Executives
Robin Sidders - Investor Relations Director
Costas Miranthis - Chief Executive Officer, President, Director, Member of Risk & Finance Committee, Chief Executive Officer of PartnerRe Global and Chief Executive Officer of Partner Reinsurance Europe Limited
William R. Babcock - Chief Financial Officer and Executive Vice President
Analysts
Gregory Locraft - Morgan Stanley, Research Division
Clifford H. Gallant - Nomura Holdings, Inc.
Michael Nannizzi - Goldman Sachs Group Inc., Research Division
Vinay Misquith - Evercore Partners Inc., Research Division
Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division
Charles J. Sebaski - BMO Capital Markets U.S.
Ian Gutterman - Balyasny Asset Management L.P.
Jay Adam Cohen - BofA Merrill Lynch, Research Division
PartnerRe (PRE) Q4 2013 Earnings Call February 4, 2014 10:00 AM ET
Operator
[Operator Instructions] If you haven't received a copy of the press release, it is posted on the company's website at www.partnerre.com, or you can call (212) 687-8080 and one will be faxed to you right away.
I'll now hand over to Robin Sidders, Director of Investor Relations at PartnerRe, who will begin the call. Please go ahead.
Robin Sidders
Good morning, and welcome to PartnerRe's Fourth Quarter and Full Year 2013 Results Conference Call and Webcast. As a reminder, our fourth quarter financial supplement can be found on our website at partnerre.com in the Investor Relations section by clicking on Supplementary Financial Data on the Financial Reports page.
On today's call are Costas Miranthis, President and CEO of PartnerRe; and Bill Babcock, Executive Vice President and CFO of PartnerRe. Costas will start with a high-level overview of the quarter and full year results and then hand over to Bill, who will provide more details on the results. Costas will come back at the end of the call to provide additional commentary on the market, including the 1/1 renewals. At the conclusion of prepared remarks, we'll open up the call for a question-and-answer session.
I'll begin with the Safe Harbor statement. Forward-looking statements contained in this call are based on the company's assumptions and expectations concerning future events and financial performance of the company and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.
PartnerRe's forward-looking statements could be affected by numerous foreseeable and unforeseeable events and developments, such as exposure to catastrophe or other large property and casualty losses; adequacy of reserves; risks associated with implementing business strategies; levels and pricing of new and renewal business achieved; credit, interest, currency and other risks associated with the company's investment portfolio; changes in accounting policies; and other factors identified in the company's filings with the Securities and Exchange Commission.
In light of the significant uncertainties inherent in the forward-looking information contained herein, listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date on which they are made. The company disclaims any obligation to publicly update or revise any forward-looking information or statements.
In addition, during the call, management will refer to some non-GAAP measures when talking about the company's performance. You can find the reconciliation of these measures to GAAP measures in the company's financial supplement.
With that, I'll hand the call over to Costas.
Costas Miranthis
Thank you, Robin, and good morning, everybody. Thank you for joining our fourth quarter and full year 2013 results conference call. Our strong fourth quarter results capped a very good full year for PartnerRe. We produced good financial results while continuing to invest in the development of our business and despite absorbing restructuring charges. Our actions in these areas will, I believe, improve our greatest brand [ph] positioning in the reinsurance area. It is also particularly pleasing that we are able to produce these results and accomplishments during a year marking our 20th anniversary.
Beginning with our financial results. During 2013, we were able to grow our portfolio in new or expanded diverse timelines while improving stability. We grew total net premiums earned by 16% and combined, this slightly better stability grew our technical result by 29% year-over-year despite challenging financial and reinsurance market.
Solid operating earnings resulted in posting a 12.7% operating ROE for 2013. We were also able to grow dividend-adjusted tangible book value per share by 11.2%, comfortably above our target, given our available risk rate. This result would have been significantly higher at 21% plus growth had it not been for meaningful mark-to-market impact on our bond portfolio.
As we carefully manage our asset liability duration profile, much of the decline in the bond portfolio is offsetting economic turns by an increase in the value of future income embedded in our reserves. So underlying economic value creation over 2013 was significantly high.
Our fourth quarter results reflected few notable items. First is the continued impact of efforts to profitably expand our portfolio, as we showed solid growth in both Life and Non-life premiums. The second is the impact of the gain we recorded on Essent, a mortgage insurance investment. The fourth quarter gain on this investment was $85 million or roughly $1.57 per share and was included in our nonoperating income this quarter.
Thirdly, our expenses are somewhat elevated, as in line with plans. We expect restructuring charges resulting from actions announced earlier this year, an increase on accruals for bonus payments to reflect the excellent 2013 results. Finally, we recorded a charge on our North American agriculture portfolio during the quarter. Lastly, reversing earlier profits as we now project a small gross technical loss for this portfolio for the full 2013 year.
Bill will take you through the numbers in a moment, but I would like to provide some context for our year-to-date and fourth quarter agricultural results. As harvest information came in November and early December, it was apparent that despite national yields being close to those of an average year, there were pockets of certain key production states, notably Iowa and Minnesota, where yields were impacted by dryer-than-average conditions.
This, together with significantly lower comp prices, which declined significantly during October and November 2013, resulted in increased volume of claims in some states. Neither the dry conditions nor the price decline by itself would have caused widespread claims by the combination of those states. While all our seasons are affected to some extent, the impact of each -- on each season depends on the geographical footprint of the portfolio.
Generally, broad diversified portfolios were less impacted. Amongst best seasons, most remained profitable, albeit at reduced profitability levels. But one significant account, with heavy concentration in the impacted states, is now projected to run at a loss. We estimate that in aggregate, our North America portfolio will be close to breakeven or incur a small technical loss.
Despite this, we remain confident that this business is a business with favorable risk-adjusted predictions over the longer term. Indeed, it is ironic that the states impacted this year are historically some of the most profitable states. We look forward to a portfolio of similar size in 2014.
As I mentioned earlier, we continue to build out our diversified platform by growing and diversifying lines. The result of these efforts and both in the growth we achieved this year, but also reflected in our January 1 renewals, which I'll come back on to later.
During 2013, we restructured to better serve our markets and improve the efficiency of our support functions. These changes are never easy, but I continue to believe they serve to positions us better for our future. The team's executed these difficult changes extremely well without market disruption, and I would like to thank each member of our staff for this.
Efficient capital management continues to be a key component in optimizing our shareholder returns in a challenged market environment. We did a good job of this during 2013, balancing the goals of serving our clients, taking risks and generating attractive returns for our shareholders.
I remain increasingly confident that our global franchise, the franchise we have spent building over the past 20 years, provides us a preferred position -- with a preferred position in an increasingly competitive reinsurance market.
I'll hand over the call to Bill to take you through the numbers for the quarter and the year. And I will come back and tell you about our views in the market and then 1/1 renewals.
William R. Babcock
Thank you, Costas, and good morning, everyone. A strong fourth quarter result capped a very good year for us, both financially and non-financially, as you heard from Costas.
For the fourth quarter, operating earnings were $157 million or $2.91 per diluted share, which translates to an annualized operating ROE of 11.5%. In the comparable quarter of 2013, we reported operating earnings of $96 million or $1.55 per diluted share, translating to an annualized operating ROE of 7.3%.
Full-year operating earnings were $722 million or $12.79 per diluted share, which translates to an operating ROE of 12.7%, after restructuring charges -- after-tax restructuring charges served to reduce operating earnings per share by $0.69 for the full year ROE by -- and for the full year ROE by 0.7 points.
Regarding our restructuring, which we discussed with you on the first quarter 2013 call, we remain on track with both the cost and run rate savings we estimated at that time. As a reminder, we estimated total pre-tax charges of $60 million to $70 million, while we expect to achieve pre-tax savings of $60 million to $70 million. Pre-tax charges to date in 2013 are $58 million. While we continue to expect to largely achieve our run rate savings by the end of 2014, I'd like to add to Costas' comments, thanking our staff for all their hard work and sacrifice to achieve this result.
Nonoperating income for the quarter was strong at $100 million and was largely driven by the gain on our investment and mortgage insurer, Essent, which went public early in the fourth quarter. Our gain on this investment, which is included in nonoperating income for the quarter, is $85 million. Net income for the quarter was $272 million, or $4.76 per diluted share and reflects an annualized net income ROE of 18.9%.
We ended the quarter and the year marking several all-time highs. They include record highs for both diluted book value per share and diluted tangible book value per share, as well as fourth quarter and annual net premiums written and earned. We are very pleased to have generated dividend-adjusted gross and tangible book value per share of 11.2% during 2013 and especially in light of the difficult economic and market conditions we faced during the year.
We are also pleased with the growth we achieved in diversifying lines, both on the Life and Non-life sides of our business, which drove growth in total net premiums written and earned for 2013 of 18% and 16%, respectively. These premium changes are on a constant FX basis, as are all references to percentage premium changes for the remainder of my prepared remarks.
We reported strong premium growth in each of our Non-Life subsegments this quarter compared to the prior year quarter, with the exception of Catastrophe, where the fourth quarter is a very light renewal period for us.
The Non-life technical ratio for the quarter was 80.0% -- I'm sorry, 82.0%, producing Non-life technical income of $209 million. The technical ratio is about 6 points lower than we reported in the prior year quarter, which was impacted by Superstorm Sandy. The technical result for the fourth quarter of 2013 reflects the lack of major catastrophe activity and continued favorable prior year development. It also includes a charge related to our agriculture portfolio, which I will discuss when we review our subsegment results.
For the full year, Non-life net premiums written and earned were up 18% and 15%, respectively. The technical ratio for 2013 of 79.2% is modestly better than the 80.8% we posted in 2012. However, on increased premiums, this resulted in us growing Non-life technical income by nearly 25% this year to $882 million.
Favorable Non-life reserve development during this quarter was $173 million or 14.9 points on the loss ratio compared to $161 million or 16.7 points on the loss ratio we reported in the comparable prior year quarter. The distribution of current quarter favorable prior year development was 80% -- was 38% from short-tail lines, 29% from medium-tail lines and 33% from long-tail lines.
The most significant contributors to short-tail development were the property lines and Global P&C and North America, while marine, aviation and space and engineering lines in our Global Specialty unit drove the majority of our favorable medium term -- medium-tail development. Casualty in our North America and Global P&C portfolios were the largest contributors in long-tail lines.
Favorable development in our long-tail lines drives from continued benign loss trends and favorable actual-versus-expected losses. To give you a better sense of underwriting year development in our long-tail lines, 56% of the current quarter favorable development comes from underwriting years 2008 and prior and 37% comes from underwriting years 2009 and 2010.
Now I'd like to take you through our Non-life results by subsegment, beginning with North America. Agriculture was a significant driver of the fourth quarter result, so let me provide some numbers to supplement the commentary you heard from Costas regarding the nature of the loss.
For the 2013 U.S. crop year, premiums totaled $480 million. Against this premium, we recorded a gross technical ratio of 102.5%. Our fourth quarter result primarily reflects the true-up to this full year result. I should mention that we also have stop-loss protection on the 2013 U.S. crop book and also have a 2013 Canadian agriculture book that produced the profit this year. I hope you find this information helpful in understanding the crop result for the year and the quarter.
Turning to premiums. Net premiums written and earned in the North American subsegment were up 25% and 33%, respectively, driven predominantly by our North American agriculture book. A large portion of this is directly due to the right -- to writing a larger U.S. MPCI portfolio in 2013 than in 2012, as we reported over the past several quarters. We also received more premium as loss experience was worse than expected on one account, as Costas discussed.
In our -- the technical ratio for the quarter was 93.7%, which includes 11.5 points related to the true-up of crop result adjust reviewed. This result compares to 102.4% technical ratio we reported in the prior year quarter, which was adversely impacted by Superstorm Sandy. Favorable prior year reserve development was $67 million was comparable to what we recorded in the prior year quarter, and this represents 16.1 points on the technical ratio. Casualty contributed most significantly, but property and multiline contributed meaningfully as well.
For the full year 2013, net premiums written and earned were up 30%. With a technical ratio of 86.5%, we generated technical profits of $207 million, a substantial improvement from the $69 million we reported in 2012. In our Global P&C subsegment, net premiums written and earned were up 54% and 17%, respectively, compared to the prior year quarter. The primary drivers of the increases were new proportional business in our motor book written at 1/1, coupled with a share increase in the fourth quarter on one of the new proportional motor contracts.
The technical ratio for the quarter was 80.9% and includes 22.9 points of favorable prior year development. All lines contributed to current quarter favorable development, with the largest contribution coming from recent underwriting years in the property line.
For the full year 2013, net premiums written and earned were up 19% and 9%, respectively. The technical ratio for the year was 76.6%, generating $174 million of technical profits, up over 80% from the prior year.
In our Global Specialty subsegment, we saw growth in net premiums written and earned of 32% and 22%, respectively. Growth came from new specialty, casualty and agriculture business, new marine and multiline business incepting at 1/1/2013 and upward premium adjustments in engineering.
The technical ratio for the quarter was 79% and includes 14.8 points of favorable prior year reserve development. The largest contributors to favorable development were aviation and engineering and energy offshore.
For the year, net premiums written and earned were up 11% and 9%, respectively. With a technical ratio of 85.1%, this produced technical profit of $224 million, which is just slightly below the technical profit of $231 million we produced last year.
In our Catastrophe subsegment, the fourth quarter is a light renewal quarter, with just $18 million of net premiums written in the quarter. This is down from the $25 million we recorded in the comparable prior year quarter which benefited from reinstatement premiums related to Superstorm Sandy.
The technical ratio for the quarter was 52.7%. There were a number of midsize losses in the quarter, but none individually significant to the result. You may have noticed in our supplement that we recorded a small amount of unfavorable net prior year development this quarter. This is the result of what it seems [ph] upward loss estimate revisions related to the 2010 and 2011 earthquakes in New Zealand and the apportionment of losses to those events.
We maintained the reserve we set up for 2011 catastrophe events at $40 million gross this quarter. We did this given the uncertainty implied by seen [ph] loss revisions on the New Zealand earthquakes. We now consider this reserve primarily associated with those New Zealand earthquake events.
For the full year 2013, net premiums written and earned were just about flat with last year. The technical ratio for the year was 38.7%, producing technical income of $277 million.
Now moving to our Life and Health book. Net premiums written and earned for the quarter were up 25% compared to the prior year quarter. These increases were primarily due to the inclusion of Presidio in the current year quarter, as well as growth in our short term mortality portfolio. As a reminder, we acquired Presidio late in the fourth quarter of 2012, and it now operates in the PartnerRe umbrella under the trade name PartnerRe Health.
The financial performance of this platform exceeded our expectations in 2013. Our larger Life book performed equally well. In total, our segment allocated underwriting result for the quarter, which includes allocated investment income and operating expenses, was $13 million compared to the $5 million we reported in the prior year quarter. Favorable results on our GMDB book drove the improvement.
For the full year, net premiums written and earned were up 20%. The allocated underwriting result was up meaningfully from 2012 from $48 million to $73 million, driven by our mortality book.
In the financial market, we saw credit spreads tighten, equity markets rally and risk-free rates inch up. Net investment income declined from $122 million in the third quarter to $114 million in the fourth quarter of 2013. The decrease was primarily the result of the timing of dividend receipts, the impact of some portfolio repositioning I covered on last quarter's call and lower available reinvestment rates relative to current book yields.
Regarding current book yields, we continue to operate in an environment where reinvestment rates trail historical portfolio yields. The spread between new money rates and our current book yield is 46 basis points at year end. This means that absent an increase in available reinvestment rates, investment income will continue to decline with current reinvestment rates being a fair indicator of where the floor on investment income is in the current rate environment. Given our duration, however, we would not reach this floor for several years.
Realized and unrealized gains on our portfolio totaled $99 million this quarter. The main contributor was the gain of $85 million and recorded on asset. Additionally, tightening of credit spreads and improvements in equity markets more than offset the mark-to-market impact of rising interest rates during the quarter. Our portfolio generated a total return during the quarter of 1.1%, or 0.9% on a local currency basis, led by the return on our risk assets.
With the rise in risk-free rates during the fourth quarter, we increased our portfolio duration from 2.7 years to 3.0 years. We remain short of our neutral duration, however, as a hedge against rising rates.
Operating expenses this quarter were $131 million versus the $108 million we recorded last quarter. The primary reasons for the increase are $12 million in restructuring charges we recorded, as expected, related to office space consolidation and $12 million from increased bonus accruals given our strong 2013 financial performance. As I mentioned earlier, we remain on track with the expense reduction plans we announced in the first half 2013.
The effective tax rates this quarter were 6% on operating income and minus 1% on nonoperating income. The operating tax rate this quarter, which is low compared to our longer-term expectations, reflects the geographies where profits and losses emerge and would have been lower had it not been for about $12 million of one-time charges related to French tax changes, which were retroactively applied to the beginning of 2013. The low nonoperating effective rate reflects the fact that our investment in Essent, which generated the majority of nonoperating income this quarter, was made by a Bermuda company.
Comprehensive income for the quarter was $266 million, reflecting our net income for the quarter of $272 million and currency translation.
Operating cash flow was $244 million this quarter compared to the $224 million we reported in the comparable prior year quarter, primarily reflecting higher underwriting cash flows, offset somewhat by lower investment income.
The time value of money in our Non-life reserves was $734 million at year end. We calculate this using the risk-free rates for each major reserve and currency. This represents an increase of $45 million from the $689 million we reported at the end of the third quarter of 2013 and is due to slightly higher risk-free rates during the quarter. For the full year 2013, the time value of money in our Non-life reserves increased by $268 million due to increases in risk-free rates.
Total capital at year end was $4 billion -- was $7.5 billion, up from $7.4 billion we reported at the end of the third quarter. Our strong results this quarter, partially offset by dividends and share repurchase activity, drove the increase.
During the fourth quarter, we repurchased a total of 1 million shares at a total cost of $101 million. Since the end of the fourth quarter, we have repurchased an additional 615,000 shares at a total cost of $61 million.
For the full year 2013, we repurchased nearly 7.7 million shares or 13% of the shares we had outstanding at the beginning of 2013. As a result of this -- as the result of repurchasing shares, the low book value, we added an estimated $1.50 to book value per share in 2013. Through repurchases and common dividends, we returned approximately $840 million to shareholders during the year, while generating operating income of $722 million.
We currently have 4.3 million shares remaining under our current existing share repurchase authorization. Assuming current valuations and similar market opportunities to deploy risk capital, we expect to continue to repurchase shares in the near term.
Finally, as we announced last week, we were pleased to increase our annual dividend for the 21st consecutive year. We both believe our consistent and competitive dividend provides a real source of value to our shareholders.
Now I'll hand the call back to Costas to update you on market conditions and our 1/1 renewals.
Costas Miranthis
Thank you, Bill. As you know, approximately 65% of our Non-life treaty business is renewed in -- on January 1. And this year, we included the U.S. agriculture business in our renewal figures as it is currently at a more advanced stage of completion than it has been in previous years.
As we announced in our press release last week, overall, we grew at constant effect by approximately 3%, although there was some variation by business units to reflect market conditions. In addition to the Non-life treaty business, we expect to write approximately $440 million of facultative business, an increase of around 13% over 2013. This -- the facultative business renews fairly evenly throughout the year.
Market conditions at January 1 were competitive across most reinsurance Life. Overall, for the whole group, price profitability, as measured by ROE on attributed capital, was broadly stable to marginally down. This principally reflects changes in the portfolio, as well as the impact of slightly higher new money risk-free rates, which impact the calculation of ROE. Most lines however, experience late rate declines compared to prior year.
Catastrophe was clearly under pressure, with excess capacity, including, but not limited to, third-party capacity, a major theme in specializing pricing. We also saw a lot of aggressive competition in low-margin, low-risk and high-volume lines, such as structural risk lines. We reduced writings in these areas and broadly maintained or increased writings where our specialty experience and market knowledge, as well as our ability to write across a wide cross-section of lines, provided us an advantage over less-experienced differentiated markets.
In the U.S., the improvement in primary markets is slowing somewhat, but the trend continues to be positive. While insurance terms and conditions showed deterioration across many treaties, and deterioration in this sense slightly more than offset underlying rate improvements, so the overall effect on technical rate is mixed.
Standard Life were the most challenging, including, as mentioned earlier, sequential risk profit. We were successful in writing new multiline risks and expanding relationships with existing clients, which serves to offset business, we decided to let it go based on inadequate pricing.
We found another multiyear motors [ph] insurance deal, which we expect to add about $40 million of profitable business in 2014. We'll also fund a new agriculture program in 2014, which serves to offset the expected premium reduction driven by expected by lower commodity prices for 2014 versus the 2013 crop year.
Outside of the U.S., in international P&C markets, competition was strong in both mature and high-growth markets, but overall, price profitability was stable. The restructuring of a Global P&C unit early this year to provide more focus on the distinct characteristics of mature and high-growth markets, phased dividends at 1/1 and we were able to profitably expand our client base and premiums by providing the solutions sought particularly in developing markets.
In our Global Specialty lines, given that we participate in many lines and markets, there is a broad divergence of conditions. There are opportunities in some lines, typically less cyclical or impacted by losses, while others are becoming more competitive. Overall though, price technical ratios were generally flat with 2013. To some extent, this reflects an improved loss environment in some economically sensitive lines, but offset rate declines elsewhere.
Price ROEs are marginally higher, reflecting principally better new money rates. Our broad specialty capabilities and our ability to underwrite across multiple lines benefited us as we were able to find a handful of relatively large multiline transactions.
Catastrophe was clearly the most challenging renewal at 1/1 and saw the biggest risk-adjusted declines. We saw rates in the U.S. come off broadly around 50% on average in many cases. Outside the U.S., we saw rate decreases in a lot of regions but to a lesser extent, with the exception of loss affected accounts and territories, particularly Canada and Germany, where we saw meaningful rate increases. We reduced participations in accounts with highest reductions and deployed limits somewhat differently in other cases. We also purchased some excess retrocession protecting the tail of the catastrophic [indiscernible].
So overall, for Non-life, this was not a renewal where we sought to grow aggressively. We've targeted accounts where there is adequate margin and we obtained our desired signings. This was a renewal where many reinsurance -- reinsurers found it difficult to write the business they wanted.
It was reassuring that in our portfolio, the decision to reduce shares was almost always our decision, reflecting stock comp pricing. And while some sees us continue to retain more business, in many cases, we get preferential access to what is placed as reinsurance panels are concentrated to fewer but more meaningful reinsurers. Further, early action to negotiate treaties and diversifying lines helped us deal with a competitive renewal environment.
In the Life and Health markets, we saw profitable growth opportunities, particularly in our Health business. At 1/1, we found encouraging opportunities in our managed care and specialty lines in health as a result of the implementation of the Affordable Care Act.
We have an experienced team with deep understanding of the business and very long history with our clients. They were able to identify opportunities to grow, mostly with existing clients, as these clients adapt to the affordable care environment.
In our larger Life portfolio, we observed stable market conditions and expect to be able to continue to profitably grow the portfolio, consistent with the growth we have shown over the past few years.
So in closing, conditions are tough in many of our markets. However, we believe we are on the right side of an increasingly bifurcated market. We are clearly a preferred partner with our clients, and this, coupled with our excellent club [ph] of franchise and footprint, long track record and our broad yet highly technical capabilities on many lines of business, position us very well.
We will continue with our initiatives to find new diversifying lines and expand relationships. I'm confident that we have built a very strong foundation to face the challenges ahead, not just this year, but in the years to come.
So now we're happy to take any questions that you may have. And operator, we are ready for our first question.
Question-and-Answer Session
Operator
[Operator Instructions] And your first question will come from the line of Mr. Greg Locraft from Morgan Stanley.
Gregory Locraft - Morgan Stanley, Research Division
Wanted to ask about the top line. Obviously, significant growth in the quarter and the year. I'm trying to think about how that growth will persist in '14 and beyond. And could you just specifically address crop in terms of how -- and how that should go given where the ag prices are starting the year?
William R. Babcock
Sure, Greg. It's Bill. The -- on -- what you saw on our 1/1 renewal, 3% increase, obviously, that's quite a bit lower than what -- than last year as far as growth within the book, that you should not extrapolate the growth we showed this year or even at this quarter into 2014. And on the Life side, we do expect to be able to continue to grow, including the kind of the core Life book and Presidio. So you should expect to see continued -- something -- some continued growth there. On the crop book, we expect the crop book to be basically flat with last year, the U.S. MPCI book. And that's really related to the fact that while crop prices are up and we expect lower premium on existing accounts, we did add one new relationship that basically got us back to an in-force book, premium sized, about the same as it was this year.
Gregory Locraft - Morgan Stanley, Research Division
Okay, great. Next, on the expense side. You guys were more proactive than most early in taking costs out of the company. How should we think about the expense ratio in '14? Right now, we're thinking about a -- of about a point of improvement. Is that too much?
William R. Babcock
Greg, I don't have a number handy for you. But I think if you went back to what we said on our first quarter call about our savings and when those would come through and adjusted that with [ph] some of the growth that you've seen this year, you get pretty close to the right number. Again, we remain on track so those comments would still hold.
Gregory Locraft - Morgan Stanley, Research Division
Okay. And last is on the investment income line. You had mentioned 3 drivers. There was a miss there versus what we were expecting in the quarter. You'd mentioned the portfolio repositioning, lower investment rates and then dividend timing. So I guess the question is, is this the new baseline or is the dividend timing going to cause a higher 1Q number? And then if you don't mind, can you just refresh what the portfolio repositioning was and how that should impact things going forward?
William R. Babcock
Sure. Let's start with the portfolio repositioning. I mentioned that we were overweight, corporate credit, and we reduced that overweight somewhat. And that had a higher book yield than it did than new money reinvestment yields. So I mentioned that last quarter. And you saw some of that impact coming through this quarter, and it will continue to come through as we reinvest to that at lower rates. The dividend timing, quarter-to-quarter changes, again, the number -- fluctuations due to any single one of these are not huge fluctuations. And I probably should have also mentioned that there was another -- also a contributing factor as we had little higher expenses against investment income due to bonus accruals from our investment group. But again, all of these are pretty small numbers.
Costas Miranthis
So Greg, broadly, I think if you use the current numbers as a base number, you wouldn't be too far out or [ph] get a couple of million or so.
Operator
And your next question comes from Cliff Gallon from Nomura.
Clifford H. Gallant - Nomura Holdings, Inc.
Yes, 2 quick questions. The first, I know it's awfully early in the year, but there's already been a lot of talk drought conditions in the Western part of the U.S. and we've had extreme weathers throughout and already press talking about the effect on crops later in the year. So I was wondering if you had a comment on that? And then my second question was when I think about the changes that are happening in the book, areas you're growing or you should -- might be pulling back, could you comment on what your expected risk adjustment, ROE expectations are and how that's maybe evolving?
Costas Miranthis
Yes. First, on the crop, it's far too early to predict anything, especially before planting. I think it's a kind of [ph] curve. I mean, everything's changed there rapidly. So I don't think anything that you see now is -- can be predictive of what you kind of expect later in the year. A lot of things can change between now and -- and the harvest would start [ph] in November, December next year. So no comment on that. The second question was on risk-adjusted ROE as what we see across the whole portfolio. The way we think about it, it's -- we're into single digits, high single digits, 8%, 9%. The variations in that, for different lines, but across the whole portfolio, that's probably [ph] overachieving.
Operator
And your next question comes from the line of Michael Nannizzi from Goldman Sachs.
Michael Nannizzi - Goldman Sachs Group Inc., Research Division
I guess a couple of questions on the areas of [ph] growth. Looks like motor and crop -- first question on motor, can you just refresh us exactly what -- where that business is coming from and kind of what the nature of that business is? And then just a follow-up.
Costas Miranthis
Yes. We've had some motor quarter shares and we wrote a little bit less of it this year, depending on -- of this renewal, depending on market conditions. Over the last -- during 2013, that volume had increased, and it's gone down in 2014. You're not talking about huge numbers. So we took an opportunity in 2013. As the margins compressed, we exited some of those [ph] lags.
Michael Nannizzi - Goldman Sachs Group Inc., Research Division
Got it. Okay. So motor, you wouldn't expect to be -- to have the same sort of impact in '14 as it had in '13?
Costas Miranthis
No. Frankly, it didn't have a lot of impact in '13 either. It's -- the premiums are higher, but the margins are relatively small in our business.
Michael Nannizzi - Goldman Sachs Group Inc., Research Division
I see. And then back to the crop business, I guess, the question I have is, you're -- so you've grown in the last couple of years, and you're expecting to -- sounds like maintain last year or '13's level in '14. What has happened to pricing for that business that you're getting? Like what sort of margins are you seeing relative to last year or the year before on an expected basis, just given the losses you have seen just in the business?
Costas Miranthis
Well, first of all, the crop pricing is not cyclical. That's one of the reasons why we like this business, because it's not subject to the same pressures as the normal P&C cycle. Pricing in the U.S., I am talking about the U.S. in particular here, is set by formula [ph] essentially by the government, reflecting long-term experience for their business. And premium rates and the total volume of premium is dependent on commodity prices at the start of the year. When we look at our ROEs, we look at it based on long-term crop yields and long-term experience. And the way we think about crop now, we're in double-digit ROEs, the way we allocate that crop.
Michael Nannizzi - Goldman Sachs Group Inc., Research Division
Okay. So I guess my question that was -- I mean, you -- normally after, I would think after a loss year, you would see an opportunity to negotiate better terms. And since you're not subject to the pricing constraints that the government sets, I'm assuming that the -- you can negotiate your term separately. Then I'm just curious whether or not -- as a result of a couple of bad years, does the outlook for you to allocate capital to this business now improve?
Costas Miranthis
Yes, our participation in the -- on the MPCI business is mostly pro rata. A number of our contracts are negotiated on a multiyear basis. So this is a business that we're in for the long term and we're not opportunistically coming in and out. So the terms effectively that we get are similar to the experience in the primary ones. And the differentiation in our portfolio is how we build the footprint of the portfolio.
Operator
And your next question will come from the line of Vinay Misquith from Evercore.
Vinay Misquith - Evercore Partners Inc., Research Division
The first question is on the small cats, if you could give us a number for the very small cats that you had this quarter, please.
Costas Miranthis
Yes. We had a number of smaller cats in the quarter. There were some storms in Europe and a typhoon in -- that none of them individually cost us more than $20 million. But in aggregate, probably, we're talking about $50 million in cat losses thereabout.
Vinay Misquith - Evercore Partners Inc., Research Division
Sure, that's helpful. And that's mainly within the cat segment?
Costas Miranthis
Yes.
Vinay Misquith - Evercore Partners Inc., Research Division
Okay. The second question is on New Zealand losses. I think missed something. You mentioned $40 million liability. Just trying to think about sort of what -- I mean, have you reserved 2 limits on New Zealand for 2010 and '11?
William R. Babcock
I'll let Costas talk about the reserving limits comment, but I'll clarify the comment I made earlier. What I said was the $40 million catastrophe reserve we set up in bulk for 2011, we've largely now earmarked that to cover New Zealand exposure. There is very little Japan exposure that we see, so we -- that was the comment on the $40 million.
Costas Miranthis
It means that we haven't utilized it. We haven't used it against losses. It's still there. It still sits there.
William R. Babcock
And the -- I mean, the -- and we did have -- apart from that, we did record some New Zealand development that you see running through the results for the fourth quarter. But net is at $11 million -- or it's, I'm sorry, $12 million on New Zealand. So the numbers are pretty small. And I'd say, on the limits side, we are not reserved to limits and that's one of the reason...
Vinay Misquith - Evercore Partners Inc., Research Division
On all clients?
William R. Babcock
On all clients. On some, we are. And that's one of the reasons that we've notionally allocated this remaining $40 million, thinking about it really to cover exposure there.
Vinay Misquith - Evercore Partners Inc., Research Division
So right. So besides what you've taken this quarter, are you saying that you also have $40 million sort of sitting in your back pocket? Should there be some adverse of -- I mean, should there some adverse or loss [ph] supporting?
Costas Miranthis
Yes.
Vinay Misquith - Evercore Partners Inc., Research Division
Okay, that's helpful. And then the last question is on the ROEs. You mentioned you're getting about 8% to 9% ROEs in the business. Should we think of that, in terms of return on tangible equity, instead of textiles [ph] on 1/5 [ph] except -- in terms of ROE that we should be expecting next year?
Costas Miranthis
When I quote ROE numbers, I quote numbers on the amount of capital we allocate to our underwriting business, but calculate it at risk-free rates. In addition to the capital that we think we need to underwrite business, we have some capital that we need to take risk on the investment side of portfolio. And we clearly earned a return, which is above risk-free. The 2 -- and if you look at the ROE on our overall portfolio and the ROE on an underwriting year basis that I quote, sometimes, the 2 are a little bit apart. But often, they reasonably are close together. And the final thing I would say, the ROEs, I quote them as the ROE on new business and that don't include any benefit, so any of that, that we would get from prior year reserve releases to the extent that prior years ended up more favorably than what we originally priced them at. So I don't think you can go from -- my comment was about what we're getting our new business now as opposed to what you should expect to see our financial year and we don't give guidance for that.
Operator
And your next question will come from the line of Meyer Shields from KBW.
Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division
When we look at the 1/1 renewals, I know this is only part of the view, but does the combination of greater diversification and less catastrophe business translate into a lower absolute capital need?
Costas Miranthis
Yes. And that's frankly one of the reasons that we have been able to buy back a significant amount of capital back over the years. And we continue to pay close attention about how much capital we need to run the business, and we aim for efficient capital yields. So as you diversify, we're more efficient with our capital yields, so we have more room to buy back or invest in new business.
Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division
Okay. And that's not withstanding the 3% growth and so on?
Costas Miranthis
Correct.
Meyer Shields - Keefe, Bruyette, & Woods, Inc., Research Division
Okay, good. Second question, I was hoping you could give a little more color on the ACA-exposed Health business, particularly given the fact that, at least today, it looks like enrollments are skewed towards less profitable customers.
Costas Miranthis
Yes, a lot of the -- we've seen some growth and of course, there's a different population that is now buying the -- those products, but we've priced for that. And as I say, we have been in this business for more than 25 years, and we're one of the few companies that would believe -- that can price further [ph] adequately. The opportunities for growth that we found is mainly from customers who are converting existing products that was sold outside exchanges through one single product that needs a broader coverage. So we're fairly confident with the pricing that we get in this area because number one is we've -- customers that we've worked with before; and number two, we understand the population dynamics that are going to buy this product.
Operator
And your next question will come from the line of Charles Sebaski from BMO Capital Markets.
Charles J. Sebaski - BMO Capital Markets U.S.
I was hoping to get us to a little color, if you could, on reserve development going forward. I know you provided some -- that 57% stemmed from 2008 and prior. But if I look at the reserve development, especially over the last 3 years -- and it's been accelerating on a benefit to loss ratio even as the portfolio has changed. I know you true-up every quarter, but if all things stay the same, if there's no change in the market dynamic, can we -- you still see this accelerating in the manner that it is? I mean, how could we think about that going forward?
Costas Miranthis
Yes, we have this question every quarter. I mean, the first thing is we've continued the same reserving practice as we've always done, which means we reserve the current years conservatively and we continue to do so. So when you back out prior year's development and you guys comment on what the current year loss ratio is, you should understand that this is conservatively estimated. So to the extent that trends continue to be on the same patterns they have been in prior years, I would expect to see some reserve redundancies coming through in the future years. Will they be at the same rate? It will largely depend on what the trends are. They've been extremely favorable the last couple of years, and there's no reason why you should expect them to continue to be so favorable. But on balance, I would expect favorable development. I mean, we need to see a pickup in -- a significant pickup in trends for the prior year reserve development to diminish.
William R. Babcock
Yes. The only thing I'd add to that is if you're looking for -- the right way to think about it is the reserve development as a percentage of reserves, not of -- sort of the impact on the current -- against current loss ratios.
Operator
And your next question will come from the line of Ian Gutterman from BAM.
Ian Gutterman - Balyasny Asset Management L.P.
So I guess, Bill, first on the restructuring cost saves. I know you said on track, further [ph] $60 million to $70 million by year end of '14. Could you just tell us what the run rate was year end of '13? How much had already been achieved, if any?
William R. Babcock
I don't have that run rate number for you. You didn't see much come through because even if we had achieved, say the majority of [indiscernible] savings by -- even for the quarter, which you wouldn't see much financial impact from that coming through. So I don't have that number for you.
Ian Gutterman - Balyasny Asset Management L.P.
Okay. But I was just trying to get of sense of the slope. Is it back half weighted [ph] throughout '14, or should we assume it's kind of linear from a very small amount now, grow by 1/4 each quarter, or is there a better way to do it?
William R. Babcock
I can't give you a better way to put it into your model than I did in the -- on our first quarter call, unfortunately. Nothing's changed.
Ian Gutterman - Balyasny Asset Management L.P.
That's fair enough. Then the comments on investment income earlier, I understand what you're saying, the pressures. But is there some offset -- pressure going forward from -- you mentioned extending the duration. I assume there's some investment income tick up from extending [ph] duration? Does that reduce [ph] some of the pressure going forward?
Costas Miranthis
Yes, it's relatively small.
Ian Gutterman - Balyasny Asset Management L.P.
Okay. And then my last one I think is -- I just wanted to clarify, I think it was Vinay's question, about the smaller cats, and you said they are mostly in the catastrophe segment. I just want to clarify that, because it looked like x the crops, x the agricultural losses, U.S. was around 100% technical [ph] ratio and global was over 100%. So are those sort of core numbers? Or if there was anything in there that was a little higher than usual?
Costas Miranthis
My earlier comment was that we reserve the current year conservatively, and that's probably what it reflects.
William R. Babcock
And I'd also say that, I think, the comment on the cat -- I mean, I think the idea of giving you a number of $20 million for the largest individual event this quarter is to give you a sense of how small the other events are. So whether we had large loss events of $10 million impacting Global P&C or something like that, I mean, these numbers are fairly small and not unexpected. So I'd hope that clarifies a little bit.
Ian Gutterman - Balyasny Asset Management L.P.
No, sure, sure. I just want to check because it seems like both the U.S. and Global x-x [ph] were higher than the first 3 quarters, make sure there wasn't anything unusual or any kind of catch up for the prior quarters to actually -- [ph] or anything like that.
William R. Babcock
No. There's not.
Operator
And you're final question will come from the line of Jay Cohen from Bank of America Merrill Lynch.
Jay Adam Cohen - BofA Merrill Lynch, Research Division
Yes, just one quick one. The restructuring charges in 2014, will they be expensed evenly throughout the year or weighted towards the first couple of quarters?
William R. Babcock
I think they're weighted really towards the first and second quarter. And the total charge is somewhere -- maybe $5 million to $10 million, so it's not really large, but -- and you should see that in the first half of the year.
Operator
That concludes today's Q&A session. I would now like to turn the call back over to Costas Miranthis for any additional or closing remarks.
Costas Miranthis
Well, this concludes our quarterly call. Thank you, all, for joining us today and for your continued interest in PartnerRe. We look forward to speaking to you again on next quarter's call. Thank you.
Operator
With that, we'll conclude today's conference. Thank you for your participation.
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