PartnerRe has followed a healthy 2009 with a Q1 loss, but its long-term stability and conservative approach mean it has retained confidence. As chief executive Patrick Thiele prepares to retire, we study his legacy

Bermuda-based global reinsurance group PartnerRe took a double hit in early May when it announced a first-quarter operating loss and the retirement of Patrick Thiele, its long-serving president and chief executive.

However, the company performed better than analysts had projected, and its incoming chief executive, Costas Miranthis, is expected to continue the reputation for caution and stability that PartnerRe has built up during Thiele’s 10-year tenure when he takes office in January next year.

PartnerRe made a Q1 2010 profit of $79.7m, $61.9m down on the $141.5m it made in the same period last year.

The firm’s operating result, which excludes the investment result, moved to a loss of $41.8m (50 cents a share) from a profit of $155.7m in Q1 2009. PartnerRe’s non-life combined ratio climbed almost 30 percentage points to 116.9% from 87%.

The main cause of the dip in quarterly performance was approximately $334m in catastrophe losses stemming from the Chilean earthquake and the European Windstorm Xynthia, which both hit in February. PartnerRe estimated in March that the Chilean earthquake would cost it between $220m and $330m before tax and Xynthia $40m to $70m before tax.

However, PartnerRe’s operating loss was lower than Wall Street analysts were expecting. According to Thomson Reuters, analysts on average had been expecting the operating loss to be 77 cents a share.

Keefe, Bruyette & Woods analyst Cliff Gallant said he had expected the reinsurer to take a bigger hit from the Q1 catastrophes. Gallant supports Thiele’s view that shareholders should expect occasional volatility in quarterly results because of the nature of PartnerRe’s business.

“PartnerRe has had a long track record and many quarters where it has lost money, but over the long term it has got a pretty good return on equity – 13-14%, including those bad periods – so you have to accept a little volatility,” he said. “A loss is not good to see but it is going to happen once in a while and it didn’t cause me to question the business model.”

According to Thiele, PartnerRe’s first quarter result was in keeping with what the market has come to expect from the firm. “We expect to have an operating loss once every six to eight quarters, driven usually by significant catastrophes or large loss activity,” Thiele told Global Reinsurance.

“The $300m loss in the first quarter fits the pattern; it has been six or seven quarters since we last had a significant loss.”

He added: “Generally speaking, we would expect a capital event, which would cause a reduction in our capital on an annual basis, every 10 years. We’ve had three in the past 16 years, and one of those was September 11.”

An ‘exceptional’ 2009

PartnerRe had a very good 2009, described by Thiele at the time as “exceptional”. It posted a net profit of $1.54bn for the year – a sharp increase from the $46.57m it made in 2008. The form’s 2009 combined ratio was 81.8%, down from 2008’s 94.1%.

Gallant said that PartnerRe’s Q1 catastrophe losses were slightly worse than those of some of its Bermudan peers because of the firm’s greater geographic diversification, exposing it to a wider range of losses. PartnerRe has a large non-US operation, PartnerRe Global. Combined, the non-US property/casualty and non-US specialty divisions accounted for 39% of the total net premiums written in Q1.

The firm said the bulk of the catastrophe losses came from the non-US property/casualty, non-US specialty and catastrophe sub-segments, as well as Paris Re, the French reinsurer acquired by PartnerRe in December 2009.

“The problem with diversity is that once in a while, you are going to get the downside of that, but over time it ends up being a stable company,” Gallant said.

However, Thiele argues that another element of PartnerRe’s diversification – the capital markets division run by chief financial officer Albert Benchimol – cushioned the firm from the effects of the Q1 catastrophes.

“The quarter shows the benefit of our diversification into capital markets,” Thiele said. “Despite a $300m cat loss, which led to a small operating loss, we made money on a net income basis because of the continuing surge in the capital markets in the USA and Europe.”

Capital markets and investment activities contributed $153m to PartnerRe’s pre-tax operating income in Q1 2010, compared with $116m in the same period of 2009. Directly managed assets in net income, capital markets and investment activities contributed pre-tax non-operating gains of $148m to PartnerRe’s result in Q1 2010, compared to pre-tax non-operating losses of $76m in Q1 2009.

Thiele will step down as PartnerRe’s chief executive on 31 December this year. He assumed the position on 1 December 2000, following the departure of Herbert Haag, who had run the company since its inception in August 1993. Thiele’s career in the insurance industry has spanned more than 35 years.

He came to PartnerRe from UK insurer CGNU, now known as Aviva, where he was group director for development. While there he oversaw the firm’s strategic development and e-commerce initiatives, and was responsible for the divestiture of the US operations.

Before joining CGNU, Thiele was president and chief executive of US insurance group The St Paul Companies’ worldwide insurance operations. He increased revenues by 65% over the course of his tenure. Before that he was the firm’s chief financial officer for more than seven years. The St Paul Companies merged with fellow US insurance firm Travelers in 2004.

Miranthis in the wings

Miranthis, currently chief executive of PartnerRe Global, has been promoted to president and chief operating officer of the firm in preparation for the handover. He will retain his existing duties until a replacement is announced.

Miranthis joined PartnerRe in 2002 as chief actuary, having spent the previous 16 years at actuarial firm Tillinghast-Towers Perrin in the UK, most recently as principal. He was appointed deputy chief executive of PartnerRe Global in 2007 and promoted to chief executive in May 2008.

Thiele said he retired to avoid becoming entrenched in the job. “There is a good-until date for most chief executives,” he said. “A company needs to change over time and it is increasingly difficult for an organisation to embrace change as the markets change if the chief executive has been there for 15 or 20 years.”

He added: “Chief executives tend to get set in their ways and not adapt as quickly as newer, younger chief executives, so I think there is some risk to an organisation for a chief executive staying so long.”

Gallant does not believe PartnerRe will suffer as a result of Thiele’s departure because he has done a good job of building the firm’s management team. “I think Pat was a very effective chief executive, but the proof of his success is that I don’t think it is going to be a big deal when he leaves,” he says.

For Gallant, one of the highlights of Thiele’s 10-year tenure is the fact that the company weathered both the September 11 2001 terrorist attacks and the 2004-2005 hurricanes. “PartnerRe won a lot of favour with its clients because it became very clear that it has a very conservative approach and is always going to be around the day after an event,” he said.

While he expects his successor to make some tweaks, Thiele does not expect Miranthis to make sweeping changes to the running of PartnerRe. “I would be very surprised, given the stability of PartnerRe, [if there were to] be wholesale changes to the culture, overarching strategy or attributes of the company,” he said. GR