RenaissanceRe Holdings Ltd.’s (RNR) third-quarter operating earnings of $3.85 per share were substantially ahead of the Zacks Consensus Estimate of $1.04. This also compares much favorably with an operating loss of $2.35 per share in the year-ago quarter.
Net income available to common shareholders was $258.6 million or $4.12 per share, compared to a net loss of $231.0 million or $3.79 per share in the prior-year quarter.
A lack of insured catastrophes and improved investment markets during the reported quarter helped the company generate an annualized operating ROE of 33.3% and 11.4% growth in book value per share.
Operating ROE in the reported quarter was 33.3%, compared to negative 22.4% recorded in the year-ago quarter. Reported book value at Sept. 30, 2009 was $49.21 per share, up 27.0% from $38.74 per share at Dec. 31, 2009.
Gross premiums written for the third quarter of 2009 increased 15.6% year-over-year to $202.4 million, principally due to $49.0 million in reinstatement premiums written in the company’s Reinsurance segment in the prior-year quarter, the result of hurricanes Gustav and Ike, that did not recur in the reported quarter.
The combined ratio (the ratio of claims, administration and dividend expenses to premiums earned) for the quarter improved to 43.3% from 163.4% recorded in the year-ago quarter. The improvement in the combined ratio was driven by the comparably low level of insured catastrophes during the third quarter of 2009, compared to the prior-year quarter. During the reported quarter, the company experienced $70.4 million of favorable development on prior-year reserves, compared to $36.0 million of favorable development in the prior-year quarter.
Net investment income for the quarter increased to $106.8 million from $15.8 million in the prior-year quarter. The increase in net investment income was principally driven by a $30.6 million increase from the company’s hedge fund and private equity investments and a $78.1 million increase in net investment income from its other investments. The company does not anticipate a repeat of this quarter’s investment performance in future periods.
Net realized gains on investments were $16.8 million during the reported quarter, up 50.0% from $11.2 million in the year-ago quarter.
In the Reinsurance segment, gross premiums written for the quarter decreased 21.8% year-over-year to $132.5 million. The decrease was due primarily to the absence of $49.0 million of reinstatement premiums written and earned in the prior-year quarter as a result of hurricanes Gustav and Ike and partially offset by the inception of a new program in the catastrophe unit for the third quarter of 2009. This segment raked in $167.0 million of underwriting income, compared to an underwriting loss of $227.6 million in the prior-year quarter.
The combined ratio for the quarter improved to 17.4% from 190.6% in the prior-year quarter. In addition, this segment experienced a $62.7 million of favorable development on prior year reserves in the reported quarter, compared to $30.6 million in the prior-year quarter.
In the Individual Risk segment, gross premium written for the quarter were almost flat compared to the prior-year quarter at $83.3 million. This segment generated an underwriting income of $0.7 million in the third quarter of 2009, compared to an underwriting loss of $13.0 million in the prior-year quarter.
The combined ratio for the quarter improved to 99.3% from 110.1% in the prior-year quarter. The improvement in underwriting income and the combined ratio were driven primarily by the absence of catastrophe events such as hurricanes Gustav and Ike which occurred in the prior-year quarter. Additionally, this segment experienced a $7.8 million of favorable development on prior year reserves in the reported quarter, compared to $5.4 million in the prior-year quarter, primarily as a result of lower than expected reported claims on prior year reserves.
We anticipate the upside potential for the shares to be rather limited in the coming quarters as the company faces increasing challenges in the investment portfolio, though it continues to benefit from its underwriting discipline, capital strength and strong market reputation. As such, our recommendation on RNR remains unchanged at Hold.
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