PartnerRe Ltd. (PRE)

PRE 
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PartnerRe Ltd. (PRE)

Q2 FY08 Earnings Call

July 29, 2008, 10:00 AM ET

Executives

Robin Sidders - Manager of IR

Patrick Thiele - President and CEO

Albert Benchimol - EVP and CFO, PartnerRe Ltd., CEO, Capital Markets

Analysts

Jay H. Gelb - Lehman Brothers

Doug Mewhirter - RBC Capital Markets

Matthew Heimermann - J.P. Morgan

William Wilt - Morgan Stanley

Vinay Misquith - Credit Suisse

Susan Spivak - Wachovia Securities

Thomas Cholnoky - Goldman Sachs

Brian Meredith - UBS Securities

Presentation

Operator

Before we begin the call, I would like to remind all participants that they are in a listen-only mode. [Operator Instructions]. If you have not received a copy of this press release, that is posted on the company's website at www.partnerre.com or you can call 212-687-8080 and one will be faxed to you right away. This call is being recorded.

At this time I'd like to turn the conference over to Mr. Robin Sidders, Manager of Investor Relations at PartnerRe, who will begin the call.

Robin Sidders - Manager of Investor Relations

Good morning. And welcome to PartnerRe's Second Quarter and Half Year 2008 Earnings Conference Call webcast. As a reminder our second quarter financial supplement can be found on our website at www.partnerre.com, in the Investor Relation's section by clicking on supplementary financial data on the Financial Reports page.

On today's call are Patrick Thiele, President and CEO of PartnerRe and Albert Benchimol, Executive Vice President and CFO of PartnerRe. Patrick will start with an overview of the second quarter and year-to-date and then hand over to Albert, who'll provide more details on the results. Patrick will come back at the end and conclude with some additional commentary then we'll open up the call for question and answers.

I'll begin with the Safe Harbor Statements. Forward-looking statements contained in this call are based on the Company's assumptions and expectations concerning future events and financial performance, and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. PartnerRe's forward-looking statements could be affected by numerous foreseeable and unforeseeable events and developments such as exposure to catastrophe or other large property and casualty losses, adequacy of reserves, risks associated with implementing business strategies, levels and pricing of new and renewal business achieved, credit, interest, currency, and other risks associated with the company's investment portfolio, changes in accounting policies and other factors identified in the company's filings with the SEC.

In light of the significant uncertainties inherent in the forward-looking information contained herein, listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company disclaims any obligation to publicly update or revise any forward-looking information or statements.

In addition, during the call, management will refer to some non-GAAP measures when talking about the company's performance. You could find a reconciliation of those measures to GAAP measures in the company's financial supplement.

With that, I'll hand the call over to Patrick.

Patrick Thiele - President and Chief Executive Officer

Thanks Robin and welcome everyone. We had a strong second quarter and first half of 2008 with very exceptional results. To date this year, we have achieved a 15.5% annualized operating ROE and a 3% growth in book value per share. Despite the noise in the second quarter in our net income, as a consequence of our adopting FAS 159, we achieved good second quarter results, with 35% growth in operating income, 11% growth in net investment income, and 6% growth in net premiums written. The growth in premiums, much of which is due to FX was achieved in spite of a softening market and highlights our preferred position within the market.

Albert will walk you through the second quarter and year-to-date results but I'd like to highlight a few key points. First, without saying much more about the impact of FAS 159, it is worth noting that it is not a reflection of the quality of our investment portfolio. Of our $12 billion investment portfolio, 89% is in fixed income of which 59% are AAA rated bonds. The increase in risk-free rates is what led to the unrealized losses in this quarter, not subprime, not CDOs and not equities.

Second, we have as long been our practice, taken a prudent view of setting our reserves as our best estimate of relevant losses. This quarter we did that in our U.S. Ag business, where we saw a significant flooding in Iowa and Illinois during the second quarter. We know that there will be some level of loss and as we discussed last quarter, we know that these estimated losses won't be reported to us until at least the third quarter. Nevertheless, we have increased our loss picks while we wait for a more precise indication of what level of losses will emerge.

Similarly, we have discussed industry losses on U.S. D&O related to the credit crisis, and we see no reason at this point to change our estimate of industry losses from our initial pick of approximately $6 billion to $10 billion. Within that context, loss reporting is developing as expected. By our count, the number of credit related security class action lawsuits have increased to 91 as of June 30th. We have continued reserve at a level that we believe will prove to be prudent in coming years. And we will update that view of all that at year around.

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