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RenRe reports higher profit despite cat losses


RenaissanceRe Holdings Ltd. reported higher profits in the second quarter of 2016 despite substantial, but manageable catastrophe losses in Texas and Alberta, Canada.

The Pembroke, Bermuda-based reinsurer reported net income of $172.6 million in the second quarter of 2016, an 89.6% increase compared to the second quarter of 2015, according to the company’s earnings report released on Tuesday.

The reinsurer is benefitting from the diversification of its businesses after its March 2015 acquisition of fellow Bermuda insurer Platinum Underwriters Holdings Ltd., said Brian Schneider, Chicago-based senior director for Fitch Ratings Ltd.

“It’s business that they benefit from picking up because it gives them a bigger potential footprint in the market,” he said. “Not just being looked at as a cat reinsurer anymore is giving them a broader perspective and basically getting them more business they may not have seen previously.”

Net premiums written rose slightly to $519.9 million in the second quarter of this year, up 2.2% from the same period last year.

While premiums in the catastrophe reinsurance segment have declined, overall premiums have benefitted from expansion of the specialty reinsurance and Lloyd’s businesses, Mr. Schneider said.

The reinsurer’s overall combined ratio rose to 81.9% in the second quarter compared to 75.2% in the same period in 2015, driven by an increase in net claims and claims and underwriting expenses, including $32.8 million related to weather events in Texas and $28.1 million due to the Fort McMurray, Alberta wildfire — events that added 15.4 percentage points to the combined ratio, according to the report.

“While the second quarter was an active one in terms of insured catastrophe losses for the industry, our losses were very manageable, and I think demonstrate our disciplined approach to underwriting in a more challenging pricing environment,” Chief Operating Officer and Chief Financial Officer Jeffrey Kelly said during the company’s earnings conference call on Wednesday.

The reinsurer’s Lloyd’s of London segment was adversely affected by these cat losses, incurring an underwriting loss of $2.3 million and a combined ratio of 103.1% in the second quarter of 2016, compared to underwriting income of $5.9 million and a combined ratio of 90.4% in the second quarter of 2015. However, President and Chief Executive Officer Kevin O’Donnell said the company was expecting minimal impact on the Lloyd’s segment from the so-called Brexit — the United Kingdom’s vote to withdraw from the European Union.

“Lloyd’s has a number of pre-existing relationships with Europe and will be working hard to bridge any potential gaps,” Mr. O’Donnell said. “Our most vulnerable exposure in terms of potential lost business is on insurance business from Lloyd’s to Europe, which is only about $2 million or less than 1% of our syndicate premium.”

For the first six months of 2016 RenRe reported net income of $350.7 million, a 15.3% increase over the year ago period. Net written premiums were up 13.0% at $1.62 billion for the six months. The six-month combined ratio deteriorated to 76.1% from 66.7%.

Overall, long-term growth for the reinsurer is going to be a challenge if market conditions do not improve in the next few years, which may lead RenRE to explore and entertain consolidation offers, Mr. Schneider said.

“With the Platinum acquisition behind them, I wouldn’t be too surprised if they continued to look at other consolidation opportunities,” Mr. Schneider said. “I don’t think they have to do that necessarily. Given Ren’s market position and their reputation for their expertise in cat and now expanding into more of the specialty, I think they’ll be OK on their own in this environment. But if the market does get worse, then it just pushes more so that they potentially will be better off as a larger and even more diverse organization.”