We have retained our Neutral recommendation on
RenaissanceRe Holdings Ltd.
) as a weak investment portfolio and susceptibility to
weather-related risks are likely to weigh on company growth going
forward. This property and casualty insurer currently carries a
Zacks Rank #3 (Hold).
Why the Reiteration?
The investment portfolio of RenaissanceRe is exposed to the weak
credit and capital markets making it vulnerable to the present
volatile interest rate environment. Although net investment
income improved slightly in the first nine months, recurring
investment income from fixed maturity investments remains
pressurized and we do not expect any substantial improvement in
the near-term. Moreover, continuous decline in interest rates
indicate the possibility of poor investment results in the
upcoming quarters as well.
All these coupled with increasing competition raises
skepticism regarding any extra-ordinary results for RenaissanceRe
in the near term. The Zacks Consensus Estimate for full-year 2014
is pegged at $9.21, representing a year-over-year decline of 23%.
Further, while RenaissanceRe's operating cash flow is
significantly in excess of its operating commitments, a
substantial portion of it goes to cover losses from unpredictable
natural calamities, leaving a nominal sum or nothing to boost
company's operations. The company needs to increase its revenues
in order to cope successfully with these losses.
Countering the aforementioned negatives, RenaissanceRe's premium
growth remains impressive. The Specialty unit and the Lloyd's
segment have been performing well to contribute to the
improvement in premiums. Moreover, the company has not restrained
from undertaking strategic divestitures to enhance core
operations. The divestiture of RenRe Energy Advisors Ltd. (REAL)
to Munich Re in Oct 2013 deserves special mention in this regard
as it would enhance RenaissanceRe's underwriting platforms in
Bermuda, London, the U.S. and Asia.
Another aspect that raises optimism about the long-term prospects
of the stock is its prudent capital management initiatives to
enhance shareholders' worth. RenaissanceRe has been consistent in
increasing its annual dividend as well as engaging in share
repurchases. The company also scores strongly with the credit
In the last reported quarter, operating earnings of the company
stood at $3.36 per share, beating the Zacks Consensus Estimate by
44.8%. Results also improved from the year-ago earnings of $2.07
Other Stocks to Consider
Some better-ranked stocks in the same sector include
Allied World Assurance Company holdings, AG
AmTrust Financial Services, Inc.
Aspen Insurance Holdings Ltd.
). All these stocks hold a Zacks Rank #1 (Strong Buy).
AMTRUST FIN SVC (AFSI): Free Stock Analysis
ASPEN INS HLDGS (AHL): Free Stock Analysis
ALLIED WORLD AS (AWH): Free Stock Analysis
RENAISSANCERE (RNR): Free Stock Analysis
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