Saturday, July 28, 2018

RenaissanceRe's Strong Risk Modeling Comes Through Yet Again

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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