PartnerRe Earnings Top Estimates, Tank Y/Y on High Expense - Analyst Blog

PartnerRe Ltd.'s (PRE) third-quarter 2014 operating earnings per share of $4.47 surpassed the Zacks Consensus Estimate of $3.44 by 29.9%. With this, the company's four-quarter trailing average beat is15.9%.

However, the reported figure underperformed the year-ago quarter equivalent of $5.70 a share. The plunge was owing to higher operating and underwriting expenses as well as lower net investment income. The quarter also witnessed higher net realized and unrealized investment losses against gains in the year-ago period. These were, however, partially offset by higher premiums and a lower share count.

Operating earnings were calculated after the payment of preferred dividends. These also excluded after-tax net realized and unrealized investment loss of 70 cents per share, net foreign exchange loss of 23 cents per share and interest income from equity investments of 6 cents per share, in the reported quarter.

Including these items, GAAP net income of PartnerRe amounted to $182.2 million or $3.60 per share against $319.2 million or $5.84 per share in the year-ago quarter.

Quarter in Detail

Total revenue climbed 5% to $1.64 billion from $1.56 billion a year-ago. The figure also exceeded the Zacks Consensus Estimate of $1.54 billion.

This included net premiums earned worth $1.56 billion (up 9.5% year over year), net investment income of $118.2 million (down 3%), pre-tax net realized and unrealized investment loss of $34.4 million against gains of $16.1 million in the year-ago quarter, and other income of $2.2 million, down from $5.4 million in the year-ago period. Meanwhile, net premiums written rose 6.2% year over year to $1.34 billion.

Moreover, technical ratio deteriorated due to rise in losses and loss expenses, life policy benefits and acquisition costs across segments. Total expenses jumped 20.5% year over year to $1.4 billion.

Consequently, technical result for the reported quarter was $275 million, tumbling 28.9% from the year-ago quarter. Underwriting results also plunged 40.5% to $169 million. Subsequently, operating net income tanked 39.9% year over year to $241.6 million.

Non-life combined ratio also weakened to 84.2% from 74.9% in the year-ago period. This includes 13.5 basis points or $166 million related to net favorable development on prior accident years experienced in all segments.

Financial Update

As of Sep 30, 2014, PartnerRe's total assets were $23.21 billion, up from $23.04 billion at 2013-end. Total investments, cash and funds held and directly managed stood at $17.6 billion, slightly up from $17.4 billion at 2013-end. As of Sep 30, 2014, total capital was $7.8 billion (up from $7.5 billion at 2013-end) and total shareholder equity was $7.07 billion, up from $6.77 billion at 2013-end.

PartnerRe's net non-life loss and loss expense reserves were down 4% from the 2013-end level at $10.0 billion. The company's book value per common share improved 11.6% to $121.95 at Sep 2014-end, from $109.26 at 2013-end.

Annualized operating ROE reduced to 16.4% in the reported quarter from 22.6% at the end of the prior-year quarter, while annualized net income ROE stood at 13.2%, significantly lower than 23.2% in the prior-year quarter.

Share Repurchase Update

On Sep 8, 2014, the company's board authorized a new stock repurchase of 5.0 million shares. The latest sanction, to be effective immediately replaces the 6.0 million share repurchase authorized in Sep 2013.

PartnerRe bought back about 0.5 million shares for $55 million during the third quarter. An additional 0.45 million shares have been repurchased for $50 million so far in the ongoing fourth quarter (until Oct 27, 2014), leaving about 4.5 million shares available for repurchase under the new authorization.

Dividend Update

On Oct 27, 2014, the board of PartnerRe announced its regular quarterly dividend of 67 cents per share, payable on Dec 1, 2014, to shareholders of record as on Nov 20.

On Aug 29, 2014, the company paid regular quarterly dividend of 67 cents per share to shareholders of record as on Aug 18.

In Jan 2014, the regular quarterly dividend was hiked by 5% to 67 cents per share from the prior 64 cents. PartnerRe is now shelling out $2.68 per share annually. This hike marked the 21^st consecutive year of dividend increase since the company went public.

Currently, PartnerRe carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the same sector could consider stocks like The Travelers Companies Inc. (TRV), AmTrust Financial Services Inc. (AFSI) and Endurance Specialty Holdings Ltd. (ENH), all of which sport a Zacks Rank #1 (Strong Buy).