(RNR) RenaissanceRe Holdings Stays at Neutral

We have retained our Neutral recommendation on RenaissanceRe Holdings Ltd. (RNR) as the negatives such as declining investment income, high competition and weather-related risks in the catastrophe insurance and reinsurance business are expected to weigh on the positives of the company.

Why Reiterate?

RenaissanceRe has witnessed a positive trend in gross premiums over 2011 and 2012. The company witnessed an 8.2% year-over-year improvement in gross premiums in 2012, spurred by higher risk-adjusted pricing in the catastrophe unit during the Jan 2012 renewals and premium growth in the catastrophe, special and Lloyd’s segments along with the additional premium from the new reinsurance subsidiary Timicuan Reinsurance III Limited.

Further, RenaissanceRe has been deploying its excess capital to enhance shareholders’ wealth over the past several quarters. The company not only pays regular dividends to shareholders, but also hikes it by 1 cent per share annually.

However, these positives are offset by some negatives. Natural catastrophes have been impacting the profits of this Zacks Rank #2 (Buy) company since 2008. The occurrence of Hurricane Sandy in Oct 2012 led to a decline in underwriting income to $4.3 million in the fourth quarter of 2012 from $127.1 million in the year-ago quarter.

Further, RenaissanceRe faces substantial competition in the catastrophe insurance and reinsurance segments that limits its market share, particularly in the emerging markets.

RenaissanceRe is expected to report its first quarter 2013 financial results after the closing bell on May 1. The Zacks Consensus Estimate for the company’s first-quarter earnings stands at $2.58, down 13.57% over the year-ago quarter.

Other Stock to Consider

Other stocks in the property and casualty insurance sector that are worth a look are Arch Capital Group Ltd. (ACGL), Aspen Insurance Holdings Ltd. (AHL) and AXIS Capital Holdings Ltd (AXS). All these are Zacks Rank #1 (Strong Buy) companies.

ARCH CAP GP LTD (ACGL): Free Stock Analysis Report

ASPEN INS HLDGS (AHL): Free Stock Analysis Report

AXIS CAP HLDGS (AXS): Free Stock Analysis Report

RENAISSANCERE (RNR): Free Stock Analysis Report

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