Cost Control Boosts PartnerRe' 2Q - Analyst Blog


PartnerRe Ltd. 's ( PRE ) second-quarter 2012 operating earnings per share of $2.20 significantly surpassed the Zacks Consensus Estimate of $2.02 and the year-ago earnings of 98 cents. As a result, operating net income soared to $142.0 million from $67.2 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 29 cents per share and net foreign exchange losses of 2 cents per share, partially offset by interest loss of 1 cent per share from equity investments. The year-ago quarter had recorded net adjustment loss of 71 cents per share.

Including these items, GAAP net income for PartnerRe stood at $176.1 million or $2.50 per share against $124.2 million or $1.69 per share in the year-ago quarter.

Results benefited year over year from improved underwriting and technical results coupled by a significant reduction in the total expenses and combined ratio, which also drove the earnings, return on equity (ROE) and book value. However, top line deteriorated due to low net realized and unrealized investment gains, continued decline in premiums earned due to cancellations and non-renewals in the prior quarters, along with lower investment income driven by low reinvestment and risk-free rates.

During the reported quarter, total expense plunged 9.5% year over year to $1.06 billion. Non-life combined ratio also recovered to 90.6% from 101.7% in the year-ago period. This reflects 12.9 points or $115 million related to net favourable loss development on prior accident years.

Moreover, technical ratio improved for all the segments. The technical result for the reported quarter was a positive of $152 million against $64 million in the year-ago quarter. These factors supported the underwriting profits and bottom-line growth.

Meanwhile, PartnerRe's total revenue slipped 4.5% to $1.29 billion from $1.35 billion in the year-ago quarter, although it exceeded the Zacks Consensus Estimate of $1.23 billion. This included net premiums earned of $1.09 billion (down 1.5% year over year), net investment income of $153.5 million (down 3.0% year over year), pre-tax net realized and unrealized investment gains of $38.1 million against $78.2 million in the year-ago quarter and other income of $2.7 million, up from $1.6 million in the year-ago period.

However, net premiums written climbed 7.5% year over year to $1.14 billion. Overall, premiums earned witnessed weak performance across most business segments. Catastrophe, n non-U.S. global speciality and life segments witnessed declines, partly offset by slight growth in North America and non-U.S. global property and casualty (P&C) segments.

Financial Update

As of June 30, 2012, PartnerRe's total assets were $23.07 billion, up from $22.86 billion at 2011-end. Total investments, cash and funds held and directly managed stood at $17.8 billion, down 1% from 2011. As of June 30, 2012, total capital was $7.5 billion (up from $7.3 billion at 2011-end) and total shareholders' equity was $6.7 billion, up 4% from $6.5 billion at 2011-end.

However, PartnerRe's net non-life loss and loss expense reserves reduced by 5% to $10.3 billion from 2011-end, primarily due to the impact of catastrophic events during 2011. The company's book value per common share increased to $91.88 when compared with $84.82 at the end of 2011.

Annualized operating ROE soared to 10.4 % in the reported quarter (down from a 13.0% at the end of prior quarter), while annualized net income ROE stood at 11.8%, significantly down from a 24.7% in the prior quarter.

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 3.0 million shares for $210 million during the reported quarter. Besides, an additional 0.35 million shares have been repurchased for $26 million so far in the third quarter of 2012, until July 27, 2012, leaving about 1.8 million shares available for repurchases under the current authorization.

Dividend Update

Concurrently, the board of PartneRe declared a regular dividend of 62 cents payable on August 31, 2012, to the shareholders of record as on August 20, 2012.

On June 1, 2012, PartneRe paid a regular dividend of 62 cents to the shareholders of record as on May 21, 2012.

On February 2, 2012, PartnerRe had hiked its regular annual dividend by 3% to $2.48 per share from $2.40 per share. This marked the nineteenth consecutive year that the company has increased the common share dividend since its inception in 1993.

Our Take

So far in this quarter, most of PartnerRe's peer group have booked profits due to the absence of catastrophe losses and lower claims. Last week Everest Re Group Ltd. ( RE ) reported second-quarter 2012 operating earnings of $4.25 per share, substantially higher than the Zacks Consensus Estimate of $3.83. Results surged 73% from $2.46 earned in the prior-year quarter, primarily benefiting from lower claims expenses along with a modest revenue increase.

Another peer, MontpelierRe Holdings Ltd. ( MRH ) reported second-quarter 2012 operating earnings of 74 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. Results exhibited a massive improvement from 8 cents earned in the prior-year quarter.

Overall, we hold a cautious near-term outlook for PartnerRe on the back of concerns regarding the product pricing and weak P&C market cycle along with low premiums generation, credit spreads and investment risk. Nevertheless, a stable outlook from rating agencies backed by meaningful debt de-leveraging, conservative reserving practices, overall operational synergies from strong competitive position, disciplined expense management, above-average liquidity, a low-risk balance sheet, effective capital deployment and solid long-term operating profitability strengthens the company's long-term growth profile.

In the long run, improved pricing and interest rates along with market stability can help mitigate the cyclical declines. Hence we maintain our Outperform stance on PartnerRe with a short-term Zacks Rank #2 on the stock, which implies a Buy rating.

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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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: MRH , PRE , RE

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