RenaissanceRe Banks on Acquisitions, Cat Losses a Drag - Analyst Blog

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We issued an updated research report on RenaissanceRe Holdings Ltd. RNR on Mar 30, 2015.

Last month, the company reported fourth-quarter 2014 earnings that surpassed the Zacks Consensus Estimate but declined year over year on lower revenues and increased expenses. While lower premiums earned and decline in net investment income pulled down revenues, higher acquisition and corporate costs led to the year-over-year increase in expenses.

RenaissanceRe has been undertaking prudent inorganic growth strategies to enhance its operations. Toward this end, the company acquired Platinum Underwriters Holdings, Ltd. earlier this month. The deal is expected to enhance book value, improve earnings per share and boost the long-term value of the business for its stakeholders. Additionally, the company's principal joint ventures position it well to enhance its underwriting capabilities and are working with capital partners to improve cedings.

The company has also been witnessing a rise in gross premiums written over some years. Although gross premiums written decreased in 2014, the setting up of some large financial lines in mortgage insurance raises optimism. Notably, both the Lloyd's segment and specialty reinsurance segment performed well in 2014 recording an increase in gross premiums written.

Moreover, RenaissanceRe deploys capital efficiently to enhance shareholders' value. Toward this end, the company's' board of directors approved an increase in its share repurchase program in Nov 2014 and hiked its quarterly dividend in Feb 2015. RenaissanceRe also scores strongly with the credit rating agencies.

The aforementioned positives are causing analysts to raise their estimates. Over the last 30 days, the Zacks Consensus Estimate for 2015 moved up 1.5% to $8.70 per share. The Zacks Consensus Estimate for 2016 also increased 1.2% to $9.32 per share over the same period.

However, natural catastrophes have been hampering RenaissanceRe's profits since 2008. Subsequently, underwriting income and combined ratio have been under pressure. Moreover, a continued softening of market conditions has largely impacted premiums from managed catastrophes. The unpredictable nature of such weather-related events continues to raise caution for the upcoming quarters, thereby posing operating risks.

Also, the investment portfolio of RenaissanceRe is exposed to the weak credit and capital markets. Declining total returns on the fixed maturity investment portfolio led to lower net investment income. Concern regarding this metric persists as it remains vulnerable to interest rate risk. Moreover, RenaissanceRe faces substantial competition in the catastrophe insurance and reinsurance segments that limits its market share, particularly in the emerging markets.

RenaissanceRe currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the property and casualty space include Allied World Assurance Company Holdings, AG AWH , Arch Capital Group Ltd. ACGL and Heritage Insurance Holdings, Inc. HRTG . All three stocks sport a Zacks Rank #1 (Strong Buy).

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RENAISSANCERE (RNR): Free Stock Analysis Report

ARCH CAP GP LTD (ACGL): Free Stock Analysis Report

ALLIED WORLD AS (AWH): Free Stock Analysis Report

HERITAGE INSUR (HRTG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: RNR , ACGL , HRTG

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