Fitch Affirms RenaissanceRe's Ratings; Outlook Stable

Tue Aug 12, 2014 10:54am EDT

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(The following statement was released by the rating agency) CHICAGO, August 12 (Fitch) 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+'. A full list of ratings follows at the end of this press release. The Rating Outlook is Stable. KEY RATING DRIVERS Fitch's rationale for the affirmation of RNR's ratings reflects the company's continued strong leadership position in the property catastrophe traditional and alternative reinsurance market, RNR's reasonable operating leverage and low financial leverage, and overall high-quality and liquid portfolio of fixed-income and short-term investments. The ratings also reflect the company's volatile underwriting results from catastrophe losses and potential volatility from the company's alternative investments. In addition, the ratings reflect Fitch's negative sector outlook on global reinsurance, as the fundamentals of the reinsurance sector have deteriorated with declining premium pricing and weakening of terms and conditions. This has been particularly the case for property catastrophe risk, RNR's core line of business that represented approximately 72% of total company gross premiums written in 2013. RNR has responded to increased property catastrophe price competition by reducing its risk exposure, with catastrophe reinsurance segment gross premiums written down 19% in the first half of 2014 as compared to the first half of 2013, with an even greater, 34% decline in net premiums written due to opportunistic retrocessional reinsurance purchases. Fitch expects RNR to maintain its historically strong underwriting discipline should future market conditions continue to deteriorate. RNR's leadership position in the property catastrophe reinsurance market is 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 success. Fitch views RNR's year-to-year underwriting profitability as volatile, but the effect of this volatility on the company's ratings is mitigated somewhat by low average combined ratios over an extended time period that includes periods of light and heavy catastrophe-related losses and incorporates different cyclical market conditions. Fitch views this as an important factor supporting the company's ratings and evidence of RNR's underwriting expertise and catastrophe modeling skills. RNR's average GAAP calendar year combined ratio over the most recent 10-year period (2004-2013) was favorable, albeit volatile, at 74.8%, with a standard deviation of 34.4%, including an average combined ratio of 69.9% for the catastrophe reinsurance segment, with a standard deviation of 60.1%. RNR posted a calendar-year combined ratio of 54.1% for the first six months of 2014, which included relatively low catastrophe losses from U.S. winter storms and U.S. wind and thunderstorm events. 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. Fitch believes that RNR's financial leverage ratio continues to be very modest at 8.8% as of June 30, 2014, in line with 8.6% at Dec. 31, 2013. RNR's GAAP operating earnings-based interest and preferred dividend coverage has been strong, averaging 11.1x from 2009-2013, which included negative earnings coverage in 2011 due to increased catastrophe losses. Coverage was a very favorable 16.6x in the first half of 2014 and 19.2x in 2013, due to strong earnings and reduced interest expense and preferred dividends with a debt repayment and preference share refinancing in 2013. RATING SENSITIVITIES Key rating triggers that could lead to a downgrade include: --Continued deterioration in market conditions that impair RNR's leading position in the property catastrophe reinsurance market and result in a weakening of its historically strong profitability, as demonstrated by sustained combined ratios above 80% and returns on common equity below 13%; --Material weakening in the company's current balance sheet strength, as measured by net premiums written-to-shareholders' equity above 0.5x --Equity-credit-adjusted financial leverage above 25%; --A catastrophe event loss that is 25% 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 affirms the following ratings with a Stable Outlook: RenaissanceRe Holdings Ltd. --IDR at 'A'; --$125 million 6.08% series C preferred stock at 'BBB'; --$275 million 5.375% series E preference shares at 'BBB'. RenRe North America Holdings, Inc. --$250 million 5.75% senior notes due 2020 at 'A-'. Renaissance Reinsurance Ltd. --IFS at 'A+'. Contact: Primary Analyst Brian C. Schneider, CPA, CPCU, ARe Senior Director +1-312-606-2321 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Greg Dickerson Director +1-212-908-0220 Committee Chairperson Julie A. Burke, CPA, CFA Managing Director +1-312-368-3158 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Nov. 13, 2013). Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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