Back to top

Analyst Blog

Recently, Fitch Ratings affirmed the issuer default rating (IDR) of RenaissanceRe Holdings Ltd. (RNR - Analyst Report) at “A”. The rating agency also affirmed the insurer financial strength rating of the company’s subsidiary Renaissance Reinsurance Ltd. at “A+”. Further, the rating on another subsidiary RenRe North America Holdings Inc.’s $250 million 5.75% senior notes due 2020 was affirmed at “A-“. All the above-mentioned ratings carry a stable outlook.

The rating affirmation was driven by RenaissanceRe’s long-standing market-leading position in the property catastrophe reinsurance business, moderate operating and financial leverage and its portfolio of fixed-income and short-term investments, which scores highly on both liquidity and quality. The improving rates in the property catastrophe market, high competition, fluctuating underwriting results and the possible volatility in the alternative investment portfolio are also reflected in the ratings.

Fitch believes that RenaissanceRe’s strong capitalization will help absorb the expected negative impact from Hurricane Sandy. Moreover, a strong capital position protects the company from the operational and financial risks.  Although the company’s underwriting profits and returns on capital vary significantly from year to year, the strong long-term run-rate profitability offsets the negative impact of this volatility on the ratings. The rating agency opines that the run-rate profitability reflects the company’s proficiency in underwriting and catastrophe modeling.

Although the stable outlook indicates low possibility of a revision in RenaissanceRe’s ratings in the near term, some factors such as a material decline in profitability (indicated by continued underwriting losses and investment losses), significant deterioration in the balance sheet position (demonstrated by a rise in the net premiums written to shareholders’ equity beyond 0.5x or equity-credit adjusted financial leverage above 25%) and a catastrophe loss higher than one-fourth of the shareholders’ equity could lead to a lower rating.

On the other hand, if RenaissanceRe continuously outperforms peers in terms of underwriting results, maintains its enhanced market position in the other business lines apart from the property catastrophe reinsurance, particularly specialty reinsurance and Lloyd's, and witnesses substantial improvement in the risk-adjusted capital, it can achieve a rating upgrade. However, this is possible only in the long-term as Fitch does not expect an upward revision of the ratings in the near term due to the volatile nature of the property catastrophe reinsurance business.

RNR currently carries a Zacks #3 Rank (Hold). We maintain a long-term ‘Neutral’ recommendation on the stock. Other companies in the reinsurance business such as AmTrust Financial Services Inc. (AFSI - Snapshot Report) and EMC Insurance Group Inc. (EMCI - Snapshot Report) carry a Zacks #1 Rank (Strong Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SUPER MICRO… SMCI 27.00 +10.25%
CANADIAN SO… CSIQ 38.34 +8.18%
BANCO DO BR… BDORY 16.78 +8.05%
CENTURY ALU… CENX 26.97 +7.97%
WILLDAN GRO… WLDN 11.38 +5.86%