Appropriate Risk and Return

We aim to provide our shareholders a fair, risk-adjusted return on their investment. They have a right to expect an appropriate return to compensate them for the risk to which their capital is exposed. At PartnerRe, we create value by intelligently assuming and managing risk, and we use operating return on equity, growth in book value and dividends as measures of that value creation.

For the past five years, we have defined a fair risk-adjusted return as a 13% operating ROE. The key is that 13% is a long-term return goal. We understand that bad years are not “exceptions” in our industry; they are a fact of life. So while we know we’ll make 15–20%+ in the good years, we acknowledge that in the bad years we’ll make much less. Over the long term, we’ve delivered on our promise of a 13% operating return to our shareholders on the capital they’ve invested.

Alongside return, shareholders seek to minimize risk and volatility. To do that effectively, a reinsurer must look at risks, returns and the correlations between risks, and aim to balance our risk appetite with market demand and our return requirements. Like our investors, we manage our business like a portfolio. The goal is a portfolio that’s going to have the highest risk/return offering within an acceptable level of volatility. We’ve deliberately built a broad-based portfolio, including Non-life, Life, investments and alternative risks, which is further diversified by line and geography to help absorb the impact of individual losses, adding to the stability of our earnings and our capacity. We believe we have the ability to generate at least 300 basis points above the industry average shareholder returns, with a volatility that is only marginally higher than the average.

Shareholders rely on the information that companies provide in order to make investment decisions. PartnerRe aims to deliver value in all our communications, with a focus on integrity, consistency and transparency. The quality of our information gathering allows us to communicate information to our shareholders very quickly, with a high level of accuracy. We are one of the first to talk about large losses and have been consistently accurate in our initial loss estimates. In addition to measured and intelligent commentary on the industry in general, we have built a reputation for credibility and transparency. We have been open about our level of risk assumed and our limits on catastrophe, casualty and equity risk. In 2006, we published our reserve triangles. We believe all of this is very relevant information when assessing balance sheet strength and integrity.