S&P Raises RenRe’s Ratings to ‘A’ and ‘AA-‘; Outlook Stable

December 17, 2007

Standard & Poor’s Ratings Services has raised its counterparty credit rating on Bermuda-based RenaissanceRe Holdings Ltd. to ‘A’ from ‘A-,’ as well as its counterparty credit and financial strength ratings on Renaissance Reinsurance Ltd. to ‘AA-‘ from ‘A+’.

S&P also raised its counterparty credit rating on DaVinci Re Holdings Ltd. to ‘BBB+’ from ‘BBB’ and its counterparty credit and financial strength ratings on DaVinci Reinsurance Ltd. to ‘A+’ from ‘A’. S&P said it “views the DaVinci Re companies as strategically important to RenaissanceRe Holdings Ltd.”

The outlook on all these companies (collectively referred to as RNR) is stable.

“The upgrades reflect our view that the uncertainty that surrounded RNR’s competitive position, the potential change to its risk profile, and reputational risk as a result of the departure of some of the senior management in 2005 has dissipated,” explained Standard & Poor’s credit analyst Taoufik Gharib [See IJ web site: https://www.insurancejournal.com/news/international/2005/11/01/61483.htm]

S&P further explained that since the appointment of Neill Currie as CEO in Nov. 2005, “the company has successfully executed its strategy and kept its very strong competitive position in the property catastrophe market.

“Other major rating factors include the company’s very strong competitive position as an established global industry leader in underwriting and modeling of catastrophe risks and excellent enterprise risk management (ERM), supported by very strong underwriting and technical modeling expertise. RNR’s operating performance is very strong but volatile, as it has demonstrated its ability to earn sizeable profits with very low combined ratios over the long term.”

Looking back on RenRe’s performance since it was founded in 1994, S&P called it “stellar, with a low average combined ratio of 70.4 percent and a very strong average ROR of 39.2 percent.” RenRe has also “significantly strengthened its capital base in the past two years, mainly through very strong earnings.” It also “benefits from a stable and experienced management team, which has preserved its very strong competitive position in the market and has a proven track record throughout the cycles.”

However, S&P noted that “RNR’s significant growth outside its core line of property catastrophe reinsurance, including its individual risk segment, which compounds potential volatility,” should be taken into account as offsetting factors. “In addition, some of RNR’s (re)insurance risk could correlate with its parent company’s strategic investments, further compounding potential volatility of capital and earnings. For example, the company’s third-quarter write-down of $36 million because of unrealized mark-to-market losses related to RNR’s 32.7 percent share of ChannelRe’s portfolio of financial guaranty contracts.”

S&P said it “expects that RNR’s competitive position will remain very strong in 2008, supported by excellent ERM. Premium volume will likely decline by about 10 percent, reflecting continued softening conditions in the U.S. and internationally.

“Although volatility from catastrophe losses is foreseeable, we expect that RNR will continue to perform at or near the top of its peer group. If 2008 proves to be a year with light catastrophic activity, RNR should report a combined ratio of 60 percent-65 percent. RNR’s capital adequacy will likely stay very strong in 2008. The company’s capital position will be volatile following any sizeable catastrophic events, and we embed this volatility in our current capital expectation.”

S&P also noted that RNR “continues to enhance its already well-established ERM program. We expect that RNR will continue to execute its disciplined underwriting strategy effectively, sustain its very strong operating performance, and outperform its reinsurance peers.”

“If RNR were to suffer significant property catastrophe losses outside its stated tolerances and become an outlier relative to its competitors, we could revise the outlook to negative,” Gharib noted. “Considering today’s upgrades, a revision of the outlook to positive is unlikely in the medium term.”

Source: Standard & Poor’s – www.standardandpoors.com

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