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In order to enhance its reinsurance capacity, RenaissanceRe Holdings Ltd. (RNR - Analyst Report) announced the creation of a new reinsurance subsidiary named Timicuan Reinsurance III Limited. The newly formed subsidiary will be based in Bermuda, which is the headquarter of the holding company.

Timicuan Reinsurance will be initiated with equity share capital of $55 million, contributed by various investors including RenaissanceRe. Renaissance Underwriting Managers Ltd will manage the new company, which will take over a portion of the property catastrophe reinsurance portfolio of RenaissanceRe’s subsidiaries -- Renaissance Reinsurance Ltd. and DaVinci Reinsurance Ltd.

The two subsidiaries have entered into a fully-collateralized reinsurance agreement with Timicuan Reinsurance for the same. The portfolio to be taken over by the new unit mainly deals with providing reinsurance to Florida insurers to cover their hurricane risks for the 2012 hurricane season.

Apart from boosting RenaissanceRe’s capacity to provide reinsurance in the Florida homeowners market, the formation of Timicuan Reinsurance is also expected to increase the earnings of the Reinsurance segment of the umbrella company, which accounts for majority of the company’s business.

The Reinsurance segment contributed 92.2% and 91.8% of RenaissanceRe’s gross premiums written in 2011 and the first quarter of 2012, respectively.

The Zacks Consensus Estimate for RenaissanceRe’s second-quarter 2012 earnings is currently $2.44 per share, increasing significantly year over year. For full year 2012, the Zacks Consensus Estimate stands at $9.27 per share, up substantially from 2011.

RenaissanceRe carries a Zacks #2 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we maintain a long-term Neutral recommendation on the shares. RenaissanceRe competes with ACE Limited (ACE - Analyst Report) and XL Group Plc. (XL - Analyst Report).

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