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RenaissanceRe Up 49.9% in a Year: Will the Rally Continue?

Zacks Equity Research

RenaissanceRe Holdings Ltd. RNR has been in investors’ good books on the back of growing premiums and inorganic growth strategies.

In 2018, the company crossed a significant milestone of $3 billion of gross premiums written, up 18.3% year over year. It also reported strong net income and established various relationships with companies that helped it strengthen its position in the marketplace.

The company has a Zacks Rank #1 (Strong Buy) and an impressive Growth Score of B and this style score analyzes its growth prospects.

In a year’s time, the company has surged 49.9%, outperforming its industry’s growth of 9.5%. Moreover, it has witnessed an upward revision in 2019 and 2020 earnings estimates over the past seven days.

Its return on equity — a profitability measure — stands at 9.2%, higher than the industry's average of 7.1%.

We expect this momentum to continue as it gains from the following factors:

Inorganic Growth: RenaissanceRe has been undertaking solid measures to streamline its operations. It is putting in efforts to sell off its low-return high-risk businesses. As part of this initiative, the company divested its U.S-based weather and weather-related energy risk management unit to save itself from the uncertainties associated with that business.

Meanwhile, the company is also acquiring and expanding businesses, providing scope for growth. In fact, its buyout of Tokio Millennium Re for $1.5 billion is noteworthy. The transaction is expected to increase boost the company’s business scale and portfolio to help it generate gross written premiums between $700 million and $1 billion, resulting in a $100-million run rate. We expect such strategic initiatives to enable the company to focus on its core operating business growth.

Strong Capital Position: The company has been enjoying significant free cash flow over the past few years (CAGR of 42% from 2015 to 2018). RenaissanceRe has been deploying excess capital in business over the last several quarters. On the back of its solid capital position, it has been hiking its dividend over the past many years. In February 2019, the company again increased its payout by 3%. We believe, the company’s impressive financial strength will continue to buoy investor optimism.

Improving Premiums: RenaissanceRe has been witnessing a positive trend in gross premiums written, which has doubled over five years (CAGR of 20.9% from 2014 to 2018). This can be attributable to rising contribution from its Casualty and Specialty plus Property segments. We believe that a solid uptick from these segments leading to increase in premiums, will likely drive the top line further for RenaissanceRe.

Zacks Rank and Other Stocks to Consider

Investors interested in the same space might also look into some other top-ranked stocks like Kinsale Capital Group, Inc. KNSL, Argo Group International Holdings, Ltd. ARGO and Hallmark Financial Services, Inc. HALL, each sporting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinsale Capital provides casualty and property insurance products in the United States. The company delivered a beat in two of the last four quarters, the average positive surprise being 7.55%.

Argo Group underwrites specialty insurance and reinsurance products in the property and casualty markets. It pulled off average trailing four-quarter positive surprise of 224.07%.

Hallmark Financial underwrites, markets, distributes and services property/casualty insurance products in the United States. The company came up with average four-quarter beat of 98.45%.


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