PartnerRe Ltd.’s (PRE) first quarter operating loss per share of $10.82 came in significantly higher than the Zacks Consensus Estimate of a loss of $7.68 per share and 60 cents recorded in the year-ago quarter. Operating loss substantially increased to $735.6 million from $50.4 million in the prior-year quarter.
Operating earnings were calculated after payment of preferred dividends. This excluded after-tax net realized and unrealized investment losses of $88.4 million or $1.30 per share for the reported quarter, compared to gains of $110.6 million or $1.33 per share in the year-ago quarter.
Including these items, GAAP net loss for PartnerRe was $807.0 million or $11.99 per share, down from GAAP net income of $79.7 million or 85 cents per share in the year-ago quarter.
Results reflected underperformance on the back of higher catastrophe (CAT) losses, declining premiums written and earned, poor underwriting results and lower investment income driven by low reinvestment rates that led to negative top line and book value growth. Moreover, total expenses soared up 41.7% year over year to $1.37 billion.
Non-life combined ratio also deteriorated to 193.7% from 116.9% in the year-ago period. This reflects 115.8 points or $1.02 billion due to huge loss from the recent catastrophes in Japan, New Zealand and Australia, while an additional 16.1 points or $142 million is related to net favorable loss development on prior accident years during the reported quarter.
Besides, technical ratio deteriorated for all the segments. The technical result for the reported quarter was a negative $751 million compared with a negative $79 million in the year-ago quarter. These factors adversely impacted the bottom line.
PartnerRe’s total revenue plunged 25.0% to $1.11 billion from $1.47 billion in the year-ago quarter, and also lagged the Zacks Consensus Estimate of $1.25 billion. This included net premiums earned of $1.06 billion (down 7.7% year over year), net investment income of $151.6 million (down 12.4% year over year), pre-tax net realized and unrealized investment loss of $112.2 million, compared to gains of $147.5 million in the year-ago quarter and other income of $1.8 million, up from $1.3 million in the year-ago period.
Net premiums written decreased 17.6% year over year to $1.47 billion. Overall, premiums earned witnessed weak performance across most business segments, while experiencing negative growth across the U.S., Global Property and Casualty (P&C) and Global Speciality business segments, marginally offset by the Life segment.
Financial Update
As of March 31, 2011, PartnerRe’s total assets were $23.9 billion, up from $23.4 billion at December 31, 2010. Total investments, cash and funds held and directly managed remained flat at $18.2 billion. As of March 31, 2011, total capital was $7.0 billion (down from $8.0 billion at 2010-end) and total shareholders' equity was $6.2 billion, down from $7.2 billion from the 2010 end.
The decline in total capital and equity were primarily due to the comprehensive loss, which was driven by the net loss and was partially offset by an increase in the currency translation account. This also reflects share repurchases and dividends paid during the quarter.
PartnerRe's net non-life loss and loss expense reserves escalated by 11% to $11.5 billion from prior-quarter end, primarily due to the impact of catastrophic events during the reported quarter. PartnerRe’s book value per common share declined to $82.50 when compared with $93.77 at the end of 2010.
Annualized operating return on equity (ROE) came in at negative 46.1% for the reported quarter, up from positive 6.3% at the end of prior quarter, while annualized net income ROE came in at a negative 51.2%, significantly down from 2.7% in the prior quarter.
Share Repurchase Update
During the reported quarter, PartnerRe bought back 2.8 million common shares for approximately $227 million. Consequently, the company has about 3.7 million common shares remaining under its current repurchase authorization, at the end of the quarter.
Dividend Update
Last week, the board of PartnerRe announced a 9% hike in its regular quarterly dividend. As a result, a quarterly dividend of 60 cents, up from 55 cents, is scheduled for payment on July 1, to shareholders of record on May 20, 2011.
Accordingly, the annual dividend was raised to $2.40 per share from $2.20 per share paid previously. The recent dividend increment also marked the 20th consecutive hike since the company was formed.
Our Take
Although PartnerRe enjoys above-average liquidity and a low-risk balance sheet, concerns regarding the successful Paris Re integration and catastrophic losses overweigh the positive. While dividend increment and share repurchases reflect efficient capital deployment and reserve strength, declined pricing, non-renewal of businesses including stringent terms on renewals and restructuring of other business will lead to challenging times at least for the next few quarters.
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 our Neutral stance on PartnerRe with a short-term Zacks #3 Rank on the stock.
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