Company Seeks Changes to Terms Under Proposed Reinsurance Regs

RenaissanceRe is one of the world's leading property catastrophe reinsurers. The Company also provides reinsurance and insurance in several specialty and casualty lines. Founded in Bermuda in 1993, we went public in 1995 and currently operate through 52 entities located in offices around the world. We adhere to a strict code of ethics built on respect for our clients, partners and shareholders, and respect and compliance with relevant laws and regulations. RenaissanceRe's Enterprise Risk Management is rated at the highest rating of "Very Strong" by Standard & Poor's due to its excellent risk culture, risk controls and strategic risk management. In addition, RenaissanceRe maintains leading financial strength ratings on account of its strong risk-adjusted capitalization, strength and depth of the team, and strong track record. As summarized in more detail below, we are also very active in managing reinsurance joint ventures, some of which take the form of Bermuda-domiciled insurance companies which have directly raised capital from third party investors, and which have played an important role in serving clients in constrained or challenging markets and classes of business.

Background

Global reinsurers like RenaissanceRe play a very important role in risk management of primary insurers and the U.S. businesses they protect. By transferring risk to reinsurers, primary insurers more effectively manage exposures, may provide their customers with more coverage than they could otherwise, improve their liquidity, and protect their ability to pay claims. Traditional reinsurers such as RenaissanceRe generally seek to maintain global portfolios of risks since they write business globally. In so doing, reinsurers improve their capital efficiency, which, in the competitive reinsurance market, inures to the benefit of their customers and ultimately consumers. Global portfolios allow for maximum diversification, which decreases the cost of insurance to U.S. customers.

In light of our significant exposure to catastrophic risks, and other potentially volatile underwriting risks, our investment strategy focuses on maintaining a high degree of liquidity at all times. Accordingly, our investment guidelines stress preservation of capital, market liquidity, and diversification of risk. Consistently over time and as currently positioned, the majority of our investments consist of highly rated fixed income securities. We also hold a significant amount of short term investments. We may from time to time re-evaluate our investment guidelines and explore investment allocations to other asset classes. The filings we make with the Bermuda Monetary Authority ("BMA") include calculations with respect to our asset risk; in general for our operating entities this is a fraction of our underwriting risk and represents a small percentage of our regulatory required capital. These matrix are also available in our periodic, publically available filings with the BMA.

We understand that the proposed regulations aim to prevent hedge funds purporting to be foreign reinsurance companies from deferring and reducing tax that otherwise could be due on investment income. IRC section 1297(b)(2)(B) provides that the term "passive income" does not include any income derived in the active conduct of an insurance business by a corporation predominantly engaged in an insurance business and which would be subject to tax under subchapter L if the corporation were a domestic corporation. The proposed regulations seek to clarify the terms "active conduct" and "insurance business" for purposes of this section.

Comments on these issues are being submitted by the Association of Bermuda Insurers and Reinsurers ("ABIR") and the Reinsurance Association of America ("RAA"). While we are a member of each of these organizations and associate ourselves with their remarks, we are writing to augment those comments with respect to factors that particularly affect RenaissanceRe's business. In particular, given our leadership position as provider of catastrophe exposed coverages and respect of managed reinsurers joint ventures we hope our perspective might be useful.

Beginning in 1998, we pioneered the use of managed joint ventures, including so-called "side car" vehicles, in the reinsurance market. In general, we have sought to raise new capital, including through these managed joint ventures, when we forecast or observe an increased demand in the market for our products and coverages. This has typically occurred after dislocating large U.S. catastrophes. In subsequent periods, we have often sought to return capital to our shareholders or joint venture investors when the demand for our coverages appears to decline and when we believe a return of capital would be beneficial to our shareholders or joint venture investors. In using joint ventures, we seek to leverage our access to business and our underwriting capabilities on an efficient capital base and by utilizing the underwriting, risk management, accounting, financial reporting, actuarial, legal and other expertise we have developed across what we call our "integrated system" to support the business written by our wholly-owned operating subsidiaries. Accordingly, these joint ventures allow us to support challenging risks, such as U.S. hurricane and earthquake exposures, by deploying these integrated underwriting and operational capabilities on a larger, more efficient capital and expense base. The efficiencies we believe we generate enable us to compete for business, in particular in respect of the cyclical business for catastrophe-exposed U.S. risk protection. Currently, Renaissance Underwriting Managers, Ltd. ("RUM"), a wholly owned subsidiary of the Company, acts as the exclusive underwriting manager for each of these joint ventures and helps our efforts to provide high levels of service to our insured customers and our providers of capital.

We routinely evaluate and review potential joint venture opportunities and strategic investments. We believe that care should be taken so that current substantive ventures such as ours, or prospective new ventures that would most likely be pursued following a dislocating U.S. catastrophe event that adversely impacted capacity, are not subject to unnecessary new costs or uncertainties in connection with market-tested, highly substantive operating practices.

For example, consideration should be given to information submitted by insurers to regulators, particularly in jurisdictions such as Bermuda where capital requirements are robust, insured exposure data is built into regulatory capital requirements, and the legal framework has been established for public filing or dissemination of statutory insurance information. Consideration could be given to a review of underwriting risk as submitted to regulators in comparison with other key metrics such as capital, assets or asset risk. We believe such an approach should support an accurate, objective and accountable measurement of risk exposure, should be capable of being executed on a timely basis and would be verifiable by the Internal Revenue Service since it does not require any subjective judgment and the information can readily be made available. In addition, since these filings are compiled in accordance with standardized regulatory requirements, it is possible an approach developed from information submitted in them would be more consistently derived and more comparable.

Please feel free to contact me at any time at shw@renre.com or (441) 295-4513, or my colleague Michael Regan, our Tax Director, at mer@renre.com or (203) 717-1138.