Recently, Fitch Ratings affirmed the issuer default rating
RenaissanceRe Holdings Ltd.
) 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
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
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
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.
EMC Insurance Group Inc.
) carry a Zacks #1 Rank (Strong Buy).
AMTRUST FIN SVC (AFSI): Free Stock Analysis
EMC INSURANCE (EMCI): Free Stock Analysis
RENAISSANCERE (RNR): Free Stock Analysis
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