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RenaissanceRe to Incur $625M Weather-Related Loss in Q3


RenaissanceRe Holdings Ltd. RNR expects to incur catastrophe (cat) loss of $625 million (net of reinsurance and reinstatement premiums) in the third quarter.

The loss will emanate mainly from hurricanes Harvey ($225 million) and Irma ($175 million). The Mexico earthquake and hurricane Maria, together, will cause $225 million of losses.

The loss is expected to weigh on the company’s combined ratio. The company incurred 14% year-over-year higher claim expenses of $0.34 million in the first half of 2017. The recent cat loss will further amplify claim loss, draining margins.

A meaningful portion of reinsurance and insurance written by the company provides protection from damages relating to natural and man-made catastrophes. So its results depend to a large extent on the frequency and severity of catastrophic events, and the coverages offered.

The company continues to suffer from soft pricing in the reinsurance market, which has been continuing for the last seven years now. Year to date, the stock has gained a mere 1.2%, vastly underperforming the industry which recorded growth of 11.4%.

Third-quarter 2017 was one of the costliest in history with respect to cat loss. Mass devastation was seen in parts of the United States which was ravaged by a trio of hurricanes one after another.

While Harvey rocked Houston and Texas Gulf Coast, Irma ran amok in regions across the Caribbean to Florida. Both storms are considered the costliest in a decade. No sooner had the country heaved a sigh of relief, with Hurricane Jose not turning not as destructive, another hurricane, Maria, hit Puerto Rico and the Virgin Islands. Maria is already deemed as a Category 5 storm.

Economic losses from Irma are estimated at about $58-$83 billion while the same from Harvey could be as high as $108 billion, as per Moody’s Analytics. Catastrophe modeling firm AIR Worldwide estimates industry-insured losses for Hurricane Maria in the Caribbean between $ 40 billion and $85 billion.

Other insurers too have come up with their loss estimates. Assurant Inc. AIZ has estimated between $134 million and $140 million pre-tax of reportable catastrophe losses from Harvey and expects gross losses from Irma to exceed its retention of $125 million pretax.

The Travelers Companies, Inc. TRV estimates pre-tax catastrophe loss from Hurricane Harvey between $375 million and $750 million or $245 million and $490 million after tax. Chubb Limited CB estimates $200 million post-tax cat losses from Maria, $24 million from Mexican earthquakes, $520 million from Harvey and between $640 million and $760 million from Irma.

On the face of it, catastrophe losses cause a spike in loss ratio and hurt insurers’ underwriting margins. However, these losses act as catalysts in turning around the industry's pricing cycle. The industry which has amassed a huge capital buffer and led to soft pricing (thanks to a benign cat loss environment in recent years) will likely see price hardening in certain lines of business that have been affected the most.

RenaissanceRe carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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