Executives at PartnerRe said today a 47 percent drop in fourth-quarter 2008 net income was due to actions they took to account for potential losses in credit and surety lines and to revisions in Hurricane Ike estimates.
A company statement last night also noted that part of the drop–to a net income figure of $95.3 million, or $1.53 per share–reflects an accounting change from 2007, when fourth-quarter income was reported at $180.6 million, or $3.04 per share.
Adoption of new accounting on Jan. 1, 2008 meant that net income in 2008 included net after-tax realized and unrealized gains on investments, while 2007 net income included only realized gains, PartnerRe explained.
Eliminating the accounting noise meant after-tax operating earnings, which exclude investment gains altogether, also plummeted to $53.9 million in fourth-quarter 2008, compared to 257.4 million in fourth-quarter 2007, the company said.
Given what he termed "extraordinary" circumstances, Patrick Thiele, president and chief executive officer, said the company "performed well" for the full year, noting that the Bermuda-based reinsurer still managed to post a 12 percent overall return for 2008 and even achieved a positive return on its investment portfolio.
These results came in spite of the "worst financial crisis in recent history" and the third-worst industry result in recorded history for natural catastrophes, he said.
"We are not and cannot be immune to these events," he commented during a conference call today. Still, a diversified book of business helped the reinsurer achieve positive bottom-line results for the quarter and the year, he said.
"Year over year, our balance sheet was stable, which is a significant achievement in a year like 2008," he added. He noted later, however, that competitors' weakened balance sheets didn't significantly change the reinsurance market dynamics during Jan. 1 renewals.
"Despite all the drama around several of our competitors, it was difficult to get the clients to reshuffle [reinsurance placements]. Business generally remained stable," he said, suggesting that customers stayed with their 2008 reinsurance partners for the most part.
"Given all the discussion at insurance conferences late last year, including Greenbriar, Baden Baden and Monte Carlo, [about] reinsurers and some of their ownership issues, reserving issues [and] their asset exposures, that was a little surprising to me," he said, speculating that customers relied on their own assessments of the strength of existing partners rather than taking cues from rating agencies.
Offering evidence of the "declining impact of rating agencies," he said that despite the fact that there were rating actions taken in the fourth quarter, they "didn't have much of an impact on client behavior." He did not mention by name the reinsurers that were subject to rating agency actions.
For PartnerRe, other significant items in today's financial report were:
o Net income of $46.6 million, or 22 cents per share for the year, compared to $717.8 million, or $11.87 per share in 2008.
o Net written premium increases of 5.3 percent for the quarter (to $752.4 million) and 6.1 percent for the year (to $4.0 billion).
o A combined ratio of 102.2 for the fourth quarter and 94.1 for the year. Comparable prior-year combined ratios were 79 for fourth-quarter 2007 and 80.4 for the full year in 2007.
Drilling down on fourth-quarter 2008 results, Chief Financial Officer Albert Benchimol said that on a pre-tax basis, quarterly operating income was $171 million lower in fourth-quarter 2008 than in fourth-quarter 2007, with $114 million of the drop attributable to Partner Re's revision of Hurricane Ike losses.
Another $55 million, he said, is attributable to worse results for the credit and surety line. "This reflects our revised expectation of higher loss ratios for business written in 2007 and 2008 given deteriorating economic conditions," he said.
He characterized the decision to book provisions at PartnerRe for potential losses as a cautious anticipatory move given the uncertainties of the external economic environment.
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