On Tuesday, rating action taken by rating agency A.M. Best Co. on RenRe North America Holdings Inc.’s recently issued $250 million fixed rate 5.75% senior unsecured notes due 2020 looks positive for the issuer. 

The notes are fully and unconditionally guaranteed by RenaissanceRe Holdings Ltd. (RenRe) (RNR). The rating agency has assigned a debt rating of “a-” to these notes and the rating outlook remains stable.
RNR intends to use the proceeds for general corporate purposes. The debt issuance is expected to keep RNR’s unadjusted financial leverage in the low to mid 20% range. Also, the fixed charge coverage is expected to be strong.
Estimate Revision Trend
Over the last 30 days, 2 of the 12 analysts covering RNR have lowered estimates for the first quarter of 2010, while 2 upward revisions were also witnessed. 

For 2010, 3 of the 13 analysts covering the stock have lowered their estimates over that period, while 2 upward revisions were witnessed. Currently, the Zacks Consensus Estimate for the first quarter is operating earnings of $1.66 per share, which would be up by 9.4% from the year-ago quarter. However, the full year estimate of $7.57 would be down by about 38.2% from 2009.
The same number of estimate revisions in either direction for the first quarter indicates no clear directional pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has been steady over the last four quarters, with three positive surprises. The average remained positive at 29.9%. This implies that RNR has surpassed the Zacks Consensus Estimate by 29.9% over that period. 

Earnings Recap 

RNR’s fourth-quarter operating earnings of $2.82 per share were substantially ahead of the Zacks Consensus Estimate of $2.47. This also compares much favorably with operating earnings of 47 cents in the year-ago quarter. 

The better-than-expected results were primarily aided by substantially higher revenues and lower expenses. Also, a relatively low level of insured catastrophe losses, favorable development on prior year reserves and solid investment results were among the positives. 

We anticipate limited upside potential for RNR shares in the coming quarters as the company faces increasing challenges in its investment portfolio. However, RNR will continue to benefit from its underwriting discipline, capital strength and strong ratings.
Read the full analyst report on “RNR”
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