Securities analyst Lehman Brothers Inc. has attached a "2'' or "Outperform'' investment ranking to reinsurer RenaissanceRe Holdings, and said the reinsurer's programme to buy back millions of its own shares will reverse a declining earnings trend.

The investment ranking means that Lehman Brothers expects RenaissanceRe's total return (price performance plus dividend) to outperform the market by 5-15 percentage points over the next year.

And Lehman Brothers believes the Bermuda-based property `cat' will continue to return capital to shareholders.

RenaissanceRe repurchased 2.1 million shares (8.5 percent of its 23.6 million outstanding shares) from private investors December 13 and are tendering for a further 813,190 shares (3.2 percent) from the public at $34.50 in the first quarter of 1997.

The company is returning $100 million in capital to its investors, or 17 percent of its shareholders' equity.

Lehman Brothers believes that given limited reinvestment opportunities, and, a projected 21 percent return on equity (ROE) for 1997, RenaissanceRe will continue to return capital to shareholders near this pace.

It expects the firm to maintain an ROE above 20 percent for the next three years, enabling the repurchase of 23 percent of its stock over that period, or six percent of its outstanding shares per year. The investment bank said RenaissanceRe has a higher ROE and is more keenly focused on ROE than its peers in `cat' reinsurance.

Lehman Brothers also noted: "Importantly, share repurchases will likely reverse the companies declining earnings trend, with our estimates for average growth over the next five years at seven percent.

"We are increasing our 1997 estimate 10 percent to reflect the accretion of the share repurchase programme.'' The report, prepared by Peter Wade, vice president of the investment bank, said, "We are confident that management will act prudently with its capital and believe that it will likely meet our share repurchase expectations.

Management's most recent action further bolsters this view.

"Importantly, RenaissanceRe is not only returning its excess capital to investors but also has been able to do it in such a way that maintains liquidity in its shares and is most tax efficient.

"Overall, our view is that investors have yet to fully value RenaissanceRe's earning power, capital generation capabilities, and, disciplined management; instead, they remain focused on the firm's low earnings growth rate and perceived high earnings volatility.'' But Mr. Wade said the share repurchase programme has reversed the declining earnings and he predicts a positive increase for 1997 and beyond. In fact, Lehman Brothers boosted their 1997 earnings estimate 10 percent and are raising subsequent period estimates.

He added, "This dramatically increases our five year expected earnings growth rate to positive seven percent from negative five percent. Earnings growth should accelerate gradually over the next few years as unit growth and reinvestment opportunities increasingly offset price declines.

"In 1997, this relationship results in a 1.5 percent increase in earnings as we expect price declines of more than 10 percent.'' Lehman Brothers Inc. operates worldwide in capital raising for clients through securities underwriting and direct placements, corporate finance, merchant banking, securities sales and trading, institutional asset management and research services.

It was previously involved in the management of a public offering of the securities of RenaissanceRe Holdings.