Yesterday, RenaissanceRe Holdings Ltd. (RNR) reported second quarter operating loss of 21 cents per share, as opposed to the Zacks Consensus Estimate of operating earnings of $1.64, showing a sharp decline from operating earnings of $2.40 per share reported in the year-ago quarter. Net income also plunged 88.2% to $24.8 million from $210.2 million in the prior-year quarter.
Results deteriorated primarily due to losses amounting to $70.8 million arising as a consequence of U.S. tornadoes. Premiums, particularly from the reinsurance business, improved, reflecting improving market conditions, but the huge catastrophe (CAT) loss more than offset the improvement.
RNR posted total revenues of $281 million, down 8.32% year over year from $306 million. Gross premium augmented 26.7% year over year to $641.6 million but increased net foreign exchange losses and reduced realized and unrealized investment gains negated its effect, leading to a decline in total revenue.
Total expenses of RNR escalated to $217 million in the reported quarter, up 305.83% year over year from $54 million, reflecting high positive net claims and claim expenses, which had a negative value in the prior year quarter. However, the income tax benefit increased to $1.77 million from $0.96 million in the year-ago quarter.
Segment Results
Reinsurance segment reported gross premiums of $607.4 million, up 22.3% from the prior-year quarter. However, underwriting income declined sharply to $12.9 million from $180.7 million in the second quarter of 2010, while combined ratio soared to 93.5% from8.8%.
Lloyd’s segment’s gross premium came in at $34.1 million, down 2.1% from the year-ago quarter. Underwriting loss was $3.3 million, compared to underwriting income of $0.8 million in the year-ago quarter. Combined ratio increased slightly to 119.3% from 95.5% in the prior year quarter.
Insurance segment’s gross premium increased 100.8% to $0.03 million from negative premium of $3.74 million in the prior-year quarter. Underwriting income was $0.15 million compared to an underwriting loss of $12.14 million in the year-ago quarter.
Financial Update
RNR exited the reported quarter of 2011 with total assets of $8.17 billion, while long-term debt totaled $349 million against cash of $238 million. Besides, shareholders’ equity totaled $3.52 billion at the end of the reported quarter.
As of June 30, 2011, RNR’s return on average common equity (ROCE) was 3.3%, down from 26.8% as of June 30, 2010. Moreover, book value increased 0.5% year over year to $57.30 per share.
Business Update
On June 1, 2011, RNR’s stake in DaVinciRe Holdings Ltd declined to 42.8% from 44% at January 1, 2011, when the latter raised $100 million in equity to finance its underwriting operations.
Ratings Update
On May 29, 2011, A.M. Best affirmed the ICR of RNR at “a-“ and FRS at “A+”. The credit rating agency also affirmed the ICR of RNR’s subsidiaries at “aa-“ and maintained the stable outlook for RNR as well as its subsidiaries.
Dividend Update
On May 18, 2011, RNR announced a quarterly dividend of 26 cents per common share, payable on June 30, 2011 to shareholders of record as on June 15, 2011.
Our Take
RNR’s results in the reported quarter have been below expectations. Revenues have declined and expenses have increased dramatically due to huge catastrophe losses. 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), is expected to announce its results after the market closes on August 1, 2011. Another peer, XL Group plc (XL), is expected to announce its second quarter results after the market closes on August 2, 2011.
Currently, RNR carries a Zacks #4 Rank, which translates into a short-term Sell 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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