AHL Aspen Insurance Holdings Limited Ordinary Shares

We have retained our Neutral recommendation on RenaissanceRe Holdings Ltd. (RNR) as a weak investment portfolio and susceptibility to weather-related risks are likely to weigh on company growth going forward. This property and casualty insurer currently carries a Zacks Rank #3 (Hold).

Why the Reiteration?

The investment portfolio of RenaissanceRe is exposed to the weak credit and capital markets making it vulnerable to the present volatile interest rate environment. Although net investment income improved slightly in the first nine months, recurring investment income from fixed maturity investments remains pressurized and we do not expect any substantial improvement in the near-term. Moreover, continuous decline in interest rates indicate the possibility of poor investment results in the upcoming quarters as well.

 All these coupled with increasing competition raises skepticism regarding any extra-ordinary results for RenaissanceRe in the near term. The Zacks Consensus Estimate for full-year 2014 is pegged at $9.21, representing a year-over-year decline of 23%.

Further, while RenaissanceRe’s operating cash flow is significantly in excess of its operating commitments, a substantial portion of it goes to cover losses from unpredictable natural calamities, leaving a nominal sum or nothing to boost company’s operations. The company needs to increase its revenues in order to cope successfully with these losses.

Countering the aforementioned negatives, RenaissanceRe’s premium growth remains impressive. The Specialty unit and the Lloyd’s segment have been performing well to contribute to the improvement in premiums. Moreover, the company has not restrained from undertaking strategic divestitures to enhance core operations. The divestiture of RenRe Energy Advisors Ltd. (REAL) to Munich Re in Oct 2013 deserves special mention in this regard as it would enhance RenaissanceRe’s underwriting platforms in Bermuda, London, the U.S. and Asia.

Another aspect that raises optimism about the long-term prospects of the stock is its prudent capital management initiatives to enhance shareholders’ worth. RenaissanceRe has been consistent in increasing its annual dividend as well as engaging in share repurchases. The company also scores strongly with the credit rating agencies.

In the last reported quarter, operating earnings of the company stood at $3.36 per share, beating the Zacks Consensus Estimate by 44.8%. Results also improved from the year-ago earnings of $2.07 per share.

Other Stocks to Consider
 
Some better-ranked stocks in the same sector include Allied World Assurance Company holdings, AG (AWH), AmTrust Financial Services, Inc. (AFSI) and Aspen Insurance Holdings Ltd. (AHL). All these stocks hold a Zacks Rank #1 (Strong Buy).

 
AMTRUST FIN SVC (AFSI): Free Stock Analysis Report
 
ASPEN INS HLDGS (AHL): Free Stock Analysis Report
 
ALLIED WORLD AS (AWH): Free Stock Analysis Report
 
RENAISSANCERE (RNR): Free Stock Analysis Report
 
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