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On Monday, rating agency Fitch Ratings affirmed the credit and debt ratings of RenaissanceRe Holdings Ltd. (RNR - Analyst Report) and its insurance subsidiaries – Renaissance Reinsurance Ltd. and RenRe North America Holdings, Inc.

The credit rating agency asserted the Issuer Default Rating (IDR) of RenaissanceRe at “A”, while the debt rating of 5.875% senior notes was affirmed at “A-“ and 6.08% series C and 6.6% series D preferred stocks at “BBB”.

Additionally, Fitch affirmed the Insurer Financial Strength (IFS) rating of Renaissance Reinsurance at “A+” and debt rating of RenRe’s 5.75% senior secured notes at “A-”. Further, the rating agency gave a stable outlook for all the ratings.

RenaissanceRe’s comfortable operating and financial leverage, its strong market position in property catastrophe reinsurance and the high liquidity of its fixed income and short-term investment portfolios allowed it to retain the strong rating. However, the expected volatility in property catastrophe market rate, poor underwriting results so far in 2011 and uncertainty in the company’s alternate investment portfolio has prevented an upgrade.

According to Fitch, RenaissanceRe’s low combined ratios and consistently strong returns on capital offset the volatility in the returns as well as underwriting profitability, thereby helping it to sustain the current ratings.

While the rating agency does not expect a rating upgrade for the company in the near term, better underwriting results compared with other property catastrophe re-insurers and property-casualty insurers, improved results in the Lloyd’s and specialty insurance segments and substantial risk adjusted capital growth could lead to an upgrade in the long term.

On the other hand, a negative effect on profit due to underwriting and investment losses, deteriorating balance sheet position, weakened financial leverage or a major catastrophe could lead to a rating downgrade in the long term.

Fitch uses a stress test, which analyses the impact of the maximum probable loss on RenaissanceRe’s operating leverage and underwriting results. Based on this test, the rating agency concurs that the company’s performance is better than other property catastrophe re-insurers and at par with other property-casualty re-insurers, who have similar ratings.

RenaissanceRe’s strong capital position enables the company to overcome the operational and financial difficulties it faces, while its ability to efficiently manage the capital allows it to take advantage of favorable market conditions. Additionally, the proficiency of the company’s property catastrophe underwriters and its knack of effectively pricing and underwriting catastrophe risk are its other strengths.

RenaissanceRe competes with ACE Limited (ACE - Analyst Report) and XL Group Plc. (XL - Analyst Report). Currently, the company carries a Zacks #3 Rank, which translates into a short-term Hold rating.

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