PartnerRe Ltd. Reports Third Quarter and Nine Month 2017 Results

November 16, 2017

PartnerRe Ltd. Reports Third Quarter and Nine Month 2017 Results

  • Third Quarter Net Loss of $84 million, driven by $437 million after-tax loss related to the hurricanes Harvey, Irma and Maria
  • Non-life combined ratio of 109.8%, driven by a 135.8% combined ratio in the P&C segment and a 76.3% combined ratio in the Specialty segment
  • Book Value or common shareholder’s equity of $6.1 billion, a 0.9% decrease compared to June 30, 2017 and a 2.0% increase compared to December 31, 2016

PEMBROKE, Bermuda, November 16, 2017 – PartnerRe Ltd. (“the Company”) today reported a net loss available to common shareholder of $84 million for the third quarter of 2017 compared to net income of $240 million for the same period of 2016. Net income or loss available to common shareholder includes net realized and unrealized investment gains of $61 million in the third quarter of 2017 compared to $56 million in the same period of 2016. Operating losses were $113 million for the third quarter of 2017 compared to operating gains of $185 million for the same period of 2016.

Net income available to common shareholder for the first nine months of 2017 was $145 million compared to $578 million in the same period of 2016.  Net income available to common shareholder includes net realized and unrealized investment gains of $214 million compared to $415 million in the same period of 2016. Operating earnings for the first nine months of 2017 were $27 million compared to $164 million for the same period of 2016.

Operating earnings is a non-GAAP financial measure which excludes certain net after-tax realized and unrealized investment gains and losses, net after-tax foreign exchange gains and losses and certain net after-tax interest in results of equity method investments, and is calculated after dividends to preferred shareholders.

Operating (losses) earnings and net (loss) income available to common shareholder, and the associated annualized ROEs, for the third quarters and the first nine months of 2017 and 2016 include various non-recurring transaction and reorganization related costs, which impact period over period comparability as follows (in US$ millions, except for percentages):

Non-GAAP measures adjusted for transaction and reorganization related costs, net of tax(1):  Q3 2017 Q3 2016 YTD 2017 YTD 2016
Operating (losses) earnings $  (107) $      197 $           46 $       257
Annualized Operating ROE      (7.0)%  12.6%    1.0%  5.5%
Net (loss) income available to common shareholder(2)     (78) $      252 $          164 $        672
Annualized net (loss) income available to common shareholder ROE    (5.1)%  16.2%    3.6%  14.5%

 

  • The adjustment of $6 million, after-tax, for the three months ended September 30, 2017 primarily represented reorganization related costs. The adjustment of $19 million, after-tax, for the nine months ended September 30, 2017, primarily represented reorganization related costs and transaction costs related to the Aurigen acquisition. The adjustment of $12 million, after-tax, for the three months ended September 30, 2016 represented reorganization related severance costs and costs related to certain executive changes. The adjustment of $93 million, after-tax, for the nine months ended September 30, 2016 primarily represented transaction costs and accelerated stock-based compensation expense related to the closing of the acquisition by Exor as well as reorganization related severance costs.

(2) Net (loss) income available to common shareholder is calculated after preferred dividends.

Commenting on results, PartnerRe President and Chief Executive Officer Emmanuel Clarke said, “The third quarter of 2017 was a very active period of severe catastrophe events, with a series of hurricanes impacting the Caribbean and the U.S. and two earthquakes in Mexico. Our first thoughts go to the victims of these catastrophes. PartnerRe is paying losses promptly and continue to provide coverage to our clients, demonstrating the value of our reinsurance product, which ultimately contributes to fund reconstruction efforts in devastated regions.”

Mr. Clarke also added: “Despite the impact of these losses on the catastrophe exposed lines in our portfolio, PartnerRe book value declined by only 0.9% during the quarter, thanks to discipline in deploying capital in Catastrophe exposed classes, solid performance in our Specialty portfolio, an improvement in our P&C non-CAT accident year technical ratio compared to the third quarter of 2016 and good investments performance. These results highlight our underwriting discipline and the quality and diversification of our underwriting portfolio. We are approaching the January 1 renewals season with a strong capital position which will allow us to benefit from improving pricing conditions in the market.”

Highlights for the third quarter of 2017 compared to the same period of 2016 include the following:

Non-Life:

  • Non-life net premiums written were up 7% compared to the same period of 2016, primarily as a result of new business written and reinstatement premiums, partially offset by cancellations and non-renewals. Excluding reinstatement premiums, net premiums written increased by 2%.
  • The Non-life combined ratio of 109.8% was driven by large catastrophic losses related to the hurricanes Harvey, Irma and Maria of $472 million, pre-tax, net of retrocession and reinstatement premiums, or 44.7 points on the combined ratio. The Non-life combined ratio in the third quarter of 2016 was 82.7% and did not include any large catastrophic losses. Excluding large catastrophic losses, the Non-life combined ratio in the third quarter of 2017 was 17.6 percentage points lower than the combined ratio in the third quarter of 2016, with the improvement mainly driven by an improved current accident year technical ratio, higher contributions from net prior years’ reserve development and a lower expense ratio.
  • The Non-life combined ratio continued to benefit from net favorable prior years’ reserve development of $187 million (7 points), with both the P&C and Specialty segments experiencing net favorable development from prior accident years. The combined ratio for the third quarter of 2016 included favorable prior year development of $173 million (16.7 points).

Life and Health:

  • Net premiums written were up 22% in the third quarter of 2017 compared to the same period of 2016, primarily driven by the inclusion of the Aurigen life premiums and growth in health business.
  • Allocated underwriting result, which includes allocated investment income and other expenses, was a loss of $10 million in the third quarter of 2017 compared to a gain of $11 million in the same period of 2016. This decrease primarily reflects lower profitability in the health line of business.

Investments:

  • Total net investment return in the third quarter of 2017 of $168 million, or 1.0% in percentage terms, includes net realized and unrealized investment gains of $61 million, net investment income of $98 million and interest in earnings of equity method investments of $9 million. This compares to a total net investment return of $161 million, or 0.9%, for the third quarter of 2016.
  • The total net investment return in the third quarter of 2017 was primarily generated by net investment income from fixed income securities and mark-to-market gains in public equity and third party private equity funds. A further compression of U.S. investment grade corporate and mortgage-backed securities spreads also contributed to a positive mark-to-market result, partially offset by an increase in risk-free rates in Canada.
  • Net investment income of $98 million was down $4 million, or 4%, compared to the third quarter of 2016, mainly due to the derisking of the investment portfolio in the fourth quarter of 2016.
  • Reinvestment rates are currently 2.7%, in line with our existing fixed income yield of 2.5%.

Other Income Statement Items:

  • Other expenses of $90 million in the third quarter of 2017 were comparable to $91 million for the same period of 2016 and included $9 million of Aurigen expenses.
  • Interest expense of $11 million in the third quarter of 2017 was comparable to $12 million for the third quarter of 2016 due to the reduction from the redemption of $250 million of senior notes in the fourth quarter of 2016 being partially offset by the issuance of the €750 million senior debt (Euro debt) at a lower interest rate.
  • The preferred dividends of $12 million in the third quarter of 2017 were down $3 million compared to the third quarter of 2016 as a result of the redemption of $150 million of Series D and E preferred shares during the fourth quarter of 2016.
  • Net foreign exchange losses in the third quarter of 2017 were $41 million, mainly driven by the strengthening of certain currencies against the U.S. dollar and cost of hedging foreign exchange currencies.
  • Income tax expense of $10 million on a pre-tax loss of $62 million in the third quarter of 2017 (compared to $29 million on a pre-tax income of $283 million for the same period of 2016) was primarily driven by the geographical distribution of pre-tax profits and losses, with a significant portion of the large catastrophic losses recorded in jurisdictions with low or nil tax rates and profits recorded in tax jurisdictions with higher income tax rates.

Balance Sheet and Capitalization:

  • Total investments, cash and cash equivalents and funds held–directly managed were $17.1 billion at September 30, 2017, up 1.4% compared to December 31, 2016.
  • Cash and cash equivalents and fixed maturities, which are government issued or investment grade fixed income securities, were $14.4 billion at September 30, 2017, representing 87% of the cash and cash equivalents and total investments.
  • The average rating and the average duration of the fixed income portfolio at September 30, 2017 was A and 4.8 years, respectively, while the average duration of the Company’s liabilities was 4.5
  • There were no dividends declared on common shares during the third quarter of 2017. Dividends declared to common shareholder for the first nine months of 2017 were $25 million.
  • Total capital was $8.2 billion at September 30, 2017, up 2.7% compared to $8.0 billion at December 31, 2016, primarily due to net income of $180 million for the first nine months of 2017.
  • Common shareholder’s equity (or book value) and tangible book value were $6.1 billion and $5.5 billion, respectively, at September 30, 2017, up 2.0% and 1.1%, respectively, compared to December 31, 2016, primarily due to net income for the first nine months of 2017.

Cash Flows:

  • Cash provided by operating activities was $113 million in the third quarter of 2017 compared to $197 million in the third quarter of 2016. The positive cash flow was primarily driven by investment income.
  • Cash used in investing activities was $77 million in the third quarter of 2017 compared to $811 million in the same period in 2016. The cash used in the third quarter of 2017 was primarily due to net purchases of fixed maturity securities. The cash used in investing activities in the third quarter of 2016 reflects proceeds from issuance of Euro debt that were invested in short-term fixed maturities in advance of these funds being used to redeem preferred shares and senior notes in the fourth quarter of 2016.
  • Cash used in financing activities was $12 million in the third quarter of 2017 compared to cash provided by financing activities of $723 million in the same period in 2016. The cash outflows in the third quarter of 2017 were driven by the dividends paid to preferred shareholders. The cash inflows in the third quarter of 2016 were due to cash proceeds on issuance of the Euro debt.

  

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PartnerRe Ltd. is a leading global reinsurer that helps insurance companies reduce their earnings volatility, strengthen their capital and grow their businesses through reinsurance solutions. Risks are underwritten on a worldwide basis through the Company’s three segments: P&C, Specialty, and Life and Health. For the year ended December 31, 2016, total revenues were $5.4 billion. At September 30, 2017, total assets were $23.6 billion, total capital was $8.2 billion and total shareholders’ equity was $6.8 billion. PartnerRe enjoys strong financial strength ratings as follows: A.M. Best A / Moody’s A1 / Standard & Poor’s A+. 

PartnerRe on the Internet: www.partnerre.com

Forward-looking statements contained in this press release 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, credit, interest, currency and other risks associated with the Company’s investment portfolio, adequacy of reserves, levels and pricing of new and renewal business achieved, changes in accounting policies, risks associated with implementing business strategies, and other factors identified in the Company’s reports filed or furnished with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking information contained herein, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. The Company disclaims any obligation to publicly update or revise any forward-looking information or statements.

 The Company’s estimate of losses for hurricanes Harvey, Irma and Maria is based on a preliminary analysis of the Company’s exposures, the current assumption of total insured industry losses and preliminary information received from certain cedants to date. There is material uncertainty associated with the Company’s loss estimates given the nature, magnitude and recency of these loss events and the limited claims information received to date. The ultimate loss therefore may differ materially from the current preliminary estimate.

 

Contacts: PartnerRe Ltd.
(441) 292-0888
Investor Contact: Ryan Lipschutz
Media Contact: Celia Powell

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