PartnerRe CFO Opts for Return of Capital as Returns Meagre

Bermuda-based international reinsurance group PartnerRe is buying back up to six million of its common shares, a move the company makes if it cannot find ways to “attractively deploy capital”, according to its executive vice president (EVP) and chief financial officer (CFO), Bill Babcock.

“Our first objective is to put capital to work taking risk and supporting clients,” Babcock said in a presentation at the recent Barclays Financial Services Conference, quoted in a Best’s news service report. “But if we can’t get adequate return, we’ll return capital, and that’s what we did – we’ve really been doing it the past two-and-a-half to three years in a big way.”

Through the first six months of 2013 PartnerRe returned more than US$500m to shareholders through share repurchases and dividends, Babcock said. The company said its most recent share repurchase authorisation, which it announced 12 September, supersedes one it made in March.

Asked about the reinsurance industry’s current pricing of cover, Babcock said premium rates for catastrophe reinsurance continue to deteriorate, with no shortage of capacity due to alternative capital inflow. “We saw pricing down double digits” at June 1 and July 1 renewals, he said. “I expect that pricing pressure will probably continue, hopefully at a slower pace.”

Primary insurance rate increases in the US seem to be “tailing off” slightly, Babcock said, adding that reinsurance terms, conditions and pricing have slipped. Any primary insurance rate increases that make it to the reinsurance market are “basically flat to maybe even sliding a little bit”.

General international property/casualty reinsurance pricing is “almost constantly under pressure”, he said. “Unfortunately that’s not a real rosy outlook.” However, PartnerRe is diversified in many different markets and can take advantage of where it sees the best pricing.

Reinsurance executives attending the recent
‘Rendez-Vous de Septembre’
, the annual reinsurance conference in Monte Carlo, shared their thoughts on alternative capital and competition. Competition from alternative capital has not only driven down reinsurance rates, but led the traditional market to provide broader coverage, said David Priebe, vice chairman of Guy Carpenter.

John Nelson, chairman of Lloyd’s of London, said the insurance industry must carefully deploy the influx of new capital and avoid the lack of risk-adjusted pricing that troubled the banking industry. James Vickers, chairman of Willis Re International, said he expects an increase to the amount of alternative capital flowing into the reinsurance market, but noted that it’s unclear how large the total sum might grow to.

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