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RenaissanceRe (RNR) Up 17.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for RenaissanceRe (RNR - Free Report) . Shares have added about 17.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is RenaissanceRe due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

RenaissanceRe Q3 Earnings Miss Estimates

RenaissanceRe reported a third-quarter 2022 operating loss per share of $9.27, which missed the Zacks Consensus Estimate by 24.9%. The bottom line deteriorated from a loss of $8.98 per share a year ago.

Total operating revenues climbed 21.5% year over year to $1,928 million. The top line beat the consensus mark by 13.5% and our estimate of $1,675.6 million.

Its weak third-quarter earnings were caused by escalating expenses and a rise in underwriting loss at the RNR’s Property segment. Catastrophic events like Hurricane Ian also affected RenaissanceRe’s results. Nevertheless, solid underwriting results in the Casualty and Specialty segment, improved net investment income and a growing Capital Partners business partly offset the negatives in the third quarter.

Quarterly Operational Update

Gross premiums written of $2,220.7 million improved 25.2% year over year in the quarter under review. The figure was a little lower than our estimate of $2,244.5 million.

Net premiums earned increased 17.3% year over year to $1,767 million. The figure beat the Zacks Consensus Estimate of $1,529.9 million and our estimate of $1,588.8 million.

Net investment income of $157.8 million advanced 101.6% year over year in the third quarter, courtesy of higher interest rates in the fixed maturity trading and short-term investment portfolios of RenaissanceRe, coupled with increased average invested assets. The figure outpaced the Zacks Consensus Estimate of $101.9 million and our estimate of $84 million.

Total expenses escalated 12% year over year to $2,472.6 million due to increased net claims and claim expenses incurred, operational costs and acquisition expenses. The figure was higher than our estimate of $1,738.7 million.

Underwriting loss totaled $683.1 million, which deteriorated 0.6% year over year in the quarter under review.

The combined ratio of 138.7% improved 640 basis points (bps) year over year in the third quarter. The figure was higher than the Zacks Consensus Estimate of 91.1% but came in higher than our estimate of 107.6%.

Book value per share decreased 26.7% year over year to $94.55. Annualized operating return on average common equity was negative 34.8% during the third quarter, down 870 bps year over year.

Segment Update

Property Segment

Gross premiums written improved 3.4% year over year to $800.3 million in the third quarter, thanks to growth within its catastrophe class of business.

The segment’s underwriting loss of $722.6 million widened from $681.9 million a year ago. The combined ratio deteriorated 250 bps year over year to 186%, which came higher than the Zacks Consensus Estimate of 92.5% and our estimate of 118.3%.

Casualty and Specialty Segment

Gross premiums written of the segment amounted to $1,420.3 million, which climbed 42% year over year in the quarter under review and beat our estimate of $1,018.5 million.

The segment delivered an underwriting income of $39.5 million in the third quarter, which increased from $3.1 million a year ago. The figure surpassed our estimate of $37.6 million.

The combined ratio of 95.7% improved 390 bps year over year. The metric was higher than the Zacks Consensus Estimate of 94.9% and our estimate of 94.8%.

Financial Position (as of Sep 30, 2022)

RenaissanceRe exited the third quarter with cash and cash equivalents of $1,204.2 million, which declined from the 2021-end level of $1,859 million. Total assets of $35.9 billion increased from the $34 billion figure at the 2021 end.

Debt increased marginally from the 2021-end level of $1,168.4 million to $1,169.9 million.

Total shareholders’ equity of $4,881.9 million fell from the $6,624.3 million figure as of Dec 31, 2021.

Net operating cash flows in the first nine months of 2022 were at $870.5 million, up from $801.9 million a year ago.

Capital Deployment Update

RenaissanceRe bought back shares worth $25.3 million in the reported quarter. At the third quarter-end, it had $500 million in its share buyback program.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted 7.03% due to these changes.

VGM Scores

Currently, RenaissanceRe has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, RenaissanceRe has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

RenaissanceRe is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Travelers (TRV - Free Report) , a stock from the same industry, has gained 4.1%. The company reported its results for the quarter ended September 2022 more than a month ago.

Travelers reported revenues of $9.4 billion in the last reported quarter, representing a year-over-year change of +6.8%. EPS of $2.20 for the same period compares with $2.60 a year ago.

Travelers is expected to post earnings of $4.14 per share for the current quarter, representing a year-over-year change of -20.4%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Travelers. Also, the stock has a VGM Score of A.


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