterly basis and commencing with our reassessment effective December 31, 2011, we determined that it is more likely than not that we would not be able to recover our U.S. net deferred tax asset and as a result, recognized a full valuation allowance in the fourth quarter of 2011. At December 31, 2013, our U.S. tax-paying subsidiaries had a net deferred tax asset of $43.9 million (2012 - $24.6 million), for which a full valuation allowance has been provided as we continued to remain in a cumulative three year GAAP taxable loss position at our U.S. tax-paying subsidiaries throughout 2013, among other facts. In addition, our Ireland, U.K. and Singapore operations have each produced cumulative GAAP taxable losses, among other facts, and as a result, we continue to provide a valuation allowance against our net deferred tax assets for these operations. The Company has unrecognized tax benefits of $Nil as of December 31, 2013 (2012 - $Nil). Interest and penalties related to unrecognized tax benefits, would be recognized in income tax expense. At December 31, 2013, interest and penalties accrued on unrecognized tax benefits were $Nil (2012 - $Nil). Income tax returns filed for tax years 2009 through 2012, 2009 through 2012, 2012 and 2012, are open for examination by the Internal Revenue Service, Irish tax authorities, U.K. tax authorities, and Singapore tax authorities, respectively. The Company does not expect the resolution of these open years to have a significant impact on its consolidated statements of operations and financial condition. 93 --------------------------------------------------------------------------------



SUMMARY OF RESULTS OF OPERATIONS

Year ended December 31, 2013 2012



2011

(in thousands, except per share amounts and

percentages)

Statements of operations highlights

Gross premiums written $ 1,605,412$ 1,551,591$ 1,434,976 Net premiums written 1,203,947 1,102,657 1,012,773 Net premiums earned 1,114,626 1,069,355 951,049



Net claims and claim expenses incurred 171,287 325,211

861,179

Underwriting income (loss) 626,733 451,451



(177,167 )

Net investment income 208,028 165,725



146,871

Net realized and unrealized gains on

investments 35,076 163,121



43,956

Income (loss) from continuing operations 839,346 765,425

(38,833 )

Income (loss) from discontinued operations 2,422 (16,476 ) (51,559 )

Net income (loss) 841,768 748,949



(90,392 )

Net income (loss) available (attributable)

to RenaissanceRe common shareholders 665,676 566,014



(92,235 )

Income (loss) from continuing operations

available (attributable) to RenaissanceRe

common shareholders per common share -

diluted $ 14.82$ 11.56



$ (0.82 )

Income (loss) from discontinued operations

per common share - diluted 0.05 (0.33



) (1.02 )

Net income (loss) available (attributable)

to RenaissanceRe common shareholders per

common share - diluted $ 14.87$ 11.23$ (1.84 ) Dividends per common share $ 1.12$ 1.08$ 1.04 Key ratios



Net claims and claim expense ratio -

current accident year 28.3 % 45.2



% 104.4 %

Net claims and claim expense ratio - prior

accident years (12.9 )% (14.8



)% (13.8 )%

Net claims and claim expense ratio -

calendar year 15.4 % 30.4 % 90.6 % Underwriting expense ratio 28.4 % 27.4 % 28.0 % Combined ratio 43.8 % 57.8 % 118.6 % Return on average common equity 20.5 % 17.7 % (3.0 )% December 31, December 31, December 31, Book value 2013 2012 2011 Book value per common share $ 80.29$ 68.14$ 59.27 Accumulated dividends per common share 13.12 12.00



10.92

Book value per common share plus

accumulated dividends $ 93.41$ 80.14



$ 70.19

Change in book value per common share plus

change in accumulated dividends 19.5 % 16.8 % (3.6 )% December 31, December 31, December 31, Balance sheet highlights 2013 2012 2011 Total assets $ 8,179,131$ 7,928,628$ 7,744,912 Total shareholders' equity attributable to RenaissanceRe $ 3,904,384$ 3,503,065$ 3,605,193 94

-------------------------------------------------------------------------------- Below is a discussion of the results of operations for 2013 compared to 2012. Net income available to RenaissanceRe common shareholders was $665.7 million in 2013, compared to $566.0 million in 2012, an increase of $99.7 million. As a result of our net income available to RenaissanceRe common shareholders in 2013, we generated an annualized return on average common equity of 20.5% and our book value per common share increased from $68.14 at December 31, 2012 to $80.29 at December 31, 2013, a 19.5% increase, after considering the change in accumulated dividends paid to our common shareholders. The most significant items affecting our financial performance during 2013, on a comparative basis to 2012, include: • Improved Underwriting Results - our underwriting income of $626.7 million in



2013 increased $175.3 million from $451.5 million in 2012 and was positively

impacted by a decrease in net claims and claim expenses of $153.9 million,

principally due to lower insured losses in respect of large events. Included

in underwriting income for 2013 was $22.9 million and $12.7 million of

underwriting losses related to the May 2013 U.S. Tornadoes and the European

Floods. In comparison, Storm Sandy and Hurricane Isaac resulted in $149.1

million and $26.3 million of underwriting losses in 2012, respectively.

Favorable development on prior accident years was $144.0 million in 2013,

compared to $158.0 million in 2012, primarily driven by the Catastrophe

Reinsurance segment, as discussed further below; partially offset by

• Lower Total Investment Result - our total investment result of $235.1 million

in 2013, which includes the sum of net investment income of $208.0 million,

net realized and unrealized gains on investments of $35.1 million, net

other-than-temporary impairments of $Nil and the decrease in net unrealized

gains on fixed maturity investments available for sale of $8.0 million,

decreased by $94.0 million in 2013, from $329.1 million in 2012. The decrease

in the total investment result was primarily due to lower total returns in

our fixed maturity investment portfolio as a result of a rising interest rate

environment in 2013, compared to the significant contraction in credit

spreads yielding higher returns from our fixed maturity investment portfolio

in 2012; partially offset by realized and unrealized gains in our portfolio

of equity investments trading in 2013, compared to 2012, and improved returns

in our portfolio of other investments, primarily driven by our investment in

the common shares of Essent; and

• Net Income Attributable to Noncontrolling Interests - our net income

attributable to noncontrolling interests was $151.1 million in 2013, compared

to $148.0 million in 2012, an increase of $3.1 million and was primarily due

to our noncontrolling economic ownership percentage in DaVinciRe decreasing

to 27.3% at December 31, 2013, compared to 30.8% at December 31, 2012, resulting in an increase in the portion of DaVinciRe's net income attributable to noncontrolling interests. Below is a discussion of the results of operations for 2012 compared to 2011. Net income available to RenaissanceRe common shareholders was $566.0 million in 2012, compared to a net loss attributable to RenaissanceRe common shareholders of $92.2 million in 2011, an improvement of $658.2 million. As a result of our net income available to RenaissanceRe common shareholders in 2012, we generated an annualized return on average common equity of 17.7% and our book value per common share increased from $59.27 at December 31, 2011 to $68.14 at December 31, 2012, a 16.8% increase, after considering the change in accumulated dividends paid to our common shareholders. The most significant items affecting our financial performance during 2012, on a comparative basis to 2011, include: • Increased Gross Premiums Written - gross premiums written increased $116.6



million, or 8.1%, to $1,551.6 million. Excluding the impact of $20.1 million

and $160.3 million of net reinstatement premiums written from large losses in

2012 and 2011, respectively, gross premiums written increased $256.8 million,

or 20.1% for the year, due to a combination of improved pricing during the

2012 renewals within our core markets, and continued growth across most lines

of business within our Specialty Reinsurance and Lloyd's segments;

• Significantly Improved Underwriting Results - underwriting income of $451.5

million and a combined ratio of 57.8% in 2012, compared to an underwriting

loss of $177.2 million and a combined ratio of 118.6% in 2011, was positively

impacted by the increase in gross premiums written, noted above, and a 95

-------------------------------------------------------------------------------- decrease in net claims and claim expenses of $536.0 million due to significantly lower insured losses with respect of large events. Included in underwriting income for 2012 was $149.1 million and $26.3 million of underwriting losses related to Storm Sandy and Hurricane Isaac, respectively, which added a total of 19.0 percentage points to our 2012 combined ratio. The 2011 Large Losses resulted in $725.2 million of underwriting losses and added 85.4 percentage points to our combined ratio, as detailed in the table below; • Higher Investment Results - our net investment income and net realized and



unrealized gains on investments increased $18.9 million and $119.2 million,

respectively, in 2012, compared to 2011, primarily due to higher total returns in our fixed maturity investments portfolio as a result of the significant tightening of credit spreads combined with higher average invested assets and improved valuations in our portfolio of other investments, specifically our senior secured bank loan funds;



• Equity in Earnings of Other Ventures - our equity in earnings of other

ventures improved to earnings of $23.2 million in 2012, compared to a loss of

$36.5 million in 2011. The $59.8 million improvement is primarily due to our

equity investment in Top Layer Re which generated income of $20.8 million in

2012, compared to a loss of $37.5 million in 2011, an improvement of $58.3

million, principally due to the absence of large losses during 2012, compared

to claims and claim expenses incurred in 2011 in Top Layer Re related to the

2011 New Zealand and Tohoku Earthquakes; and

• Lower Net Loss Attributable to Discontinued Operations - our loss from

discontinued operations was $16.5 million in 2012, compared to a loss of

$51.6 million in 2011, primarily driven by $20.8 million of trading losses

within REAL during 2012 compared to trading losses of $45.0 million in 2011;

and partially offset by

• Other Loss - our other loss deteriorated $46.5 million to a loss of $2.1

million in 2012, compared to income of $44.3 million in 2011, primarily the

result of ceded reinsurance contracts accounted for at fair value which

incurred a loss of $4.6 million in 2012, compared to income of $37.4 million

in 2011, due to net recoverables on the Tohoku Earthquake in the first

quarter of 2011 which did not reoccur in 2012; and

• Net (Income) Loss Attributable to Redeemable Noncontrolling Interest -

DaVinciRe - our net income attributable to redeemable noncontrolling interest

- DaVinciRe was $147.5 million in 2012, compared to net loss attributable to

redeemable noncontrolling interest - DaVinciRe of $33.7 million in 2011, a

change of $181.2 million, principally due to a significant improvement in

underwriting income as a result of the decrease in current accident year net

claims and claim expenses and higher investment results, as noted above,

which also impacted DaVinciRe, and together resulted in net income of $212.5

million for DaVinciRe in 2012, compared to net loss of $61.3 million for

DaVinciRe in 2011. In addition, our noncontrolling economic ownership in

DaVinciRe decreased from 42.8% at December 31, 2011 to 30.8% at December 31,

2012, consequently increasing redeemable noncontrolling interest - DaVinciRe.

Net Negative Impact of Specific Events Net negative impact includes the sum of estimates of net claims and claim expenses incurred, earned reinstatement premiums assumed and ceded, profit commissions and redeemable noncontrolling interest. Net negative impact of the 2011 Large Losses also includes equity in the net claims and claim expenses of Top Layer Re, and other income in respect of ceded reinsurance contracts accounted for at fair value. Our estimates are based on a review of our potential exposures, preliminary discussions with certain counterparties and catastrophe modeling techniques. Given the magnitude and recent occurrence of certain of these events, delays in receiving claims data, the contingent nature of business interruption and other exposures, potential uncertainties relating to reinsurance recoveries and other uncertainties inherent in loss estimation, meaningful uncertainty remains regarding losses from these events. In addition, a significant portion of the net claims and claim expenses associated with the 2011 New Zealand and Tohoku Earthquakes and Storm Sandy are concentrated with a few large clients, and therefore, the loss estimates for these events may vary significantly based on the claims experience of those clients. Accordingly, our actual net negative impact from these events will vary from these preliminary estimates, perhaps materially so. Changes in these estimates will be recorded in the period in which they occur. 96 --------------------------------------------------------------------------------



See the financial data below for additional information detailing the net negative impact of the European Floods and May 2013 U.S. Tornadoes on our consolidated financial statements for 2013.

May 2013 U.S. Twelve months ended December 31, 2013 Tornadoes



European Floods Total

(in thousands, except percentages)

Net claims and claim expenses incurred $ (26,245 ) $

(15,145 ) $ (41,390 )

Reinstatement premiums earned 2,969



2,098 5,067

Profit commissions 391 388 779



Net negative impact on underwriting result $ (22,885 ) $

(12,659 ) (35,544 )

Redeemable noncontrolling interest 4,001



2,230 6,231

Net negative impact $ (18,884 ) $



(10,429 ) $ (29,313 )

Percentage point impact on consolidated

combined ratio 2.2 1.3 3.5



Net negative impact on Catastrophe Reinsurance

segment underwriting result $ (21,903 ) $



(10,742 ) $ (32,645 )

Net negative impact on Lloyd's segment

underwriting result (982 )



(1,917 ) (2,899 )

Net negative impact on underwriting result $ (22,885 ) $

(12,659 ) $ (35,544 )

During the fourth quarter of 2013, we experienced favorable development on prior accident years net claims and claim expenses related to Storm Sandy which had a net positive impact on our consolidated financial statements, as detailed in the table below. Twelve months ended December 31, 2013



Storm Sandy

(in thousands, except percentages)

Net claims and claim expenses incurred $



48,285

Reinstatement premiums earned



(12,894 )

Ceded reinstatement premiums earned



341

Profit commissions



657

Net positive impact on underwriting result



36,389

Redeemable noncontrolling interest



(5,706 )

Net positive impact $



30,683

Percentage point impact on consolidated combined ratio



(3.8 )

Net positive impact on Catastrophe Reinsurance segment underwriting

result $



32,805

Net positive impact on Specialty Reinsurance segment underwriting

result



28

Net positive impact on Lloyd's segment underwriting result



3,556

Net positive impact on underwriting result $ 36,389 97

--------------------------------------------------------------------------------



See the financial data below for additional information detailing the net negative impact of Hurricane Isaac and Storm Sandy on our consolidated financial statements in 2012.

Year ended December 31, 2012 Hurricane Isaac Storm



Sandy Total

(in thousands, except percentages)

Net claims and claim expenses incurred $ (33,185 )$ (187,944 )$ (221,129 )

Reinstatement premiums earned 8,863



37,437 46,300

Ceded reinstatement premiums earned -



(385 ) (385 )

Profit commissions (2,016 ) 1,771 (245 ) Net negative impact on underwriting result (26,338 )



(149,121 ) (175,459 )

Redeemable noncontrolling interest -

DaVinciRe 8,925



22,160 31,085

Net negative impact $ (17,413 ) $



(126,961 ) $ (144,374 )

Percentage point impact on consolidated

combined ratio 2.8 16.0 19.0



Net negative impact on Catastrophe

Reinsurance segment underwriting result $ (25,857 )$ (121,061 )$ (146,918 )

Net negative impact on Specialty Reinsurance

segment underwriting result -



(11,000 ) (11,000 )

Net negative impact on Lloyd's segment

underwriting result (481 )



(17,060 ) (17,541 )

Net negative impact on underwriting result $ (26,338 )$ (149,121 )$ (175,459 )

98 --------------------------------------------------------------------------------



See the financial data below for additional information detailing the net negative impact of the 2011 Large Losses on our consolidated financial statements in 2011.

2011 Large Losses

Year ended December 2011 New Zealand Tohoku Australian Large U.S. Aggregate

31, 2011 Earthquake Earthquake Floods Tornadoes Contracts Hurricane Irene Thailand Floods Total (in thousands, except percentages) Net claims and claim expenses incurred $ (273,596 )$ (284,348 )$ (12,273 ) $



(135,090 ) $ (33,080 )$ (32,530 )$ (76,437 )$ (847,354 )

Assumed

reinstatement

premiums earned 49,878 60,914 1,694 23,273 1,524 5,874 17,144 160,301 Ceded reinstatement premiums earned (3,542 ) (26,004 ) - - - - - (29,546 ) Lost profit commissions (7,522 ) (331 ) (348 ) (151 ) - - (245 ) (8,597 ) Net negative impact on underwriting result (234,782 ) (249,769 ) (10,927 ) (111,968 ) (31,556 ) (26,656 ) (59,538 ) (725,196 ) Equity in net claims and claim expenses of Top Layer Re (23,757 ) (26,243 ) - - - - - (50,000 ) Recoveries from ceded reinsurance contracts accounted for at fair value - 45,000 - - - - - 45,000 Redeemable noncontrolling interest - DaVinciRe 55,748 53,669 1,182 32,941 4,944 7,698 14,474



170,656

Net negative impact $ (202,791 )$ (177,343 )$ (9,745 )$ (79,027 )$ (26,612 )$ (18,958 )$ (45,064 )$ (559,540 ) Percentage point impact on consolidated combined ratio 25.0 26.5 1.1 11.6 3.3 2.7 6.0 85.4 Net negative impact on Catastrophe Reinsurance segment underwriting result $ (222,256 )$ (229,980 )$ (4,927 )$ (109,043 )$ (31,556 ) (24,156 ) (47,538 ) (669,456 ) Net negative impact on Specialty Reinsurance segment underwriting result (6,500 ) (7,500 ) (6,000 ) - - - (6,000 )



(26,000 )

Net negative impact

on Lloyd's segment

underwriting result (6,026 ) (12,289 ) - (2,925 ) - (2,500 ) (6,000 )



(29,740 )

Net negative impact

on underwriting

result $ (234,782 )$ (249,769 )$ (10,927 )$ (111,968 )$ (31,556 )$ (26,656 )$ (59,538 )$ (725,196 ) 99

-------------------------------------------------------------------------------- Underwriting Results by Segment Catastrophe Reinsurance Below is a summary of the underwriting results and ratios for our Catastrophe Reinsurance segment:



Catastrophe Reinsurance Segment Overview

Year ended December 31, 2013 2012



2011

(in thousands, except percentages)

Catastrophe Reinsurance gross premiums

written Renaissance $ 729,887$ 733,963$ 742,236 DaVinci 390,492 448,244 435,060



Total Catastrophe Reinsurance gross

premiums written $ 1,120,379$ 1,182,207$ 1,177,296 Net premiums written $ 753,078$ 766,035$ 773,560 Net premiums earned $ 723,705$ 781,738$ 737,545 Net claims and claim expenses incurred 7,908 165,209 770,350 Acquisition expenses 49,161 66,665 62,882 Operational expenses 108,130 103,811 100,932 Underwriting income (loss) $ 558,506$ 446,053$ (196,619 )



Net claims and claim expenses incurred -

current accident year $ 109,945$ 275,777



$ 829,487

Net claims and claim expenses incurred -

prior accident years (102,037 ) (110,568



) (59,137 )

Net claims and claim expenses incurred -

total $ 7,908$ 165,209



$ 770,350

Net claims and claim expense ratio -

current accident year 15.2 % 35.3



% 112.5 %

Net claims and claim expense ratio - prior

accident years (14.1 )% (14.2



)% (8.1 )%

Net claims and claim expense ratio -

calendar year 1.1 % 21.1



% 104.4 %

Underwriting expense ratio 21.7 % 21.8 % 22.3 % Combined ratio 22.8 % 42.9 % 126.7 % Catastrophe Reinsurance Gross Premiums Written - In 2013, our Catastrophe Reinsurance segment gross premiums written decreased by $61.8 million, or 5.2%, to $1,120.4 million, compared to $1,182.2 million in 2012, primarily reflecting reduced risk-adjusted pricing in the catastrophe markets we serve, including the Florida market as a whole, and the non-renewal of a number of contracts during the January and June 2013 renewals; net negative reinstatement premiums written of $24.1 million principally related to Storm Sandy, the Tohoku Earthquake and the Thailand Floods; and partially offset by $65.6 million of gross premiums written related to increased quota share premium and $27.0 million associated with a multi-year transaction. Excluding the impact of the $24.1 million of net negative reinstatement premiums written and $17.1 million of net positive reinstatement premiums written in 2013 and 2012, respectively, gross premiums written decreased $20.6 million, or 1.8% primarily due to the reduction in gross premiums written, discussed above. In 2012, our Catastrophe Reinsurance segment gross premiums written increased by $4.9 million, or 0.4%, to $1,182.2 million, compared to $1,177.3 million in 2011. Excluding the impact of $17.1 million and $159.8 million of net reinstatement premiums written in 2012 and 2011, our Catastrophe Reinsurance segment gross premiums written increased $147.6 million, or 14.5%, in 2012, primarily due to improved market conditions on a risk-adjusted basis within our core lines of business during the key January and June 2012 renewals, and inclusive of $37.4 million and $37.7 million of gross premiums written on behalf of our then fully-collateralized joint ventures, Upsilon RFO and Tim Re III. 100 -------------------------------------------------------------------------------- Our Catastrophe Reinsurance segment premiums are prone to significant volatility due to the timing of contract inception and also due to the business being characterized by a relatively small number of relatively large transactions. In addition, our property catastrophe reinsurance gross premiums written continue to be characterized by a large percentage of U.S. and Caribbean premium, as we have found business derived from exposures in Europe or the rest of the world to be, in general, less attractive on a risk-adjusted basis during recent periods. A significant amount of our U.S. and Caribbean premium provides coverage against windstorms, notably including U.S. Atlantic windstorms, as well as earthquakes and other natural and man-made catastrophes. Year ended December 31, 2013 2012 2011 (in thousands) Ceded premiums written - Catastrophe Reinsurance segment $ 367,301$ 416,172$ 403,736 Catastrophe Reinsurance Ceded Premiums Written - Ceded premiums written in our Catastrophe Reinsurance segment decreased $48.9 million to $367.3 million in 2013, compared to $416.2 million in 2012, primarily reflecting the non-renewal of a number of transactions when we constructed our portfolio during the June renewals, thereby retaining more of the attractive risks given the current market conditions, and the non-renewal of Timicuan Reinsurance III Limited ("Tim Re III") which resulted in $37.7 million of ceded premiums written in 2012, partially offset by the inception of new contracts, including the external cession of $37.5 million of premium related to Upsilon RFO during 2013. Ceded premiums written in our Catastrophe Reinsurance segment increased by $12.4 million in 2012, compared to 2011. Excluding the impact of $1.0 million and $28.0 million of reinstatement premiums related to recoveries on certain large losses in 2012 and 2011, respectively, ceded premiums written increased by $39.4 million or 9.8%, primarily due to ceded premiums written of $48.5 million related to our managed joint ventures, Upsilon and Tim Re III. Due to the potential volatility of the property catastrophe reinsurance contracts which we sell, we purchase reinsurance to reduce our exposure to large losses and to help manage our risk portfolio. We use our REMS© modeling system to evaluate how each purchase interacts with our portfolio of reinsurance contracts we write, and with the other ceded reinsurance contracts we purchase, to determine the appropriateness of the pricing of each contract and whether or not it helps us to balance our portfolio of risks. To the extent that appropriately priced coverage is available, we anticipate continued use of reinsurance to reduce the impact of large losses on our financial results and to manage our portfolio of risk; however, the buying of ceded reinsurance in our Catastrophe Reinsurance segment is based on market opportunities and is not based on placing a specific reinsurance program each year. In addition, in future periods we may utilize the growing market for insurance-linked securities to expand our ceded reinsurance buying if we find the pricing and terms of such coverages attractive. Catastrophe Reinsurance Underwriting Results - Our Catastrophe Reinsurance segment generated underwriting income of $558.5 million in 2013, compared to $446.1 million in 2012, an increase of $112.5 million. In 2013, our Catastrophe Reinsurance segment generated a net claims and claim expense ratio of 1.1%, an underwriting expense ratio of 21.7% and a combined ratio of 22.8%, compared to 21.1%, 21.8% and 42.9%, respectively, in 2012. The $112.5 million increase in the Catastrophe Reinsurance segment's underwriting result and 20.1 percentage point decrease in the combined ratio were driven by a relatively light catastrophe loss year resulting in a $165.8 million decrease in current accident year net claims and claim expenses, combined with a $17.5 million decrease in acquisition expenses, partially offset by a $58.0 million decrease in net premiums earned. Included in underwriting results for the Catastrophe Reinsurance segment in 2013 are $21.9 million and $10.7 million of underwriting losses related to the May 2013 U.S. Tornadoes and the European Floods, respectively. The decrease in acquisition expenses is primarily attributable to increases in profit commissions on certain ceded reinsurance contracts entered into which are netted with acquisition expenses, as discussed further below. 101 -------------------------------------------------------------------------------- In addition, the net positive impact on the Catastrophe Reinsurance segment's underwriting results from our review of Storm Sandy during the fourth quarter of 2013 was $32.8 million, or 6.8 percentage points on the combined ratio, as detailed in the table below. Year ended December 31, 2013



Storm Sandy

(in thousands, except percentages)

Net claims and claim expenses incurred $



44,460

Reinstatement premiums earned



(12,653 )

Ceded reinstatement premiums earned 341 Profit commissions 657 Net positive impact on Catastrophe Reinsurance segment underwriting result $



32,805

Percentage point impact on Catastrophe Reinsurance segment combined ratio (6.8 ) Our Catastrophe Reinsurance segment generated underwriting income of $446.1 million in 2012, compared to incurring an underwriting loss of $196.6 million in 2011, an improvement of $642.7 million. The improvement in underwriting income was driven by an increase in net premiums earned of $44.2 million principally due to the increase in gross premiums written noted above and a $553.7 million decrease in current accident year claims and claim expenses as a result of the relatively low level of insured catastrophe losses during 2012 which included $191.2 million of net claims and claim expenses related to Hurricane Isaac and Storm Sandy, compared to 2011 which was negatively impacted by net claims and claim expenses related to the 2011 Large Losses of $792.7 million. In addition, favorable development on prior accident years claims and claim expenses within our Catastrophe Reinsurance segment was $110.6 million in 2012, compared to $59.1 million in 2011, an increase of $51.4 million, as discussed below. In 2012, our Catastrophe Reinsurance segment generated a net claims and claim expense ratio of 21.1%, an underwriting expense ratio of 21.8% and a combined ratio of 42.9%, compared to 104.4%, 22.3% and 126.7%, respectively, in 2011. Current accident year net claims and claim expenses of $275.8 million includes $158.5 million related to Storm Sandy, $35.0 million related to the tornado outbreaks across the Midwestern region of the U.S. during late February and early March (PCS 66 and 67, respectively), $32.7 million related to Hurricane Isaac and $8.2 million related to the June 29, 2012 derecho (PCS 83) which impacted the Midwest to Mid-Atlantic coast of the U.S., with the remainder due primarily to a number of other relatively small events throughout the U.S. During 2012, Hurricane Isaac and Storm Sandy had a net negative impact of $146.9 million, or 23.3 percentage points, on our Catastrophe Reinsurance segment's underwriting result and combined ratio, respectively, as detailed in the table below. Operating expenses of $103.8 million in 2012 remained relatively flat compared to $100.9 million in 2011. See the financial data below for additional information detailing the net negative impact of Hurricane Isaac and Storm Sandy on our Catastrophe Reinsurance segment in 2012. Year ended December 31, 2012 Hurricane Isaac Storm



Sandy Total

(in thousands, except percentages)

Net claims and claim expenses incurred $ (32,685 )$ (158,477 )$ (191,162 )

Reinstatement premiums earned 8,844



36,030 44,874

Ceded reinstatement premiums earned -



(385 ) (385 )

Profit commissions (2,016 ) 1,771 (245 )



Net negative impact on Catastrophe

Reinsurance segment underwriting result $ (25,857 )$ (121,061 )$ (146,918 )

Percentage point impact on Catastrophe

Reinsurance segment combined ratio 4.8 21.0 23.3 Losses from our Catastrophe Reinsurance segment can be infrequent, but severe, as demonstrated by our 2011 results. Although 2012 was generally considered to be the third most costly year for industry-wide insured property catastrophe losses, behind only 2011 and 2005, we incurred a relatively low level of net claims and claim expenses. During periods in which we experience relatively low levels of property 102 -------------------------------------------------------------------------------- catastrophe loss activity, such as 2013 and 2012, we have the potential to produce a low level of losses and a related increase in underwriting income. As described herein, we believe there is likely to be an increase in the severity, and possibly the frequency, of weather related natural disasters and catastrophes relative to the historical experience over the past 100 years, including the frequency and severity of hurricanes that have the potential to make landfall in the U.S., potentially as a result of decadal ocean water temperature cyclical trends, changes in expected sea levels and a longer-term trend towards global warming. During 2013, we experienced $102.0 million of favorable development on prior year reserves within the Catastrophe Reinsurance segment, compared to $110.6 million in 2012, primarily due to $44.5 million, $18.0 million, $16.3 million and $10.9 million of favorable development related to reductions in the expected ultimate net loss for Storm Sandy (as detailed in the table above), the Tohoku Earthquake, the 2008 Hurricanes and the 2011 New Zealand Earthquake, respectively, as reported claims on these events came in lower than expected, and $34.2 million of net favorable development related to a number of other catastrophes principally the result of reported claims coming in lower than expected, resulting in decreases to the ultimate claims for these events through the application of our formulaic actuarial reserving methodology. Partially offsetting the reductions noted above was adverse development on the 2010 New Zealand Earthquake, U.S. PSC 70 and Hurricane Isaac of $11.0 million, $8.2 million and $2.6 million, respectively, associated with an increase in reported gross ultimate losses. During 2012, we experienced $110.6 million of favorable development on prior year reserves within the Catastrophe Reinsurance segment, compared to $59.1 million of favorable development on prior years reserves in 2011. The favorable development on prior year reserves in 2012 was primarily due to reductions in estimated ultimate losses on the 2010 Chilean Earthquake of $24.6 million, the 2008 Hurricanes of $17.5 million, the June 2007U.K. Floods of $17.3 million, the 2005 Hurricanes of $6.4 million, Hurricane Irene of $4.6 million, the Tohoku Earthquake of $3.9 million and a number of other catastrophes totaling $57.7 million, and partially offset by adverse development related to the 2010 and 2011 New Zealand Earthquakes of $21.5 million primarily due to increase in estimated ultimate losses. See "Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves" for additional discussion of our reserving techniques and prior year development of net claims and claim expenses. We have entered into joint ventures and specialized quota share cessions of our book of business. In accordance with the joint venture and quota share agreements, we are entitled to certain profit commissions and fee income. We record these profit commissions and fees as a reduction in acquisition and operating expenses and, accordingly, these profit commissions and fees have reduced our underwriting expense ratios. These profit commissions and fees totaled $86.0 million, $65.4 million and $58.3 million in 2013, 2012 and 2011, respectively, and resulted in a corresponding decrease to the Catastrophe Reinsurance segment underwriting expense ratio of 11.9%, 8.4% and 7.9%, respectively. In addition, we are entitled to certain fee income and profit commissions from DaVinci. Because the results of DaVinci, and its parent DaVinciRe, are consolidated in our results of operations, these fees and profit commissions are eliminated in our consolidated financial statements and are principally reflected in redeemable noncontrolling interest - DaVinciRe. The net impact of all fees and profit commissions related to these joint ventures and specialized quota share cessions within our Catastrophe Reinsurance segment was $145.9 million, $120.0 million and $64.6 million in 2013, 2012 and 2011, respectively. 103 --------------------------------------------------------------------------------



Specialty Reinsurance Below is a summary of the underwriting results and ratios for our Specialty Reinsurance segment:

Specialty Reinsurance Segment Overview

Year ended December 31, 2013 2012



2011

(in thousands, except percentages)

Specialty Reinsurance gross premiums

written Renaissance $ 256,354$ 207,387$ 144,192 DaVinci 3,135 2,500 1,699



Total Specialty Reinsurance gross premiums

written $ 259,489$ 209,887$ 145,891 Net premiums written $ 248,562$ 201,552$ 139,939 Net premiums earned $ 214,306$ 164,685$ 135,543 Net claims and claim expenses incurred 67,236 76,813 13,354 Acquisition expenses 41,538 23,826 20,096 Operational expenses 31,780 29,124 30,319 Underwriting income $ 73,752$ 34,922$ 71,774



Net claims and claim expenses incurred -

current accident year $ 101,347$ 110,959



$ 91,115

Net claims and claim expenses incurred -

prior accident years (34,111 ) (34,146



) (77,761 )

Net claims and claim expenses incurred -

total $ 67,236$ 76,813



$ 13,354

Net claims and claim expense ratio -

current accident year 47.3 % 67.4



% 67.2 %

Net claims and claim expense ratio - prior

accident years (15.9 )% (20.8



)% (57.3 )%

Net claims and claim expense ratio -

calendar year 31.4 % 46.6 % 9.9 % Underwriting expense ratio 34.2 % 32.2 % 37.1 % Combined ratio 65.6 % 78.8 % 47.0 % Specialty Reinsurance Gross Premiums Written - In 2013, our Specialty Reinsurance segment gross premiums written increased $49.6 million, or 23.6%, to $259.5 million, compared to $209.9 million in 2012, primarily due to the inception of a number of new contracts which met our risk-adjusted return thresholds including additional quota share business. In 2012, our Specialty Reinsurance segment gross premiums written increased $64.0 million, or 43.9%, to $209.9 million, compared to $145.9 million in 2011, primarily due to the inception of a number of new contracts during 2012 which met our risk-adjusted return thresholds. During 2013 and 2012, we experienced growth in a number of our specialty lines of business and will continue to seek to expand our specialty reinsurance operations through this platform, although we cannot assure you that we will do so. Our specialty reinsurance premiums are prone to significant volatility as this business is characterized by a relatively small number of comparably large transactions. Our Specialty Reinsurance segment gross premiums written in force at December 31, 2013 reflected a relatively larger proportion of quota share reinsurance compared to excess of loss reinsurance than in comparative periods. Our relative mix of business between quota share, or proportional business, and excess of loss business has fluctuated in the past and will vary in the future. Quota share business typically has relatively higher premiums per unit of expected underwriting income than traditional excess of loss reinsurance, particularly business that is heavily catastrophe exposed. In addition, quota share coverage tends to be exposed to relatively more attritional, and frequent, losses while subject to less expected severity. Our underwriting determination to support additional quota share capacity in 2013 reflected, in 104 -------------------------------------------------------------------------------- part, an assessment that the underlying business written by certain of our primary insurer clients had improved on a risk-adjusted basis, making this coverage more attractive in our portfolio. Specialty Reinsurance Underwriting Results - Our Specialty Reinsurance segment generated underwriting income of $73.8 million in 2013, compared to $34.9 million in 2012. In 2013, our Specialty Reinsurance segment generated a net claims and claim expense ratio of 31.4%, an underwriting expense ratio of 34.2% and a combined ratio of 65.6%, compared to 46.6%, 32.2% and 78.8%, respectively, in 2012. The $38.8 million increase in underwriting income and 13.2 percentage point decrease in the combined ratio is primarily due to a $49.6 million increase in net premiums earned as a result of the growth in gross premiums written over the prior twelve months and a $9.6 million decrease in net claims and claim expenses, partially offset by a $17.7 million increase in acquisition expenses due to higher net premiums earned and a higher proportion of quota share reinsurance premiums which have a higher acquisition expense ratio. Current accident year net claims and claim expenses of $101.3 million in 2013 were principally the result of the application of our formulaic actuarial reserving methodologies for establishing incurred but not reported reserves for net claims and claim expenses. Our Specialty Reinsurance segment generated $34.9 million of underwriting income in 2012, compared to $71.8 million in 2011, a decrease of $36.9 million, principally due to a $63.5 million increase in net claims and claim expenses, partially offset by a $29.1 million increase in net premiums earned due to the increase in gross premiums written noted above. The $63.5 million increase in net claims and claim expenses is driven by a $43.6 million decrease in favorable development on prior accident year net claims and claim expenses and a $19.8 million increase in current accident year net claims and claim expenses, both as discussed below. In 2012, our Specialty Reinsurance segment generated a net claims and claim expense ratio of 46.6%, an underwriting expense ratio of 32.2% and a combined ratio of 78.8%, compared to 9.9%, 37.1% and 47.0%, respectively, in 2011. The 4.9 percentage point decrease in the underwriting expense ratio was principally driven by a $29.1 million increase in net premiums earned and partially offset by a $3.7 million increase in acquisition expenses, both as a result of the increase in gross premiums written noted above. Operating expenses of $29.1 million in 2012 remained relatively flat compared to $30.3 million in 2011. Current accident year net claims and claim expenses of $111.0 million in 2012 includes $16.0 million related to estimated ultimate losses associated with potential exposure to LIBOR related claims attributable to the current accident year, $11.0 million related to Storm Sandy and $5.0 million related to the grounding of the Costa Concordia cruise ship, with the remainder principally due to reported attritional losses and the application of our formulaic reserving methodologies for establishing incurred but not reported reserves for net claims and claim expenses. The favorable development of $34.1 million in 2013 was primarily driven by $10.4 million associated with actuarial assumption changes in the first quarter of 2013, principally in our casualty clash and casualty risk lines of business, and primarily as a result of revised claim development factors based on actual loss experience, and $23.7 million due to paid and reported claims activity coming in lower than expected on prior accident years events, as a result of the application of our formulaic actuarial reserving methodology. The favorable development of $34.1 million within our Specialty Reinsurance segment in 2012 included $14.4 million associated with actuarial assumption changes, principally in our casualty and medical malpractice lines of business, and primarily as a result of revised initial expected claims ratios and claim development factors due to actual experience coming in better than expected, $3.0 million of favorable development on the 2005 Hurricanes and $16.7 million of reported losses developing more favorably than expected during 2012 on prior accident years events. See "Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves" for additional discussion of our reserving techniques and prior year development of net claims and claim expenses. 105 -------------------------------------------------------------------------------- Lloyd's Segment Below is a summary of the underwriting results and ratios for our Lloyd's segment: Lloyd's Segment Overview Year ended December 31, 2013 2012 2011



(in thousands, except percentages)

Lloyd's gross premiums written

Specialty $ 188,663$ 123,099



$ 83,641

Catastrophe 37,869 36,888



27,943

Total Lloyd's gross premiums written $ 226,532$ 159,987

$ 111,584 Net premiums written $ 201,697$ 135,131$ 98,617 Net premiums earned $ 176,029$ 122,968$ 76,386 Net claims and claim expenses incurred 95,693 80,242 73,259 Acquisition expenses 34,823 22,864 14,031 Operational expenses 50,540 45,680 36,732 Underwriting loss $ (5,027 )$ (25,818 )$ (47,636 )



Net claims and claim expenses incurred -

current accident year $ 103,949$ 96,444



$ 72,781

Net claims and claim expenses incurred -

prior accident years (8,256 ) (16,202 ) 478



Net claims and claim expenses incurred -

total $ 95,693$ 80,242



$ 73,259

Net claims and claim expense ratio -

current accident year 59.1 % 78.4



% 95.3 %

Net claims and claim expense ratio - prior

accident years (4.7 )% (13.1 )% 0.6 %



Net claims and claim expense ratio -

calendar year 54.4 % 65.3 % 95.9 % Underwriting expense ratio 48.5 % 55.7 % 66.5 % Combined ratio 102.9 % 121.0 % 162.4 % Lloyd's Gross Premiums Written - Gross premiums written in our Lloyd's segment increased by $66.5 million, or 41.6%, to $226.5 million in 2013, compared to $160.0 million in 2012, primarily due to Syndicate 1458 continuing to organically grow its specialty book of business across several of its lines of business. Gross premiums written in our Lloyd's segment increased by $48.4 million, or 43.4%, to $160.0 million in 2012, compared to $111.6 million in 2011, primarily due to Syndicate 1458 growing its book of business across the majority of its lines of business and the impact of rate increases, most notably in its casualty lines of business. Lloyd's Underwriting Results - Our Lloyd's segment incurred an underwriting loss of $5.0 million and a combined ratio of 102.9% in 2013, compared to an underwriting loss of $25.8 million and a combined ratio of 121.0%, respectively, in 2012. The $20.8 million improvement in the underwriting result for our Lloyd's segment is primarily due to an increase in net premiums earned of $53.1 million, as a result of the increase in gross premiums written, noted above, and the relatively low level of insured catastrophe loss activity during 2013, compared to 2012 which was negatively impacted by Storm Sandy which resulted in $17.1 million of underwriting losses and increased the combined ratio by 16.2 percentage points in 2012, and partially offset by increased underwriting expenses and lower favorable development on prior accident years net claims and claim expenses, each as discussed below. In addition, our Lloyd's segment's underwriting expense ratio decreased to 48.5% in 2013, compared to 55.7% in 2012, driven in part by the increase in net premiums earned, noted above, and in part by a relatively smaller increase in our Lloyd's segment underwriting expenses as underwriting expenses for our Lloyd's segment are increasing at a slower rate. Our Lloyd's segment experienced current accident year net claims and claim expenses of 106 -------------------------------------------------------------------------------- $103.9 million during 2013, compared to $96.4 million in 2012, which includes $2.1 million and $1.0 million related to the European Floods and May 2013 U.S. Tornadoes, respectively, with the remainder primarily related to attritional loss activity. Operational expenses increased $4.9 million to $50.5 million in 2013, compared to 2012, and principally include compensation and related operating expenses. Acquisition expenses increased $12.0 million to $34.8 million in 2013, compared to 2012, primarily due to the increase in gross premiums written in our Lloyd's segment, as discussed above. The decrease in the underwriting expense ratio to 48.5% in 2013, from 55.7% in 2012, was primarily driven by the increase in net premiums earned which increased at a higher rate than the increase in underwriting expenses. Our Lloyd's segment incurred an underwriting loss of $25.8 million and a combined ratio of 121.0% in 2012, compared to $47.6 million and a combined ratio of 162.4% in 2011. Current accident year net claims and claim expenses increased $23.7 million, while favorable development of prior accident years net claims and claim expenses increased $16.7 million, during 2012, compared to 2011, resulting in net claims and claims expenses increasing to $80.2 million in 2012, compared to $73.3 million in 2011. Included in current accident year net claims and claim expenses during 2012 is $18.5 million related to Storm Sandy, $4.5 million due to the U.S. drought impacting the 2012 crop season and estimated ultimate losses of $2.5 million associated with potential exposure to LIBOR related claims attributable to the current accident year, with the remainder due to reported attritional losses and the application of our formulaic reserving methodologies for establishing incurred but not reported reserves for net claims and claim expenses. Operational expenses increased $8.9 million, to $45.7 million in 2012, compared to 2011, principally driven by an increase in compensation and related operating expenses as a result of growth in headcount as Syndicate 1458 continues to expand its operations. The decrease in the underwriting expense ratio to 55.7% in 2012, from 66.5% in 2011, was primarily driven by the increase in net premiums earned. The favorable development of prior accident years claims and claim expenses within our Lloyd's segment of $8.3 million during 2013 was principally driven by $4.7 million related to reported claims coming in lower than expected on prior accident years events as a result of the application of our formulaic actuarial reserving methodology and $3.8 million pertaining to a decrease in the estimated ultimate net claims and claim expenses related to Storm Sandy, partially offset by adverse development of $0.3 million related to assumption changes. The favorable development of $16.2 million within our Lloyd's segment in 2012 included $5.5 million related to the 2011 Thailand Floods, $2.5 million related to Hurricane Irene and $1.3 million related to actuarial assumption changes, with the remainder primarily due to reported claims coming in lower than expected on a number of prior accident years events, as a result of the application of our formulaic actuarial reserving methodology. See "Part II, Item 7. Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves" for additional discussion of our reserving techniques and prior year development of net claims and claim expenses. Other Underwriting Loss Year ended December 31, 2013 2012 2011 (in thousands) Underwriting loss $ (498 )$ (3,706 )$ (4,686 ) Included in our Other category are primarily the underwriting results related to the remnants of our Bermuda-based insurance operations not sold pursuant to the stock purchase agreement with QBE. Included in our Other category was an underwriting loss of $0.5 million in 2013, primarily due to $0.5 million of net adverse development on prior accident years net claims and claim expenses. Included in our Other category was an underwriting loss of $3.7 million in 2012, primarily due to us entering into a loss portfolio transfer in respect of our contractor's liability book of business within RenaissanceRe Specialty Risks, whereby we transfered net liabilities of $29.1 million, resulting in a loss of $7.4 million which was recorded as prior accident years net claims and claims expenses, partially offset by favorable development related to the application of our formulaic actuarial reserving methodology with the reductions 107 -------------------------------------------------------------------------------- being due to actual paid and reported claim activity being more favorable to date than what was originally anticipated when setting the initial reserves. Net Investment Income Year ended December 31, 2013 2012 2011 (in thousands) Fixed maturity investments $ 95,907$ 103,330 $



116,570

Short term investments 1,698 1,007



1,666

Equity investments trading 2,295 1,086



471

Other investments

Hedge funds and private equity investments 45,810 36,635 27,541 Other 73,692 35,196 10,585 Cash and cash equivalents 191 277 195 219,593 177,531 157,028 Investment expenses (11,565 ) (11,806 ) (10,157 ) Net investment income $ 208,028$ 165,725$ 146,871 Net investment income was $208.0 million in 2013, compared to $165.7 million in 2012. The $42.3 million increase in net investment income was primarily driven by a $47.7 million increase related to our portfolio of other investments principally driven by an increase in the fair value of our investment in the common shares of Essent included in the other category of our portfolio of other investments prior to October 31, 2013 (see below for additional details with respect to Essent), and higher returns in our private equity investments as a result of improved equity market prices. Low interest rates in recent years have lowered the yields at which we invest our assets relative to historical levels, though recent interest rate increases have generated net realized and unrealized losses on investments while increasing our portfolio yield. We expect these developments, combined with the current composition of our investment portfolio and other factors, to constrain investment income growth for the near term. The hedge fund, private equity and other investment portfolios are accounted for at fair value with the change in fair value recorded in net investment income which included net unrealized gains of $75.8 million in 2013, compared to $38.2 million of net unrealized gains in 2012. At September 30, 2013, we had an investment of $48.0 million in the common shares of Essent, a then private company, which we recorded in other investments on our consolidated balance sheet with fair value adjustments recorded in net investment income on our consolidated statements of operations. On October 31, 2013, Essent's common shares began publicly trading on the NYSE and at that time, we reclassified our investment in Essent as equity investments trading on our consolidated balance sheet and subsequently recognized any realized and unrealized gains or losses related to our investment in Essent following the initial public offering price in net realized and unrealized gains on investments in our consolidated statements of operations in the period in which they occur. During the period from January 1, 2013 through October 30, 2013, we recorded $56.9 million of net investment income related to the estimated increase in the fair value of our investment in Essent. From October 31, 2013 through December 31, 2013, we recorded $35.5 million of unrealized gains in net realized and unrealized gains on investments in our consolidated statements of operations in respect of our investment in Essent. At December 31, 2013, the fair value of our investment in Essent was $121.1 million. We have agreed, subject to certain exceptions, not to dispose of or hedge any of the common shares of Essent we hold prior to April 28, 2014. Net investment income was $165.7 million in 2012, compared to $146.9 million in 2011. The $18.9 million increase in net investment income in 2012 was driven by a $29.3 million increase in the returns from our allocation to senior secured bank loan funds and insurance-linked securities included in other in the table above and a $9.1 million increase in the returns from our portfolio of hedge funds and private equity investments, with the increase primarily from our private equity investments due to higher fund valuations. These increases were offset by a $13.2 million decrease from our fixed maturity investments portfolio as a result of lower total returns. The hedge fund, private equity and other investment portfolios are accounted for at fair value with the change in fair value recorded in net investment income which included net unrealized gains of $38.2 million in 2012, compared to $12.7 million of net unrealized gains in 2011. 108 -------------------------------------------------------------------------------- Commencing in the first quarter of 2011, we established an internal portfolio of certain publicly traded equities which are reflected in our consolidated balance sheet as equity investments trading. During the first quarter of 2013, we sold substantially all of the securities then held in our portfolio of internally managed public equity investments trading. Subsequently in the second quarter of 2013, we established a public equity securities mandate with a third party investment manager, which currently comprises a majority of our investments included in equity investments trading. It is possible our equity allocation will increase in the future, although we do not expect it to represent a material portion of our invested assets or to have a material effect on our financial results for the reasonably foreseeable future. Our equity investments trading are carried at fair value with dividend income included in net investment income, and realized and unrealized gains included in net realized and unrealized gains on investments, in our consolidated statements of operations and generated $2.3 million of net investment income in 2013, compared to $1.1 million in 2012 and $0.5 million million in 2011. Net Realized and Unrealized Gains on Investments and Net Other-Than-Temporary Impairments Year ended December 31, 2013 2012 2011 (in thousands) Gross realized gains $ 72,492$ 97,787$ 79,358 Gross realized losses (50,206 ) (16,705 ) (30,659 ) Net realized gains on fixed maturity investments 22,286 81,082 48,699 Net unrealized (losses) gains on fixed maturity investments trading (87,827 ) 75,279 19,404 Net realized and unrealized gains (losses) on investments-related derivatives 31,058 (866 ) (26,712 ) Net realized gains on equity investments trading 26,650 - - Net unrealized gains on equity investments trading 42,909 7,626 2,565 Net realized and unrealized gains on investments $ 35,076$ 163,121$ 43,956 Total other-than-temporary impairments - (395 ) (630 ) Portion recognized in other comprehensive income, before taxes - 52 78 Net other-than-temporary impairments $ - $ (343 )$ (552 ) Our investment portfolio is structured to seek to preserve capital and provide us with a high level of liquidity. A large majority of our investments are invested in the fixed income markets and, therefore, our realized and unrealized holding gains and losses on investments are highly correlated to fluctuations in interest rates. Therefore, as interest rates decline, we will tend to have realized and unrealized gains from our investment portfolio, and as interest rates rise, we will tend to have realized and unrealized losses from our investment portfolio. Net realized and unrealized gains on investments were $35.1 million in 2013, compared to gains of $163.1 million in 2012, a decrease of $128.0 million. The net unrealized losses on our fixed maturity investments trading of $87.8 million during 2013, deteriorated $163.1 million, compared to unrealized gains of $75.3 million in 2012, primarily due to a rising interest rate environment during 2013, compared to 2012 where significant contraction in credit spreads yielded positive returns from our fixed maturity investment portfolio. In addition, realized gains on equity investments trading of $26.7 million was principally the result of the sale of substantially all of our portfolio of internally managed public equity investments trading during the first quarter of 2013. Unrealized gains on equity investments trading of $42.9 million in 2013, increased $35.3 million, compared to $7.6 million in 2012, principally due to unrealized gains of $35.5 million recorded in the fourth quarter of 2013 related to our investment in Essent (as discussed above in "Net Investment Income"), combined with improved pricing in equity markets for 2013. Previously, we classified the net realized and unrealized gains (losses) from investments-related derivatives such as interest rate futures and credit derivatives in net investment income on our consolidated statement 109 -------------------------------------------------------------------------------- of operations. However, in order to align the net realized and unrealized (losses) gains of the majority of our fixed maturity investments portfolio with the net realized and unrealized gains (losses) of the investments-related derivatives, we reclassified the investments-related derivatives from net investment income to net realized and unrealized (losses) gains. As a result of this reclassification, included in net realized and unrealized gains on investments in 2013 is $31.1 million of net realized and unrealized gains on investments-related derivatives, compared to 2012 which included $0.9 million of net realized and unrealized losses on investments-related derivatives. The $31.9 million improvement is primarily driven by the rising interest rate environment during 2013, compared to 2012 which experienced significant contraction in credit spreads. Net realized and unrealized gains on investments were $163.1 million in 2012, compared to $44.0 million in 2011, an improvement of $119.2 million. In addition to increased turnover in our fixed maturity investments portfolio generating $81.1 million of net realized gains in 2012, unrealized gains on our fixed maturity investments trading of $75.3 million during 2012 increased $55.9 million, compared to $19.4 million of unrealized gains in 2011, primarily due to the net appreciation of our fixed maturity investment portfolio as a result of tightening credit spreads during 2012. Included in net realized and unrealized gains on investments in 2012 is $7.6 million of net unrealized gains on equity investments trading due to increases in the share prices of our equity positions. Equity in Earnings (Losses) of Other Ventures Year ended December 31, 2013 2012 2011 (in thousands) Top Layer Re $ 13,836$ 20,792$ (37,471 ) Tower Hill Companies 10,270 4,965 2,923 Other (912 ) (2,519 ) (1,985 ) Total equity in earnings (losses) of other ventures $ 23,194$ 23,238$ (36,533 ) Equity in earnings (losses) of other ventures primarily represents our pro-rata share of the net income (loss) from our investments in Top Layer Re and the Tower Hill Companies, with the equity in earnings from these entities, except Top Layer Re, recorded one quarter in arrears. Our equity in earnings of other ventures of $23.2 million in 2013 was relatively flat when compared to 2012. Equity in earnings of other ventures was $23.2 million in 2012, compared to losses of $36.5 million in 2011. The $59.8 million improvement in equity in earnings of other ventures was primarily due to our equity in earnings of Top Layer Re of $20.8 million during 2012, as a result of the absence of net claims and claim expenses in Top Layer Re 2012, compared to 2011, which was negatively impacted by net claims and claim expenses related to the 2011 New Zealand and Tohoku Earthquakes and resulted in a loss to us of $37.5 million. The carrying value of these investments on our consolidated balance sheet, individually or in the aggregate, may differ from the realized value we may ultimately attain, perhaps significantly so. Other (Loss) Income Year ended December 31, 2013 2012 2011 (in thousands) Assumed and ceded reinsurance contracts accounted for as derivatives and deposits $ (2,517 )$ (4,648 )$ 37,414 Gain on NBIC - - 4,836 Mark-to-market on Platinum warrant - - 2,975 Other 158 2,528 (880 ) Total other (loss) income $ (2,359 )$ (2,120 )$ 44,345 In 2013, we incurred an other loss of $2.4 million, compared to an other loss of $2.1 million in 2012. The $0.2 million deterioration in other loss is the result of a reduction in other income from miscellaneous other 110 -------------------------------------------------------------------------------- items, partially offset by a loss on the fair value of assumed and ceded reinsurance contracts accounted for as deposits. In 2012 we incurred an other loss of $2.1 million, compared to other income of $44.3 million in 2011. The $46.5 million deterioration in other income is primarily due to: • a $42.1 million decrease in other income generated by our assumed and ceded reinsurance contracts accounted for at fair value, principally as a



result of $45.0 million of net recoverables from the Tohoku Earthquake

during 2011 not reoccurring in 2012; and

• the absence in 2012 of a mark-to-market adjustment on the Platinum warrant

due to its sale during the first quarter of 2011 and the sale of NBIC Holdings, Inc. ("NBIC") in the third quarter of 2011.



Corporate Expenses

Year ended December 31, 2013 2012 2011 (in thousands) Total corporate expenses $ 33,622$ 16,456$ 18,156 Corporate expenses include certain executive, director, legal and consulting expenses, costs for research and development, impairment charges related to goodwill and other intangible assets, and other miscellaneous costs, including those associated with operating as a publicly traded company. Corporate expenses were $33.6 million in 2013, compared to $16.5 million in 2012, with the increase primarily driven by the senior management transition changes announced during the second quarter of 2013 which totaled $16.8 million. Corporate expenses were $16.5 million in 2012, compared to $18.2 million in 2011, with the decrease driven by the absence of certain goodwill and intangible asset impairments of $5.2 million which were incurred in 2011, and partially offset by a corporate insurance recovery of $1.7 million, recorded in 2011, which did not reoccur in 2012. Interest Expense and Preferred Share Dividends Year ended December 31, 2013 2012 2011 (in thousands) Interest expense $250 million 5.75% Senior Notes $ 14,375$ 14,375$ 14,375$100 million 5.875% Senior Notes - 5,875 5,875 DaVinciRe revolving credit facility - - 474 Other 3,554 2,847 2,644 Total interest expense 17,929 23,097 23,368 Preferred share dividends $125 million 6.08% Series C Preference Shares (1) 11,317 15,200 15,200 $150 million 6.60% Series D Preference Shares (1) 4,845 19,695 19,800 $275 million 5.375% Series E Preference Shares (1) 8,786 - - Total preferred share dividends 24,948 34,895 35,000 Total interest expense and preferred share dividends $ 42,877$ 57,992$ 58,368



(1) During May 2013, we raised $275.0 million through the issuance of 11 million

Series E Preference Shares, and subsequently redeemed the remaining 6 million

Series D Preference Shares for $150.0 million and 5 million Series C Preference Shares for $125.0 million, or a total of $275.0 million. See "Capital Resources" for additional information. Interest expense was $17.9 million in 2013, compared to $23.1 million in 2012, with the decrease driven by the repayment of our 5.875% Senior Notes upon their scheduled maturity of February 15, 2013 using available cash and investments. In addition, our preferred share dividends in 2013 were $24.9 million, compared to $34.9 million in 2012, with the $9.9 million decrease driven by the redemption of our remaining 6 million Series D Preference Shares and 5 million Series C Preference Shares upon the issuance of our Series E Preference Shares in May 2013. With the redemption of our remaining outstanding Series D 111 -------------------------------------------------------------------------------- Preference Shares and 5.0 million Series C Preference Shares as noted in the table above, and in the absence of issuing new preference shares, we expect our future preference share dividends to decrease in 2014 as a result of the lower coupon rate on the Series E Preference Shares, relative to the Series C and Series D Preference Shares. Interest expense was relatively flat at $23.1 million in 2012, compared to $23.4 million in 2011. In addition, our preferred share dividends were also relatively flat at $34.9 million in 2012, compared to $35.0 million in 2011. Income Tax Expense Year ended December 31, 2013 2012 2011 (in thousands) Income tax expense $ (1,692 )$ (1,413 )$ (10,385 ) We are subject to income taxes in certain jurisdictions in which we operate; however, since the majority of our income is currently earned in Bermuda, which does not have a corporate income tax, the tax impact to our operations has historically been minimal. During 2013, we incurred an income tax expense of $1.7 million, compared to income tax expense of $1.4 million and $10.4 million, in 2012 and 2011, respectively. Income tax expense in 2011 was principally the result of establishing a full valuation allowance against our deferred tax asset related to our U.S. tax-paying subsidiaries as described below. Losses incurred within our U.S. tax-paying subsidiaries in the fourth quarter of 2011 were significant enough to result in a cumulative GAAP taxable loss for the three year period ended December 31, 2011. We reassess our valuation allowance on a quarterly basis and commencing with our reassessment effective December 31, 2011, we determined that it was more likely than not that we would not be able to recover our U.S. net deferred tax asset and increased our valuation allowance in the fourth quarter of 2011 to reduce our net deferred tax asset to $Nil. At December 31, 2013, our U.S. tax-paying subsidiaries had a net deferred tax asset of $43.9 million, for which a full valuation allowance has been provided. The remaining valuation allowance as of December 31, 2013 relates exclusively to our operations in Ireland, the U.K. and Singapore. Our Ireland, U.K. and Singapore operations have produced GAAP taxable losses and we currently do not believe it is more likely than not that we will be able to recover our net deferred tax assets from these jurisdictions. Our valuation allowance totaled $56.1 million and $35.1 million at December 31, 2013 and 2012, respectively. Our effective income tax rate, which we calculate as income tax expense divided by income before taxes, may fluctuate significantly from period to period depending on the geographic distribution of pre-tax income in any given period between different jurisdictions with comparatively higher tax rates and those with comparatively lower tax rates. The geographic distribution of pre-tax income can vary significantly between periods due to, but not limited to, the following factors: the business mix of net premiums written and earned; the size and nature of net claims and claim expenses incurred; the amount and geographic location of operating expenses, net investment income, net realized and unrealized gains (losses) on investments; outstanding debt and related interest expense; and the amount of specific adjustments to determine the income tax basis in each of our operating jurisdictions. In addition, a significant portion of our gross and net premiums are currently written and earned in Bermuda, which does not have a corporate income tax, including the majority of our catastrophe business, which can result in significant volatility to our pre-tax income (loss) in any given period. We expect our consolidated effective tax rate to increase in the future, as our global operations outside of Bermuda expand. In addition, it is possible that we could be adversely affected by changes in tax laws, regulation, or enforcement, any of which could increase our effective tax rate more rapidly or steeply than we currently anticipate. The preponderance of our revenue and pre-tax income is generated by our domestic operations (i.e. Bermuda) in the form of underwriting income and net investment income, when compared to our foreign operations. The geographic distribution of pre-tax income can vary significantly between periods due to, but not limited, the following factors: the business mix of net premiums written and earned; the size and nature of net claims and claim expenses incurred; the amount and geographic location of operating expenses, net investment income and net realized and unrealized gains (losses) on investments; and the amount of specific adjustments to determine the income tax basis in each of our operating jurisdictions. Pre-tax income for our domestic operations (i.e. Bermuda) was higher compared to our foreign operations for the 112 -------------------------------------------------------------------------------- years ended December 31, 2013, 2012 and 2011 primarily as a result of the more volatile catastrophe business underwritten in our Bermuda operations during these periods being relatively free of catastrophe losses and thus generating higher levels of net underwriting income than our foreign operations, which underwrite primarily less volatile business and as a result produce lower levels of net underwriting income in benign loss years. During the year ended December 31, 2011, our domestic operations incurred a loss from continuing operations primarily as a result of significant catastrophe losses experienced during the period resulting in underwriting losses. Net (Income) Loss Attributable to Noncontrolling Interests Year ended December 31, 2013 2012 2011 (in thousands) Net (income) loss attributable to noncontrolling interests $ (151,144 )$ (148,040 )$ 33,157 Our net income attributable to the noncontrolling interests was $151.1 million in 2013, compared to $148.0 million in 2012. The $3.1 million change was primarily due to our noncontrolling economic ownership percentage in DaVinciRe decreasing to 27.3% at December 31, 2013, compared to 30.8% at December 31, 2012, resulting in an increase in the portion of DaVinciRe's net income attributable to noncontrolling interests. We expect our noncontrolling economic ownership in DaVinciRe to fluctuate over time. Our net income attributable to the noncontrolling interests was $148.0 million in 2012, compared to a net loss attributable to noncontrolling interests of $33.2 million in 2011. The $181.2 million change is primarily due to increased profits at DaVinciRe as a result of significantly lower insured losses in respect of large events and improved investment results, partially offset by a decrease in our noncontrolling economic ownership percentage in DaVinciRe from 42.8% at December 31, 2011 to 30.8% at December 31, 2012. Income (Loss) from Discontinued Operations Year ended December 31, 2013 2012 2011 (in thousands) REAL $ 2,422$ (18,763 )$ (35,669 ) U.S.-based insurance operations - 2,287



(15,890 )

Income (loss) from discontinued operations $ 2,422$ (16,476 )$ (51,559 )

Income (loss) from discontinued operations includes the financial results of REAL and substantially all of our U.S.-based insurance operations sold to QBE. Income from discontinued operations was $2.4 million in 2013, compared to a loss from discontinued operations of $16.5 million in 2012. Included in income from discontinued operations in 2013 is trading-related income of $10.5 million related to REAL, partially offset by an $8.8 million loss on sale of REAL. In comparison, the loss from discontinued operations of $16.5 million in 2012 was primarily due to REAL experiencing trading losses driven by unusually warm weather experienced in parts of the United Kingdom and the United States, principally during the first quarter of 2012. 113 -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES Financial Condition RenaissanceRe is a holding company, and we therefore rely on dividends from our subsidiaries and investment income to make principal and interest payments on our debt and to make dividend payments to our preference and common shareholders. The payment of dividends by our subsidiaries is, under certain circumstances, limited under statutory regulations and insurance law, which require our insurance subsidiaries to maintain certain measures of solvency and liquidity. In addition, Bermuda regulations require approval from the Bermuda Monetary Authority ("BMA") for any reduction of capital in excess of 15% of statutory capital, as defined in the Insurance Act. The Insurance Act also requires these Bermuda insurance subsidiaries of the Company to maintain certain measures of solvency and liquidity. At December 31, 2013, the statutory capital and surplus of our Bermuda insurance subsidiaries was $3.2 billion (December 31, 2012 - $3.1 billion) and the minimum amount required to be maintained under Bermuda law, the Minimum Solvency Margin, was $562.1 million (December 31, 2012 - $554.8 million). During 2013, Renaissance Reinsurance, DaVinciRe and the operating subsidiaries of RenRe Insurance Holdings Ltd. returned capital to RenaissanceRe, which included dividends declared and return of capital, net of capital contributions received, of $506.9 million, $97.2 million and $Nil, respectively (2012 - $282.0 million, $133.3 million and $Nil, respectively). Under the Insurance Act, RenaissanceRe Specialty Risks and RenaissanceRe Specialty U.S. are defined as Class 3B insurers, and Renaissance Reinsurance and DaVinci are classified as Class 4 insurers, and therefore must maintain capital at a level equal to its enhanced capital requirement ("ECR") which is established by reference to the Bermuda Solvency Capital Requirement ("BSCR") model. The BSCR is a risk-based capital model designed to give the BMA more advanced methods for determining an insurer's capital adequacy. Underlying the BSCR is the belief that all insurers should operate on an ongoing basis with a view to maintaining their capital at a prudent level in excess of the Minimum Solvency Margin otherwise prescribed under the Insurance Act. Alternatively, under the Insurance Act, insurers may, subject to the terms of the Insurance Act and to the BMA's oversight, elect to utilize an approved internal capital model to determine regulatory capital. In either case, the ECR shall at all times equal or exceed the respective Class 3B and Class 4 insurer's Minimum Solvency Margin and may be adjusted in circumstances where the BMA concludes that the insurer's risk profile deviates significantly from the assumptions underlying its ECR or the insurer's assessment of its risk management policies and practices used to calculate the ECR applicable to it. While not specifically referred to in the Insurance Act, the BMA has also established a target capital level ("TCL") for each Class 3B and Class 4 insurer equal to 120% of its respective ECR. While a Class 3B or Class 4 insurer is not currently required to maintain its statutory capital and surplus at this level, the TCL serves as an early warning tool for the BMA and failure to maintain statutory capital at least equal to the TCL will likely result in increased BMA regulatory oversight. The 2013 BSCR for Renaissance Reinsurance, DaVinci, RenaissanceRe Specialty Risks and RenaissanceRe Specialty U.S. must be filed with the BMA on or before April 30, 2014; at this time, we believe each company will exceed its respective target level of required capital. RenaissanceRe CCL and Syndicate 1458 are subject to oversight by the Council of Lloyd's. RSML is subject to regulation by the PRA and FCA, under the FSMA. Underwriting capacity of a member of Lloyd's must be supported by providing a deposit in the form of cash, securities or letters of credit, which are referred to as Funds at Lloyd's ("FAL"). This amount is determined by Lloyd's and is based on Syndicate 1458's solvency and capital requirement as calculated through its internal model. In addition, if the FAL are not sufficient to cover all losses, the Lloyd'sCentral Fund provides an additional level of security for policyholders. At December 31, 2013, the FAL requirement set by Lloyd's for Syndicate 1458 is £241.7 million based on its business plan, approved in November 2013 (2012 - £183.2 million based on its business plan, approved November 2012) and using a foreign exchange conversion rate of 1 British Pound = 1.52 U.S. Dollars. Actual FAL posted for Syndicate 1458 at December 31, 2013 by RenaissanceRe CCL is $281.0 million and £60.0 million supported 100% by letters of credit (2012 - $222.0 million and £45.5 million). 114 -------------------------------------------------------------------------------- The activities of the Singapore Branches are regulated by the Monetary Authority of Singapore pursuant to Singapore's Insurance Act and by the ACRA as foreign companies pursuant to Singapore's Companies Act. Renaissance Services of Asia Pte. Ltd. is registered with the ACRA and subject to Singapore's Companies Act. For additional information with respect to our statutory requirements, refer to "Note 18. Statutory Requirements in our Notes to Consolidated Financial Statements." As discussed in the "Capital Resources" section below, Renaissance Reinsurance is obligated to make a mandatory capital contribution of up to $50.0 million in the event that a loss reduces Top Layer Re's capital below a specified level. In the aggregate, our operating subsidiaries have historically produced sufficient cash flows to meet their expected claims payments and operational expenses and to provide dividend payments to us. Our subsidiaries also maintain a concentration of investments in high quality liquid securities, which management believes will provide additional liquidity for extraordinary claims payments should the need arise. See "Capital Resources" section below. Liquidity and Cash Flows Holding Company Liquidity As a Bermuda-domiciled holding company, RenaissanceRe has limited operations of its own and its assets consist primarily of investments in subsidiaries, and to a degree, cash and securities in amounts which fluctuate over time. Accordingly, RenaissanceRe's future cash flows largely depend on the availability of dividends or other statutorily permissible payments from subsidiaries. The ability to pay such dividends is limited by the applicable laws and regulations of the various countries and states in which these subsidiaries operate, including, among others, Bermuda, the U.S., Ireland, and the U.K. Refer to "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources, Financial Condition" for further discussion and details regarding dividend capacity of our major operating subsidiaries. RenaissanceRe's principal uses of liquidity are: (1) common share related transactions including dividend payments to holders of its common shareholders as well as common share repurchases from time to time; (2) preference share related transactions including dividend payments to its preference shareholders as well as preference share redemptions from time to time; (3) interest and principal payments on debt; (4) capital investments in its subsidiaries; and (5) certain corporate and operating expenses. We attempt to structure our organization such that it facilitates efficient capital movements between RenaissanceRe and its operating subsidiaries and to ensure that adequate liquidity is available when required, giving consideration to applicable laws and regulations, and the domiciliary location of sources of liquidity and related obligations. Sources of Liquidity Historically, cash receipts from operations, consisting of premiums and investment income, generally have provided sufficient funds to pay losses as well as operating expenses of our subsidiaries and to fund dividends to RenaissanceRe. Cash receipts from operations are generally derived from the receipt of investment income on our investment portfolio as well as the net receipt of premiums less net claims and claims expenses and underwriting expenses related to our underwriting activities. The premiums received by our operating subsidiaries are generally received months or even years before losses are paid under the policies related to such premiums. Premiums and acquisition expenses are settled based on terms of trade as stipulated by an underwriting contract, and generally are received within the first year of inception of a policy when the premium is written, but can be longer on certain reinsurance business assumed. Operating expenses are generally paid within a year of being incurred. Claims and claims expenses may take a much longer time before they are reported and ultimately settled, requiring the establishment of reserves for claims and claim expenses. Therefore, the amount of claims paid in any one year is not necessarily related to the amount of net claims incurred in that year, as reported in the consolidated statement of operations. As a result of the combination of current market conditions, lower investment yields, and the nature of our business where a large portion of the coverages we provide can produce losses of high severity and low 115 -------------------------------------------------------------------------------- frequency, it is not possible to accurately predict our future cash flows from operating activities. As a consequence, cash flows from operating activities may fluctuate, perhaps significantly, between individual quarters and years. Due to the magnitude and relatively recent occurrence of certain large loss events, meaningful uncertainty remains regarding losses from these events and our actual ultimate net losses from these events may vary from preliminary estimates, perhaps materially. As a result, our cash flows from operations would be impacted accordingly. We are a "well-known seasoned issuer" as defined by the rules promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and we maintain a "shelf" Registration Statement on Form S-3 (the "Shelf Registration Statement") under the Securities Act and are eligible to file additional automatically effective Registration Statements of Form S-3 in the future for the potential offering and sale of an unlimited amount of debt and equity securities. The Shelf Registration Statement allows for various types of securities to be offered, including, but not limited to the following: common shares, preference shares and debt securities. In addition we maintain letter of credit facilities which provide liquidity. Refer to "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources, Capital Resources" for details of these facilities. Cash Flows Year ended December 31, 2013 2012 2011 (in thousands) Net cash provided by operating activities $ 795,721$ 716,929$ 165,933 Net cash (used in) provided by investing activities (315,515 ) (71,677 ) 315,031 Net cash used in financing activities (398,955 ) (538,570 ) (542,236 ) Effect of exchange rate changes on foreign currency cash 1,423 1,692 518 Net increase (decrease) in cash and cash equivalents 82,674 108,374 (60,754 ) Net decrease in cash and cash equivalents of discontinued operations 21,213 13,946 16,441 Cash and cash equivalents, beginning of period 304,145 181,825 226,138 Cash and cash equivalents, end of period $ 408,032$ 304,145$ 181,825 During 2013, our cash and cash equivalents increased $82.7 million, to $408.0 million at December 31, 2013, compared to $304.1 million at December 31, 2012, after excluding a decrease of $21.2 million in cash and cash equivalents related to discontinued operations held for sale. The following discussion of our cash flows includes the results of operations and financial position of our discontinued operations held for sale at December 31, 2013, related to the sale of REAL. Cash flows provided by operating activities. Cash flows provided by operating activities during 2013 were $795.7 million, compared to $716.9 million during 2012. Cash flows provided by operating activities during 2013 were primarily the result of certain adjustments to reconcile our net income of $841.8 million to net cash provided by operating activities, including: a reduction in reinsurance recoverable of $91.5 million primarily due to the collection of those balances, an increase in unearned premiums of $78.4 million due to the timing of our gross premiums written; and a decrease in premiums receivable of $17.3 million due to the receipt of those balances; partially offset by a decrease in our reserve for claims and claim expenses of $315.6 million driven by the payment of claims and by favorable development on prior accident years net claims and claims expenses during 2013; and an increase in deferred acquisition costs of $29.1 million due to the relative increase in gross premiums written during 2013 with a higher acquisition expense ratio. As discussed under "Summary of Results of Operations", we generated relatively higher underwriting income and lower investment results in 2013 compared to 2012, which contributed to the net increase in cash flows provided by operating activities. A portion of the cash provided by operating activities was used in our financing activities, as noted below. 116 -------------------------------------------------------------------------------- Cash flows used in investing activities. During 2013, our cash flows used in investing activities were $315.5 million, principally reflecting our net purchases of short term investments of $247.0 million, net purchases and maturities of fixed maturity investments of $169.9 million and net purchases of $33.1 million pursuant to a public equity securities mandate with a third party investment manager. These purchases were partially offset by net sales of other investments of $76.2 million which principally related to the redemption of certain senior secured bank loan funds, with the proceeds being allocated to the purchase of bank loan portfolios included in our portfolio of fixed maturity investments and short term investments, as noted above. Cash flows used in financing activities. Our cash flows used in financing activities in 2013 were $399.0 million, and were principally the result of the redemption of our remaining 6 million Series D Preference Shares for $150.0 million and 5 million Series C Preference Shares for $125.0 million, or a total of $275.0 million, the settlement of $207.4 million of common share repurchases, the repayment of $100.0 million of our 5.875% Senior Notes upon their scheduled maturity of February 15, 2013 and the payment of $49.3 million and $24.9 million in dividends to our common and preferred shareholders, respectively. Offsetting these outflows was an inflow of $265.9 million through the issuance of 11 million Series E Preference Shares, net of related offering expenses. During 2012, our cash and cash equivalents increased $108.4 million, to $325.4 million at December 31, 2012, compared to $217.0 million at December 31, 2011, which excludes a decrease of $13.9 million in cash and cash equivalents related to discontinued operations held for sale. Cash flows provided by operating activities. Cash flows provided by operating activities during 2012 were $716.9 million, compared to $165.9 million in 2011. Cash flows provided by operating activities during 2012 were primarily the result of certain adjustments to reconcile our net income of $748.9 million to net cash provided by operating activities, including: a reduction in reinsurance recoverable of $211.5 million primarily due to the collection of those balances, an increase in unearned premiums of $51.9 million due to the timing of, and growth in, our gross premiums written, and a $33.5 million increase in reinsurance balances payable due to the timing of, and increase in, our premiums ceded, and partially offset by an adjustment for net realized and unrealized gains on investments of $164.0 million due to improved total returns in our portfolios of fixed maturity and other investments, a decrease in our reserve for claims and claim expenses of $113.0 million driven by the payment of claims and by favorable development on prior accident years net claims and claims expenses during 2012, an increase in premiums receivable of $19.5 million due to increased gross premiums written and an increase in our prepaid reinsurance premiums of $18.6 million due to the timing of, and increase in, our premiums ceded. As discussed under "Summary of Results of Operations", we generated higher underwriting income and higher investment results in 2012 compared to 2011, which contributed to the increase in cash flows provided by operating activities. Cash flows used in investing activities. During 2012, our cash flows used in investing activities were $71.7 million, principally reflecting our net investment in fixed maturity investments trading of $343.4 million, which was funded primarily by cash provided by our operating activities and net sales of other investments, short term investments and fixed maturity investments available for sale of $150.8 million, $68.8 million and $65.2 million, respectively. Cash flows used in financing activities. Our cash flows used in financing activities in 2012 were $538.6 million, and were principally the result of the settlement of $463.3 million of our common share repurchases, the payment of $53.4 million and $34.9 million in dividends to our common and preferred shareholders, respectively, and the redemption of $150.0 million of our Series D preference shares during the fourth quarter, partially offset by net inflows of $164.9 million related to additional third party equity capital raised during 2012 in our redeemable noncontrolling interest - DaVinciRe. Reserves for Claims and Claim Expenses We believe the most significant accounting judgment made by management is our estimate of claims and claim expense reserves. Claims and claim expense reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs for unpaid claims and claim expenses arising from the insurance and reinsurance contracts we sell. We establish our claims and claim expense reserves by taking claims reported to us by insureds and ceding companies, but which have not yet been paid ("case reserves"), adding the costs for additional case reserves ("additional 117 -------------------------------------------------------------------------------- case reserves") which represent our estimates for claims previously reported to us which we believe may not be adequately reserved as of that date, and adding estimates for the anticipated cost of IBNR. The following table summarizes our claims and claim expense reserves by line of business and split between case reserves, additional case reserves and IBNR: Case Additional At December 31, 2013 Reserves Case Reserves IBNR Total (in thousands) Catastrophe Reinsurance $ 430,166$ 177,518$ 173,303$ 780,987 Specialty Reinsurance 113,188 81,251 311,829 506,268 Lloyd's 45,355 14,265 158,747 218,367 Other 14,915 2,324 40,869 58,108 Total $ 603,624$ 275,358$ 684,748$ 1,563,730 At December 31, 2012 (in thousands)



Catastrophe Reinsurance $ 706,264$ 222,208$ 255,786$ 1,184,258

Specialty Reinsurance 111,234 80,971 286,108 478,313 Lloyd's 29,260 10,548 109,662 149,470 Other 17,016 8,522 41,798 67,336 Total $ 863,774$ 322,249$ 693,354$ 1,879,377 Our estimates of claims and claim expense reserves are not precise in that, among other matters, they are based on predictions of future developments and estimates of future trends and other variable factors. Some, but not all, of our reserves are further subject to the uncertainty inherent in actuarial methodologies and estimates. Because a reserve estimate is simply an insurer's estimate at a point in time of its ultimate liability, and because there are numerous factors which affect reserves and claims payments that cannot be determined with certainty in advance, our ultimate payments will vary, perhaps materially, from our estimates of reserves. If we determine in a subsequent period that adjustments to our previously established reserves are appropriate, such adjustments are recorded in the period in which they are identified. During 2013, changes to prior year estimated claims reserves increased our net income by $144.0 million (2012 - $158.0 million), excluding the consideration of changes in reinstatement premium, profit commissions, redeemable noncontrolling interest, equity in net claims and claim expenses of Top Layer Re and income tax. Our reserving methodology for each line of business uses a loss reserving process that calculates a point estimate for the Company's ultimate settlement and administration costs for claims and claim expenses. We do not calculate a range of estimates. We use this point estimate, along with paid claims and case reserves, to record our best estimate of additional case reserves and IBNR in our consolidated financial statements. Under GAAP, we are not permitted to establish estimates for catastrophe claims and claim expense reserves until an event occurs that gives rise to a loss. Reserving for our reinsurance claims involves other uncertainties, such as the dependence on information from ceding companies, which among other matters, includes the time lag inherent in reporting information from the primary insurer to us or to our ceding companies and differing reserving practices among ceding companies. The information received from ceding companies is typically in the form of bordereaux, broker notifications of loss and/or discussions with ceding companies or their brokers. This information can be received on a monthly, quarterly or transactional basis and normally includes estimates of paid claims and case reserves. We sometimes also receive an estimate or provision for IBNR. This information is often updated and adjusted from time to time during the loss settlement period as new data or facts in respect of initial claims, client accounts, industry or event trends may be reported or emerge in addition to changes in applicable statutory and case laws. Our estimates of losses from large events are based on factors including currently available information derived from the Company's claims information from certain customers and brokers, industry assessments of losses from the events, proprietary models, and the terms and conditions of our contracts. The 118 -------------------------------------------------------------------------------- uncertainty of our estimates for certain of these large events is additionally impacted by the preliminary nature of the information available, the magnitude and relative infrequency of the events, the expected duration of the respective claims development period, inadequacies in the data provided to the relevant date by industry participants and the potential for further reporting lags or insufficiencies (particularly in respect of our current reserves arising from the Chilean, 2010 New Zealand, 2011 New Zealand and Tohoku Earthquakes); and in the case of Storm Sandy and the Thailand Floods, significant uncertainty as to the form of the claims and legal issues, under the relevant terms of insurance and reinsurance contracts. In addition, a significant portion of the net claims and claim expenses associated with Storm Sandy and the New Zealand and Tohoku Earthquakes are concentrated with a few large clients and therefore the loss estimates for these events may vary significantly based on the claims experience of those clients. Loss reserve estimation in respect of our retrocessional contracts poses further challenges compared to directly assumed reinsurance. A significant portion of our reinsurance recoverable relates to the New Zealand and Tohoku Earthquakes. There is inherent uncertainty and complexity in evaluating loss reserve levels and reinsurance recoverable amounts, due to the nature of the losses relating to earthquake events, including that loss development time frames tend to take longer with respect to earthquake events. The contingent nature of business interruption and other exposures may also impact losses in a meaningful way, especially in respect of our current reserves with regard to Storm Sandy, the Tohoku Earthquake and the Thailand Floods, which we believe may give rise to significant complexity in respect of claims handling, claims adjustment and other coverage issues, over time. Given the magnitude and relatively recent occurrence of these large events, meaningful uncertainty remains regarding total covered losses for the insurance industry and, accordingly, several of the key assumptions underlying our loss estimates. In addition, our actual net losses from these events may increase if our reinsurers or other obligors fail to meet their obligations. Because of the inherent uncertainties discussed above, we have developed a reserving philosophy which attempts to incorporate prudent assumptions and estimates, and we have generally experienced favorable net development on prior year reserves in the last several years. However, there is no assurance that this will occur in future periods. Our reserving techniques, assumptions and processes differ between our Catastrophe Reinsurance, Specialty Reinsurance and Lloyd's segments. Refer to "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Summary of Critical Accounting Estimates, Claims and Claim Expense Reserves" for more information on the risks we insure and reinsure, the reserving techniques, assumptions and processes we follow to estimate our claims and claim expense reserves, and our current estimates versus our initial estimates of our claims reserves, for each of these units. Capital Resources Our total capital resources are as follows: At December 31, 2013 2012 Change (in thousands) Common shareholders' equity $ 3,504,384$ 3,103,065$ 401,319 Preference shares 400,000 400,000 - Total shareholders' equity attributable to RenaissanceRe 3,904,384 3,503,065 401,319 5.875% Senior Notes - 100,000 (100,000 ) 5.750% Senior Notes 249,430 249,339 91 RenaissanceRe revolving credit facility - borrowed - - - RenaissanceRe revolving credit facility - unborrowed 250,000 150,000 100,000 Total capital resources $ 4,403,814$ 4,002,404$ 401,410 During 2013, our capital resources increased by $401.4 million, principally due to an increase in shareholders' equity as a result of our comprehensive income attributable to RenaissanceRe of $681.1 million and, as discussed below, an increase of $100.0 million in the aggregate commitment under RenaissanceRe's revolving credit facility, partially offset by RenaissanceRe repaying the full $100.0 million 119 -------------------------------------------------------------------------------- of its outstanding 5.875% Senior Notes upon their scheduled maturity of February 15, 2013 using available cash and investments, $9.1 million of offering expenses related to the issuance of the Series E Preference Shares, as discussed below, $49.3 million of dividends on our common shares and $207.9 million of common share repurchases as discussed in more detail in "Part II, Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Repurchases of Equity Securities, Issuer Repurchases of Equity Securities." As discussed below, during May 2013, RenaissanceRe raised $275.0 million through the issuance of 11 million Series E Preference Shares, and subsequently redeemed the remaining 6 million Series D Preference Shares for $150.0 million and 5 million Series C Preference Shares for $125.0 million, or a total of $275.0 million. Preference Shares In March 2004, RenaissanceRe raised $250.0 million through the issuance of 10 million Series C Preference Shares at $25 per share; in December 2006, RenaissanceRe raised $300.0 million through the issuance of 12 million Series D Preference Shares at $25 per share; and in May 2013, RenaissanceRe raised $275.0 million through the issuance of 11 million Series E Preference Shares at $25 per share. On December 27, 2012, RenaissanceRe redeemed 6 million Series D Preference Shares for $150.0 million plus accrued and unpaid dividends thereon. Following the redemption, 6 million Series D Preference Shares remained outstanding. The proceeds of the issuance of the Series E Preference Shares were used to redeem the remaining 6 million outstanding Series D Preference Shares and 5 million of the outstanding Series C Preference Shares, as discussed below. The Series E Preference Shares and the remaining Series C Preference Shares may be redeemed at $25 per share plus certain dividends at RenaissanceRe's option on or after June 1, 2018 and March 23, 2009, respectively. Dividends on the Series C Preference Shares are cumulative from the date of original issuance and are payable quarterly in arrears at 6.08% per annum, when, if, and as declared by the Board of Directors. Dividends on the Series E Preference Shares will be payable from the date of original issuance on a non-cumulative basis, only when, as and if declared by the Board of Directors, quarterly in arrears at 5.375% per annum. Unless certain dividend payments are made on the preference shares, RenaissanceRe will be restricted from paying any dividends on its common shares. The preference shares have no stated maturity and are not convertible into any other securities of RenaissanceRe. Generally, the preference shares have no voting rights. Whenever dividends payable on the preference shares are in arrears (whether or not such dividends have been earned or declared) in an amount equivalent to dividends for six full dividend periods (whether or not consecutive), the holders of the preference shares, voting as a single class regardless of class or series, will have the right to elect two directors to the Board of Directors of RenaissanceRe. In May 2013, RenaissanceRe announced a mandatory redemption of the remaining 6 million of its outstanding Series D Preference Shares and on June 27, 2013RenaissanceRe redeemed the remaining 6 million Series D Preference Shares called for redemption for $150.0 million plus accrued and unpaid dividends thereon. Following the redemption, no Series D Preference Shares remain outstanding. In addition, in May 2013, RenaissanceRe announced a mandatory partial redemption of 5 million of its outstanding Series C Preference Shares. The partial redemption was allocated by random lottery in accordance with the Depository Trust Company's rules and procedures and on June 27, 2013RenaissanceRe redeemed the 5 million Series C Preference Shares called for redemption for $125.0 million plus accrued and unpaid dividends thereon. Following the redemption, 5 million Series C Preference Shares remain outstanding. 5.875% Senior Notes In January 2003, RenaissanceRe issued $100.0 million, which represented the carrying amount on the Company's consolidated balance sheet, of 5.875% Senior Notes due February 15, 2013, with interest on the notes payable on February 15 and August 15 of each year. RenaissanceRe repaid the notes in full upon their scheduled maturity on February 15, 2013 using available cash and investments. Currently, the Company does not plan to replace the notes with additional indebtedness. 120 -------------------------------------------------------------------------------- 5.75% Senior Notes On March 17, 2010, RRNAH issued $250.0 million of 5.75% Senior Notes due March 15, 2020, with interest on the notes payable on March 15 and September 15 of each year. The notes, which are senior obligations, are guaranteed by RenaissanceRe and can be redeemed by RRNAH prior to maturity, subject to the payment of a "make-whole" premium. The Notes were issued pursuant to an Indenture, dated as of March 17, 2010, by and among RenaissanceRe, RRNAH, and Deutsche Bank Trust Company Americas, as trustee (the "Trustee"), as supplemented by the First Supplemental Indenture, dated as of March 17, 2010. RenaissanceRe Revolving Credit Facility RenaissanceRe is a party to a Credit Agreement, dated as of May 17, 2012 (the "Credit Agreement"), with various banks and financial institutions parties thereto (collectively, the "Lenders"), Wells Fargo Bank, National Association ("Wells Fargo"), as fronting bank, letter of credit administrator and administrative agent (the "Administrative Agent") for the Lenders, and certain other agents. The Credit Agreement previously provided for commitments from the Lenders in an aggregate amount of $150.0 million, including the issuance of letters of credit for the respective accounts of RenaissanceRe and certain of RenaissanceRe's subsidiaries. Effective as of May 23, 2013, RenaissanceRe entered into a First Amendment and Joinder to Credit Agreement (the "Amendment") with the Administrative Agent and the Lenders. Among other items, the Amendment (i) increased the aggregate commitment of the Lenders to $250.0 million, (ii) added an additional bank as a Lender, and (iii) eliminated the commitment of the Lenders to issue letters of credit. After giving effect to the Amendment, RenaissanceRe has the right, subject to certain conditions, to increase the size of the facility up to $350.0 million. Amounts borrowed under the Credit Agreement bear interest at a rate selected by RenaissanceRe equal to the Base Rate or LIBOR (each as defined in the Credit Agreement) plus a margin, all as more fully set forth in the Credit Agreement. The Credit Agreement contains representations, warranties and covenants customary for bank loan facilities of this type. In addition to customary covenants which limit RenaissanceRe and its subsidiaries' ability to merge, consolidate, enter into negative pledge agreements, sell a substantial amount of assets, incur liens and declare or pay dividends under certain circumstances, the Credit Agreement also contains certain financial covenants. These financial covenants generally provide that consolidated debt to capital shall not exceed the ratio of 0.35:1 and that for the year ending December 31, 2014, the consolidated net worth of RenaissanceRe and Renaissance Reinsurance shall equal or exceed approximately $2.3 billion and $1.1 billion, respectively (the "Net Worth Requirements"). The Net Worth Requirements are recalculated effective as of the end of each fiscal year, all as more fully set forth in the Credit Agreement. The commitments under the Credit Agreement expire on May 17, 2015. In the event of the occurrence and continuation of certain events of default, the administrative agent shall, at the request of the Required Lenders (as defined in the Credit Agreement), or may, with the consent of the Required Lenders, among other things, take any or all of the following actions: terminate the Lenders' obligations to make loans and accelerate the outstanding obligations of RenaissanceRe under the Credit Agreement. Syndicated Letter of Credit Facility Effective May 17, 2012, RenaissanceRe and certain of its affiliates, Renaissance Reinsurance, ROE, RenaissanceRe Specialty Risks and DaVinci (such affiliates, collectively, the "Account Parties"), entered into a Fourth Amended and Restated Reimbursement Agreement with various banks and financial institutions parties thereto (collectively, the "Banks"), Wells Fargo, as issuing bank, administrative agent and collateral agent for the Banks, and certain other agents (the "Reimbursement Agreement"). The Reimbursement Agreement amended and restated in its entirety the Third Amended and Restated Reimbursement Agreement, dated as of April 22, 2010, which was terminated concurrently with the effectiveness of the Reimbursement Agreement. The commitments under the Reimbursement Agreement expire on May 17, 2015. Effective March 28, 2013, RenaissanceRe reduced the commitments under the facility from $450.0 million to $250.0 million. The reductions were implemented in connection with a reassessment of the future collateral needs of RenaissanceRe, taking into account, among other things, its access to alternative 121 -------------------------------------------------------------------------------- sources of credit enhancement. Prior to the expiration date of May 17, 2015, the commitments under the facility may be increased from time to time up to an amount not to exceed $600.0 million in the aggregate, subject to RenaissanceRe satisfying certain conditions. The Reimbursement Agreement contains representations, warranties and covenants in respect of RenaissanceRe, the Account Parties and their respective subsidiaries that are customary for facilities of this type, including customary covenants limiting the ability to merge, consolidate and sell a substantial amount of assets. The Reimbursement Agreement contains certain financial covenants requiring RenaissanceRe and DaVinci to maintain, for the year ending December 31, 2014, a minimum net worth of approximately $2.0 billion and $781.2 million, respectively, which requirements are recalculated effective as of the end of each fiscal year, all as more fully set forth in the Reimbursement Agreement. Under the Reimbursement Agreement, each Account Party is required to pledge eligible collateral having a value sufficient to cover all of its obligations under the Reimbursement Agreement, including reimbursement obligations for outstanding letters of credit issued for its account. In the case of an event of default under the Reimbursement Agreement, and in certain other circumstances set forth in the Reimbursement Agreement, including, among others, a decrease in the net worth of an Account Party below the level specified therein for such Account Party, a decline in collateral value, and certain failures to maintain specified ratings, the Banks may exercise certain remedies, including conversion of collateral into cash. At December 31, 2013, we had $162.3 million of letters of credit with effective dates on or before December 31, 2013 outstanding under the Reimbursement Agreement. Bilateral Letter of Credit Facility ("Bilateral Facility") Effective October 1, 2013, each of ROE and RenaissanceRe Specialty U.S. became parties to the existing Bilateral Facility provided pursuant to the facility letter, dated September 17, 2010 and amended July 14, 2011 (as so amended, the "Facility Letter"), among Citibank Europe plc ("CEP") and the existing participants: Renaissance Reinsurance, DaVinci and RenaissanceRe Specialty Risks (collectively, the "Bilateral Facility Participants"). The Bilateral Facility provides a commitment from CEP to issue letters of credit for the account of one or more of the Bilateral Facility Participants (inclusive of ROE and RenaissanceRe Specialty U.S.) and their respective subsidiaries in multiple currencies and in an aggregate amount of up to $300.0 million, subject to a sublimit of $50.0 million for letters of credit issued for the account of RenaissanceRe Specialty U.S. The Bilateral Facility was to expire on December 31, 2013; however effective October 1, 2013, the Bilateral Facility was extended to December 31, 2014. The Bilateral Facility is evidenced by the Facility Letter and five separate master agreements between CEP and each of the Bilateral Facility Participants, as well as certain ancillary agreements. At December 31, 2013, $258.3 million remained unused and available to the Bilateral Facility Participants under the Bilateral Facility. Under the Bilateral Facility, each of the Bilateral Facility Participants is severally obligated to pledge to CEP at all times during the term of the Bilateral Facility certain securities with a collateral value (as determined as therein provided) that equals or exceeds 100% of the aggregate amount of its then-outstanding letters of credit. In the case of an event of default under the Bilateral Facility with respect to a Bilateral Facility Participant, CEP may exercise certain remedies with respect to such Bilateral Facility Participant, including terminating its commitment to such Bilateral Facility Participant under the Bilateral Facility and taking certain actions with respect to the collateral pledged by such Bilateral Facility Participant (including the sale thereof). In the Facility Letter, each of Bilateral Facility Participant makes, as to itself, representations and warranties that are customary for facilities of this type and severally agrees that it will comply with certain informational and other undertakings, including those regarding the delivery of quarterly and annual financial statements. Funds at Lloyd's Letter of Credit Facility On April 26, 2010, Renaissance Reinsurance and CEP entered into an Amended and Restated Pledge Agreement (the "Pledge Agreement") in respect of its letter of credit facility with CEP which is evidenced by the Master Reimbursement Agreement, dated as of April 29, 2009, which provides for the issuance and renewal of letters of credit used to support business written by Syndicate 1458. At December 31, 2013, two letters of credit issued by CEP under the Master Reimbursement Agreement were outstanding, in the amount of $281.0 million and £60.0 million, respectively. Pursuant to the Pledge Agreement, Renaissance Reinsurance has agreed to pledge to CEP at all times during the term of the Master Reimbursement 122 -------------------------------------------------------------------------------- Agreement certain securities with a collateral value equal to 100% of the aggregate amount of the then-outstanding letters of credit issued under the Master Reimbursement Agreement. Letters of Credit At December 31, 2013, we had total letters of credit outstanding under all facilities of $584.4 million. Renaissance Reinsurance is also party to a collateralized letter of credit and reimbursement agreement in the amount of $37.5 million that supports our Top Layer Re joint venture. Renaissance Reinsurance is obligated to make a mandatory capital contribution of up to $50.0 million in the event that a loss reduces Top Layer Re's capital below a specified level. DaVinciRe Loan Agreement On March 30, 2011, DaVinciRe entered into a loan agreement with RenaissanceRe (the "Loan Agreement") under which RenaissanceRe made a loan to DaVinciRe in the principal amount of $200.0 million on April 1, 2011. The loan matures on March 31, 2021 and interest on the loan is payable at a rate of three month LIBOR plus 3.5% and is due at the end of each March, June, September and December, commencing on June 30, 2011. Under the terms of the Loan Agreement, DaVinciRe is required to maintain a debt to capital ratio of no greater than 0.40:1 and a net worth of no less than $500.0 million. On December 21, 2012, DaVinciRe repaid $100.0 million of principal under the Loan Agreement and at December 31, 2013, $100.0 million remained outstanding under the Loan Agreement. No additional amounts may be borrowed by DaVinciRe under the Loan Agreement. Multi-Beneficiary Reinsurance Trusts Effective March 15, 2011, each of Renaissance Reinsurance and DaVinci was approved as a Trusteed Reinsurer in the State of New York and established a multi-beneficiary reinsurance trust ("MBRT") to collateralize its respective (re)insurance liabilities associated with U.S. domiciled cedants. The MBRTs are subject to the rules and regulations of the State of New York and the respective deed of trust, including but not limited to certain minimum capital funding requirements, investment guidelines, capital distribution restrictions and regulatory reporting requirements. Following the initial approval in the State of New York, Renaissance Reinsurance and DaVinci have submitted applications to all U.S. states to become Trusteed Reinsurers. As of December 31, 2013, Renaissance Reinsurance and DaVinci are approved in 51 and 50 U.S. states and territories, respectively. We expect, over time, to transition cedants with existing outstanding letters of credit to the appropriate MBRT as determined by cedant state of domicile, thereby reducing our absolute and relative reliance on letters of credit. Accordingly, it is our intention to seek to have new business incepting with cedants domiciled in approved states collateralized using a MBRT. Cedants collateralized with a MBRT will be eligible for automatic reinsurance credit in their respective U.S. regulatory filings. Assets held under trust at December 31, 2013 with respect to the MBRTs totaled $505.1 million and $173.9 million for Renaissance Reinsurance and DaVinci, respectively, compared to the minimum amount required under U.S. state regulations of $441.7 million and $135.2 million, respectively. Multi-Beneficiary Reduced Collateral Reinsurance Trusts Effective December 31, 2012, each of Renaissance Reinsurance and DaVinci has been approved as an "eligible reinsurer" in the state of Florida. Therefore they are each authorized to provide reduced collateral equal to 20% of their net outstanding insurance liabilities to Florida-domiciled insurers. Each of Renaissance Reinsurance and DaVinci has established a multi-beneficiary reduced collateral reinsurance trust ("RCT") to collateralize its (re)insurance liabilities associated with Florida-domiciled cedants. Because the RTCs were established in New York, they are subject to the rules and regulations of the state of New York including but not limited to certain minimum capital funding requirements, investment guidelines, capital distribution restrictions and regulatory reporting requirements. Assets held under trust at December 31, 2013 with respect to the RCTs totaled $21.1 million and $18.6 million for Renaissance Reinsurance and DaVinci, respectively, compared to the minimum amount required under U.S. state regulations of $16.3 million and $10.2 million, respectively. 123 -------------------------------------------------------------------------------- Renaissance Trading Guarantees At December 31, 2013, RenaissanceRe had provided guarantees in the aggregate amount of $50.8 million to certain counterparties of the weather and energy risk operations of Renaissance Trading, subsequently renamed as Munich Re Trading LLC, one of the entities acquired by Munich in the REAL transaction. Although the guarantees issued by RenaissanceRe to certain counterparties of Renaissance Trading remained in effect at December 31, 2013, in conjunction with the purchase agreement of REAL, Munich has agreed, effective October 1, 2013, to indemnify RenaissanceRe against any liabilities, losses and damages that may arise as a result of any transaction between Renaissance Trading and a counterparty that has been provided a guarantee by RenaissanceRe. Redeemable Noncontrolling Interest - DaVinciRe DaVinciRe shareholders are party to a shareholders agreement (the "Shareholders Agreement") which provides DaVinciRe shareholders, excluding us, with certain redemption rights that enable each shareholder to notify DaVinciRe of such shareholder's desire for DaVinciRe to repurchase up to half of such shareholder's aggregate number of shares held, subject to certain limitations, such as limiting the aggregate of all share repurchase requests to 25% of DaVinciRe's capital in any given year and satisfying all applicable regulatory requirements. If total shareholder requests exceed 25% of DaVinciRe's capital, the number of shares repurchased will be reduced among the requesting shareholders pro-rata, based on the amounts desired to be repurchased. Shareholders desiring to have DaVinciRe repurchase their shares must notify DaVinciRe before March 1 of each year. The repurchase price will be based on GAAP book value as of the end of the year in which the shareholder notice is given, and the repurchase will be effective as of such date. Payment will be made by April 1 of the following year, following delivery of the audited financial statements for the year in which the repurchase was effective. The repurchase price is subject to a true-up for development on outstanding loss reserves after settlement of all claims relating to the applicable years. During January 2013, DaVinciRe redeemed shares from certain DaVinciRe shareholders, including the Company, while certain other existing DaVinciRe shareholders purchased additional shares in DaVinciRe. The net redemption as a result of these transactions was $150.0 million. In connection with the redemptions, DaVinciRe retained a $20.5 million holdback. Our noncontrolling economic ownership in DaVinciRe was 30.8% at December 31, 2012 and subsequent to the above transactions, our noncontrolling economic ownership in DaVinciRe increased to 32.9% effective January 1, 2013. Effective October 1, 2013, an existing third party shareholder sold a portion of its shares in DaVinciRe to a new third party shareholder. In addition, effective October 1, 2013, we sold a portion of our shares in DaVinciRe to the same new third party shareholder. We sold these shares for $77.4 million. Our noncontrolling economic ownership in DaVinciRe was 32.9% at September 30, 2013 and subsequent to the above transactions, our noncontrolling economic ownership interest in DaVinciRe decreased and was 27.3% at December 31, 2013. During January 2014, DaVinciRe redeemed a portion of its outstanding shares from all existing DaVinciRe shareholders, including the Company, while a new DaVinciRe shareholder purchased shares in DaVinciRe. The net redemption as a result of these transactions was $300.0 million. The Company's noncontrolling economic ownership in DaVinciRe subsequent to these transactions is 26.5%, effective January 1, 2014. We expect our noncontrolling economic ownership in DaVinciRe to fluctuate over time. Ratings Financial strength ratings are an important factor in respect of the competitive position of reinsurance and insurance companies. Rating organizations continually review the financial positions of our reinsurers and insurers. We continue to receive high claims-paying and financial strength ratings from A.M. Best, S&P, Moody's and Fitch. These ratings represent independent opinions of an insurer's financial strength, operating performance and ability to meet policyholder obligations, and are not an evaluation directed toward the protection of investors or a recommendation to buy, sell or hold any of our securities. 124 --------------------------------------------------------------------------------



Presented below are the ratings of our principal operating subsidiaries and joint ventures by segment and the ERM rating of RenaissanceRe as of February 19, 2014.

A.M. Best S&P Moody's Fitch Renaissance Reinsurance (1) A+ AA- A1 A+ DaVinci (1) A AA- A3 - RenaissanceRe Specialty Risks (1) A A+ - - RenaissanceRe Specialty U.S. (1) A - - - ROE (1) A+ AA- - - Top Layer Re (1) A+ AA - - Syndicate 1458 - - - - Lloyd's Overall Market Rating (2) A A+ - A+ RenaissanceRe (3) - Very Strong - -



(1) The A.M. Best, S&P, Moody's and Fitch ratings for these companies reflect the

insurer's financial strength rating and in addition, the S&P ratings also

reflect the insurer's issuer credit rating.

(2) The A.M. Best, S&P and Fitch ratings for the Lloyd's Overall Market Rating

represent its financial strength rating.

(3) The S&P rating for RenaissanceRe represents rating on its Enterprise Risk

Management practices.

A.M. Best. "A+" is the second highest designation of A.M. Best's sixteen rating levels. "A+" rated insurance companies are defined as "Superior" companies and are considered by A.M. Best to have a very strong ability to meet their obligations to policyholders. "A" is the third highest designation assigned by A.M. Best, representing A.M. Best's opinion that the insurer has an "Excellent" ability to meet its ongoing obligations to policyholders. On June 12, 2013, A.M. Best affirmed its issuer credit rating ("ICR") of "a-" (Excellent) and all debt ratings of RenaissanceRe. Concurrently, A.M. Best affirmed the financial strength rating ("FSR") of "A+" (Superior) of each of Renaissance Reinsurance and ROE, respectively, and the FSR of "A" (Excellent) of each of DaVinci and RenaissanceRe Specialty Risks, respectively. In addition, A.M. Best assigned an FSR of "A" (Excellent) to RenaissanceRe Specialty U.S. The outlook is stable for these ratings. On June 12, 2013, A.M. Best affirmed the FSR of "A+" (Superior) of Top Layer Re. The outlook is stable for this rating. S&P. The "AA" range ("AA+", "AA", AA-"), which has been assigned by S&P to Renaissance Reinsurance, DaVinci, ROE and Top Layer Re, is the second highest rating assigned by S&P, and indicates that S&P believes the insurers have very strong financial security characteristics, differing only slightly from those rated higher. S&P assigns an issuer credit rating to an entity which is an opinion on the credit worthiness of the obligor with respect to a specific financial obligation. On August 13, 2013, S&P upgraded the ICR and FSR on RenaissanceRe Specialty Risks to "A+" from "A". The outlook is stable for these ratings. On May 23, 2013, S&P affirmed its ICR of "A" on RenaissanceRe and its "A" senior debt rating on our senior unsecured notes. In addition, S&P affirmed its "AA-" ICR and FSR on Renaissance Reinsurance and ROE and upgraded its "A+" ICR and FSR to "AA-" on DaVinci. The outlook is stable for these ratings. On November 1, 2010, S&P revised its outlook on Top Layer Re to stable from negative and at the same time, affirmed Top Layer Re's ICR and FSR of "AA". In addition, S&P assesses companies' ERM practices, which is an opinion on the many critical dimensions of risk management that determine overall creditworthiness. RenaissanceRe has been assigned an ERM rating of "Very Strong", which is the highest rating assigned by S&P, and indicates that S&P believes RenaissanceRe has extremely strong capabilities to consistently identify, measure, and manage risk exposures and losses within RenaissanceRe's predetermined tolerance guidelines. 125 -------------------------------------------------------------------------------- Moody's. Moody's Insurance Financial Strength Ratings represent its opinions of the ability of insurance companies to pay punctually policyholder claims and obligations and senior unsecured debt instruments. Moody's believes that insurance companies rated "A1", such as Renaissance Reinsurance, and companies rated "A3", such as DaVinci, offer good financial security. However, Moody's believes that elements may be present which suggest a susceptibility to impairment sometime in the future. On October 7, 2013, Moody's affirmed its "A1" insurance FSR on Renaissance Reinsurance and its "A3" insurance FSR on DaVinci. The outlook is stable for these ratings. Fitch. Fitch's Issuer Financial Strength ("IFS") ratings provide an assessment of the financial strength of an insurance organization. Fitch believes that insurance companies rated "A+", such as Renaissance Reinsurance, have "Strong" capacity to meet policyholders and contract obligations on a timely basis with a low expectation of ceased or interrupted payments. On May 23, 2013, Fitch affirmed the IFS of Renaissance Reinsurance at "A+". The outlook is stable for this rating. Lloyd's Overall Market Rating A.M. Best, S&P and Fitch have each assigned an FSR to the Lloyd's overall market. The financial risks to policy holders of syndicates within the Lloyd's market are partially mutualized through the Lloyd'sCentral Fund, to which all underwriting members contribute. Because of the presence of the Lloyd'sCentral Fund, and the current legal and regulatory structure of the Lloyd's market, FSRs on individual syndicates would not be particularly meaningful and in any event would not be lower than the FSR of the Lloyd's overall market. While the ratings of our principal operating subsidiaries and joint ventures remain among the highest in our business, adverse ratings actions could have a negative effect on our ability to fully realize current or future market opportunities. In addition, it is common for our reinsurance contracts to contain provisions permitting our customers to cancel coverage pro-rata if our relevant operating subsidiary is downgraded below a certain rating level. Whether a client would exercise this right would depend, among other factors, on the reason for such a downgrade, the extent of the downgrade, the prevailing market conditions and the pricing and availability of replacement reinsurance coverage. Therefore, in the event of a downgrade, it is not possible to predict in advance the extent to which this cancellation right would be exercised, if at all, or what effect such cancellations would have on our financial condition or future operations, but such effect potentially could be material. To date, we are not aware that we have experienced such a cancellation. Our ratings are subject to periodic review and may be revised or revoked by the agencies which issue them. 126 --------------------------------------------------------------------------------



Investments

The table below shows our invested assets:

At December 31, 2013



2012

(in thousands, except percentages)

U.S. treasuries $ 1,352,413 19.8 % $



1,254,547 19.8 %

Agencies 186,050 2.7 %



315,154 5.0 %

Non-U.S. government (Sovereign debt) 334,580 4.9 %



133,198 2.1 %

Non-U.S. government-backed corporate 237,479 3.5 % 349,514 5.5 % Corporate 1,803,415 26.4 % 1,615,207 25.4 % Agency mortgage-backed 341,908 5.0 % 408,531 6.4 % Non-agency mortgage-backed 257,938 3.8 % 248,339 3.9 % Commercial mortgage-backed 314,236 4.6 % 406,166 6.4 % Asset-backed 15,258 0.2 % 12,954 0.2 %



Total fixed maturity investments, at fair

value 4,843,277 70.9 %



4,743,610 74.7 %

Short term investments, at fair value 1,044,779 15.3 % 821,163 12.9 %

Equity investments trading, at fair value 254,776 3.7 % 58,186 0.9 %

Other investments, at fair value 573,264 8.5 %



644,711 10.1 %

Total managed investment portfolio 6,716,096 98.4 %



6,267,670 98.6 %

Investments in other ventures, under

equity method 105,616 1.6 % 87,724 1.4 % Total investments $ 6,821,712 100.0 % $ 6,355,394 100.0 % At December 31, 2013, we held investments totaling $6.8 billion, compared to $6.4 billion at December 31, 2012, with net unrealized appreciation included in accumulated other comprehensive income of $4.1 million at December 31, 2013, compared to $13.6 million at December 31, 2012. Our investment guidelines stress preservation of capital, market liquidity, and diversification of risk. Notwithstanding the foregoing, our investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular securities. Refer to "Note 6. Fair Value Measurements" in our notes to the consolidated financial statements for additional information regarding the fair value measurement of our investments. As the reinsurance coverages we sell include substantial protection for damages resulting from natural and man-made catastrophes, we expect from time to time to become liable for substantial claim payments on short notice. Accordingly, our investment portfolio as a whole is structured to seek to preserve capital and provide a high level of liquidity which means that the large majority of our investment portfolio consists of highly rated fixed income securities, including U.S. treasuries, agencies, highly rated sovereign and supranational securities, high-grade corporate securities and mortgage-backed and asset-backed securities. We also have an allocation to publicly traded equities reflected on our consolidated balance sheet as equity investments trading and an allocation to other investments (including hedge funds, private equity partnerships, senior secured bank loan funds, catastrophe bonds and other investments). At December 31, 2013, our portfolio of equity investments trading totaled $254.8 million, or 3.7%, of our total investments inclusive of our investment in Essent of $121.1 million (2012 - $58.2 million or 0.9%) and our portfolio of other investments totaled $573.3 million, or 8.5%, of our total investments (2012 - $644.7 million or 10.1%). 127

-------------------------------------------------------------------------------- The following table summarizes the composition of our investment portfolio, including the amortized cost and fair value of our investment portfolio and the ratings as assigned by S&P, or Moody's and/or other rating agencies when S&P ratings were not available, and the respective effective yield. Credit Rating (1) % of Total Non- Amortized Investment Weighted Average Investment December 31, 2013 Cost Fair Value Portfolio Effective Yield AAA AA A BBB



Grade Not Rated

(in thousands, except

percentages)

Short term investments $ 1,044,779$ 1,044,779 15.3 %

0.1 % $ 1,032,327$ 9,820$ 2,559 $ - $ - $ 73 100.0 % 98.8 % 0.9 % 0.3 % - % - % - % Fixed maturity investments U.S. treasuries 1,358,094 1,352,413 19.8 % 0.8 % - 1,352,413 - - - - Agencies Fannie Mae & Freddie Mac 184,405 182,738 2.7 % 1.3 % - 182,738 - - - - Other agencies 3,410 3,312 - % 1.6 % - 3,312 - - - - Total agencies 187,815 186,050 2.7 % 1.3 % - 186,050 - - - -



Non-U.S. government

(Sovereign debt) 332,935 334,580 4.9 % 1.3 % 238,764 67,555 13,572 14,689 - - FDIC guaranteed corporate - - - % - % - - - - - - Non-U.S. government-backed corporate 234,531 237,479 3.5 % 1.1 % 152,468 80,110 3,494 815 592 - Corporate 1,783,043 1,803,415 26.4 % 2.7 % 39,878 265,761 772,126 338,993

361,935 24,722 Mortgage-backed Residential mortgage-backed Agency securities 346,740 341,908 5.0 % 2.9 % - 341,908 - - - - Non-agency securities - Alt A 126,803 136,734 2.0 % 4.7 % 2,554 6,823 18,308 12,315



81,483 15,251

Non-agency securities -

Prime 115,541 121,204 1.8 % 3.7 % 11,139 5,791 7,647 10,662



77,534 8,431

Total residential

mortgage-backed 589,084 599,846 8.8 % 3.5 % 13,693 354,522 25,955 22,977 159,017 23,682 Commercial mortgage-backed 311,681 314,236 4.6 % 2.1 % 177,988 108,446 21,278 6,034 - 490



Total mortgage-backed 900,765 914,082 13.4 %

3.0 % 191,681 462,968 47,233 29,011 159,017 24,172 Asset-backed Credit cards 4,270 4,385 0.1 % 2.6 % 4,385 - - - - - Auto loans 3,008 3,109 - % 0.8 % 3,109 - - - - - Student loans 2,918 2,947 - % 1.4 % 2,947 - - - - - Other 4,606 4,817 0.1 % 2.7 % 4,817 - - - - - Total asset-backed 14,802 15,258 0.2 % 2.0 % 15,258 - - - - -



Total securitized assets 915,567 929,340 13.6 %

3.0 % 206,939 462,968 47,233 29,011



159,017 24,172

Total fixed maturity

investments 4,811,985 4,843,277 70.9 % 2.0 % 638,049 2,414,857 836,425 383,508 521,544 48,894 100.0 % 13.2 % 49.8 % 17.3 % 7.9 % 10.8 % 1.0 % Equity investments trading 254,776 3.7 % - - - - - 254,776 100.0 % - % - % - % - % - % 100.0 %



Other investments

Private equity

partnerships 322,391 4.7 % - - - -



- 322,391

Catastrophe bonds 229,016 3.4 % - - - - 229,016 -



Senior secured bank loan

funds 18,048 0.3 % - - - -



- 18,048

Non-U.S. fixed income

funds - - % - - - - - - Hedge funds 3,809 0.1 % - - - - - 3,809



Miscellaneous other

investment - - % - - - - - - Total other investments 573,264 8.5 % - - - - 229,016 344,248 100.0 % - % - % - % - % 39.9 % 60.1 %



Investments in other

ventures 105,616 1.6 % - - - - - 105,616 100.0 % - % - % - % - % - % 100.0 %



Total investment

portfolio $ 6,821,712 100.0 % $ 1,670,376$ 2,424,677$ 838,984$ 383,508



$ 750,560$ 753,607

100.0 % 24.5 % 35.5 % 12.3 % 5.6 % 11.0 % 11.1 %



(1) The credit ratings included in this table are those assigned by S&P. When

ratings provided by S&P were not available, ratings from other nationally

recognized rating agencies were used. The Company has grouped short term

investments with an A-1+ and A-1 short term issue credit rating as AAA, short

term investments with A-2 short term issue credit rating as AA and short term

investments with an A-3 short term issue credit rating as A. 128

-------------------------------------------------------------------------------- Fixed Maturity Investments and Short Term Investments At December 31, 2013, our fixed maturity investments and short term investment portfolio had a dollar-weighted average credit quality rating of AA (2012 - AA) and a weighted average effective yield of 1.7% (2012 - 1.4%). At December 31, 2013, our non-investment grade and not rated fixed maturity investments totaled $570.4 million or 11.8% of our fixed maturity investments (2012 - $471.6 million or 9.9%, respectively). In addition, within our other investments category we have funds that invest in non-investment grade and not rated fixed income securities and non-investment grade cat-linked securities. At December 31, 2013, the funds that invest in non-investment grade and not rated fixed income securities and non-investment grade cat-linked securities totaled $247.1 million (2012 - $294.2 million). At December 31, 2013, we had $1,044.8 million of short term investments (2012 - $821.2 million). Short term investments are managed as part of our investment portfolio and have a maturity of one year or less when purchased. Short term investments are carried at amortized cost, which approximates fair value. The duration of our fixed maturity investments and short term investments at December 31, 2013 was 2.1 years (2012 - 2.2 years). From time to time, we may reevaluate the duration of our portfolio in light of the duration of our liabilities and market conditions. As with other fixed income investments, the value of our fixed maturity investments will fluctuate with changes in the interest rate environment and when changes occur in the overall investment market and in overall economic conditions. Additionally, our differing asset classes expose us to other risks which could cause a reduction in the value of our investments. Examples of some of these risks include: • Changes in the overall interest rate environment can expose us to "prepayment risk" on our mortgage-backed investments. When interest rates decline, consumers will generally make prepayments on their mortgages and, as a result, our investments in mortgage-backed securities will be repaid to us



more quickly than we might have originally anticipated. When we receive these

prepayments, our opportunities to reinvest these proceeds back into the

investment markets will likely be at reduced interest rates. Conversely, when

interest rates increase, consumers will generally make fewer prepayments on

their mortgages and, as a result, our investments in mortgage-backed

securities will be repaid to us less quickly than we might have originally

anticipated. This will increase the duration of our portfolio, which is

disadvantageous to us in a rising interest rate environment.

• Our investments in mortgage-backed securities are also subject to default

risk. This risk is due in part to defaults on the underlying securitized

mortgages, which would decrease the market value of the investment and be

disadvantageous to us. Similar risks apply to other asset-backed securities

in which we may invest from time to time.

• Our investments in debt securities of other corporations are exposed to

losses from insolvencies of these corporations, and our investment portfolio

can also deteriorate based on reduced credit quality of these corporations.

We are also exposed to the impact of widening credit spreads even if specific

securities are not downgraded.

• Our investments in asset-backed securities are subject to prepayment risks,

as noted above, and to the structural risks of these securities. The

structural risks primarily emanate from the priority of each security in the

issuer's overall capital structure. We are also exposed to the impact of

widening credit spreads.

• Within our other investments category, we have funds that invest in

non-investment grade fixed income securities as well as securities

denominated in foreign currencies. These investments expose us to losses from

insolvencies and other credit-related issues. We are also exposed to

fluctuations in foreign exchange rates that may result in realized losses to

us if our exposures are not hedged or if our hedging strategies are not effective and also to widening of credit spreads. 129

-------------------------------------------------------------------------------- The following table summarizes the fair value by contractual maturity of our fixed maturity investment portfolio at the dates indicated. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty. At December 31, 2013 2012 (in thousands, except percentages) Due in less than one year $ 160,760 3.3 % $ 427,821 9.0 % Due after one through five years 3,118,799 64.4 % 2,389,856 50.4 % Due after five through ten years 551,007 11.4 % 711,844 15.0 % Due after ten years 83,371 1.7 % 138,099 2.9 % Mortgage-backed 914,082 18.9 % 1,063,036 22.4 % Asset-backed 15,258 0.3 % 12,954 0.3 % Total fixed maturity investments, at fair value $ 4,843,277 100.0 % $ 4,743,610 100.0 % Corporate Fixed Maturity Investments The following table summarizes the composition of the fair value of our corporate fixed maturity investments at the date indicated by ratings as assigned by S&P, or Moody's and/or other rating agencies when S&P ratings were not available. At December 31, 2013 (in thousands) Non-Investment Sector Total AAA AA A BBB Grade Not Rated Financials $ 734,503$ 34,531$ 125,558$ 473,381$ 53,816 $ 28,450 $ 18,767 Industrial, utilities and energy 396,530 4,175 54,926 129,732 116,606 88,644 2,447 Communications and technology 250,685 373 21,582 63,643 61,087 101,300 2,700 Consumer 225,580 - 18,962 59,503 53,412 93,375 328 Health care 116,731 - 39,254 26,150 18,229 33,098 - Basic materials 66,646 - - 15,023 34,075 17,068 480 Other 12,740 799 5,479 4,694 1,768 - - Total corporate fixed maturity investments, at fair value (1) $ 1,803,415$ 39,878$ 265,761$ 772,126$ 338,993$ 361,935$ 24,722



(1) Excludes non-U.S. government-backed corporate fixed maturity investments, at

fair value. 130

-------------------------------------------------------------------------------- The following table summarizes the composition of the fair value of the fixed maturity investments and short term investments of our top ten corporate issuers at the date indicated. At December 31, 2013 (in thousands) Short term Fixed maturity Issuer Total investments investments Bank of America Corp. $ 59,439 $ - $ 59,439 JP Morgan Chase & Co. 57,994 - 57,994 General Electric Company 56,352 - 56,352 Citigroup Inc. 54,292 - 54,292 Goldman Sachs Group Inc. 51,699 - 51,699 Morgan Stanley 35,360 - 35,360 HSBC Holdings PLC 34,166 - 34,166 BNP Paribas SA 28,472 - 28,472 Ford Motor Co. 27,689 - 27,689 Wells Fargo & Co. 26,272 - 26,272 Total (1) $ 431,735 $ - $ 431,735



(1) Excludes non-U.S. government-backed corporate fixed maturity investments,

reverse repurchase agreements and commercial paper, at fair value.

Equity Investments Trading Commencing in the first quarter of 2011, we established an internal portfolio of certain publicly traded equities which are reflected in our consolidated balance sheet as equity investments trading. During the first quarter of 2013, we sold substantially all of the securities then held in our portfolio of internally managed public equity investments trading, which was carried at fair value with dividend income included in net investment income, and realized and unrealized gains included in net realized and unrealized gains on investments, in our consolidated statements of operations. Subsequently, in the second quarter of 2013, we established a public equity securities mandate with a third party investment manager which currently comprises a majority of our investments included in equity investments trading, excluding our investment in Essent. Included in the financial category of our equity investments trading at December 31, 2013 is $121.1 million related to our investment in Essent. We have agreed, subject to certain exceptions, not to dispose of or hedge any of the common shares of Essent we hold prior to April 28, 2014. It is possible our equity allocation will increase in the future, although we do not expect it to represent a material portion of our invested assets or to have a material effect on our financial results for the reasonably foreseeable future. The following table summarizes the fair value of equity investments trading: At December 31, 2013 2012 Change (in thousands) Financials $ 152,905$ 58,186$ 94,719 Consumer 44,115 - 44,115 Industrial, utilities and energy 25,350 - 25,350 Healthcare 15,340 - 15,340 Basic materials 12,766 - 12,766 Communications and technology 4,300 - 4,300 Total $ 254,776$ 58,186$ 196,590 131

-------------------------------------------------------------------------------- Other Investments The table below shows our portfolio of other investments: At December 31, 2013 2012 Change (in thousands) Private equity partnerships $ 322,391$ 344,669$ (22,278 ) Catastrophe bonds 229,016 91,310 137,706 Senior secured bank loan funds 18,048 202,929 (184,881 ) Hedge funds 3,809 5,803 (1,994 ) Total other investments $ 573,264$ 644,711$ (71,447 ) We account for our other investments at fair value in accordance with FASB ASC Topic Financial Instruments. The fair value of certain of our fund investments, which principally include hedge funds, private equity funds and senior secured bank loan funds, is recorded on our balance sheet in other investments, and is generally established on the basis of the net valuation criteria established by the managers of such investments, if applicable. The net valuation criteria established by the managers of such investments is established in accordance with the governing documents of such investments. Many of our fund investments are subject to restrictions on redemptions and sales which are determined by the governing documents and limit our ability to liquidate these investments in the short term. Certain of our fund managers, fund administrators, or both, are unable to provide final fund valuations as of our current reporting date. The typical reporting lag experienced by us to receive a final net asset value report is one month for hedge funds and senior secured bank loan funds and three months for private equity funds, although, in the past, in respect of certain of our private equity funds, we have on occasion experienced delays of up to six months at year end, as the private equity funds typically complete their respective year-end audits before releasing their final net asset value statements. In circumstances where there is a reporting lag between the current period end reporting date and the reporting date of the latest fund valuation, we estimate the fair value of these funds by starting with the prior month or quarter-end fund valuations, adjusting these valuations for actual capital calls, redemptions or distributions, as well as the impact of changes in foreign currency exchange rates, and then estimating the return for the current period. In circumstances in which we estimate the return for the current period, all information available to us is utilized. This principally includes preliminary estimates reported to us by our fund managers, obtaining the valuation of underlying portfolio investments where such underlying investments are publicly traded and therefore have a readily observable price, using information that is available to us with respect to the underlying investments, reviewing various indices for similar investments or asset classes, as well as estimating returns based on the results of similar types of investments for which we have obtained reported results, or other valuation methods, where possible. Actual final fund valuations may differ, perhaps materially so, from our estimates and these differences are recorded in our statement of operations in the period in which they are reported to us as a change in estimate. Included in net investment income for 2013 is a loss of $3.7 million (2012 - loss of $4.7 million) representing the change in estimate during the period related to the difference between our estimated net investment income due to the lag in reporting discussed above and the actual amount as reported in the final net asset values provided by our fund managers. Our estimate of the fair value of catastrophe bonds are based on quoted market prices, or when such prices are not available, by reference to broker or underwriter bid indications. Refer to "Note 6. Fair Value Measurements" in our notes to the consolidated financial statements for additional information regarding the fair value measurement of our investments. Interest income, income distributions and realized and unrealized gains (losses) on other investments are included in net investment income and resulted in $119.5 million of net investment income for 2013 (2012 - $71.8 million). Of this amount, $75.8 million relates to net unrealized gains (2012 - unrealized gains of $38.2 million). 132 -------------------------------------------------------------------------------- We have committed capital to private equity partnerships and other investments of $662.7 million, of which $544.6 million has been contributed at December 31, 2013. Our remaining commitments to these investments at December 31, 2013 totaled $116.2 million. In the future, we may enter into additional commitments in respect of private equity partnerships or individual portfolio company investment opportunities. Measuring the Fair Value of Other Investments Using Net Asset Valuations The table below shows our portfolio of other investments measured using net asset valuations: Redemption Redemption Notice Notice Period Period Unfunded Redemption (Minimum (Maximum At December 31, 2013 Fair Value Commitments Frequency Days) Days) (in thousands) Private equity partnerships $ 322,391$ 99,610 See below See below See below Senior secured bank loan funds 18,048 16,635 See below See below See below Hedge funds 3,809 - See below See below See below

Total other investments measured using net asset valuations $ 344,248$ 116,245 Private equity partnerships - Included in the Company's investments in private equity partnerships are alternative asset limited partnerships (or similar corporate structures) that invest in certain private equity asset classes including U.S. and global leveraged buyouts; mezzanine investments; distressed securities; real estate; and oil, gas and power. The fair values of the investments in this category have been estimated using the net asset value of the investments, as discussed in detail above. The Company generally has no right to redeem its interest in any of these private equity partnerships in advance of dissolution of the applicable private equity partnership. Instead, the nature of these investments is that distributions are received by the Company in connection with the liquidation of the underlying assets of the respective private equity partnership. It is estimated that the majority of the underlying assets of the limited partnerships would liquidate over 7 to 10 years from inception of the respective limited partnership. Senior secured bank loan funds - The Company has $18.0 million invested in closed end funds which invest primarily in loans. The Company has no right to redeem its investment in these funds. The Company's investments in these funds are valued using estimated monthly net asset valuations received from the investment manager, as discussed in detail above. It is estimated that the majority of the underlying assets in the closed end funds would liquidate over 4 to 5 years from inception of the respective fund. Hedge funds - The Company invests in hedge funds that pursue multiple strategies. The fair values of the investments in this category are estimated using the net asset value per share of the funds, as discussed in detail above. The Company's investments in hedge funds at December 31, 2013 are $3.8 million of so called "side pocket" investments which are not redeemable at the option of the shareholder. The Company will retain its interest in the side pocket investments, referred to above, until the underlying investments attributable to such side pockets are liquidated, realized or deemed realized at the discretion of the fund manager. 133 -------------------------------------------------------------------------------- Investments in Other Ventures, under Equity Method The table below shows our investments in other ventures, under equity method: At December 31, 2013 2012 (in thousands, except percentages) Investment Ownership % Carrying Value Investment Ownership % Carrying Value THIG $ 50,000 25.0 % $ 25,107 $ 50,000 25.0 % $ 28,303 Tower Hill 10,000 29.4 % 14,506 10,000 28.6 % 13,969 Tower Hill Signature 500 25.0 % 2,515 500 25.0 % 896 Total Tower Hill Companies 60,500 42,128 60,500 43,168 Top Layer Re 65,375 50.0 % 50,500 65,375 50.0 % 36,664 Angus 10,507 42.5 % 9,180 8,226 38.8 % 7,892 Other 3,000 22.0 % 3,808 - - % - Total investments in other ventures, under equity method $ 139,382 $ 105,616 $ 134,101 $ 87,724 Our equity in earnings of the Tower Hill Companies are reported one quarter in arrears. The carrying value of our investments in other ventures, under equity method, individually or in the aggregate may, and likely will, differ from the realized value we may ultimately attain, perhaps significantly so. Effects of Inflation The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy. The anticipated effects on us are considered in our catastrophe loss models. Our estimates of the potential effects of inflation are also considered in pricing and in estimating reserves for unpaid claims and claim expenses. In addition, it is possible that the risk of general economic inflation could increase which, if such increase actually occurred, would, among other things, cause claims and claim expenses to increase and also impact the performance of our investment portfolio. The actual effects of this potential increase in inflation on our results cannot be accurately known until, among other items, claims are ultimately settled. The onset, duration and severity of an inflationary period cannot be estimated with precision. Off-Balance Sheet and Special Purpose Entity Arrangements At December 31, 2013, we have not entered into any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K. 134 -------------------------------------------------------------------------------- Contractual Obligations In the normal course of its business, the Company is a party to a variety of contractual obligations and these are considered by the Company when assessing its liquidity requirements. The table below shows our contractual obligations: Less than 1 More than 5 At December 31, 2013 Total year 1-3 years 3-5 years years (in thousands) Long term debt obligations (1) 5.75% Senior Notes $ 339,164$ 14,375$ 28,750$ 28,750$ 267,289 Private equity and investment commitments (2) 116,245 116,245 - - - Operating lease obligations 25,499 6,040 10,671 4,453 4,335 Capital lease obligations 40,064 3,017 6,034 4,834 26,179 Payable for investments purchased 193,221 193,221 - - - Reserve for claims and claim expenses (3) 1,563,730 538,217 426,682 212,464 386,367 Total contractual obligations $ 2,277,923$ 871,115$ 472,137$ 250,501$ 684,170



(1) Includes contractual interest payments.

(2) The private equity and investment commitments do not have a defined

contractual commitment date and we have therefore included them in the less

than one year category.

(3) We caution the reader that the information provided above related to

estimated future payment dates of our reserves for claims and claim expenses

is not prepared or utilized for internal purposes and that we currently do

not estimate the future payment dates of claims and claim expenses. Because

of the nature of the coverages that we provide, the amount and timing of the

cash flows associated with our policy liabilities will fluctuate, perhaps

significantly, and therefore are highly uncertain. We have based our

estimates of future claim payments upon benchmark industry payment patterns,

drawing upon available relevant sources of loss and allocated loss adjustment

expense development data. These benchmarks are revised periodically as new

trends emerge. We believe that it is likely that this benchmark data will not

be predictive of our future claim payments and that material fluctuations can

occur due to the nature of the losses which we insure and the coverages which

we provide.

In certain circumstances, many of our contractual obligations may be accelerated to dates other than those reflected in the table, due to defaults under the agreements governing those obligations (including pursuant to cross-default provisions in such agreements) or in connection with certain changes in control of the Company, if applicable. In addition, in connection with any such default under the agreement governing these obligations, in certain circumstances, these obligations may bear an increased interest rate or be subject to penalties as a result of such a default. CURRENT OUTLOOK Catastrophe Exposed Market Developments Notwithstanding the severe global catastrophic losses during 2011, the advent in late 2012 of Storm Sandy, one of the most significant insured losses on record, and the increased frequency of severe weather events during these periods in many high-insurance-penetration regions, the global insurance and reinsurance markets entered 2013 with near-record levels of industry wide capital held by private market insurers and reinsurers, and diminished growth of demand for many coverages and solutions, outside of the impacted regions and in respect of certain products and lines. During the 2013 reinsurance renewals, we believe that supply, principally from traditional market participants and complemented by alternative capital providers, more than offset market demand, resulting in a dampening of overall market pricing on a risk-adjusted basis, except for, in general, loss impacted treaties and contracts. We believe these trends accelerated during the January 2014 renewals, driven by both the availability of traditional and alternative capital, and uncertain estimates of the potential availability of additive alternative capital; which were only partially offset by capital return initiatives and modest new aggregate demand in the market. Moreover, we believe that many of the positive factors that had previously impacted market conditions have now been absorbed by the market and, we believe, are unlikely to drive further improvement in our core catastrophe-exposed markets absent significant new industry losses or other new developments. While we believe that the market evidences some indication that the general overall decline in pricing and the broadening in certain cases of terms and conditions we have been experiencing in the markets we serve may be decelerating 135 -------------------------------------------------------------------------------- somewhat, for the immediate future, we do not expect risk demand to out-pace capital supply or for the market developments we have experienced to shift more favorably. Accordingly, although the nature of the business which renews in June and July differs from the January renewal business, we currently anticipate increased pressure in the market on both premiums and risk-adjusted rates to continue throughout 2014. With our continuing focus on underwriting discipline, we cannot assure that we can continue to maintain the size and portfolio quality of our aggregate book of business. In addition, we believe that many of the key markets we serve are increasingly characterized by large, increasingly sophisticated cedants who are able to manage large retentions and seek to focus their reinsurance relationships on a core group of well-capitalized, highly-rated reinsurers who can provide a complete product suite as well as value added service. While we believe we are well positioned to compete for this business, these dynamics may introduce or exacerbate challenges in our markets. General Economic Conditions While the U.S. has evidenced some signs of economic expansion in recent periods, and the Eurozone region has reported modest growth as a whole recently, we believe that meaningful uncertainty remains regarding the strength, duration and comprehensiveness of the economic recovery in the U.S., E.U. and our other key markets. In particular, global economic markets, including many of the key markets which we serve, may continue to be adversely impacted by the financial and fiscal instability of several European jurisdictions and certain large developing economies. Accordingly, we continue to believe that meaningful risk remains for continued uncertainty or disruptions in general economic and financial market conditions. Moreover, future economic growth may be only at a comparably suppressed rate for a relatively extended period of time. Declining or weak economic conditions could reduce demand for the products sold by us or our customers, or could weaken our overall ability to write business at risk-adequate rates. In addition, persistent low levels of economic activity could adversely impact other areas of our financial performance, such as by contributing to unforeseen premium adjustments, mid-term policy cancellations or commutations, or asset devaluation. Any of the foregoing or other outcomes of a prolonged period of relative economic weakness could adversely impact our financial position or results of operations. In addition, during a period of extended economic weakness, we believe our consolidated credit risk, reflecting our counterparty dealings with customers, agents, brokers, retrocessionaires, capital providers and parties associated with our investment portfolio, among others, is likely to be increased. Several of these risks could materialize, and our financial results could be negatively impacted, even after the end of any period of economic weakness. Moreover, we continue to monitor the risk that our principal markets will experience increased inflationary conditions, which would, among other things, cause costs related to our claims and claim expenses to increase, and impact the performance of our investment portfolio. The onset, duration and severity of an inflationary period cannot be estimated with precision. The continued uncertainty with respect of large developing jurisdictions and the related financial restructuring efforts, among other factors, make it more difficult to predict the inflationary environment. Our catastrophe-exposed operations are subject to the ever-present potential for significant volatility in capital due primarily to our exposure to severe catastrophic events. Our specialty reinsurance portfolio is also exposed to emerging risks arising from the ongoing relative economic weakness, including with respect to a potential increase of claims in directors and officers, errors and omissions, surety, casualty clash and other lines of business. The sustained and continuing environment of low interest rates, as compared to past periods, has lowered the yields at which we invest our assets. We expect these developments, combined with the current composition of our investment portfolio and other factors, to continue to constrain investment income growth for the near term. In addition to impacting our reported net income, potential future losses on our investment portfolio, including potential future mark-to-market results, would adversely impact our equity capital. Moreover, as we invest cash from new premiums written or reinvest the proceeds of invested assets that mature or that we choose to sell, the yield on our portfolio is impacted by the prevailing environment of comparably low yields. While it is possible yields will improve in future periods, we currently expect the challenging economic conditions to generally persist and we are unable to predict with certainty when conditions will substantially improve, or the pace of any such improvement. 136 -------------------------------------------------------------------------------- Market Conditions and Competition Leading global intermediaries and other sources have generally reported that the U.S. casualty reinsurance market continues to reflect a relatively soft pricing environment. However, we believe that pockets of niche or specialty casualty lines may provide more attractive opportunities for stronger or well-positioned reinsurers, and that this trend may be gaining a degree of momentum in certain lines. We anticipate that persistent low investment returns and, to a degree, balance sheet issues in the broader market may favorably impact demand for coverages on terms that we find attractive. However, we cannot assure you that any increased demand will indeed materialize or that we will be successful in consummating new or expanded transactions. As noted above, we currently anticipate a continued level of slowly growing demand for our catastrophe coverages as a whole over coming periods, with select pockets of more rapidly growing demand, offset by ample and likely increasing supplies of private market capital. Renewal terms vary widely by insured account and our ability to shape our portfolio to improve its risk and return characteristics as estimated by us is subject to a range of competitive and commercial factors. While we believe that our strong relationships, and track record of superior claims paying ability and other client services will enable us to compete for the business we find attractive, we may not succeed in doing so; moreover, our relationships in emerging markets are not as developed as they are in our current core markets. The market for our catastrophe reinsurance products is generally dynamic and volatile. The market dynamics noted above, increased or decreased catastrophe loss activity, and changes in the amount of capital in the industry can result in significant changes to the pricing, policy terms and demand for our catastrophe reinsurance products over a relatively short period of time. In addition, changes in state-sponsored catastrophe funds, or residual markets, which have generally grown dramatically in recent years, or the implementation of new government-subsidized or sponsored programs, can dramatically alter market conditions. We believe that the overall trend of increased frequency and severity of tropical cyclones experienced in recent years may continue for the foreseeable future. Increased understanding of the potential increase in frequency and severity of storms may contribute to increased demand for protection in respect of coastal risks which could impact pricing and terms and conditions in coastal areas over time. Overall, we expect higher property loss cost trends, driven by increased severity and by the potential for increased frequency, to continue in the future. At the same time, certain markets we target continue to be impacted by fundamental weakness experienced by primary insurers, due to ongoing economic weakness and, in many cases, inadequate primary insurance rate levels, including without limitation insurers operating on an admitted basis in Florida. These conditions, which occurred in a period characterized by relatively low insured catastrophic losses for these respective regions, have contributed to certain publicly announced instances of insolvency, regulatory supervision and other regulatory actions, and have weakened the ability of certain carriers to invest in reinsurance and other protections for coming periods, and in some cases to meet their existing premium obligations. It is possible that these dynamics will continue in future periods. In addition, we continue to explore potential strategic transactions or investments, and other opportunities, from time to time that are presented to us or that we originate. In evaluating these potential investments and opportunities, we seek to improve the portfolio optimization of our business as a whole, to enhance our strategy, to achieve an attractive estimated return on equity in respect of investments, to develop or capitalize on a competitive advantage, and to source business opportunities that will not detract from our core operations. Our efforts to explore strategic transactions may not result in positive gains, or may not yield material contributions to our financial results or book value growth over time. Alternatively, strategic investments in which we engage to improve the optimization of our business, focus our operations on core or scalable business, or position us for future opportunities, may fail to be successfully executed, pose more operational risk than we estimate or otherwise not yield the financial or strategic benefits we seek. Should we pursue or consummate a strategic transaction, we may mis-value the acquired company or operations, fail to integrate the acquired operation appropriately into our own franchise, expend unforeseen costs during the acquisition or integration process, or encounter unanticipated risks or challenges. Legislative and Regulatory Update In January 2013, Congresswoman Frederica Wilson introduced the Homeowners' Defense Act which would, if enacted, provide for the creation of (i) a federal reinsurance catastrophe fund; (ii) a federal consortium to facilitate qualifying state residual markets and catastrophe funds in securing reinsurance; and (iii) a federal 137 -------------------------------------------------------------------------------- bond guarantee program for state catastrophe funds in qualifying state residual markets. In January 2013, Congressman Dennis Ross introduced the Homeowners' Insurance Protection Act (HR 240). The bill would create a federal catastrophe reinsurance program to back up state insurance or reinsurance programs. Other analogous bills have been introduced in the past and may be introduced in the future. If enacted, any of these bills, or legislation similar to these proposals, would, we believe, likely contribute to the growth of state entities offering below market priced insurance and reinsurance in a manner adverse to us and market participants more generally. While none of this legislation has been enacted to date, and although we believe such legislation will continue to be vigorously opposed, if adopted these bills would likely diminish the role of private market catastrophe reinsurers and could adversely impact our financial results, perhaps materially. In June 2012, Congress passed the Biggert-Waters Bill, which provided for a five-year renewal of the NFIP and effected substantial reforms in the program. Among other things, pursuant to this statute, the FEMA is explicitly authorized to carry out initiatives to determine the capacity of private insurers, reinsurers, and financial markets to assume a greater portion of the flood risk exposure in the U.S., and to assess the capacity of the private reinsurance market to assume some of the program's risk. The bill required FEMA to submit a report on this assessment within six months of enactment. The bill also increased the annual limitation on program premium increases from 10% to 20% of the average of the risk premium rates for certain properties concerned; established a four-year phase-in, after the first year, in annual 20% increments, of full actuarial rates for a newly mapped risk premium rate area; instructed FEMA to establish new flood insurance rate maps; allowed multi-family properties to purchase NFIP policies; and introduced minimum deductibles for flood claims. We believe that these reforms could increase the role of private risk-bearing capital in respect of U.S. flood perils, perhaps significantly. In February 2014, legislation was passed in the U.S. Senate, entitled the "Homeowner Flood Insurance Affordability Act of 2014", which would, if enacted into law, impose a four-year delay in most rate reforms required by the enacted version of the Biggert-Waters Bill, and would require FEMA, which administers the flood program, to complete an affordability study and propose regulations that address affordability issues. Subsequently, House Majority Leader Eric Cantor announced that the House of Representatives will consider a modified version of the Homeowner Flood Insurance Affordability Act the week of February 24. While it is possible that a House bill would maintain more of the reforms currently incorporated in the Biggert-Waters Bill than the Senate legislation at this date, specific legislative language has not been promulgated and it is possible that the House bill, as proposed or as it may develop, may have a substantially similar impact as the Senate legislation, and potentially could be more adverse than the Senate bill. It is likely that a version of this legislation, or broader alternatives, will be adopted by Congress and adversely impact prospects for increased U.S. private flood insurance demand, as well as the stability of the NFIP, the primary insurers that produce policies for the NFIP or offer private coverages, or the communities they serve. Accordingly, we cannot assure you that the Biggert-Waters Bill will be implemented or that, if implemented, it will materially benefit private carriers, or that we will succeed in participating in any positive market developments that may transpire. In 2007, the State of Florida enacted legislation to expand the Florida Hurricane Catastrophe Fund's (the "FHCF") provision of below-market rate reinsurance to up to $28.0 billion per season (the "2007 Florida Bill"). In May of 2009, the Florida legislature enacted Bill No. CS/HB 1495 (the "2009 Bill"), which will gradually phase out $12.0 billion in optional reinsurance coverage under the FHCF over the succeeding five years. The 2009 Bill similarly allows the state-sponsored property insurer, Citizens Property Insurance Corporation ("Citizens"), to raise its rates by up to 10% starting in 2010 and every year thereafter, until such time that it has sufficient funds to pay its claims and expenses. The rate increases and cut back on coverage by the FHCF and Citizens have supported, over this period, a relatively increased role of the private insurers in Florida, a market in which we have established substantial market share. In May 2011, the Florida legislature passed Florida Senate bill 408 ("SB 408"), relating principally to property insurance. Among other things, SB 408 requires an increase in minimum capital and surplus for newly licensed Florida domestic insurers from $5.0 million to $15.0 million; institutes a three-year claims filing deadline for new and reopened claims from the date of a hurricane or windstorm; allows an insurer to offer coverage where replacement cost value is paid, but initial payment is limited to actual cash value; allows admitted insurers to seek rate increases up to 15% to adjust for third party reinsurance costs; and institutes a range of reforms relating to various matters that have increased the costs of insuring sinkholes 138 -------------------------------------------------------------------------------- in Florida. We believe SB 408 and other reform initiatives have contributed to stabilization of the Florida market and have increased both private and market demand and affordability in the Florida market. We believe the 2007 Florida Bill caused a substantial decline at that time in the private reinsurance and insurance markets in and relating to Florida, and contributed to instability in the Florida primary insurance market, where many insurers have reported substantial and continuing losses from 2009 through 2012, despite the period being an unusually low period for catastrophe losses in the state. Because of our position as one of the largest providers of catastrophe-exposed coverage, both on a global basis and in respect of the Florida market, adverse changes in the Florida market or to Florida primary insurance companies, may have a disproportionate adverse impact on us compared to other reinsurance market participants. Moreover, the advent of a large windstorm, or of multiple smaller storms, could challenge the assessment-based claims paying capacity of Citizens and the FHCF. For example, in several recent years, the FHCF Advisory Council approved official bonding capacity estimates that reflected a shortfall in respect of even an initial season or event. Any inability, or delay, in the claims paying ability of these entities or of private market participants could further weaken or destabilize the Florida market, potentially giving rise to an unpredictable range of adverse impacts. The FHCF and the Florida Office of Insurance Regulation (the "OIR") have each estimated that even partial failure, or deferral, of the FHCF's ability to pay claims in full could substantially weaken numerous private insurers, with the OIR having estimated that a 25% shortfall in the FHCF's claims-paying capacity could cause as many as 24 of the top 50 insurers in the state to have less than the statutory minimum surplus of $5.0 million, with such insurers representing approximately 35% of the market based on premium volume, or approximately 2.2 million policies. Adverse market, regulatory or legislative changes impacting Florida could affect our ability to sell certain of our products, to collect premiums we may be owed on policies we have already written, to renew business with our customers for future periods, or have other adverse impacts, some of which may be difficult to foresee, and could therefore have a material adverse effect on our operations. In May 2013, the Florida Legislature adopted legislation comprising some modest reforms of Citizens. Among other things, the legislation, if enacted, would empower Citizens to create a so-called "clearinghouse" mechanism with the intent of facilitating the transfer to admitted private market carriers of residential policies that might otherwise be bound by or remain in Citizens. In addition the legislation provides for a reduction in the current structure value cap on eligibility for Citizens from $1.0 million to $0.7 million over three years; and prohibits Citizens from insuring new structures located seaward of the coastal construction control line and in the broader federal Coastal Barrier Resources system. While incremental, we believe these reforms, if enacted, would marginally strengthen the fiscal position of Citizens and increase private market demand moderately over time. However, we cannot assure you that this legislation will indeed be fully enacted into law, that the measures contemplated thereby will be acted on, that any market improvements will accrue, or that we will benefit from the reforms. The "clearinghouse" mechanism contemplated by the May 2013 legislation commenced operation in January 2014. With the clearinghouse operational, existing customers of Citizens may be renewed by a private insurance carrier approved by the state if that company offers comparable coverage at equal or less cost than the Citizens renewal rate. Proposed new customers of Citizens may be directed via the mechanism of the clearinghouse to an eligible private carrier if that company's estimate for comparable coverage is within 15% of a quote for a Citizens policy. If successful, it is possible that the "clearinghouse" mechanism will contribute incrementally to increased private market demand over time. However, it is possible the "clearinghouse" mechanism will not operate successfully; that participating carriers may not choose to cede risk to reinsurers in general or to the Company in particular; or that any growth attributable to the "clearinghouse" mechanism will be offset by other changes returning risk to the state public sector. In October 2013, Florida Senator Jeremy Ring filed a prospective bill for the 2014 legislative session, S.B. 228, which would reduce the retention of the FHCF from its current $7.2 billion level to $5 billion; mandate a perpetual overall per event capacity level of $17 billion, the current level, obviating the possibility of future capacity reductions; and delete current statutory provisions which limit the obligation of the FHCF to amounts it can afford to pay. The bill also would require the FHCF to obtain a line of credit to cover projected receipts from a minimum of three years of post-event bonding without providing for a funding source for the line of credit. If enacted, S.B. 228 could destabilize private carriers participating in the market, lead to a range of market dislocations, and reduce private market demand. 139 -------------------------------------------------------------------------------- Internationally, in the wake of the large natural catastrophes in 2011 a number of proposals have been introduced to alter the financing of natural catastrophes in several of the markets in which we operate. For example, the Thailand government has announced it is studying proposals for a natural catastrophe fund, under which the government would provide coverage for natural disasters in excess of an industry retention and below a certain limit, after which private reinsurers would continue to participate. The government of the Philippines has announced that it is considering similar proposals. A range of proposals from varying stakeholders have been reported to have been made to alter the current regimes for insuring flood risk in the U.K. and Australia and earthquake risk in New Zealand. If these proposals are enacted and reduce market opportunities for our clients or for the reinsurance industry, we could be adversely impacted. Over the past few years the U.S. Congress has considered legislation which, if passed, would deny U.S. insurers and reinsurers the deduction for reinsurance placed with non-U.S. affiliates. In early 2013, as well as the immediate few prior years, the Obama administration included a formal proposal for such a provision in its budget proposal. As described in the administration's 2013 budget request, the proposal would deny an insurance company a deduction for premiums and other amounts paid to affiliated foreign companies with respect to reinsurance of property and casualty risks to the extent that the foreign reinsurer (or its parent company) is not subject to U.S. income tax with respect to the premiums received; and would exclude from the insurance company's income (in the same proportion in which the premium deduction was denied) any return premiums, ceding commissions, reinsurance recovered, or other amounts received with respect to reinsurance policies for which a premium deduction is wholly or partially denied. We believe that the passage of such legislation could adversely affect the reinsurance market broadly and potentially impact our own current or future operations in particular. On February 11, 2013, U.S. Senators Carl Levin and Sheldon Whitehouse introduced legislation in the U.S. Senate entitled the "Cut Unjustified Tax Loopholes Act". Similar legislation was also proposed earlier in 2013 as well as in 2012, 2011 and 2010. If enacted, this legislation would, among other things, cause to be treated as a U.S. corporation for U.S. tax purposes generally, certain corporate entities if the "management and control" of such a corporation is, directly or indirectly, treated as occurring primarily within the U.S. The proposed legislation provides that a corporation will be so treated if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the U.S. To date, this legislation has not been approved by either the House of Representatives or the Senate. However, we can provide no assurance that this legislation or similar legislation will not ultimately be adopted. While we do not believe that the legislation would negatively impact us, it is possible that an adopted bill would include additional or expanded provisions which could negatively impact us, or that the interpretation or enforcement of the current proposal, if enacted, would be more expansive or adverse than we currently estimate. In November 2013, former Senate Finance Committee Chairman Max Baucus (D-MT) released a tax reform discussion draft on international tax issues that included two proposals that would change the definitions of controlled foreign corporation and passive foreign investment company. We do not believe these proposals would, if enacted, directly apply to us, but it is possible that they might apply to shareholders of certain of our joint ventures, possibly discouraging those shareholders from continuing to participate in the joint venture or impeding our ability to attract or retain other investors. We are not aware of any corresponding current legislation in the House of Representatives. Senator Baucus recently retired from the Senate and it is uncertain whether this proposal will formally be proposed as legislation or ever enacted. On July 24, 2013, the New York State Department of Financial Services (the "DFS") issued an Insurance Circular Letter No. 6 (2013) (the "Circular") to all Accredited Reinsurers writing business in New York State. Renaissance Reinsurance and DaVinci are Accredited Reinsurers in New York. As described in the Circular, the DFS is seeking information concerning Accredited Reinsurers' compliance with the Iran Freedom and Counter-Proliferation Act of 2012 (the "IFCPA"), which was passed by the U.S. Congress in 2012 and which became effective on July 1, 2013. The Accredited Reinsurers to whom the Circular applies do business in New York and are all based outside the United States. The DFS is responsible for the regulation of insurers doing business in New York State. We intend to cooperate with the DFS in their request for information in this regard. We believe our existing risk-based compliance program is responsive to the IFCPA and we are not aware of any non-compliance with the IFCPA. While we believe that this request for information by the DFS will not have a material adverse impact on our operations, it is possible that our industry could see increased scrutiny and perhaps additional enforcement of sanction laws and 140 -------------------------------------------------------------------------------- regulations. We cannot assure you that increased enforcement of sanction laws and regulations will not impact our business more adversely than we currently estimate. In 2008, the IRS issued a revenue ruling (the "2008 Revenue Ruling") expressing that position that premiums covering U.S. risks paid by a foreign insurer or reinsurer to another foreign reinsurer are subject to a 1% insurance federal excise tax ("FET"). In essence, pursuant to the views expressed in the 2008 Revenue Ruling, FET should be imposed on a "cascading" basis, including to these reinsurance arrangements which are referred to in the industry as "retrocessions", as the IRS took the view that all payments of premiums to foreign insurers or reinsurers in respect of the ultimate underlying risks are also subject to FET. In February 2014, the U.S. District Court for the District of Columbia held that FET does not apply to secondary reinsurance transactions covering U.S. risks between two foreign reinsurance companies.



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decision, if unappealed or upheld, effectively countermands the 2008 Revenue Ruling. Accordingly, it is possible that foreign reinsurance companies such as certain of our operating subsidiaries that have paid the "cascading" FET on retrocessions may in the future be eligible to file and receive refund claims. At this time, it is not clear if the IRS will appeal the decision or whether an appeal would be successful. The amount of "cascading" FET we have paid is not material to us and we are evaluating our position. It is also possible that in the future Congress may adversely amend the existing legislation or adopt new statutory language which would adversely affect us, the industry generally or our ceding clients in respect of excise tax liabilities.


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Source: Edgar Glimpses


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