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RenaissanceRe Suffers from Catastrophe Loss, High Leverage

Zacks Equity Research

Unprecedented catastrophe loss weighed on RenaissanceRe Holdings Ltd. RNR this year, thanks to Mother Nature’s fury that took a toll on the company’s underwriting performance. As a result, the insurer incurred net claims and claims expenses of $1.6 billion in the first nine months of 2017, significantly higher than $0.4 billion in the year-ago period.

That inclement weather-related events were a drag on underwriting results is evident from a loss of $9.63 per share for the first nine months of 2017 compared with earnings of $5.14 in the prior-year period.

Adding to the woes further, the company expects to suffer a catastrophe loss of $90 million from the California wildfires, which will again burden the company’s bottom line in the fourth quarter. The company’s exposure to weather-oriented loss continues to impart volatility to its results.

Even soft pricing impact in the reinsurance market bothers the insurer and this downside has been persistent for the last seven years now. So far this year, the stock has declined by 7.3%, massively underperforming the industry’s growth of 18%.  

RenaissanceRe’s long-term debt has been rising due to funding of acquisitions, joint ventures and other investments. The metric rose 4.2% at the end of first nine months of 2017 over 2016 year-end. This mounting pile of debt also escalates the interest expenses.  

The company’s total expenses have been on the rise from past many years. The same shot up substantially by 140% in the first nine months of 2017 due to higher net claims and claim expenses. This trend of growing expenses hurts the bottom line.

We do not expect any turnaround for the stock in the coming quarters given the continuance of pricing pressures and high claim cost.

RenaissanceRe carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Mercury General Corp. MCY, NMI Holdings Inc. NMIH and ProAssurance Corp. PRA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Mercury General beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 5.2%.

NMI Holdings delivered a positive earnings surprise of 43% in the previous quarter.

ProAssurance posted better-than expected results in each of the trailing four quarters with an average beat of 18%.

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RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report
 
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