As the Company looks to 2016 and beyond, despite the challenging environment, Management remains confident that with the pending acquisition by EXOR, its strong global franchise, geographical footprint and technical underwriting skills, the Company's operations will continue to provide strong results and remains focused on maintaining its strong relationships with clients.
The acquisition of the PartnerRe Health business resulted in substantial overall premium growth in the Company’s accident and health line of business in 2013, 2014 and 2015, primarily as a result of its transition from an MGA to an insurance carrier in 2013 (see Business in Item 1 of Part I of this report for more details) and the opportunities arising from the implementation of the Healthcare Act in the U.S.
high quality assets that support the Company’s liabilities, and the more diversified, higher risk asset classes that make up the Company’s capital funds. While there will be years where investment markets risks achieve less than the risk-free rate of return, or potentially even negative results, the Company believes the rewards for assuming these risks in a disciplined and measured way will produce a positive excess return to the Company over time. Additionally, since investment risks are not fully correlated with the Company’s reinsurance risks, this increases the overall diversification of the Company’s total risk portfolio.
In 2015, U.S. risk-free interest rates increased, credit spreads widened and worldwide equity markets deteriorated, while the U.S. dollar exchange rate at December 31, 2015 strengthened against most major currencies compared to December 31, 2014. The net result of these movements was a net realized and unrealized loss on investments recorded in net income.
The decrease in net income, net income attributable to PartnerRe Ltd., and net income and diluted net income attributable to PartnerRe Ltd. common shareholders in 2015 compared to 2014 was primarily due to:
The Non-life combined ratio increased by 0.9 points, from 85.3% in 2013 to 86.2% in 2014. The increase in the combined ratio was mainly driven by a decrease in the current accident year technical result and a decrease in favorable prior year loss development. These decreases in the combined ratio were partially offset by the absence of large catastrophic losses in 2014 compared to losses related to the German Hailstorm, Alberta Floods and European Floods in 2013.
the selection of reserving cells results in homogeneous and credible future expectations for all business in the cell and any changes in underlying treaty terms are either reflected in cell selection or explicitly allowed in the selection of trends;
Marine / Energy Offshore: Aggregate losses reported in 2015 were significantly lower than expected across all underwriting years for both the marine and energy offshore businesses. The Company reduced its loss ratios for these underwriting years to reflect the lower than expected loss emergence.
The Company’s gross and net reserves for life and health contracts by reserving line at December 31, 2015 were as follows (in millions of U.S. dollars):
Under non-proportional treaties, which represented 19% of the Company’s total gross premiums written for the year ended December 31, 2015, the Company is typically exposed to loss events in excess of a predetermined dollar amount or loss ratio and receives a fixed or minimum premium, which is subject to upward adjustment depending on the premium volume written by the cedant. In addition, many of the non-proportional treaties include reinstatement premium provisions. Reinstatement premiums are
The Company has estimated the future tax effects attributed to temporary differences and has a deferred tax asset at December 31, 2015 of $164 million, after a valuation allowance of $94 million. The most significant component of the deferred tax asset (after valuation allowance) relates to loss reserve discounting for tax purposes.
On August 2, 2015, after subsequent negotiations with EXOR, the Company entered into an Agreement and Plan of Merger with Exor N.V., Pillar Ltd., a wholly owned subsidiary of Exor N.V., and, solely with respect to certain specified sections thereof, EXOR (as subsequently amended, the Merger Agreement). The transaction would be effected by a merger of Pillar Ltd. with and into the Company, with the Company continuing as the surviving company and a wholly owned subsidiary of Exor N.V. (Merger). Pursuant to the terms of the Merger Agreement, each PartnerRe common share issued and outstanding immediately prior to the effective time of the Merger shall automatically be canceled and converted into the right to receive (i) $137.50 in cash per share and (ii) be entitled to receive a one-time special pre-closing cash dividend in the amount of $3.00 per common share.
On November 19, 2015, the Merger with EXOR was approved by the Company's shareholders and the consummation of the Merger is pending certain regulatory approvals and other customary closing conditions. In addition, the Board of Directors (BOD) declared the special dividend, which is conditional and contingent upon the issuance of the certificate of merger by the Bermuda Registrar of Companies. See Note 18 for further details.
the fair value of the CENts was calculated based on discounted cash flow models using observable market yields and contractual cash flows based on the aggregate principal amount outstanding of $63 million from PartnerRe Finance II Inc. at December 31, 2015 and 2014.
The carrying values and fair values of the Senior Notes and CENts at December 31, 2015 and 2014 were as follows (in thousands of U.S. dollars):
Other than the funds held - directly managed account, the Company generally earns investment income on funds held by reinsured companies based upon a predetermined interest rate, either fixed contractually at the inception of the contract or based upon a recognized index (e.g., LIBOR). Interest rates ranged from 0.1% to 8.0% for the year ended December 31, 2015, from 2.1% to 5.4% for the year ended December 31, 2014 and from 1.8% to 4.3% for the year ended December 31, 2013. See Note 5 for additional information on the funds held - directly managed account.
Included within Accounts payable, accrued expenses and other in the Consolidated Balance Sheets at December 31, 2015 and 2014 were amounts of gross receivable balances for securities sold and gross payable balances for securities purchased as follows (in thousands of U.S. dollars):
The allocation of the goodwill to the Company’s segments and sub-segments at December 31, 2015 and 2014 was as follows (in thousands of U.S. dollars):
unpaid losses and loss expenses for the years ended December 31, 2015, 2014 and 2013 includes the change in the Reserve Agreement. At December 31, 2015 and 2014, the Company’s net liability for unpaid losses and loss expenses includes $514 million and $575 million, respectively, of guaranteed reserves, with the decrease from December 31, 2014 to December 31, 2015 being primarily related to the run-off of the underlying loss reserves associated with this account and, to a lesser extent, the impact of the strengthening of the U.S. dollar against most major currencies.
In 2013, Lorenz Re issued non-voting redeemable preferred share capital on behalf of two segregated accounts (2013 segregated accounts) to provide additional capacity to the Company for a diversified catastrophe portfolio over a multi-year period on a fully collateralized reinsurance basis. The Company determined that it was the primary beneficiary of the 2013 segregated
The reinsurance subsidiaries are required to file annual statements with insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis), maintain minimum levels of solvency and liquidity and comply with risk-based capital requirements and licensing rules. At December 31, 2015, the reinsurance subsidiaries’ solvency, liquidity and risk-based capital amounts were in excess of the minimum levels required. The typical adjustments to insurance statutory basis amounts to convert to U.S. GAAP include elimination of certain statutory reserves, deferral of certain acquisition costs, recognition of goodwill, intangible assets and deferred income taxes, valuation of bonds at fair value and presentation of ceded reinsurance balances gross of assumed balances.
At December 31, 2015 and 2014, the Company has Swiss and French branches of PartnerRe Europe that are regulated by the Central Bank of Ireland, as prescribed by the EU Reinsurance Directive. At December 31, 2015, the Company also has a subsidiary in Asia that is regulated by MAS.
The PartnerRe Ltd. Employee Share Purchase Plan (ESPP), which was approved by the Company’s shareholders, was suspended effective June 1, 2015. The ESPP had a twelve month offering period with two purchase periods of six months each. All employees were eligible to participate in the ESPP and could contribute between 1% and 10% of their base salary towards the purchase of the Company’s shares up to the limit set by the Internal Revenue Code of the United States. Employees who enrolled in the ESPP could purchase the Company’s shares at a 15% discount of the lower fair value on either the enrolment date or purchase date. Participants in the ESPP were eligible to receive dividends on their shares as of the purchase date.
The segment results for the years ended December 31, 2015, 2014 and 2013, were as follows (in millions of U.S. dollars, except ratios):
Combined ratio is defined as the sum of the technical ratio and the other expense ratio.
On April 17, 2015, PartnerRe U.S. Corporation, a subsidiary of the Company, agreed a negotiated earn-out consideration to be paid to the former shareholders of Presidio Reinsurance Group, Inc. in the amount of $29 million pursuant to an earn-out agreement dated December 31, 2012 (Earn-out Agreement). The Company previously accrued $4 million in connection with the Earn-out Agreement through December 31, 2014, and the remaining $25 million, pre-tax, was recorded in Other expenses in the Consolidated Statements of Operations for the year ended December 31, 2015.