PartnerRe's $99.5M Share Buyback - Analyst Blog

Yesterday, property-casualty (P&C) and life reinsurer PartnerRe Ltd. (PRE) announced the share repurchase of approximately 1.2834 million of common stock at a price of $77.50 per share, for $99.5 million. This represented about 1.7% of 74.6 million outstanding shares as of September 30. The share buyback was executed through a privately negotiated transaction with an institutional shareholder.

During the third quarter of 2010, PartnerRe had bought back 1.1 million common shares for approximately $82.4 million. Including this, PartnerRe has repurchased about 9.0 common shares for approximately $682.5 million in the first nine months of 2010.

Consequently, the company had about 6.7 million common shares remaining under its current repurchase authorization as of September 30, and approximately 9.0 million common shares were held in treasury and are available for reissuance.

Since its inception, PartnerRe continues to return additional value to its shareholders through stock buybacks and dividend payments. In October 2010, the company increased its quarterly dividend by a modest magnitude of 10% to 55 cents from the prior 50 cents. This dividend was paid on December 1, 2010, to the company's common shareholders on record as of November 19, 2010.

The recent dividend increment also marked the second consecutive dividend hike in 2010 and nineteenth hike since the company was formed. Prior to this, in February 2010, PartnerRe had raised its quarterly dividend by 6% to 50 cents from 47 cents. PartnerRe's annual dividend payout increased 41% in 2009 over 2008, representing 11% compounded growth in the common dividend.

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. These factors have also driven the growth of book value per share of the company. Besides, a low level of debt obligations renders the company's balance sheet risk-free while also enhancing its operating leverage.

However, on the other hand, 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. However, while this method helps in raising investors' confidence, it only tends to virtually elevate the market value of the stock. Another insurer, Aflac Inc. (AFL) had resumed share buyback in August 2010 that was shelved in 2008.

Overall, our near-term outlook on PartnerRe's 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.