After posting favorable fourth quarter results, yesterday RenaissanceRe Holdings Ltd (RNR) announced dividend increment and expansion of its stock repurchase program, thereby deploying excess capital to enhance shareholders’ wealth.
For the sixteenth consecutive year, the board of RenaissanceRe has increased the quarterly dividend by a penny to 26 cents. The hiked dividend will be paid on March 31, 2011 to shareholders of record as on March 15, 2011.
Simultaneously, the board of RenaissanceRe also approved the expansion of its stock buyback authorization to $500 million, without an expiration date. The shares will be repurchased from time to time, from the open market, depending on the external and internal factors.
During 2010, RenaissanceRe repurchased approximately 8.2 million common shares in open market transactions at an aggregate cost of $460.4 million and at an average share price of $56.15.
Further, subsequent to December 31, 2010 and through the period ending February 7, 2011, RenaissanceRe has repurchased approximately 1.2 million common shares in open market transactions at an aggregate cost of $75.3 million and at an average share price of $64.21.
Earnings Recap
RenaissanceRe reported its fourth-quarter income from continuing operations of $189.1 million or $3.47 per share, way ahead of the Zacks Consensus Estimate of $2.05. This also compares favorably with an income of $177.7 million or earnings of $2.82 per share in the year-ago quarter.
The impressive results in the quarter were attributable to improved book value per share and robust underwriting results, despite softening market conditions in many lines and a number of significant catastrophic events. Besides, rising expenses and declining investment income were on the downside.
RenaissanceRe’s dividend and share repurchase program has been an integral part of its continuing capital management program. We believe that RenaissanceRe does not require any additional capital requirement in the near term due to its strong capital position and declining equity losses.
The operating subsidiaries of the company also remain well capitalized. With its capital position, RenaissanceRe should be able to take advantage of the increased demand for reinsurance.
However, we expect limited upside potential for RenaissanceRe shares in the coming quarters as it faces greater challenges in its investment portfolio, though it continues to benefit from its underwriting discipline, capital strength and strong market reputation.
Meanwhile, based on solid operating results in both the primary and reinsurance segments, prime peer XL Group plc (XL) was assigned issuer credit ratings (ICR) of “bbb” by A.M. Best Co., on Tuesday. The ratings on XL and its subsidiaries reflected a stable outlook.
RENAISSANCERE (RNR): Free Stock Analysis Report
XL GROUP PLC (XL): Free Stock Analysis Report
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