Best Affirms RenRe Subs Ratings; Downgrades Credit and Debt Ratings; Removes Ratings From Review

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of Renaissance Reinsurance Ltd. (RenRe Ltd.) and the financial strength ratings of “A” (Excellent) of the subsidiaries of Glencoe Group Holdings Ltd. (Glencoe).

Best noted these companies are operating subsidiaries of Bermuda-based RenaissanceRe Holdings Ltd, and also said it has downgraded the issuer credit rating (ICR) of RenaissanceRe to “a-” from “a” as well as all existing debt ratings. All the ratings have been removed from under review and assigned a stable outlook.

“These ratings reflect RenaissanceRe’s excellent capitalization, seasoned management team and–despite taking over $550 million in losses from the 2004 Florida windstorms–a historical track record of exceptional underwriting performance and superior risk management techniques,” said Best. “In the 10 years preceding 2004, RenaissanceRe generated returns on equity at the 20 percent range and greater. In 2004, due to the Florida hurricanes, RenaissanceRe’s net income was only $133 million and its return on equity for the year was limited to only 5 percent. RenaissanceRe’s shareholders’ equity reported at December 2004 is $2.7 billion, and it has total capital resources in excess of $3 billion.”

The rating agency noted: “An offsetting factor to RenaissanceRe’s strengths is the rapid growth being experienced through its Specialty Reinsurance segment being underwritten through RenRe Ltd. and its Individual Risk segment being written through the Glencoe insurance companies.” Best specifically indicated that a “significant amount of Glencoe’s business is underwritten outside of RenaissanceRe through program managers. These segments include lines of business outside of RenaissanceRe’s core property catastrophe reinsurance expertise and comprise nearly two thirds of the net written premiums underwritten by RenaissanceRe’s operating companies in 2004, including a significant amount of casualty lines. Additionally, management has indicated that at least for the near term, it will reduce property catastrophe reinsurance writings due to the currently unfavorable market conditions.”

Best said the downgrade of the issuer credit and debt ratings was a direct consequence, adding that it “primarily reflects concerns over RenaissanceRe’s expansion outside of its core property catastrophe business into casualty lines of business as well as there being an increase in operating and financial leverage in 2004 and from 2003 levels.”

Best stressed, however, that “RenaissanceRe continues to maintain a significant amount of capital to support its insurance operations as well as various business and investment opportunities. As a result of the hurricanes in 2004, RenaissanceRe contributed over $275 million to RenRe Ltd. and the Glencoe companies, which are part of A.M. Best’s rationale in affirming the operating companies’ financial strength ratings.

“While financial leverage has been elevated due to the hurricane losses and the issuance of $250 million of perpetual preferred securities in March 2004, RenaissanceRe continues to manage its outstanding debt and preferred issues within A.M. Best’s expectations to a level no greater than 35 percent of total capital. A.M. Best also anticipates that RenaissanceRe will achieve a fixed charge coverage in the upper single-digit range or higher, which it historically has achieved but did not in 2004 due to the hurricanes.

“RenaissanceRe’s ratings had been placed under review pending its completion of an internal review of its accounting for certain reinsurance transactions. This review delayed the filing of RenaissanceRe’s audited financial statements. The review has been completed, and its 2004 financial statements have been filed without any material restatements for prior years or adjustments to RenaissanceRe’s balance sheet,” Best concluded.