Bermuda-based cat reinsurer, RenaissanceRe Holdings Ltd. and expects its share price to shoot up to $41 by the end of the year.

RenaissanceRe stock was trading at $37.25, or $1.50 higher on Friday, as Lehman Brothers said the firm's growth outlook is likely to only improve relative to investors current expectations.

The analyst's report expressed even more optimism for a share buy back programme, based on the reinsurer's fourth quarter performance.

The reinsurer posted earnings per share of $1.60, significantly exceeding estimates, including Lehman Brothers' estimates by 15 percent.

The positive earnings surprise was attributed to low catastrophe losses, as premiums tumbled expectedly by 13 percent for the year.

Lehman Brothers vice president, Peter Wade, has said, "While earnings for the quarter were strong, we are hesitant to revise our 1997 estimates upwards, given our forecast of 15 price percent declines for catastrophe reinsurance.'' Mr. Wade did concede some optimism for the company's repurchase of shares. He believes the firm will maintain its underwriting discipline by "declining participation on treaties with the largest price decreases and those that do not meet its high return on equity hurdle rates.'' Lehman Brothers also expects that RenaissanceRe will purchase more retrocessional coverage, employing a quasi "arbitrage'' strategy in the reinsurance markets.

The reinsurer, said Mr. Wade, has particularly emphasised the substantial deterioration in the retrocessional markets (greater than the primary reinsurance markets) and their interest in using more of the cheaper retrocessional coverage. He said, "We believe management is sending a clear signal to investors that they will use as much retrocessional coverage as prudently possible, utilising the coverage as a substitute for its very expensive equity capital.

"Our view is that the use of retrocessional coverage, coupled with low reinvestment opportunities means that virtually all of Renaissance's earnings in 1977 are funds available to be returned to investors.

"Consequently, we expect the firm to announce another share repurchase programme in the second half of 1997, equal to or perhaps greater than the recent $100-million tender offer. This translates into almost 10 percent of outstanding shares.

"The recent $100-million tender offer was for more than 10 percent of the firm's outstanding shares. Over the near term, we believe investors should view an absolute shareholders' equity number of $500 million and a 25 percent debt-to-capital ratio as the constraining factors on the company's willingness to return capital to investors.

"We do not believe the company will allow equity to fall much below $500 million or for financial leverage to go above 25 percent, both due to rating agency and customer concerns regarding financial strength.'' Lehman Brothers said that incremental share repurchases this year should be the catalyst to boost the reinsurer's share valuation.

"We also believe,'' the January report noted, "Renaissance's reinvestment opportunities beyond 1997 can only look better than they do today. This is consistent with our expectations for decelerating price declines beyond 1997.