RenaissanceRe profit down on lower investment income

RenaissanceRe Holdings Ltd.'s net income in the fourth quarter of 2014 dropped 36.4% from the same period a year earlier to $170.8 million owing in part to a drop in investment income, the Pembroke, Bermuda-based reinsurer reported.

The drop reflected a 60.0% decrease in total investment results in the fourth quarter of 2014 from that of the corresponding period in 2013 to $56.1 million.

The company defines total investment result as the sum of net investment income, net realized and unrealized gains on investments and the change in net unrealized gains on fixed maturity investments available for sale, it said Tuesday in an earnings release.

The total investment result was primarily driven by lower returns in RenRe's portfolios of private equity and public equity investments, each principally driven by weaker returns in the public equity markets during the fourth quarter of 2014 compared with the fourth quarter of 2013, the company said in its earnings release.

Gross written premiums for the quarter increased 57.8% to $132.8 million.

For 2014 as a whole, net income dropped 23.3% from that of 2013 to $510.3 million. Gross written premiums dropped 3.4% to $1.55 billion.

RenRe CEO Kevin J. O'Donnell noted the company's agreement to acquire Platinum Underwriter Holdings Ltd. in a statement accompanying the earnings announcement.

The acquisition “will accelerate our efforts, broadening our client and broker base and our capital flexibility. The preparation for the integration of the two entities is on track and we are looking forward to welcoming our new team members.”

“Despite a lack of major events in 2014, RenaissanceRe's operating ROE was just 13.7% which we view reflects the challenges facing the core catastrophe business,” Nomura Securities International Inc. analyst Cliff Gallant wrote Wednesday in a research note. “While the company's aggressive moves into specialty lines, both organic and with the pending acquisition of Platinum, may diversify the company's book of business, we view that the entirety of the reinsurance marketplace is under growing pricing pressure.”

Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore, said he views RenRe's fourth-quarter results as positive. He added that RenRe executives said during a Wednesday morning earnings call that the integration with Platinum was “going well” and could close as early as next month.

“I think the quarterly results were really good because they addressed a lot of concerns people had following third-quarter results, which were really good,” he said, “I think the takeaway from the third quarter was concern that operating returns on equity were pretty low despite very low catastrophe losses, and I think that this quarter alleviated a lot of those concerns.”