Fitch Affirms RenRe's Ratings; Upgrades Preference Shares

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings of RenaissanceRe Holdings Ltd. (NYSE: RNR) and its subsidiaries, including the Issuer Default Rating (IDR) for RNR at 'A', and the Insurer Financial Strength (IFS) rating of Renaissance Reinsurance Ltd. at 'A+'. Fitch has also upgraded RNR's preference shares to 'BBB+' from 'BBB'. The Rating Outlook is Stable. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

The upgrade of the preference shares reflects Fitch's recently updated notching criteria, published on July 14, 2015 in the master criteria 'Insurance Rating Methodology', Section VI. Under the revised criteria HYBRID is considered to have 'minimal' non-performance risk. Notching is set two below the IDR based on 'Poor' recovery expectations, with no additional notching for non-performance. Under prior criteria, a notch was added for non-performance.

Fitch's rationale for the affirmation of RNR's ratings reflect the company's continued strong leadership position in the property catastrophe traditional and alternative reinsurance market, reasonable operating leverage and moderate financial leverage, and overall high-quality and liquid portfolio of fixed-income and short-term investments. The ratings also reflect the company's volatile underwriting results from catastrophe losses, but with low average combined ratios over an extended time period.

In addition, the ratings reflect Fitch's negative sector outlook on global reinsurance. The current stressful reinsurance market conditions, with record capitalization levels of traditional reinsurers and the growing capacity provided by alternative capital providers, are promoting weaker pricing and more generous terms and conditions, particularly for property catastrophe risk. Fitch expects RNR to maintain its historically strong underwriting discipline and leading competitive market position in the consolidating reinsurance sector.

RNR has responded to these harsh conditions by reducing its property catastrophe risk exposure in recent years. The company is also improving its diversification into casualty and specialty reinsurance business, with its acquisition of Platinum Underwriters Holdings, Ltd. (PTP) in March 2015 and the continued growth of RNR's Lloyd's business.

Through the first six months of 2015, catastrophe reinsurance business declined to about 59% of gross premiums written (GPW) from 70% of GPW in the first six months of 2014, with specialty reinsurance and Lloyd's business increasing to 41% of GPW from 30% of GPW in the first six months of 2014. This should help the company to reduce earnings and cash flow exposure to cyclical conditions in the property catastrophe market.

RNR's average GAAP calendar year combined ratio over the most recent 10-year period (2005-2014) was favorable, albeit volatile, at 69.4%, with a standard deviation of 33.5%, including an average combined ratio of 61.2% for the catastrophe reinsurance segment, with a standard deviation of 59.8%. RNR posted a calendar-year combined ratio of 66.7% for the first six months of 2015, which included modest catastrophe losses from a number of weather events in the U.S. Fitch expects that RNR's combined ratios going forward could increase due to more normalized catastrophe losses and a shift in business mix away from property catastrophe and into casualty and specialty reinsurance, which has a higher, but less volatile loss ratio.

Fitch believes that RNR's capital position provides an adequate cushion against the operational and financial risks the company faces. Shareholders' equity increased to $4.8 billion at June 30, 2015, up 25% from year-end 2014 due to net earnings and RNR shares issued for the PTP purchase. RNR utilizes a reasonable amount of operating leverage comparable with those of other reinsurers with property catastrophe concentrations. RNR's net premiums written (NPW) to equity has been about 0.2x-0.3x in recent periods and increases only slightly with the PTP purchase.

Fitch believes that RNR's financial leverage ratio is reasonable for the rating category at 15.5% as of June 30, 2015, although up considerably from 7.6% as of Dec. 31, 2014. The increase reflects a $300 million senior debt issuance in March 2015 to partially finance the cash consideration for the PTP acquisition, plus $250 million of added PTP existing debt. In addition, DaVinciRe Holdings Ltd. issued $150 million of debt in May 2015.

RNR's GAAP operating earnings-based interest and preferred dividend coverage has been strong, averaging 11.0x from 2010-2014, which included negative earnings coverage in 2011 due to increased catastrophe losses. Coverage declined to 9.7x in the first half of 2015 due to the increased debt, but is still viewed as very strong.

RATING SENSITIVITIES

Key rating triggers that could lead to a downgrade include deterioration in market conditions that impair RNR's leading position in the property catastrophe reinsurance market and result in a weakening of RNR's historically strong profitability, as demonstrated by sustained combined ratios above 80% and returns on common equity below 13%, material weakening in the company's current balance sheet strength, as measured by NPW to shareholders' equity above 0.5x or equity-credit adjusted financial leverage above 25%, a catastrophe event loss that is 25% or more of shareholders' equity.

Key rating triggers 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, significant 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.

FULL LIST OF RATING ACTIONS

Fitch affirms the following ratings with a Stable Outlook:

RenaissanceRe Holdings Ltd.

--Issuer Default Rating at 'A'.

RenRe North America Holdings, Inc.

--$250 million 5.75% senior notes due 2020 at 'A-'.

RenaissanceRe Finance Inc.

--$300 million 3.7% senior notes due 2025 at 'A-'.

Renaissance Reinsurance Ltd.

--Insurer Financial Strength at 'A+'.

Fitch has upgraded the following ratings:

RenaissanceRe Holdings Ltd.

--$125 million 6.08% series C preference shares to 'BBB+' from 'BBB';

--$275 million 5.375% series E preference shares to 'BBB+' from 'BBB'.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Insurance Rating Methodology (pub. 14 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989522

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989522

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150814005691/en/

Fitch Ratings
Primary Analyst
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Christopher A. Grimes, CFA, +1-312-368-3263
Director
or
Committee Chairperson
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Media Relations, New York
Alyssa Castelli, +1-212-908-0540
[email protected]

Source: Fitch Ratings

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