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High Cat Loss to Hurt RenaissanceRe's (RNR) Underwriting Results

Zacks Equity Research
·4 min read

RenaissanceRe Holdings Ltd. RNR recently unveiled that it projects a net negative impact of around $170 million on fourth-quarter operational results, which is scheduled to release on Jan 26, 2021. The adverse impact is likely to have resulted from incidence of numerous catastrophe events in both third and fourth quarters of 2020, and alterations in estimated losses from catastrophe events of the third quarter.

Although the fourth quarter tends to be less active compared with the third one in case of catastrophe events, the hurricane season usually lasts through November during a year, gathering strength in between mid-August and late October. Adding to the woes, the 2020 Atlantic hurricane season witnessed 30 named tropical storms, which makes it an unparalleled one per the World Meteorological Organization.

Let’s take a closer look at the major events, which are likely to have impacted the company’s operational results, Hurricane Delta has been one of the strongest storms of the 2020 hurricane season. Quickly intensifying from a tropical depression to a category 4 hurricane, it made a landfall in October 2020 across Yucatan Peninsula and subsequently in Louisiana. Worsening the scenario further, Hurricane Zeta and Hurricane Eta built up in the same month, with the latter lashing Central America. Together with these several storms, other catastrophe events also contributed to the havoc caused.

Compounding on the miseries, the company expects the COVID-19 pandemic to have an adverse impact on its fourth-quarter operational results. It anticipates a net negative impact of around $175 million due to the pandemic, which encompasses around $165 million of losses in the Property segment, while the Casualty and Specialty segment accounts for the rest.

Back-to-back catastrophe events coupled with the pandemic-induced adversities have caused widespread destruction, ranging from life loss, economic uncertainties to property damage. As a result, the company’s net claims and claim expenses incurred have witnessed a surge of 51.6% in the first nine months of 2020 compared with the prior-year period.

Although RenaissanceRe still expects to report net income available to common shareholders in the fourth quarter, it anticipates reporting operating loss attributable to common shareholders in the same quarter.

Shares of the company have lost 12.6% in a year compared with the industry’s decline of 3.4%.

Nevertheless, the business of a property & casualty (P&C) insurer like RenaissanceRe is always susceptible to severe catastrophe loss, which in turn put pressure on the company’s underwriting results and bottom line. As a result, the company buys reinsurance to minimize exposure to huge losses and for efficient management of its risk portfolio. Per global reinsurer Swiss Re, hurricane activity expected to remain high this year as well, and thus, the company’s substantial investments in catastrophe bonds will not only fetch higher returns but also act as a shield against risks stemming higher incidence of catastrophe events.

Other P&C insurers, namely, The Allstate Corporation ALL, The Travelers Companies, Inc. TRV and Chubb Limited CB have also been exposed to severe catastrophe events, which have put strain on the underwriting profitability of these insurers.

Notably, RenaissanceRe carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
 
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