Executives
Robin Sidders - Director, IR
Costas Miranthis - President & CEO
Bill Babcock - EVP & CFO
Analysts
Amit Kumar - Macquarie
Jay Gelb - Barclays Capital
Vinay Misquith - Evercore Partners
Matthew Heimermann - JPMorgan
Jay Cohen - Bank of America
Meyer Shields - Stifel Nicolaus
Michael Nannizzi - Goldman Sachs
Mark Dwelle - RBC Capital Markets
Joshua Shanker - Deutsche Bank
Ian Gutterman - Adage Capital
Brian Meredith - UBS
PartnerRe Ltd. (PRE) Q4 2011 Earnings Call February 7, 2012 10:00 AM ET
Operator
Good day everyone. Before we begin the call I will remind all participants that they are in a listen-only mode. (Operator Instructions). If you have not received a copy of the press release, it is posted on the company's website, www.partnerre. com or you can call 212-687-8080 and one will be faxed to you right away.
I will now hand over to Robin Sidders, Director of Investor Relations at PartnerRE who will begin the call.
Robin Sidders
Good morning and welcome to PartnerRE's fourth quarter and full-year 2011 results conference call and webcast. As a reminder, our fourth quarter financial supplement can be found on our website at www.partnerre. com in the Investor Relation section by clicking on Supplementary Financial Data on the Financial Reports page. On today's call are Costas Miranthis, President and CEO of PartnerRE, and Bill Babcock, Executive Vice President and CFO of PartnerRE.
Costas will start the call with an overview of the quarter and then hand over to Bill, who will provide more details on the results and then hand back to Costas who will provide additional commentary on the market and the January 1 renewal. After that we'll open the call up for question-and-answer session. I'll begin with the Safe Harbor.
Forward-looking statements contained in this call are based on the company's assumptions and expectations concerning future events and financial performance of the company and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.
PartnerRe's forward-looking statements could be affected by numerous foreseeable and unforeseeable events and developments, such as exposure to catastrophe or other large property and casualty losses, adequacy of reserves, risks associated with implementing business strategies, levels and pricing of new and renewal business achieved, credit, interest, currency and other risks associated with the company's investment portfolio, changes in accounting policies and other factors identified in the company's filings with the Securities and Exchange Commission.
In light of the significant uncertainties inherent in the forward-looking information contained herein, listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. The company disclaims any obligation to publicly update or revise any forward-looking information or statements. In addition, during the call, management will refer to some non-GAAP measures when talking about the company's performance. You can find a reconciliation of these measures to GAAP measures in the company's financial supplement. With that, I'll hand the call over to Costas.
Costas Miranthis
Thank you, Robin and welcome everybody to our fourth quarter results call. As we already preannounced, we had a disappointing fourth quarter. An operating loss of about a $138 million is clearly not a result we like to see too often. Once again the focus is on catastrophe losses. The main catastrophe event during the quarter was the flooding in Thailand. This is the most severe flooding in that country for at least the last 50 years and we estimate that ultimately insured losses may exceed $15 billion and will impact a number of lines of business.
Our loss estimate from this event, over $120 million is consistent with our participation in the region and our position as a major multi-line international reinsurer. In addition during the fourth quarter we set aside additional reserves to provide for potential adverse development on the catastrophe events that occurred earlier in the year particularly the earthquake losses.
Due to the number of losses during the year as well as the conflicts nature of the loss settlement process, we decided to send our own claim teams to the affected regions to perform claim audits and get firsthand experience on the claim situation. Earthquakes present unique settlement issues. As a result of these audits which were completed in November and early December, we decided to modify our estimates in a number of cases.
I would note that in most cases, this was not the result of residents revising their own estimates, but rather the result of us taking a different view from this as a result of our own audits. In addition given a number of catastrophes during the year as well as the continuing uncertainties around the settlement process, we established an additional overall reserve of around $50 million that will be available to absorb further development if any loss occurs.
As far as the catastrophe activity, we experienced a slightly elevated number of mid-size losses during the quarter for example in energy, engineering and so on. The losses however remain within the boundaries of our normal volatility that we experience at every quarter. So overall the catastrophe losses we experienced during 2011 make this a challenging year for the industry as well as PartnerRe.
It was also a rather unusual year and that for reinsurers, the vast majority of the catastrophe activity occurred outside the US. Being an international multi-line reinsurer, we had significant exposures in the areas where catastrophes happened during 2011. We recorded a significant operating loss for the year. A strong capital base allowed us to absorb these losses and our total capital currently standing in excess of $7 billion remains very strong.
Our business model entailed some volatility in operating results. Our goal is to grow our economic value per share over the longer term. So our results need to be judged in that context. We seek to optimize expected return relative to downside risk assume which is a key capital driver at any point in time. Another time we are willing to deploy more capital when returns are high and less when they are low.
So I will now pass off the call over to Bill and I will return at the end to give you some comments on the January 1 renewal and what we did given the markets we encountered.
Bill Babcock
Thanks Costas and good morning everyone. As you just heard we had a challenging fourth quarter capping a very challenging year for PartnerRe and our industry as a whole. During the quarter we set for adjusted provisions related to both fourth quarter and prior-quarter catastrophe events. I will provide you additional details on these actions in just a minute. Primarily as a result of these provisions, we reported an operating loss for the quarter of $138 million or $2.06 per diluted share. This is down from the operating earnings of $1.33 per diluted share, we reported in the comparable prior year quarter.
Fourth-quarter annualized operating ROE was negative 8.8%. Despite our operating loss for the quarter, diluted book value per share was down less than 1% during the quarter to $84.82 per diluted share. Fourth quarter non-life net premiums written totaled $690 million, up 12% from the prior year quarter. This increase is on a constant Fx basis as are all references to percentage premium changes for the remainder of my prepared remarks.
The increase was driven by increased writings in our global specialty lines and North American agriculture business. Net earned premiums were down 2%. This decrease reflects the earned impact of decreased writings in prior periods which I discussed in greater detail on last quarter’s call. The technical ratio for the quarter was 113.7% which includes about 37 points related to current and prior quarter catastrophe events.
Let me summarize our fourth quarter catastrophe related charges for you. These figures are pre-tax and net of reinstatement premiums and retro. On the flooding in Thailand we recorded a $120 million charge. For the Tohoku earthquake, we recorded $102 million which includes the $88 million charge we preannounced to take our largest program to limits. Relating to the New Zealand earthquakes in February and June we recorded a total net charge of $50 million and finally we also established an additional IBNR provision of $50 million gross or $48 million net for the catastrophe events of 2011 given the number of events and the risks and uncertainties associated with the final settlement of such losses.
Our results for the quarter include favorable reserve development of $52 million or 5.3 points on a technical ratio. Excluding the impact due to changes in premiums, favorable development was $76 million. This is down from the favorable development we've experienced in recent quarters, so I would like to provide you some additional information here.
First, we haven't changed our practice or methodologies around setting reserves. We continue to reserve the early years of our long-tail lines above our actuarial mid estimate, in recognition of the inherent uncertainty in reserving for these exposures in the earlier years.
So where did we experience development? Favorable development on our long-tail lines was $57 million. The largest single portion of which came from our US casualty book at $29 million. Favorable development in our long-tail lines reflects continued benign loss trends and a development we experienced this quarter is in line with what we've experienced over other recent quarters.
In our medium-tail lines which includes a number of our specialty businesses, favorable development was $7 million, which is meaningfully less than what we've experienced in the prior three quarters. First, upward premium adjustments had a significant dampening effect on the reported current quarter number, about $20 million or so. If we increase premium estimates on prior years as we did this quarter we set up reserves against it and this shows up as unfavorable prior year development.
Also in the current quarter as Costas mentioned, we experienced a higher level of reported mid size losses related to prior years. Whereas in prior quarters this was below average. However for the year such reported losses remain below expectations. We expect this sort of random fluctuation from time to time however and haven’t observed any real trends here although we remain watchful for any trends that might emerge.
Our short-tail lines developed unfavorably this quarter at $12 million. Generally, we don’t expect short-tail lines to show a significant trend. There are no individually large contributors here. In our recent prior quarters, we experienced material favorable prior year catastrophe development, primarily related to the Chile earthquake in 2010. This quarter catastrophe development was close to zero.
Now turning to our non-life sub-segments. We will start with North America, here we reported premium increases on both on written and earned basis, 20% and 9% respectively driven by increased premiums in our agriculture book. The technical ratio for the quarter was up from the prior year quarter from 83.1% to 88.2% due to lower prior quarter favorable development.
In our global P&C sub-segment, the premiums written and earned were down 20% and 16% respectively compared to the prior year quarter. To remind you, a large portion of our global P&C business is written on a proportional basis. This means the decreases we recorded this quarter largely reflects decisions made in prior quarters. The tactical ratio for the quarter was 120% and includes 42 points or $81 million related to the Thailand floods. The technical ratio in the prior year quarter, which was devoid of catastrophe events was 87%.
Looking at our global specialty sub-segment we saw, we saw growth in net premiums written and earned, up 16% and 6% respectively.
Growth in premiums written was driven by new business, share increases and positive premium adjustments. The lag in earned premium growth is the result of lower writings in prior quarters. The technical ratio in this quarter was 102% and includes $26 million or 7.5 points related to the Thailand floods. This compares to the 80% technical ratio we reported in the prior year quarter.
Favorable prior year reserve development this quarter was $7 million, compared to $57 million in the prior year quarter. Lower favorable prior year development is driven by a higher level mid-size losses reported during the current year quarter in several of our specialty lines and the impact of the positive premium adjustments I mentioned earlier.
In what's a light renewal period for catastrophe business, net premiums written during the quarter totaled $21 million, compared to the $10 million recorded in last year’s quarter. Net premiums earned were down 17% compared to the prior year quarter.
The decrease in earned premiums reflects our decision to reduce catastrophe writings in prior periods. The technical results for the quarter was a loss of $119 million. This includes charges of $102 million related to the Tohoku earthquake, $45 million in net charges related to the February and June earthquakes in New Zealand and $48 million as a result of the additional IBNR provision I mentioned earlier.
For full year 2011, net premium non-life net premiums written were $3.7 million, down 9% compared to 2010. Net premiums earned were down 8%. These decreases reflect the integration of the PARIS Re portfolio which we completed mid year and our planned reduction in catastrophe writings.
The 2011 non-life technical results was a loss of $694 million, which reflects the 118% technical ratio. This result was driven by the $1.73 billion of large catastrophe related losses we experienced in our non-life segments during the year. 2011 favorable prior year reserve development totaled $530 million. This improved the technical ratio by almost 14 points. During 2010 favorable prior year development was also significant at $478 million. This resulted in nearly 12 points of benefit on the technical ratio in the prior year.
Turning to our life operations, net premiums written were for the quarter totaled $190 million, down 11% from the prior year quarter. Net premiums earned were also down by 10%. These decreases are a result of restructuring to swap basis, a longevity contract in the first quarter of 2011, offset by the impact of new mortality and longevity business during the year.
The life allocated underwriting results, which includes allocated investment income and operating expenses was $6 million. This compares to $12 million we reported in the prior year quarter. The decrease is a result of lower favorable development on prior year reserves during the current quarter. A full year 2011 net premiums increased 2% to $786 million. The Life allocated underwriting result for 2011 was $39 million, up from the $20 million we reported last year. The improvement in the current year is largely the result of a charge we recorded in 2010 related to an impaired life annuity contract.
Looking at the financial markets, equity markets were up during the quarter with risk-free rates down slightly and credit spreads pretty much flat. Investment activity this quarter which are reported in our corporate and other segment, contributed $211 million to our fourth quarter pre-tax results. This excludes investment income allocated to our Life segment. Of this total, income of $139 million was included in pretax operating loss and income of $72 million in pre-tax non-operating income.
During the quarter, we achieved a total return of 1.3% on a local currency basis. For the full year 2011, our combined portfolios generated a total return of 4.2% on a local currency basis.
Investment income for the quarter was $156 million which is down 5% compared to the third quarter of 2011, FX adjusted; due to lower reinvestment rates and cash flows out of the portfolio. For the full year 2011, investment income was $629 million, down 7% on a constant FX basis from 2010. This year-over-year decrease reflects the realization of lower available new money rates when compared to existing portfolio yields.
At year-end, new money rates trailed our current portfolio investment income rate by 129 basis points. This gap is largely unchanged from the prior quarter, but absent the closing of this gap, we expect continued pressure on investment income going forward.
We maintained our short-term neutral duration position again this quarter as we continue to remain defensive against increasing rates. On last quarter’s call, I provided you with detail of our European holdings which we subsequently included in our Form 10Q filing. Once again, we will include details in our 10K, but I will give you short preview now.
Our exposure to EU sovereign governments stands at $1.9 billion at year-end. This compares to $2.2 billion we held at the end of the third quarter of 2011. Meaningful change we made during the quarter was a decrease in our exposure to France from $1 billion to $0.6 billion. You will find additional details in our 10K which we will file later this month.
Looking at operating expenses, they were $113 million during the fourth quarter. This compares to $104 million in the third quarter of 2011 and $133 million in the fourth quarter of 2010. The increase over the prior quarter is related to true-up adjustments related to pension and other employee benefit expenses incurred during the quarter.
It was an unusual quarter on the tax front. Despite our operating loss, we incurred operating tax expense. This is the result of the geographies where losses and profits emerged. We also reported a non-operating tax benefit despite non-operating income during the quarter. In addition to the geographies where non-operating profits and losses emerged, we recorded some favorable adjustments related to the completion of tax examinations during the quarter.
Given our tax results for the quarter, I probably don’t need to remind you that our operating and non-operating effective tax rates are heavily dependent on several factors, including the geographies where profits and losses emerge, on both an underwriting and investment basis, as well as FX.
The comprehensive loss for the quarter was $22 million, reflecting our net loss for the quarter of $18 million. And currency translation was largely flat this quarter. Operating cash flow was slightly negative this quarter at $10 million. This result reflects the payment of losses associated with the significant catastrophe activity we witnessed over the past number of quarters.
For the full year 2011, GAAP reported operating cash flow was $574 million compared to $1.2 billion last year. Lower premium receipts and higher loss payments were the drivers of the year-over-year decrease.
I would also like to remind you that our 2011 operating cash flows include $358 million related to the innovation of certain reinsurance contracts associated with our PARIS RE acquisition.
The time value of money in our Non-Life reserves was $561 million at year-end. We calculate this using the risk-free rates for each major reserving currency. This was down from the $615 million we reported at the end of the third quarter of 2011 and reflects the impact of the decrease in risk-free rates during the fourth quarter.
Despite a difficult 2011, our balance sheet and capitalization remain very strong, especially in light of the de-risking of our portfolio we accomplished in 2011 and more recently during our 1/1/2012 renewal.
Total capital stands a $7.3 billion at year-end, down 9% from year-end 2010. This decrease reflects a comprehensive loss for the year on preferred share issuance earlier in 2011, common dividends and the impact of our share repurchase activity.
Regarding share buybacks, we repurchased a total of 2.6 million shares during the fourth quarter at an average discount to third quarter book value per share of 24%. We have not repurchased any shares since year-end. We currently have 5.3 million of shares remaining under our existing share repurchase authorization and this represents approximately 8% of our outstanding shares.
Now I’ll hand the call back to Costas to update you on our 1/1 renewal and how we view the current markets.
Costas Miranthis
Thank you, Bill. I’ll close with a few comments on the January 1 renewals. Approximately, 60% of our treatable renewal is on January 1; although this percentage tends to be higher for global P&C and lower for catastrophe in North America P&C.
Despite the market that remains somewhat fragmented, we are pleased with the outcome of the January 1 renewal. We saw positive indications of our rate stability or increases in most lines of business. As expected, we saw significant price increases in catastrophe lines particularly in loss affected areas.
Internationally, risk-adjusted rate increases were higher in zones impacted by losses for example Australia saw increases of 50% more. In Europe, overall increases were more modest in the region of 5% or less with the exception of Scandinavia that saw significant increases.
In the US, there was a broad spread, 5% to more than 20% with the regional clients having inland exposure for example Midwest clients or farm bureaus being at the top end of the scale while broadly spread nationwide accounts experienced high single-digit increases. Overall for what we see in our own US CAT portfolio, this translated to a low teens average risk adjusted rate increase.
Outside CAT, there are clear signs of hardening in the US ENS property market with increases in the latter part of the year in excess of 7%. While for US, standard casualty rate increases are struggling to keep pace with our projected loss trend. In most specialized casualty areas there are pockets of more significant increases. Erosion appears to have stopped and segments without risk loss experience are beginning to get rate increase.
Specialty volumes saw a number of areas with improvements, for example marine and energy whereas for non-US standard P&C, the picture was mixed with some territories in line showing improvements while a number of others remained flat. In this environment, we sought to optimize our risk-adjusted return.
In any single year a catastrophe exposure is a key driver of our overall economic capital need. Within that certain portions of our portfolio are greater consumers of capital. By focusing on those sections of the CAT portfolio as well as expanding profitable non-CAT lines, we believe we achieved a better balance between risk and return. However while our marginal required capital is improving, ROEs on attributed capital are adversely affected by lower interest rates. As I mentioned on my previous calls, in this economic environment where long-term interest rates languish below 2%, it is hard to achieve returns on a sustained basis that meet or exceed our long-term target of 13% ROE. For a portfolio with a risk profile we target priced ROEs in a current environment are likely to be more in the 9% to 10% range.
I was also pleased that across our portfolio, we not only managed to expand in the areas where we wanted to expand, but we were able to add a number of new client relationships on deals that we have been working on for some time. Although we’re clearly not in a universal hub market, I expect that the dynamics that we saw at this renewal will persist at least in the near future. I am also hopeful that the implications of the low interest rate environment will gradually begin to impact more product-related casualty lines. Going forward, deployment of capital to new opportunities will be weighed against capital management alternatives as Bill discussed earlier.
And finally on a personal note, having finished my first year in my job, I am glad to see 2011 behind us. We have looked back and if there were any lessons to be learned they have been. But as we move into 2012, I am confident that the qualities that have helped us build what we have today first class underwriting talent and expertise, a global franchise with local presence and reach and a strong capital base will set us well in the future. And our goal of delivering outstanding growth in our economic value per share over the long term is not changing. With that we are now happy to take any questions that you may have.
Operator, we are happy for the first question.
Question-and-Answer Session
Operator
(Operator Instructions) We will take our first question from Amit Kumar with Macquarie. Please go ahead. Your line is open.
Amit Kumar - Macquarie
I guess, the first question relates to the capital position discussion. I am wondering if you could comment on the recent A.M. Best decision and I guess, how does that impact your buyback going forward?
Bill Babcock
The A.M. Best to all the rating agency discussions that we’ve had, which obviously are public, really don’t revolve much around capital at least as far as we can tell. The issues that the rating agencies have raised with our results for 2011 have been really more around volatility and not around capital. So, from that standpoint, I don’t think any of the recent rating agency discussions or actions have an impact there.
Amit Kumar - Macquarie
I guess, you know, the related question would be, can you expand on the discussions you’ve had on the volatility then?
Bill Babcock
Sure. As you might expect, we’ve been in discussions with them really to explain how our risk profiles changed over the past year, which actually there has been very substantial reduction. So that’s really been the focus of our most recent discussions with the agencies.
Amit Kumar - Macquarie
And what’s the feedback you’re getting from them?
Bill Babcock
We have no feedback yet.
Amit Kumar - Macquarie
Okay. I guess the other question relates to Paris Re. When you acquired it, that was $1.4 billion book. A lot of that has been re-underwritten. How much of that remains on your book right now and I guess, what are your thoughts on renewals going forward? Should we expect you to continue to pull back or are you okay with the current levels of exposure?
Costas Miranthis
I think as I said before we are one company, we have been one company since some time. We don’t track and there is no way of tracking what was ex-Paris Re and what was ex-PartnerRe, it was possible to do that for a few months up to the integration, but once we integrate, there is no way of tracking this one portfolio. Going forward, as I said we have one portfolio, we seek to optimize it. There is no sense in which we will pull back because of Paris Re and we will deal with the market depending on what market we find and depending on what risk profile we want to achieve at the end of the day and we will wait for the return.
Amit Kumar - Macquarie
How much of your book renewal is at 4-1 renewals?
Costas Miranthis
Not a huge portion of that book is mainly Asia and particularly Japan.
Operator
And we take our next question from Jay Gelb with Barclays Capital. Please go ahead, your line is open.
Jay Gelb - Barclays Capital
Costas, when you talk about the 9% to 10% return on equity profile going forward. I mean should we use that as the base line for our estimates for 2012 at the low range, I can see it is around $8 a share assuming some share buybacks in 2012.
Costas Miranthis
Well I will say about 9% to 10% is across that whole portfolio and it is not to defer and whether you look at it on an underwriting year basis or a financial year basis, the number is very little, but it will likely be in that range in the current interest rate environment, so if you want to use it you can use it.
Jay Gelb - Barclays Capital
Okay. Just wanted to make sure. And then just one follow-up to make sure no impact to the cash balance as a result of those pending accounting change.
Bill Babcock
No.
Jay Gelb - Barclays Capital
Okay and then just a follow-up on the prior question. What's PartnerRe’s risk appetite for Asia Pacific business in particular given last year's events.
Costas Miranthis
We retain a risk appetite provided the risk is appropriately priced. I mentioned before that we had somewhat a balanced portfolio at the time of the acquisition and we've worked largely to bring it in balance. There maybe a little bit less to be done but by and large the portfolio that we have is not too different from what we want to achieve. There maybe one of two areas where we will take some action but that will depend on price achieved, the perception of actual risk going forward and the balance of the overall portfolio.
Operator
We will take our next question from Vinay Misquith with Evercore Partners. Please go ahead. Your line is open.
Vinay Misquith - Evercore Partners
Just a follow-up question on the capital and the rating agency negative outlook. A question on whether the negative outlook will hold you back from repositioning the stock in the near-term.
Bill Babcock
I guess the short answer is no, I mean as I mentioned earlier the discussions with rating agencies aren't around capital level. Really what will temper the pace of buybacks if any will be the opportunities we see in the market, not of rating agency pressures on our capital.
Costas Miranthis
We have our own idea about how much capital we need to run the business and that drives a notion of excess capital. As Bill said earlier our discussions with rating agencies have not been at all about capital, it is more about the business model and ours is a business model that is I said earlier involves sample activity. It is also a business model that is internationally spread, is motive centric. So there will be years where we will have more losses than others especially years where losses happened outside the US. And that’s we have been there actually where the discussion is. They have been about capital.
Vinay Misquith - Evercore Partners
Okay, fair enough. Question, then why PartnerRe hasn’t repurchased stocks so far this year?
Bill Babcock
The short answer is we have been in the blackout. And whether we continue to repurchase, we will see what that looks like going forward. But that is the short answer while we haven’t repurchased since year end.
Vinay Misquith - Evercore Partners
Okay, fair enough. The second question is on the CAT exposure, I believe on January 1, you guys said that your risk capital deployed is down 19%. Now, does that also include the significant reduction in Japanese quake last year that you guys had?
Costas Miranthis
Decline in 19% was renewal to renewals. It wasn’t a comment on the portfolio to portfolio. So the, what you are seeing the press release, we compare the renewals that we have had last January to the renewals that we had this January. It doesn’t include the impact of the Japanese renewals because that doesn’t renew in January.
Operator
Your next question comes from Matthew Heimermann with JPMorgan. Please go ahead. Your line is open.
Matthew Heimermann - JPMorgan
Just a couple of questions. First, just in terms of how to think about, I guess, I am trying to get at a couple of questions that were asked earlier but may be not answered, is clear as I would like, the 19% reduction in attributed capital at 1:1. How indicative is that of how attributed capital or utilized capital is likely to be in the subsequent renewals and my sense is that subsequent renewals probably won’t change all that much because changes were made during the course of this year. So, can you just tell me whether now that’s the right way to think about it?
Costas Miranthis
I think you are along the lines. You are right. I think that there may be some changes. We didn’t say there won’t be any changes. But you are along the right lines. And comparing, by comparing one renewal to another renewal, it’s not necessary the best way to look at. The best way to look at things is what's happening at the in-force portfolio at any point in time. And while we did reduce the capital deployed for the in-force portfolio it reduced, when we compare the in-force portfolio in January to the in-force portfolio that we had the previous year, the capital deployed was lower but more like nine or 10% about half of what you said that had renewal changes. Some of the renewal changes I have to read them by decision to deploy more capital later or changing renewal dates, which are not very easy to account for. The easiest picture is to look at the, what’s in-force across the whole portfolio. That’s best picture.
Matthew Heimermann - JPMorgan
Okay. And then, just, I was a little surprised to see in the renewal that the growth in the casualty business especially given, the comments you made on the costs. So, can you just give a little bit more color on that decision
Costas Miranthis
The growth in the casually?
Matthew Heimermann - JPMorgan
Yes. Casually was one of the areas that appeared had increased in January 1, related to year ago.
Costas Miranthis
Well I think what you see there is that the percentages changing with something as we are choosing about something else it will stay flat, the percentage goes up. It doesn’t mean that we’ve grown in that area, or even a marginal decline. As long as we are smaller than average decline, we will push the percentage up.
Matthew Heimermann - JPMorgan
All right, that’s fine. Just following on that and I guess what you would need to see come out of casual markets to be interested in increasing exposure and I guess I am thinking more along the lines of the proportion of business and obviously things are little bit more constructive in the first quarter then they were last year and recognizing that US is obviously different than some of the trends we are seeing in the rest of the world. But any color there would be appreciated?
Costas Miranthis
To be honest Matt writing on the same technical ratios that we write today, it will have interest rates, long-term interest rates that were 5% or 6%, which was historic unknown that we may or may not see again. This would have been a very acceptable market for casualty business. And particularly if trends continue to stay where they are. Trends have been very benign and will continue to be as benign as they have been. The only difference is the interest rate amount.
Matthew Heimermann - JPMorgan
And then just a last question, a lot of the primary companies are now talking about seeing more normal loss trend and you know the concern would always be that the reinsurance company is the last to know kind of along the claims pipeline. So I am guessing, I am just curious if in your work you are seeing any early signs and potentially your experiences has changed along the lines that primary is?
Costas Miranthis
That’s been very little and we continue to ask these questions. Two things, one of the areas where there is some loss trend and where the comp is not an area that we have a heavy portfolio. And two, a lot of our portfolio is on the higher access layers, a lot of the activity is on the primary and lower layers and there from although we don't participate there, we also from the submissions that we see, we do observe that there is more of a loss trend.
Operator
We’ll take our next question from Jay Cohen with Bank of America. Your line is open.
Jay Cohen - Bank of America
I just want to follow-up on these mid-sized losses, property losses, I think they were property losses that you talked about, and I am wondering if there is any trend there that you see or was it just basically a random occurrence that happened to spike up this quarter?
Costas Miranthis
I think it’s more random, I clearly will watch out to see if that repeats itself in the future. But for the year as a whole, with the total is below the expectations, it was extremely low in the prior quarters. We had none and now all of a sudden you have three or four happening in one quarter, I don't think its related, it didn't happen in any single part of our portfolio, it happened in completely unrelated areas.
Jay Cohen - Bank of America
And then the second question, if the pricing in the different parts of the business stays kind of where it is now and your stock stays roughly where it is now, just given those two assumptions; would you expect to complete your authorization, your buyback authorization this year?
Bill Babcock
To be questioned, I think it will be reasonable to expect it if we continue in this market, we can generate profits during the year. You could expect that authorization to be used. If it’s a difficult year or we see things change on the pricing side for the better, then you may see us not exercise that authorization.
Costas Miranthis
If I may add one thing earlier, if you go back to my comments, I said this is not a great market. This is not a hot market. Perhaps it’s a market that is getting a little harder. The other thing that’s characterizing it is, it’s very fragmented. There are all types of opportunity and we are always on the lookout for any such opportunities and if we find opportunities to deploy capital profitability, we will do so. We always wave those opportunities against the alternative of adding value for capital purchases, but deploying capital in the insurance and reinsurance world is our first protocol.
Jay Cohen - Bank of America
Got it.
Costas Miranthis
And I am more optimistic than I was six months ago, that we may find some opportunities. They are not across the board and there may not be many, but they exist.
Operator
We’ll take our next question from Meyer Shields with Stifel Nicolaus. Please go ahead. Your line is open.
Meyer Shields - Stifel Nicolaus
I was wondering whether you could, I guess quantify or describe the difference in the casualty loss cost trend that you are building into reserves at year-end 2011 with Safe Harbor six years ago?
Costas Miranthis
I don’t think there is a huge difference. We are building despite the fact that we have seen actual trend come below expected, we are still building substantial trends, 6% to 7% on average with some lines being substantially higher than that and loans to be a little below.
Meyer Shields - Stifel Nicolaus
Second, when we talked a little bit about some adverse developments, I just wanted to get the, let me say additionally, whether there was a risk development because of the higher frequency of reported losses; did that come disproportionately from the PARIS RE legacy book?
Bill Babcock
No.
Costas Miranthis
No; it’s hard to tell, but given that a lot of the adverse development was from losses for about a year ago. I mean I don’t see that even to make sense of total facts they are at the PARIS book. As Bill said, a lot of the random fluctuations where we were with shorter tail lines, shorter tail lines, you don’t usually get development from five, six years back.
Operator
Your next question comes from Michael Nannizzi with Goldman Sachs. Please go ahead. Your line is open.
Michael Nannizzi - Goldman Sachs
I was wondering if you could give us little more color on pricing trends January renewals. Where does US property cat sit in that spectrum of price change that you’re experiencing and where would that need to be in order for you to want to take up your exposure there; and I just have one follow-up. Thanks.
Costas Miranthis
As I said in my prepared remarks, what we saw was changes across a broader range from about 5% to more than 20% with the average across our whole portfolio being a low teens number. What that translate in terms of how we think of ROE, is a mid-teens ROE; it’s clearly good, it’s very good but it entails a fair amount of volatility and a fair amount of down sideways. So we are willing to write cat business and this is not the hardest market we have ever seen in the cat and our approach is, we want to expand to the total of our appetite when it is the hot market. So right now we’re positioning the portfolio to be around the average of the appetite that we will see over the longer term.
Michael Nannizzi - Goldman Sachs
I know your preference for higher layers; I mean is there a lot of differentiation in the stock in terms of higher layers versus lower layers and is there some any thought of moving closer to the primary risk?
Costas Miranthis
It may not have been as clear in my remarks, but that’s what I alluded to in my comments that they’re up areas of the portfolio that were heavy capital consumers and we focus on that. So to some extent our portfolio has become a little bit less of a high layer portfolio and a little bit more of the low or rather middle layers with some of the increases in dollar terms have been more meaningful.
Michael Nannizzi - Goldman Sachs
And then just one follow-up if I could on the frequency of mid size losses; just trying to understand and so it sounds like that was something that there was a lift in trend from what you’ve seen still within your expectations. But it looks like across all of your segments; I am just trying to understand kind of the durability of that trend and if it’s something that you know is caught up now and do you feel comfortable with where it is or whether or not that’s something that you need to make other changes to reflect from here?
Costas Miranthis
As I said there is no trend on that. I mean in any quarter we get some losses in the $10 million to $15 million range, I mean we get a capital, but two or three losses but sometimes we get none, sometimes we get four or five and whereas in some prior quarters we saw none, maybe we will see four. But this is not an unusual picture, we've seen it many times before. I mean it’s the nature of our business. So I don't think you can speak of any trend and I also don't think it was pervasive across lines, all I said it came from a number of unrelated lines, but it wasn't pervasive. And we are not talking about a huge number of losses, we are talking about two or three losses of that kind of magnitude.
Operator
We will take our next question from Larry Greenberg with (inaudible). Please go ahead. Your line is open.
Unidentified Analyst
I am just curious as to your thinking behind setting up this additional or bulk reserve for the CATs and whether you foresee this as something you will be looking to do in the future or whether it was just a function of 2011 being a bit of an unusual year or whether its going to relate mostly to earthquake losses going forward, if you could just talk about that a bit.
Costas Miranthis
Yeah, it’s not a change in practice on how we reserve, the CAT clearly we would prefer to set our reserves event by event. We always hold some IBNR to cover for late reported losses but our decision as we said earlier was driven by the fact that A, there were a number of losses and B, the settlement process for those losses, particularly the ones in New Zealand is likely to take a long time with significant uncertainties mostly because of the interaction with the government down there. So that was the main driver behind our decision to say that this additional reserve is available to absorb any adverse deterioration from large losses that occurred during 2011.
Unidentified Analyst
Okay. So we shouldn’t necessarily extrapolate this to future catastrophe events that might arise?
Bill Babcock
No.
Unidentified Analyst
There is no change really in the process that you are thinking about reserving for these events.
Bill Babcock
No.
Operator
Your next question comes from Mark Dwelle with RBC Capital Markets. Please go ahead. Your line is open.
Mark Dwelle - RBC Capital Markets
Yeah. Good morning. A couple of questions, in the life book of business, you talked about the change of the one longevity contract, I guess I am curious about is why did it decline this quarter when that didn’t really show up in any other prior quarters, is it just less offsetting new business or is there a true up involved in the fourth quarter?
Bill Babcock
I think it really just has to do with the timing of kind of premiums quarter to quarter with offsetting new business. I don’t recall exactly the number of premium that came from that remodeling or rewriting that to a swap basis. But it is a pretty meaningful reduction in quarterly premium going forward.
Mark Dwelle - RBC Capital Markets
Well, I guess I am curious why it didn’t show up in any other prior quarters. I mean, in each of the last prior quarters were up 6% to 15% in the second quarter, it kind of surprises me that it all shows up in one quarter and whilst that is not really what’s happening?
Bill Babcock
I think it is just a timing issue Mark. There is nothing underlying significant changes in the life book that would drive that quarter-to-quarter fluctuation other than normal premium patterns that we might see in fluctuations quarter to quarter, there is nothing underlying that though.
Mark Dwelle - RBC Capital Markets
Okay. So, since that was a first quarter event this year, will that then lap then for the first quarter we should return to sort of a more normalized pattern of growth or whatever we would otherwise expect?
Bill Babcock
Yeah. But probably the first quarter, definitely the second quarter. I don’t recall exactly in the first quarter where we restructured that but that’s roughly the timing.
Mark Dwelle - RBC Capital Markets
Okay. The second question I have is whether you’ve adopted some kind of change in disclosure of large loss events. I had understood historically, kind of $35 million was the threshold when you made your announcements last month. The New Zealand addition and the general loss reserve established were both well in excess of that level and I was just wondering if the 50 million is kind of the new 35 million going forward from here?
Bill Babcock
No, no, we haven’t changed anything. The 50 we talked about on New Zealand is a combination of two events, the June event and the February event and the 50 that we set up separately, we didn’t view that as an event loss. I mean, the pre-release we put out, one of the reasons that we gave you kind of an operating earnings range is in recognition that there were some other accumulating losses below the reporting threshold that we thought it was more appropriate to give you an overall guidance and explain the details with our earnings release.
Bill Babcock
Our disclosure of [loss] have not changed.
Costas Miranthis
There are no single increase in the quarter other than what we told you. That was about 35.
Operator
We will take our next question from Joshua Shanker with Deutsche Bank. Please go ahead, your line is open.
Joshua Shanker - Deutsche Bank
Gentleman happy for you guys that the year is over as well. But I want to talk about a decade of earning and if I look over the 2002-2011 or 2001-2010 any decade looking at PartnerRe returns have been kind of 9% to 10% ROE whether you use operating or return on equity, what if the long-term goal is 13% and now getting into the interest rate environments you guys have got in this kind of environment where we can earn only 9% or 10% but over the past decade Partners only earned 9% or 10%. Is there some risk to that 9% or 10% number?
Bill Babcock
I don’t know how you calculate that numbers. The way we calculate the numbers is about 12, so clearly we need to meet the team but it is about 12% over 10 years and what I was talking earlier about the 9 to 10 is altered by interest rates when the 13% was established by Partner’s predecessors. So we were thinking about interest rates were going to be 5% or 6% longer term.
Joshua Shanker - Deutsche Bank
It is true, but even your predecessors didn’t meet the 13% goal either?
Bill Babcock
Well that’s fine, it is not nine, I mean I don’t take issue with the numbers, but they didn’t meet the 13%, that’s a fact.
Joshua Shanker - Deutsche Bank
I mean do you feel that’s …?
Bill Babcock
We are not far off it, it was 12 and it wasn’t 13.
Joshua Shanker - Deutsche Bank
Okay. Then maybe my numbers are little off, but I don’t think they are but the question I have is, is 13 is sort of the goal or is the 13 kind of average and it should be may be even above 13. Is 13 the minimum now, and now nine and 10 we should we use the minimum or nine and 10 is the goal?
Costas Miranthis
We haven’t changed that goals. When we change our we will come back and tell you and 13 was always meant to be an average across the cycle and that was the goal. You can assess whether we met that goal or we didn't, we haven't calculated the numbers, but I can tell you when we look at it because we do look at that, it’s about 12%.
Joshua Shanker - Deutsche Bank
The 9% 10% today is equivalent to the 13% of a few years ago?
Costas Miranthis
I am sorry?
Joshua Shanker - Deutsche Bank
Its equivalent, in terms of the challenges you guys face reaching 9% or 10% today is equivalent to what it would have been reaching 13% two or four years ago.
Costas Miranthis
I think the 9% and 10% today with interest rates, the 10 year rate is around what we call what is now but I think it will be below two, it would be equivalent or better to be 13% in an environment where 10 year rates were 500 basis points or more.
Operator
We will take our next question from Ian Gutterman with Adage Capital. Please go ahead. Your line is open.
Ian Gutterman - Adage Capital
I just had a few clarifications from some earlier stuff. I guess Bill I am confused on why the midsized events in the quarter affect our prior period reserves to meet the current quarter events, why wouldn’t they have affected the returns actually a year early?
Bill Babcock
Sure, no they were events related, the date of loss for these reported events were prior years.
Costas Miranthis
For some of them.
Bill Babcock
For some of them, when we refer to the midsized losses right in the context of the change in favorable development, they do relate to prior underwriting years or prior accident years.
Ian Gutterman - Adage Capital
I guess I am trying to understand can you give me an example of that, I mean how can an event be from prior accident years but it doesn't come until now?
Bill Babcock
Sure.
Ian Gutterman - Adage Capital
Do you think it’s like an explosion or a fire, I mean it sound like it is something different?
Bill Babcock
No a good example is in our medium-term tail lines, its our credit and surety line and we were notified of an individual loss this quarter that was roughly three to four years old. We looked at IBNR more actually maybe even more than that. We looked at IBNR, we hadn't said, you know what, we probably need to recognize that loss because we don't have IBNR in the years that old for a loss we would have expected to make, reported by now.
Ian Gutterman - Adage Capital
Okay.
Costas Miranthis
Its circumstances that the loss is contentious, it came down to a particular legal decision. So there are always reasons for that. But you should not, never take it that, there cannot be development from prior exiting years that result to a meaningful losses or mid-size losses.
Ian Gutterman - Adage Capital
That make sense. That make sense, okay. And then again the CATs for the quarter, the press release, what I was looking is a little confusing to me. Whether total CATs including the un-allocated IBNR $330 million, was the 50 within the 330 or is it on top of it and the total CAT impact was 380?
Bill Babcock
It’s included.
Ian Gutterman - Adage Capital
Okay. So 330 is a total cat impact for the quarter. 280 for specific events and 50 unallocated?
Bill Babcock
The number we have got is that the individually reported CAT losses that we include for the quarter is $340 million. That includes the $48 million of bulk IBNR that we put up.
Ian Gutterman - Adage Capital
Okay. Because you personally said 120 from Thailand and 210 from others, that’s 330, how do we get to 340? I think your prices stagnated and they didn’t add up to the total?
Bill Babcock
To the extent that we have reserve development and that could be very small numbers from the prior quarter and other significant losses. They go into that 340. So there is a little bit of noise between 330 and 340 that you got.
Ian Gutterman - Adage Capital
Okay.
Bill Babcock
But they are, I mean, the small numbers.
Ian Gutterman - Adage Capital
Okay. I know in the Q you always get those numbers, is it possible in future supplements, you can give us CATs by segment with the exact numbers because in the past two quarters its been hard to add-up the segments to the total?
Bill Babcock
We’ll give it you in the Q and hopefully we won’t have to be talking about CAT events in this magnitude going forward. But we will consider it if we think its confusing people going forward.
Ian Gutterman - Adage Capital
Fair enough. And then do you have the, if you want to compare the 2010 and ’11 events combined, how much remaining reserves are left? I was trying to get a sense of how much future pads there are going to be for these CATs and future years versus how much has already been paid?
Bill Babcock
I don’t have that number, Ian.
Ian Gutterman - Adage Capital
Okay. Maybe I can follow up on that. And then just maybe a last quick one. Just on this idea of the unallocated CAT reserves, especially given you did the extra auditing, why not try to allocate them to certain events as opposed to saying well we don’t know but you know, history says it developed diversely, why not say we have a lot of unused limit on this event or this client has a history of being wrong. So let’s put us some extra for them as opposed to just having a pool that, is hard for investors to understand?
Costas Miranthis
Well, as I said, we did allocate things to individual losses. That’s the development that you saw on the individual events. I mean that’s where we found areas that we believe that the estimate ought to be raised, we changed the numbers. And in addition we decided that we wanted to have an additional fund that could absorb any development if that occurs. If doesn’t occur, we will release the fund and we will benchmark about that period which we will meet and also what events we need to see before we determine whether we need it or not. But it’s not something that we could identify with any specific clause.
Bill Babcock
Maybe just to clarify that a little bit, Ian. What you said because you can look in individual scenes and events and make a view why didn’t you allocated. That is the first process we went through except the point for these events and the 50s on top.
Ian Gutterman - Adage Capital
And will it be able to attract to going forward if you use the 50 up or is this – it always been never be able to see that again?
Bill Babcock
We’ll let you know what happens if we make material changes to the provision going forward, where we allocate in that event.
Operator
We’ll take our next question from Brian Meredith with UBS. Please go ahead. Your line is open.
Brian Meredith - UBS
I’ll be quick here; Bill I wonder if you could tell us what are getting right now or what’s the difference between new money investment yields and which you’re seeing maturing right now on your portfolio? And then maybe where is the break point between when you wouldn’t expect much more deterioration in your book yields?
Bill Babcock
The numbers are – the existing portfolio yield is about 3.7, and the new money is about 2.4 for our portfolio so that gives us that I referred to 129 basis point gap that’s sort of how you get to those numbers. It’s going to take a while but you’re going to see a continued steady decline in investment income as these investments roll-off. So I mean to say exactly when that portfolio yield would equal new money yields, its going to be a while, but you’re going to see a drag for a while unless this gap closes.
Brian Meredith - UBS
And the 3.7 book yield, I assume that the impact on your book yields is actually higher then that because the stuff is maturing is higher than 3.7, correct?
Bill Babcock
Yeah, it could be. I mean probably I mean if that’s the actual in force overall yields so the stuff that’s maturing they come up a little quicker than some of the lower stuff; you’re right.
Brian Meredith - UBS
And then the second question for Costas; I am just curious because there is a lot of financial turmoil and you’re up particularly during the fourth quarter. I am wondering if you saw any opportunities as a result of that financial turmoil to do any kind of deals that you’re going to shy away from any surplus type deals, capital type reinsurance deals or do you have an appetite for that stuff?
Costas Miranthis
We are talking to a number of people. We haven't actually executed anything for us to do and it needs to we need to be getting paid for that; we are not going to do just for the optics without any return. But yes there is financial turmoil in Europe and I expect that there will be a number of opportunities going forward. I also don’t say there will be too many of those, the companies that have issues, that have a number of other, having the direct capital reinsurance is only one of them.
Operator
We’ll take our next question from Jay Cohen with Bank of America. Please go ahead. Your line is open.
Jay Cohen - Bank of America
Yeah, just one follow-up, I am wondering if you can make any comments on your potential exposure to the Carnival Cruise Ship that sank?
Costas Miranthis
The maximum exposure that we’ll have is $10 million.
Bill Babcock
Net.
Costas Miranthis
Net.
Operator
We’ll take our next question from Amit Kumar with Macquarie. Please go ahead. Your line is open.
Amit Kumar - Macquarie
Just I guess two quick follow-ups; just going back to Ian’s question on the unallocated IBNR of $48 million, was there a number in Q1, Q2, Q3 and Q4 which was subsequently allocated, but perhaps it was a much smaller number and hence we never discussed about it or this the first time you have established this $48 million?
Costas Miranthis
It’s the first time that we’ve made this provision. We always book IBNR for smaller losses that get reported late and we continue to do so this quarter. But it is the first time that we make that an explicit provision for losses that we know about, that have occurred and there was nothing in prior quarters.
Amit Kumar - Macquarie
And is this still unallocated, I guess this number is as of 12/31, is this still unallocated or has a portion of this been allocated?
Costas Miranthis
It’s still unallocated.
Amit Kumar - Macquarie
I am sorry.
Costas Miranthis
It is still unallocated.
Amit Kumar - Macquarie
And I guess the final question I have is, just going back to the discussion on 1/1 renewals, can you sort of separate out, you know in the disclosure there is this 208 million number, you know which talks about the renewal and new business. Can you sort of separate out what’s the new business component at 1/1, nothing on the core book?
Costas Miranthis
We don’t disclose this number because sometimes treaties get retracted and trying to keep count of what is generally new or what is something with an existing client that comes as a new contract is sometimes difficult.
Operator
And it appears that we have no further questions at this time.
Costas Miranthis
Well, thank you very much and thanks for attending the call and as we said earlier, we look forward to more normalized 2012 and as 2012 started and we had a solid start and we’ll continue this way. I am confident I will be able to deliver what I believe is will be a good ROE in the current environment. Thank you.
Operator
This concludes today’s program. You may disconnect at any time. Thank you and have a great day.
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