RenaissanceRe (RNR) Shares Dip 8% Despite Q3 Earnings Beat
Shares of RenaissanceRe Holdings Ltd. RNR declined 8.1% since it reported third-quarter 2023 results on Nov 1. Investors might be concerned about a declining premium level, which remains the most significant contributor to an insurer’s top line. Premiums suffered a blow due to a reduction in net reinstatement premiums, resulting from lower weather-related losses in the quarter under review.
However, the downside from lower premiums in the third quarter was offset by strong underwriting results, a substantial decline in expense level and increased returns from the fixed maturity portfolio.
RNR 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%.
RenaissanceRe Holdings Ltd. Price, Consensus and EPS Surprise
RenaissanceRe Holdings Ltd. price-consensus-eps-surprise-chart | RenaissanceRe Holdings Ltd. Quote
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.
Business Update
RNR completed the acquisition of Validus Re, the treaty reinsurance business of American International Group, Inc. AIG, on Nov 1, 2023.
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.
Zacks Rank
RenaissanceRe presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performances of Some Other Insurers
Of the insurance industry players that have reported third-quarter results so far, Assurant, Inc. AIZ and The Hartford Financial Services Group, Inc. HIG beat the Zacks Consensus Estimate for earnings.
Assurant’s third-quarter 2023 net operating income of $4.29 per share beat the Zacks Consensus Estimate by 73%. The bottom line surged more than fourfold from the year-ago quarter. Total revenues increased 8.5% year over year to $2.8 billion. The top line beat the consensus estimate by 4.5%. Net investment income was up 50.2% year over year to $125.5 million. Revenues at the Global Housing unit increased 24.7% year over year to $584.8 million while its adjusted EBITDA, excluding reportable catastrophes, more than doubled year over year to $191.3 million. Revenues at the Global Lifestyle segment of AIZ increased 5.3% year over year to $2.2 billion.
Hartford Financial reported third-quarter 2023 adjusted operating earnings of $2.29 per share, which outpaced the Zacks Consensus Estimate by 17.4%. The bottom line rose 57.9% year over year. Operating revenues rose 10% year over year to $4,213 million in the quarter under review. The top line beat the consensus mark by a whisker. Net earned premiums of HIG amounted to $5,310 million, which improved 8.1% year over year in the third quarter. Net investment income rose 22.6% year over year to $597 million in the third quarter. It reported a pretax income of $813 million, which jumped 88.2% year over year. The Commercial Lines segment recorded revenues of $3,318 million in the third quarter, which rose 13.1% year over year. Core earnings rose 49.3% year over year to $542 million.
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