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 reflect 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, but with low average
combined ratios over an extended time period.
In addition, the ratings reflect Fitch's negative sector outlook on
global reinsurance. The current stressful reinsurance market conditions,
with record capitalization levels of traditional reinsurers and the
growing capacity provided by alternative capital providers, are
promoting weaker pricing and more generous terms and conditions,
particularly for property catastrophe risk.
RNR has responded to these harsh conditions by reducing its property
risk exposure, with catastrophe reinsurance segment gross premiums
written (GPW) down 17% in 2014, with an even greater 28% decline in net
premiums written (NPW) due to opportunistic retrocessional reinsurance
purchases. Conversely, RNR's specialty reinsurance and Lloyd's NPW was
up 17% in 2014. Fitch expects RNR to maintain its historically strong
underwriting discipline should future market conditions continue to
deteriorate.
RNR is also looking to improve its diversification away from property
catastrophe risk and into casualty and specialty business through an
expected acquisition of Platinum Underwriters Holdings, Ltd. (PTP),
announced in November 2014. Pro forma for the acquisition, property
catastrophe reinsurance business declines to about 50% of GPW from 60%
currently. Fitch views the transaction as a slight near-term credit
negative to RNR given the execution and integration risk inherent in an
acquisition. The closing is expected in the first six months of 2015
(possibly as early as March), and is subject to regulatory approvals and
approval by PTP shareholders.
RNR's average GAAP calendar year combined ratio over the most recent
10-year period (2005-2014) was favorable, albeit volatile, at 69.4%,
with a standard deviation of 33.5%. This includes an average combined
ratio of 61.2% for the catastrophe reinsurance segment, with a standard
deviation of 59.8%. RNR posted a calendar year combined ratio of 50.2%
in 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 comparable with those
of other reinsurers with property catastrophe concentrations. RNR's NPW
to equity has been about 0.2x-0.3x in recent periods and is expected to
increase only slightly following the PTP purchase.
RNR's financial leverage ratio continues to be very modest at 7.6% as of
Dec. 31, 2014. Pro forma for the purchase of PTP, financial leverage
increases to approximately 16% due to an expected new senior debt
issuance ($300 million) to partially finance the cash consideration for
the acquisition, plus added PTP existing debt ($250 million), but is
still considered reasonable by Fitch.
GAAP operating earnings-based interest and preferred dividend coverage
has been strong, averaging 11.0x from 2010-2014, which included negative
earnings coverage in 2011 due to the increased catastrophe losses.
Fixed-charge coverage was a very favorable 16.8x in 2014 and 19.2x in
2013, due to 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 failure to
successfully integrate PTP, deterioration in market conditions that
impair RNR's leading position in the property catastrophe reinsurance
market and result in a weakening of RNR's 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 NPW to
shareholders' equity above 0.5x or equity-credit adjusted financial
leverage above 25%, a catastrophe event loss that is 25% or more of
shareholders' equity.
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' (September 2014).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=979452
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