Fitch Ratings has affirmed the ratings of RenaissanceRe Holdings Ltd.
(NYSE: RNR) and its subsidiaries, including the Issuer Default Rating
(IDR) for RNR at 'A', and the Insurer Financial Strength (IFS) rating of
Renaissance Reinsurance Ltd. at 'A+'. The Rating Outlook is Stable. A
complete list of ratings is provided at the end of the release.
Fitch's rationale for the affirmation of RNR's ratings reflects the
company's continued strong leadership position in the property
catastrophe reinsurance market, RNR's reasonable operating and financial
leverage and overall high quality and liquid portfolio of fixed-income
and short-term investments. The ratings also reflect the competitive,
but improved property catastrophe market rate environment, volatile
underwriting results and potential volatility from the company's
Fitch views RNR's year-to-year underwriting profitability and returns on
capital as volatile, but the effect of this volatility on the company's
ratings is mitigated somewhat by RNR's low combined ratios and strong
returns on capital over extended periods of time. Fitch considers this
as an important factor supporting the company's ratings and as evidence
of the company's underwriting and catastrophe modeling skills.
RNR recorded net income of $201 million for the first three months of
2012, improved from a $92 million net loss for full year 2011 due to
light catastrophe losses thus far in 2012. As a result, RNR posted a
much improved GAAP calendar year combined ratio of 29.4% for the first
three months of 2012, compared to 118.6% for full year 2011, which
included 85.4 points for catastrophe losses from the Japanese and New
Zealand earthquakes, Thailand floods, U.S. tornadoes, aggregate loss
contracts, Hurricane Irene, and Australian flooding. Excluding the
impact of significant catastrophes and favorable reserve development,
RNR's combined ratio for the first three months of 2012 was 49.4%, up
slightly from 47.1% for full year 2011.
Fitch believes that RNR has a leading position in the property
catastrophe reinsurance market derived largely from the company's
ability to provide consistent capacity in the marketplace and its
ability to effectively underwrite and price catastrophe-related risks.
RNR uses a proprietary model in conjunction with vendor models in its
underwriting and risk evaluation process and Fitch views RNR's property
catastrophe underwriters as having a demonstrated record of expertise.
RNR has been able to take advantage of the more recent favorable market
conditions in its core property catastrophe reinsurance business
following the significant catastrophe losses in 2011. Through the first
three months of 2012, the company's total gross and net premiums written
both increased by 9% over the comparable prior year period. Excluding
the impact of the sizable reinstatement premiums in 2011, growth in
gross premiums written was much more pronounced at almost 34% for the
first quarter of 2012.
Fitch believes that RNR's capital position provides an adequate cushion
against the operational and financial risks the company faces. RNR
utilizes a reasonable amount of operating leverage with a ratio of net
premiums written to shareholders' equity of 0.2x-0.3x in recent periods,
which is low compared to the overall reinsurance industry, but in line
with those of other reinsurers with property catastrophe concentrations.
To the extent that the premium rate environment continues to improve,
Fitch expects RNR's operating leverage to increase somewhat, although it
is not expected to exceed 0.5x.
Fitch considers RNR to use a moderate amount of financial leverage in
its capital structure, with an equity-credit adjusted financial leverage
ratio of 12.7% at March 31, 2012, down from 13.6% at Dec. 31, 2011.
Key rating triggers that could lead to a downgrade include significant
deterioration in RNR's historically strong profitability, as
demonstrated by sustained underwriting losses or adverse investment
portfolio results, material weakening in the company's current balance
sheet strength, as measured by net premiums written to shareholders'
equity above 0.5x or equity-credit adjusted financial leverage above
25%, and a catastrophe event loss that is 25% or more of shareholders'
Fitch considers a rating upgrade to be unlikely in the near term due to
the earnings and capital volatility inherent in the company's property
catastrophe reinsurance focus. Key rating triggers that could lead to an
upgrade over the long term include continued favorable underwriting
results relative to other property catastrophe reinsurers and comparably
rated property/casualty (re)insurer peers, improvement in RNR's
competitive position in profitable market segments outside of property
catastrophe reinsurance, including its specialty reinsurance and Lloyd's
business, and material risk adjusted capital growth.
Fitch affirms the following ratings with a Stable Outlook:
RenaissanceRe Holdings Ltd.
--Issuer Default Rating (IDR) at 'A';
--$100 million 5.875% senior notes due 2013 at 'A-';
--$250 million 6.08% series C preferred stock at 'BBB';
--$300 million 6.6% series D preferred stock at 'BBB'.
RenRe North America Holdings, Inc.
--$250 million 5.75% senior notes due 2020 at 'A-'.
Renaissance Reinsurance Ltd.
--IFS at 'A+'.
Additional information is available at 'www.fitchratings.com'.
The ratings above were unsolicited and have been provided by Fitch as a
service to investors.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011).
Insurance Rating Methodology
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Fitch RatingsPrimary AnalystBrian C. Schneider, CPA, CPCU,
AReSenior Director+1-312-606-2321Fitch, Inc.70
W. Madison StreetChicago, IL 60602orSecondary AnalystGreg
ChairpersonJulie A. Burke, CPA, CFAManaging Director+1-312-368-3158orMedia
Source: Fitch Ratings