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RenaissanceRe Up 39.5% YTD: More Room for Further Upside?

Zacks Equity Research

RenaissanceRe Holdings Ltd. RNR has been in investors’ good books on the back of rising premiums and inorganic growth initiatives.

Year to date, this Zacks Rank #2 (Buy) company has surged 39.5%, outperforming its industry’s growth of 1.8%. Moreover, it has witnessed an upward revision in 2019 and 2020 earnings estimates over the past 30 days.



The company recently delivered second-quarter 2019 operating earnings per share of $4.78, beating the Zacks Consensus Estimate by 33.5%. The result was backed by operational efficiency and higher revenues.

We expect this momentum to continue as it gains from the following factors:

Improving Premiums: RenaissanceRe has been witnessing a positive trend in gross premiums written, which has doubled over five years (seeing a CAGR of 20.9% from 2014 to 2018) on the back of its Casualty and Specialty plus Property segments. Premiums further soared nearly 51% in the first half of 2019 owing to its solid segmental contributions. We believe, a solid uptick from these segments leading to higher premiums, will likely drive the top line further for RenaissanceRe.

Inorganic Growth Story: RenaissanceRe has been undertaking solid measures to streamline its operations. It is putting in efforts to sell off its low-return high-risk businesses. As part of this initiative, the company divested its U.S-based weather and weather-related energy risk management unit to save itself from the uncertainties associated with its business.

Meanwhile, the company is also acquiring and expanding businesses, providing scope for growth. In fact, its buyout of Tokio Millennium Re for $1.5 billion is noteworthy. The transaction is expected to boost the company’s business scale and portfolio. We expect such strategic initiatives to enable the company to focus on its core operating business growth.

Solid Capital Position: The company has been enjoying significant free cash flow over the past few years (CAGR of 42% from 2015 to 2018). The same continued in the first half of 2019 with the metric rising 124.6% year over year. RenaissanceRe has been deploying excess capital in business over the last several quarters. On the back of its solid capital position, it has been hiking its dividend over the past many years. Its leverage ratio (total debt to equity) stands at 23.4%, lower than its industry average of 26%. We believe, the company’s impressive financial strength will continue to buoy investor optimism.

Other Key Factors

Its return on equity — a profitability measure — stands at  9.2%, higher than the industry's average of 7.1%.

It has also managed to surpass estimates in the past four quarters, the average being an impressive 141.7%.

Other Stocks to Consider

Investors interested in the same space may also look into some other top-ranked stocks like Kinsale Capital Group, Inc. KNSL, Arch Capital Group Ltd. ACGL and Hallmark Financial Services, Inc. HALL. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kinsale Capital provides casualty and property insurance products in the United States. The company delivered a beat in two of the last four quarters, the average positive surprise being 10%. It has a Zacks Rank of 2.

Arch Capital Group provides property, casualty and mortgage insurance and reinsurance products. It is Zacks #2 Ranked and pulled off average trailing four-quarter positive surprise of 14.3%.

Hallmark Financial underwrites, markets, distributes and services property/casualty insurance products in the United States. The company has a Zacks Rank of 1 and came up with average four-quarter beat of 97.5%.

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RenaissanceRe Holdings Ltd. (RNR) : Free Stock Analysis Report
 
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Hallmark Financial Services, Inc. (HALL) : Free Stock Analysis Report
 
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
 
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Zacks Investment Research