RenaissanceRe (RNR) Up 2.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for RenaissanceRe (RNR). Shares have added about 2.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is RenaissanceRe due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
RenaissanceRe's Q3 Earnings Beat on Lower Costs
RenaissanceRe reported third-quarter 2023 operating income of $8.33 per share, which outpaced the Zacks Consensus Estimate by 27.4%. A loss of $9.27 per share was reported in the prior-year quarter.
Total operating revenues of $2,064 million advanced 7.1% year over year in the quarter under review. The top line beat the consensus mark by 1.7%.
The quarterly results benefited on the back of strong underwriting results, a substantial decline in expense level and increased returns from the fixed maturity portfolio. However. the upside was partly offset by a declining premium level.
Quarterly Operational Update
Gross premiums written dropped 27.1% year over year to $1,618.4 million. RenaissanceRe’s net premiums earned of $1,755.9 million dipped 0.6% year over year in the third quarter but fell short of the Zacks Consensus Estimate of $1,780 million and our estimate of $1,790.7 million.
Net investment income more than doubled year over year to $329.1 million, which surpassed the consensus mark of $287 million and our estimate of $205.5 million. The metric gained from improved average invested assets and increased returns from its fixed maturity and short-term portfolios. Fee income increased nearly three-fold year over year to $64.6 million on the back of growth in management and performance fee incomes.
Total expenses of $1,410.2 million plunged 43% year over year in the quarter under review due to a significant decline in net claims and claim expenses incurred.
RNR reported an underwriting income of $385.8 million against the prior-year quarter’s underwriting loss of $683.1 million. The combined ratio of 78% improved 6,070 basis points (bps) year over year.
Book value per share surged 41.3% year over year to $133.63 in the third quarter. Annualized operating return on average common equity was 25% while the metric was recorded at a negative figure of 34.8% in the prior-year quarter.
Segmental Update
Property Segment
The segment reported gross premiums written of $511 million, which fell 36.1% year over year. Net premiums earned declined 9.5% year over year to $760.4 million, which missed the Zacks Consensus Estimate of $779 million and our estimate of $795 million. Lower net reinstatement premiums exerted a strain on the unit’s performance.
Underwriting income of $356 million came against the prior-year quarter’s underwriting loss of $722.6 million. Our estimate indicated the segment to incur an underwriting loss of $586 million in the third quarter. The combined ratio was 53.2%, which improved 13,280 bps year over year, attributable to a decline in current accident year net losses and increased prior accident year net favorable development.
Casualty and Specialty Segment
Gross premiums written of the unit fell 22% year over year to $1,107.4 million in the quarter under review, lower than our estimate of $1,511.8 million. Net premiums earned of $995.5 million rose 7.4% year over year but lagged the consensus mark of $1,015 million and our estimate of $995.7 million.
The segment recorded an underwriting income of $29.8 million, which decreased 24.6% year over year. The combined ratio deteriorated 130 bps year over year to 97% in the third quarter due to specialty losses.
Financial Position (as of Sep 30, 2023)
RenaissanceRe exited the third quarter with cash and cash equivalents of $1,195.9 million, which inched up 0.1% from figure at the 2022 end. Total assets of $40.8 billion grew 11.7% from the 2022-end level.
Debt amounted to $1,882.9 million, which soared 60.9% from the figure as of Dec 31, 2022.
Total shareholders’ equity of $7,588.6 climbed 42.5% from the 2022-end figure.
RNR generated net cash from operations of $1,399.1 million in the first nine months of 2023, which jumped 60.7% from the prior-year comparable period.
Capital Deployment Update
RenaissanceRe did not buy back shares in the third quarter. It paid out common dividends of $19.2 million in the quarter under review.
Forward View
In the fourth quarter of 2023, Renaissance Re anticipates management and performance fees to stay in line, excluding any significant losses, with the third-quarter 2023 levels. Management forecasts retained net investment income of around $260 million in the fourth quarter.
Combined ratio in the Casualty and Specialty unit is forecasted to stay in the mid-90s range. Next year, corporate expenses are likely to stay lower than the fourth-quarter 2023 level.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 42.08% due to these changes.
VGM Scores
Currently, RenaissanceRe has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise RenaissanceRe has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
RenaissanceRe is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Cincinnati Financial (CINF), a stock from the same industry, has gained 2.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Cincinnati Financial reported revenues of $2.27 billion in the last reported quarter, representing a year-over-year change of +8.9%. EPS of $1.66 for the same period compares with $0.73 a year ago.
For the current quarter, Cincinnati Financial is expected to post earnings of $1.83 per share, indicating a change of +44.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.3% over the last 30 days.
Cincinnati Financial has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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