PartnerRe Ltd.’s (PRE) fourth-quarter 2011
operating loss per share of $2.06 came in slightly lower than the
Zacks Consensus Estimate of a loss of $2.10 but significantly
lagged behind the earnings of $1.33 recorded in the year-ago
quarter. As a result, operating loss substantially plunged to
$137.7 million from an income of $98.8 million in the prior-year
quarter.
Operating earnings were calculated after payment of preferred
dividends. This also excluded after-tax net realized and unrealized
investment gains of 85 cents per share for the reported quarter and
net foreign exchange gains of 75 cents per share, partially offset
by interest loss of 3 cents per share from equity investments.
Meanwhile, the year-ago quarter recorded net adjustment of a loss
of 68 cents per share.
Including these items, GAAP net loss for PartnerRe was $17.6
million or 49 cents per share, down from an income of $57.0 million
or 66 cents per share in the year-ago quarter.
Results deteriorated year over year on the back of declining
premiums earned due to cancellations and non-renewals, poor
underwriting results, higher catastrophe losses and lower
investment income driven by low reinvestment and risk-free rates
that led to reduced top line and weak book value growth. Moreover,
total expense climbed 16.4% year over year to $1.43 billion.
Non-life combined ratio also deteriorated to 121.7% from 94.6%
in the year-ago period. This reflects 12.4 points or $120 million
due to huge loss from the recent Thailand floods and 21.6 points or
$210 million from net losses on prior quarter events, while an
additional 5.3 points or $52 million is related to net favourable
loss development on prior accident years during the reported
quarter.
Besides, technical ratio deteriorated for all the segments. The
technical result for the reported quarter was a loss of $127
million against a positive $140 million in the year-ago quarter.
These factors adversely impacted the bottom line.
PartnerRe’s total revenue improved 9.9% to $1.42 billion from
$1.29 billion in the year-ago quarter, and also exceeded the Zacks
Consensus Estimate of $1.28 billion. This included net premiums
earned of $1.18 billion (down 1.9% year over year), net investment
income of $155.5 million (down 3.3% year over year), pre-tax net
realized and unrealized investment gains of $74.6 million as
opposed to losses of $83.2 million in the year-ago quarter and
other income of $3.1 million, down from $5.1 million in the
year-ago period.
However, net premiums written climbed 7.2% year over year to
$879.9 million. Overall, premiums earned witnessed weak performance
across most business segments. Negative growth was experienced
across the catastrophe, non-life, life and the global property and
casualty (P&C) segments, partly offset by North America and
non-U.S. global speciality segments.
Full-Year 2011 Highlights
For full year 2011, PartnerRe recorded operating loss of $641.6
million or $9.50 per share against earnings of $491.8 million or
$6.29 per share in 2010, also exceeding the Zacks Consensus
Estimate of a loss of $9.48 per share.
Besides, the GAAP net loss came in at $520.3 million or $8.40
per share, drastically behind the net income of $852.6 million or
$10.46 per share in 2010. Meanwhile, total revenue plunged 8.7% to
$5.35 billion from $5.86 billion in the year-ago period, but
exceeded the Zacks Consensus Estimate of $5.2 billion.
Total expenses also escalated 18.5% year over year to $5.8
billion in 2011. Total pre-tax catastrophe losses rose to $1.79
billion against $437 million in 2010. Non-life combined ratio
also deteriorated to 121.7% from 94.6% in the year-ago period.
Financial Update
As of December 31, 2011, PartnerRe’s total assets were $22.86
billion, down from $23.36 billion at December 31, 2010. Total
investments, cash and funds held and directly managed stood at
$17.9 billion, down 2% from 2010. As of December 31, 2011, total
capital was $7.3 billion (down from $8.0 billion at 2010-end) and
total shareholders' equity was $6.5 billion, down from $7.2 billion
at 2010-end.
The decline in total capital and equity were primarily due to
the comprehensive loss of $537 million, which was driven by the net
loss. This also reflects preferred share issuance, repurchases and
dividends paid in 2011.
PartnerRe's net non-life loss and loss expense reserves
escalated by 6% to $10.9 billion from 2010-end, primarily due to
the impact of catastrophic events during 2011. The company’s book
value per common share declined to $84.82 when compared with $93.77
at the end of 2010.
Annualized operating return on equity (ROE) deteriorated to a
negative of 8.8% for the reported quarter (up from 10.3% at the end
of prior quarter) while annualized net income ROE came in at a
negative of 2.1%, significantly down from 10.4% in the prior
quarter. Operating ROE and net income ROE came in at a negative of
10.1% and 9.0%, respectively, in 2011.
Share Repurchase Update
On November 21, 2011, the board of PartnerRe approved and
authorized the extension of its stock repurchase program up to 7.0
million shares, depending on the market conditions. Meanwhile,
about 3.7 million common shares were already available for
repurchase under its previous authorization.
Accordingly, the company bought back about 2.6 million shares
for $170 million during the reported quarter. PartnerRe repurchased
a total of 5.4 million shares for $396 million in 2011, leaving
about 5.3 million shares available for repurchases under the
current authorization.
Dividend Update
On February 2, 2012, the board of PartnerRe announced a 3% hike
in its regular annual dividend to $2.48 per share from $2.40 per
share. This marks the nineteenth consecutive year that the company
has increased the common share dividend since its inception in
1993.
Consequently, the hiked quarterly dividend of 62 cents per share
will be paid on March 1, 2012, to shareholders of record as on
February 17, 2012.
On December 1, 2011, PartnerRe paid a regular quarterly dividend
of 60 cents per share to its shareholders of record as on November
18, 2011.
Our Take
Although PartnerRe enjoys above-average liquidity and a low-risk
balance sheet, concerns regarding the successful Paris Re
integration and catastrophic losses overweigh the positives. While
dividend payouts and share repurchases reflect efficient capital
deployment and reserve strength; declined pricing, risks related to
renewal of businesses including stringent renewals and
restructuring terms for other businesses will surface further
challenges at least in the next few quarters.
Taking a look at the peer group, Everest Re Group
Ltd. (RE) is scheduled to announce its financial results
after the market closes on February 8, 2012, while
MontpelierRe Holdings Ltd. (MRH) is slated to
release its results after the market closes on February 9, 2012.
Other insurers in the industry such as Allstate
Corp. (ALL) have also faced the brunt of severe
catastrophe losses in 2011.
Overall, we hold a cautious near-term outlook for PartnerRe on
the back of concerns regarding the successful Paris Re integration
and catastrophic losses, weak P&C market cycle and low
underwriting profitability. Last month, ratings agency A.M. Best
also put the company and its operations under review with negative
repercussions. A final say from the ratings agency is expected soon
now that the company has released its financial results.
In the long run, however, improved pricing and interest rates
along with market stability can help mitigate the cyclical
declines. Hence we maintain our ‘Neutral’ stance on PartnerRe with
a short-term Zacks Rank #3 on the stock.
ALLSTATE CORP (ALL): Free Stock Analysis Report
MONTPELIER RE (MRH): Free Stock Analysis Report
PARTNERRE LTD (PRE): Free Stock Analysis Report
EVEREST RE LTD (RE): Free Stock Analysis Report
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