UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2004
Commission file number 0-2253
PartnerRe Ltd.
(Exact name of Registrant as specified in its charter)
| Bermuda | Not Applicable | |
| (State or other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
| 96 Pitts Bay Road Pembroke, Bermuda |
HM 08 | |
| (Address of principal executive offices) | (Zip Code) | |
(441) 292-0888
Registrant’s telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes x No ¨
The number of the Registrant’s common shares (par value $1.00 per share) outstanding as of August 2, 2004 was 53,711,667.
INDEX TO FORM 10-Q
Part I — Financial Information
Item 1. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of PartnerRe Ltd.
We have reviewed the accompanying condensed consolidated balance sheet of PartnerRe Ltd. and subsidiaries as of June 30, 2004, and the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2004 and 2003 and of shareholders’ equity and of cash flows for the six-month periods ended June 30, 2004 and 2003. These interim condensed consolidated financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of PartnerRe Ltd. and subsidiaries as of December 31, 2003 and the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 9, 2004, we expressed an unqualified opinion on those consolidated financial statements, which included an explanatory paragraph relating to the Company’s change in the method of accounting for goodwill, derivative instruments and hedging activities, Mandatorily Redeemable Preferred Securities and Trust Preferred Securities. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Deloitte & Touche
Hamilton, Bermuda
July 26, 2004
2
Condensed Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars, except parenthetical share data)
(Unaudited)
| June 30, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Investments and cash |
||||||||
| Fixed maturities, available for sale, at fair value (amortized cost: 2004, $4,833,567; 2003, $5,241,494) |
$ | 4,859,290 | $ | 5,343,651 | ||||
| Short-term investments, available for sale, at fair value (amortized cost: 2004, $14,459; 2003, $46,271) |
14,456 | 46,307 | ||||||
| Equities, available for sale, at fair value (cost: 2004, $671,524; 2003, $614,697) |
748,201 | 713,950 | ||||||
| Trading securities, at fair value (cost: 2004, $98,692; 2003, $113,385) |
102,148 | 122,544 | ||||||
| Cash and cash equivalents, at fair value, which approximates amortized cost |
1,523,567 | 558,692 | ||||||
| Other invested assets |
95,532 | 11,590 | ||||||
| Total investments and cash |
7,343,194 | 6,796,734 | ||||||
| Accrued investment income |
115,540 | 132,291 | ||||||
| Reinsurance balances receivable |
1,637,117 | 1,214,269 | ||||||
| Reinsurance recoverable on paid and unpaid losses |
191,556 | 188,706 | ||||||
| Funds held by reinsured companies |
1,075,870 | 1,068,432 | ||||||
| Deferred acquisition costs |
428,535 | 354,854 | ||||||
| Deposit assets |
321,294 | 508,037 | ||||||
| Taxes recoverable |
94,070 | 80,835 | ||||||
| Goodwill |
429,519 | 429,519 | ||||||
| Net receivable for securities sold |
10,305 | — | ||||||
| Other |
124,333 | 129,337 | ||||||
| Total Assets |
$ | 11,771,333 | $ | 10,903,014 | ||||
| Liabilities |
||||||||
| Unpaid losses and loss expenses |
$ | 5,056,732 | $ | 4,755,059 | ||||
| Policy benefits for life and annuity contracts |
1,145,621 | 1,162,016 | ||||||
| Unearned premiums |
1,541,994 | 1,035,450 | ||||||
| Funds held under reinsurance treaties |
27,744 | 27,399 | ||||||
| Deposit liabilities |
534,668 | 570,634 | ||||||
| Long-term debt |
220,000 | 220,000 | ||||||
| Net payable for securities purchased |
— | 5,389 | ||||||
| Accounts payable, accrued expenses and other |
124,458 | 126,675 | ||||||
| Debt related to trust preferred securities |
206,186 | 206,000 | ||||||
| Mandatorily redeemable preferred securities |
200,000 | 200,000 | ||||||
| Total Liabilities |
9,057,403 | 8,308,622 | ||||||
| Shareholders’ Equity |
||||||||
| Common shares (par value $1.00, issued and outstanding: 2004, 53,692,627; 2003, 53,741,553) |
53,693 | 53,742 | ||||||
| Preferred shares (aggregate liquidation preference: $290,000,000; par value $1.00, issued and outstanding: 2004, 11,600,000; 2003, 11,600,000) |
11,600 | 11,600 | ||||||
| Additional paid-in capital |
1,016,847 | 1,023,167 | ||||||
| Deferred compensation |
(302 | ) | (125 | ) | ||||
| Accumulated other comprehensive income: |
||||||||
| Net unrealized gains on investments, net of tax |
86,030 | 166,492 | ||||||
| Currency translation adjustment |
4,090 | 16,657 | ||||||
| Retained earnings |
1,541,972 | 1,322,859 | ||||||
| Total Shareholders’ Equity |
2,713,930 | 2,594,392 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 11,771,333 | $ | 10,903,014 | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements
3
Condensed Consolidated Statements of Operations and Comprehensive Income
(Expressed in thousands of U.S. dollars, except per share data)
(Unaudited)
| For the three June 30, 2004 |
For the three months ended June 30, 2003 |
For the six June 30, 2004 |
For the six months ended June 30, 2003 |
|||||||||||||
| Revenues |
||||||||||||||||
| Gross premiums written |
$ | 841,934 | $ | 837,302 | $ | 2,395,556 | $ | 2,098,892 | ||||||||
| Net premiums written |
$ | 840,721 | $ | 838,860 | $ | 2,364,422 | $ | 2,073,607 | ||||||||
| Decrease (increase) in unearned premiums |
114,114 | 23,988 | (516,800 | ) | (404,523 | ) | ||||||||||
| Net premiums earned |
954,835 | 862,848 | 1,847,622 | 1,669,084 | ||||||||||||
| Net investment income |
74,926 | 63,048 | 148,388 | 124,178 | ||||||||||||
| Net realized investment gains |
8,042 | 15,566 | 45,856 | 55,636 | ||||||||||||
| Other income |
4,122 | 2,873 | 7,036 | 5,150 | ||||||||||||
| Total Revenues |
1,041,925 | 944,335 | 2,048,902 | 1,854,048 | ||||||||||||
| Expenses |
||||||||||||||||
| Losses and loss expenses and life policy benefits |
619,669 | 554,273 | 1,189,527 | 1,110,270 | ||||||||||||
| Acquisition costs |
226,817 | 201,599 | 431,148 | 371,321 | ||||||||||||
| Other operating expenses |
67,884 | 58,078 | 135,446 | 109,349 | ||||||||||||
| Interest expense |
10,168 | 3,231 | 20,336 | 6,426 | ||||||||||||
| Net foreign exchange losses (gains) |
58 | (5,198 | ) | (1,139 | ) | (8,932 | ) | |||||||||
| Total Expenses |
924,596 | 811,983 | 1,775,318 | 1,588,434 | ||||||||||||
| Income before distributions related to trust preferred and mandatorily redeemable preferred securities and taxes |
117,329 | 132,352 | 273,584 | 265,614 | ||||||||||||
| Distributions related to trust preferred and mandatorily redeemable preferred securities |
— | 6,815 | — | 13,630 | ||||||||||||
| Income tax (benefit) expense |
(2,506 | ) | 3,622 | 8,105 | 5,700 | |||||||||||
| Net income |
119,835 | 121,915 | 265,479 | 246,284 | ||||||||||||
| Preferred dividends |
4,894 | 14,567 | 9,788 | 19,567 | ||||||||||||
| Net income available to common shareholders |
$ | 114,941 | $ | 107,348 | $ | 255,691 | $ | 226,717 | ||||||||
| Calculation of comprehensive income, net of tax: |
||||||||||||||||
| Net income as reported |
$ | 119,835 | $ | 121,915 | $ | 265,479 | $ | 246,284 | ||||||||
| Change in unrealized gains or losses on investments |
(138,405 | ) | 84,324 | (80,462 | ) | 52,160 | ||||||||||
| Change in currency translation adjustment |
(6,376 | ) | 17,815 | (12,567 | ) | 28,047 | ||||||||||
| Comprehensive (loss) income |
$ | (24,946 | ) | $ | 224,054 | $ | 172,450 | $ | 326,491 | |||||||
| Per share data: |
||||||||||||||||
| Earnings per common share: |
||||||||||||||||
| Basic net income |
$ | 2.14 | $ | 2.02 | $ | 4.76 | $ | 4.29 | ||||||||
| Weighted average number of common shares outstanding |
53,791.5 | 53,221.8 | 53,737.5 | 52,810.3 | ||||||||||||
| Diluted net income |
$ | 2.12 | $ | 2.00 | $ | 4.71 | $ | 4.22 | ||||||||
| Weighted average number of common and common equivalent shares outstanding |
54,339.3 | 53,698.7 | 54,305.9 | 53,716.4 | ||||||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements
4
Condensed Consolidated Statements of Shareholders’ Equity
(Expressed in thousands of U.S. dollars)
(Unaudited)