Fitch Ratings has affirmed the following ratings on Bermuda-based RenaissanceRe Holdings Ltd. (RNR):
–Issuer Default Rating ‘A-‘;
–Senior unsecured notes ‘BBB+’;
–Preferred stock ‘BBB’.
Fitch also affirmed its “A” insurer financial strength (IFS) rating on Renaissance Reinsurance Ltd. with a stable outlook.
“The ratings reflect RNR’s strong risk management capabilities, leading position in the property/catastrophe reinsurance market, and consistently better than peer underwriting results,” said the announcement. “The ratings also consider the underwriting volatility inherent in the property/catastrophe reinsurance market and RNR’s comparatively aggressive operating strategies and capital deployment.”
Fitch believes that RNR continues to use sophisticated stochastic modeling techniques and processes to assess and manage its exposure to catastrophe-related events. Fitch also believes that the company’s experience using these techniques translates into competitive advantages that enable RNR to identify, price, and obtain attractively underwritten business.
The rating agency also said it “views RNR’s extended history of generating lower and less volatile than peer-combined ratios, and higher and less volatile than peer-returns on equity, as evidence of the company’s strong risk management capabilities. RNR’s 2002-2006 average combined ratio and return on equity (ROE) were approximately 10 and 6 points better respectively than the medians of an admittedly small group of property/catastrophe focused peers. Additionally, the average standard deviation of RNR’s combined ratio and ROE during this period were materially lower than this peer group’s.
Fitch also indicated that it “believes that RNR’s efforts to actively deploy its capital through joint ventures, and to a lesser extent alternative investments, increases the company’s risk profile relative to those of reinsurers that focus almost exclusively on accepting and managing underwriting risk. However, Fitch also believes that RNR’s disciplined risk management mitigates this risk.
RNR’s capital structure includes a significant amount of cumulative perpetual preferred shares that receive a Class D designation under Fitch’s equity-credit criteria. Hybrid Securities designated as class D securities receive 75 percent equity credit under Fitch’s criteria. RNR’s year-end 2006 pro forma (excludes securities redeemed during Q1 2007) ratio of debt plus preferred to capital on an equity-credit adjusted basis was 15 percent.
Fitch views RNR’s near-term debt maturities as modest with $150 million of senior notes maturing in July 2008 and believes that the company has proven and sustainable access to the capital markets. RNR’s operating earnings-based interest and preferred dividend coverage has been strong averaging 8.9x from 2002 through 2006. Additionally, Fitch estimates that RNR’s operating subsidiaries’ ordinary dividend capacity at year-end 2006 was in excess of 10x the cash required to fund its annual interest and preferred dividend payments.
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