On Apr 22, we upgraded our recommendation on PartnerRe Ltd. (PRE) to Outperform based on its improved risk profile, underwriting capabilities and the latest acquisition of Presidio Reinsurance.
Why the Upgrade?
Estimates for this global life and property-casualty insurer and reinsurer witnessed significant corrections after the company reported its fourth-quarter 2012 results on Feb 6. The company’s fourth-quarter earnings per share of $1.55 significantly surpassed the Zacks Consensus Estimate of a loss of 42 cents and the year-ago loss of $2.06. Total revenue of $1.31 billion outpaced the Zacks Consensus Estimate of $1.29 billion although it declined 7.2% from the prior-year quarter.
However, total expenses plunged 17.4% year over year to $1.18 billion, while combined ratio recovered to 95.3% from 121.7% in the year-ago period. Consequently, operating return on equity (:ROE) of 12.3% in 2012 outpaced the (10.1%) in 2011. Overall, PartnerRe delivered positive earnings surprises in all of the last 4 quarters with an average beat of 150.3%.
Following the release of the fourth-quarter results, the Zacks Consensus Estimate for 2013 increased 3.9% to $8.56 per share in the last 60 days. Moreover, the Zacks Consensus Estimate for 2014 edged up 0.8% to $7.99 per share in the last 60 days. With the Zacks Consensus Estimates for both 2013 and 2014 exhibiting strong upward pressure in the near term, PartnerRe now has a Zacks Rank #1 (Strong Buy).
What is the cause for the strong positive bias on the company? Despite incurring catastrophe losses due to Hurricane Sandy, the company posted strong fourth-quarter results. Moreover, PartnerRe’s acquisition of Presidio Reinsurance is likely to drive growth based on its strong market presence, thus complementing its strategy of growth through acquisitions.
Additionally, PartnerRe enjoys above-average liquidity and a low-risk balance sheet, which is reflected in its consistent and efficient capital deployment and dividend increment. In the long run, a stable ratings outlook, improved pricing and market stability will help it generate higher underwriting profitability and investment returns.
Other Insurers That Warrant a Look
Apart from PartnerRe, other stocks in the insurance sector that are outperforming include Montpelier Re Ltd. (MRH), EMC Insurance Group Inc. (EMCI) and Hilltop Holdings Inc. (HTH). All these stocks carry a Zacks Rank #1 (Strong Buy).Read the Full Research Report on PRE
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