PartnerRe(99.57% of voting rights; 100% interest in common shareholder’s equity through EXOR Nederland N.V.)

 

 

 

Data presented and commented below are derived from PartnerRe’s consolidated financial information for the six months ended 30 June 2020 prepared in accordance with US GAAP.

  I Half
$ million 2020 2019
Net premiums written 3,269 3,783
Non-life combined ratio(a) 112.6% 95.0%
Life and Health allocated underwriting result(b) 23 44
Net investment return 0.7% 5.3%
Other expenses 169 175
Net (loss) income attributable to PartnerRe common shareholders(c) (204) 782
Net Income ROE(d) (6.4)% 25.3%
(a) PartnerRe uses a combined ratio to measure results for the Non-life P&C and Specialty segments. The combined ratio is the sum of the technical and other expense ratios. (b) PartnerRe 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 policy benefits, acquisition costs and other expenses. (c) Net income/loss attributable to PartnerRe common shareholders is defined as net income/loss attributable to PartnerRe less preferred dividends. (d) Net income ROE is calculated as net income return on average common shareholders’ equity.

Covid-19

PartnerRe incurred $338 million of pre-tax losses, net of retrocession and reinstatement premiums, as a direct result of Covid-19 and the related effects of the economic downturn in the first half of 2020.

These losses reflect the estimations on claims incurred as of 30 June 2020, with substantially all of the losses classified as incurred but not reported (IBNR) reserves. Such estimations include $159 million, $164 million and $15 million of pre-tax losses, net of retrocession and reinstatement premiums, attributable to P&C, Specialty and Life and Health segments, respectively. The losses are attributable to business interruption and event cancellation related coverages, credit exposures in financial risks lines, and life and health business.

The Covid-19 pandemic is unprecedented and the related economic downturn is ongoing. There continues to be significant uncertainty surrounding the full extent of the impact. Despite the recent market conditions, PartnerRe's solvency position has remained strong and showed an improvement during the second quarter of 2020. PartnerRe also maintains ample liquidity, with cash and cash equivalents of $1.4 billion at the end of the second quarter of 2020.

Net loss attributable to common shareholder was $204 million for the half year 2020, which included net realized and unrealized investment gains on fixed maturities and short-term investments of $211 million, primarily due to decreases in worldwide risk-free rates, and net foreign exchange gains of $95 million. This compared to a net income available to common shareholder of $782 million for the half year 2019, which included net realized and unrealized investment gains on fixed maturities and short-term investments of $443 million and $47 million of net foreign exchange losses.

The majority of the investments, including all fixed maturities, such as government bonds and investment grade corporate debt, are accounted for at fair value with changes in the fair value recorded in the Consolidated Statements of Operations.

Net premiums written of $3.3 billion were down 14% for the first half of 2020 compared to $3.8 billion in the same period of 2019, reflecting premium exposure adjustments resulting from the current economic downturn and the Company's focus on portfolio optimization throughout 2020.

The Non-life combined ratio was 112.6% for the half year 2020 compared to 95.0% for the same period of 2019. The decrease was driven by Covid-19 related losses, net of retrocession and reinstatement premiums.

Allocated underwriting result in the Life and Health segment was a profit of $23 million for the half year 2020, compared to $44 million for the half year 2019, driven by Covid-19 related losses of $15 million, adverse experience in the short term life business and an unfavorable impact in the GMDB line of business following decreases in equity markets, partially offset by the favorable impact of certain portfolio recaptures.

Net investment return for the half year 2020 was $124 million, or 0.7%, which included net investment income of $175 million and interest in earnings of equity method investments of $2 million, partially offset by net realized and unrealized investment losses of $53 million. This compares to a net investment return of $917 million, or 5.3%, for the half year 2019, which included net investment income of $231 million, net realized and unrealized investment gains of $651 million and interest in earnings of equity method investments of $35 million.

Net investment income was down $56 million for the half year 2020, compared to the same period in 2019, primarily due to the sales of higher yielding bank loan investments and the impact of lower reinvestment rates, driven by significant decreases in worldwide risk-free rates in the first quarter of 2020.

Net realized and unrealized investment losses of $53 million for the half year 2020 included $137 million of net realized and unrealized investment losses on equities and $127 million of net realized and unrealized investment losses on other invested assets, partially offset by net realized and unrealized investment gains of $211 million on fixed maturities and short-term investments. Gains on fixed maturities and short-term investments were primarily unrealized and reflect the benefit of decreases in worldwide risk-free rates, partially offset by the widening of worldwide credit spreads. Losses on equities were primarily unrealized and driven by unrealized losses in public equity funds due to decreases in worldwide equity markets. Losses on other invested assets included $93 million of net unrealized losses primarily driven by the PartnerRe's U.S. and European bank loans that were impacted by a widening of non-investment grade credit spreads, as well as losses on private equities. PartnerRe also recognized net realized losses of $34 million on other invested assets driven by sales within the bank loan portfolios. For the half year 2019, net realized and unrealized investment gains of $651 million included net realized and unrealized investment gains of $443 million on fixed maturities and short-term investments and $208 million of net realized and unrealized investment gains on equities and other invested assets.

Other Income Statement items

Other expenses of $169 million (expense ratio of 5.4%) for the half year 2020 were down $6 million compared to $175 million (expense ratio of 5.7%) for the same period of 2019.

Net foreign exchange gains were $95 million for the half year 2020, driven by the appreciation of the U.S. dollar against certain major currencies (primarily the Canadian dollar and British pound), net of the cost of hedging. This compared to losses of $47 million for the half year 2019, driven by the depreciation of the U.S. dollar against certain major currencies and hedging costs.

The impact of net foreign exchange gains and losses in the income statement during 2020 was significantly offset by changes in the foreign currency translation adjustment in other comprehensive income, which decreased by $98 million for the half year 2020.

Interest expense was $16 million for the half year 2020, compared to $22 million for the same period of 2019. During the second quarter of 2019, PartnerRe issued $500 million 3.70% Senior Notes due 2029 and used the proceeds to early redeem the $500 million 5.50% Senior Notes due 2020 in the third quarter of 2019. These transactions resulted in the lower interest expense compared to the same periods of 2019.

Income tax benefit was $28 million on pre-tax losses of $209 million for the half year 2020, compared to an expense of $75 million on pre-tax income of $880 million for the half year 2019.

Balance sheet and capitalization

Total capital was $8.3 billion at 30 June 2020, down 4.2% compared to 31 December 2019, primarily due to the decrease in common shareholder's equity for the half year 2020.

Common shareholder's equity (or book value) of $6.2 billion and tangible book value of $5.6 billion at 30 June 2020 decreased by 5.6% and 6.0%, respectively, compared to 31 December 2019, primarily due to the net loss attributable to common shareholder for the half year 2020, the foreign currency translation adjustment and dividends on common shares. Book value, excluding dividends on common shares for 2020, was down 4.8% compared to 31 December 2019.

Total investments and cash and cash equivalents were $18.0 billion at 30 June 2020, up 1.0% compared to 31 December 2019. The increase at 30 June 2020 was primarily driven by the $124 million net investment return for the half year 2020.

Cash and cash equivalents, fixed maturities, and short-term investments, which are government issued or investment grade fixed income securities, were $14.0 billion at 30 June 2020, representing 78% of the total investments and cash and cash equivalents.

The average credit rating of the fixed income portfolio was AA as of 30 June 2020. The expected average duration of the public fixed income portfolio at 30 June 2020 was 1.9 years, while the average duration of the liabilities was 4.5 years.

Reconciliation of reported US GAAP financial information to IFRS financial information used for line-by-line consolidation purposes

The net differences between the US GAAP and the IFRS net income are immaterial and related only to the economic effects of the application of the acquisition method by EXOR to account for the acquisition.

2020 Outlook

Excluding the effects of Covid-19 and the related economic downturn, PartnerRe has begun to observe momentum with respect to its Non-Life segments, with current accident year ratios benefiting from the hardening rate environment and our portfolio optimization efforts. The improved reinsurance conditions, alongside positive June and July renewals where we continued to see strong rate increases, position us well to deliver improved underwriting results. In addition, our Life and Health segment continues to contribute to book value and provides diversification effects.

PartnerRe, and its peers within the reinsurance industry, do not provide earnings guidance given its reinsurance results are largely exposed to low frequency and high severity risk events. Some of these risk events are seasonal, such that results for certain periods may include unusually low loss experience, while results for other periods may include modest or significant catastrophe losses. In addition, PartnerRe’s investment results are exposed to changes in interest rates, credit spreads, and capital markets in general, which result from fluctuations in general economic and financial market conditions. As a result, PartnerRe’s profitability in any one period or year is not necessarily predictive or indicative of future profitability or performance.

Commercial Register No.64236277 Legal notes | Credits