Company Overview: Headquartered in Hamilton, Bermuda, RenaissanceRe Holdings Ltd. (NYSE: RNR) is a provider of insurance and reinsurance solutions and services and was established in 1993. The company offers property, casualty, specialty reinsurance, and other insurance products across the globe, and has offices in Bermuda, Australia, Ireland, Singapore, Switzerland, the UK, and the US.

RNR Details

RNR Rides on Robust Segmental Performance and Renewing Share Re-Purchase Program: RenaissanceRe Holdings Ltd. (NYSE: RNR), an insurance and reinsurance solutions provider, announced on May 07, 2021, the renewal of its authorized share repurchase program, which brings the maximum authorization amount to $500.0 million, including the unutilized amount under its prior authorization. Pursuant to the program, RNR can repurchase shares via open market and private negotiations, depending on the market price of the shares and its capital requirements.

Coming to 1QFY21 results, the company’s loss from underwriting operations amounted to $35.76 million in Q1FY21 vs underwriting income of $64.08 million in Q1FY20, primarily due to the impact of the storms (Winter Storm Uri). Net loss for Q1FY21 was $330.49 million compared to a net profit of $25.17 million in Q1FY20, owing to a 51.86% increase in net claims and claims expenses to $867.05 million. However, the increase in gross written premiums written across the company’s Property and Casualty and Specialty segments remains positive. Gross premiums written during Q1FY21 was $2.65 billion, rising 30.93% from $2.02 billion in Q1FY20. Gross premiums from the Property segment increased ~32.47% to $1.62 billion, while Casualty and Specialty segment reported an increase of ~28.62% year-over-year.

It is worth mentioning that the company has also witnessed a continued positive trend in gross premiums written in the span of last three years, primarily led by strong segmental results. This upside is quite obvious from its two-year CAGR (2018 to 2020) of 32.4%.

Gross Premiums Written (Source: Analysis by Kalkine)

Other Key Developments: RNR stated that it increased its exposure to the Casualty and Specialty segment during Q1FY21 and benefitted from underlying rate increases and improvement in underwriting margins. It is now focused on expanding participation with its existing customers for ‘catastrophe-exposed’ US property renewals at improved rates in 1QFY21. RNR has also rebranded its ventures unit as ‘RenaissanceRe Capital Partners’, which it stated reflects partnership approach and strong alignment with third-party investors.

Subsequent to Q1FY21, RNR raised over $100.0 million through RenaissanceRe Medici Fund Ltd. (Medici), which invests, on behalf of third-party investors, in various instruments that have returns tied to property catastrophe risk. Upon completion, RNR’s ownership in Medici was 13.7%.

Key Metrics, Liquidity & Balance Sheet Details: The company exited the quarter with a cash balance of $1.29 billion. Its total investments stood at $20.37 billion, representing a slight ~0.90% decline from $20.56 billion reported at the end of FY20. Total debt amounted to $1.14 billion as of March 31, 2021. During Q1FY21, RNR repurchased 1,076,344 shares for $171.6 million, and an additional 330 thousand shares between April 01 and April 23, 2021, for $55.3 million.

In Q1FY21, the expense ratio was 28.3%, lower than the year-ago figure of 30.5%, while the combined ratio increased to 103.3% from 93% in Q1FY20. Debt to equity ratio stood at 0.17x in Q1FY21, lower than the year-ago figure of 0.22x.

Key Financials & Metrics; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 49.66% of the total shareholding, while the top 4 constitutes the maximum holding. BlackRock Institutional Trust Company, N.A. and The Vanguard Group, Inc. hold the maximum stake at 10.44% and 10.07%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: On the downside, the reinsurance industry has been facing consolidation over the last several years, and the consolidated client and competitor businesses could use their greater market power to negotiate price reductions in the industry. If it happens, RNR’s future underwriting activities might reduce, resulting in lesser premiums and future earnings, which could materially impact its financial state of affairs. Moreover, RNR markets its products through a limited number of insurance and reinsurance brokers, and hence, the loss of key brokers would have a material adverse effect on the company.

In addition, the company stated that the major winter storms in February 2021 (Winter Storm Uri), which caused widespread damage in the US, particularly in Texas, also had a negative impact on the company’s operations. RNR reported an impact of $179.8 million on the net loss attributable to its common shareholders in Q1FY21, due to the storms.

Outlook: For FY21, the company anticipates various opportunities for growth in the improving market, both in its insurance and ventures business. In addition, RNR stated that it is continuing to evaluate industry trends and exposure relating to the COVID-19 pandemic, and it expects historically significant industry-wide losses to emerge as the actual impact of the pandemic on the global economy is realized. The company remains on track to simplify its business by getting rid of low-return high-risk businesses. To conclude, a healthy balance sheet and capital raising program will aid the company to attain its long-term objectives of expanding the business via delivering continued growth to shareholders.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last 3 months, the stock went down by ~10.81%. The stock is currently quoting towards the lower band of its 52-weeks’ trading range of $142.61 to $191.24. We have valued the stock using the Price/Book Value multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digits (in percentage terms). We believe that the company can trade at a slight discount as compared to its peer’s average, considering the significant impact of Winter Storm Uri on its financials, the risks involved with client and competitor consolidations, and stiff competition from peers. We have taken peers like Arch Capital Group Ltd. (NASDAQ: ACGL), AXIS Capital Holdings Ltd. (NYSE: AXS), among others. Considering the company’s strong gross premiums written performance in 1QFY21, international presence, growth initiatives, positive outlook, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the closing price of $145.36, up ~0.06% on June 23, 2021.

RNR Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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