We are downgrading our recommendation on PartnerRe (PRE) to Underperform from Neutral. The company’s first quarter loss was substantially below the Zacks Consensus Estimate and considerably lagged behind the prior year’s results.
While higher premiums and investment income led to strong top-line growth, dramatic growth in operating expenses and combined ratio led to a negative operating ROE. Although the company enjoys above average liquidity and a low-risk balance sheet, concerns regarding the successful PARIS RE integration and Deepwater rig loss overweigh the positives.
Hence, the near-term outlook remains cautious on the weak P&C market cycle, underwriting profitability, currency fluctuations, credit spreads and investment risk. Though in the long run, improved pricing and market stability can help in mitigating the cyclical declines.Zacks Investment Research
