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RenaissanceRe Holdings, Ltd. (RNR)

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We are upgrading our recommendation on RenaissanceRe Holdings, Ltd. (RNR) to Outperform on the heels of the positive trend in premiums growth, increase in reinsurance capacity through the formation of Timicuan, stable ratings and regular dividend hikes. RenaissanceRe's first quarter earnings surpassed the Zacks Consensus Estimate owing to higher underwriting income arising from lack of catastrophic events in the quarter.

While premiums and investment income exhibited growth, expenses also declined substantially, thereby boosting the bottom line. Moreover, improved financial leverage, cash balance and ROCE boosted the financial position. Additionally, enhanced operating leverage due to strategic divestitures along with efficient capital deployment are the other positives.

Our six-month target price of $91.00 per share equates to about 9.8x our earnings estimate for 2012. Combined with the $1.08 per share annual dividend, this target price implies an expected total return of 20.8% over that period. This is consistent with our Outperform recommendation.

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