The following table sets forth our selected financial data and other financial information at the end of and for each of the years in the five-year period ended December 31, 2004. The historical financial information was prepared in accordance with U.S. GAAP. The statement of income data for the years ended December 31, 2004, 2003, 2002, 2001 and 2000 and the balance sheet data at December 31, 2004, 2003, 2002, 2001 and 2000 were derived from our consolidated financial statements. You should read the selected financial data in conjunction with our consolidated financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this filing and all other information appearing elsewhere or incorporated into this filing by reference.
See Note 2 to the Consolidated Financial Statements for a discussion of the restated amounts.
RenaissanceRe was established in 1993 to write property catastrophe reinsurance. By pioneering the use of sophisticated computer models to construct our portfolio, we have become one of the world's largest and most successful catastrophe reinsurers. Recently, we have leveraged our expertise and established growing franchises in additional selected areas of insurance and reinsurance.
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 clients impacted by these events. Currently, we conduct our business through two reportable segments, Reinsurance and Individual Risk.
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 gains and losses 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 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) operational expenses which primarily consist of personnel expenses, rent and other operating expenses; and 4) interest and dividend costs related to our debt, preference shares and subordinated obligation to our capital trust. We are also subject to taxes in certain jurisdictions in which we operate; however, since the majority of our income is currently earned in Bermuda, a non-taxable jurisdiction, the tax impact to our operations has historically been minimal.
The operational results, also known as 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 years, divided by net premiums earned.
REMS© combines computer-generated simulations that estimate event probabilities with exposure and coverage information on each client's reinsurance contract to produce an estimate of expected claims for reinsurance programs submitted to us. We have also customized REMS© by including additional perils, risks and geographic areas that are not captured in the commercially available models.
As previously disclosed, in the fourth quarter of 2004 we engaged Boies Schiller to complete a review of the Company's business practices in light of the industry-wide investigations by the New York Attorney General and other government authorities into a wide range of practices in the insurance and reinsurance industry. Supervision of this review was subsequently taken over by the Board of Directors, with Boies Schiller reporting directly to the independent members of the Board of Directors. See "Business - Recent Developments." This review has led to the restatement of the Company's audited financial statements for the fiscal years ended December 31, 2003, 2002 and 2001 to correct accounting errors associated with reinsurance ceded by the Company. These restatements arose out of the transactions described below.
The remaining restatement corrections are attributable to four multi-year ceded reinsurance contracts. The adjustments correct for an error in the amortization period resulting in the amortization of future contractual premium beginning at the end of the third quarter of 2001 rather than beginning at the end of the fourth quarter of 2001.
• significantly increasing the number of accounting professionals dedicated to financial reporting;
• hiring an internal auditor and developing an internal audit function;
During the last two fiscal years, the Company has also formalized its internal control environment over financial reporting in connection with its compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.
We believe that the most significant accounting judgment made by management is our estimate of claims and claim expense reserves. Claims reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs of claims incurred. Our estimates are not precise in that, among other things, they are based on predictions of future developments and estimates of future trends and other variable factors such as inflation. It is likely that the ultimate liability will be greater or less than such estimates and that, at times, this variance will be material. Also, reserving for our Reinsurance and Individual Risk businesses can involve uncertainty because of the dependence on information from ceding companies, the time lag inherent in reporting information from the primary insurer to us, 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 and incurred losses and may sometimes also include an estimate of incurred but not reported reserves ("IBNR").
For our property catastrophe reinsurance business, which is characterized by loss events of low frequency and high severity, reporting of claims in general tends to be prompt (as compared to reporting of claims for "long-tail" products, which tends to be slower). However, the timing of claims reporting also varies depending on various factors, including: whether the claims arise under reinsurance of primary companies or reinsurance of other reinsurance companies; the nature of the events (e.g., hurricanes or earthquakes); the geographic area involved; and the quality of each customer's claims management and reserving practices. Management's judgments as regards to these factors are reflected in management's reserve estimates. 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 of such events to augment our loss reserve estimation process. However, based upon the amount and timing of the reported claims from any one or more catastrophic event, such reserve estimates may change significantly from one quarter to another. Once we receive a notice of loss under a catastrophe reinsurance contract, we are generally able to process such claims promptly.
The loss estimation for the coverages we offer through our specialty reinsurance and Individual Risk operations is different than that for property catastrophe oriented coverages because these coverages are potentially subject to greater uncertainties, relating to factors such as long-term inflation and changes in the social and legal environment. Moreover, in reserving for our specialty reinsurance and Individual Risk coverages we do not have the benefit of a significant amount of our own historical experience in these lines. We estimate our IBNR for these coverages by utilizing an actuarial method known as the Bornhuetter-Ferguson technique. The utilization of the Bornhuetter-Ferguson technique requires us to estimate an ultimate claims and claim expense ratio and select an estimated loss reporting pattern. We select our estimates of the ultimate claims and claim expense ratios and estimated loss reporting patterns by reviewing industry standards and adjusting these standards based upon the terms of the coverages we offer. The estimated 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. For the Company's specialty and Individual Risk lines we also considered estimating reserves utilizing paid and incurred development methods. We elected to utilize the Bornhuetter-Ferguson technique because this method allows for weight to be applied to expected results, and hence is less susceptible to the potential pitfall of being excessively swayed by one year or one quarter of paid and/or reported loss data.
The Company's reserving methodology for each line of business, as discussed above, utilizes a loss reserving model that calculates a point estimate for the Company's ultimate losses as opposed to a methodology that develops a range of estimates. The Company then utilizes this point estimate, along with paid and incurred data, to record its estimate of IBNR. The Company does not utilize sensitivity analysis in calculating reserves and therefore does not make any specific quantitative assumptions in connection with such an analysis. See "Reserves for Claims and Claim Expenses" for a breakdown of our case reserves and IBNR by line of business.
Because any reserve estimate is simply an insurer's estimate of its ultimate liability, and because there are numerous factors which affect reserves but cannot be determined with certainty in advance, our ultimate payments will vary, perhaps materially, from our initial estimate of reserves. Therefore, because of these inherent uncertainties, we have developed a reserving philosophy which attempts to incorporate prudent assumptions and estimates. In 2005, assuming future reported and paid claims activity is consistent with that of recent quarters, and barring unforeseen circumstances, we believe that, as our reserves on older accident years continue to age, we may experience further reductions to our older accident year reserves.
All of our estimates are reviewed annually with an independent actuarial firm. We also review certain assumptions and methodologies on a quarterly basis. If we determine that adjustments to an earlier estimate are appropriate, such adjustments are recorded in the quarter in which they are identified. Adjustments to our prior year estimated claims reserves will impact our current year net income by increasing our net income if the prior year estimated claims reserves are determined to be overstated, or by reducing our net income if the prior year estimated claims reserves prove to be insufficient.
We enter into reinsurance agreements in order to help reduce our exposure to large losses. Amounts recoverable from reinsurers are estimated in a manner consistent with the claims and claim expense reserves associated with the underlying reinsured policies. 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 quarter in which they are determined.
The amount of losses recoverable ultimately collected is also open to uncertainty due to insolvency, contractual dispute and various other reasons. Amounts estimated to be uncollectible are reflected in a valuation allowance that reduces losses recoverable and net income. We estimate the valuation allowance by applying specific percentages against each losses recoverable balance based on the 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. We also apply case specific valuation allowances against certain losses recoverables that we deem unlikely to be able to recover in full. The valuation allowance against losses recoverable was $13.1 million at December 31, 2004 (2003 - $11.6 million).
We recognize premiums as revenue over the terms of the related contracts and policies. Our written premiums are based on policy and contract terms and include estimates based on information received from both insureds and ceding companies. The information received is typically in the form of a bordereau, broker notifications and/or discussions with ceding companies or their broker. This information can be received on a monthly, quarterly or transactional basis and normally includes estimates of written premium (including adjustment and reinstatement premium), earned premium, acquisition costs and ceding commissions.
Consistent with industry practice, we recognize premium on the date the contract is bound, even if the contract provides for an effective date prior to the date the contract is bound, thus preventing premature revenue recognition. The date the contract is bound is the date we are on risk for the policy and this is generally the date on which the reinsurance slip is signed. The signing of the reinsurance contract normally occurs after the date the slip is signed.
Reinstatement premiums are recorded after the occurrence of a loss and are calculated in accordance with the contract terms based upon paid losses and case reserves reported in the period. Reinstatement premiums are earned when written.
Other significant items affecting 2004 net income include a reduction of prior years estimated ultimate net claims reserves of $140.3 million, an increase in investment income of $33.2 million, and reductions in net realized gains on investments of $57.1 million. The reduction in prior years' estimated ultimate net claims reserves was primarily due to a re-estimation of our ultimate losses associated with six large catastrophe events, which produced a reduction of approximately $31.3
million, a $23.0 million reduction in reserves from numerous smaller catastrophe events, $46.8 million in reductions from our specialty book of business, and $26.4 million in reductions from our Individual Risk book of business. The reductions in our reserves for the smaller catastrophe events, the reserves for the specialty book of business and the reserves for our Individual Risk book of business were driven by the application of our formulaic reserving methodology used for these books of business and is primarily due to the actual paid and reported loss activity being better than what we had anticipated when setting the initial ultimate claims and claim expense ratios and the initial loss reporting patterns. The increase in investment income was largely due to $46.9 million of income and appreciation related to investments in hedge funds, private equity funds and other alternative investments recorded during 2004 compared to $25.9 million recorded during 2003. The increase in investment income and appreciation was due to both higher returns and a greater level of investment in these other investments in 2004 compared to 2003.
Our net income increased to $606.0 million in 2003 from $342.9 million in 2002, primarily due to an increase in our net premiums earned of $354.6 million and an increase in net realized gains on investments of $70.3 million. The increase in net premiums earned was primarily due to improved market conditions associated with the dislocation which occurred after the World Trade Center disaster, and the significant losses stemming from this event. These losses caused an imbalance in the supply and demand for our insurance and reinsurance products, and as a result, we increased our written premiums, in both our established property catastrophe line and our specialty reinsurance line, and also increased our premiums in our Individual Risk operations. Contributing to the increase in Individual Risk operations during 2003 was the continued growth of: 1) our program manager distribution channel, where we write primary insurance through specialized program managers; and 2) our quota share reinsurance distribution channel, where we write quota share reinsurance with primary insurers (see below for underwriting results by segment). Also, net income for 2003 was positively affected by a reduction of prior years estimated ultimate net claims reserves of $93.6 million and by a reduced level of catastrophe loss events occurring in 2003.
(1) Excludes combined premium assumed from the Individual Risk segment of $18.8 million, $20.8 million and $22.2 million for the years ended December 31, 2004, 2003 and 2002, respectively.
Property catastrophe - The $39.5 million increase in property catastrophe premiums was mainly due to reinstatement premiums of $30.1 million and premiums for back-up covers of $27.4 million written as a result of the third quarter hurricanes. Excluding these premiums, which in the absence of a major catastrophe we would not expect to recur, our property catastrophe premiums declined slightly from 2003.
During 2005, we currently expect our specialty reinsurance premium to grow modestly. However, our expectations for this business remain prone to potential volatility as this business is characterized by a relatively small number of large transactions. (See "Current Outlook" for additional disclosure.)
(3) Excludes $18.8 million, $20.8 million and $22.2 million of total premium assumed by the Reinsurance segment from the Individual Risk segment in 2004, 2003 and 2002, respectively.
Because of the potential volatility of the property catastrophe reinsurance business, we purchase reinsurance to reduce our exposure to large losses. 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. During 2004 and 2003, we reduced the level of reinsurance purchased because of the reduction in the availability of appropriately priced coverages.
The 2004 underwriting results for the Reinsurance segment decreased to $46.4 million of underwriting income, compared to underwriting income of $455.8 million in 2003. The significant decline is primarily attributable to the $549.7 million negative impact from the four large hurricanes that occurred during the third quarter. This impact is reflected in the following items: net losses of $581.8 million, plus the reversal of previously accrued profit commission of $12.6 million, which is reflected as an increase to acquisition expenses of the reinsurance segment, less reinstatement premiums earned of
Also during 2004 and 2003, as discussed under the "Premiums" heading above, we have continued to increase our specialty reinsurance premiums written. This increase in specialty reinsurance premiums will normally produce higher net claims and claim expenses than the property catastrophe reinsurance business which will generally cause the combined ratio of our Reinsurance segment to increase in years with normal cat loss activity.
During 2005, given the magnitude of the hurricane losses of 2004 and due to delays in receiving claims data and the likelihood of receiving new or revised data from our counterparties, the estimates of hurricane losses and related recoveries are likely to change. Changes in these estimates will be recorded in the period in which they occur.
Also during 2005, as discussed in our critical accounting policies, because our reserve estimate is simply our estimate of our ultimate liability, and since there are numerous factors which affect reserves but cannot be determined with certainty in advance, our ultimate payments will vary, perhaps materially, from our initial estimate of reserves. In response to these inherent uncertainties, we have developed a reserving philosophy which attempts to incorporate prudent assumptions and estimates. Accordingly, if actual paid losses and incurred losses reported to us are below those utilized to establish initial IBNR reserves, we would reflect positive development in our prior year reserves, as has occurred in our 2003 and 2004 results. During 2005, assuming future reported and paid net claims activity is consistent with that of recent quarters, and barring unforeseen circumstances, we believe that, as our reserves on older accident years continue to age, we may experience further reductions to our older accident year reserves. There can be no assurance, however, that this will occur, and if our actual paid and incurred losses exceed our estimates, we would instead reflect adverse rather than positive development.
We define our Individual Risk segment to include underwriting that involves understanding the exposure characteristics of the original underlying insurance policy. Our principal products include: 1) commercial and homeowners property coverages, including catastrophe-exposed lines; 2) commercial liability coverages, including general, automobile, professional and various specialty lines; and 3) reinsurance to other insurers on a quota share basis. We operate through the Glencoe Group of companies, whose principal operating subsidiaries are Glencoe, Stonington and Lantana.
The increase in gross premiums written from our Individual Risk operations of $31.4 million in 2004 was primarily the result of our addition of new programs and expansion of existing programs compared to the prior year. The 2004 growth in individual risk premiums is below our expectations due to later inceptions of certain programs than previously anticipated.
reinsurance protection, and the withdrawal of supply, as a result of the substantial losses stemming from the World Trade Center disaster in 2001; 2) the ongoing increase to prior year reserves for many companies with asbestos and environmental liabilities; and 3) the continuing increases to prior year reserves for companies who participated in the casualty market of the late 1990's. As a result of these items, many insurance companies in the U.S. withdrew from the U.S. insurance market, and many insurance companies had their credit ratings substantially reduced. In response to these dislocations, we received numerous opportunities to partner with program managers who were looking for high quality, stable companies with which to do business. Also, because of our financial strength and our strong ratings, we received increasing opportunities to work with existing insurance companies on a quota share basis.
(1) Includes $18.8 million, $20.8 million and $22.2 million of premium ceded to Renaissance Reinsurance and DaVinci in 2004, 2003 and 2002, respectively.
We purchase reinsurance to reduce our exposure to large losses. With the continued growth in the gross written premiums of our Individual Risk segment, we continued to look for opportunities to purchase appropriately priced reinsurance coverage.
Offsetting the effect of the hurricanes above was a reduction of prior years estimated ultimate net claims reserves of $26.4 million. The reduction in prior years' estimated ultimate net claims reserves was driven by the application of our formulaic reserving methodology used for the Individual Risk book of business and is primarily due to the actual paid and reported loss activity being better than what we had anticipated when estimating the initial ultimate claims and claims expense ratios and the initial loss reporting patterns
The increase in the 2003 net underwriting income of our Individual Risk segment was primarily due to the growth in net earned premiums by $213.4 million (as discussed above).
During 2003 we began issuing insurance policies for certain commercial liability coverages, including general, automobile and professional liability risks. The claim reporting and claim development periods of these risks are longer than the reporting and development periods for our property risks, and accordingly there is normally greater uncertainty in the estimation of the reserves associated with these policies.
The increase in investment income in 2004 was largely as a result of increased income from hedge funds, private equity funds and other alternative investments, both as a result of higher returns and a higher level of investment over 2003. Net income on these investments, which includes net unrealized appreciation, was $46.9 million in 2004. During 2003, we recorded $25.9 million of net investment income from these other investments (2002 - $0.4 million loss), which were largely responsible for the increase in net investment income during 2003. These investments are carried at fair value, with interest, dividend income and realized and unrealized gains (losses) included in investment income.
Fee income was essentially flat comparing 2004 to 2003 and primarily consisted of fees related to services provided to Platinum. The increase in other items primarily reflects the recording of $27.4 million in unrealized gains on the Platinum warrant, which was recorded in the income statement at fair value commencing in the fourth quarter of 2004 as the result of the expiration of a lockup provision, in accordance with generally accepted accounting principles. This was partially offset by $12.5 million of losses recognized by the Company from short positions in credit derivatives generally used to hedge potential credit-related exposures of the Company. The increase in equity in earnings of other ventures was primarily due to $9.8 million of equity pickup from our investment in Channel Re, which incepted in 2004.
Corporate expenses include expenses related to legal and certain consulting expenses, costs for research and development, and other miscellaneous costs associated with operating as a publicly traded company. The increase in corporate expenses during 2004, primarily related to increases in fees to comply with recently adopted regulations of the SEC, including those related to complying with the Sarbanes-Oxley Act of 2002, including Section 404, and an increase in various legal expenses.
The increase in corporate expenses during 2003 primarily related to an increase in the cost for directors' and officers' insurance and increases in fees to comply with recently adopted regulations of the SEC, including those related to complying with the Sarbanes-Oxley Act of 2002.
of the valuation allowance will be reassessed and, accordingly, potential profits from our U.S. operations would possibly not have a corresponding offset for tax expenses, up to the $38.2 million valuation allowance recorded at December 31, 2004.
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. Additionally, we maintain a $500 million revolving credit facility to meet additional liquidity and capital requirements, if necessary.
Cash flows from operating activities for 2004 were $518.1 million, which principally consisted of net income of $164.2 million (prior to dividends on preference shares), plus $412.9 million for increases to net reserves for claims and claim expenses. The 2004 cash flows from operations were primarily used to increase the investment portfolio, including fixed income securities, other investments and investments in other ventures.
(1) Case reserves include our estimate of case reserves for insurance policies, case reserves reported by our counterparties for reinsurance contracts, and additional case reserves for reinsurance contracts, which represent additional case reserves established by management.
A large portion of our coverages provide protection from natural and man-made catastrophes which are generally infrequent, but can be significant, such as losses from hurricanes and earthquakes. Our
claims and claim expense reserves will generally fluctuate, sometimes materially, based upon the occurrence of a significant natural or man-made catastrophic loss for which we provide reinsurance. Our claims reserves will also fluctuate based on the payments we make for these large loss events. The timing of our payments on loss events can be affected by the event causing the loss, the location of the loss, and whether our losses are from policies with insurers or reinsurers.
During 2003 and 2004 we increased our specialty reinsurance and Individual Risk gross written premiums (see "Premiums"). The addition of these lines of business adds complexity to our claims reserving process and therefore adds uncertainty to our claims reserve estimates as the reporting of information, the setting of initial reserves and the loss settlement process for these lines of business vary from our traditional property catastrophe line of business.
Our total capital resources at December 31, 2004 and 2003 were as follows:
In January 2003, we issued $100 million of 5.875% Senior Notes due February 15, 2013, with interest on the notes payable on February 15 and August 15 of each year, commencing August 15, 2003. In July 2001, we issued $150 million of 7.0% Senior Notes due July 15, 2008 with interest on the notes payable on January 15 and July 15 of each year. The notes can be redeemed by us prior to maturity subject to payment of a "make-whole" premium; however, we have no current intentions of calling the notes. The notes, which are senior obligations, contain various covenants, including limitations on mergers and consolidations, restrictions as to the disposition of stock of designated subsidiaries and limitations on liens on the stock of designated subsidiaries. RenaissanceRe was in compliance with the related covenants at December 31, 2004 and 2003.
Our Capital Trust has issued Capital Securities which pay cumulative cash distributions at an annual rate of 8.54%, payable semi-annually. During 2004 and 2003, RenaissanceRe did not purchase any of the Capital Securities. RenaissanceRe has purchased an aggregate $15.4 million of the Capital Securities since their issuance in 1997. The sole asset of the Capital Trust consists of our junior subordinated debentures. The Indenture relating to these junior subordinated debentures contains certain covenants, including a covenant prohibiting us from the payment of dividends if we are in default under the Indenture. We were in compliance with all of the covenants of the Indenture at December 31, 2004 and 2003. The Capital Securities mature on March 1, 2027.
Our subsidiary Stonington has provided a letter of credit in the amount of $68.7 million to one counterparty which is secured by cash and eligible marketable securities. Also, in connection with our Top Layer Re joint venture, we have committed $37.5 million of collateral to support a letter of credit and are 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.
During August 2004, we amended and restated our committed revolving credit agreement to increase the facility from $400 million to $500 million, to extend the term to August 6, 2009 and to make certain other changes. The interest rates on this facility are based on a spread above LIBOR. No balance was outstanding at December 31, 2004 or 2003. As amended, the agreement contains certain financial covenants. These covenants generally provide that consolidated debt to capital shall not exceed the ratio (the "Debt to Capital Ratio") of 0.35:1 and that the consolidated net worth (the "Net Worth Requirements") of RenaissanceRe and Renaissance Reinsurance shall equal or exceed $1 billion and $500 million, respectively, subject to certain adjustments under certain circumstances in the case of the Debt to Capital Ratio and certain grace periods in the case of the Net Worth Requirements, all as more fully set forth in the agreement. We have the right, subject to certain conditions, to increase the size of this facility to $600 million.
During 2004, shareholders' equity increased by $309.4 million to $2.6 billion at December 31, 2004, from $2.3 billion at December 31, 2003. The significant components of the change in shareholders' equity included net income available to common shareholders of $133.1 million and the issuance of $250.0 million Series C preference shares.
In the future, we may return capital to our shareholders through share repurchases. In August 2003, the Board authorized a share repurchase program of $150 million. This authorization includes the remaining amounts available under prior authorizations. No shares were repurchased during 2004 or 2003 under this program. In the future, we may purchase shares under our current authorization, or increase the size of our repurchase program. Any such determination will be subject to market conditions and other factors.
The $667.2 million growth in our portfolio of invested assets for the year ended December 31, 2004 resulted primarily from net cash provided by operating activities of $518.1 million and the issuance of $250 million Series C preference shares, partially offset by dividends to common and preference shareholders of $53.8 million and $31.1 million, respectively.
Because our coverages include substantial protection for damages resulting from natural and man-made catastrophes, we may become liable for substantial claim payments on short notice. Accordingly, our investment portfolio is structured to preserve capital and provide a high level of liquidity. The large majority of our investment portfolio consists of highly rated fixed income securities, including U.S. Treasuries, highly-rated sovereign and supranational securities, high-grade corporate securities and mortgage-backed and asset-backed securities. At December 31, 2004, our invested asset portfolio of fixed maturities and short term investments had a dollar weighted average rating of AA (2003 - AA), an average duration of 2.2 years (2003 - 2.0 years) and an average yield to maturity of 3.3% (2003 - 2.7%). As noted in our discussion of our cash flows above, our future cash flows from operations will be negatively impacted by losses we will be required to pay related to the recent third quarter hurricanes.
At December 31, 2004, $265.3 million (2003 - $182.4 million) of cash and cash equivalents and investments were invested in currencies other than the U.S. dollar, which represented 5.4% (2003 - 4.3%) of our cash and cash equivalents and invested assets.
A portion of our investment assets is directly held by our subsidiary RIHL, a Bermuda company we organized for the primary purpose of holding the investments in high quality marketable securities for RenaissanceRe, our operating subsidiaries and certain of our joint venture affiliates. We believe that RIHL permits us to consolidate and substantially facilitate our investment management operations. RenaissanceRe and each of our participating operating subsidiaries and affiliates have transferred to RIHL marketable securities or other assets, in return for a subscription of RIHL equity interests. Each RIHL share is redeemable by the subscribing companies for cash or in marketable securities. Over time, the subsidiaries and joint ventures which participate in RIHL are expected to both subscribe for additional shares and redeem outstanding shares, as our and their respective liquidity needs change. RIHL is currently rated AAAf/S2 by S&P.
Fair values of certain of the other investments noted above are generally established on the basis of the net valuation criteria established by the managers of the investments. These net valuations are determined based upon the valuation criteria established by the governing documents of such investments. Such valuations may differ significantly from the values that would have been used had ready markets existed for the shares, partnership interests or notes. Many of the investments are subject to restrictions on redemptions and sales which are determined by the governing documents and limit the Company's ability to liquidate these investments in the short term. Due to a lag in the valuations reported by the fund managers, the majority of our hedge fund and private equity partnership valuations are reported on a one month or one quarter lag. Interest income, income distributions and realized and unrealized gains and losses on other investments are included in net investment income and totaled $46.9 million (2003 - $25.9 million) of which $24.4 million (2003 - $21.2 million) was related to net unrealized gains.
We have committed capital to private equity partnerships of $260.2 million, of which $83.2 million has been contributed at December 31, 2004.
We have assumed risk through securities and derivative instruments under which losses could be triggered by an industry loss index or geological or physical variables. During 2004, 2003 and 2002 we recorded income (loss) on non-indemnity catastrophe index transactions of ($0.1) million, $0.8 million and $7.2 million. We report income (loss) from these transactions in other income.
certain opportunities and periodically engage in discussions regarding possible transactions, although there can be no assurance that we will complete any such transactions or that any such transaction would contribute materially to our results of operations or financial condition.
(2) The interest on this facility is based on a spread above LIBOR. We have reflected the interest due in 2005 and 2006 based upon the current interest rate on the facility.
This firm has based their estimate of future claim payments upon benchmark payment patterns constructed internally by their firm, drawing upon available relevant sources of loss and allocated loss adjustment expense development data. These benchmarks are revised periodically as new trends emerge. 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.