RenaissanceRe Beats on Q1 Earnings, Lags YoY - Analyst Blog

RenaissanceRe Holdings Ltd. RNR reported first-quarter 2014 operating earnings per share of $3.20, breezing past the Zacks Consensus Estimate of $2.86. However, earnings per share reflected a decline from the year-ago quarter's earnings of $3.91 per share.

The downside was caused by pricing pressures triggered by an excess supply from many forms of capital that outweighed demand.

Including net realized and unrealized gains on investments in the reported quarter, net income of RenaissanceRe stood at $3.56 per share, down from $4.23 per share in the prior-year quarter.

RenaissanceRe posted total revenue of $343.6 million, up 3% year over year. The figure also surpassed the Zacks Consensus Estimate of $334 million. Growth in premiums mainly drove the upside.

Higher premiums in RenaissanceRe's Specialty Reinsurance and Lloyd segments drove overall gross premiums written in the first quarter by 11% year over year to $705.3 million. Meanwhile, underwriting income decreased to $151.3 million from $173 million in the year-ago quarter. In the reported quarter, combined ratio also deteriorated to 47.2% from 36.2% in the first quarter of 2013. This deterioration resulted from a decline in favorable development on prior accident years net claims and claims expenses.

RenaissanceRe reported total investment result (sum of net investment income, net realized and unrealized gains or losses on investments and change in net unrealized gains on fixed maturity investments available for sale) of $53.7 million in the reported quarter, against $51.4 million in the year-ago quarter.

During the quarter, RenaissanceRe witnessed a surge in total expenses on account of higher corporate, acquisition and net claims and claim expenses. Total expenses rose 33.7% year over year to $144.1 million.

Segment Update

Effective from the fourth quarter of 2013, RenaissanceRe operates in three reportable segments, namely, Catastrophe Reinsurance, Specialty Reinsurance and Lloyd. The Catastrophe Reinsurance and Specialty Reinsurance segments were previously under the Reinsurance segment.

Catastrophe Reinsurance: This segment consists of catastrophe reinsurance and some property catastrophe joint ventures.

The segment reported gross premiums written of $467.7 million, comparing unfavorably with $478.8 million in the year-ago period. Reduced risk-adjusted pricing for the renewals in the quarter led to the decline. Underwriting income came in at $130.6 million compared with $148.2 million in the first quarter of 2013, while combined ratio deteriorated to 20.7% from 20.6% in the year-ago period. The deterioration can be attributed to lower gross premiums written as well as a reduction in favorable development on prior accident years net claims and claims expenses. However, this was partially mitigated by lower catastrophe losses during the quarter under review.  

Specialty Reinsurance: This segment includes specialty reinsurance and some specialty joint ventures.

The segment reported gross premiums written of $154.3 million, up 87.4% from the prior-year quarter. The improvement mainly reflects growth across certain financial liability related lines of businesses. Underwriting income came in at $16.9 million, down from $20.1 million, while combined ratio deteriorated to 75.7% from 57% in the first quarter of 2013. The deterioration was led by higher net claims and claims expenses, and underwriting expenses, partly offset by growth in net premiums.  

Lloyd's: This segment consists of the insurance and reinsurance businesses that are written through RenaissanceRe Syndicate 1458.

The segment's gross premium written stood at $83.3 million, up 12.1% from the year-ago quarter on organic growth. Higher net claims and claims expenses led to a decline in underwriting income to $3.4 million from $4.2 million in the year-ago quarter. As a result, combined ratio deteriorated to 93.5% from 89.0% in the prior-year quarter.

Financial Position

As of March 31, 2014, total assets of RenaissanceRe were $8.2 billion, almost in line with that at year-end 2013. Debt burden of the company totaled $249.5 million as of March 31, 2014, highlighting a marginal rise from $249.4 million as of Dec 31, 2013.

Meanwhile, cash and cash equivalents stood at $327.2 million as of March 31, 2014, down from $408 million as of Dec 31, 2013. Shareholder equity totaled $3.8 billion, down from $3.9 billion at the end of 2013.

At the end of the first quarter of 2014, RenaissanceRe's annualized return on average common equity (ROCE) stood at 17.6%, representing a decrease from 24.3% in the year-ago period.

Share Buybacks

During the reported quarter, RenaissanceRe repurchased 3 million shares for $277.1 million. Additionally, since March 31, 2014 through April 25, 2014, the company repurchased 0.33 million shares for $31.9 million.

Performance of Other Insurers

PartnerRe Ltd.'s PRE first-quarter 2014 operating earnings per share of $3.36 remarkably outpaced the Zacks Consensus Estimate of $2.45.

Hartford Financial Services Group Inc. HIG reported first-quarter 2014 operating earnings of $1.18 per share, beating the Zacks Consensus Estimate by 27%.

Zacks Rank

RenaissanceRe carries a Zacks Rank #2 (Buy). Other well-performing stocks in the same sector include PartnerRe and Allied World Assurance Company Holdings, AG AWH. While Allied World sports a Zacks Rank #1 (Strong Buy), PartnerRe has the same Zacks Rank as RenaissanceRe.