PartnerRe Assesses 4Q CAT Loss - Analyst Blog


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Yesterday, property-casualty and life reinsurer - PartnerRe Ltd. ( PRE ) - projected about $120 million in pre-tax catastrophe ( 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.

The total insured industry loss from Thailand floods is estimated to be over $15 billion. Besides, the company's estimated loss came in line with management's prior expectation of incurring CAT loss related to these floods within 0.5-1.0% of the total industry loss. In December 2011, another reinsurer Everest Re Group Ltd. ( RE ) estimated to incur about $100-125 million in CAT loss arising from these floods, during the fourth quarter 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 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.

As a result, the Zacks Consensus Estimate for the fourth quarter is currently pegged at 51 cents per share, down by a significant 67% year over year, although it excludes the estimated CAT loss. Over the last 30 days, 5 of the 16 analyst firms lowered their estimates, while no upward revisions were witnessed. However, earnings in 2011are expected to decline over 208% over 2010 to a loss of $6.94 per share, reflecting increased CAT losses. PartnerRe is scheduled to release its results after the market closes on February 6, 2012.

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. 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 ( PRE ): Free Stock Analysis Report
EVEREST RE LTD ( RE ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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