PartnerRe Reports Q3 & Nine Month Results

Bermuda’s PartnerRe Ltd. yesterday [Oct.31] reported net income of $180.1 million, or $2.43 per share on a fully diluted basis for the third quarter of 2011. This net income includes net after-tax realised and unrealised gains on investments of $6.2 million, or $0.09 per share.

Net income for the third quarter of 2010 was $524.9 million, or $6.76 per share on a fully diluted basis, including net after-tax realized and unrealized gains on investments of $233.0 million, or $3.05 per share. The company recorded operating earnings of $164.5 million, or $2.41 per share on a fully diluted basis, for the third quarter of 2011. This compares to operating earnings of $301.6 million, or $3.95 per share, for the third quarter of 2010.

Net loss for the first nine months of 2011 was $502.6 million, or $7.88 per share. This net loss includes net after-tax realized and unrealized losses on investments of $41.3 million, or $0.61 per share. Net income for the first nine months of 2010 was $795.5 million, or $9.68 per share, including net after-tax realized and unrealized gains on investments of $373.3 million, or $4.69 per share. Operating loss for the first nine months of 2011 was $503.9 million, or $7.43 per share on a fully diluted basis. This compares to operating earnings of $393.0 million, or $4.94 per share, for the first nine months of 2010.

Based in Bermuda, PartnerRe Ltd. was formed in 1993, raising nearly $1 billion in an Initial Public Offering to capitalise on the void in catastrophe reinsurance capacity following Hurricane Andrew and the concurrent difficulties faced by Lloyds of London.

While beginning as a pure property reinsurer, the company has become a dynamic and diversified property-casualty [P&C] and life reinsurer over the years, covering catastrophe, automobile, agricultural, credit and surety, marine, space and aviation, miscellaneous casualty, and life/health risks. Since 1997, the company has been a leading international reinsurance company that writes multi-line reinsurance on a pro-rata as well as excess of loss basis and offers both treaty and facultative contracts.

Commenting on results for the third quarter and first nine months of 2011, PartnerRe president and CEO Costas Miranthis said, “We had respectable third quarter results overall, with a 10.3 percent annualised operating return on equity [ROE], which is below our long term ROE goal, but reasonable given the current low interest rate environment.”

Mr. Miranthis added, “The third quarter benefitted from the absence of large catastrophic losses, and also from the fact that reported losses were considerably lower than expectations, resulting in favorable reserve development. Results were negatively impacted, however, by an increase in our provisions for the earthquake events of the first quarter. This increase reflects our revised view of ultimate losses incorporating most recently available information including cedants’ own estimate of loss.”

“As we approach the January 1 renewals, we are cautiously optimistic about market trends,” Mr. Miranthis said. “We are beginning to see price increases in many lines, particularly short tail lines, as well as increased demand for reinsurance. Our strong capital base positions us well to take advantage of any opportunities. We will assess such opportunities, as well as other capital management alternatives, with the objective of maximizing the growth of our economic value per share over the medium term.”
Highlights for the third quarter and first nine months of 2011 include:

Results of operations:

For the third quarter, net premiums written were up nine percent, or two percent on a constant foreign exchange basis, to $1.1 billion primarily related to new business and increased treaty participations within the Global [Non-US] Specialty sub-segment, increased agricultural premiums within the North America sub-segment and increased premiums in its Life segment. These increases were partially offset by the effect of the company’s decisions in prior quarters to cancel and non-renew business in order to reposition its portfolios, and also reflects a continued competitive pricing environment in many markets. For the first nine months of 2011, net premiums written were down seven percent to $3.6 billion across all sub-segments, except for the North America sub-segment and Life segment, primarily due to the effect of the cancellations and non-renewals described for the third quarter, while foreign exchange increased net premiums written by two percent.

For the third quarter, net premiums earned were down one percent to $1.3 billion primarily due to the impact of the cancelled and non-renewed business in the Global [Non-US] P&C, Catastrophe and Global [Non-US] Specialty sub-segments, which was partially offset by the favorable impact of foreign exchange and the growth in the North America sub-segment’s agriculture business. For the first nine months of 2011, net premiums earned were down three percent to $3.5 billion primarily for the same reasons described for the third quarter.

For the third quarter, the Non-life combined ratio was 93.1 percent. The Non-Life combined ratio included 16.5 points (or $178 million) of net adverse prior quarter loss development, which was primarily related to the Japan earthquake and resulting tsunami, the February 2011 New Zealand earthquake and other mid-sized loss events that occurred during the first half of 2011, and 16.2 points [or $176 million] of net favorable loss development on prior accident years. For the first nine months of 2011, the Non-life combined ratio was 126.7 percent and included 47.1 points [or $1,346 million] related to the 2011 catastrophic events including the Japan earthquake, the New Zealand earthquake, the April and May 2011 US tornados, the Australian cyclone and flood events and losses related to an aggregate contract covering events in Australia and New Zealand — together “the 2011 catastrophic events” — and included 16.7 points [or $479 million] of net favorable loss development on prior accident years.

For the first nine months of 2011, our total direct losses related to the 2011 catastrophic events are estimated to be $1,403 million pre-tax, net of reinstatements, reinsurance and commission adjustments, and include $1,346 million in ther Non-life segment, $3 million in the Life segment and $54 million in the Corporate & Other segment primarily related to insurance-linked securities.

For the third quarter, net investment income was flat at $164 million primarily reflecting lower reinvestment rates, which was partially offset by the positive impact of foreign exchange of 3 percent. For the first nine months of 2011, net investment income was down seven percent to $474 million primarily due to lower reinvestment rates.

For the third quarter, pre-tax net realized and unrealized investment gains were $26 million and primarily related to decreases in risk-free interest rates, partially offset by widening credit spreads and losses from equity securities. For the first nine months of 2011, pre-tax net realized and unrealized investment losses were $8 million primarily due to widening credit spreads and losses from equity securities, which were partially offset by decreases in risk free interest rates.

For the third quarter, the effective tax rate on operating earnings and non-operating earnings was six percent and 96 percent, respectively. For the first nine months of 2011, the effective tax rate on operating losses and non-operating losses was [six] percent and 522 percent, respectively.

Balance sheet and capitalization:

Total investments, cash and funds held — directly managed at September 30, 2011 were flat at $18.2 billion compared to December 31, 2010.

Net Non-life loss and loss expense reserves were up seven percent to $11.0 billion at September 30, 2011 when compared to December 31, 2010, primarily due to the impact of the 2011 catastrophic events.

Net policy benefits for life and annuity contracts were down four percent to $1.7 billion when compared to December 31, 2010.

Total capital was $7.5 billion at September 30, 2011, down six percent from $8.0 billion at December 31, 2010. The decrease was primarily due to the comprehensive loss of $515 million for the first nine months of 2011, which was driven by the net loss of $503 million and a decrease of $11 million in the currency translation account, and also reflects the issuance of $374 million 7.25 percent Series E Cumulative Redeemable Preferred Shares in June 2011, share repurchases and dividends paid in 2011.

Total shareholders’ equity was $6.7 billion at September 30, 2011 compared to $7.2 billion at December 31, 2010. The decrease was primarily driven by the factors described above under total capital.

Book value per common share at September 30, 2011 was $85.26 on a fully diluted basis compared to $93.77 per diluted share at December 31, 2010.

Segment and sub-segment highlights for the third quarter and first nine months of 2011 include:

Non-life:

For the third quarter of 2011, all Non-life sub-segments, except for the Global (Non-U.S.) P&C sub-segment, reported an increase in net premiums written compared to the third quarter of 2011 due to new business, increased treaty participations and increased bound premiums in certain lines of business. For the first nine months of 2011, all sub-segments, with the exception of the North America sub-segment, reported a reduction in net premiums written compared to the first nine months of 2010. The reductions in net premiums written primarily related to the effect of the company’s decision to cancel and non-renew business in prior periods in order to reposition portfolios, including a reduction in the exposure and limits of its catastrophe exposed business, and also reflects a continued competitive pricing environment in many markets.

For the third quarter, the North America sub-segment’s net premiums written were up eight percent primarily due to an increased level of bound agricultural premiums for the 2011 underwriting year compared to the 2010 underwriting year. This sub-segment reported a technical ratio of 82.7 percent, which included $75 million, or 22.7 points, of net favorable prior year loss development and $10 million, or 2.9 points, of net adverse prior quarter loss development.

For the first nine months of 2011, the North America sub-segment’s net premiums written were up five percent primarily due to the same factors describing the third quarter. This sub-segment reported a technical ratio of 90.1 percent, which included $169 million, or 19.9 points, of net favorable prior year loss development and $51 million, or 6.0 points, of losses related to the 2011 catastrophic events.

For the third quarter, the Global [Non-US] P&C sub-segment’s net premiums written were down nine percent, or 21 percent on a constant foreign exchange basis, due to the effect of cancellations and non-renewals in prior quarters in all lines of this sub-segment, driven by decreases in pricing and a reduction in catastrophe exposed business. This sub-segment reported a technical ratio of 79.8 percent, which included $35 million, or 18.1 points, of net favorable prior year loss development. For the first nine months of 2011, the Global [Non-US] P&C sub-segment’s net premiums written were down 25 percent, due to the same reasons describing the third quarter. This sub-segment was less affected by catastrophe losses for the first nine months of 2011 compared to the same period last year and reported a technical ratio of 92.5 percent, which included $53 million, or 9.4 points, attributable to the 2011 catastrophic events and $90 million, or 15.8 points, of net favorable prior year loss development.

For the third quarter, the Global [Non-US] Specialty sub-segment’s net premiums written were up 23 percent, or 15 percent on a constant foreign exchange basis, primarily due to new business and increased treaty participations, within the specialty property, marine and credit/surety lines of business, which were partially offset by the effects of the repositioning of the company’s portfolio. This sub-segment’s technical ratio of 91.0 percent included $30 million, or 8.3 points, of net favorable prior year loss development. For the first nine months of 2011, the Global [Non-US] Specialty sub-segment’s net premiums written were down nine percent, due mainly to the company’s decision to cancel and non-renew business in order to reposition its portfolios and the decrease in specialty casualty renewals written at January 1, 2011. These declines in net premiums written were partially offset by the factors describing the increase in net premiums written during the third quarter of 2011. This sub-segment’s technical ratio of 89.6 percent included $122 million, or 12.0 points, of net favorable prior year loss development and $31 million, or 3.0 points, of losses related to the 2011 catastrophic events.

For the third quarter, the Catastrophe sub-segment’s net premiums written were up 2% from $87 million in 2010 to $89 million in 2011. Net premiums written were down four percent on a constant foreign exchange basis and reflect a continuing reduction of certain catastrophe limits and exposures as part of the portfolio rebalancing, which was partially offset by new business written and improved pricing in certain markets. This sub-segment’s technical ratio of 92.4% included net adverse prior quarter loss development of $165 million, or 83.2 points, primarily related to the Japan earthquake and New Zealand earthquake and other mid-sized loss events that occurred during the first half of 2011, and $36 million, or 18.2 points, of net favorable prior year loss development. For the first nine months of 2011, the Catastrophe sub-segment’s net premiums written were down 15% primarily due to the reduction of certain catastrophe limits and exposures described for the third quarter of 2011. This sub-segment reported a technical loss for the first nine months of 2011, which included $1,211 million, or 284.6 points, of losses related to the 2011 catastrophic events and $98 million, or 22.6 points, of net favorable prior year loss development.

Life:

For the third quarter, the Life segment’s net premiums written increased by six percent. Without the favorable effect of foreign exchange, net premiums written would have decreased by 4% primarily due to the restructuring of a longevity treaty from a traditional treaty to a swap basis during the first quarter of 2011. This segment’s technical result was $2 million and reflected net adverse loss development of $5 million. For the first nine months of 2011, the Life segment’s net premiums written increased by 12%. Without the favorable effect of foreign exchange, net premiums written would have increased by seven percent due to growth in the longevity and mortality business compared to the same period in 2010. This segment’s technical result was $20 million and reflected net adverse loss development of $4 million.

The Life allocated underwriting result, which includes the technical result, allocated investment income and operating expenses, was $9 million for the third quarter of 2011 comparable to $10 million in the same period in 2010. The Life allocated underwriting result increased to $32 million for the first nine months of 2011 compared to $10 million in the same period in 2010 which was primarily due to a charge of $20 million recorded in the second quarter of 2010 related to an impaired life annuity treaty.

Corporate and Other:

For the third quarter, investment and capital markets activities contributed $167 million to pre-tax net income, excluding investment income allocated to the Life segment. Of this amount, $146 million was included in pre-tax operating earnings and an additional $21 million in net realized and unrealized gains on investments and losses from equity investee companies in pre-tax net income. For the first nine months of 2011, investment and capital markets activities contributed income of $403 million to pre-tax net loss, excluding Life investment income. Of this amount, income of $416 million was included in pre-tax operating loss and $13 million in net realized and unrealized losses on investments and losses from equity investee companies in pre-tax net loss.

Separately, as announced by the company today, the board of directors declared a quarterly dividend of $0.60 per common share. The dividend will be payable on December 1, 2011, to common shareholders of record on November 18, 2011, with the stock trading ex-dividend commencing November 16, 2011.

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