(By Balachander) RenaissanceRe Holdings Ltd. (NYSE:RNR) shares were upgraded to "Hold" from "Sell" by Deutsche Bank analyst Joshua Shanker due to valuation.
Pembroke, Bermuda-based RenaissanceRe provides reinsurance and insurance products, including property catastrophe reinsurance, catastrophe exposed workers? compensation, surety, catastrophe-exposed commercial property products, among others.
"While we believe the long-term prospects of the property-catastrophe industry are suffering from too much capital and alternative competition, we note that shares of RenRe currently trade in line with year-ahead book value, and we no longer view valuation as expensive," Shanker wrote in a note.
Year to date, shares of RenRe have seen their price-to-book multiple, which had enjoyed a 40 percent plus premium to the Bermuda peer group at the beginning of the year, converge downward. Now, its valuation stands at about a 20 percent premium, the analyst said.
While RenRe's market advantages have declined with time, the analyst nonetheless views prop-cat reinsurance as a high ROE business with low barriers to entry. Shanker said his valuation is based on relative price-to-book multiple, and convergence has brought it more in line with its peers.
The biggest downside risk to RenRe remains a significant catastrophe event, which could be amplified by its 1Q12 market share growth, the analyst wrote. "Alternatively, the biggest upside risk to our rating lies in the company's ability to compound BVPS at a 20% clip, a rate commonly achieved in the past, though less often recently."
The analyst has a price target of $76 on the stock.
Shares added 0.45 percent to trade at $72.18 on Thursday. Over the past year, the stock has been trading between $59.50 and $80.53.