RenaissanceRe Maintained at Neutral - Analyst Blog
07 January 2014 - 5:50AM
Zacks
We have retained our Neutral
recommendation on RenaissanceRe Holdings Ltd.
(RNR) as a weak investment portfolio and susceptibility to
weather-related risks are likely to weigh on company growth going
forward. This property and casualty insurer currently carries a
Zacks Rank #3 (Hold).
Why the Reiteration?
The investment portfolio of RenaissanceRe is exposed to the weak
credit and capital markets making it vulnerable to the present
volatile interest rate environment. Although net investment income
improved slightly in the first nine months, recurring investment
income from fixed maturity investments remains pressurized and we
do not expect any substantial improvement in the near-term.
Moreover, continuous decline in interest rates indicate the
possibility of poor investment results in the upcoming quarters as
well.
All these coupled with increasing competition raises
skepticism regarding any extra-ordinary results for RenaissanceRe
in the near term. The Zacks Consensus Estimate for full-year 2014
is pegged at $9.21, representing a year-over-year decline of
23%.
Further, while RenaissanceRe’s operating cash flow is significantly
in excess of its operating commitments, a substantial portion of it
goes to cover losses from unpredictable natural calamities, leaving
a nominal sum or nothing to boost company’s operations. The company
needs to increase its revenues in order to cope successfully with
these losses.
Countering the aforementioned negatives, RenaissanceRe’s premium
growth remains impressive. The Specialty unit and the Lloyd’s
segment have been performing well to contribute to the improvement
in premiums. Moreover, the company has not restrained from
undertaking strategic divestitures to enhance core operations. The
divestiture of RenRe Energy Advisors Ltd. (REAL) to Munich Re in
Oct 2013 deserves special mention in this regard as it would
enhance RenaissanceRe’s underwriting platforms in Bermuda, London,
the U.S. and Asia.
Another aspect that raises optimism about the long-term prospects
of the stock is its prudent capital management initiatives to
enhance shareholders’ worth. RenaissanceRe has been consistent in
increasing its annual dividend as well as engaging in share
repurchases. The company also scores strongly with the credit
rating agencies.
In the last reported quarter, operating earnings of the company
stood at $3.36 per share, beating the Zacks Consensus Estimate by
44.8%. Results also improved from the year-ago earnings of $2.07
per share.
Other Stocks to Consider
Some better-ranked stocks in the same sector include Allied
World Assurance Company holdings, AG (AWH),
AmTrust Financial Services, Inc. (AFSI) and
Aspen Insurance Holdings Ltd. (AHL). All these
stocks hold a Zacks Rank #1 (Strong Buy).
AMTRUST FIN SVC (AFSI): Free Stock Analysis Report
ASPEN INS HLDGS (AHL): Free Stock Analysis Report
ALLIED WORLD AS (AWH): Free Stock Analysis Report
RENAISSANCERE (RNR): Free Stock Analysis Report
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