PartnerRe Pumps up Stock Buyback

On Tuesday, the board of property-casualty and life reinsurer – PartnerRe Ltd. ( PRE - Analyst Report ) approved and authorized a new stock repurchase worth 6.0 million shares. The latest sanction will be effective immediately. The decision reflects the company’s trend of returning wealth to its shareholders from time to time, depending on market conditions.

PartnerRe bought back about 3.0 million shares for $210 million during the second quarter of 2012, while a total of 3.1 million shares worth $222 million were purchased back in the first half of 2012. An additional 0.5 million shares were repurchased for $34 million in July this year, while 0.7 million shares were bought back last month.

Consequently, about $1.0 million shares remain available from the last authorization, which was put into action in November last year with an approval to extend its prior stock repurchase program up to 7.0 million shares. Moreover, PartnerRe has approximately 22.9 million common shares, which were held in treasury and are now available for re-issuance.

Our Take

PartnerRe seeks to elevate its capital position through meaningful business opportunities. On the other hand, management utilizes the company’s capital by deploying excess of it via share repurchases and dividend payouts, in order to generate adequate capital returns. The accretive impact of share repurchases also aids book value and earnings to augment on a per share basis.

A stable ratings outlook affirmation from A.M. Best, S&P, Moody’s Investor Service of Moody’s Corp. ( MCO - Analyst Report ) and Fitch Ratings further validates the company’s overall operational synergies in order to augment its long-term growth profile. This is satisfactory compared with its peer group.

Earnings Review

At the end of July 2012, PartnerRe reported second quarter operating earnings per share of $2.20. This significantly surpassed the Zacks Consensus Estimate of $2.02 and the year-ago earnings of 98 cents.

Results benefited year over year from improved underwriting and technical results coupled by a significant reduction in the total expenses and combined ratio, which also drove the earnings, return on equity (ROE) and book value. However, top line deteriorated due to low net realized and unrealized investment gains, continued decline in premiums earned due to cancellations and non-renewals in the prior quarters, along with lower investment income driven by low reinvestment and risk-free rates.

For the third quarter of 2012, earnings are pegged at $1.80 per share by the Zacks Consensus Estimate, and are expected to decline about 26% year over year. However, earnings are expected to escalate by about 190% over the prior year in 2012 to $8.54 a share. Currently, PartnerRe holds a short-term Zacks #3 Rank, which implies a Hold rating.