U.S. Markets closed

RenaissanceRe Maintained at Neutral

Zacks Equity Research

We have retained our Neutral recommendation on RenaissanceRe Holdings Ltd. (RNR) following mixed second quarter results. This property–catastrophe reinsurer currently carries a Zacks Rank #3 (Hold).

Why the Reiteration?

RenaissanceRe’s operating earnings for the second quarter of 2013 came in at $2.17 per share, lagging the Zacks Consensus Estimate by almost 10%. However, results surpassed the year-ago quarter’s earnings of $2.14 by 1.4%.

The disappointing earnings in the second quarter came on the back of substantially high expenses and lower revenues. Additionally, losses from catastrophes like the European floods and tornadoes in Texas and Oklahoma marred the financial results of the company to some extent. As a result combined ratio deteriorated by a whopping 1120 basis points year-over-year to 49.2% during the first six months of 2013.

Additionally the investment portfolio of RenaissanceRe is exposed to the weak credit and capital markets. While the company’s portfolio is strong, it is nevertheless vulnerable to the present volatile interest rate environment. We do not expect any substantial improvement in net interest income over the near term, due to the continuous decline in interest rates and low interest yields. Additionally, RenaissanceRe faces intense competition in the catastrophe insurance and reinsurance segments that limits its market share, particularly in the emerging markets.

Counting on the positives RenaissanceRe’s Lloyd’s unit has been faring well for the past few years. The first half of 2013 also witnessed a 36% growth in premiums from the segment. Moreover, the strong mortgage-backed portfolio and financial strength of the company has helped RenaissanceRe receive strong ratings from credit rating companies. Also noteworthy is RenaissanceRe’s capital deployment programs so far. RenaissanceRe intends to continue making further share repurchases in the latter half of the year thereby cheering investor sentiments.

Moreover, continued focus on business expansion, enhancing core operations and capitalizing on the market opportunities is expected to boost the operating leverage of the company in future. In particular, the divestitures of ChannelRe in 2010 and QBE in 2011 have been advantageous in terms of enhancing RenaissanceRe’s core operations. Furthermore the pending divestiture of its U.S.-based weather and weather-related energy risk management unit, RenRe Energy Advisors Ltd. (RLBY) in the fourth quarter of 2013 also looks promising. Regarding global expansions RenaissanceRe’s formation of an additional reinsurance capacity for the Florida homeowners market – Timicuan Reinsurance III Limited in 2012 and launch of its U.S. platform – RenaissanceRe Underwriting Managers U.S. LLC are also expected to fetch better revenues going forward.

Other Stocks to Consider

Other reinsurers that are worth considering are Global Indemnity Plc (GBLI), Allied World Assurance Company Holdings, AG (AWH) and Aspen Insurance Holdings Limited (AHL).  All these stocks carry a favorable Zacks Rank #2 (Buy).

Read the Full Research Report on RNR
Read the Full Research Report on GBLI
Read the Full Research Report on AWH
Read the Full Research Report on AHL

Zacks Investment Research