-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B/LsdPY1ahtJq8CkdfhBwcYEeWgzhZvl2KwooVsn/LW9Awjki+IV0nEenHrvTqnj yvutOiK9BA6QFu+n9JavtA== 0000950130-02-003560.txt : 20020514 0000950130-02-003560.hdr.sgml : 20020514 ACCESSION NUMBER: 0000950130-02-003560 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARTNERRE LTD CENTRAL INDEX KEY: 0000911421 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14536 FILM NUMBER: 02645278 BUSINESS ADDRESS: STREET 1: 106 PITTS BAY RD STREET 2: BELVEDERE BLDG CITY: PEMMBROKE PARISH BERMUDA STATE: D0 ZIP: HM DX BUSINESS PHONE: 8092920888 MAIL ADDRESS: STREET 1: PARTNERRE LTD STREET 2: 106 PITTS BAY ROAD BELVEDERE BLDG CITY: PEMBROKE BERMUDA STATE: D0 ZIP: HM DX FORMER COMPANY: FORMER CONFORMED NAME: PARTNER RE HOLDINGS LTD DATE OF NAME CHANGE: 19950725 10-Q 1 d10q.txt FORM 10Q - -------------------------------------------------------------------------------- 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 March 31, 2002 Commission file number 0-2253 PartnerRe Ltd. -------------- (Exact name of Registrant as specified in its charter) Bermuda Not Applicable ------- -------------- (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) 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 ________ ------- The number of the Registrant's common shares (par value $1.00 per share) outstanding as of May 6, 2002 was 50,244,900. - -------------------------------------------------------------------------------- PartnerRe Ltd. INDEX TO FORM 10-Q
Page ---- PART I - FINANCIAL INFORMATION ITEM 1. Unaudited Consolidated Financial Statements. Independent Accountants' Review Report ........................................................ 3 Consolidated Balance Sheets March 31, 2002 (unaudited) and December 31, 2001 (audited) ................................. 4 Unaudited Consolidated Statements of Operations and Comprehensive Income Three Months Ended March 31, 2002 and 2001 ................................................. 5 Unaudited Consolidated Statements of Shareholders' Equity Three Months Ended March 31, 2002 and 2001 ................................................. 6 Unaudited Consolidated Statements of Cash Flows Three Months Ended March 31, 2002 and 2001 ................................................. 7 Notes to Unaudited Consolidated Financial Statements .......................................... 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................ 11 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk (see Part I, Item 2) PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ............................................................................. 22 ITEM 2. Changes in Securities ......................................................................... 22 ITEM 3. Defaults upon Senior Securities ............................................................... 22 ITEM 4. Submission of Matters to a Vote of Security Holders ........................................... 22 ITEM 5. Other Information ............................................................................. 22 ITEM 6. Exhibits and Reports on Form 8-K .............................................................. 23 Signatures ................................................................................................. 24 Exhibit Index .............................................................................................. 25
2 INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Board of Directors and Shareholders of PartnerRe Ltd. We have reviewed the accompanying consolidated balance sheet of PartnerRe Ltd. and subsidiaries as of March 31, 2002 and the related consolidated statements of operations and comprehensive income, shareholders' equity and cash flows for the three month periods ended March 31, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, 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 review, we are not aware of any material modifications that should be made to such consolidated 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 auditing standards generally accepted in the United States of America, the consolidated balance sheet of PartnerRe Ltd. and subsidiaries as of December 31, 2001 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 11, 2002, we expressed an unqualified opinion on those consolidated financial statements. May 6, 2002 Hamilton, Bermuda 3 PartnerRe Ltd. Consolidated Balance Sheets (Expressed in thousands of U.S. dollars, except share data)
March 31, December 31, 2002 2001 (Unaudited) (Audited) Assets Investments and cash Fixed maturities, available for sale, at fair value (amortized cost: 2002, $3,563,087; 2001, $3,382,768) $ 3,557,268 $ 3,420,759 Short-term investments, available for sale, at fair value (amortized cost: 2002, $40,148; 2001, $39,547) 40,126 39,564 Equities, available for sale, at fair value (cost: 2002, $437,804; 2001, $408,879) 444,651 400,825 Trading securities, at fair value (cost: 2002, $79,392; 2001, $79,973) 80,878 77,452 Cash and cash equivalents, at fair value, which approximates amortized cost 343,237 451,614 Other invested assets 21,084 20,500 ------------------ ------------------- Total investments and cash 4,487,244 4,410,714 Accrued investment income 80,923 74,536 Reinsurance balances receivable 932,328 654,900 Reinsurance recoverable on paid and unpaid losses 229,074 245,279 Funds held by reinsured companies 643,441 641,203 Deferred acquisition costs 321,791 274,152 Deposit assets 245,345 241,845 Taxes recoverable 91,949 95,336 Goodwill 429,519 429,519 Other 105,865 97,942 ------------------ ------------------- Total Assets $ 7,567,479 $ 7,165,426 ================== =================== Liabilities Unpaid losses and loss expenses $ 3,046,713 $ 3,005,628 Policy benefits for life and annuity contracts 704,588 693,250 Unearned premiums 950,383 597,529 Funds held under reinsurance treaties 30,822 31,371 Deposit liabilities 242,432 239,208 Long term debt 220,000 220,000 Payable for securities purchased 119,535 143,535 Accounts payable, accrued expenses and other 90,667 86,796 ------------------ ------------------- Total Liabilities 5,405,140 5,017,317 ================== =================== Trust Preferred and Mandatorily Redeemable Preferred Securities 400,000 400,000 ------------------ ------------------- Shareholders' Equity Common shares ( issued and outstanding: 2002, 50,240,990; 2001, 50,164,211) 50,241 50,164 Preferred shares ( issued and outstanding: 2002, 10,000,000; 2001, 10,000,000) 10,000 10,000 Additional paid-in capital 886,952 885,678 Deferred compensation (363) (397) Accumulated other comprehensive (loss) gain: Net unrealized (losses) gains on investments, net of income taxes (4,643) 24,023 Currency translation adjustment (60,738) (58,043) Retained earnings 880,890 836,684 ------------------ ------------------- Total Shareholders' Equity 1,762,339 1,748,109 ================== =================== Total Liabilities, Trust Preferred and Mandatorily Redeemable Preferred Securities and Shareholders' Equity $ 7,567,479 $ 7,165,426 ================== ===================
See Accompanying Notes to Consolidated Financial Statements 4 PartnerRe Ltd. Consolidated Statements of Operations and Comprehensive Income (Expressed in thousands, except per share data) (Unaudited)
For the three For the three months ended months ended March 31, March 31, 2002 2001 Revenues Gross premiums written $ 846,852 $ 615,767 ============ =========== Net premiums written $ 824,473 $ 597,779 Increase in unearned premiums (344,999) (208,361) ------------ ----------- Net premiums earned 479,474 389,418 Net investment income 58,704 59,957 Net realized investment (losses) gains (7,881) 9,106 Other income 675 22 ------------ ----------- Total Revenues 530,972 458,503 ------------ ----------- Expenses Losses and loss expenses and life policy benefits 311,854 272,396 Acquisition costs 104,047 86,267 Other operating expenses 36,936 27,658 Interest expense 3,196 3,196 Amortization of goodwill - 6,509 Net foreign exchange losses 3,603 2,893 ------------ ----------- Total Expenses 459,636 398,919 ------------ ----------- Income before distributions related to Trust Preferred and Mandatorily Redeemable Preferred Securities and taxes 71,336 59,584 Distributions related to Trust Preferred and Mandatorily Redeemable Preferred Securities 6,815 - Income tax expense (benefit) 1,266 (8,550) ------------ ----------- Net income before cumulative effect of adopting new accounting standard, net of tax 63,255 68,134 Cumulative effect of adopting new accounting standard, net of tax - 27,812 ------------ ----------- Net income $ 63,255 $ 95,946 ============ =========== Preferred dividends $ 5,000 $ 5,000 ============ =========== Net income available to common shareholders $ 58,255 $ 90,946 ============ =========== Calculation of comprehensive income, net of tax: Net income as reported $ 63,255 $ 95,946 Net unrealized gains or losses on investments (28,666) (66,496) Change in currency translation adjustment (2,695) (13,169) ------------ ----------- Comprehensive income $ 31,894 $ 16,281 ============ =========== Per share data: Earnings per common share: Basic net income before cumulative effect of adopting new accounting standard 1.16 1.26 Cumulative effect of adopting new accounting standard - 0.55 ------------ ----------- Basic net income $ 1.16 $ 1.81 ============ =========== Weighted average number of common shares outstanding 50,202.6 50,121.5 Diluted net income before cumulative effect of adopting new accounting standard 1.13 1.22 Cumulative effect of adopting new accounting standard - 0.54 ------------ ----------- Diluted net income $ 1.13 $ 1.76 ============ =========== Weighted average number of common and common equivalent shares outstanding 51,687.5 51,553.6
See Accompanying Notes to Consolidated Financial Statements 5 PartnerRe Ltd. Consolidated Statements of Shareholders' Equity (Expressed in thousands of U.S. dollars) (Unaudited)
Net Unrealized Gains (Losses) Total Additional Deferred on Currency Share- Common Preferred Paid-In Compen- Investments, Translation Retained holders' Shares Shares Capital sation Net of tax Adjustment Earnings Equity Balance at December 31, 2000 $ 50,113 $ 10,000 $ 892,310 $ (534) $ 107,511 $ (45,710) $ 1,072,316 $ 2,086,006 Issue of common shares 8 - 294 - - - - 302 Amortization of deferred compensation - - - 34 - - - 34 Net unrealized losses for period - - - - (66,496) - - (66,496) Currency translation adjustment - - - - - (13,169) - (13,169) Net income - - - - - - 95,946 95,946 Dividends on common shares - - - - - - (13,032) (13,032) Dividends on preferred shares - - - - - - (5,000) (5,000) ----------------------------------------------------------------------------------------------- Balance at March 31, 2001 $ 50,121 $ 10,000 $ 892,604 $ (500) $ 41,015 $ (58,879) $ 1,150,230 $ 2,084,591 =============================================================================================== Balance at December 31, 2001 $ 50,164 $ 10,000 $ 885,678 $ (397) $ 24,023 $ (58,043) $ 836,684 $ 1,748,109 Issue of common shares 77 - 2,285 - - - - 2,362 Adjustment on purchase contract for common shares - - (1,011) - - - - (1,011) Amortization of deferred compensation - - - 34 - - - 34 Net unrealized losses for period - - - - (28,666) - - (28,666) Currency translation adjustment - - - - - (2,695) - (2,695) Net income - - - - - - 63,255 63,255 Dividends on common shares - - - - - - (14,049) (14,049) Dividends on preferred shares - - - - - - (5,000) (5,000) ----------------------------------------------------------------------------------------------- Balance at March 31, 2002 $ 50,241 $ 10,000 $ 886,952 $ (363) $ (4,643) $ (60,738) $ 880,890 $ 1,762,339 ===============================================================================================
See Accompanying Notes to Consolidated Financial Statements 6 PartnerRe Ltd. Consolidated Statements of Cash Flows (Expressed in thousands of U.S. dollars) (Unaudited)
For the For the three months three months ended ended March 31, March 31, 2002 2001 Cash Flows From Operating Activities Net income $ 63,255 $ 95,946 Adjustments to reconcile net income to net cash provided by operating activities: Accrual of discount on investments, net of amortization of premium (365) (5,966) Amortization of goodwill - 6,509 Effect of adopting new accounting standard - (27,812) Net realized investment losses (gains) 7,881 (9,106) Changes in: Unearned premiums 345,000 208,361 Reinsurance balances receivable (286,310) (201,172) Unpaid losses and loss expenses including life policy benefits 72,913 58,697 Taxes recoverable 1,325 (8,640) Other changes in assets and liabilities (27,968) (53,450) Other items, net 641 (2,739) ---------- ----------- Net cash provided by operating activities 176,372 60,628 ---------- ----------- Cash Flows From Investing Activities Sales of fixed maturities 624,701 916,469 Redemptions of fixed maturities 62,316 16,608 Purchases of fixed maturities (857,366) (1,087,154) Net purchases of short term investments (713) (8,127) Sales of equities 33,742 25,192 Purchases of equities (119,370) (65,288) Other (9,503) (19,400) ---------- ----------- Net cash used in investing activities (266,193) (221,700) ---------- ----------- Cash Flows from Financing Activities Cash dividends paid to shareholders (19,049) (18,032) Issue of common shares 2,362 302 Adjustment on purchase contract for common shares (1,011) - ---------- ----------- Net cash used in financing activities (17,698) (17,730) ---------- ----------- Effect of exchange rate changes on cash (858) (2,703) Decrease in cash and cash equivalents (108,377) (181,505) Cash and cash equivalents - beginning of period 451,614 434,033 ---------- ----------- Cash and cash equivalents - end of period $ 343,237 $ 252,528 ========== ===========
See Accompanying Notes to Consolidated Financial Statements 7 PartnerRe Ltd. Notes to Consolidated Financial Statements (Unaudited) 1. General PartnerRe Ltd. (the "Company") is a leading global reinsurer, providing multi-line reinsurance to insurance companies through its wholly owned subsidiaries, Partner Reinsurance Company Ltd. ( "Partner Reinsurance Company"), Partner Reinsurance Company of the U.S. ("PartnerRe U.S.") and PartnerRe SA (formerly known as SAFR PartnerRe or SAFR). Risks reinsured include, but are not limited to, property, catastrophe, agriculture, motor, casualty, marine, aviation and space, credit and surety, technical and miscellaneous lines, life/annuity and health. The accompanying unaudited consolidated financial statements have been prepared on the basis of United States generally accepted accounting principles. In the opinion of management, these financial statements reflect all the normal recurring adjustments necessary for a fair presentation of the Company's financial position at March 31, 2002 and 2001 and its results of operations, shareholders' equity and cash flows for the three months ended March 31, 2002 and 2001. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's 2001 Annual Report to Shareholders. 2. New Accounting Pronouncements On January 1, 2002 the Company adopted SFAS No. 141, "Business Combinations," (SFAS 141) and SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). The statements change the accounting for business combinations and goodwill in two significant ways. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, ceases upon adoption of that statement. The Company will complete a transitional goodwill impairment test by June 30, 2002 and impairment valuations annually or more frequently if certain indicators are encountered. In connection with the transitional goodwill impairment test, the Company will (i) identify its reporting units, (ii) determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets to those reporting units, and (iii) determine the fair value of each reporting unit. If the carrying value of any reporting unit exceeds its fair value, then detailed fair values for each of the assigned assets (excluding goodwill) and liabilities will be determined to calculate the amount of goodwill impairment, if any. Any transitional impairment loss resulting from the adoption will be recognized as the effect of a change in accounting principle in the Company's Statement of Operations. The adoption of SFAS 141 did not have a significant impact on the Company's financial statements. The adoption of SFAS 142 has resulted in the elimination of a quarterly amortization expense related to goodwill in the amount of $6.5 million, before-tax, in the first quarter of 2002. On a pro-forma basis, diluted net income before cumulative effect of new accounting standard for the first quarter of 2001 would have been $1.09 per share rather than $1.22 as reported. The Company is currently assessing but has not yet determined the impact of goodwill impairment, if any, on its financial position and results of operations. 8 PartnerRe Ltd. Notes to Consolidated Financial Statements (Unaudited) 3. Segment Information Following a realignment of its Global operations effective January 1, 2002, the Company changed its reporting segments to reflect the way its business will be managed going forward. The Company monitors the performance of its underwriting operations in two major segments, Non-Life and Life. The Non-Life segment is further divided into three sub-segments, US Property and Casualty, Non-US Property and Casualty and Worldwide Specialty. The Life segment includes Life, Health and Annuity business. Segments represent markets that are reasonably homogeneous in terms of geography, client types, buying patterns, underlying risk patterns and approach to risk management. The US and Non-US Property and Casualty sub-segments include property and casualty business as well as motor business. These lines are generally written in local markets. The US Property and Casualty sub-segment is comprised of property, casualty and motor risks originating in the United States, generally written by PartnerRe U.S. The Non-US Property and Casualty sub-segment is comprised of property, casualty and motor business originating outside of the United States, generally written by Partner Reinsurance Company and PartnerRe SA. The Worldwide Specialty sub-segment is comprised of that business which is generally considered to be specialized due to the sophisticated technical underwriting required to analyze risks, and global in nature, inasmuch as appropriate risk management for these lines require a globally diversified portfolio of risks. This segment consists of several lines of business for which the Company believes it has developed specialized knowledge and underwriting capabilities. These lines of business include catastrophe, aviation and space, marine, agriculture, credit and surety, special risks and miscellaneous lines. The corresponding information for the prior period has been restated to conform to the current period presentation. Because the Company does not manage its assets by segment, investment income is not allocated to the Non-Life sub-segments of the reinsurance operations. However, because of the interest sensitive nature of some of the Company's Life products, investment income is considered in management's assessment of the profitability of the Life segment of the reinsurance operations. The following items are not considered in evaluating the results of each segment: net realized investment gains/losses, other income, amortization of goodwill, interest expense, distributions related to Trust Preferred and Mandatorily Redeemable Preferred Securities, net foreign exchange gains or losses, income tax expense or benefit and preferred share dividends. Segment revenues and profits or losses are shown net of intercompany transactions. Management measures segment results for the Property and Casualty segments and Worldwide Specialty segment on the basis of the "technical ratio", which is obtained by dividing the sum of the loss and loss adjustment expenses and acquisition costs by net premiums earned. Management measures segment results for the Life segment on the basis of "technical result" which is defined as net premiums earned less loss and loss adjustment expenses and acquisition costs. The following table provides a summary of the segment revenues and results for the three month periods ended March 31, 2002 and 2001 ($ millions except ratios): 9 PartnerRe Ltd. Notes to Consolidated Financial Statements (Unaudited)
For the three For the three months ended months ended March 31, March 31, 2002 2001 - ----------------------------------------------------------------------------------------------------------- NON-LIFE SEGMENT US Property and Casualty Net premiums written $ 174.2 $ 116.3 Net premiums earned 120.5 70.8 Loss and loss expense ratio 66.3 % 73.0 % Acquisition expense ratio 27.0 24.4 ----------- ----------- Technical ratio /(1)/ 93.3 97.4 Non-US Property and Casualty Net premiums written $ 200.8 $ 166.6 Net premiums earned 121.2 116.6 Loss and loss expense ratio 73.9 % 77.2 % Acquisition expense ratio 23.5 24.3 ----------- ----------- Technical ratio /(1)/ 97.4 101.5 Worldwide Specialty Net premiums written $ 409.1 $ 266.9 Net premiums earned 205.3 156.8 Loss and loss expense ratio 55.9 % 57.1 % Acquisition expense ratio 16.8 20.6 ----------- ----------- Technical ratio /(1)/ 72.7 77.7 TOTAL NON-LIFE SEGMENT Gross premiums written $ 803.4 $ 564.9 Net premiums written 784.1 549.8 Net premiums earned 447.0 344.2 Loss and loss expense ratio 63.6 % 67.2 % ----------- ----------- Acquisition expense ratio 21.4 22.7 Other overhead expense ratio 7.6 7.3 ----------- ----------- Expense ratio 29.0 30.0 ----------- ----------- Combined ratio /(2)/ 92.6 % 97.2 % - ----------------------------------------------------------------------------------------------------------- LIFE SEGMENT Gross premiums written $ 43.4 $ 50.8 Net premiums written 40.4 48.0 Net premiums earned 32.6 45.2 Technical result /(3)/ $ (3.5) $ (4.2) Allocated investment income 6.4 6.3 ----------- ----------- Net technical result $ 2.9 $ 2.1 - ----------------------------------------------------------------------------------------------------------------------
/(1)/ Technical ratio is obtained by dividing the sum of losses and loss adjustment expenses and acquisition costs by net premiums earned /(2)/ Combined ratio is obtained by dividing the sum of losses and loss adjustment expenses, acquisition costs and other overhead expenses by net premiums earned /(3)/ Technical result is defined as net premiums earned, less losses and loss adjustment expenses and acquisition costs 10 PartnerRe Ltd. Notes to Consolidated Financial Statements (Unaudited)
For the three For the three months ended months ended March 31, March 31, 2002 2001 --------------------------------------------------------------------------------------------- Reconciliation to Net Income: Technical result $ 63.6 $ 30.8 Other operating expenses (36.9) (27.7) Net investment income 58.7 60.0 Other income 0.7 - Interest expense (3.2) (3.2) Amortization of goodwill - (6.5) Net foreign exchange losses (3.6) (2.9) Income tax (expense) benefits on operating income (0.7) 10.1 Distribution related to Trust Preferred and Mandatorily Redeemable Preferred Shares (6.8) - --------------------------------------------------------------------------------------------- Operating income 71.8 60.6 --------------------------------------------------------------------------------------------- Net realized investment (losses) gains, after taxes (8.5) 7.5 Cumulative effect of adopting new accounting standard, net of tax - 27.8 --------------------------------------------------------------------------------------------- Net income $ 63.3 $ 95.9 ---------------------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion and analysis of the unaudited consolidated financial condition at March 31, 2002 and results of operations of PartnerRe Ltd. (the "Company") for the three months ended March 31, 2002 and 2001. This discussion and analysis should be read in conjunction with the attached unaudited consolidated financial statements and notes thereto and the audited consolidated financial statements of the Company at and for the year ended December 31, 2001 and notes thereto included in the Company's 2001 Annual Report to Shareholders. The unaudited consolidated financial statements at and for the three months ended March 31, 2002 and notes thereto have been reviewed by independent accountants in accordance with standards established by the American Institute of Certified Public Accountants. General The Company provides multi-line reinsurance to insurance companies on a worldwide basis through its wholly owned subsidiaries, Partner Reinsurance Company Ltd. ("Partner Reinsurance Company"), Partner Reinsurance Company of the U.S. ("PartnerRe U.S.") and PartnerRe SA (previously SAFR PartnerRe or SAFR). Risks reinsured include, but are not limited to, property, catastrophe, agriculture, motor, casualty, marine, aviation and space, credit and surety, technical and miscellaneous lines, life/annuity and health. Because of the inherent volatility of some of the lines of business the Company underwrites, the operating results and financial condition of the Company can be adversely impacted by catastrophes and other large losses that may give rise to claims under reinsurance coverages provided by the Company. Catastrophe reinsurance comprises a material portion of the Company's business. Catastrophe losses result from events such as windstorms, earthquakes, floods, hail, tornadoes, severe winter weather, fires, explosions and other man-made or natural disasters, the incidence and severity of which are inherently unpredictable. Because catastrophe reinsurance accumulates large aggregate exposures to man-made and natural disasters, the Company's loss experience in this line of business could be characterized by low frequency and high severity, particularly since it usually writes treaties with high attachment points. This is likely to result in substantial volatility in the Company's financial results for any fiscal quarter or year and could have a material adverse effect on the Company's financial condition or results of operations. The Company writes other lines of business, which can be affected by large losses, including property, agriculture, motor, casualty, marine, aviation and space, credit and surety, technical and miscellaneous lines, life/annuity and health. The Company endeavors to manage its exposure to catastrophe and other large losses by (i) attempting to limit its aggregate exposure on catastrophe reinsurance in any particular geographic zone defined by the Company and attempting to limit its exposure to per risk reinsurance, (ii) selective underwriting practices, (iii) diversification of risks by geographic area and by lines and classes of business, and (iv) to a certain extent by purchasing retrocessional reinsurance. Despite the Company's efforts to manage its exposure to catastrophe and other large losses, the effect of a single catastrophic event or series of events affecting one or more geographic zones or changes in the relative frequency or severity of catastrophic or other large loss events could have a material adverse effect on the Company's financial condition or results of operations. Should the Company incur a substantial catastrophe loss, its ability to write future business may be impacted. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Business Environment Reinsurance is a highly competitive and cyclical industry. The industry is influenced by several factors including variations in interest rates and financial markets, changes in legal, regulatory and judicial environments, inflation and general economic conditions. Throughout the late 1990's, the industry's operating profitability declined due to the deterioration of pricing, terms and conditions and increasing loss costs. Offsetting these trends were high investment returns, which led to continued growth in capital - a prime determinant of capacity and competition. The cumulative impact of large European storm losses in December 1999, continued increases in loss costs, negative cash flow, declining market returns and adverse developments of reserves ultimately led to tightening of terms and conditions, and improved pricing during the January 2001 renewals. The cyclical trends were significantly accelerated by the large loss events of 2001. The terrorist attacks of September 11 and Enron bankruptcy represent the largest catastrophe loss and largest surety loss, respectively, in the history of the industry. In addition a number of companies posted large increases to reserves for prior years. Several companies exited the industry, while others were financially weakened. The reduction in capacity caused by the large losses, reserve increases and exiting capital accelerated the improvement in pricing, terms and conditions. The January 2002 renewals were the strongest in over five years. While the cumulative impact of the foregoing factors have led to increased pricing and improved terms and conditions, there is no certainty as to how long these conditions will last. Since September 11, it is estimated that over $25 billion in capital has been raised by industry participants, helping to offset the estimated $35 billion to $50 billion in September 11 losses. Although management has seen improved pricing and terms and conditions in 2002, there are no guarantees of improved industry profitability as the industry remains subject to further catastrophes and other large losses. Management continues to pursue those opportunities that it perceives will generate acceptable returns. Management believes that through dedication to client service and its disciplined approach to underwriting, the Company provides a stable and reliable source of underwriting capacity to its clients. Results of Operations - for the Three Months ended March 31, 2002 and 2001 Results of operations for the three months ended March 31, 2002 and 2001 were as follows ($ millions, except per share data):
2002 2001 ----------------------------------------------------------------------------------------------------------------- Operating earnings available to common shareholders $ 66.8 $ 55.6 Net realized investment (losses) gains, net of tax (8.5) 7.5 ----------------------------------------------------------------------------------------------------------------- Net income available to common shareholders before cumulative effect of adopting new accounting standard 58.3 63.1 ----------------------------------------------------------------------------------------------------------------- Cumulative effect of adopting new accounting standard, net of tax - 27.8 ----------------------------------------------------------------------------------------------------------------- Net income available to common shareholders $ 58.3 $ 90.9 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Diluted operating earnings per common share $ 1.29 $ 1.08 Net realized investment (losses) gains per common share, net of tax (0.16) 0.14 ----------------------------------------------------------------------------------------------------------------- Diluted net income per common share before cumulative effect adopting new accounting standard $ 1.13 $ 1.22 ----------------------------------------------------------------------------------------------------------------- Cumulative effect of adopting new accounting standard, net of tax - 0.54 ----------------------------------------------------------------------------------------------------------------- Net income available to common shareholders $ 1.13 $ 1.76 -----------------------------------------------------------------------------------------------------------------
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Management follows the industry practice of considering both net income and operating earnings in the analysis of results and performance. Operating earnings available to common shareholders exclude net realized investment gains or losses on investments and preferred dividends. Operating earnings available to common shareholders for the three months ended March 31, 2002 increased by 20.1% compared to the three months ended March 31, 2001, and net income available to common shareholders before cumulative effect of adopting new accounting standard for the three months ended March 31, 2002 decreased by 7.7% compared to the three months ended March 31, 2001. The increase in operating earnings available to common shareholders resulted primarily from an increase in underwriting profitability fueled by improved pricing and better terms and conditions obtained during the January 2002 renewals, the absence of catastrophe or other large losses during the first quarter of 2002 and the adoption of SFAS 142 which resulted in discontinuation of goodwill amortization effective January 1, 2002. The decrease in net income available to common shareholders before effect of adopting new accounting standard is due to the increase in net realized investment losses, net of tax, that resulted from the timing of disposition of securities as part of the ongoing management of the investment portfolio within the investment guidelines and objectives set out by management. Reinsurance Operations - Underwriting Results Non-Life Segment US Property and Casualty Gross and net premiums written and net premiums earned for the three months ended March 31, 2002 and 2001 were as follows ($ millions):
2002 2001 ------------------------------------------------------------------------------------------------- Gross premiums written $ 175.5 $ 116.4 Net premiums written 174.2 116.3 Net premiums earned 120.5 70.8 -------------------------------------------------------------------------------------------------
The Company observed a combination of original rate increases and improved terms and conditions in the property, casualty and motor lines during the January 2002 renewals. Despite this improvement in terms and conditions in the industry, the Company pursued premium growth when market conditions met the Company's selective standards. In addition, business that no longer met the Company's standards was not renewed. Gross and net premiums written and net premiums earned for the three months ended March 31, 2002 increased by 50.8%, 49.8% and 70.2%, respectively, compared to the three months ended March 31, 2001. This growth resulted from a combination of increased participations, pricing and exposures as well as new business opportunities in all lines but more predominantly in the casualty and motor lines and more modestly in the property line. The increase in net premiums earned reflects the increase in net written premiums during the first quarter of 2002 as well as the growth in net premiums written during the latter half of 2001. Premiums written are earned on a basis that is consistent with the risks covered under the terms of the reinsurance contracts, which generally is one to two years. Losses and loss expenses incurred and the corresponding ratio as a percentage of net premiums earned ("loss and loss expense ratio"), and acquisition costs (primarily brokerage expenses, commissions, excise taxes and other costs directly related to underwriting reinsurance contracts), and the corresponding ratio as a percentage of net premiums earned ("acquisition expense ratio"), were as follows for the three-month periods ended March 31, 2002 and 2001 ($ millions except ratios): 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
2002 2001 - ---------------------------------------------------------------------------------------------------------- Losses and loss expenses $ 79.9 $ 51.7 - ---------------------------------------------------------------------------------------------------------- Acquisition expenses 32.5 17.3 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- Loss and loss expense ratio 66.3% 73.0% - ---------------------------------------------------------------------------------------------------------- Acquisition expense ratio 27.0 24.4 - ---------------------------------------------------------------------------------------------------------- Technical ratio 93.3 97.4 - ----------------------------------------------------------------------------------------------------------
The increase in losses and loss expenses for the first three months of 2002 compared to the first three months of 2001 resulted primarily from the growth in exposure due to a growing book of business. The decrease in the corresponding loss and loss expense ratio reflects improved pricing and conditions seen in the January 2002 renewals in addition to improved loss experience in every line. The increase in acquisition expenses compared to the three months ended March 31, 2001 resulted primarily from an increase in the volume of business earned in the three months ended March 31, 2002. The increase in the acquisition expense ratio during the first quarter of 2002 resulted from an increase in the business earned related to non-proportional treaties written on a cession basis which carries acquisition costs similar to proportional treaties. Non-US Property and Casualty Gross and net premiums written and net premiums earned for the three months ended March 31, 2002 and 2001 were as follows ($ millions):
2002 2001 ------------------------------------------------------------------------------------------------------------------- Gross premiums written $ 207.3 $ 170.6 Net premiums written 200.8 166.6 Net premiums earned 121.2 116.6 -------------------------------------------------------------------------------------------------------------------
During the January 2002 renewals, the Company observed a combination of original rate increases and improved conditions in the property and casualty markets in most countries and observed improvements in the motor lines in certain geographic markets. There were broad variations by country and type of business; and improvements, while significant, were generally less than in the US Property and Casualty segment. Despite the overall improvement in terms and conditions in the industry, the Company pursued premium growth when market conditions met the Company's selective standards. In addition, business that no longer met the Company's standards was not renewed, particularly in the casualty and motor lines. Gross and net premiums written and net premiums earned for the three months ended March 31, 2002 increased by 21.5%, 20.5% and 3.9%, respectively, compared to the three months ended March 31, 2001. Similar to the US Property and Casualty segment, this growth resulted from a combination of increased participations, pricing and exposures as well as new business opportunities in all lines but more predominantly in the property line. During the first quarter of 2002, a number of proportional treaties were renewed on a non-proportional basis and this resulted in smaller gross and net premiums written and net premiums earned figures for those treaties. This mitigated the Non-US Property and Casualty segment growth trends in the first quarter of 2002. Growth is smaller for net premiums earned than net premiums written primarily because the net earned premiums in the first quarter of 2002 still reflect the lower volume of net premiums written during the 2001 calendar year, particularly in the motor line. The difference between gross and net premiums written was attributable to the cost of retrocession protection. The Company selectively purchases retrocession protection as part of its overall risk management process. Premiums written are earned on a basis that is consistent with the risks covered under the terms of the reinsurance contracts, which generally is one to two years. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Losses and loss expenses incurred and the corresponding ratio as a percentage of net premiums earned ("loss and loss expense ratio"), and acquisition costs (primarily brokerage expenses, commissions, excise taxes and other costs directly related to underwriting reinsurance contracts), and the corresponding ratio as a percentage of net premiums earned ("acquisition expense ratio"), were as follows for the three-month periods ended March 31, 2002 and 2001 ($ millions except ratios):
2002 2001 ---------------------------------------------------------------------------------------------------------- Losses and loss expenses $ 89.6 $ 90.0 ---------------------------------------------------------------------------------------------------------- Acquisition expenses 28.5 28.4 ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- Loss and loss expense ratio 73.9% 77.2% ---------------------------------------------------------------------------------------------------------- Acquisition expense ratio 23.5 24.3 ---------------------------------------------------------------------------------------------------------- Technical ratio 97.4 101.5 ----------------------------------------------------------------------------------------------------------
The decrease in losses and loss expenses and the corresponding ratio for the first three months of 2002 compared to the first three months of 2001 results from an improvement in the loss experience and is reflective of the improved market conditions seen by the Company during the January 2002 renewals. There was no significant change in the acquisition expenses or corresponding ratio during the first three months of 2002 compared to the same period during 2001. Worldwide Specialty Gross and net premiums written and net premiums earned for the three months ended March 31, 2002 and 2001 were as follows ($ millions):
2002 2001 ---------------------------------------------------------------------------------------------------------------- Gross premiums written $ 420.6 $ 277.9 Net premiums written 409.1 266.9 Net premiums earned 205.2 156.8 ----------------------------------------------------------------------------------------------------------------
During the January 2002 renewals, the Company saw a market focus on rates, terms and conditions rather than market share. In addition, several reinsurers withdrew from many markets, especially the aviation market. The Company took advantage of considerable rate increases and improved terms and conditions in the specialty lines. Improvements were more forceful in this sub-segment than in both the US and Non-US Property and Casualty sub-segments. Despite this improvement in terms and conditions in the industry, the Company pursued premium growth when market conditions met the Company's selective standards and allocated capital to lines where prices and conditions were the most attractive. Business that no longer met the Company's standards was not renewed. Gross and net premiums written and net premiums earned for the three months ended March 31, 2002 increased by 51.3%, 53.3% and 30.9%, respectively, compared to the three months ended March 31, 2001. This growth resulted from a combination of increased participations, pricing and exposures as well as new business opportunities across most specialty lines and more predominantly in the catastrophe, aviation, marine and special risks lines. Growth in the first quarter of 2002 was mitigated to a small extent by a decrease in the credit and surety and financial guarantee lines where pricing, terms and conditions were not as attractive as in other Worldwide Specialty lines. The increase in net premiums earned reflects the increase in net written premiums during the first quarter of 2002 as well as the growth in net premiums written during the latter half of 2001. Premiums written are earned on a basis that is consistent with the risks covered under the terms of the reinsurance contracts, which generally is one to two years. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Losses and loss expenses incurred and the corresponding ratio as a percentage of net premiums earned ("loss and loss expense ratio"), and acquisition costs (primarily brokerage expenses, commissions, excise taxes and other costs directly related to underwriting reinsurance contracts), and the corresponding ratio as a percentage of net premiums earned ("acquisition expense ratio"), were as follows for the three-month periods ended March 31, 2002 and 2001 ($ millions except ratios):
2002 2001 ----------------------------------------------------------------------------------------------------- Losses and loss expenses $ 114.7 $ 89.5 ----------------------------------------------------------------------------------------------------- Acquisition expenses 34.6 32.4 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- Loss and loss expense ratio 55.9% 57.1% ----------------------------------------------------------------------------------------------------- Acquisition expense ratio 16.8 20.6 ----------------------------------------------------------------------------------------------------- Technical ratio 72.7 77.7 -----------------------------------------------------------------------------------------------------
The increase in losses and loss expenses for the first three months of 2002 compared to the first three months of 2001 resulted primarily from the growth in exposure due to a growing book of business. The decrease in the corresponding loss and loss expense ratio for the first three months of 2002 compared to the same period in 2001 is due primarily to an improvement in pricing and loss experience in all lines except for credit and surety. The Company experienced a low level of losses in its Catastrophe line, but this was partially offset by higher losses in the Credit and Surety line, which the Company attributed to the higher number of bankruptcies typically expected during a recession period. The increase in acquisition expenses compared to the three months ended March 31, 2001 resulted primarily from a larger volume of business earned in the three months ended March 31, 2002. The decrease in the acquisition expense ratio resulted from a higher proportion of non-proportional business earned during the first quarter of 2002. Life Segment Gross and net premiums written and net premiums earned for the three months ended March 31, 2002 and 2001 were as follows ($ millions):
2002 2001 ------------------------------------------------------------------------------------------------------ Gross premiums written $ 43.4 $ 50.8 Net premiums written 40.4 48.0 Net premiums earned 32.6 45.2 ------------------------------------------------------------------------------------------------------
The decreases in gross and net premiums written and net premiums earned were primarily related to the restructuring of a large proportional treaty into a non-proportional treaty during the fourth quarter of 2001. The restructuring does not affect the overall financial results for the life segment. Life policy benefits and acquisition costs (primarily brokerage expenses, commissions, excise taxes and other costs directly related to underwriting reinsurance contracts) incurred for the three months ended March 31, 2002 and 2001 were as follows ($ millions):
2002 2001 ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- Life policy benefits $ 27.6 $ 41.2 ----------------------------------------------------------------------------------------------------- Acquisition expenses 8.5 8.2 -----------------------------------------------------------------------------------------------------
16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The decrease in life policy benefits for the first three months of 2002 compared to the first three months of 2001 resulted primarily from the restructuring of a large proportional treaty into a non-proportional treaty during the fourth quarter of 2001. The restructuring does not affect overall financial results for the life segment. Premium distribution by line of business The distribution of net premiums written by line of business for the three months ended March 31, 2002 and 2001 was as follows:
2002 2001 ----------------------------------------------------------------------------------------------------------------- % % Non-Life Property and Casualty Property 19 19 Casualty 15 14 Motor 12 14 Worldwide Specialty Catastrophe 23 21 Aviation/Space 5 4 Marine 3 2 Agriculture 4 4 Special Risk 7 4 Credit/Surety 4 6 Other 3 4 Life 5 8 ------------------------------------------------------------------------------------------------------------------
The distribution of premiums is affected by renewal patterns for non-proportional treaties as premiums for those treaties are written at the inception of the treaty rather than over the treaty period. The above percentages of net premiums written for the catastrophe line of business, which is written predominantly on a non-proportional basis, is higher than what can be expected for the year because a significant portion of the year's catastrophe premiums are written in the first quarter. The relative increase in the catastrophe and special risk lines of business in the first three months of 2002 compared to the same period in 2001 reflects growth in those lines as a result of better pricing, terms and conditions during the January 2002 renewals. The relative decrease in the life line of business in the three months ended March 31, 2002 is attributable to the restructuring of a large proportional treaty into a non-proportional treaty during the fourth quarter of 2001 as well as the considerable growth seen in the Company's non-life lines. The Company produces its business both through brokers and through direct relationships with insurance company clients. The distribution of gross premiums written by type of business for the three months ended March 31, 2002 and 2001 was as follows:
2002 2001 ------------------------------------------------------------------------------------------------------ % % Non-life Segment Proportional 36 34 Non-Proportional 50 49 Facultative 9 9 Life Segment Proportional 4 7 Non-Proportional 1 1 ------------------------------------------------------------------------------------------------------
17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The geographic distribution of gross premiums written for the three months ended March 31, 2002 and 2001 was as follows:
2002 2001 ----------------------------------------------------------------------------------------------------- % % Europe 39 46 North America 45 40 Asia, Australia, New Zealand 10 7 Latin America and the Caribbean 5 6 Africa 1 1 ----------------------------------------------------------------------------------------------------
Although the Company experienced growth in absolute value in every geographic area, growth was more pronounced in North America and Asia, Australia, New Zealand. This is a seasonal trend that results primarily from the Company's significant catastrophe renewals that are written predominantly on a non-proportional basis in the first quarter of the year. Investment Results Net investment income and net realized investment (losses) gains for the three-month periods ended March 31, 2002 and 2001 were as follows ($ millions):
2002 2001 ---------------------------------------------------------------------------------------------------------- Net investment income $ 58.7 $ 60.0 Net realized investment (losses) gains (7.9) 9.1 ----------------------------------------------------------------------------------------------------------
Net investment income for the three months ended March 31, 2002 decreased by 2.1% compared to the 2001 period. The decrease in net investment income is primarily due to a large life reinsurance treaty under which all investment income is transferred to the policyholders through the life policy benefit expense line. As a result of this transfer, any volatility in net investment income on this treaty is offset by the same but opposite movement in life policy benefit expenses with no net impact on net income. The market yield on the Company's fixed income investment portfolio decreased during the last two years as proceeds of invested securities that matured or were redeemed have been reinvested at increasingly lower market rates. The market yield on the fixed income investment portfolio began to recover modestly during the first quarter of 2002 and the Company believes the yield will continue to rise in an improving economy, allowing the Company to invest its cash flows at higher rates and increase investment income. Net realized investment gains and losses on sales of investments are a function of the timing of dispositions of available for sale fixed maturities and equity securities, change in market value of trading securities and the net ineffectiveness of the Company's hedging activities. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Currency The Company's functional currency is the U.S. dollar. The Company has exposure to foreign currency risk due to its ownership of PartnerRe SA whose functional currency is the Euro, and due to PartnerRe SA and Partner Reinsurance Company (including the Swiss branch) underwriting reinsurance exposures and collecting premiums in currencies other than the U.S. dollar and holding certain net assets in such currencies. The Company's most significant foreign currency exposure is to the Euro. The Euro decreased in value by 2% in the first three months of 2002 (from 0.89 to 0.87 U.S. dollar per Euro) thereby increasing the aggregate currency translation loss of $58.0 million at December 31, 2001 to $60.7 million at March 31, 2002. The value of the U.S. dollar strengthened approximately 2% against the Euro, 1% against the Swiss Franc, and 2% against the British Pound in the first three months of 2002 and, since a large proportion of the Company's assets and liabilities is expressed in these currencies, there was a corresponding reduction in the value of these assets and liabilities expressed in U.S. dollar terms. Net foreign exchange losses amounted to $3.6 million and $2.9 million for the three months ended March 31, 2002 and 2001, respectively. Foreign exchange gains and losses are a function of the relative value between the U.S. dollar and other currencies in which the Company does business. Financial Condition and Liquidity and Capital Resources Shareholders' Equity and Capital Management Shareholders' equity at March 31, 2002 was $1,762.3 million compared to $1,748.1 million at December 31, 2001. The major factors influencing the level of shareholders' equity in the three-month period ended March 31, 2002 were: . net income of $63.3 million; . dividend payments of $19.0 million; . a net increase in common shares and additional paid-in capital of $2.4 million, due to the issuance of common shares; . a payment of $1.0 million under the Purchase Contract for common shares; . the $2.7 million negative effect of the currency translation adjustment resulting from the strengthening of the U.S. dollar against the Euro; and . a $28.7 million decrease in net unrealized gains on investments, net of deferred taxes, recorded in equity. The Company continuously evaluates its capital needs to support its reinsurance and investment operations. During the three months ended March 31, 2002, the Company did not repurchase common shares. As of March 31, 2002, approximately 4.2 million common shares remain authorized for repurchase under the Company's current repurchase program. Assets At March 31, 2002, total assets were $7,567.5 million compared to total assets of $7,165.4 million at December 31, 2001. Total invested assets, including cash and cash equivalents, were $4,487.2 million as March 31, 2002 compared to $4,410.7 million at December 31, 2001. The major factors influencing the change in cash and invested assets in the three-month period ended March 31, 2002 were: . net cash provided by operating activities of $176.4 million; . decrease in unsettled security trades of $24.0 million; . dividend and distribution payments on common and preferred shares and Mandatorily Redeemable Preferred Securities totaling $23.0 million; . cash receipt for the issue of common shares aggregating $2.4 million; . decrease in net unrealized gains on investments of $32.9 million; and . the negative impact of the stronger U.S. dollar relative to the Euro as it relates to conversion of PartnerRe SA's investments and cash balances into U.S. dollars. At March 31, 2002, fixed maturities, short-term investments and cash and cash equivalents had an average expected duration of 3.8 years compared to 3.7 years as at December 31, 2001. As at each of March 31, 2002 and December 31, 2001, approximately 92% of the fixed income portfolio was rated investment grade (BBB- or higher). 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Company's investment strategy is unchanged from previous years, although the continuing evolution of the Company into a global multi-line reinsurer has affected the construction and composition of the investment portfolio. The Company's investment philosophy distinguishes between those assets that are matched against existing liabilities ("liability funds") and those that are part of shareholders' equity ("capital funds"). Liability funds are invested in investment grade fixed income securities and are generally matched in currency and duration to the estimated liabilities in a way that generally seeks to immunize liabilities against changes in the general level of interest rates or the relative valuation of currencies. Capital funds are available for investment in a broadly diversified portfolio, which includes investments in investment grade bonds, common stock, preferred stocks, convertible and high yield bonds and other asset classes that offer potentially higher returns. At March 31, 2002, fixed maturities, short-term investments and cash and cash equivalents had an average yield to maturity at market of 5.3% compared to 5.1% as at December 31, 2001. The increase in average yield to maturity was primarily due to a modest increase in market interest rates during the first quarter of 2002. Liabilities The Company has recorded Non-life reserves for unpaid losses and loss expenses of $3,046.7 million and $3,005.6 million at March 31, 2002 and December 31, 2001, respectively. Policy benefits reserves for Life and annuity contracts were $704.6 million and $693.3 million at March 31, 2002 and December 31, 2001, respectively. The increase in the value of unpaid losses and loss expenses and policy benefits for Life and annuity contracts between December 31, 2001 and March 31, 2002 resulted primarily from the increase in the volume of business earned by the Company during the first quarter of 2002. The Company's reserves for unpaid losses and loss expenses include an estimate for its net ultimate liability for asbestos and environmental claims. Ultimate values for such claims cannot be estimated using traditional reserving techniques. There are significant uncertainties in estimating the amount of the Company's potential losses for these claims and these uncertainties are not likely to be resolved in the near future. The Company actively evaluates potential exposure to asbestos and environmental claims and establishes additional reserves as appropriate. The Company believes that it has made a reasonable provision for these exposures and is unaware of any specific existing facts that would materially affect its estimates. Capital and Liquidity The Company's capital structure includes term debt, Series A perpetual preferred shares, Series B redeemable preferred shares, 30-year Trust Preferred securities, as well as common equity. These securities have the following characteristics: o The term debt of $220 million has a fixed rate of 5.81% and is fully collateralized and repayable in 2008 with interest payments due semi-annually; o Series A Perpetual Cumulative Preferred securities in the amount of $250 million have an annual dividend rate of 8% and dividends are payable on a quarterly basis; o Trust Preferred securities have an annual dividend rate of 7.90% payable quarterly, and are redeemable on December 31, 2031, which date may be extended to a date no later than December 31, 2050. The Trust Preferred securities are issued by PartnerRe Capital Trust I, a Delaware statutory business trust and an indirect, wholly-owned subsidiary of the Company; o Series B Redeemable Preferred securities were issued as part of the Premium Equity Participating Security Units ("PEPS units"). Each PEPS unit comprises i) one of the Company's 5.61% Series B Cumulative Redeemable Preferred shares and ii) a purchase contract obligating the holder of the PEPS unit to purchase from the Company, no later than December 31, 2004, for a price of $50, a number of common shares ranging between 0.8696 and 1.0638 shares, depending on the price of the Company's common stock at the time of purchase; o The remaining capital of the Company's common shareholders' equity is composed of the common shares, retained earnings and accumulated other comprehensive income. The Company's common shares have historically paid a quarterly dividend, currently $0.29 per share per quarter. However, while it is currently the Company's intention to pay dividends, there can be no assurance that the Company will continue to declare and pay dividends on common shares. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Cash flow from operations for the three months ended March 31, 2002 increased to $176.4 million from $60.6 million in the same period in 2001. This increase is primarily attributable to the significant increase in business written by the Company during the January 2002 renewals and a first quarter 2002 relatively free from catastrophic or other large loss payments. The Company paid less than $18 million on the September 11 terrorist attack during the quarter and less than $27 million to date. Total Non-Life paid losses during the first quarter of 2002 amounted to $220 million. The Company's ability to pay common and preferred shareholders' dividends and its operating expenses is dependent on cash dividends from Partner Reinsurance Company and PartnerRe SA, including its subsidiary, PartnerRe U.S. (collectively the "reinsurance subsidiaries"). The payment of such dividends by the reinsurance subsidiaries to the Company is limited under Bermuda and French law and certain insurance statutes of various U.S. states in which PartnerRe U.S. is licensed. The restrictions are generally based on net income and/or certain levels of policyholders' earned surplus as determined in accordance with the relevant statutory accounting practices. There are presently no material statutory restrictions, except as noted below, on the reinsurance subsidiaries' abilities to pay dividends. PartnerRe U.S., a company licensed in the U.S., may not pay cash dividends without prior regulatory approval. The Company has cash outflows in the form of operating expenses, dividends to both common and preferred shareholders and distributions on preferred securities. During the three months ended March 31, 2002, the Company paid $14.0 million in dividends to its common shareholders in the form of a quarterly dividend of $0.28 a share. Additionally, the Company paid the holders of its Series A Preferred Stock $5.0 million in dividends during the quarter. The Company also paid $4.0 million in the first quarter of 2002 on the PEPS Units. The operating entities of the Company depend upon cash flow from the collection of premiums and investment income. Cash outflows are in the form of claims payments, operating expenses and dividend payments to the holding Company. In addition, the U.S. operation is responsible for payments under the Trust Preferred Stock. Historically, the reinsurance subsidiaries of the Company have generated sufficient cash flow to meet all of their obligations. Because of the inherent volatility of the business written by the Company, cash flows from operating activities may vary significantly between periods. Effects of Inflation The effects of inflation are considered implicitly in pricing and estimating reserves for unpaid losses and loss adjustment expenses. The actual effects of inflation on the results of operations of the Company cannot be accurately known until claims are ultimately settled. Forward Looking Statements Certain statements contained in this document, including Management's Discussion and Analysis, may be considered forward-looking statements as defined in section 27A of the United States Securities Act of 1933 and section 21E of the Unites States Securities Exchange Act of 1934. Forward-looking statements are made based upon management's expectations and beliefs concerning future developments and their potential effect on the Company. Many factors could cause the Company's actual results to differ materially from those expressed in such forward-looking statements, including, but not limited to: (1) the occurrence of catastrophic events with a frequency or severity exceeding our expectations; (2) a decrease in the level of demand for reinsurance and/or an increase in the supply of reinsurance capacity; (3) increased competitive pressures, including the consolidation and increased globalization of reinsurance providers; (4) actual losses and loss expenses exceeding our loss reserves, which are necessarily based on actuarial and statistical projections of ultimate losses; (5) changes in the cost, availability and performance of retrocessional reinsurance, including the ability to collect reinsurance recoverables; (6) concentration risk in dealing with a limited number of brokers; (7) developments in and risks associated with global financial markets which could affect our investment portfolio; (8) changing rates of inflation and other economic conditions; (9) losses due to foreign currency exchange rate fluctuations; (10) changes in the legal or regulatory environments in which we operate, including the passage of federal or state legislation subjecting Partner Reinsurance Company Ltd. or PartnerRe SA to supervision or regulation, including additional tax regulation, in the United States or other jurisdictions in which we operate; or (11) actions by rating agencies that might impact the Company's ability to write new business The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates .The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 21 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company's insurance subsidiaries, in common with the insurance and reinsurance industry in general, are subject to litigation and arbitration in the normal course of their business operations. As of March 31, 2002, the Company was not a party to any material litigation or arbitration other than as part of the ordinary course of business in relation to claims activity. Whilst none of this is expected by management to have a significant adverse effect on the Company's results of operation, financial condition and liquidity for a year, it does have the potential to adversely impact the results of a quarter. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. The deadline for the submission of Shareholder proposals for the Company's 2003 Annual Meeting is November 27, 2002. 22 PART II - OTHER INFORMATION (continued) ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits - The following exhibits are filed as part of this report on Form 10-Q: 3.1 Amended Memorandum of Association. 3.2 Amended and Restated Bye-laws. 4.1 Specimen Common Share Certificate. 4.2 Specimen Class B Warrant. 4.3 Specimen Share Certificate for the 8% Series A Cumulative Preferred Shares. 4.4 Certificate of Designation, Preferences and Rights of 8% Series A Cumulative Preferred Shares. 4.5 Specimen of Unit Certificate for the PEPS Units. 4.6 Certificate of Designation of the Company's 5.61% Series B Cumulative Redeemable Preferred Shares. 10.1 Amended and restated PartnerRe Ltd. Employee Incentive Plan, dated February 26, 2002. 11.1 Statements Regarding Computation of Net Income Per Common and Common Equivalent Share. 15 Letter Regarding Unaudited Interim Financial Information. (b) Reports on Form 8-K. Current report on Form 8-K filed on March 25, 2002. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PartnerRe Ltd. --------------------------------- (Registrant) Date: May 6, 2002 By: /s/ Patrick A. Thiele ------------------ --------------------------------- Name: Patrick A. Thiele Title: President & Chief Executive Officer Date: May 6, 2002 By: /s/ Albert A. Benchimol ------------------ --------------------------------- Name: Albert A. Benchimol Title: Executive Vice-President & Chief Financial Officer (Chief Accounting Officer) 24 EXHIBIT INDEX Sequentially Exhibit Numbered Number Exhibit Page - ------ ------- ---- 3.1 Amended Memorandum of Association. * 3.2 Amended and Restated Bye-laws.* 4.1 Specimen Common Share Certificate. ** 4.2 Specimen Class B Warrant.*** 4.3 Specimen Share Certificate for the 8% Series A Cumulative Preferred Shares.+ 4.4 Certificate of Designation, Preferences and Rights of 8% Series A Cumulative Preferred Shares.+ 4.5 Specimen of Unit Certificate for the PEPS Units.++ 4.6 Certificate of Designation of the Company's 5.61% Series B Cumulative Redeemable Preferred Shares.++ 10.1 Amended and restated PartnerRe Ltd. Employee Incentive Plan, dated February 26, 2002. 11.1 Statements Regarding Computation of Net Income Per Common and Common Equivalent Share. 15 Letter Regarding Unaudited Interim Financial Information. ____________________ * Incorporated by reference to the Registration Statement on Form F-3 of the Company, as filed with the Securities and Exchange Commission on June 20, 1997 (Registration No. 333-7094). ** Incorporated by reference to the Annual Report on Form 10-K of the Company for the year ended December 31, 1996, as filed with the Securities and Exchange Commission on March 26, 1997. *** Incorporated by reference to the Annual Report on Form 10-K of the Company for the year ended December 31, 1998, as filed with the Securities and Exchange Commission on March 30, 1999. + Incorporated by reference to the Quarterly Report on Form 10-Q of the Company, as filed with the Securities and Exchange Commission on August 14, 1997. ++ Incorporated by reference to the Annual Report on Form 10-K of the Company for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on March 29, 2002. 25 EX-10.1 3 dex101.txt AMENDED & RESTATED EMPLOYEE INCENTIVE PLAN EXHIBIT 10.1 PARTNERRE LTD. EMPLOYEE INCENTIVE PLAN Originally Effective February 6, 1996, and As Amended and Restated Effective February 26, 2002 Purpose The purpose of the Plan is to provide a means through which the Company and its Subsidiaries may attract able persons to enter and remain in their employ and to provide a means whereby those key employees and other persons upon whom the responsibilities of the successful administration and management of the Company rest, and whose present and potential contributions to the welfare of the Company are of importance, can acquire and maintain stock ownership, thereby strengthening their commitment to the welfare of the Company and promoting an identity of interest between stockholders and these key employees. It is intended that certain options granted under this Plan may qualify as "incentive stock options" under Section 422 of the Code. Definitions "Award" means, individually or collectively, any award of Incentive ----- Stock Options, Nonqualified Stock Options, Restricted Stock, Phantom Stock Units, Performance Units or Performance Shares. "Award Agreement" means a written agreement between the Company and a --------------- Participant setting forth the specific terms of an Award. "Performance Period" means a period of time within which performance is measured ------------------ for the purpose of determining whether an Award of Performance Units or Performance Shares has been earned. "Board" means the Board of Directors of the Company. ----- "Change in Control" shall, unless the Board otherwise directs by resolution ----------------- adopted prior thereto, be deemed to occur if (i) any "person" (as that term is used in Sections 13 and 14(d)(2) of the U.S. Securities and Exchange Act of 1934 ("Exchange Act")), is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 40% or more of the voting Stock, (ii) within any 24-month period, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to ------------------- constitute at least a majority of the Board, provided that any director who was not a director as of the beginning of such period shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this subsection 2(e)(ii), or (iii) the occurrence of a transaction requiring shareholder approval for the acquisition of the Company or any of its subsidiaries (together with the Company, the "Group") by an entity other than a member of the Group or any subsidiary of such member, through the purchase of assets, by merger or otherwise. "Code" means the U.S. Internal Revenue Code of 1986, as amended. ---- "Committee" means the Human Resources Committee of the Board or such other --------- committee as the Board may appoint to administer the Plan. "Common Stock" or "Stock" means the authorized common shares of, par value $1.00 ------------ ----- per share, the Company. "Company" means PartnerRe Ltd. ------- "Consultant" means any person, including any advisor, engaged by the Company or ---------- a Subsidiary to render consulting, advisory or other services and who is compensated for such services. The term Consultant shall not include any Director. "Date of Grant" means the date on which the granting of an Award is authorized ------------- or such other date as may be specified in such authorization. "Disqualifying Disposition" means any disposition (including any sale) of Stock ------------------------- acquired by exercise of an Incentive Stock Option made within the period which is (a) two years after the date the Participant was granted the Incentive Stock Option or (b) one year after the date the Participant acquired Stock by exercising the Incentive Stock Option. "Dividend Equivalents" shall have the meaning specified in Section 9 hereof. -------------------- "Eligible Person" means an Employee or a Consultant. --------------- "Employee" means a current or prospective common law employee of the Company or -------- a Subsidiary. "Fair Market Value" of a share of Stock on a given date means (A) if the Stock ----------------- is listed on a national securities exchange, the mean between the highest and lowest sale prices reported as having occurred on the primary exchange with which the Stock is listed and traded on the date prior to such date, or, if there is no such sale on that date, then on the last preceding date on which such a sale was reported, or (B) if the Stock is not listed on any national securities exchange but is quoted in the National Market System of the National Association of Securities Dealers Automated Quotation System on a last sale basis, the average between the high bid price and low ask price reported on the date prior to such date, or, if there is no such sale on that date then on the last preceding date on which such a sale was reported. If the Stock is not quoted on NASDAQ-NMS or listed on an exchange, or representative quotes are not otherwise available, the Fair Market Value shall mean the amount determined by the Board in good faith to be the fair market value per share of Stock, on a fully diluted basis. "Incentive Stock Option" means an Option intended to qualify as an incentive ---------------------- stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. "Nonqualified Stock Option" means an Option not intended to qualify as an ------------------------- Incentive Stock Option. "Option" means an Incentive Stock Option or a Nonqualified Stock Option granted ------ pursuant to the Plan. "Original Effective Date" means February 2, 1996. ----------------------- "Participant" means an Eligible Person to whom an Award is granted pursuant to ----------- the Plan or, if applicable, such other Eligible Person who holds an outstanding Award. "Performance Goals" means the performance objectives of the Company during a ----------------- Performance Period or a Restricted Period established for the purpose of determining whether, and to what extent, Awards will be earned for a Performance Period or a Restricted Period. "Performance Period" means the period for which Performance Goals are to be ------------------ measured with respect to a Performance Unit or Performance Share. "Performance Unit" or "Performance Share" means an Award granted pursuant to ---------------- ----------------- Section 8 of the Plan. "Phantom Stock Unit" means a hypothetical investment-equivalent equal to the ------------------ Fair Market Value of a share of Stock granted in connection with an Award made under Section 8 of the Plan. "Plan" means the PartnerRe Ltd. Employee Incentive Plan, as amended from time to ---- time. "Restricted Period" means, with respect to any share of Restricted Stock or ----------------- Phantom Stock Unit, the period of time determined by the Committee during which such share of Restricted Stock or Phantom Stock Unit is subject to the restrictions set forth in Section 9. "Restricted Stock" means shares of Common Stock issued to a Participant subject ---------------- to the restrictions set forth in Section 9. "Restricted Stock Award" means an Award granted under Section 9 of the Plan. ---------------------- "Subsidiary" means any corporation of which a majority of the outstanding voting ---------- stock or voting power is beneficially owned directly or indirectly by the Company and otherwise as provided in Section 86 of the Companies Act 1981 of Bermuda. Duration The Plan expires on the tenth anniversary of the Original Effective Date, and no further Awards may be made after the expiration thereof. Notwithstanding the term expressed above, the Plan shall continue in effect until all matters relating to the payment of Awards and administration of the Plan have been settled. Administration The Committee shall have authority to administer the Plan, or delegate certain matters to the Company's Chief Executive Officer, including, without limitation: ... Select the Eligible Persons to participate in the Plan; ... Determine the nature and extent of the Awards to be made to each Participant; ... Determine the time or times when Awards will be made; ... Determine the duration of each Performance Period or Restricted Period; ... Determine the conditions to which the payment of Awards may be subject; ... Establish and adjudicate the Performance Goals and Awards consequent thereon for each Performance Period or Restricted Period; ... Accelerate the vesting of any outstanding Award and reduce the Restricted Period applicable to any Award; ... Prescribe the form or forms of Award Agreements; ... and Cause records to be established in which there shall be entered, from time to time as Awards are made to 2 Participants, the date of each Award, the number of Options, Phantom Stock Units, Performance Units, Performance Shares and shares of Restricted Stock awarded by the Committee to each Participant, and the duration of any applicable vesting period, Performance Period or Restricted Period. Eligibility. General. Participation shall be limited to Eligible Persons who have ------- received written notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in the Plan. Except in the case of Incentive Stock Options, Awards may be granted to Employees and Consultants. Incentive Stock Option Limitation. Incentive Stock Options may be granted --------------------------------- only to Employees. Stock Subject to the Plan. Share Reserve. Subject to Section 11 hereof relating to adjustments, the ------------- total number of shares of Stock which may be granted pursuant to Awards hereunder shall not exceed, in the aggregate, 3,500,000 shares of Stock. Source. The stock to be granted or optioned under the Plan shall be shares ------ of authorized but unissued Stock or previously issued shares of Stock reacquired by the Company on the open market or by private purchase. Reversion of Shares. If any Award shall for any reason expire, be forfeited ------------------- or otherwise terminate, in whole or in part, the shares of Stock not acquired under such Award shall revert to and again become available for issuance under the Plan. Compliance under the Companies Act. Awards under the Plan shall be bona ---------------------------------- fide in compliance with Section 39A(4)(b) of the Companies Act 1981 of Bermuda. Options. General. Options granted hereunder shall be in such form and shall contain ------- such terms and conditions as the Committee shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonqualified Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. The provisions of separate Options shall be set forth in an Award Agreement, which agreements need not be identical, and each Option shall include (through incorporation of provisions hereof by reference in the Award Agreement or otherwise) the substance of each of the following provisions: Term. Subject to Section 7(b) hereof in the case of Incentive Stock Options, no - ---- Option granted hereunder shall be exercisable after the expiration of ten (10) years from the date it was granted. Exercise Price. Subject to Section 7(b) hereof in the case of Incentive Stock - -------------- Options, the exercise price per share of Stock for each Option shall be set by the Committee at the time of grant but shall not be less than the par value per share of Stock. Payment for Stock. Payment for shares of Stock acquired pursuant to Options - ----------------- granted hereunder shall be made in full, upon exercise of the Options (A) in immediately available funds in United States dollars, by wire transfer, certified or bank cashier's check, (B) by surrender to the Company of shares of Stock which have either (I) have been held by the Holder for at least six-months, or (II) were acquired from a person other than the Company, and have a Fair Market Value equal to such aggregate purchase price, (C) by delivering to the Company a copy of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay the aggregate exercise price, (D) by any combination of (A), (B), or (C) above, or (E) by any other means approved by the Committee. Vesting. Options shall vest and become exercisable in such manner and on such - ------- date or dates set forth in the Award Agreement, as may be determined by the Committee; provided, however, that notwithstanding any vesting dates set by the Committee, the Committee may in its sole discretion accelerate the vesting of any Option, which acceleration shall not affect the terms and conditions of any such Option other than with respect to vesting. Transferability of Options. An Option shall not be transferable except by will - -------------------------- or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant; provided, however, that the Participant may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Participant, shall thereafter be entitled to exercise the Option. Notwithstanding the foregoing, a Nonqualified Stock Option shall be transferable to the extent provided in the Award Agreement. Special Provisions Applicable to Incentive Stock Options. - -------------------------------------------------------- Exercise Price of Incentive Stock Options. Subject to the provisions of - ----------------------------------------- subsection (ii) hereof, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Stock subject to the Option on the date the Option is granted. Ten Percent (10%) Shareholders. No Incentive Stock Option may be granted to an - ------------------------------ Employee who, at the time the option is granted, owns directly, or indirectly within the meaning of Section 424(d) of the Code, stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary thereof, unless such option (A) has an exercise price of at least 110 percent of the Fair Market Value on the date of the grant of such option; and (B) cannot be exercised more than five years after the date it is granted. 3 $100,000 Limitation. To the extent the aggregate Fair Market Value (determined - ------------------- as of the date of grant) of Stock for which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, such excess Incentive Stock Options shall be treated as Nonqualified Stock Options. Disqualifying Dispositions. Each Participant who receives an Incentive Stock - -------------------------- Option must agree to notify the Company in writing immediately after the Participant makes a Disqualifying Disposition of any Stock acquired pursuant to the exercise of an Incentive Stock Option. Performance Units and Performance Shares Grant of Performance Units/Shares. Subject to the terms of the Plan, Performance - --------------------------------- Units or Performance Shares may be granted to Eligible Persons at any time and from time to time, as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units or Performance Shares granted to each Eligible Person. Value of Performance Units/Shares. Each Performance Unit shall have an initial - --------------------------------- value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a share of Common Stock at the time of grant. The Committee shall set Performance Goals for Performance Periods in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units or Performance Shares that will be paid out to the Participants. The Performance Period pertaining to each Performance Unit or Performance Share Award shall be between two (2) and six (6) years in length, and shall be established by the Committee at the time of grant. Earning of Performance Units/Shares. After the applicable Performance Period has - ----------------------------------- ended, the Participant shall be entitled to receive payout on the number of Performance Units or Performance Shares earned by the Participant over the Performance Period, to be determined by the Committee as a function of the extent to which the corresponding Performance Goals have been achieved. Form and Timing of Payment of Performance Units/Shares. Payment of earned - ------------------------------------------------------ Performance Units and/or Performance Shares shall be made in a single lump sum, within forty-five (45) calendar days following the close of the applicable Performance Period. The Committee, in its discretion, may pay earned Performance Units or Performance Shares in the form of cash or in Stock (or in a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Performance Units or Performance Shares determined as of the close of the applicable Performance Period. Termination of Employment. Unless otherwise provided in a Participant's Award - ------------------------- Agreement, in the event that a Participant's last day of employment with the Company occurs prior to the last day of a Performance Period, all Performance Units or Performance Shares which relate to such Performance Period shall be forfeited by the Participant. Nontransferability. A Participant's rights with respect to Performance Units and - ------------------ Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Restricted Stock Awards and Phantom Stock Units Award of Restricted Stock and Phantom Stock Units. - ------------------------------------------------- The Committee shall have the authority (A) to grant Restricted Stock and Phantom Stock Units, (B) to issue Restricted Stock to Participants, and (C) to establish terms, conditions and restrictions applicable to such Restricted Stock and Phantom Stock Units, including the Restricted Period, which may differ with respect to each Participant, the time or times at which Restricted Stock or Phantom Stock Units shall be granted or become vested and the number of shares or units to be covered by each grant. The holder of a Restricted Stock Award shall execute and deliver to the Secretary of the Company an Award Agreement with respect to such Restricted Stock and the appropriate blank stock powers with respect to the Restricted Stock covered by such agreements. If a Participant shall fail to execute the Award Agreement and stock powers, the Award shall be null and void. Subject to the restrictions set forth in Section 9(b), the Participant shall generally have the rights and privileges of a shareholder as to such Restricted Stock, including, without limitation, the right to vote such Restricted Stock and receive dividends. In the case of a Restricted Stock Award, the Company shall cause stock certificates registered in the name of the Participant to be issued. During the Restricted Period, such certificates shall remain in the custody of the Company or its agent. In the case of an Award of Phantom Stock Units, no shares of Common Stock shall be issued at the time the Award is made, and the Company will not be required to set aside a fund for the payment of any such Award. The Committee shall, in its discretion, determine whether to credit to the account of, or to currently pay to, each Participant who is awarded Phantom Stock Units an amount equal to the cash dividends paid by the Company upon one share of Stock for each Phantom Stock Unit then credited to such Participant's account ("Dividend Equivalents"). -------------------- Dividend Equivalents credited to a Participant's account may be subject to forfeiture and may bear interest at a rate and subject to such terms as determined by the Committee. 4 Restrictions. - ------------ Restricted Stock awarded to a Participant shall be subject to the following restrictions until the expiration of the Restricted Period: (1) the Participant shall not be entitled to delivery of the stock certificate; (2) the relevant shares shall be subject to the restrictions on transferability established at the time of grant; (3) the relevant shares shall be subject to forfeiture to the extent provided in 0 and, to the extent such shares are forfeited, such shares shall be canceled and all rights of the Participant to such shares and as a shareholder in respect of them shall terminate. Phantom Stock Units awarded to any Participant shall be subject to the following restrictions until the expiration of the Restricted Period: (1) the units shall be subject to forfeiture to the extend provided in Section 9(d), and to the extent such units are forfeited, all rights of the Participant to such units shall terminate without further obligation on the part of the Company and (2) any other restrictions which the Committee may determine in advance are necessary or appropriate. Restricted Period. The Restricted Period of Restricted Stock and Phantom Stock - ----------------- Units shall commence on the Date of Grant and shall expire (i) on such date or dates as may be established by the Committee at the time of grant, (ii) upon the achievement of prescribed Performance Goals (in each case, as set forth in a Participant's Award Agreement), or (iii) upon any earlier date determined by the Committee in its discretion. Forfeiture Provisions. Unless otherwise provided in a Participant's Award - --------------------- Agreement, in the event that a Participant's last day of employment occurs prior to the last day of the Restricted Period, that portion of the Restricted Stock Award or Phantom Stock Units with respect to which restrictions have not expired shall be forfeited. Delivery of Restricted Stock and Settlement of Phantom Stock Units. Subject to - ------------------------------------------------------------------ Section 9(d) hereof, upon the expiration of the Restricted Period with respect to any shares of Stock covered by a Restricted Stock Award, a stock certificate evidencing the shares of Restricted Stock (to the nearest full share) shall be delivered without charge to the Participant, or his beneficiary, free of all restrictions under the Plan. Upon the expiration of the Restricted Period with respect to any Phantom Stock Units, the Company shall deliver to the Participant or his beneficiary without any charge one share of Stock for each Phantom Stock Unit which has not then been forfeited and with respect to which the Restricted Period has expired and cash equal to any Dividend Equivalents credited with respect to each such vested unit and the interest thereon, if any; provided, however, that the Committee may, in its sole discretion, elect to pay cash or part cash and part Stock in lieu of delivering only Stock for vested units, based on the Market Value of the Stock on the last day of the Restricted Period. Payment for Restricted Stock. A Participant shall not be required to make any - ---------------------------- payment for Stock received pursuant to a Restricted Stock Award. General Adjustment of Performance Goals. The Board may, during any Performance Period or - ------------------------------- Restricted Period, make such adjustments to Performance Goals as it may deem appropriate, to compensate for, or reflect, any significant changes that may have occurred during such Performance Period or Restricted Period in (i) applicable accounting rules or principles or changes in the Company's method of accounting or in that of any other corporation whose performance is relevant to the determination of whether an Award has been earned or (ii) tax laws or other laws or regulations that alter or affect the computation of the measures of Performance Goals used for the calculation of Awards. Additional provisions of an Award. Awards made under the Plan may be subject to - --------------------------------- such other provisions as the Committee determines appropriate including, without limitation, provisions to comply with applicable securities laws and applicable tax withholding requirements. Privileges of Stock Ownership. Except as otherwise specifically provided in the - ----------------------------- Plan, no person shall be entitled to any of the privileges of stock ownership in respect of shares of Stock subject to Awards granted hereunder until such shares have been duly issued. Government and Other Regulations. The obligation of the Company to make payment - -------------------------------- of Awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required and to which the Company is subject. The Company shall use its reasonable efforts to cause the shares of Stock reserved under the Plan to be registered under the U.S. Securities Act of 1933, as amended, on Form S-8 prior to the issuance of any shares of Stock under the Plan. Tax Withholding. Notwithstanding any other provision of the Plan, the Company or - --------------- a Subsidiary, as appropriate, shall have the right to deduct from all Awards, to the extent paid in cash, all applicable taxes required by law to be withheld with respect to such Awards and, in the case of Awards paid in Stock, the Participant or other person 5 receiving such Stock may be required to pay to the Company or a Subsidiary, as appropriate prior to delivery of such Stock, the amount of any such taxes which the Company or Subsidiary is required to withhold, if any, with respect to such Stock. Subject to the approval of the Committee, the Company may accept shares of Stock of equivalent Fair Market Value in payment of such withholding tax obligations. Claim to Awards and Employment Rights. Except as provided herein or in any Award - ------------------------------------- Agreement, no employee or other person shall have any claim or right to be granted an Award under the Plan nor, having been selected for the grant of an Award, to be selected for a grant of any other Award. Neither this Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ of the Company or a Subsidiary. Conditions. Each Participant to whom Awards are granted under the Plan shall be - ---------- required to enter into an Award Agreement in a form authorized by the Committee. Designation and Change of Beneficiary. Each Participant shall file with the - ------------------------------------- Committee a written designation of one or more persons as the beneficiary who shall be entitled to receive the amounts payable with respect to Awards granted hereunder, if any, due under the Plan upon his death. A Participant may, from time to time, revoke or change his beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. No Liability of Committee Members. No member of the Committee shall be - --------------------------------- personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. Governing Law. The Plan shall be governed by and construed in accordance with - ------------- the internal laws of Bermuda without reference to the principles of conflicts of law thereof. Funding. No provision of the Plan shall require the Company for the purpose of - ------- satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law. Nontransferability. Except as otherwise provided herein with respect to - ------------------ Nonqualified Options, a Participant's rights and interest under the Plan, including amounts payable, may not be sold, assigned, donated, or transferred or otherwise disposed of, mortgaged, pledged or encumbered except, in the event of a Participant's death, to a designated beneficiary to the extent permitted by the Plan, or in the absence of such designation, by will or the laws of descent and distribution. Relationship to Other Benefits. No payment under the Plan shall be taken into - ------------------------------ account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company or any Subsidiary except as otherwise specifically provided. Expenses. The expenses of administering the Plan shall be borne by the Company - -------- and its Subsidiaries. Pronouns. Masculine pronouns and other words of masculine gender shall refer to - -------- both men and women. Titles and Headings. The titles and headings of the sections in the Plan are for - ------------------- convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control. Changes in Capital Structure Awards granted hereunder shall be subject to adjustment or substitution, as determined by the Board in its sole discretion, as to the number, price or kind of a share of Stock or other consideration subject to such Awards or as 6 otherwise determined by the Board to be equitable (i) in the event of changes in the outstanding Stock or in the capital structure of the Company, by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the Date of Grant of any such Award or (ii) in the event of any change in applicable laws or any change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, Participants in the Plan, or which otherwise warrants equitable adjustment. In addition, in the event of any such adjustments or substitution, the aggregate number of shares of Stock available under the Plan shall be appropriately adjusted by the Board, whose determination shall be conclusive. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes. Effect of Change in Control In the event of a Change in Control, notwithstanding any vesting schedule established by the Committee (i) with respect to an Award of Restricted Stock or Phantom Stock Units, the Restricted Period shall expire immediately with respect to 100 percent of the shares of Restricted Stock or Phantom Stock Units subject to such Award, with effect from the day preceding the date of such change, and (ii) all outstanding Options shall immediately vest and become exercisable. In the event of a Change in Control, all incomplete Performance Periods in effect on the date the Change in Control occurs shall end on the day preceding the date of such change, and the Company shall cause to be paid to each Participant the full amount of any Performance Units or Performance Shares relating to such Performance Period. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. The Company agrees that it will make appropriate provisions for the preservation of Participant's rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. Nonexclusivity of the Plan Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options under the Stock Option Plan, and such arrangements may be either applicable generally or only in specific cases. Amendments and Termination The Board may at any time terminate the Plan. With the express written consent of an individual Participant, the Board may cancel or reduce or otherwise alter the outstanding Awards thereunder. The Board may, at any time, or from time to time, amend or suspend and, if suspended, reinstate, the Plan in whole or in part, provided, however, that without further stockholder approval the Board shall not: Increase the maximum number of shares of Stock which may be issued under the Plan, except as provided in Section 11; or Extend the termination date of the Plan. The preceding notwithstanding, no amendment, suspension or termination of the Plan shall cancel, reduce or otherwise adversely affect to a material extent any Awards granted hereunder without the express written consent of the Participant to whom such Award was granted. 7 EX-11.1 4 dex111.txt STATEMENTS REGARDING COMPUTATION OF NET INCOME Exhibit 11.1 PartnerRe Ltd. Computation of Net Income per Common and Common Equivalent Share For the Three Months Ended March 31, 2002 and 2001 (Expressed in thousands of U.S. dollars, except per share amounts)
For the Three Months Ended March 31, 2002 For the Three Months Ended March 31, 200l ----------------------------------------- ----------------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------ ------------- --------- ----------- ------------- ---------- Net Income $ 63,255 $ 95,946 Less: Preferred stock dividends 5,000 5,000 ------------ ----------- Basic Net Income Per Share Net Income available to common shareholders 58,255 50,202.6 $ 1.16 90,946 50,121.5 $ 1.81 =========== ========== Effect of Dilutive Securities: Class B Warrants 918.9 901.3 Stock Options 566.0 530.8 ------------ ------------- ----------- ----------- Diluted Net Income Per Share Net income available to common shareholders $ 58,255 51,687.5 $ 1.13 $ 90,946 51,553.6 $ 1.76 ============ ============= ========= =========== =========== ----------
EX-15 5 dex15.txt LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFO Exhibit 15 May 6, 2002 PartnerRe Ltd. Chesney House 96 Pitts Bay Road Pembroke HM 08 We have performed a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of PartnerRe Ltd. and subsidiaries for the three month periods ended March 31, 2002 and 2001, as indicated in our report dated May 6, 2002; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, is incorporated by reference in Registration Statements Nos. 33-78774 and 333-4646 and 333-11998 on Forms S-8, and in the Registration Statement Nos. 333-72246 and 333-75196 on Form S-3. We also are aware that the aforementioned reports, pursuant to Rule 436(c) under the Securities Act of 1933, are not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. Hamilton, Bermuda -----END PRIVACY-ENHANCED MESSAGE-----