PartnerRe Ltd

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PartnerRe Ltd.

Wellesley House
96 Pitts Bay Road
Pembroke, HM 08
Bermuda Telephone: (441) 292-0888
Fax: (441) 292-7010
Web site: http://www.partnerre.com

Public Company
Incorporated: 1993
Employees: 943
Total Assets: $13.74 billion (2005)
Stock Exchanges: New York
Ticker Symbol: PRE

NAIC: 524128 Other Direct Insurance (Except Life, Health, and Medical) Carriers

Based in Bermuda, PartnerRe Ltd. is a New York Stock Exchange–listed global reinsurance company that provides coverage to primary insurance companies for such risks as catastrophe (the company's original focus), property, casualty, motor, agriculture, aviation/space, credit/surety, engineering/energy, and marine. In addition, PartnerRe offers life/annuity and health insurance products, and provides industrial and service companies with alternative risk products including weather and credit protection. The company maintains major offices in Greenwich, Paris, and Zurich. Other operations are located in Dublin, Toronto, Montreal, Hong Kong, Singapore, Seoul, and Tokyo.

HURRICANE ANDREW LEADS
TO REINSURANCE VOID

In August 1992 Hurricane Andrew lashed the Caribbean and the Gulf Coast of the United States, causing 26 deaths, and property damage of $26.5 billion in the United States alone. Insurers were on the hook for an estimated $22 billion, this on top of several consecutive years of costly natural disasters. Lloyd's of London was staggered by the blow and withdrew from the catastrophic reinsurance business while another 11 reinsurance companies simply went out of business. Seeing an opportunity, a number of companies cropped up to fill the void, eight of them setting up shop in Bermuda because of the islands' favorable tax laws. One of those firms was PartnerRe, incorporated in 1993. According to Bermuda's Royal Gazette, "PartnerRe was the brainchild of investment firm Morgan Stanley." A pair of sponsors were recruited. One was the private New York investment firm of John Head and Partners, run by John Head, a Morgan Stanley veteran who focused on insurance investments. The other was Swiss Re, the second largest reinsurer in the world. Swiss Re was keen to increase its catastrophe ("cat") reinsurance business, but did not want to have the increased risk on its own balance sheet. Furthermore, Swiss was very much interested in raising money in the United States through an initial public offering (IPO) of stock, but reluctant to deal with the strict accounting requirements imposed by the Securities and Exchange Commission. Thus, PartnerRe, with Morgan Stanley ready to underwrite an IPO, was an ideal vehicle to serve the aims of Swiss Re. Several other investors were also eager to become involved. They included T. Rowe Price, EXOR, Omega Capital Partners, Tiger Management, Bass Brothers, and Electra Investment Trust.

Drawing from its own ranks, Swiss Re supplied the new reinsurance company with its first chief executive: Executive Vice-President Herbert Haag. A 24-year veteran at Swiss Re, Haag had held a number of posts, including nine years as the head of the firm's Japanese unit. He established an office in Bermuda with just two staff people to participate in the cat reinsurance business. Before he even wrote one policy, PartnerRe was taken public and its shares began trading on the NASDAQ. Between the IPO and initial investments, Haag had about $1 billion to work with. Swiss Re contributed $100 million, the six investment firms another $130 million, and Head Partners $25 million. A further $650 million was raised from the IPO conducted in November 1993, and other investors made up the balance.

Shortly after the IPO, PartnerRe began writing catastrophe business. Little more than two months later California was hit by a 6.7 magnitude earthquake. PartnerRe guaranteed $22 million for losses incurred, but it was unlikely that the primary insurers ever reached their deductibles, necessitating a payout. John Head portrayed the earthquake as good news for PartnerRe, likely to spur business because it "scared the hell out of everybody." He added, "I like volatility. I like things that scare people." A winter freeze and early spring storms also caused primary insurers to seek additional coverage in 1994. In its first full year of business, PartnerRe wrote net premiums of $184.1 million, leading to total revenues of $206.3 million and healthy earnings of $146.1 million.

Revenues improved to $312.1 million on $230.9 million in net premiums, while earnings grew to $223.8 million in 1995, but business fell off in 1996 as the reinsurance void had been more than filled, and increased competition hurt rates and limited opportunities. Net premiums dipped to $206 million and revenues to $303.7 million, but net income continued to rise, approaching $150 million. In November 1996, PartnerRe was also able to secure a coveted spot on the New York Stock Exchange.

ACQUISITION OF SAFR: 1997

Believing that relying solely on cat reinsurance was not wise, PartnerRe made a strategic decision to diversify in 1997. It was a step the rest of the Bermuda reinsurance startup companies had already taken, because a lack of major catastrophes, coupled with increased competition, had resulted in lower premiums and limited the chances for growth. PartnerRe's first move to diversify was taken in July of that year with the acquisition of Societe Anonyme Francaise de Reassurances (SAFR), a deal made possible by Swiss Re, which had been a longtime owner of a 22 percent interest in the 113-year-old, Paris-based firm. Earlier in the year the majority owner of SAFR, the French insurance firm of Assurances Generale de France, decided to sell its stake, and rather than have SAFR fall into the hands of larger competitors, Swiss Re decided to buy the company. Yet because SAFR was not essential to its growth, Swiss Re offered the business to PartnerRe, where it could have a much greater impact. The sale to PartnerRe was announced even before Swiss Re had completed the initial purchase. PartnerRe paid $927 million for the property, financed from cash on hand and proceeds from a $250 million secondary stock offering. The deal paid Swiss Re $800 million in cash and the balance in stock, thus increasing Swiss Re's 11.1 percent stake in PartnerRe to 21.8 percent. As part of the transaction, a "stand-still agreement" was put in place, preventing Swiss Re from making an attempt to buy the company until 2004 or from acquiring more than a 30 percent interest.

COMPANY PERSPECTIVES

PartnerRe is an intelligent provider of risk assumption products for the global insurance and capital markets. We provide highly valued products and relationships to our clients, deliver appropriate returns to our shareholders and ensure a satisfying work experience for our employees.

SAFR was a good fit for PartnerRe in a number of ways. SAFR was a multiline insurer, which allowed PartnerRe to expand beyond cat insurance. SAFR was involved in noncatastrophic property and casualty insurance, plus automobile, aviation, and marine coverage. A wider mix of insurance products helped to even out PartnerRe's balance sheet, providing the company with more consistent, predictable results over time. Moreover, SAFR, based as it was in Europe, had a strong position on the Continent, a nice complement to PartnerRe's North American business. The company's customer base was also greatly expanded, increasing from 200 to more than 1,000, located in over 100 markets. PartnerRe had a sturdy foundation for building a global enterprise. When 1998 came to a close, 60 percent of PartnerRe's business was drawn from Europe, thanks to SAFR, followed by 22 percent in North America, 15 percent in Asia and the Pacific, 2 percent in Latin America and the Caribbean, and 1 percent in Africa. In 1998 the amount of premiums doubled to $427.8 million and revenues followed suit, increasing to $615.7 million. Net income also improved to $271.1 million.

In 1998 PartnerRe took advantage of SAFR's product lines to supplement its North American business with casualty insurance. SAFR's New York branch was renamed PartnerRe US and provided with $100 million in new capital, giving it a total capitalization of $328 million. PartnerRe's chief financial officer since its inception, Scott D. Moore, was dispatched to head the unit.

At the close of 1998 PartnerRe completed a second major acquisition to provide further diversification, paying $771 million for Winterthur Re, the reinsurance business of the Winterthur Insurance Group, owned by Credit Suisse. In the deal, PartnerRe picked up New York-based Winterthur Reinsurance Company of America, Dallas-based Winterthur Life Re Insurance Company, as well as Winterthur's reinsurance business in Switzerland. As with SAFR, the acquisition offered several benefits. PartnerRe gained a complementary mix of businesses, adding such specialty lines as aviation, agricultural risks, credit and surety, and life and health. The firm also beefed up its U.S. business, and overall PartnerRe significantly added to its size in terms of premiums, expertise, and employees, positioning it as a significant global player. Once the Winterthur assets were assimilated, PartnerRe emerged as the 12th largest reinsurer in the world, boasting $3.5 billion in assets and $1.5 billion in annual premiums.

In 1999 Swiss Re attempted to circumvent the stand-still agreement that had been put in place as part of the SAFR acquisition. It asked PartnerRe to lift the provision in order to make an offer to purchase all the shares in the company. At the time the price of PartnerRe's stock was at a four-year low. PartnerRe's board insisted on Swiss Re making an offer before it would even consider lifting the ban. The amount Swiss Re had in mind, however, was deemed too low by the board and the independent bank it hired to evaluate the bid, and Swiss Re's request was denied.

The Winterthur assets were integrated by the start of the second quarter of 1999. With their contribution to the balance sheet, PartnerRe experienced a jump in premiums to more than $1.3 billion and net revenues to over $1.6 million. Profits dipped to less than $95 million, though, due to a combination of catastrophes that took place around the world, in Australia, Japan, Taiwan, Turkey, Europe, and the United States. PartnerRe's performance was deemed solid, given the circumstances and the plight of other reinsurers. It was one of the worst years ever for the reinsurance industry, which also had to contend with excess capacity that led to lower premiums, curtailing profits whether there was a high number of catastrophes or not.

RETIREMENT OF HAAG: 2000

The year 2000 was marked by the retirement of its founding CEO at year's end. Haag had only planned to live in Bermuda and run the company for five years, and had only stayed on because of the SAFR and Winterthur acquisitions, wishing to see the operations fully integrated before leaving. At 53 years of age, he hoped to spend more time with his family as well as pursue his interest in the arts and charity work. His replacement was Patrick Thiele, who brought 25 years of experience in the financial services field. A graduate of the University of Wisconsin in Madison, Thiele had held previous positions at St. Paul Companies, serving as the head of its worldwide insurance operations, as well as at CGNU, where he was director of development.

Thiele took over at a time when pricing in the company's product lines finally began to show some improvement. PartnerRe also divested its U.S. life reinsurance business, deemed too small to adequately compete. The European counterpart, on the other hand, was bolstered. Improved conditions led to net earnings of $142.3 million, despite a dip in revenues to $1.6 billion. That amount would seem even loftier a year later, when the terrorist attacks in the United States on September 11, 2001, had an adverse effect on the world economy. For PartnerRe in particular, September 11 cost the company $400 million. As a result, the company posted a loss of $160.5 million for the year. On the positive side, PartnerRe was able to grow premiums by 32 percent to more than $1.8 billion, and revenues approached the $1.9 billion mark.

KEY DATES

1993:: Company is founded.
1996:: Company receives New York Stock Exchange listing.
1997:: SAFR is acquired.
1998:: Winterthur Re is acquired.
2000:: Company sells U.S. life reinsurance business.

The business climate for the reinsurance business improved steadily in the three years following September 11. By 2004 net premiums increased to nearly $3.9 billion, while revenues grew to $4.2 billion and net income soared to $492 billion. The casualty business was a significant factor in driving the company's growth. A diversified mix of businesses also served the company well, allowing PartnerRe in 2004, for example, to more than offset cat and energy losses with strong performances from the property and aviation lines. The company also proved adept at avoiding too much exposure to some of the major cat events of the year. The same could not be said for 2005, however, when everyone in the industry could not escape the impact of a series of catastrophic events, including a major winter storm in Europe as well as floods in Central Europe, and Hurricanes Wilma and Rita. Worst of all was Hurricane Katrina, which leveled much of New Orleans and ravaged a wide swath of the Gulf Coast. Katrina cost the insurance and reinsurance industry in the neighborhood of $45 billion and PartnerRe $511 million. The other catastrophes of 2005 took a further toll of $389 million for the company. For the year, PartnerRe reported a net loss of $51 million, an excellent performance under ruinous conditions. The company rebounded strongly in 2006, recording nearly $271 million in net income through the first six months.

Ed Dinger