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RenRe disappoints as earnings slump

Bermuda-headquartered RenaissanceRe last week (3 May) reported a disappointing set of first quarter results, as losses from Windstorm Erwin battered the bottom line. The performance raises doubts over the reinsurer’s ability to meet 2005 earnings projections.

The company posted net income, which includes net realised gains and losses, of $44.3mn or $0.62 a share for the quarter, compared to $168.9mn or $2.36 a share for the first three months of last year.

Net operating income was $54.4mn or $0.76 a share for the period, less than half the $136.4mn or $1.90 a share recorded in the first quarter of 2004.

RenaissanceRe chairman and CEO Jim Stanard said: “Our first quarter profit was well below our expectations for a normal catastrophe quarter, as a result of European windstorm Erwin and various smaller events and expense items.”

“We are maintaining our earnings expectations for 2005, although there is more downside risk than upside potential,” he warned.

Noting that RenaissanceRe had missed projected earnings by a considerable margin for the quarter, William Wilt, equity analyst at Morgan Stanley, commented: “Management acknowledged that it would take ‘luck from some source’ to make its 2005 guidance of $6.30 to $6.70. Considering the 87 cents miss this quarter and competitive headwinds, we are inclined to agree.”

“We are not of the view that the RenaissanceRe model is ‘broken’, but would prefer to see more realism baked into 2006 [estimated earnings] before becoming more constructive,” he added.

Gross premiums written were down from $780.3mn to $694.3mn quarter-on-quarter, with the majority of the fall registered in the company’s reinsurance business and a lesser decline in its individual risk segment.

“With respect to premiums, the decline in catastrophe reinsurance was in line with our previously announced expectations. Specialty reinsurance premium came in light relative to our anticipation of 10 percent growth, but we may be able to hit that growth target for the year.

“Individual Risk premium was relatively low in the first quarter, as previously indicated, although we have transactions in process for the second quarter that should support our growth expectation of 35 percent for the year,” explained Stanard.

The company benefited from its equity in earnings of ventures such as Top Layer Re and ChannelRe, which generated $7.6mn in income in the quarter, up from $6.5mn in the first quarter of 2004.

But in its operations, RenaissanceRe saw a significant climb in combined ratio from 59.3 percent to 90.3 percent, driven by a loss ratio that almost doubled from 36.4 percent to 66.9 percent.

The main culprit was the company’s reinsurance segment, with its loss ratio leaping from 28.2 percent to 70.8 percent quarter-on-quarter under the weight of losses that included a net negative impact from Erwin of $43.1mn.

It added that it would review its reserving methodology in the coming months, which may lead to a material reduction in its loss reserves.

RenaissanceRe has already restated its consolidated financials for the years 2001-3 in response to regulatory investigations into the industry.

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