PartnerRe Evaluates 4Q CAT Loss - Analyst Blog
December 26 2012 - 3:10AM
Zacks
Recently, property-casualty and
life reinsurer – PartnerRe Ltd. (PRE) – announced
the pre-tax catastrophe (CAT) loss projections of about $200–240
million from the Hurricane Sandy, which hit the north-east coast of
the US lately. This will be recorded in the fourth quarter results
of 2012.
The total insured industry loss
from the Superstorm Sandy is estimated to be over $25 billion.
Other insurers and reinsurers such as Allstate
Corp. (ALL), American International Group
Inc. (AIG), The Travelers Companies
(TRV), RenaissanceRe Holdings Ltd. (RNR) and
Everest Re Group Ltd. (RE) have estimated CAT
losses of $1.08 billion, $1.3 billion, $1.14 billion, $130 million
and $220 million, respectively.
Over the past few years,
catastrophe losses have not only amplified the claims payments of
the insurers but also nibbled into the earnings of the companies,
thereby distorting the operational dynamics for quite some time,
post the weather-related events. It also causes the erosion of free
capital, which could otherwise be utilized for growth purposes or
to enhance shareholder value.
PartnerRe incurred a net operating
loss of about $504 million or $7.43 per share in the first nine
months of 2011 primarily due to escalated CAT losses owing to the
Thailand floods and the Tsunami in Japan. However, lower CAT losses
in the same period this year resulted in an operating net income of
$568 million or $8.84 a share.
Nonetheless, losses from the
Hurricane Sandy have reversed the positive trend that the company
experienced in the first three quarters of 2012. We believe
such uncertainty and volatility in the magnitude of catastrophic
losses besides reducing financial flexibility and reserves of the
company also weakens the underwriting capacity, thereby draining
all the earnings resources.
Earnings
Review
Last month, PartnerRe reported its
third-quarter 2012 operating earnings per share of $3.90. This
significantly exceeded the Zacks Consensus Estimate of $2.06 and
the year-ago earnings of $2.41.
PartnerRe’sresults benefited from
the improved underwriting and technical results coupled with a
significant reduction in the catastrophe and total expenses, which
improved the combined ratio and also drove the bottom line, return
on equity (ROE) and book value. The top line grew due to the
enhanced net realized and unrealized investment gains. However,
continued decline in premiums earned along with lower investment
income, driven by low reinvestment and risk-free rates, partly
offset the improvements.
However, as per the Zacks Consensus
Estimate, net loss is pegged at 49 cents per share for the fourth
quarter of 2012 and is expected to decline about 76% year over
year, primarily driven by an increase in CAT losses from Hurricane
Sandy. Nonetheless, earnings are expected to escalate by about 189%
over the prior year in 2012 to $8.47 a share. Six out of the 16
analyst firms have lowered their earnings estimates in the last 7
days, while one upward revision was witnessed. Currently, PartnerRe
carries a Zacks #3 Rank, implying a Hold rating in the
short-term.
AMER INTL GRP (AIG): Free Stock Analysis Report
ALLSTATE CORP (ALL): Free Stock Analysis Report
PARTNERRE LTD (PRE): Free Stock Analysis Report
EVEREST RE LTD (RE): Free Stock Analysis Report
RENAISSANCERE (RNR): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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