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 competitive property
catastrophe market rate environment, volatile underwriting results, and
potential volatility from the company's alternative investments.
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 prowess and catastrophe modeling skills.
RNR's average GAAP calendar year combined ratio over the most recent
10-year period (2003 -- 2012) was favorable at 76.0%, including an
average combined ratio of 65.3% for the reinsurance segment. RNR posted
a calendar year combined ratio of 49.0% for the first nine months of
2013, which includes 6.1 points of catastrophe losses for European
floods (3.2 points) and May 2013 U.S. tornadoes (2.9 points). This
compares to 57.8% for full year 2012, which included 19.0 points for
catastrophe losses from Hurricane Sandy (16.0 points) and Hurricane
Isaac (2.8 points).
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.
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 very modest at 6.4% as of Sept.
30, 2013, down from 11.4% at Dec. 31, 2012. This drop is the result of
the company's repayment of its $100 million senior notes upon maturity
in February 2013 and $275 million issuance of non-cumulative preferred
shares (assigned 100% equity credit under Fitch's hybrid securities
rating methodology) in May 2013 to redeem cumulative preference shares
(50% equity credit).
RNR's GAAP operating earnings-based interest and preferred dividend
coverage has been strong, averaging 8.2x from 2008 -- 2012, which
included negative earnings coverage in 2011 due to the increased
catastrophe losses. Coverage improved to 16.7x thus far in 2013, due to
reduced catastrophe losses, lower interest expense with the debt
repayment and less dividends on preference shares following the
refinancing.
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%, and 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+'.
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 - Effective Sept. 19, 2012 to Oct. 18, 2012
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688011
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=812102
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