Seeking Alpha: Renaissance Re Taking A Best-In-Class Model Into Uncharted Territory

Renaissance Re (NYSE:RNR) (or "RenRe") has long been respected as one of the best-run reinsurance companies out there. One that can generate ROEs of 20% to 30% in good years and minimize the damage in the bad years when catastrophic events like hurricanes and earthquakes do hundreds of millions (if not billions) of dollars in damages. RenRe has also been a pioneer in using third-party capital arrangements to generate high-margin fees and commissions while giving it maximal flexibility for its underwriting decisions.

Things are different now. RenRe acquired Platinum in no small part to diversify itself more into casualty reinsurance, and this longer-tail business will shift how RenRe earns its money (more earnings from managing the float) and generates its returns. What is also different is the reinsurance market itself, with third-party capital sources now around 20% of the market and pushing rates down more than 40% from prior peaks. I expect RenRe to continue to be one of the best-run insurance companies in the reinsurance space, but I think it's going to be tough for the company to exceed low double-digit ROEs in the future and that makes it hard to see a lot of value in the shares today.

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Renaissance Re Taking A Best-In-Class Model Into Uncharted Territory