It's a little funny to see how recent events sway human psychology; specifically, a recent bad experience can disproportionately color your memory of the past. Of course, that could cut both ways for reinsurance company RenaissanceRe (NYSE: RNR ) -- is it riding the coattails of past success, or are skeptics unfairly forgetting just how well it's done in the past?
Quarter-by-quarter performance can be a little goofy for reinsurance companies, but RenRe nevertheless delivered some interesting results. Operating earnings fell about 9% from last year, but nevertheless topped the median expectation (even if you adjust for certain items). Although the combined ratio was a bit worse, current-year accident-loss trends in the reinsurance business looked all right. Investment income was also strong; when you consider the reports from Everest Re (NYSE: RE ) and Endurance (NYSE: ENH ) , that seems to be a theme this quarter.
The real stand-out, though, was in the premium growth. Total gross premiums were up 67%, with reinsurance premiums more than doubling. Simply put, RenRe management is really liking the prices it's seeing for catastrophe reinsurance -- and it's writing a lot of policies, going so far as to form two new joint ventures to create more capacity. In light of this quarter's performance, management significantly boosted its outlook for full-year growth in cat premiums, while cutting the outlook for the less-promising individual risk business.
In a nutshell, that kind of decision is really where you make your bull/bear call. Critics will say that RenRe is overexposed to cat risk (especially in Florida) and doesn't deserve the premium. Supporters will fire back by pointing out that the company has a long history of superior results in good markets, and just slightly below-average results in bad times. In addition, management is very good at risk selection and exploiting pricing opportunities.
I'm not arguing that RenRe won't produce better-than-industry returns on equity again. But for the value/risk trade-off, and at today's prices, I'm more interested in the likes of AIG (NYSE: AIG ) , XL (NYSE: XL ) , and maybe Endurance.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).