Business & Finance
Business and Finance
Business and Finance
Wed, January 19, 2011 
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has upgraded its ratings on RenaissanceRe Holdings Ltd. (NYSE: RNR) as follows:
--Issuer Default Rating (IDR) to 'A' from 'A-';
--Senior unsecured notes to 'A-' from 'BBB+';
--Series C and D cumulative perpetual preferred shares to 'BBB' from 'BBB-'.
Fitch has also upgraded the Insurer Financial Strength (IFS) rating on Renaissance Reinsurance Ltd to 'A+' from 'A'. A list of all ratings is detailed below. The Rating Outlook is Stable.
Fitch's rating rationale for the one notch upgrade of RNR's ratings reflects the company's continued strong leading position in the property/catastrophe reinsurance market and favorable underwriting results. The ratings also reflect RNR's reasonable operating and financial leverage and overall high quality and liquid portfolio of fixed-income and short-term investments, although the company's alternative investments expose its earnings to potential volatility.
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's ratings also consider RNR's modeled losses from simulated catastrophe events.
Fitch views RNR's competitive position in market segments outside of the property/catastrophe reinsurance market segment as modest and more opportunistic, given its limited history in these markets. As such, Fitch does not view RNR's recently announced transaction to sell its U.S. admitted primary insurance business to QBE Holdings, Inc. as a negative ratings event, given the overall lower profitability of this business, which typically requires greater scale to achieve adequate returns over time.
RNR has a history of generating strong underwriting profitability over extended periods of time. Fitch views this as an important factor supporting the company's ratings and as evidence of RNR's underwriting skills. 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 RNR's low combined ratios over extended periods of time. RNR's average overall calendar year combined ratio over the most recent 10-year period (2000-2009) was favorable at 73.2% with a standard deviation of 28.5%. For the first nine months of 2010, RNR reported a calendar year combined ratio of 60.3%, the lowest ratio among peers.
Fitch believes that RNR's capital position provides an adequate cushion against the operational and financial risks the company faces. Fitch views RNR and its operating subsidiaries as aggressively managing their capital in response to changing market conditions, particularly in the company's core property/catastrophe reinsurance business. However, Fitch believes that RNR utilizes a reasonable amount of operating leverage with a ratio of net premiums written to shareholders' equity of 0.3x in 2009, which is low compared to the overall reinsurance industry, but in line with those of other reinsurers with property/catastrophe concentrations. Furthermore, Fitch considers RNR to use a moderate amount of financial leverage in its capital structure, with an equity-credit adjusted debt-to-total capital ratio of 13.5% at Sept. 30, 2010.
Fitch also stress tests RNR's reported underwriting results and operating leverage ratios to include a modeled probable maximum loss (PML) for 100-year and 250-year return periods. Based on this analysis, the company performs better overall than other reinsurers that focus predominately on property/catastrophe reinsurance and in line with similarly rated property/casualty reinsurers.
Key rating drivers 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 and a catastrophe event loss that is 25% or more of shareholders' equity. Fitch's rating rationale anticipates operating leverage as measured by net premiums written to shareholders' equity to remain below 0.5x and equity-credit-adjusted financial leverage to remain below a range of 20%-25%.
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 drivers 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 has upgraded the following ratings:
RenaissanceRe Holdings Ltd.
--Issuer Default Rating (IDR) to 'A' from 'A-';
--5.875% senior notes due 2013 to 'A-' from 'BBB+';
--6.08% series C preferred stock to 'BBB' from 'BBB-';
--6.6% series D preferred stock to 'BBB' from 'BBB-'.
RenRe North America Holdings, Inc.
--5.75% senior notes due 2020 to 'A-' from 'BBB+'.
Renaissance Reinsurance Ltd.
--IFS to 'A+' from 'A'.
The Rating Outlook is Stable.
Additional information is available at '[ www.fitchratings.com ]'.
Applicable Criteria and Related Research:
--Insurance Rating Methodology (Aug. 16, 2010);
--Non-Life Insurance Rating Methodology (March 24, 2010);
--Rating Hybrid Securities (Dec, 29, 2009);
--Insurance Industry: Global Notching Methodology and Recovery Analysis (Dec. 29, 2009).
Applicable Criteria and Related Research:
Non-Life Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369 ]
Insurance Industry: Global Notching Methodology and Recovery Analysis
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493114 ]
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