Maybe it sounds obvious, but the ability to adequately
model, measure, analyze, and price risk is a major strategic asset for
an insurance company, and one that has served RenaissanceRe (RNR)
(“RenRe”) and its shareholders very well over the years. That risk
management skill came through yet again for the company in the second
quarter, with lower loss experiences from last year’s natural disasters
leading to a big reserve release this quarter.
I
don’t expect another reserve release like this again in the near future,
and the fundamental problem of weak pricing in reinsurance remains
(particularly in cat-exposed business). RenRe has been harnessing its
fundamental skills to expand its casualty and specialty businesses,
where the risks are often harder to model, the needs of customers are
much less “off the rack,” and where good pricing is still available.
With the shares having sold off since my last piece
(even with a sector-wide rebound off late June lows), the valuation is a
little more interesting – RenRe isn’t exactly dirt cheap, but the
shares are trading below my assessment of fair value, and buying
well-run companies below their fundamental value usually has a way of
working out.
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RenaissanceRe's Strong Risk Modeling Comes Through Yet Again
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