Yesterday, property-casualty and life reinsurer -
PartnerRe Ltd.
(
PRE
) - projected about $88 million in pre-tax catastrophe (
CAT
) losses for the fourth quarter of 2011. This is primarily related
to the earthquakes that hit Japan in March this year.
The company has 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.
Additionally, PartnerRe will most likely incur an increased CAT
loss from the recent floods that hit Thailand in fourth-quarter
2011. Although a particular amount has not been computed,
management estimates the loss from Thailand floods to be within
0.5-1.0% of the total insured industry loss, which is anticipated
to be about $8-11 billion.
Another report generated by
Aon Corp
. (
AON
) also reveals that CAT loss from Thailand floods is expected to
surge over $10 billion. Meanwhile, Zurich-based Swiss Re is
expected to incur pre-tax CAT loss of over $0.5 billion related to
the aforementioned floods.
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. We expect these losses to escalate in 2011. We believe
such uncertainty and volatility in the magnitude of catastrophic
losses not only reduces financial flexibility and reserves of the
company but 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 $2.19 per share, up by a significant 44%
year over year, although it excludes the estimated CAT loss. Over
the last 30 days, none of the 14 analyst firms raised their
estimates, while a couple of downward revisions were witnessed.
However, earnings are expected to decline over 180% over 2010 to a
loss of $5.27 per share, reflecting increased CAT losses incurred
in the first three quarters of 2011.
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.
AON CORP (
AON
): Free Stock Analysis Report
PARTNERRE LTD (
PRE
): Free Stock Analysis Report
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