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RenaissanceRe Holdings Ltd. (RNR - Analyst Report) reported fourth-quarter 2012 operating earnings per share of 65 cents, surpassing the Zacks Consensus Estimate of 37 cents. However, the results lagged $1.11 per share earned in the year-ago quarter.

Operating earnings for the quarter came in at $31.0 million compared with $58.0 million in the year-ago quarter.

Including net realized and unrealized gains on investments of $10.6 million or 22 cents per share in the reported quarter, net income declined to $41.7 million or 87 cents per share from $81.8 million or $1.58 per share in the prior-year quarter. The year-ago quarter includes net realized and unrealized gains on investments of $23.9 million or 47 cents per share and net other-than-temporary impairments from continuing operations of $0.10 million.

Improved premiums aided the bottom line. However, these were offset by an increase in total expenses and decline in underwriting income and investment results.

RenaissanceRe posted total revenue of $348.4 million, up 67% year over year from $208.5 million in the fourth quarter of 2011. Total revenue also surpassed the Zacks Consensus Estimate of $307 million.

In addition, gross premiums increased 95% year over year to $83.7 million. Meanwhile, underwriting income declined to $4.3 million from $127.1 million in the year-ago quarter. Combined ratio also deteriorated to 98.5% from 36.2% in the fourth quarter of 2011. The deterioration in underwriting income and combined ratio was due to the negative impact of Hurricane Sandy.

RenaissanceRe reported total investment income (sum of net investment income, net realized and unrealized gains on investments and net other-than-temporary impairments) of $50.3 million in the quarter under review, against $76.8 million in the year-ago quarter. The decline was primarily attributable to lower returns in the fixed maturity investment portfolio as well as the portfolio of other investments.

Moreover, total expenses of RenaissanceRe surged 235% to $289.1 million from $86.3 million in the prior-year quarter.

Segment Results

Reinsurance segment reported gross premiums written of $57.7 million, up $38.4 million from the prior-year quarter. Underwriting income came in at $24.4 million compared with $135.3 million in the fourth quarter of 2011, while combined ratio deteriorated to 90.2% from 23.2%, primarily due to higher net claims and claims expenses due to Hurricane Sandy, partially offset by improved net premiums.

Lloyd’s segment’s gross premium written came in at $26.2 million, expanding 10.3% from the year-ago quarter due to organic growth. Underwriting loss widened to $14.5 million from $11.1 million in the year-ago quarter. Combined ratio nevertheless improved 140.9% from 149.0% in the prior-year quarter.

Full-Year 2012 Highlights

For full year 2012, RenaissanceRe reported operating income of $402.4 million or $7.93 per share, rebounding from operating loss of $162.4 million or $3.22 per share in 2011. Operating income exceeded the Zacks Consensus Estimate of $7.63 per share.

Net income came in at $566.0 million or $11.23 per share versus net loss of $92.2 million or $1.84 per share in 2011.

Total revenue was $1.41 billion, increasing from $1.10 billion in 2011, while total expenses decreased to $657.8 million from $1.17 billion.

Financial Position

RenaissanceRe exited 2012 with total assets of $7.93 billion, up from $7.74 billion as of Dec 31, 2011. Long-term debt totaled $351.8 million, down from $353.6 million at the end of 2011.

Meanwhile, cash and cash equivalents stood at $325.4 million, up from $217.0 million as of Dec 31, 2011. Shareholders’ equity totaled $3.51 billion compared with $3.61 billion at the end of 2011.

As of Dec 31, 2012, RenaissanceRe’s annualized return on average common equity (ROCE) was 5.2%, declining from 10.8% in the fourth quarter of 2011.

Stock Update

During the reported quarter, RenaissanceRe repurchased 2.8 million equity shares at an average price of $80.03, totaling $222.5 million. In 2012, the company repurchased 6.4 million shares at an average price of $77.26, totaling 494.4 million. Further, from Jan 1, 2013 through Feb 5, 2013 the company repurchased 1.4 million shares at an average price of $81.29, aggregating $111.3 million.

On Dec 27, 2012, RenaissanceRe redeemed 6 million Series D Preference Shares at an average price of $25 per share along with accrued and unpaid dividend.

Our Take

RenaissanceRe’s operating income for the reported quarter declined year-over year due to high expenses and decline in underwriting results. High losses from Sandy contributed significantly to the weak results. The company generally faces significant challenges due to weather-related events as well as high competition.

While premiums exhibited growth in both operating segments, underwriting results deteriorated. Investment income was also affected by weak result from the fixed maturity and private equity investments. Overall, the financial results were mixed due to significant catastrophe losses and weak investment results.

Zacks Rank

Currently, RenaissanceRe carries a Zacks Rank #3 (Hold). Other property & casualty insurers worth considering are Fidelity National Financial, Inc. (FNF - Snapshot Report), First American Financial Corporation (FAF - Snapshot Report) and HCC Insurance Holdings Inc. (HCC - Snapshot Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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