RenaissanceRe Sells Unit to QBE - Analyst Blog

RenaissanceRe Holdings Ltd. (RNR) has agreed to sell its U.S. property and casualty business to an Australian insurer QBE Holdings, Inc. for about $275 million to get rid of its relatively small operation.

RenaissanceRe's U.S. property and casualty business was underwritten through managing general agents, and its crop insurance business through Agro National Inc. and its commercial property insurance operation.

RenaissanceRe stated that all of its insurance businesses will be sold off, and they will become immediately accretive to RenaissanceRe's tangible book value per share.

On the other hand, the acquisition will raise QBE's earnings per share in the first year and help in expanding its operations in the market by further enhancing its product diversification and distribution.

The transaction is expected to close in the first half of 2011, and will be subjected to regulatory approvals and customary closing conditions.

Following the announcement, the rating agency A.M. Best Co. placed its rating under review with negative implications for RenaissanceRe's RenRe Insurance and its members. The rating agency provided the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of “a” to RenRe Insurance and its members, including Glencoe Insurance Ltd., Stonington Insurance Company, Lantana Insurance Ltd., and Stonington Lloyds Insurance Company.

Once the transaction closes, A.M. Best will revise its “under review” status. Till then, the rating agency will continue its process of analysis for all the entities sold, considering their strategic importance, integration plan and any explicit support to be provided by QBE going forward.

Likewise in July 2010, RenaissanceRe sold its entire ownership interest in ChannelRe Holdings Ltd., a financial guaranty reinsurance company, for $15.8 million.

RenaissanceRe recorded a $15.8 million gain in its third quarter 2010 financial results from the sale. RenaissanceRe no longer has an ownership interest in ChannelRe and has no contractual obligations to provide capital or other financial support to ChannelRe.

RenaissanceRe exited its U.S. property and casualty operations as it was the right time to sell its relatively small scale operation in a scenario where consolidation in U.S. insurance lines is favorable.

RenaissanceRe will continue to participate in the U.S. excess and surplus lines insurance market through its Lloyd's platform and Glencoe Insurance Ltd. and managing its portfolio of businesses to generate superior returns over time.

However, we expect limited upside potential for RenaissanceRe shares in the coming quarters as it faces increasing challenges in its investment portfolio, though it continues to benefit from its underwriting discipline, capital strength and strong market reputation.

RenaissanceRe reported weak third-quarter results with income from continuing operations of $90.9 million or $1.59 per share, lagging behind the Zacks Consensus Estimate of $2.20 and from the income of $242.2 million or earnings of $3.85 per share in the year-ago quarter.

Its peer group, American International Group Inc. (AIG) also reported a third quarter operating loss of $200 million or $1.47 per share, way behind the Zacks Consensus Estimate of $1.35 and the operating income of $1.62 billion or $2.42 in the year-ago period.

 
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