RenaissanceRe Holdings Ltd. ( RNR ) reported fourth-quarter 2011 operating earnings of $1.11 per share, beating the Zacks Consensus Estimate of $1.06. This compares unfavorably with earnings of $3.47 in the year-ago quarter.
Net income also plunged 33% to $81.8 million or $1.58 per share from $122.6 million or $2.23 per share in the prior-year quarter.
Operating earnings for the quarter came in at $58.0 million compared with $189.1 million in the year-ago quarter.
Results deteriorated primarily due to lower underwriting income and higher expenses, which more than offset the rise in premiums and investment income.
RenaissanceRe posted total revenues of $208.5 million, up 11.4% year over year. Alongside, gross premiums augmented 37.7% year over year to $43.0 million, primarily spurred by premium growth in the Lloyd's segment.
Meanwhile, underwriting income declined 16.5% to $127.1 million from $152.2 million in the year-ago quarter. Underwriting income was negatively impacted by losses of $59.5 million related to the Thailand floods, partially offset by increase in favorable development on prior-period reserves. Prior-year's underwriting income was positively impacted by a low level of catastrophe loss coupled with favorable prior-year reserve development.
RenaissanceRe reported a total investment income (sum of net investment income, net realized and unrealized gains on investments and net other-than-temporary impairments) of $76.8 million in the reported quarter, against total investment losses of $18.8 million in the year-ago quarter.
Total expenses of RenaissanceRe increased to $86.3 million in the reported quarter, up 77.6% year over year. Additionally, income tax expense spurted to $2.9 million from $0.2 million in the year-ago quarter.
Reinsurance segment reported gross premiums of $19.3 million, up 7.5% from $17.9 million in the prior-year quarter. Underwriting income declined to $135.3 million from $168.4 million in the fourth quarter of 2010, while the combined ratio surged to 23.2% from 12.5%.
Lloyd's segment's gross premium came in at $23.7 million, surging 176.3% from $8.6 million in the year-ago quarter. Underwriting loss was $11.1 million, against $5.6 million in the year-ago quarter. Combined ratio increased to 149.0% from 144.6% in the prior-year quarter.
Insurance segment's gross premium amounted to a negative $0.03 million, down by a substantial 102.3% from a gross premium of $1.31 million in the year-ago quarter. Underwriting income was $2.91 million as opposed to underwriting loss of $10.56 million in the year-ago quarter.
Full-Year 2011 Highlights
For full year 2011, RenaissanceRe reported operating loss of $162.4 million or $3.22 per share against operating profit of $536.4 million or $9.32 per share in 2010. Loss per share also exceeded the Zacks Consensus Estimate of a loss of $3.17 per share.
Net loss came in at $92.2 million or $1.84 per share versus net income of $706.2 million or $12.31 per share in 2010.
Total revenue was $1.10 billion, down marginally from $1.22 billion in 2010, while total expenses increased to $1.17 billion from $0.43 billion.
RenaissanceRe exited the reported quarter with total assets of $7.74 billion. Long-term debt totaled $353.6 million against cash and cash equivalents of $217.0 million. Shareholders' equity totaled $3.61 billion at the end of 2011.
As of December 31, 2011, RenaissanceRe's annualized return on average common equity (ROCE) was 10.8%, showing a substantial decline from 14.6% as of December 31, 2010.
Stock Repurchase Update
During the reported quarter, RenaissanceRe repurchased 0.23 million shares at an average price of $71.87. Aggregate purchase price for the shares amounted to $16.8 million.
RenaissanceRe's operating results for the reported quarter as well as full year deteriorated owing to high underwriting losses caused by catastrophes. The company historically faces significant challenges due to weather-related events and high competition in the catastrophe insurance and reinsurance segments.
While premiums and investment income showed growth in the reported quarter, expenses also increased substantially. Moreover, the company's financial position also weakened with poor leverage and declining ROCE.
However, we believe that the company would be able to increase its underwriting capacity and generate higher premiums once the market stabilizes and improves the earning prospects in the future.
One of RenaissanceRe's competitors, PartnerRe Ltd. ( PRE ), reported fourth-quarter 2011 operating loss per share of $2.06, slightly lower than the Zacks Consensus Estimate of a loss of $2.10.
Another peer, XL Group plc ( XL ), will report its fourth quarter and full year 2011 financial results on February 9, 2012.
Currently, RenaissanceRe carries a Zacks #2 Rank, which translates into a short-term 'Buy' rating. However, considering the fundamentals, we maintain our long-term 'Underperform' recommendation on the shares.