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On May 27, 2014, we issued an updated research report on RenaissanceRe Holdings Ltd. (RNR - Analyst Report). We believe that improvement in the Lloyd’s segment and efficient capital deployment, as reflected in the dividend hike and accelerated share buybacks, should mitigate the adverse effects of weak investment portfolio and catastrophe exposures.  

Earlier, RenaissanceRe reported first-quarter 2014 earnings that exceeded the Zacks Consensus Estimate. However, results compared unfavorably with the year-ago quarter earnings due to pricing pressures triggered by an excess supply from many forms of capital that outweighed demand.

RenaissanceRe has been witnessing a positive trend in gross premiums for some time. Gross premiums written also increased in the first quarter of 2014 due to growth in the Specialty Reinsurance and Lloyd’s segments. As the company realizes greater benefits of scale, the Lloyd’s segment should improve further, thereby consistently contributing to overall premiums. Further, RenaissanceRe’s strategic divestitures have been helping it to enhance its core operations, thereby boosting operating leverage. Moreover, the strong mortgage-backed portfolio of the company comprising high-rated fixed income securities augurs strong ratings from credit rating agencies.

RenaissanceRe has also been prudently deploying its excess capital to boost shareholders’ wealth. In Feb 2014, the company increased its quarterly dividend by 3.6% and in May 2014, it extended the share buyback program to $500 million. RenaissanceRe’s robust portfolio and business growth outlook, along with improved liquidity should support more such capital deployment endeavors in the future, thereby helping to retain investors’ confidence.

However, natural catastrophes are a challenge for this Zacks Rank #3 (Hold) stock. The winter storms during the first quarter of 2014 affected the company’s performance, and weighed on its underwriting gain and combined ratio. Moreover, the earthquakes from Mexico to Canada along the Pacific Coast remain potential headwinds. In fact, RenaissanceRe expects premiums for managed catastrophes to decline by 15% in full-year 2014.

Additionally, the investment portfolio of RenaissanceRe is exposed to the weak credit and capital markets. It also declined in the first quarter of 2014 and concern regarding this metric persists owing to its susceptibility to interest rate risk. Moreover, the weak underwriting pricing cycle and low rate environment are negatively impacting both the top and the bottom lines.

Other Stocks to Consider

Better-ranked players in the property and casualty insurance space, which look attractive at current levels, include Allied World Assurance Company Holdings, AG (AWH - Snapshot Report), AmTrust Financial Services, Inc. (AFSI - Snapshot Report) and Endurance Specialty Holdings Ltd. (ENH - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

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