Ratings agency A.M. Best has placed
) and its subsidiaries under the radar based on the catastrophe (
) losses, which have harshly hit the company's financials in
Hence, the rating agency has put the company and its operations
under review with negative repercussions. A final say from the
rating agency is expected after the company releases its earnings
after the market closes on February 6, 2012. A.M. Best will analyse
and compare PartnerRe's capital position along with its
risk-bearing and risk-management capacities going forward, as
compared to its own historical financials and performance of its
A.M. Best's review follows PartnerRe's assessment of increased
CAT losses. Last week, the company projected about $120 million in
pre-tax CAT losses from the Thailand floods, which occurred in
October and November last year. This will be recorded in the fourth
quarter results of 2011.
Together with the Thailand floods, total CAT losses for the
fourth quarter of 2011 are now projected to be about $208 million.
This even includes an estimated $88 million from the impact of the
earthquakes that hit Japan in March last year.
Until the third quarter of 2011, PartnerRe had incurred a total
charge of about $730 million against the earthquake and tsunami in
Japan. The additional $88 million charge has been taken after
completing an intensive on-the-ground audit of the Japanese
exposure and claim processes.
As a result of these CAT losses, PartnerRe now expects post-tax
operating loss of $110-130 million for the fourth quarter of 2011
and $130-150 million or $1.95-2.25 per share for 2011.
So far PartnerRe has already recorded about $1.4 billion in
pre-tax CAT losses in the first nine months of 2011 itself, way
higher than $437 million in 2010, nil loss in 2009 and $305 million
in 2008. Along with the estimate for the fourth quarter, CAT losses
for 2011 are now expected to escalate to about $1.6 billion.
We believe that such uncertainty and volatility in the magnitude
of catastrophic losses besides reducing financial flexibility and
reserves of the company also weakens the underwriting capacity,
thereby draining out all the earnings resources.
Hence, A.M. Best has also shown caution over an unfavorable
operating environment in future, which could also adversely impact
its risk-adjusted capital.
However, until the final outcome of the review,PartnerRe had its
issuer credit rating (ICR) of "a-" and debt ratings reaffirmed by
A.M. Best, who also reassured the ICR of "aa-" and the financial
strength rating (
) of "A+" (Superior) for Partner Reinsurance Co. Ltd. and its
divisions. Previously, in August 2011, the rating agency had
affirmed these ratings with a stable outlook.
Overall, our near-term outlook on PartnerRe remains cautious on
the back of concerns regarding the successful Paris Re integration
and catastrophic losses, weak P&C market cycle and low
underwriting profitability. The company also faces intense
competition from peers such as
Everest Re Ltd.
W.R. Berkley Corp.
). In the long run, however, a stable rating outlook, improved
pricing and market stability can help in mitigating the cyclical
declines. Hence, we maintain a Neutral recommendation on the stock
in the long run, in line with the Zacks Rank #3, reflecting a
short-term Hold recommendation.
PARTNERRE LTD (
): Free Stock Analysis Report
EVEREST RE LTD (
): Free Stock Analysis Report
) CP (WRB): Free Stock Analysis Report
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