RenaissanceRe Holdings Ltd. (RNR) reported second-quarter 2012 operating earnings per share of $2.14, way behind the Zacks Consensus Estimate of $2.49. However, the results reversed the operating loss of 21 cents per share in the year-ago quarter.
Operating earnings for the quarter came in at $111.5 million compared to operating loss of $10.2 million in the year-ago quarter.
Including net realized and unrealized gains on investments of $31 million or 61 cents, net income improved drastically to $142.3 million or $2.75 per share from a net loss of $24.8 million or 48 cents per share in the prior-year quarter.
The improved results were primarily aided by lower catastrophe (CAT) losses in the reported quarter compared with the prior-year quarter, which suffered huge CAT losses due to tornadoes in the U.S. Favorable reserve development and higher investment income also contributed to the earnings growth.
RenaissanceRe posted total revenue of $310.5 million, up 10.5% year over year from $280.9 million in the second quarter of 2011. However, total revenue lagged the Zacks Consensus Estimate of $317 million.
Alongside, gross premiums improved 4.0% year over year to $667.3 million, spurred by premium growth in the catastrophe, special and Lloyd’s segments along with the additional premium from the new reinsurance subsidiary, Timicuan Reinsurance III Limited.
Meanwhile, underwriting income surged to $127.9 million from $9.7 million in the year-ago quarter. The considerable improvement was mainly due to tornadoes in the U.S. during 2011, which led to high catastrophe losses in the prior-year quarter.
RenaissanceRe reported total investment income (sum of net investment income, net realized and unrealized gains on investments and net other-than-temporary impairments) of $44.8 million in the quarter under review, against $66.5 million in the year-ago quarter. The deterioration was primarily attributable to lower returns on the private equity investment portfolio.
Moreover, total expenses of RenaissanceRe inched down 0.71% to $126.3 million from $127.2 million in the prior-year quarter. Additionally, income tax expense came in at $0.90 million compared to income tax benefit of $1.77 million in the year-ago quarter.
Reinsurance segment reported gross premiums of $617.0 million, up 1.6% from $607.4 million in the prior-year quarter. Underwriting income came in at $128.4 million compared with $12.9 million in the second quarter of 2011, while the combined ratio improved to 40.1% from 93.5%.
Lloyd’s segment’s gross premium came in at $50.3 million, expanding 47.4% from $34.1 million in the year-ago quarter. Underwriting loss was recorded at $0.9 million, against $3.3 million in the year-ago quarter. Combined ratio plunged to 103.0% from 119.3% in the prior-year quarter.
Insurance segment’s underwriting income was $0.39 million compared with $0.15 million in the year-ago quarter.
RenaissanceRe exited the reported quarter with total assets of $8.96 billion, up from $7.74 billion as of December 31, 2011. Long-term debt totaled $354.3 million, up from $353.6 million at the end of 2011.
Meanwhile, cash and cash equivalents stood at $264.2 million, up from $217.0 million as of December 31, 2011. Shareholders’ equity totaled $3.85 million compared with $3.61 billion at the end of 2011.
As of June 30, 2012, RenaissanceRe’s annualized return on average common equity (:ROCE) was 17.5%, improving substantially from 3.3% as of June 30, 2011.
Stock Repurchase Update
During the reported quarter, RenaissanceRe repurchased 1.2 million shares at an average price of $74.69, totaling $8.8 million. Further, from July 1 to July 30, the company repurchased 71,000 shares at an average price of $74.21, aggregating $5.3 million.
RenaissanceRe’s operating results for the reported quarter improved significantly over the prior-year quarter, owing to higher underwriting income arising from lack of any major catastrophic events in the quarter. The company generally faces significant challenges due to weather-related events as well as high competitionin the catastrophe insurance and reinsurance segments.
While premiums exhibited growth in the reported quarter, expenses declined. This coupled with lower share count buoyed the bottom line Moreover, the company’s financial position strengthened with improved financial leverage, higher cash balance and increased ROCE.
One of RenaissanceRe’s competitors, PartnerRe Ltd. (PRE) reported second-quarter 2012 operating earnings per share of $2.20, significantly exceeding the Zacks Consensus Estimate of $2.02 and the year-ago earnings of 98 cents. As a result, operating net income soared to $142.0 million from $67.2 million in the prior-year quarter.
Another peer, XL Group plc (XL), will report its second-quarter 2012 financial results on August 7, 2012, after the market closes.
Currently, RenaissanceRe carries a Zacks #3 Rank, which translates into a short-term Hold rating. However, we maintain our long-term Outperform recommendation on the shares.
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