I believe it is highly probable that PartnerRe's book value per share will reach $120 by year-end. This view reflects two factors: (1) $10@share of earnings and (2) equity repurchases amounting to approximately 10% of common shares and equivalents outstanding. If my prediction is accurate, this stock is highly attractive, IMO, selling at about a 20% discount from this 12/31/14 objective. If anything, I believe that PRE may surprise investors with the level of its current-year EPS, reflecting the amount of favorable loss reserve development it may record.
PartnerRe's 2013 10K is out, and I urge interested investors to read this excellent SEC filing. It contains a wealth of information on this outstanding reinsurer. In particular, I found that this document once again provided me with tremendous comfort around the solidity of PRE's balance sheet and especially its loss reserves. You will note that the company continues to establish loss reserves toward the high point of its actuarial ranges for its lines of business. Consequences, all things being equal, I would expect Partner to continue recording significant favorable reserve development during 2014.
PartnerRe's CFO Bill Babcock recently spoke at the Merrill Lynch insurance conference. In response to a question about capital management, he said that the reinsurer was likely to repurchase as much equity in dollar terms as it did in 2013. This would amount to a buy-back utilizing ALL of the company's current-year operating earning less dividends. Consequently, I expect Partner to fully utilize its 6 million share repurchase authorization prior to year-end, which would amount to more than 10% of the outstanding shares and equivalents. Babcock also commented that PRE has plenty of excess capital and that it is shrinking its capital intensive lines (catastrophe reinsurance) while expanding in diversifying lines of business which actually free up capital. With Partner's shares selling at a 10% discount to BVPS, repurchases serve to increase both book value and EPS.
PartnerRe America, the health re/insurer subsidiary of PartnerRe, was upgraded by A.M. Best to A+ from A. This move should prove beneficial for the unit as it seeks to expand in this relatively new area for the company. Moreover, this entity will retain all the business that had previously been produced by its Presidio division, which was purchased by Partner in the latter part of 2012. I anticipate good growth by this business during the year.
Is MIG going the way of Tower Group? With ample capacity in the commercial lines market, why would any broker/agent risk utilizing such a financially weak underwriter? Such a move doesn't make much sense to me. It will be interesting to observe further developments with respect to this insurer.
Excellent post! There is little doubt that Markel overpaid and made a BAD deal in purchasing Alterra. They even admitted on the call what a competitive market the reinsurance business currently is. Why pay a premium to book to enter a difficult business with a mediocre player? That is exactly what Markel did. The reinsurance business isn't only very competitive; there is also a secular trend among ceding carriers to consolidate their reinsurer panel among a limited number of the larger entities. You know that it is highly unlikely that Alterra is going to make the cut in the vast majority of these cases. IMO, whoever was responsible for making the decision to purchase Alterra should be FIRED.
AIG P-C is no closer to an underwriting profit than it was a year ago. I believe you are beginning to observe the impact of the exodus of high-end talent that has been occurring at the company over the past several years. I personally don't believe that firing 1,500 employees will improve the situation. Management said on the call today that this initiative isn't even going to lower the carrier's expense ratio. If a p-c insurer couldn't make an underwriting profit in a light cat year like 2013, then its hard to know when it could. Its funny that Travelers today is achieving combined ratios like the AIG of old, and AIG now is recording underwriting results like the old Travelers. What a role reversal!
PartnerRe's share price advanced above the $100 level again today on strong volume. We suspect the company was a significant repurchaser of its shares. With a FDBV per share of more than $109, any buy-backs at current prices are accretive to both EPS and book value. Moreover, with the reduction in market interest rates, strong profits and further repurchases, we expect FDBV per share to rise materially this year to approximately $120. It isn't coincidental that this later number is also our personal year-end price target for the stock.
Tower reported after the market close its 3Q13 financial results, which were HORRENDOUS. I now understand why the company finally got rid of LEE. One can only wonder what the current financial status of the company is. I also question what AmTrust will actually be purchasing by the time this transaction is suppose to close at mid-year. IMHO, Tower probably now has a negative net worth. I can't see this financial performance doing anything good for the company. If AmTrust pulls its offer, I see TWGP share price heading south.
Partner reported respectable 4Q13 financial performance along with continue favorable loss reserve development and further share repurchases. I believe the reinsurer will reduce its outstanding shares by 10% during 2014 while growing it FDBV by a similar percentage. Not a bad combination, in my opinion. Moreover, I'm happy the reinsurer reduced its catastrophe exposure, since the line has turned quite competitive and weather-related loss activity looks to have picked-up markedly in the period with major snow and ice in the US and significant storms and flooding in the UK. I continue to look for major upside in Partner's stock price during 2014.
I noticed that AmTrust doesn't use one of the big four accounting firms. Is this part of it efficiency focus?
Central Securities 2013 Annual Report was published yesterday and can be found on the closed-end fumd's web site. IMO, it is worth the read. I urge interested investor to take a look at it.
What do people know about the Karfunkel Family, who control AmTrust, Maiden Lane, and are purchasing Tower Group? They are obviously very wealthy and successful, and I know they have been quite active in real estate. I believe there was a article about them last year in the Insurance Insider magazine, I'm very curious to learn more about them. I hear they like to avoid the limelight.
PartnerRe will report its 4Q13 financial results after the market closes on Monday. Besides the EPS number, there will be a lot of additional data and commentary that investors in the nonlife insurance sector will find of great interest. First, will PRE have to increase its loss reserves for the 2010 and 2011 New Zealand earthquakes as Validus Re did as well as adjust the loss ratio picks on its agriculture business? Second, the company's commentary on rate pressures during the important 1/1/14 reinsurance renewal period. Third, the extent to which Partner purchased competitive retro coverage to reduce its net catastrophe exposure. Fourth, the amount of shares its repurchased in the 4Q and so far in 2014, and it buy-back plans for the remainder of the year. And finally, various other initiatives it has in play, e.g., its organizational restructuring and its diversifying efforts. Moreover, investors will be very focused on the general market overview provided by PartnerRe's CEO, Costas Miranthis. All of this should make for both very interesting reading of the press release and an informative investor call by senior management the following day.
PartnerRe announced two favorable developments with regard to its fundamentals. First, the reinsurer reported that its 1/1/14 nonlife treaty renewal premiums increased approximately 3% in a very challenging business environment. The company's premium volume will increase more than this 3% figure due to more robust growth in its life/health written premiums. Second, Partner announced that it was increasing its quarterly dividend by 5%, its 21st consecutive annual dividend raise. These two metrics provide additional support to our view of the company's strong fundamental position in its industry and the continued attractiveness of its common shares.
At its current share price, we believe that PartnerRe stock is selling for approximately $10@share below book value. Consequently, we hope that management is taking full advantage of these favorable prices to aggressively repurchase its shares. Buying back its equity at such levels is highly accretive to both book value and EPS. I can think of no better way to reward current shareholders than such a wise use of corporate funds.
I concur. The "sell-side" consensus EPS estimate for 4Q13 is now above $3@share. However, I wouldn't be surprised to see a number significant above this number. Keep in mind that Partner reported a 3Q13 EPS that was north of $5@share. Moreover, the reinsurer should have continued its aggressive share repurchase activity in the period. Finally, we should all anticipate the announcement of a modest rise in its quarterly dividend, reflecting the company's unbroken record of annual dividend increases since the reinsurer was founded in 1993. Also, expect a significant advance in Partner's book value to a number north of $108@ share.
IMO, PartnerRe should be a major beneficiary from any industry consolidation! reflecting its size, breath of operations, deep relationship with clients, and financial strength. Moreover, as historically a minimal user of reto coverages, PRE should be in a position to utilize such attractively priced products to more efficiently structure it exposures and balance sheet. The company was also ahead of its peers in taking pro-active measures to manage its expense structure in the future. For all these reasons, I believe that Partner will remain one of the best positioned reinsurers in this sector.
Markel's 2013 purchase of Bermuda-based Alterra is looking increasingly unwise, IMO. The former carrier's management said the principal rationale for this transaction was to enter the reinsurance business. To begin with, Alterra is a marginal player in this sector. Second, the fundamentals of the reinsurance business have taken a decided turn for the worse. S&P said today it may downgrade smaller players in the reinsurance industry. Given the high price that Markel paid for this mediocre underwriter, it is hard to believe that it will achieve an attractive return on its investment over the next several years.
What happens to the lawsuits in the event this transaction is completed? Does anyone know what D&O limits were purchased by Tower? Have there been any suits filed over this purchase agreement?