Here's Why You Should Hold RenaissanceRe (RNR) in Your Portfolio
RenaissanceRe Holdings Ltd. RNR is currently aided by improving premiums, strategic buyouts, strong segmental performances and a strong financial position.
Zacks Rank & Price Rally
RenaissanceRe currently carries a Zacks Rank #3 (Hold).
The stock has gained 1.7% in the year-to-date period compared with the industry’s 5.7% growth. The Zacks Finance sector and the S&P 500 composite rallied 2.8% and 15.2%, respectively, in the year-to-date period.
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Favorable Style Score
RNR carries an impressive Value Score of A. Value Score helps identify undervalued stocks. The back-tested results show that stocks with a Value Score of A or B in combination with a Zacks Rank of 1 (Strong Buy) or 2 (Buy) offer the best investment bets.
Robust Growth Prospects
The Zacks Consensus Estimate for RenaissanceRe’s 2023 earnings is pegged at $22.99 per share, which indicates a more than two-fold increase from the year-ago reported figure. The same for revenues stands at $7.9 billion, implying 13.6% growth from the prior-year number.
The Zacks Consensus Estimate for 2024 earnings is pegged at $25.28 per share, suggesting 10% growth from the 2023 estimate. The same for revenues stands at $8.9 billion, which indicates a rise of 12.9% from the 2023 estimate.
Solid Return on Equity
RNR’s efficiency in utilizing shareholders’ funds can be substantiated by its return on equity of 11.9% as of Mar 31, 2023, which remains higher than the industry’s average of 6.9%.
Growth Drivers
RenaissanceRe’s premiums continue to grow due to solid contributions from its Property and Casualty and Specialty segments. As premiums remain the most significant contributor to an insurer’s top line, rising premiums will drive revenues of an insurance company.
The Casualty and Specialty segment is expected to deliver a combined ratio of the mid-90s in 2023. The company has been focusing on growth of Property catastrophe, which should boost the top line in the future. Moreover, the Property segment is likely to benefit from underwriting action to be taken this year, leading to increased rates and stricter terms.
Though an active catastrophe environment comes with worries for RenaissanceRe, such an environment usually accelerates the policy renewal rate to make uninterrupted claim payments and prompt insurers to implement rate hikes. Subsequently, continual rate increases keep premiums flowing.
Growing fee income derived from the capital partners business of RenaissanceRe is also likely to boost the profit levels of the insurer. RNR actively pursues opportunities, like joint ventures to boost its fee income.
An improving interest rate environment usually boosts the investment yields of insurers, and the investment portfolio of RenaissanceRe, comprising a significant proportion of fixed-income investments, is likely to reap benefits.
RNR keeps an eye on expanding its capabilities through an inorganic growth route of acquisitions or business expansions. It resorts to selling off its underperforming businesses to intensify its focus on growing business units that fetches higher return. The company aims to optimize its Casualty and Specialty business by exiting from areas with lower rates than loss trends.
RenaissanceRe boasts a solid financial standing, substantiated by a sufficient cash balance and solid cash-generating abilities. In the first quarter, RNR generated operating cash flows of $435.7 million, which increased nearly three-fold year over year.
The company remains active on the capital deployment front and rewards shareholders through share buybacks or dividend payments. RenaissanceRe has been resorting to uninterrupted dividend hikes for nearly three decades now. In February 2023, management implemented a 2.7% hike in the quarterly dividend. Its dividend yield of 0.7% remains higher than the industry’s figure of 0.3%.
Key Concerns
There are a few factors that have been impeding the stock’s growth lately.
The company has been witnessing high costs due to higher net claims and claim expenses, acquisition costs, operational expenses, etc. Such costs tend to weigh on the company’s margins. Moreover, it is exposed to high-severity loss associated with catastrophic events on a worldwide basis. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.
Stocks to Consider
Some better-ranked stocks in the Property and Casualty insurance space are HCI Group, Inc. HCI, Kinsale Capital Group, Inc. KNSL and RLI Corp. RLI. Each of these companies presently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
HCI Group’s earnings surpassed estimates in three of the trailing four quarters, missed once, the average being 308.8%. The Zacks Consensus Estimate for HCI’s 2023 earnings suggests an improvement of 149.3%, while the same for revenues suggests growth of 0.7% from the corresponding year-ago reported figures. The consensus mark for HCI’s 2023 earnings has moved 22.7% north in the past 30 days.
The bottom line of Kinsale Capital beat estimates in each of the trailing four quarters, the average surprise being 14.8%. The Zacks Consensus Estimate for KNSL’s 2023 earnings suggests an improvement of 36.2%, while the same for revenues suggests growth of 37.6% from the corresponding year-ago reported figures. The consensus mark for KNSL’s 2023 earnings has moved 2.4% north in the past seven days.
RLI’s earnings outpaced estimates in each of the last four quarters, the average surprise being 43.5%. The Zacks Consensus Estimate for RLI’s 2023 earnings is pegged at $5.06 per share, suggesting growth of 7.9% from the prior-year figure. The same for revenues suggests growth of 17% from the year-ago reported figure. The consensus mark for RLI’s 2023 earnings has moved 3.7% north in the past seven days.
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RLI Corp. (RLI) : Free Stock Analysis Report
RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report
HCI Group, Inc. (HCI) : Free Stock Analysis Report
Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
