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+'.
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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=849334
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