Earlier this week, the board of property-casualty and life reinsurer PartnerRe Ltd. ( PRE ) approved and authorized the extension of its stock repurchase program up to 7 million shares, thereby keeping up the trend of returning wealth to its shareholders from time to time, depending on market conditions.
The company bought back shares worth about $180 million during the third and fourth quarters of 2010. For the first nine months of 2011, PartnerRe had repurchased 2.8 million shares of its common stock for $227 million under the existing share repurchase plan.
As of September 2011, ParterRe has about 3.7 million common shares remaining under its current repurchase authorization. However, no stock was repurchased in the third quarter of 2011, while about 0.9 million shares has been bought back so far in the fourth quarter.
PartnerRe also has approximately 16.8 million common shares, which were held in treasury and are now available for re-issuance. Meanwhile, in May this year, the company's board has also hiked its regular quarterly dividend by 9% to 60 cents from 55 cents. This also marked the 20 th consecutive hike since the company was formed.
Since its inception, PartnerRe continues to return additional value to its shareholders through stock buybacks and dividend payments. The company's modest cash position and high quality liquid investment portfolio provide sufficient liquidity for the foreseeable future.
The recent stock repurchase and dividend hike also reflects PartnerRe's conservative investment strategy, reserve strength, low level of reinsurance recoverable and little reliance on retrocession reinsurance. Besides, a low level of debt obligations renders the company's balance sheet risk-free while also enhancing its operating leverage.
A stable ratings outlook affirmation from A.M. Best, S&P, Moody's Investor Service of Moody's Corp. ( MCO ) and Fitch Ratings further validates the company's overall operational synergies in order to augment its long-term growth profile. This is satisfactory compared with its peer group.
On the flip side, buying back shares will help PartnerRe in fewer share count, thereby increasing earnings per share and return on equity and excess cash of the company. While this method helps in enhancing investors' confidence, it only tends to virtually elevate the market value of the stock.
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 line with the Zacks #3 Rank, reflecting a short-term Hold recommendation.
On Wednesday, PartnerRe closed at $62.60, down 3.1%, on the New York Stock Exchange.