(By Balaseshan) RBC Capital Markets analyst Mark Dwelle increased his price target on shares of RenaissanceRe Holdings Ltd. (NYSE:RNR) to $82 from $77, while maintaining "Sector Perform" rating.
After the company's first quarter results, the brokerage raised its 2012 operating EPS estimate to $9.15 from $8.40 and its 2013 estimate to $9.55 from $9.35. The firm also lifted its 2012 book value per share estimate to $68.51 from $67.33 and its 2013 estimate to $77.74 from $76.56.
Dwelle raised 2012 operating earnings estimates to mainly reflect the outperformance in the quarter, and, to a lesser extent, a higher premium growth outlook. He also lifted 2013 estimate primarily to reflect the positive effects of a higher 2012 premium volume forecast (part of which earns out into 2013.)
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The analyst's $82 price target equals about 1.2 times estimated ending 2012 book value. The premium valuation to book value reflects his generally favorable outlook for property catastrophe pricing conditions.
RenaissanceRe reported 1Q operating EPS of $2.98 versus a $4.59 per share loss last year, exceeding both Dwelle's $2.46 estimate and the $2.48 consensus estimate. Better than expected underwriting margins and investment income more than offset another loss ($36 million this quarter) at the company's energy risk management business.
Gross written premiums rose 8.8% to $664.2 million, but rose 34% excluding the effect of 1Q-2011s reinstatement premiums, and far exceeded the analyst's $591 million estimate. The 1Q consolidated combined ratio amounted to 29.4% versus an earthquake-affected 230% last year, which was much better than his 49.9% assumption.
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However, the company's energy and weather risk management business recorded a $35.5 million loss - the second consecutive quarter of large losses from this unit.
Market conditions in almost all of RenRe's markets have clearly improved, based on both management's commentary and our observations of other companies and brokers.
However, Dwelle remains sanguine as to the sustainability of the improvement past the end of the year, and the possibility of large catastrophe losses is always present (particularly during the approaching hurricane season.) As such, he would prefer a more attractive valuation on RNR shares to improve the risk-reward equation.
RenaissanceRe Holdings writes property catastrophe reinsurance. The company is a global provider of reinsurance and insurance coverages and related services.
RNR closed Friday's regular session up 0.53% at $79.38.