On Jul 11, we downgraded global life and property-casualty
(P&C) insurer and reinsurer -
) - to Neutral based on its weak investment portfolio and high
competition. While the Presidio acquisition diversifies the
company's product profile, it brings in additional costs that
will weigh on margins at least for some time.
Why the Downgrade?
Estimates for PartnerRe witnessed modest corrections after the
company reported its first-quarter 2013 results on Apr 29,
wherein earnings stood at $3.39 per share. Earnings per share
outpaced both the Zacks Consensus Estimate and year-ago number of
$2.47 and $2.76, respectively. Overall, PartnerRe delivered
positive earnings surprises in all of the last 4 quarters with an
average beat of 151.1%.
However, total revenue edged down 2.6% year over year to $1.3
billion and was almost in line with the Zacks Consensus Estimate.
Growth from premiums written was more than offset by lower
While total expenses surged 13%, combined ratio improved to
81.7% from 84.7% in the year-ago period. In addition, technical
results and underwriting profitability improved, driving growth
in bottom line, book value per share and return on equity
Following the release of the first-quarter results, the Zacks
Consensus Estimate for 2013 inched up 1.8% to $9.25 per share in
the last 60 days. Moreover, the Zacks Consensus Estimate for 2014
edged up about 1.0% to $8.11 per share in the last 60 days.
With the Zacks Consensus Estimates for both 2013 and 2014
exhibiting no clear directional pressure in the near term and
estimates for both the years posing year-over-year deterioration,
PartnerRe now has a Zacks Rank #3 (Hold).
Cause for Concern
The recent acquisition of Presidio not only drove the premiums
of PartnerRe but also helped the company diversify. Presidio's
robust market presence and expert management should further
strengthen the company's fundamentals. However, concerns linger
over the sustainability of this growth amid the weak P&C
market and a history of challenges faced in the integration of
Moreover, intense competition, currency fluctuations, weak
credit spreads and low interest rate environment have restricted
investment income and yields, thereby limiting the desired
upsides. Nevertheless, PartnerRe enjoys above-average liquidity
and a low-risk balance sheet, which is reflected in its
consistent and efficient capital deployment. In the long run, a
stable ratings outlook, improved pricing and market stability can
help mitigate the cyclical declines.
Other Insurers That Warrant a Look
While we prefer to avoid PartnerRe until we gain more clarity
on the stock's performance, other P&C insurers and reinsurers
that are worth a look are
AmTrust Financial Services Inc.
HCI Group Inc.
American Safety Insurance Holdings Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
AMTRUST FIN SVC (AFSI): Free Stock Analysis
AMER SAFETY INS (ASI): Free Stock Analysis
HCI GROUP INC (HCI): Free Stock Analysis
PARTNERRE LTD (PRE): Free Stock Analysis
To read this article on Zacks.com click here.