On May 1, reinsurer RenaissanceRe (NYSE:RNR) released first-quarter earnings for the period ended March 31.

  • The combined ratio increased nearly 12 points because of the windstorm Kyrill, which accounted for $71.9 million of losses and added 21.1 points to the loss ratio.
  • Both RenaissanceRe and Montpelier Re (NYSE:MRH) owe much of their success to surging investment income. RenRe's investment income grew 34%, with about a third of that increase a result of growth in hedge and private equity fund returns.
  • In the latest quarter, book value per share increased 6.7% to $36.71.

(Figures in thousands, except per-share data)

Income Statement Highlights

Q1 2007

Q1 2006

Change

Premiums Earned

 $362,618

 $351,672

3.1%

Investment Income

 $108,015

 $80,434

34.3%

Net Income

 $190,805

 $178,980

6.6%

EPS

 $2.63

 $2.49

5.6%

Get back to basics with a look at an insurer's income statement.

Ratio Checkup

Q1 2007

Q1 2006

Change*

Loss Ratio

40.2%

28.2%

12.0

Expense Ratio

25.4%

25.5%

(0.1)

Combined Ratio

65.6%

53.7%

11.9

Operating Return on Equity

29.1%

42.7%

(13.6)

*Expressed in percentage points.

What do these ratios mean?

Balance Sheet Highlights

Assets

Q1 2007

Q1 2006

Change

Investments

$6,199,025

$5,403,150

14.7%

Cash and Equivalents

$270,608

$240,684

12.4%

Liabilities

Q1 2007

Q1 2006

Change

Loss Reserve

$2,109,864

$2,419,252

(12.8%)

Unearned Premiums

$768,882

$853,629

(9.9%)

Long-Term Debt

$450,000

$603,093

(25.4%)

Learn your way around an insurer's balance sheet.

Related Foolishness:

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Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

Fool contributor Emil Lee is an analyst and a disciple of value investing. He owns shares in Montpelier Re. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.