On Nov 22, we upgraded our recommendation on PartnerRe Ltd. (PRE) to Outperform based on its improved risk profile, underwriting capabilities and the latest acquisition of Presidio Reinsurance, all of which are showing positive results.
Why the Upgrade?
Estimates for this global life and property-casualty insurer and reinsurer witnessed significant corrections after the company reported its third-quarter 2013 results on Oct 28. Both operating earnings of $5.70 per share and total revenue of $1.56 billion topped the Zacks Consensus Estimate of $2.32 a share and $1.43 billion, respectively, during the third quarter.
Earnings also remarkably exceeded the year-ago quarter number of $3.90 a share by 46.2%, although total revenue dipped 4.1% from the prior-year quarter.
Higher premiums and lower catastrophe losses boosted underwriting and technical results, while also improving the combined ratio, ROE and book value per share. Overall, PartnerRe delivered positive earnings surprises in all the last 4 quarters with an average beat of 163.6%.
Following the release of the third-quarter results, the Zacks Consensus Estimate for 2013 surged 35.5% to $12.22 per share in the last 30 days. Moreover, the Most Accurate Estimate for PartnerRe’s 2013 earnings stands at $12.56 a share, resulting in a positive Earnings ESP of 2.8%.
Further, the Zacks Consensus Estimate for 2014 edged up 2 cents per share to $9.44 in the last 30 days. Meanwhile, no downward revision in estimates was witnessed for both the years. With the Zacks Consensus Estimate on both fronts exhibiting strong upward pressure in the near term, PartnerRe now has a Zacks Rank #1 (Strong Buy).
PartnerRe enjoys a diversified business model, further strengthened by Presidio Reinsurance acquisition. Although investment returns have remained challenged, meaningful changes made in the company’s catastrophic risk-profile have improved its operating leverage. Moreover, PartnerRe’s strong market presence is driving the growth momentum, whereas stable equity returns in 2012 and so far in 2013 cast a favorable outlook for the upcoming quarters.
Additionally, PartnerRe enjoys above-average liquidity and a low-risk balance sheet, which is reflected in its consistent and efficient capital deployment and dividend increment. In the long run, a stable ratings outlook, improved pricing and market stability will help it generate higher underwriting profitability and investment returns.
Other Insurers That Warrant a Look
Apart from PartnerRe, other stocks worth considering in the insurance sector are Montpelier Re Ltd. (MRH), HCI Group Inc. (HCI) and CNA Financial Corp. (CNA). All these stocks carry a Zacks Rank #1 (Strong Buy).
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