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Winter Storm Uri to Dampen RenaissanceRe's (RNR) Q1 Results

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RenaissanceRe Holdings Ltd. RNR recently disclosed that it anticipates a net negative impact of roughly $180 million on first-quarter 2021 operational results, which is slated to release on Apr 28, 2021. The adverse impact is likely to have stemmed from occurrence of the Winter Storm Uri, a highly disastrous wind and ice storm that occured in February 2021.

Notably, Winter Storm Uri, which is likely to have impacted the company’s operational results, was a coast-to-coast storm with the first impact on the Pacific Northwest, per weather.com.

Coming back, the storm wreaked damage in the form of snowfall and damaging ice throughout the United States, resulting in record cold temperatures in decades across the south-central states. The biggest impact of this storm was felt in the state of Texas, wherein record snowfall and low temperatures plagued residents. Power cuts and water shortages aggravated the situation further. Notably, 80% of the state was covered in snow by the time the storm receded. The state struggled to navigate through the storm, the most likely reason being Texas having its own electrical grid, which does not depend on the nation’s eastern and western power grids.

Compounding the miseries, the rating agency Fitch Ratings believes that the insured losses in Texas stemming from the storm are expected to mostly arise from personal lines coverage and to certain extent, from commercial lines coverage due to automobile claims. Nevertheless, RenaissanceRe’s management remains optimistic about playing an active part in prompt payment of claims as a number of people have fallen prey to the storm. Although RenaissanceRe still anticipates to report minimal operating income available to common shareholders in the first quarter, it expects reporting a net loss attributable to common shareholders in the same quarter.

It seems that the Winter Storm Uri is likely to not only impact the operational results of RenaissanceRe in the first quarter. Case in point, the U.S. property and casualty (P&C) insurers are expected to grapple with insured losses valued between $10 billion and $20 billion on account of the large-scale property damage wreaked by the winter storm, per Fitch. The rating agency also added that the losses are most likely to be suffered by large homeowners carriers equipped with effective claims resources.

Moreover, the business of a P&C insurer like RenaissanceRe is always susceptible to severe catastrophe loss, which in turn, put pressure on the company’s underwriting results thereby dampening bottom-line growth. The last year was no exception to the abovementioned trend as the 2020’s Atlantic hurricane season witnessed 30 named tropical storms, which made it an unparalleled one per the World Meteorological Organization.

Continuous incidence of catastrophe events coupled with the COVID-19 pandemic-induced adversities have caused widespread destruction encompassing life loss, economic uncertainties and property damage. As a result, RenaissanceRe’s net claims and claim expenses incurred have witnessed a rise of 39.5% during 2020 when compared with 2019-level.

To cope with the high-scale incidence of catastrophe losses, the company buys reinsurance to minimize exposure to huge losses and for efficient management of its risk portfolio. Per forecaster AccuWeather, hurricane activity is expected to remain at an above-average level this year as well with over 16 tropical storms expected to take place in 2021. Hence, the company’s substantial investments in catastrophe bonds also seem to be time opportune, which will give higher returns and provide protection from risks stemming from higher incidence of catastrophe events.

Furthermore, frequent natural disasters accelerate the policy renewal rate and aid better pricing. Similarly, RenaissanceRe’s management remains optimistic about its robust capital position, which is likely to aid it in the mid-year renewals and provide it with added opportunities of writing attractive risk.

Another P&C insurer, namely, AXIS Capital Holdings Limited AXS estimates first-quarter 2021 catastrophe loss of $95-$105 million, after-tax. The Allstate Corporation ALL expects first-quarter 2021 catastrophe losses of $466 million, after-tax. Arch Capital Group Ltd. ACGL has also been exposed to severe catastrophe events, which have put strain on the underwriting profitability of these insurers.

Zacks Rank & Price Performance

Shares of this Zacks Rank #3 (Hold) company have gained 9.5% in a year compared with the industry’s rally of 33.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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