The rating agency A.M. Best Co. has affirmed the issuer credit ratings (ICR) and debt ratings of RenaissanceRe Holdings Ltd. (RNR), while maintaining the financial strength rating (FSR) and ICR of Renaissance’s subsidiaries. The outlook for all the ratings remains stable.
A.M. Best has reiterated the ICR of RenaissanceRe at “a-”, while maintaining the FSR of A+ (Superior) and ICR of “aa-” of its subsidiaries – Renaissance Reinsurance Ltd. and Renaissance Reinsurance of Europe.
The FSR of A (Excellent) and ICR of “a” were withdrawn in first quarter 2011 for RenRe Insurance due to the sale of the company’s U.S. admitted insurance operations.
In addition, A.M. Best has affirmed the FSR of A (Excellent) and ICR of “a” of DaVinci Reinsurance Ltd. (DaVinci) and the ICR of “bbb” of DaVinci Re Holdings Ltd.
Concurrently, the rating agency removed its “under review” rating with “negative,” while affirming the FSR of A (Excellent) and ICR of “a” of Glencoe Insurance Ltd.
The ratings and outlook of RenaissanceRe reflect the strong financial performance of the company, superior risk-based capitalization, and its solid management team. Further, the company’s outstanding risk management technique has contributed to maintaining the rating.
Being the leader in the state-of-the-art property catastrophe modeling and risk optimization, RenaissanceRe has successfully attracted capital from outside companies to form several successful joint ventures including DaVinci and Top Layer Reinsurance Ltd.
However, according to the rating agency, RenaissanceRe’s exposure to high severity losses associated with catastrophic events on a worldwide basis has impacted the company’s results negatively.
RenaissanceRe reported its first-quarter loss from continuing operations of $242.9 million or $4.59 per share, lower than the Zacks Consensus Estimate of a loss of $4.94. However, the company reported favorable earnings of $116.5 million or $1.91 per share in the year-ago quarter.
The negative impact in the quarter was attributable to the Australian Flooding in January, the New Zealand Earthquake in February and the Tohoku Earthquake in March.
Besides the number of significant catastrophic events, Renaissance’s expenses increased largely coupled with the decrease in net investment income. Nevertheless, A.M. Best remains impressed with the company as the losses have been within the company’s stated risk tolerances.
Overall, RenaissanceRe is well-positioned to fully support its rating level, and the company continues to have excess capacity that can be deployed, via dividends and stock buyback program.
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.
Other than RenaissanceRe, A.M. Best has recently revised the ratings outlook of The Hartford Financial Services Group, Inc. (HIG) as the company veers towards safer risk profiles in its investment portfolio. A.M. Best has also revised its outlook for all the debt ratings and the majority of the health care subsidiaries of Coventry Health Care, Inc. (CVH), while reiterating the FSR and ICR of Coventry subsidiaries and the debt ratings.
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