RENAISSANCERE HOLDINGS LTD.
Fitch Ratings has affirmed the ratings of
The Rating Outlook is Stable.
The affirmation of RNR's ratings reflects the company's moderate business profile, with a favorable position in property catastrophe reinsurance, moderate diversification into casualty and specialty business, and moderate operating scale. The ratings also reflect RNR's very strong capitalization, modest financial leverage and strong financial performance over an extended period, although with earnings volatility from catastrophe losses and investment performance.
Key Rating Drivers
Moderate Company Profile: Fitch views RNR's overall company profile as moderate compared with all other reinsurance organizations globally. Fitch considers RNR's specialist product knowledge and technical expertise as a property catastrophe reinsurance market leader as valuable to reinsurance buyers beyond the company's moderate business profile. Property business represented 40% of RNR's total 2022 net premiums written (NPW), with casualty and specialty business at 60%. Property catastrophe business accounted for 20% of total NPW in 2022, down from 22% in 2021.
Very Strong Capitalization: Overall capitalization is viewed as very strong, with RNR maintaining a score of 'Extremely Strong' on Fitch's Prism factor-based capital model in 2022. Shareholders' equity declined to
Strong Long-Term Earnings: RNR's financial performance and earnings are strong, but are highly volatile from catastrophe loss events. Thus, it is important to evaluate profitability over an extended period that includes various levels of catastrophe losses and different cyclical market conditions. RNR's average combined ratio over the most recent 10-year period (2013-2022) was favorable, albeit volatile, at 85.1%, with a standard deviation of 28.0%.
However, over the past five-years (2018-2022), a period of heightened catastrophe losses, RNR's average combined ratio of 96.3% (6.3% standard deviation) is worse than Fitch's expectations and credit factor scores for RNR's rating. Favorably, reinsurance market conditions have recently improved considerably, shifting to a true hard market in property and some specialty lines, with significant price increases and, equally as important, tighter terms and conditions. As a result, Fitch expects RNR's combined ratios normalized for average catastrophes to improve to at least the low 90% range.
Return to Underwriting Profitability: RNR posted a combined ratio of 97.7% for 2022, improved from 102.1% in 2021. The decrease reflects lower catastrophe losses of 20.0 points in 2022 from Hurricane Ian (13.4 points),
Fixed-Charge Coverage: RNR's fixed-charge coverage ratio averaged 4.7x from 2018 to 2022, which is below guidelines for the current rating category as operating earnings were pressured by elevated catastrophe losses. Assuming more normal catastrophe losses, fixed-charge coverage should be 6.0x-7.0x.
RNR has an ESG Relevance Score for Exposure to Environmental Impacts due to underwriting/reserving that is exposed to natural catastrophe risks, with its property segment business representing 40% of 2022 NPW, including 20% in property catastrophe. This has a negative impact on the credit profile and is relevant to the ratings in conjunction with other factors.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Weakening of RNR's historically strong profitability, with evidence of run-rate combined ratios above 94% or operating ratios above 82% over a multi-year period, based on the current business mix;
Deterioration in RNR's very strong capitalization, as measured by a failure to maintain an 'extremely strong' Prism score on Fitch's Prism factor-based capital model;
An FLR above 25%;
A catastrophe event loss that is 25% or more of shareholders' equity;
If more than 30% of earnings (24% of net loss in 2022) or capital (28% at YE22) is sourced from foreign entities outside of the
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Significant improvement in RNR's competitive position in profitable market segments outside of property catastrophe reinsurance, including in its casualty and specialty business;
A meaningful reduction in the volatility of financial results;
Material risk-adjusted capital growth.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Summary of Financial Adjustments
Fitch has adjusted RNR's financial leverage and fixed-charge coverage ratios to exclude DaVinciRe's senior notes, interest expense and noncontrolling interest. RNR only owns approximately 25.4% of the common equity of DaVinciRe. However, RNR controls the majority of voting rights and, therefore, it consolidates DaVinciRe's financial results. Although the adjustment did not result in a different rating, it is material in how Fitch views financial leverage and fixed-charge coverage.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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