RenaissanceRe Holdings Ltd. (RNR) reported fourth-quarter 2013 operating earnings per share of $4.64, significantly above the Zacks Consensus Estimate of $2.85. The company’s earnings per share of 65 cents also reflected an improvement from the year-ago quarter.
Growth in premiums in the Specialty Reinsurance and Lloyd segments coupled with lower catastrophes mainly led to the upside.
Including net realized and unrealized gains on investments and foreign exchange gains in the reported quarter, net income was $6.05 per share compared with 87 cents in the prior-year quarter.
RenaissanceRe posted total revenue of $405.2 million, up 19% year over year. Total revenue also surpassed the Zacks Consensus Estimate of $361 million. The improvement was mainly driven by increased investment income and gains on investment.
Higher premiums in RenaissanceRe's Specialty Reinsurance and the Lloyd segments drove overall gross premiums written in the fourth quarter by 0.5% year over year to $84.1 million. Meanwhile, underwriting income improved substantially to $188.9 million from $4.3 million in the year-ago quarter. In the reported quarter, combined ratio also improved to 26.4% from 98.5% in the fourth quarter of 2012. The improvement was attributable to lower catastrophe losses and favorable development on prior accident year losses during the fourth quarter of 2013.
RenaissanceRe reported total investment gains (sum of net investment income, net realized and unrealized gains or losses on investments and net other-than-temporary impairments) of $140.1 million in the reported quarter, against total investment gains of $50.4 million in the year-ago quarter. The improvement was primarily attributable to a $73.1 million gain associated with RenaissanceRe’s investment in Essent Group Ltd. and higher returns generated by the company’s remaining portfolio of equity investments trading and other investments.
During the quarter, RenaissanceRe witnessed a decline in total expenses on account of lower corporate expenses, acquisition expenses and net claims and claim expenses. Total expenses decreased 73.9% year over year to $75.4 million.
Segment Update
As of Dec 31, 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 of RenaissanceRe.
Catastrophe Reinsurance: This segment consists of catastrophe reinsurance and some property catastrophe joint ventures.
The segment reported gross premiums written of negative $17.9 million comparing unfavorably with $23.5 million in the year-ago period, reflecting a $33.9 million of net negative reinstatement premiums losses stemming from reductions in net claims and claims expenses and related reinstatement premium associated with Storm Sandy, the 2011 floods in Thailand and the Tohoku Earthquake. Underwriting income came in at $171.6 million compared with $11.5 million in the fourth quarter of 2012 while combined ratio narrowed to a negative of 12.8% from 94.4% in the year-ago period. The improvement was driven by low catastrophe losses during the quarter and reduction in acquisition expenses partially offset by lower net premiums earned and negative reinstatement premiums written.
Specialty Reinsurance: This segment includes specialty reinsurance and some specialty joint ventures.
The segment reported gross premiums written of $58.5 million, up 71.3% from the prior-year quarter. The improvement indicated improvement in the credit related businesses and higher quota share premiums. Underwriting income came in at $23 million, up 78.3% year–over–year while combined ratio improved to 58.3% from 69.9% in the fourth quarter of 2012. The improvement was driven by higher net premiums earned from an improvement in gross premiums written.
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 $43.5 million, up 66.4% from the year-ago quarter on organic growth. Growth in premiums led to the narrowing of underwriting loss to $3.1 million from $14.5 million in the year-ago quarter. As a result, combined ratio improved to 106.3% from 140.9% in the prior-year quarter.
Full Year Highlights
RenaissanceRe reported full-year 2013 operating earnings per share of $14.08, surpassing the Zacks Consensus Estimate of $12.34. Results also improved from the year-ago period’s earnings of $7.93 per share.
Including net realized and unrealized gains on investments and foreign exchange gains, net income was $14.87 per share compared with $11.23 per share in 2012.
RenaissanceRe posted total revenue of $1.38 billion, down 3.1% year over year.
Financial Position
RenaissanceRe exited 2013 with total assets of $8.2 billion, up from $7.9 billion as of Dec 31, 2012. Debt burden of the company totaled $249.4 million, down from $349.3 million as of Dec 31, 2012.
Meanwhile, cash and cash equivalents stood at $408.0 million as of Dec 31, 2013, up from $304.1 million as of Dec 31, 2012. Shareholder equity totaled $3.9 billion compared with $3.5 billion at the end of 2012.
At year-end 2013, RenaissanceRe’s annualized return on average common equity (ROCE) was 20.5%, an increase from 17.7% at year-end 2012.
Share Buybacks
During the reported quarter, RenaissanceRe repurchased 0.73 million shares for $66.9 million. Additionally, since Jan 1, 2014 through Feb 3, 2014, the company repurchased 0.99 million shares for $89.3 million.
Our Take
RenaissanceRe’s fourth-quarter results were impressive. Both earnings and revenues beat the Zacks Consensus Estimate and improved from the year-ago period.
In spite of a competitive renewal season, the company’s flexible capital structure and platform expansions positioned RenaissanceRe to build an impressive risk portfolio to serve its clients better. We believe a strong balance sheet and flexible operating platform will help the company to record better revenues going forward. RenaissanceRe carries a Zacks Rank #3 (Hold).
Performance of Other Better-Ranked Insurers
Old Republic International Corporation (ORI) reported fourth-quarter 2013 operating net income of 33 cents per share, which outpaced the Zacks Consensus Estimate of 18 cents by 83.3%. The stock carries a Zacks Rank #1 (Strong Buy).
The Travelers Companies Inc. (TRV) reported operating net earnings of $2.68 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 23.5%. The stock carries a Zacks Rank #2 (Buy).
ACE Limited (ACE) reported operating net earnings of $2.39 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 19.5%. The stock carries a Zacks Rank #2.
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