RenaissanceRe Beats on Revenues - Analyst Blog

RenaissanceRe Holdings Ltd.’s (RNR) fourth-quarter operating earnings of $2.82 per share were substantially ahead of the Zacks Consensus Estimate of $2.47. This also compares much favorably with operating earnings of 47 cents in the year-ago quarter.
 
The better-than-expected results were primarily aided by substantially higher revenues and lower expenses. Also, a relatively low level of insured catastrophe losses, favorable development on prior year reserves and solid investment results were among the positives.
 
RenaissanceRe’s net income was $211.8 million or $3.38 per share, compared to a net loss of $55.2 million or 91 cents in the prior-year quarter.
 
Operating income for the reported quarter excludes net realized and unrealized gains on fixed maturity investments of $35.4 million and net other-than-temporary impairments of $1.3 million. This compares to net realized losses on fixed maturity investments of $17.6 million and net other-than-temporary impairments of $66.3 million in the prior-year quarter.
 
Lack of insured catastrophes and improved investment markets during the reported quarter helped the company generate an annualized operating ROE of 22.7% and a 5.0% sequential growth in book value per share.
 
Estimate Revisions Trend
 
There were no estimate revisions in either direction over the last 7 days. Over the last 30 days, one of the 14 analysts covering the stock increased estimates for full year 2010, while no downward revisions were witnessed. Currently, the Zacks Consensus Estimate for 2010 is operating earnings of $7.98 per share, which would be down by 34.9% from the full-year 2009 operating earnings of $12.25. In 2008, RenaissanceRe’s operating earnings were $3.04 per share.
 
The absence of downward estimate revisions for 2010 indicates a likelihood of upward pressure on the performance of the stock in the upcoming quarters. As a result, the stock retains its Zacks # 2 Rank, which translates into a short-term 'Buy' rating. However, considering the current fundamentals of RenaissanceRe, we maintain a long-term “Neutral" recommendation on the stock.
 
With respect to earnings surprises, the stock has fluctuated substantially over the last four quarters prior to the reported quarter, with two positive and two negative surprises. However, the average remained positive at 10.2%. This implies that RenaissanceRe has surpassed the Zacks Consensus Estimate by 10.2% over that period.
 
The current Zacks Consensus Estimates for the first quarter and full-year 2010 are earnings of $2.11 and $7.98 per share, respectively. The upside potential of the estimate for full-year 2010, essentially a proxy for future earnings surprise, currently stands at 8.4%.
 
Quarter in Detail
      
RenaissanceRe’s operating ROE in the reported quarter was 22.7%, compared to 4.8% recorded in the year-ago quarter. Reported book value at Dec 31, 2009 was $51.68 per share, up 33.4% from $38.74 at Dec 31, 2008. 
 
Gross premiums written for the reported quarter decreased 54.8% year-over-year to $73.0 million, principally due to a $63.6 million decrease in the company’s Reinsurance segment and a $24.4 million decrease in the company’s Individual Risk segment.
 
The combined ratio (the ratio of claims, administration, and dividend expenses to premiums earned) for the reported quarter deteriorated to 37.7% from 36.1% recorded in the year-ago quarter. During the reported quarter, the company experienced $75.1 million of favorable development on prior year reserves, compared to $104.2 million in the prior-year quarter. The favorable development was principally driven by reductions in estimated ultimate net losses on account of the 2008, 2005 and 2004 hurricanes in RenaissanceRe’s catastrophe reinsurance unit.
 
Net investment income for the reported quarter was $60.7 million, compared to a net investment loss of $82.7 million in the prior-year quarter. The increase in net investment income was principally driven by a $65.5 million increase from RenaissanceRe’s hedge fund and private equity investments and a $99.0 million increase in net investment income from its other investments, principally senior secured bank loan funds and non-U.S. fixed income funds.
 
RenaissanceRe’s net realized and unrealized gains on investments were $35.4 million during the reported quarter, compared to net realized and unrealized losses of $17.6 million in the year-ago quarter.
 
We anticipate limited upside potential for RenaissanceRe shares in the coming quarters as the company faces increasing challenges in its investment portfolio, though it continues to benefit from its underwriting discipline, capital strength, and strong market reputation.
Read the full analyst report on "RNR"
Zacks Investment Research