RenaissanceRe Holdings Ltd. (RNR) reported third quarter operating income of $32.7 million or 62 cents per share, lagging the Zacks Consensus Estimate of 84 cents. Operating income showed a sharp decline from $90.9 million or $1.59 reported in the year-ago quarter.
Net income also plunged 76% to $49.3 million or 95 cents from $204.8 million or $3.70 in the prior-year quarter.
Results deteriorated primarily due to investment losses and rising expenses, which more than offset the rise in premiums and underwriting income.
RNR posted total revenues of $217.9 million, sinking 43% year over year from $382 million. Gross premiums augmented 25.5% year over year to $139.9 million, primarily due to $20.0 million of reinstatement premiums written from the February 2011 New Zealand earthquake and hurricane Irene in the third quarter of 2011, combined with improving market conditions in RNR’s core markets.
Meanwhile, underwriting income increased 16.7% to $83.2 million from $71.3 million in the year-ago quarter. Underwriting income was negatively impacted by underwriting losses of $30.1 million and $24.7 million related to certain aggregate loss contracts and Hurricane Irene, respectively, in the reported quarter. Prior-year’s underwriting income was negatively impacted by an underwriting loss of $80.2 million related to the September 2010 New Zealand earthquake.
RNR reported a total investment loss (sum of net investment losses, net realized and unrealized gains on investments and net other-than-temporary impairments) of $18.6 million in the reported quarter, against total investment gains of $148.5 million in the year-ago quarter.
Total expenses of RNR increased to $155.4 million in the reported quarter, up 1.7% year over year from $152.8 million. However, the income tax benefit decreased to $1.4 million from $2.4 million in the year-ago quarter.
Segment Results
Reinsurance segment reported net premiums of $86.7 million, up 0.46% from $86.3 million in the prior-year quarter. Underwriting income increased to $95.1 million from $80.5 million in the third quarter of 2010, while the combined ratio fell to 54.3% from 60.8%.
Lloyd’s segment’s net premium came in at $16.1 million, surging 164% from $6.1 million in the year-ago quarter. Underwriting loss was $6.9 million, compared to $3.3 million in the year-ago quarter. Combined ratio increased to 133.3% from 123.6% in the prior-year quarter.
Insurance segment earned net premium of $0.14 million in the reported quarter, up 101.4% from a negative net premium of $10.1 million. Underwriting loss was $0.59 million compared to $5.87 million in the year-ago quarter.
Financial Update
RNR exited the reported quarter with total assets of $8.12 billion, while long-term debt totaled $349 million against cash of $235 million. Shareholders’ equity totaled $3.55 billion at the end of the reported quarter.
As of September 30, 2011, RNR’s annualized return on average common equity (ROCE) was 6.6%, showing a substantial decline from 25.4% as of September 30, 2010.
Dividend Update
On September 30, 2011, RNR paid a quarterly dividend of 26 cents per share, to shareholders of record as of September 15, 2011.
Our Take
RNR’s results in the reported quarter have been below expectations with declining revenue and rising expenses. While premiums and underwriting income showed growth, investments witnessed a drastic downturn, thereby negating the positive effect.
However, we believe that the company would be able to increase its underwriting capacity and generate higher premiums once the market stabilizes and improves the earning prospects in the future.
One of RNR’s competitors, PartnerRe Ltd. (PRE), reported third quarter operating earnings per share of $2.41, which were modestly higher than the Zacks Consensus Estimate of $1.99 but significantly behind $3.95 recorded in the year-ago quarter.
Another peer, XL Group plc (XL), reported third quarter operating earnings per share of 28 cents – significantly behind both the Zacks Consensus Estimate of 34 cents and 52 cents recorded in the year-ago quarter.
Currently, RNR carries a Zacks #3 Rank, which translates into a short-term Hold rating.
PARTNERRE LTD (PRE): Free Stock Analysis Report
RENAISSANCERE (RNR): Free Stock Analysis Report
XL GROUP PLC (XL): Free Stock Analysis Report
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