On May 27, 2014, we issued an updated research report on
RenaissanceRe Holdings Ltd.
). We believe that improvement in the Lloyd's segment and efficient
capital deployment, as reflected in the dividend hike and
accelerated share buybacks, should mitigate the adverse effects of
weak investment portfolio and catastrophe exposures.
Earlier, RenaissanceRe reported first-quarter 2014 earnings that
exceeded the Zacks Consensus Estimate. However, results compared
unfavorably with the year-ago quarter earnings due to pricing
pressures triggered by an excess supply from many forms of capital
that outweighed demand.
RenaissanceRe has been witnessing a positive trend in gross
premiums for some time. Gross premiums written also increased in
the first quarter of 2014 due to growth in the Specialty
Reinsurance and Lloyd's segments. As the company realizes greater
benefits of scale, the Lloyd's segment should improve further,
thereby consistently contributing to overall premiums. Further,
RenaissanceRe's strategic divestitures have been helping it to
enhance its core operations, thereby boosting operating leverage.
Moreover, the strong mortgage-backed portfolio of the company
comprising high-rated fixed income securities augurs strong ratings
from credit rating agencies.
RenaissanceRe has also been prudently deploying its excess capital
to boost shareholders' wealth. In Feb 2014, the company increased
its quarterly dividend by 3.6% and in May 2014, it extended the
share buyback program to $500 million. RenaissanceRe's robust
portfolio and business growth outlook, along with improved
liquidity should support more such capital deployment endeavors in
the future, thereby helping to retain investors' confidence.
However, natural catastrophes are a challenge for this Zacks Rank
#3 (Hold) stock. The winter storms during the first quarter of 2014
affected the company's performance, and weighed on its underwriting
gain and combined ratio. Moreover, the earthquakes from Mexico to
Canada along the Pacific Coast remain potential headwinds. In fact,
RenaissanceRe expects premiums for managed catastrophes to decline
by 15% in full-year 2014.
Additionally, the investment portfolio of RenaissanceRe is exposed
to the weak credit and capital markets. It also declined in the
first quarter of 2014 and concern regarding this metric persists
owing to its susceptibility to interest rate risk. Moreover, the
weak underwriting pricing cycle and low rate environment are
negatively impacting both the top and the bottom lines.
Other Stocks to Consider
Better-ranked players in the property and casualty insurance space,
which look attractive at current levels, include
Allied World Assurance Company Holdings, AG
AmTrust Financial Services, Inc.
Endurance Specialty Holdings Ltd.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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