Fitch Rates RenRe's Preferred Shares 'BBB'; Affirms Ratings
CHICAGO -- May 23, 2013
Fitch Ratings has assigned a 'BBB' rating to RenaissanceRe Holdings Ltd.'s
(NYSE: RNR) new $275 million issue of 5.375% series E preference shares. Fitch
has also affirmed the ratings of 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 release. The Rating Outlook is Stable.
KEY RATING DRIVERS
RNR intends to use the net proceeds from the offering to redeem all of the
outstanding 6.6% series D preference shares and any additional net proceeds
used to redeem in whole or in part, the 6.08% series C preference shares.
Fitch's hybrid securities rating methodology allocates 100% of the new
non-cumulative preferred shares' principal to equity in evaluating financial
Fitch's rationale for the affirmation of RNR's ratings reflects the company's
continued strong leadership position in the property catastrophe reinsurance
market, RNR's reasonable operating and 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 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 modest at 9.7% as of March 31, 2013, down from
11.4% at Dec. 31, 2012, as the company repaid its $100 million senior notes
upon maturity in February 2013. Following the $275 million issuance and
redemption of preference shares, pro forma financial leverage declines to 6.8%
due to the lower level of equity credit (50%) assigned to the existing
cumulative preference shares.
RNR recorded favorable net income of $190 million for the first three months
of 2013 and $566 million for full year 2012, as catastrophe losses have been
reduced in recent periods. RNR posted a GAAP calendar year combined ratio of
36.2% for the first three months of 2013, compared to 57.8% for full year
2012, which included 19.0 points for catastrophe losses, primarily from
Hurricane Sandy (16.0 points). Excluding the impact of significant
catastrophes and favorable reserve development, RNR's combined ratio for the
first three months of 2013 was 50.1%, down slightly from 53.6% for full year
Fitch views RNR's year-to-year underwriting profitability and returns on
capital as volatile, but the effect of this volatility on the company's
ratings is mitigated somewhat by RNR's strong run-rate profitability over the
long term, with low combined ratios and high returns on capital in most years.
Fitch considers this an important factor supporting the company's ratings and
as evidence of the company's underwriting and catastrophe modeling skills.
Fitch believes that RNR has a leading position in the property catastrophe
reinsurance market 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 expertise.
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.
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
Fitch rates the following:
RenaissanceRe Holdings Ltd.
--$275 million 5.375% series E preference shares 'BBB'.
Fitch affirms the following ratings with a Stable Outlook:
RenaissanceRe Holdings Ltd.
--IDR at 'A';
--$250 million 6.08% series C preferred stock at 'BBB';
--$150 million 6.6% series D preferred stock 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' (Jan. 22, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology ￢ﾀﾔ Amended
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Brian C. Schneider, CPA, CPCU, ARe
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Julie A. Burke, CPA, CFA
Brian Bertsch, New York, +1 212-908-0549
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