Market Overview

PartnerRe Ltd. Reports First Quarter 2017 Results

Share:





PartnerRe Ltd. ("the Company") today reported a net income available to
common shareholder of $38 million for the first quarter of 2017 compared
to $201 million for the same period of 2016. Operating earnings were $44
million for both first quarters of 2017 and 2016.

Net income available to common shareholder includes net realized and
unrealized gains on investments of $23 million in the first quarter of
2017, mainly driven by a slight narrowing of corporate spreads and a
decrease in U.S. interest rates at the longer end of the curve. This
compares to gains of $167 million in the first quarter of 2016,
primarily reflecting decreases in U.S. and European risk-free interest
rates.

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, certain net
after-tax interest in results of equity method investments, and is
calculated after the payment of preferred dividends.

Net income or loss and operating earnings available to common
shareholder, and the associated annualized ROEs, for the first quarters
of 2017 and 2016 include various non-recurring transaction and severance
related costs, which impact period over period comparability as follows
(in US$ millions, except for percentages):

Non-GAAP measures adjusted for transaction and severance costs(1),
net of tax:

    Q1 2017       Q1 2016
Operating earnings $ 50 $ 104
Annualized Operating ROE 3.4 % 6.9 %
Net income available to common shareholder $ 45 $ 261
Annualized net income available to common shareholder ROE 3.0 % 17.3 %

_____________________________________

(1)

 

The adjustment of $6 million, net of tax, for the first quarter
of 2017 primarily represents severance costs associated with the
reorganization of the Company's operations. The adjustment of $60
million, net of tax, for the first quarter of 2016 includes
transaction costs and accelerated stock-based compensation
expenses incurred related to the closing of the acquisition by
Exor in the first quarter of 2016.

 

Commenting on results, PartnerRe President and Chief Executive Officer
Emmanuel Clarke said, "Our annualized adjusted Operating ROE of 3.4% in
the first quarter of 2017 reflects prudent underwriting, de-risked
investment portfolio, the impact of the change in the Ogden discount
rate in the U.K., a decline in favorable prior year reserve development
and lower profitability in our Health line of business. We reported a
Non-Life combined ratio of 96.4% and an improved accident year combined
ratio compared to the first quarter of 2016 driven by a lower level of
mid-sized loss activity in P&C and reduced operating expenses."

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

Non-Life:

  • Non-Life net premiums written were down 14% in the first quarter of
    2017 compared to the same period of 2016, primarily as a result of
    cancellations and non-renewals, the timing of renewal of a significant
    agricultural contract and higher premiums ceded.
  • The Non-Life combined ratio of 96.4% was 2.1 points higher than the
    ratio reported in the first quarter of 2016, primarily due to lower
    favorable prior years' reserve development, partially offset by lower
    other operating expenses, acquisition costs and mid-sized loss
    activity. The prior years' reserve development was impacted by a $35
    million charge (4.6 points) related to the change in the Ogden
    discount rate in the U.K.
  • The Non-Life combined ratio continued to benefit from net favorable
    prior years' reserve development, albeit at a slower rate. The net
    favorable development of $86 million (11.3 points) was reported in
    both the Specialty and P&C segments, primarily due to actual reported
    losses emerging below expectations. The combined ratio for the first
    quarter of 2016 included favorable prior year development of $183
    million (21.0 points).

Life and Health:

  • Net premiums written were up 8% in the first quarter of 2017 compared
    to the same period of 2016, primarily driven by new business written
    in the mortality line of business and an increase in the health line,
    partially offset by the impact of foreign exchange.
  • Allocated underwriting result, which includes allocated investment
    income and other expenses, was $8 million in the first quarter of 2017
    compared to $24 million in the same period of 2016. This decrease
    primarily reflects lower profitability in the health line of business
    due to lower prior years' reserve development and higher claims
    activity.

Investments:

  • Total net investment return in the first quarter of 2017 was 0.8%,
    based on a total net gain of $130 million, which was driven by net
    investment income of $99 million, realized and unrealized investment
    gains of $23 million and interest in earnings of equity method
    investments of $8 million. This compares to a total net investment
    return of $267 million, or 1.6%, for the first quarter of 2016.
  • The total net investment return in the first quarter of 2017 was
    primarily generated by fixed income securities, where portfolio yield
    was complemented by mark-to-market gains mostly generated by a slight
    narrowing of corporate spreads and a decrease in U.S. interest rates
    at the longer end of the curve.
  • Net investment income of $99 million was down $4 million, or 4.3%,
    compared to the first quarter of 2016, mainly reflecting the impact of
    the investment portfolio de-risking, partially offset by lower
    investment expenses.
  • Reinvestment rates are currently 2.8%, which compares to our existing
    fixed income yield of 2.5%.

Other Income Statement Items:

  • Other expenses of $90 million in the first quarter of 2017, which
    include $8 million of severance and transaction related costs, were
    down compared to $153 million in the same period of 2016 primarily due
    to costs related to the closing of the Exor transaction of $66 million
    in the first quarter of 2016.
  • Interest expense was $10 million, down $2 million compared to the
    first quarter of 2016 due to the redemption of $250 million of senior
    notes in the fourth quarter of 2016, partially offset by a subsequent
    issuance of debt at a lower interest rate.
  • The preferred dividends of $12 million were down $3 million compared
    to the first 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 quarter were $38 million ($51
    million including the change in currency translation adjustment of $13
    million), mainly driven by the weakening of the U.S. dollar against
    most major currencies and the cost of forward points to hedge Euro
    liabilities.
  • For the first quarter of 2017, the effective tax rate on operating
    earnings was 2.5% (a tax expense on earnings) mainly due to the
    geographical split of pretax income and losses. The effective tax rate
    on non-operating losses was 2.1% (a tax benefit on losses) for the
    first quarter of 2017.

Balance Sheet and Capitalization:

  • Total investments, cash and cash equivalents and funds held – directly
    managed were $16.4 billion at March 31, 2017, down 2.9% compared to
    December 31, 2016.
  • Cash and cash equivalents and fixed maturities, which are government
    issued or investment grade fixed income securities, were $14.3 billion
    at March 31, 2017, representing 90% of the cash and cash equivalents
    and total investments.
  • The average rating and the average duration of the fixed income
    portfolio at March 31, 2017 were A and 4.7 years, respectively, while
    the average duration of the Company's liabilities was 4.7 years.
  • Total capital was $8.1 billion at March 31, 2017, up 0.6% compared to
    December 31, 2016, primarily due to net income for the year.
  • Common shareholder's equity (or book value) and tangible book value
    were $6.0 billion and $5.5 billion, respectively, at March 31, 2017,
    up 0.4% and 0.5%, respectively, compared to December 31, 2016,
    primarily due to net income for the year.

Cash Flows:

  • Cash used in operating activities was $1 million in the first quarter
    of 2017 and included the cash payments related to employees 2016
    Annual Incentive. This cash used in operating activities of $1 million
    compared to cash provided by operating activities of $92 million in
    the same period of 2016, primarily due to higher cash used in
    underwriting operations. Cash used in underwriting operations
    increased from $5 million in the first quarter of 2016 to $112 million
    in the same period of 2017 primarily due to higher losses paid,
    partially offset by the timing of premium collections. The operating
    cash flow generated by investment income in the first quarter of 2017
    was $120 million compared to $132 million in the same period of 2016.
    Other cash outflows, which include taxes and foreign exchange,
    decreased by $26 million to $9 million in the first quarter of 2017
    compared to $35 million in the same period of 2016.
  • Cash provided by investing activities was $86 million in the first
    quarter of 2017 compared to $338 million in the same period of 2016.
    This decrease was primarily due to cash flows generated in the first
    quarter of 2016 to fund the payment of the special dividend upon
    closing of the merger with Exor (Special Dividend).
  • Cash used in financing activities was $12 million in the first quarter
    of 2017 compared to $263 million in the same period in 2016, largely
    driven by the payment of the Special Dividend and the settlement of
    certain share-based awards in the first quarter of 2016.

The data and comments provided above are from, or have been derived
from, PartnerRe's U.S. GAAP consolidated balance sheets as of March 31,
2017 and December 31, 2016 and the related consolidated statements of
operations for the three months ended March 31, 2017 and 2016. The
Company has included Supplementary Financial Information below, which
includes a reconciliation of GAAP and non-GAAP measures.

_______________________________________

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 March 31, 2017, total assets
were $22.0 billion, total capital was $8.1 billion and total
shareholders' equity was $6.7 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.

PartnerRe Ltd.

Consolidated Statements of Operations and Comprehensive Income (1)

(Expressed in thousands of U.S. dollars)

(Unaudited)

 
 

For the three

 

For the three

months ended

months ended

 

March 31, 2017

March 31, 2016

Revenues
Gross premiums written $ 1,502,668   $ 1,629,009  
Net premiums written $ 1,352,100 $ 1,500,718
Increase in unearned premiums (299,123 ) (359,002 )
Net premiums earned 1,052,977 1,141,716
Net investment income 98,570 102,987
Net realized and unrealized investment gains 22,868 167,193
Other income 3,409   4,840  
Total revenues 1,177,824   1,416,736  
Expenses
Losses and loss expenses 767,149 714,268
Acquisition costs 224,700 282,974
Other expenses (2) 89,643 152,674
Interest expense 10,253 12,259
Amortization of intangible assets 5,704 6,588
Net foreign exchange losses (gains) 37,651   (2,074 )
Total expenses 1,135,100   1,166,689  
Income before taxes and interest in earnings (losses) of equity
method investments
42,724 250,047
Income tax expense 1,287 30,954
Interest in earnings (losses) of equity method investments 8,366   (3,467 )
Net income 49,803 215,626
Preferred dividends 11,604   14,184  
Net income available to common shareholder $ 38,199   $ 201,442  
Comprehensive income $ 35,455   $ 235,717  
(1)   On March 18, 2016, Exor N.V. acquired 100% of the Company's common
shares. As such, per share data is no longer meaningful and has been
excluded. PartnerRe common shares are no longer traded on the NYSE.
(2) Other expenses for the three months ended March 31, 2017 include $8
million of non-recurring expenses, primarily severance related
costs. Other expenses for the three months ended March 31, 2016
include $35 million and $31 million of transaction costs and
accelerated stock-based compensation expense, respectively, related
to the closing of the acquisition by Exor.
 

PartnerRe Ltd.

Consolidated Balance Sheets

(Expressed in thousands of U.S. dollars, except parenthetical
share data)

(Unaudited)

 
  March 31,   December 31,
2017 2016
Assets
Investments:

Fixed maturities, at fair value

$ 12,752,713 $ 13,432,501
Short-term investments, at fair value 8,679 21,697
Equities, at fair value 189,941 38,626
Other invested assets 1,051,091   1,075,637  
Total investments 14,002,424 14,568,461
Funds held – directly managed 510,990 511,324
Cash and cash equivalents 1,851,490 1,773,328
Accrued investment income 111,707 112,580
Reinsurance balances receivable 2,849,123 2,492,069
Reinsurance recoverable on paid and unpaid losses 413,648 331,704
Funds held by reinsured companies 718,812 685,069
Deferred acquisition costs 653,944 597,239
Deposit assets 74,079 74,273
Net tax assets 200,055 194,170
Goodwill 456,380 456,380
Intangible assets 101,388 107,092
Other assets 41,746   35,105  
Total assets $ 21,985,786   $ 21,938,794  
Liabilities
Non-life reserves $ 9,044,854 $ 8,985,434
Life and health reserves 2,069,083 1,984,096
Unearned premiums 2,012,885 1,623,796
Other reinsurance balances payable 337,616 281,973
Deposit liabilities 12,393 15,026
Net tax liabilities 166,601 166,113
Accounts payable, accrued expenses and other 264,483 849,572
Debt related to senior notes 1,295,119 1,273,883
Debt related to capital efficient notes 70,989   70,989  
Total liabilities 15,274,023   15,250,882  
Shareholders' Equity
Common shares (2017 and 2016, par value $0.00000001; issued:
100,000,000 shares)
Preferred shares (par value $1.00; issued and outstanding: 2017 and
2016, 28,169,062 shares; aggregate liquidation value: 2017 and 2016,
$704,227)
28,169 28,169
Additional paid-in capital 2,396,530 2,396,530
Accumulated other comprehensive loss (88,918 ) (74,569 )
Retained earnings 4,375,982   4,337,782  
Total shareholders' equity 6,711,763   6,687,912  
Total liabilities and shareholders' equity $ 21,985,786   $ 21,938,794  
 

PartnerRe Ltd.

Condensed Consolidated Statements of Cash Flows

(Expressed in millions of U.S. dollars)

(Unaudited)

 
  For the three months ended
March 31, 2017   March 31, 2016
Net cash (used in) provided by operating activities:
Underwriting operations $ (112 ) $ (5 )
Investment income 120 132
Taxes and foreign exchange and other (9 ) (35 )
Net cash (used in) provided by operating activities $ (1 ) $ 92  
Net cash provided by investing activities(1) 86 338
Net cash used in financing activities(2) (12 ) (263 )
Effect of foreign exchange rate changes on cash 5   6  
Increase in cash and cash equivalents 78   173  
Cash and cash equivalents - beginning of period $ 1,773   $ 1,577  
Cash and cash equivalents - end of period $ 1,851   $ 1,750  

(1) Net cash provided by investing activities in the three
months ended March 31, 2016 includes cash generated through
investment activities in order to fund the payment of the special
dividend upon closing of the merger with Exor N.V. (Special
Dividend).

(2) Net cash used in financing activities in the three months
ended March 31, 2016 includes the payment of the Special Dividend
and the settlement of certain share-based awards.

 

PartnerRe Ltd.

Consolidated Statements of Comprehensive Income

(Expressed in thousands of U.S. dollars)

(Unaudited)

 
  For the three months ended
March 31,   March 31,
2017 2016
Net income $ 49,803 $ 215,626
Change in currency translation adjustment (13,367 ) 21,123
Change in net unrealized gains or losses on investments, net of tax (77 ) (203 )
Change in unfunded pension obligation, net of tax (904 ) (829 )
Comprehensive income $ 35,455   $ 235,717  
 

PartnerRe Ltd.

Segment Information

(Expressed in millions of U.S. dollars)

(Unaudited)

 

 

For the three months ended March 31, 2017

     

Life

 

P&C

Specialty

Total

and Health

Corporate

 

segment

segment

Non-life

segment

and Other

Total
Gross premiums written $ 726 $ 468 $ 1,194 $ 309 $ $ 1,503
Net premiums written $ 643 $ 410 $ 1,053 $ 299 $ $ 1,352
Increase in unearned premiums (236 ) (53 ) (289 ) (10 )   (299 )
Net premiums earned $ 407 $ 357 $ 764 $ 289 $ $ 1,053
Losses and loss expenses (287 ) (228 ) (515 ) (252 ) (767 )
Acquisition costs (90 ) (103 ) (193 ) (32 )   (225 )
Technical result $ 30 $ 26 $ 56 $ 5 $ $ 61
Other income 1 3 4
Other expenses (29 ) (13 ) (48 ) (90 )
Underwriting result $ 28 $ (5 ) n/a $ (25 )
Net investment income 13   86   99  
Allocated underwriting result (1) $ 8 n/a n/a
Net realized and unrealized investment gains 23 23
Interest expense (10 ) (10 )
Amortization of intangible assets (6 ) (6 )
Net foreign exchange losses (38 ) (38 )
Income tax expense (1 ) (1 )
Interest in earnings of equity method investments 8   8  
Net income n/a   $ 50  
Loss ratio (2) 70.5 % 63.9 % 67.4 %
Acquisition ratio (3) 22.1   28.7   25.2  
Technical ratio (4) 92.6 % 92.6 % 92.6 %
Other expense ratio (5) 3.8  
Combined ratio (6) 96.4 %
 

 

For the three months ended March 31, 2016

Life

P&C

Specialty

Total

and Health

Corporate

segment

segment

Non-life

segment

 

and Other

  Total
Gross premiums written $ 804 $ 532 $ 1,336 $ 293 $ $ 1,629
Net premiums written $ 746 $ 478 $ 1,224 $ 277 $ $ 1,501
Increase in unearned premiums (265 ) (87 ) (352 ) (7 )   (359 )
Net premiums earned $ 481 $ 391 $ 872 $ 270 $ $ 1,142
Losses and loss expenses (272 ) (237 ) (509 ) (205 ) (714 )
Acquisition costs (132 ) (113 ) (245 ) (38 )   (283 )
Technical result $ 77 $ 41 $ 118 $ 27 $ $ 145
Other income 2 2 1 5
Other expenses (68 ) (18 ) (67 ) (153 )
Underwriting result $ 52 $ 11 n/a $ (3 )
Net investment income 13   90   103  
Allocated underwriting result (1) $ 24 n/a n/a
Net realized and unrealized investment gains 167 167
Interest expense (12 ) (12 )
Amortization of intangible assets (7 ) (7 )
Net foreign exchange gains 2 2
Income tax expense (31 ) (31 )
Interest in losses of equity method investments (3 ) (3 )
Net income n/a   $ 216  
Loss ratio (2) 56.7 % 60.6 % 58.5 %
Acquisition ratio (3) 27.4   28.8   28.0  
Technical ratio (4) 84.1 % 89.4 % 86.5 %
Other expense ratio (5) 7.8  
Combined ratio (6) 94.3 %

(1)

 

Allocated underwriting result is defined as net premiums
earned, other income or loss and allocated net investment income
less losses and loss expenses on life and health contracts,
acquisition costs and other expenses.

(2)

Loss ratio is obtained by dividing losses and loss expenses by
net premiums earned.

(3)

Acquisition ratio is obtained by dividing acquisition costs by
net premiums earned.

(4)

Technical ratio is defined as the sum of the loss ratio and the
acquisition ratio.

(5)

Other expense ratio is obtained by dividing other expenses by
net premiums earned.

(6)

Combined ratio is defined as the sum of the technical ratio and
the other expense ratio.

 

PartnerRe Ltd.

Investment Portfolio

(Expressed in millions of U.S. dollars)

(Unaudited)

 
  March 31,   December 31,   March 31,   December 31,
2017 2016 2016 2015
Investments:
Fixed maturities
U.S. government $ 2,177 16 % $ 3,489 24 % $ 2,690 19 % $ 2,810 20 %
U.S. government sponsored enterprises 47 52 105 1 63
U.S. states, territories and municipalities 676 5 685 5 780 5 778 5
Non-U.S. sovereign government, supranational and government related 1,170 8 1,136 8 1,197 9 1,333 9
Corporates 6,308 45 5,705 39 4,978 36 5,086 36
Mortgage/asset-backed securities 2,375   17   2,365   16   3,270   24   3,378   24  
Total fixed maturities 12,753 91 13,432 92 13,020 94 13,448 94
Short-term investments 9 22 34 47
Equities 190 1 39 324 2 444 3
Other invested assets 1,051   8   1,076   8   459   4   399   3  
Total investments $ 14,003   100 % $ 14,569   100 % $ 13,837   100 % $ 14,338   100 %
Cash and cash equivalents 1,851 1,773 1,750 1,577
Total investments and cash and cash equivalents 15,854 16,342 15,587 15,915
Maturity distribution:
One year or less $ 283 2 % $ 264 2 % $ 431 3 % $ 556 4 %
More than one year through five years 4,445 35 5,381 40 4,521 35 4,609 34
More than five years through ten years 3,699 29 3,703 27 3,224 25 3,342 25
More than ten years 1,960   15   1,741   13   1,608   12   1,610   12  
Subtotal 10,387 81 11,089 82 9,784 75 10,117 75
Mortgage/asset-backed securities 2,375   19   2,365   18   3,270   25   3,378   25  
Total $ 12,762   100 % $ 13,454   100 % $ 13,054   100 % $ 13,495   100 %

Credit quality by market value (Total investments excluding
Other invested assets):

AAA 7 % 6 % 11 % 11 %
AA 44 52 47 47
A 18 15 15 15
BBB 28 24 20 20
Below Investment Grade/Unrated 3   3   7   7  
100 % 100 % 100 % 100 %
Expected average duration (1)

4.7 

Yrs

4.9 

Yrs

4.0 

Yrs

3.6 

Yrs

Average yield to maturity at market (1)

2.8 % 2.7 % 2.4 % 2.9 %
Average credit quality A A A A

(1)

 

Includes funds holding fixed income securities that are
classified with equities under U.S. GAAP and futures used for the
purpose of managing duration.

 

PartnerRe Ltd.

Distribution of Corporate Bonds

(Expressed in thousands of U.S. dollars)

(Unaudited)

 
March 31, 2017
       

Largest single issuer

   

Percentage to

Percentage to

as a percentage of

Total Fair Value of

Invested Assets

Invested Assets

Fair Value

Corporate Bonds

and cash

and cash

Distribution by sector - Corporate bonds
Finance $ 1,305,206 20.7 % 8.2 % 1.0 %
Consumer noncyclical 1,107,562 17.6 7.0 0.8
Industrials 689,654 10.9 4.4 0.3
Consumer cyclical 588,065 9.3 3.7 0.5
Energy 571,042 9.0 3.6 0.6
Communications 366,595 5.8 2.3 0.5
Insurance 356,531 5.6 2.2 0.2
Real estate investment trusts 347,211 5.5 2.2 0.4
Utilities 319,973 5.1 2.0 0.2
Technology 295,394 4.7 1.9 0.4
Basic materials 217,908 3.5 1.4 0.2
Catastrophe bonds 83,905 1.3 0.5 0.1
Longevity and mortality bonds 47,673 0.8 0.3 0.2
Government guaranteed corporate debt 11,418   0.2   0.1   0.1
Total Corporate bonds $ 6,308,137   100.0 % 39.8 %
Finance sector - Corporate bonds
Banks $ 764,081 12.1 % 4.8 %
Investment banking and brokerage 336,122 5.4 2.1
Financial services 101,343 1.6 0.6
Commercial and consumer finance 33,218 0.5 0.2
Other 70,442   1.1   0.5  
Total finance sector - Corporate bonds $ 1,305,206   20.7 % 8.2 %
 

Non-Investment

AAA AA A BBB

Grade/Unrated

Total
Credit quality of finance sector - Corporate bonds
Banks $ 28,822 $ 20,086 $ 387,587 $ 327,586 $ $ 764,081
Investment banking and brokerage 56,935 277,987 1,200 336,122
Financial services 39,344 32,428 29,571 101,343
Commercial and consumer finance 33,218 33,218
Other     55,818   14,624     70,442  
Total finance sector - Corporate bonds $ 28,822   $ 59,430   $ 565,986   $ 649,768   $ 1,200   $ 1,305,206  
% of total 2 % 5 % 43 % 50 % % 100 %

Concentration of investment risk

The top 10 Corporate bond issuers account for 17.5% of the
Company's total corporate bonds. The single largest issuer
accounts for 2.4% of the Company's total Corporate bonds.

 

PartnerRe Ltd.

Analysis of Non-Life Reserves

(Expressed in thousands of U.S. dollars)

 
  As at and for the three months ended     As at and for the year ended
March 31,   March 31, December 31,   December 31,
2017 2016 2016 2015
Reconciliation of beginning and ending Non-life reserves:
Gross liability at beginning of period $ 8,985,434 $ 9,064,711 $ 9,064,711 $ 9,745,806
Reinsurance recoverable at beginning of period (266,742 ) (189,234 ) (189,234 ) (214,349 )
Net liability at beginning of period 8,718,692 8,875,477 8,875,477 9,531,457
Net incurred losses related to:
Current year 601,073 693,069 2,997,394 3,023,704
Prior years (86,063 ) (183,437 ) (676,574 ) (830,705 )
515,010 509,632 2,320,820 2,192,999
Change in reserve agreement (1) 7,500 28,224 5,518 (8,771 )
Net losses paid (571,562 ) (370,469 ) (2,262,916 ) (2,422,603 )
Effects of foreign exchange rate changes 101,354   95,346   (220,207 ) (417,605 )
Net liability at end of period 8,770,994 9,138,210 8,718,692 8,875,477
Reinsurance recoverable at end of period 273,860   192,877   266,742   189,234  
Gross liability at end of period $ 9,044,854   $ 9,331,087   $ 8,985,434   $ 9,064,711  
 
Breakdown of gross liability at end of period:
Case reserves $ 3,889,777 $ 3,780,317 $ 3,883,926 $ 3,716,195
Additional case reserves 159,161 215,238 166,913 190,183
Incurred but not reported reserves 4,995,916   5,335,532   4,934,595   5,158,333  
Gross liability at end of period $ 9,044,854   $ 9,331,087   $ 8,985,434   $ 9,064,711  
 
Gross liability at end of period by Non-life segment:
P&C 6,226,150 6,401,452 6,187,460 6,245,217
Specialty 2,818,704   2,929,635   2,797,974   2,819,494  
Gross liability at end of period $ 9,044,854   $ 9,331,087   $ 8,985,434   $ 9,064,711  
Unrecognized time value of non-life reserves (2) $ 455,323 $ 372,792 $ 439,351 $ 508,269
 
Non-life paid loss ratio data:
Non-life paid losses to incurred losses ratio 111.0 % 72.7 % 97.5 % 110.5 %
Non-life paid losses to net premiums earned ratio 74.8 % 42.5 % 58.7 % 59.7 %

(1) The change in the reserve agreement is due to adverse
(favorable) development on Paris Re's reserves which are
guaranteed by Axa under the reserve agreement.

(2) The unrecognized time value of non-life reserves represents
the difference between the recorded gross/net liability for
non-life reserves and the amount of gross/net liability for
non-life reserves that would be recorded if the underlying
non-life reserves were discounted. The unrecognized time value, or
discount, in the non-life reserves is calculated by applying
appropriate risk-free rates by currency and duration to the
underlying non-life reserves.

 

PartnerRe Ltd.
Life Value In Force

The Company calculates Value in Force (VIF) for its Life portfolio,
which represents the value of the Life portfolio that is not recognized
in the Consolidated Balance Sheets prepared under generally accepted
accounting principles in the United States (U.S. GAAP). Accordingly,
there is no corresponding measure that is prepared in accordance with
U.S. GAAP. Management believes that this is useful information for
investors, analysts, rating agencies and others. The Life VIF
calculation includes the business written in the Company's Life and
Health segment, except for the PartnerRe Health business.

The Company's Life VIF calculation uses market consistent techniques,
but primarily differs from a full Market Consistent Embedded Value
(MCEV) calculation, as defined in the European Insurance CFO Forum MCEV
principles, due to: (i) different methodologies used; and ii) the Life
VIF is only a component of MCEV and, specifically, the tangible assets
backing the liabilities are not considered in the Company's calculation.

The Company's Life VIF, which is calculated on a going concern basis, is
the sum of:

  • present value of future profits - which is defined as the net present
    value of shareholders' projected after-tax cash flows from the
    in-force business on a best-estimate assumption basis. The discount
    rates used reflect currency-specific market yields on zero coupon
    government bonds at given durations and are applied to projected
    deterministic cash flows and to calculate risk-free investment
    returns. The best-estimate is defined as median biometric assumptions
    and does not include any provision for adverse deviation. The Company
    attributes no value to future new business or renewals of short-term
    business. Allocated inflated-adjusted expenses are projected on a best
    estimate basis;
  • cost of non-hedgeable risks - which is defined as the cost of holding
    capital for non-hedgeable financial and non-hedgeable non-financial
    risks, such as a mortality deviation from shocks or changes in trends.
    The non-hedgeable risk capital has been determined using an internal
    economic capital model calibrated to a 99.6% Value at Risk (VaR)
    corresponding to a 1 in 250 year event;
  • frictional costs - which is defined as the cost of double taxation or
    investment management charges on assets backing required capital;
  • time value of options and guarantees (TVOG) - which is defined as the
    difference between the market value and the intrinsic value of the
    option calculated using stochastic techniques. The TVOG is significant
    to the guaranteed minimum death benefit (GMDB) portfolio where the
    Company covers death claims on savings plans, where the sum reinsured
    is the difference between the invested premium amount and the current
    fund value; and
  • cost of non-economic excess encumbered capital - which is defined as
    the cost of any encumbered capital in excess of economic capital
    required by local regulations.

Actuarial non-economic assumptions, such as current and future
mortality, are based on the most recent experience available, combined
with internal and industry benchmarks, including trend expectation where
appropriate.

The Life VIF is sensitive to changes in assumptions. In particular, the
Life VIF is sensitive to changes in yield curves that are used for
discounting, changes in equity market value assumptions and implied
volatilities.

The Company performs a detailed Life VIF calculation on an annual basis
and performs a roll-forward approach on an interim quarterly basis.

PartnerRe Ltd.

Analysis of Life and Health Reserves

(Expressed in thousands of U.S. dollars)

(Unaudited)

 
  As at and for the three months ended     As at and for the year ended
March 31,   March 31, December 31,   December 31,
2017 2016 2016   2015
Reconciliation of beginning and ending Life and health reserves:
Gross liability at beginning of period $ 1,984,096 $ 2,051,935 $ 2,051,935 $ 2,050,107
Reinsurance recoverable at beginning of period (31,372 ) (42,773 ) (42,773 )   (29,495 )
Net liability at beginning of period 1,952,724 2,009,162 2,009,162 2,020,612
 
Net incurred losses related to:
Current year 251,241 219,450 942,922 1,010,937
Prior years 897   (14,814 ) (15,651 )   (46,516 )
252,138 204,636 927,271 964,421
Net losses paid (208,602 ) (187,881 ) (844,156 ) (835,190 )
Effects of foreign exchange rate changes 43,238   19,902   (139,553 )   (140,681 )
Net liability at end of period 2,039,498 2,045,819 1,952,724 2,009,162
Reinsurance recoverable at end of period 29,585   43,236   31,372     42,773  
Gross liability at end of period $ 2,069,083   $ 2,089,055   $ 1,984,096     $ 2,051,935  
Life value in force $ 179,000 $ 191,800 $ 176,200 $ 204,300
 

PartnerRe Ltd.

Natural Catastrophe Probable Maximum Losses (PMLs)

(Expressed in millions of U.S. dollars)

(Unaudited)

 

Single occurrence estimated net PML exposure

 
    January 1, 2017   October 1, 2016   January 1, 2016
 

1-in-500

 

1-in-500

 

1-in-500

year PML

year PML

year PML

1-in-250

(Earthquake

1-in-250

(Earthquake

1-in-250

(Earthquake

Zone Peril

year PML

perils only)

year PML

perils only)

year PML

perils only)

U.S. Southeast Hurricane $ 631 $ 496 $ 580
U.S. Northeast Hurricane 616 560 701
U.S. Gulf Coast Hurricane 583 502 596
Caribbean Hurricane 196 165 180
Europe Windstorm 404 387 461
Japan Typhoon 198 190 195
California Earthquake 488 $ 665 462 $ 595 553 $

699

 

British Columbia Earthquake 166 307 161 317 196 358
Japan Earthquake 309 352 315 349 335 383
Australia Earthquake 148 184 187 258 241 325
New Zealand Earthquake 131 171 147 211 133 197

The PML estimates are pre-tax and net of retrocession and
reinstatement premiums. The peril zones in this disclosure are major
peril zones for the industry. The Company has exposures in other peril
zones that can potentially generate losses greater than the PML
estimates in this disclosure.

The U.S. Hurricane wind zone PMLs are impacted by the timing of
retrocessional purchases. The Company will evaluate its exposure in
conjunction with its risk tolerance to determine the appropriate level
of protections before the hurricane season.

For more information regarding cautionary language related to the
Natural Catastrophe PML disclosure and the forward-looking statements,
as well as uncertainties and limitations associated with certain
assumptions and the methodology used, refer to the Company's natural
catastrophe PML information and definitions (see Risk Management—Natural
Catastrophe PML in Item 3 of the Company's Annual Report on Form 20-F
for the year ended December 31, 2016).

PartnerRe Ltd.
Non-GAAP Financial Measures - Regulation G

In addition to the GAAP financial measures set forth herein, the Company
has also included certain non-GAAP financial measures within the meaning
of Regulation G. Management believes that these non-GAAP financial
measures are important to certain stakeholders (including clients,
investors, analysts, rating agencies and others) who use the Company's
financial information and will help provide a consistent basis for
comparison between quarters and for comparison with other companies
within the industry. However, these non-GAAP measures should be
considered an addition to, and not a substitute for, measures of
financial performance prepared in accordance with GAAP.

The reconciliation of non-GAAP financial measures to the most comparable
GAAP financial measures in accordance with Regulation G is included
within the relevant tables.

Operating Earnings (Loss) available to Common Shareholders (Operating
Earnings (Loss)); Operating Earnings (Loss), adjusted by transaction and
severance costs; Annualized Operating Return on Average Common
Shareholder's Equity (Annualized Operating ROE); Annualized Operating
ROE, adjusted by transaction and severance costs; Net Income (Loss),
adjusted by transaction and severance costs; and Annualized Net Income
(Loss) ROE, adjusted by transaction and severance costs:
The Company
uses Operating Earnings (Loss) and Annualized Operating ROE to measure
performance, as these measures focus on the underlying fundamentals of
the Company's operations. Operating Earnings (Loss) exclude the impact
of net realized and unrealized gains and losses on investments, net of
tax (except where the Company has made a strategic investment in an
insurance or reinsurance related investee), net foreign exchange gains
and losses, net of tax, and the interest in earnings (losses) of equity
method investments, net of tax (except where the Company has made a
strategic investment in an insurance or reinsurance related investee and
where the Company does not control the investee's activities), and are
calculated after preferred dividends. The Company calculates Annualized
Operating ROE using Operating Earnings (Loss) for the period divided by
the average common shareholder's equity outstanding for the period.
Operating Earnings (Loss) should not be viewed as a substitute for Net
Income (Loss) prepared in accordance with GAAP. Annualized Operating ROE
supplements GAAP information. Operating Earnings (Loss), adjusted by
transaction and severance costs, and Annualized Operating ROE, adjusted
by transaction and severance costs, exclude the impact of transaction
costs related to the Company's merger and acquisition activity;
severance costs related to the reorganization of its business units,
investment operations and certain executive changes.

Tangible Book Value: The Company calculates Tangible Book Value
using common shareholder's equity less goodwill and intangible assets,
net of tax.

Total Capital: The Company calculates Total Capital as the sum of
total shareholders' equity and debt related to senior notes and capital
efficient notes issued externally. The Company uses Total Capital as a
measure to manage the capital structure of the Company.

Basis of presentation: On March 18, 2016, Exor N.V. (subsequently
renamed to EXOR Nederland N.V.) acquired 100% ownership of the Company's
common shares. The common shares were delisted and are no longer traded
on the NYSE. Accordingly, all net income per share, operating earnings
per share and book value per share data for the current year and prior
year periods are no longer meaningful and have been excluded. As a
result of these changes, the Company also redefined its calculation of
Annualized Operating ROE to be based on average common shareholder's
equity. Accordingly, comparative data has been recast to conform to the
current presentation.

As a result of recent organizational changes, effective July 1, 2016,
the Company redefined its financial reporting segments into the
following three segments: Property & Casualty (P&C), Specialty, and Life
and Health. Data shown for all periods in the segment information tables
has been recast to conform to the new presentation. The Company uses
technical ratio and technical result as measures of underwriting
performance. The technical ratio is defined as the sum of the loss and
acquisition ratios. These metrics exclude other expenses. The Company
also uses combined ratio to measure results for the total Non-life P&C
and Specialty segments. The combined ratio is the sum of the technical
and other expense ratios. The Company uses allocated underwriting result
as a measure of underwriting performance for its Life and Health
segment. This metric is defined as net premiums earned, other income or
loss and allocated net investment income less life and health losses and
loss expenses, acquisition costs and other expenses.

PartnerRe Ltd.

Reconciliation of GAAP and non-GAAP measures

(in thousands of U.S. dollars)

(Unaudited)

 
  For the three months ended
March 31,   March 31,
2017 2016
 
Beginning of period common shareholder's equity $ 5,983,685 $ 6,046,751
End of period common shareholder's equity 6,007,536   6,056,435  
Average common shareholder's equity(1) $ 5,995,611   $ 6,051,593  
 
Annualized return on average common shareholders' equity calculated
with net income available to common shareholder(2)
2.6 % 13.3 %
Less:
Annualized net realized and unrealized investment gains, net of tax,
on average common shareholder's equity(1)
1.3 9.8
Annualized net foreign exchange (losses) gains, net of tax, on
average common shareholder's equity(1)
(2.1 ) 0.6
Annualized net interest in earnings (losses) of equity method
investments, net of tax, on average common shareholder's equity(1)
0.4    
Annualized operating return on average common shareholder's equity(1) 3.0 % 2.9 %
 
Net income $ 49,803 $ 215,626
Less: Dividends to preferred shareholders 11,604   14,184  
Net income available to common shareholder 38,199 201,442
Less:
Net realized and unrealized investment gains, net of tax 19,451 148,060
Net foreign exchange (losses) gains, net of tax (30,856 ) 9,643
Interest in earnings (losses) of equity method investments, net of
tax
5,829   (499 )
Operating earnings available to common shareholder $ 43,775   $ 44,238  

(1)

 

Average common shareholder's equity is calculated by using the
sum of the beginning of period and end of period common
shareholder's equity divided by two.

(2)

Net income available to common shareholder is calculated after
preferred dividends.

 

PartnerRe Ltd.

Reconciliation of GAAP and non-GAAP measures

(in thousands of U.S. dollars)

(Unaudited)

 
  For the three months ended
March 31,   March 31,
2017 2016
Annualized return on average common shareholder's equity(1)
calculated with net income available to common shareholder
2.6 % 13.3 %
Add:

Transaction and severance related costs(2), net of tax

0.4   4.0  
Annualized return on average common shareholder's equity(1)
calculated with net income available to common shareholder, adjusted
by transaction and severance costs
3.0 % 17.3 %
 
Net income available to common shareholder(3) $ 38,199 $ 201,442
Add:
Transaction and severance related costs(2), net of tax 6,489   60,000  
Net income available to common shareholder(3), adjusted
by transaction and severance costs(2)
$ 44,688   $ 261,442  
 
Annualized operating return on average common shareholder's equity(1) 3.0 % 2.9 %
Add:
Transaction and severance related costs(2),
net of tax
0.4   4.0  
Annualized operating return on average common shareholder's equity(1),
adjusted by transaction and severance costs(2)
3.4 % 6.9 %
 
Operating earnings available to common shareholder $ 43,775 $ 44,238
Add:
Transaction and severance related costs(2), net of tax 6,489   60,000  
Operating earnings available to common shareholder, adjusted by
transaction and severance costs(2)
$ 50,264   $ 104,238  

(1) Average common shareholder's equity is calculated by using
the sum of the beginning of period and end of period common
shareholder's equity divided by two.

(2) The adjustment of $6 million, net of tax ($8 million
pre-tax) for the first quarter of 2017 primarily represents
severance costs associated with the reorganization of the
Company's operations. The adjustment of $60 million, net of tax
($66 million pre-tax) for the first quarter of 2016 includes
transaction costs and accelerated stock-based compensation
expenses incurred related to the closing of the acquisition by
Exor in the first quarter of 2016.

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

 

PartnerRe Ltd.

Reconciliation of Total Shareholders' Equity to Tangible Book
Value and Total Capital

(in thousands of U.S. dollars)

(Unaudited)

 
  March 31,   December 31,
2017 2016
 
Total shareholders' equity $ 6,711,763 $ 6,687,912
Less:
Preferred shares, aggregate liquidation value 704,227   704,227
Common shareholder's equity 6,007,536 5,983,685
Less:
Goodwill 456,380 456,380
Intangible assets, net of tax 69,091   73,022
Tangible book value $ 5,482,065   $ 5,454,283
 
Capital Structure:
Senior notes $ 1,295,119 $ 1,273,883

Capital efficient notes (1)

63,384 63,384
Preferred shares, aggregate liquidation value 704,227 704,227
Common shareholder's equity 6,007,536   5,983,685
Total Capital $ 8,070,266   $ 8,025,179

(1) Non-consolidated debt issued externally related to CENts
of $63m does not appear in the debt line of the Consolidated Balance
Sheet as the finance entity that issued the debt (PartnerRe Finance II
Inc.) does not meet the U.S. GAAP criteria for consolidation. The
Consolidated Balance Sheet includes the related intercompany notes of
$71m issued by PartnerRe U.S. Corporation to PartnerRe Finance II Inc.

View Comments and Join the Discussion!
 

Partner Center