PartnerRe Ltd. Reports Fourth Quarter and Full Year 2016 Results

• Fourth Quarter Net Loss of $191 million, resulting in an Annualized Net Loss ROE of (12.4)%
• Fourth Quarter Operating Earnings of $125 million, driven by Non-life combined ratio of 89.6%, resulting in an Annualized Operating ROE of 8.1%
• Book Value of common shareholders’ equity of $6.0 billion, a 5.0% decrease compared to Q3 2016

PEMBROKE, Bermuda--(BUSINESS WIRE)-- PartnerRe Ltd. ("the Company") today reported a net loss attributable to PartnerRe common shareholders of $191 million for the fourth quarter of 2016 compared to a net income for the fourth quarter of 2015 of $162 million. Operating earnings was $125 million for the fourth quarter of 2016, compared to operating earnings of $184 million for the fourth quarter of 2015.

Net income attributable to PartnerRe common shareholders includes net realized and unrealized losses on investments of $388 million in the fourth quarter of 2016, which were largely driven by significant increases in treasury yields, partially offset by narrowing of credit spreads. This compares to a $24 million loss in the fourth quarter of 2015, primarily driven by increases in U.S. risk-free interest rates, partially offset by the narrowing credit spreads and increases in worldwide equity markets.

Net income attributable to PartnerRe common shareholders for the full year 2016 was $387 million compared to $48 million in 2015 primarily due to net realized and unrealized gains on investments in 2016 of $26 million compared to losses of $297 million in 2015.

Operating earnings for the full year 2016 were $289 million, compared to operating earnings of $658 million for 2015 primarily due to a lower Non-life technical result, higher transaction and severance costs and loss on redemption of senior notes. The lower Non-life technical result was primarily driven by lower favorable prior year loss development, higher mid-sized loss activity and increased losses from catastrophes.

Operating earnings is a non-GAAP financial measure which excludes certain net after-tax realized and unrealized investment gains and losses, net after-tax foreign exchange gains and losses, certain net after-tax interest in results of equity method investments, the amalgamation termination fee and reimbursement of expenses paid to Axis Capital in 2015 and net loss on redemption of preferred shares in 2016, and is calculated after the payment of preferred dividends.

Net income or loss and operating earnings attributable to PartnerRe common shareholders, and the associated annualized ROEs, for the fourth quarters and the full years 2016 and 2015 include various non-recurring transaction and severance related costs, which impact period over period comparability as follows:

Commenting on results, PartnerRe President and Chief Executive Officer Emmanuel Clarke said, “We delivered good operating results in the fourth quarter with an annualized adjusted Operating ROE of 9.8%. The Non-life combined ratio of 89.6%, notwithstanding losses related to Hurricane Matthew, highlights our underwriting discipline while favorable prior year development continues to remain strong. In the current market conditions, we are undertaking the right underwriting actions to better serve our core clients while preserving our long-term capital strength."

Highlights for the fourth quarter of 2016 compared to the same period in 2015 include the following:

Non-Life:

• Non-Life net premiums written were flat compared to the fourth quarter of 2015 and increased by 2% on a constant currency basis.
• The Non-Life combined ratio of 89.6% was 3.1 points higher than the ratio reported in the fourth quarter of 2015, of 86.5%, primarily due to losses from Hurricane Matthew in Q4 2016 of $45 million (4.6 points) and lower favorable prior years' reserve development. The decreases were partially offset by lower mid-sized loss activity.
• The Non-Life combined ratio continued to benefit from strong net favorable development from prior accident years of $172 million (17.6 points) in the P&C and Specialty segments as actual reported losses were below expectations. The combined ratio for the fourth quarter of 2015 included favorable prior year development of $187 million (18.7 points).

Life and Health:

• Net premiums written were flat, but were up 6% on a constant currency basis primarily driven by new business in the mortality line of business and, to a lessor extent, the health line of business, which saw a marginal increase despite increasing competition.
• Allocated underwriting result, which includes allocated investment income and other expenses, was $12 million compared to $24 million in the fourth quarter of 2015. This decrease primarily reflects a lower technical result in the health line of business due to an increase in loss ratio in a small number of accounts, mainly related to 2015 and 2016 underwriting years.

Investments:

• Total net investment return in the fourth quarter of 2016 was negative 1.9%, based on a total net loss of $312 million, which was largely driven by the realized and unrealized investment losses of $388 million, partially offset by net investment income of $105 million. This compares to a positive total net investment return of $88 million, or 0.5%, for the fourth quarter of 2015.
• The negative total net investment return in the fourth quarter of 2016 was primarily generated by fixed income securities, driven by the significant increase in U.S. risk-free rates (85 basis points on the 10-year US Treasury in the quarter), partially offset by narrowing credit spreads.
• Net investment income of $105 million was down $3 million, or 3%, compared to the fourth quarter of 2015 mainly reflecting the reduction in risk within the investment portfolio, including the increased allocation to U.S. government fixed income securities and the change in asset mix with a lower amount of higher yielding fixed income securities and dividend yielding equity securities, and lower reinvestment rates. These decreases were partially offset by lower investment expenses following the reorganization of the Company's investment operations.
• Reinvestment rates are currently 2.7%, which compares to our existing fixed income yield of 2.6%.

Other Income Statement Items:

• Other expenses of $105 million in the fourth quarter of 2016 and $120 million for same period of 2015, included transaction and severance related costs associated with the reorganization of the Company's operations. Excluding these one-time costs, other expenses were $91 million in the fourth quarter of 2016, compared to $97 million in the same period of 2015.
• Net foreign exchange gains in the quarter were $48 million ($81 million including the change in currency translation adjustment of $33 million), mainly driven by the strengthening of the U.S. dollar, and acted as a hedge to the mark-to-market losses linked to the increase in risk-free rates.
• Interest expense was $12 million, in line with the fourth quarter of 2015.
• On November 1, 2016 the Company redeemed $250 million of senior notes and incurred a $22 million loss on redemption as a result of a make whole payment to the note holders representing the present value of the remaining scheduled payments on the notes following their early redemption.
• On November 1, 2016, the Company also redeemed $150 million of its Series D and E preferred shares and incurred a $5 million loss on redemption. The preferred dividends of $12 million, excluding the loss on redemption of $5 million, were down $2 million compared to the same period of 2015 as a result of this redemption during the quarter.
• For the fourth quarter of 2016, the effective tax rate on operating earnings was negative 8.9% (a tax benefit on earnings) mainly due to the geographical split of pretax income and losses recorded in tax jurisdictions with high income tax rates and earnings recorded in jurisdictions with low or nil tax rates. The effective tax rate on non-operating earnings was 15.1% (a tax benefit on losses) for the fourth quarter of 2016 as a result of losses recorded in taxable jurisdictions.

Balance Sheet and Capitalization:

• Total investments, cash and cash equivalents and funds held – directly managed were $16.9 billion at December 31, 2016, up 2.4% compared to December 31, 2015.
• The balance sheet continued to be de-risked during the quarter through a partial sale of the principal finance portfolio. Cash and cash equivalents and fixed maturities, which are government issued or investment grade fixed income securities, were $14.8 billion at December 31, 2016, representing 91% of the total cash and cash equivalents and total investments.
• The average rating and the average duration of the fixed income portfolio at December 31, 2016 was A and 4.9 years respectively, while the average duration of the Company’s liabilities was 5.2 years.
• Exposure to Euro government bonds ($595 million) and Euro corporate credit ($313 million) remains low, representing 5.3% of the Investment portfolio.
• Total capital was $8.0 billion at December 31, 2016, up 4.0% compared to December 31, 2015, primarily due to the issuance of Euro 750 million senior debt in September 2016 and net income for the year, partially offset by common dividends paid (including a special dividend paid to former shareholders on the closing of the Exor transaction) and the redemption of $250 million of senior notes and $150 million of preferred shares.
• Common shareholders' equity attributable to PartnerRe (or book value) and tangible book value were $6.0 billion and $5.5 billion, respectively, at December 31, 2016, down 1.0% and 0.8%, respectively, compared to December 31, 2015 primarily due to common dividends paid, partially offset by net income for the year.
• During the fourth quarter of 2016, the Company paid a dividend of $160 million to Exor, its parent company.

Cash Flows:

• Cash provided by operating activities was $129 million in the fourth quarter of 2016 compared to $211 million in the fourth quarter of 2015, which included cash provided by underwriting operations of $29 million in the fourth quarter of 2016, compared to $114 million in the fourth quarter of 2015. This decrease in underwriting cash flow was largely driven by a lower Non-life technical result. The operating cash flow in the fourth quarter of 2016, generated by investment income, was $151 million compared to $131 million for the same period in 2015.
• Cash provided by investing activities was $207 million in the fourth quarter of 2016, compared to $158 million in the same period in 2015 primary due to proceeds from sales and redemptions exceeding purchases of fixed maturities during the quarter.
• Cash used in financing activities was $598 million in the fourth quarter of 2016, compared to $43 million in the same period in 2015, largely driven by the redemption of the senior notes and preferred shares and higher dividends paid in the fourth quarter of 2016 compared to 2015.

The data and comments provided above are from, or have been derived from, PartnerRe’s U.S. GAAP consolidated balance sheets as of December 31, 2016 and 2015 and the related consolidated statements of operations for the three months and years ended December 31, 2016 and 2015. The Company has included Supplementary Financial Information below, which includes a reconciliation of GAAP and non-GAAP measures.

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PartnerRe Ltd. is a leading global reinsurer that helps insurance companies reduce their earnings volatility, strengthen their capital and grow their businesses through reinsurance solutions. Risks are underwritten on a worldwide basis through the Company’s three segments: P&C, Specialty, and Life and Health. For the year ended December 31, 2016, total revenues were $5.4 billion. At December 31, 2016, total assets were $21.9 billion, total capital was $8.0 billion and total shareholders’ equity was $6.7 billion. PartnerRe enjoys strong financial strength ratings as follows: A.M. Best A / Moody’s A1 / Standard & Poor’s A+.

PartnerRe on the Internet: www.partnerre.com

Forward-looking statements contained in this press release are based on the Company’s assumptions and expectations concerning future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. PartnerRe’s forward-looking statements could be affected by numerous foreseeable and unforeseeable events and developments such as exposure to catastrophe, or other large property and casualty losses, credit, interest, currency and other risks associated with the Company’s investment portfolio, adequacy of reserves, levels and pricing of new and renewal business achieved, changes in accounting policies, risks associated with implementing business strategies, and other factors identified in the Company’s reports filed or furnished with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking information contained herein, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. The Company disclaims any obligation to publicly update or revise any forward-looking information or statements.

Concentration of investment risk

The top 10 Corporate bond issuers account for 18.0% of the Company’s total corporate bonds. The single largest issuer accounts for 2.9% of the Company’s total Corporate bonds.

PartnerRe Ltd.

Life Value In Force

The Company calculates Value in Force (VIF) for its Life portfolio, which represents the value of the Life portfolio that is not recognized in the Consolidated Balance Sheets prepared under generally accepted accounting principles in the United States (U.S. GAAP). Accordingly, there is no corresponding measure that is prepared in accordance with U.S. GAAP. Management believes that this is useful information for investors, analysts, rating agencies and others. The Life VIF calculation includes the business written in the Company’s Life and Health segment, except for the PartnerRe Health business.

The Company’s Life VIF calculation uses market consistent techniques, but primarily differs from a full Market Consistent Embedded Value (MCEV) calculation, as defined in the European Insurance CFO Forum MCEV principles, due to: (i) different methodologies used; and ii) the Life VIF is only a component of MCEV and, specifically, the tangible assets backing the liabilities are not considered in the Company’s calculation.

The Company’s Life VIF, which is calculated on a going concern basis, is the sum of:

• present value of future profits - which is defined as the net present value of shareholders’ projected after-tax cash flows from the in-force business on a best-estimate assumption basis. The discount rates used reflect currency-specific market yields on zero coupon government bonds at given durations and are applied to projected deterministic cash flows and to calculate risk-free investment returns. The best-estimate is defined as median biometric assumptions and does not include any provision for adverse deviation. The Company attributes no value to future new business or renewals of short-term business. Allocated inflated-adjusted expenses are projected on a best estimate basis;
• cost of non-hedgeable risks - which is defined as the cost of holding capital for non-hedgeable financial and non-hedgeable non-financial risks, such as a mortality deviation from shocks or changes in trends. The non-hedgeable risk capital has been determined using an internal economic capital model calibrated to a 99.6% Value at Risk (VaR) corresponding to a 1 in 250 year event;
• frictional costs - which is defined as the cost of double taxation or investment management charges on assets backing required capital;
• time value of options and guarantees (TVOG) - which is defined as the difference between the market value and the intrinsic value of the option calculated using stochastic techniques. The TVOG is significant to the guaranteed minimum death benefit (GMDB) portfolio where the Company covers death claims on savings plans, where the sum reinsured is the difference between the invested premium amount and the current fund value; and
• cost of non-economic excess encumbered capital - which is defined as the cost of any encumbered capital in excess of economic capital required by local regulations.

Actuarial non-economic assumptions, such as current and future mortality, are based on the most recent experience available, combined with internal and industry benchmarks, including trend expectation where appropriate.

The Life VIF is sensitive to changes in assumptions. In particular, the Life VIF is sensitive to changes in yield curves that are used for discounting, changes in equity market value assumptions and implied volatilities.

The Company performs a detailed Life VIF calculation on an annual basis and performs a roll-forward approach on an interim quarterly basis.