Fitch Rates RenRe’s Preferred Shares ‘BBB’; Affirms Ratings [Professional Services Close – Up]

Fitch Ratings has assigned a 'BBB' rating to RenaissanceRe Holdings Ltd.'s (NYSE: RNR) new $275 million issue of 5.375 percent series E preference shares.

Fitch has also affirmed the ratings of 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.

KEY RATING DRIVERS

RNR intends to use the net proceeds from the offering to redeem all of the outstanding 6.6 percent series D preference shares and any additional net proceeds used to redeem in whole or in part, the 6.08 percent series C preference shares. Fitch's hybrid securities rating methodology allocates 100 percent of the new non-cumulative preferred shares' principal to equity in evaluating financial leverage.

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 property catastrophe market rate environment, volatile underwriting results, and potential volatility from the company's alternative investments.

Fitch believes that RNR's financial leverage ratio (adjusted for equity credit and excluding unrealized net gains on available for sale fixed maturity investments) continues to be modest at 9.7 percent as of March 31, down from 11.4 percent at Dec. 31, 2012, as the company repaid its $100 million senior notes upon maturity in February 2013. Following the $275 million issuance and redemption of preference shares, pro forma financial leverage declines to 6.8 percent due to the lower level of equity credit (50 percent) assigned to the existing cumulative preference shares.

RNR recorded favorable net income of $190 million for the first three months of 2013 and $566 million for full year 2012, as catastrophe losses have been reduced in recent periods. RNR posted a GAAP calendar year combined ratio of 36.2 percent for the first three months of 2013, compared to 57.8 percent for full year 2012, which included 19.0 points for catastrophe losses, primarily from Hurricane Sandy (16.0 points). Excluding the impact of significant catastrophes and favorable reserve development, RNR's combined ratio for the first three months of 2013 was 50.1 percent, down slightly from 53.6 percent for full year 2012.

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 strong run- rate profitability over the long term, with low combined ratios and high returns on capital in most years. Fitch considers this an important factor supporting the company's ratings and as evidence of the company's underwriting and catastrophe modeling skills.

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.

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. In the event that the premium rate environment improves, Fitch expects RNR's operating leverage to increase somewhat, although it is not expected to exceed 0.5x.

RATING SENSITIVITIES

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 percent, and a catastrophe event loss that is 25 percent or more of shareholders' equity.

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 rates the following:

RenaissanceRe Holdings Ltd.

--$275 million 5.375 percent series E preference shares 'BBB'.

Fitch affirms the following ratings with a Stable Outlook:

RenaissanceRe Holdings Ltd.

--IDR at 'A';

--$250 million 6.08 percent series C preferred stock at 'BBB';

--$150 million 6.6 percent series D preferred stock at 'BBB'.

RenRe North America Holdings, Inc.

--$250 million 5.75 percent senior notes due 2020 at 'A-'.

Renaissance Reinsurance Ltd.

--IFS at 'A+'.

Additional information is available at 'fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Jan. 22,).

Applicable Criteria and Related Research:

Insurance Rating Methodology ??? Amended

http://fitchratings.com/creditdesk/reports/ report_frame.cfm?rpt_id=698731

Additional Disclosure

Solicitation Status

http://fitchratings.com/gws/en/disclosure/ solicitation?pr_id=791982

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