In its most recent annual letter to shareholders, Agnelli family owned holding company Exor has said that its decision not to sell PartnerRe last year was validated by the reinsurer’s earnings and balance sheet resilience.
In March 2020, Exor and Covéa entered into a Memorandum of Understanding (MoU) under which Covéa had agreed to acquire PartnerRe for a total cash consideration of $9 billion.
However, pressures from the ongoing COVID-19 outbreak caused a surge in market volatility and significant decreases in share prices, raising a potential question mark over some of the larger merger and acquisition (M&A) deals that were underway.
As a result, the deal between Exor and Covéa over the sale of PartnerRe was abandoned as the former felt that the revised price did not adequately reflect PartnerRe’s true value and prospects.
“All our interactions with Covéa on this matter were professional and constructive. This has enabled us to increase the collaboration between the companies, with PartnerRe acting as one of Covéa’s most important reinsurance counterparts. We are also exploring ways in which Covéa can invest in financial assets alongside Exor,” explains the letter to shareholders.
This stronger relationship noted by Exor saw Covéa enter into a €750 million investment cooperation with the holding company, while at the same time sign a €750 million reinsurance cooperation agreement with PartnerRe.
According to Exor, its decision to retain PartnerRe has been validated by the reinsurer’s performance in 2020, when the firm reported net income of $206 million for the year in spite of a significant level of losses related to the pandemic.
Exor highlights the result of the reinsurer’s Life & Health business during the year and the importance of a diversified book of business, which it has pursued since it acquired PartnerRe in 2016. Furthermore, the robust performance of its investment portfolio in 2020, which surpassed $20 billion for the first time, also boosted net income for the period.
But despite these improvements, Exor says that PartnerRe’s underwriting profitability is “still far from where we want it to be.”
For the full-year 2020, PartnerRe reported a non-life underwriting loss of $304 million with a combined ratio of 106%, driven by losses related to the pandemic, the impacts of Hurricane Laura, and an aggregation of mid-sized catastrophic man-made losses in the period.
Of course, reinsurance markets are hardening, and carriers experienced rate improvements at both the January and more recent April 1st, renewals. Exor says that the hardening market environment further validates its decision to retain PartnerRe given the better pricing, which will translate into an increase in book value over time if underwriting is effective.
Interestingly, Exor explains that with markets hardening, it wanted to make sure that the correct leadership was in place at PartnerRe with both the knowledge and discipline required to make the right choices.
This thinking resulted in the appointment of Jacques Bonneau as PartnerRe’s President and Chief Executive Officer (CEO) in July of 2020.
