Recently Moody’s Investors Service, the credit rating agency of Moody’s Corporation (MCO) assigned provisional ratings to the shelf registration of RenaissanceRe Holdings Ltd. (RNR) and its subsidiaries. Additionally, Moody’s affirmed the insurance financial strength rating of Renaissance Reinsurance Ltd. at “A1” and the debt rating of the subsidiary, RenRe North America Holdings Inc. at “A3”. All the ratings carried a stable outlook.
The A1 rating came on the back of Renaissance Reinsurance Ltd.’s market leading position as a property catastrophe reinsurer, capital adequacy and profit generating capacities. Also, Renaissance Reinsurance boasts of an efficient customer service and strong risk management culture. It engages in joint ventures and other forms of soft capital to cater to its clients competently. All these are also accounted for in the ratings. The A3 debt rating of RenRe North America Holdings Inc. and the provisional shelf ratings of the subsidiaries, RenaissanceRe Finance Inc., RenRe North America Holdings Inc. and RenaissanceRe Capital Trust II came on the back of RenaissanceRe’s strong support of its subsidiaries.
Moreover, the holding company, RenaissanceRe’s property catastrophe reinsurance operations and large scale presence in the U.S. particularly in Florida adds to the strengths of the company. Property catastrophe reinsurance accounts for 80% of the gross premiums and 60% of the premiums come from the U.S. exposures of which 40% is contributed by the Florida domiciled customers.
Moody’s stated that an upward revision in the ratings is plausible if the adjusted debt-to-capital ratio is well below 15% cross cycle, total leverage is below the 15% cross cycle and gross underwriting leverage is below 0.7x. Conversely, a downgrade in the ratings might take place if RenaissanceRe’s debt-to-capital ratio is above 18%, EBIT fixed charge coverage moves below 9x in consecutive years and shareholders’ equity reduces by more than 10% over a rolling twelve month period. Also, return of capital below 10% for a number of years and outsized bet in a single region might lead to a downgrade in the ratings.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. We believe that RenaissanceRe’s present score with the credit rating agencies will help it write more business going forward.
RenaissanceRe currently carries a Zacks Rank #3 (Hold). Among other reinsurers, Aspen Insurance Holdings Limited (AHL) and Allied World Assurance Company Holdings, AG (AWH) carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.