Edgar Filing: PARTNERRE LTD

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

FORM 20-F

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¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934



ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-14536

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PartnerRe Ltd.

(Exact name of registrant as specified in its charter)

______________________________________

Bermuda

(Jurisdiction of incorporation or organization)

90 Pitts Bay Road, Pembroke, Bermuda

(Address of principal executive offices)

Marc Wetherhill

Chief Legal Officer

90 Pitts Bay Road, Pembroke, HM 08, Bermuda Telephone: +1 441-292-0888, Email: marc.wetherhill@partnerre.com

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

_____________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
5.875% Series F Non-Cumulative Preferred Shares, $1.00 par value		New York Stock Exchange
6.50% Series G Cumulative Preferred Shares, $1.00 par value		New York Stock Exchange
7.25% Series H Cumulative Preferred Shares, $1.00 par value		New York Stock Exchange
5.875% Series I Non-Cumulative Preferred Shares, $1.00 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

_________________________________

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 100,000,000 common shares, par value $0.00000001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

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 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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ý

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ý International Financial Reporting Standards as issued by the International Accounting Standards Board ¨ Other ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ¨ No ý

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		Page
PART I

Item 1.	Identity of Directors, Senior Management and Advisers	4
Item 2.	Offer Statistics and Expected Timetable	4
Item 3.	Key Information	4
Item 4.	Information on the Company	25
Item 4A.	Unresolved Staff Comments	36
Item 5.	Operating and Financial Review and Prospects	36
Item 6.	Directors, Senior Management and Employees	74
Item 7.	Major Shareholders and Related Party Transactions	78
Item 8.	Financial Information	78
Item 9.	The Offer and Listing	80
Item 10.	Additional Information	82
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	86
Item 12.	Description of Securities Other than Equity Securities	91

PART II

Item 13.	Defaults, Dividend Arrearages and Delinquencies	91
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	91
Item 15.	Controls and Procedures	93
Item 16A.	Audit Committee Financial Expert	95
Item 16B.	Code of Ethics	95
Item 16C.	Principal Accountant Fees and Services	95
Item 16D.	Exemptions from the Listing Standards for Audit Committees	96
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	96
Item 16F.	Change in Registrant’s Certifying Accountant	96
Item 16G.	Corporate Governance	96
Item 16H.	Mine Safety Disclosure	97

PART III

Item 17.	Financial Statements	97
Item 18.	Financial Statements	97
Item 19.	Exhibits	164

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PART I



ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.



ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.



ITEM 3.	KEY INFORMATION

A. Selected Financial Data

The selected consolidated financial data of PartnerRe Ltd. (the Company or PartnerRe) below should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements in Item 18 and with other information contained in this report, including Operating and Financial Review and Prospects in Item 5 of this report.

The selected consolidated financial data for 2016, 2015, 2014, 2013 and 2012 (in millions of U.S. dollars) is as follows:



	For the years ended December 31,
Statement of Operations Data	2016		2015			2014		2013			2012
Net premiums earned	$	4,970	$	5,269		$	5,609	$	5,198		$	4,486
Net investment income	411		450			480		484			571
Net realized and unrealized investment gains (losses)	26		(297		)	372		(161		)	494
Other income	15		9			16		17			12
Total revenues	$	5,422	$	5,431		$	6,477	$	5,538		$	5,563
Net income	$	447	$	107		$	1,068	$	673		$	1,135
Net income attributable to PartnerRe Ltd. common shareholders	$	387	$	47		$	998	$	597		$	1,073



	At December 31,
Balance Sheet Data	2016		2015		2014		2013		2012
Total assets	$	21,939	$	21,406	$	22,270	$	23,038	$	22,980
Total shareholders’ equity attributable to PartnerRe Ltd.	$	6,688	$	6,901	$	7,049	$	6,710	$	6,933
Common shareholders’ equity	$	5,984	$	6,047	$	6,195	$	5,856	$	6,040

As a result of the acquisition of the Company’s common shares by Exor N.V. (subsequently renamed EXOR Nederland N.V.) in March 2016, as described in Information on the Company in Item 4 of this report, all of the Company’s publicly traded common shares issued and outstanding and all treasury shares held were canceled and one common share of $1.00 par value was issued to Exor N.V. Subsequently, the Company subdivided the one common share into 100 million common shares of $0.00000001 par value each for a total share capital of $1.00. Accordingly, per share data is no longer meaningful and is no longer presented.

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B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Introduction

Managing risk effectively is paramount to our success, and our organization is built around intelligent risk assumptions and careful risk management, as evidenced by our development of the PartnerRe risk management framework, which provides an integrated approach to risk across the entire organization. We have identified what we believe reflects key significant risks to the organization, and, in turn, the common and preferred shareholders.

First, in order to achieve an appropriate growth in tangible book value over the reinsurance cycle, we believe we must be able to generate an appropriate operating return on average shareholders’ equity over the reinsurance cycle. Our ability to do that over a reinsurance cycle is dependent on our individual performance, but also on industry factors that impact the level of competition and the price of risk. The level of competition is determined by supply of and demand for capacity. Demand is determined by client buying behavior, which varies based on the client’s perception of the amount and volatility of risk, its financial capacity to bear it and the cost of risk transfer. Supply is determined by the existing reinsurance companies’ level of financial strength and the introduction of capacity from new start-ups or capital markets. Significant new capacity or significant reduction in demand will depress industry profitability until the supply/demand balance is redressed. Extended periods of imbalance could depress industry profitability to a point where we would fail to meet our targets.

Second, we knowingly expose ourselves to significant volatility in our net income. We create shareholder value by assuming risk from the insurance and capital markets. This exposes us to volatile earnings as untoward events happen to our clients and in the capital markets. Examples of potential large loss events include, without limitation:


•	Natural catastrophes such as hurricane, windstorm, flood, tornado, earthquake, etc.;


•	Man-made disasters such as terrorism;


•	Declines in the equity and fixed income markets;


•	Systemic increases in the frequency or severity of casualty losses; and


•	New mass tort actions or reemergence of old mass torts such as cases related to asbestosis.

We manage large loss events through evaluation processes, which are designed to enable proper pricing of these risks over time, but which do little to moderate short-term earnings volatility. The only effective tools to dampen earnings volatility are through diversification by building a portfolio of uncorrelated risks and through the purchase of retrocessional coverage to optimize a portfolio.

Third, we expose ourselves to significant risks that can impact our financial strength as measured by United States generally accepted accounting principles (U.S. GAAP) or regulatory capital. In particular, ten risk sources have been identified for which management has established key risk limits approved by the Board of Directors (Board). These ten risk sources and the related approved limits and actual limits deployed at December 31, 2016 and 2015 are presented in the Risk Management section below.

The following risks should be read in conjunction with the Safe Harbor Statement in Item 5.G of this report. Operating and Financial Review and Prospects and the Notes to the Consolidated Financial Statements in Item 18 of this report. These risks may affect our operating results and, individually or in the aggregate, could cause our actual results to differ materially from past and projected future results. Some of these risks and uncertainties could affect particular business operations or segments, while others could affect all of our businesses. Although risks are discussed separately, many are interrelated.

Except as may be required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. It is impossible to predict or identify all risk factors and, consequently, the following factors should not be construed as a complete discussion of risks and uncertainties that may affect us.

As used in these Risk Factors, the terms “the Company”, “PartnerRe”, “we”, “our” or “us” may, depending upon the context, refer solely to the Company, to one or more of the Company’s consolidated subsidiaries or to all of them taken as a whole. The terms EXOR and Exor Group relate the Company’s ultimate parent, Exor N.V. and its affiliated companies.

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Risks Related to Our Company

The catastrophe business that we underwrite will result in volatility of our earnings.

Catastrophic losses result from events such as windstorms, hurricanes, tsunamis, earthquakes, floods, hailstorms, tornadoes, severe winter weather, fires, drought, explosions and other natural and man-made disasters, the incidence and severity of which are inherently unpredictable. Because catastrophe reinsurance accumulates large aggregate exposures to man-made and natural disasters, our loss experience in this line of business could be characterized as low frequency and high severity. This is likely to result in substantial volatility in our financial results for any fiscal quarter or year, and may result in a decline of our book value of common equity and limit our ability to make dividend payments and payments on our debt securities.

Notwithstanding our endeavors to manage our exposure to catastrophic 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 reduce our earnings and limit the funds available to make payments on future claims. The effect of an increase in frequency of mid-sized losses in any one reporting period affecting one or more geographic zones, such as an unusual level of hurricane activity, could also reduce our earnings. Should we incur more than one very large catastrophic loss, our ability to write future business may be adversely impacted if we are unable to replenish our capital.

By way of illustration, during the past five calendar years, the Company incurred the following pre-tax large catastrophic losses and large losses (defined as losses exceeding $35 million), net of any related reinstatement premiums, reinsurance and profit commissions (in millions of U.S. dollars):



Calendar year	Large catastrophic and large losses	Pre-tax $ loss
2016	Wildfires in Fort McMurray, Alberta, Canada (the Canadian Wildfires), hurricane Matthew that affected parts of the Caribbean and southeastern United States (Hurricane Matthew) and a Ghana energy loss	$	156
2015	Series of explosions in the Port of Tianjin, China (the Tianjin Explosion)	$	59
2014	—	$	—
2013	Extensive flooding in Alberta, Canada in June 2013, the hailstorm that affected large parts of Germany in July 2013 and the floods that impacted large areas of Central Europe in June 2013	$	142
2012	Superstorm Sandy and the U.S. drought (agriculture loss)	$	318

We believe, and recent scientific studies have indicated, that the frequency of Atlantic basin hurricanes has increased and may change further in the future relative to the historical experience over the past 100 years. As a result of changing climate conditions, such as global warming, there may be increases in the frequency and severity of natural catastrophes and the losses that result from them. We monitor and adjust, as we believe appropriate, our risk management models to reflect our judgment of how to interpret current developments and information, such as these studies. We believe that factors including increases in the value and geographic concentration of insured property, particularly along coastal regions, the increasing risk of extreme weather events reflecting changes in climate and ocean temperatures, and the effects of inflation may continue to increase the severity of claims from catastrophic events in the future.

We could face unanticipated losses from man-made catastrophic events and these or other unanticipated losses could impair our financial condition and reduce our profitability.

We may have substantial exposure to unexpected, large losses resulting from future man-made catastrophic events, such as acts of terrorism, acts of war, nuclear accidents and political instability, or from other perils. Although we may attempt to exclude losses from terrorism and certain other similar risks from some coverage we write, we may continue to have exposure to such unforeseen or unpredictable events. This may be because, irrespective of the clarity and inclusiveness of policy language, there can be no assurance that a court or arbitration panel will not limit enforceability of policy language or otherwise issue a ruling adverse to us.

It is also difficult to predict the timing of such events with statistical certainty, or estimate the amount of loss any given occurrence will generate. Under U.S. GAAP, we are not permitted to establish reserves for potential losses associated with man-made or other catastrophic events until an event that may give rise to such losses occurs. If such an event were to occur, our reported income would decrease in the affected period. In particular, unforeseen large losses could reduce our profitability or impair our financial condition.

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Given the inherent uncertainty of models, the usefulness of such models as a tool to evaluate risk is subject to a high degree of uncertainty that could result in actual losses that are materially different than our estimates, including probable maximum losses (PMLs), and our financial results may be adversely impacted, perhaps significantly.

In addition to our own proprietary catastrophe models, we use third-party vendor analytic and modeling capabilities to provide us with objective risk assessment relating to other risks in our reinsurance portfolio. We use these models to help us control risk accumulation and inform management and other stakeholders of capital requirements and to improve the risk/return profile. However, given the inherent uncertainty of modeling techniques and the application of such techniques, these models and databases may not accurately address a variety of matters which might be deemed to impact certain of our coverages.

For example, catastrophe models that simulate loss estimates based on a set of assumptions are important tools used by us to estimate our PMLs. These assumptions address a number of factors that impact loss potential including, but not limited to, the characteristics of the natural catastrophe event; demand surge resulting from an event; the types, function, location and characteristics of exposed risks; susceptibility of exposed risks to damage from an event with specific characteristics; and the financial and contractual provisions of the reinsurance contracts that cover losses arising from an event. We run many model simulations in order to understand the impact of these assumptions on its catastrophe loss potential. Furthermore, there are risks associated with catastrophic events, which are either poorly represented or not represented at all by catastrophe models. Each modeling assumption or un-modeled risk introduces uncertainty into PML estimates that management must consider. These uncertainties can include, but are not limited to, the following:


•	The models do not address all the possible hazard characteristics of a catastrophe peril (e.g., the precise path and wind speed of a hurricane);


•	The models may not accurately reflect the true frequency of events;


•	The models may not accurately reflect a risk’s vulnerability or susceptibility to damage for a given event characteristic;


•	The models may not accurately represent loss potential to reinsurance contract coverage limits, terms and conditions; and


•	The models may not accurately reflect the impact on the economy of the area affected or the financial, judicial, political, or regulatory impact on insurance claim payments during or following a catastrophe event.

Our PMLs are selected after assessment of multiple third party vendor model output, internally constructed independent models, including the Company’s CatFocus^® suite of models, and other qualitative and quantitative assessments by management, including assessments of exposure not typically modeled in vendor or internal models. Our methodology for estimating PMLs may differ from methods used by other companies and external parties given the various assumptions and judgments required to estimate a PML.

As a result of these factors and contingencies, our reliance on assumptions and data used to evaluate our entire reinsurance portfolio and specifically to estimate a PML, is subject to a high degree of uncertainty that could result in actual losses that are materially different from our PML estimates and our financial results may be adversely impacted, perhaps significantly.

Our net income may be volatile because certain Life products expose us to reserve and fair value liability changes that are directly affected by market and other factors and assumptions.

Our pricing and establishment of Life and Health reserves related to reserves for future policy benefits and valuation of life insurance and annuity products, including reinsurance programs, are based upon various assumptions, including but not limited to market changes, mortality rates, morbidity rates and policyholder behavior. The process of establishing reserves for future policy benefits relies on our ability to accurately estimate insured events that have not yet occurred but that are expected to occur in future periods. Significant deviations in actual experience from assumptions used for pricing and for reserves for future policy benefits could have an adverse effect on the profitability of our products and our business.

Under reinsurance programs covering variable annuity guarantees we assume the risk of guaranteed minimum death benefits (GMDB). Our net income is directly impacted by changes in the reserves calculated in connection with the reinsurance of GMDB liabilities. Reported liabilities for GMDB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in the allocation of the investments underlying annuitant’s account values, and assumptions regarding future policyholder behavior. Adverse changes in market factors and policyholder behavior will have an impact on both life underwriting income and net income. When evaluating these risks, we expect to be compensated for taking both the risk of a cumulative long-term economic net loss, as well as the short-term accounting variations caused by these market movements. Therefore, we evaluate this business in terms of its long-term economic risk and reward. For further information see Business Overview—Reserves section in Item 4 of this report.

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If actual losses exceed our estimated loss reserves, our net income and capital position will be reduced.

Our success depends upon our ability to accurately assess the risks associated with the businesses that we reinsure. We establish loss reserves to cover our estimated liability for the payment of all losses and loss expenses incurred with respect to premiums earned on the contracts that we write. Loss reserves are estimates involving actuarial and statistical projections at a given time to reflect our expectation of the costs of the ultimate settlement and administration of claims. Although we use actuarial and computer models as well as historical reinsurance and insurance industry loss statistics, we also rely heavily on management’s experience and judgment to assist in the establishment of appropriate claims and claim expense reserves. Because of the many assumptions and estimates involved in establishing reserves, the reserving process is inherently uncertain. Our estimates and judgments are based on numerous factors, and may be revised as additional experience and other data become available and are reviewed as new or improved methodologies are developed, as loss trends and claims inflation impact future payments, or as current laws or interpretations thereof change.

Estimates of losses are based on, among other things, a review of potentially exposed contracts, information reported by and discussions with counterparties, and our estimate of losses related to those contracts and are subject to change as more information is reported and becomes available. Losses for casualty and liability lines often take a long time to be reported, and frequently can be impacted by lengthy, unpredictable litigation and by the inflation of loss costs over time. Changes in the level of inflation also result in an increased level of uncertainty in our estimation of loss reserves, particularly for long-tail lines of business. As a consequence, actual losses and loss expenses paid may deviate substantially from the reserve estimates reflected in our financial statements.

Although we did not operate prior to 1993, we assumed certain asbestos and environmental exposures through our acquisitions. Our non-life reserves include an estimate of our ultimate liability for asbestos and environmental claims for which we cannot estimate the ultimate value using traditional reserving techniques, and for which there are significant uncertainties in estimating the amount of our potential losses. These liabilities are especially hard to estimate for many reasons, including the long delays between exposure and manifestation of any bodily injury or property damage, difficulty in identifying the source of the asbestos or environmental contamination, long reporting delays and difficulty in properly allocating liability for the asbestos or environmental damage. Certain of our subsidiaries have received and continue to receive notices of potential reinsurance claims from ceding insurance companies, which have in turn received claims asserting asbestos and environmental losses under primary insurance policies, in part reinsured by us. Such claims notices are often precautionary in nature and are generally unspecific, and the primary insurers often do not attempt to quantify the amount, timing or nature of the exposure. Given the lack of specificity in some of these notices, and the legal and tort environment that affects the development of claims reserves, the uncertainties inherent in valuing asbestos and environmental claims are not likely to be resolved in the near future.

In addition, the reserves that we have established may be inadequate. If ultimate losses and loss expenses exceed the reserves currently established, we will be required to increase loss reserves in the period in which we identify the deficiency to cover any such claims. As a result, even when losses are identified and reserves are established for any line of business, ultimate losses and loss expenses may deviate, perhaps substantially, from estimates reflected in loss reserves in our financial statements. Variations between our loss reserve estimates and actual emergence of losses could be material and could have a material adverse effect on our results of operations and financial condition.

Since we rely on a few reinsurance brokers for a large percentage of our business, loss of business provided by these brokers could reduce our premium volume and net income.

We produce our business both through brokers and through direct relationships with insurance company clients. For the year ended December 31, 2016, approximately 73% of our gross premiums written were produced through brokers. In 2016, we had two brokers that accounted for 44% of our gross premiums written. Because broker-produced business is concentrated with a small number of brokers, we are exposed to concentration risk. A significant reduction in the business produced by these brokers could potentially reduce our premium volume and net income.

We are exposed to credit risk relating to our reinsurance brokers and cedants.

In accordance with industry practice, we may pay amounts owed under our policies to brokers, and they in turn pay these amounts to the ceding insurer. In some jurisdictions, if the broker fails to make such an onward payment, we might remain liable to the ceding insurer for the deficiency. Conversely, the ceding insurer may pay premiums to the broker, for onward payment to us in respect of reinsurance policies issued by us. In certain jurisdictions, these premiums are considered to have been paid to us at the time that payment is made to the broker, and the ceding insurer will no longer be liable to us for those amounts, whether or not we have actually received the premiums. We may not be able to collect all premiums receivable due from any particular broker at any given time. We also assume credit risk by writing business on a funds-withheld basis. Under such arrangements, the cedant retains the premium they would otherwise pay to us to cover future loss payments.

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If we are significantly downgraded by rating agencies, our standing with brokers and customers could be negatively impacted and may adversely impact our results of operations.

Third-party rating agencies assess and rate the claims-paying ability and financial strength of insurers and reinsurers, such as the Company’s principal operating subsidiaries. These ratings are based upon criteria established by the rating agencies and have become an important factor in establishing our competitive position in the market. Insured, insurers, ceding insurers and intermediaries use these ratings as one measure by which to assess the financial strength and quality of insurers and reinsurers. These ratings are not an evaluation directed to investors of our preferred shares or debt securities, and are not a recommendation to buy, sell or hold our preferred shares or debt securities.

Our financial strength ratings are subject to periodic review as rating agencies evaluate us to confirm that we continue to meet their criteria for ratings assigned to us by them. Such ratings may be revised downward or revoked at the sole discretion of such ratings agencies in response to a variety of factors, including capital adequacy, management strategy, operating earnings and risk profile. In addition, from time to time, one or more rating agencies may effect changes in their capital models and rating methodologies that could have a detrimental impact on our ratings. It is also possible that rating agencies may in the future heighten the level of scrutiny they apply when analyzing companies in our industry, may increase the frequency and scope of their reviews, may request additional information from the companies that they rate, and may adjust upward the capital and other requirements employed in their models for maintenance of certain rating levels. We can offer no assurances that our ratings will remain at their current levels.

If our ratings were significantly downgraded, our competitive position in the reinsurance industry may suffer, and it could result in a reduction in demand for our products. In addition, certain business that we write contains terms that give the ceding company or derivative counterparty the right to terminate cover and/or require collateral if our ratings are downgraded significantly.

See Liquidity and Capital Resources in Item 5 of this report for our current financial strength ratings. The status of any further changes to ratings or outlooks will depend on various factors.

We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.

Our future capital requirements depend on many factors, including regulatory requirements, our ability to write new business successfully, the frequency and severity of catastrophic events, and our ability to establish premium rates and reserves at levels sufficient to cover losses. We may need to raise additional funds through financings or curtail our growth and reduce our assets. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. Financings could result in the issuance of securities that have rights, preferences and privileges that are senior to those of our other securities. Disruption in the financial markets may limit our ability to access capital required to operate our business and we may be forced to delay raising capital or bear a higher cost of capital, which could decrease our profitability and significantly reduce our financial flexibility. In addition, if we experience a credit rating downgrade, withdrawal or negative watch/outlook in the future, we could incur higher borrowing costs and may have more limited means to access capital. If we cannot obtain adequate capital on favorable terms or at all, our business, operating results and financial condition could be adversely affected. In such a severe event, the Company may be reliant on the parent company, Exor N.V., to provide a further capital injection or contribution to the Company. However, all EXOR Group portfolio companies are managed independently and autonomously, hence no guarantee can be given that EXOR will provide any additional capital.

The exposure of our investments to interest rate, credit, and equity risk may limit our net income and may affect the adequacy of our capital.

We invest the net premiums we receive unless, or until such time as, we pay out losses and/or until they are made available for distribution to common and preferred shareholders, to pay interest on or redemption of debt and preferred shares, or otherwise used for general corporate purposes. Investment results comprise a substantial portion of our income. For the year ended December 31, 2016, we had net investment income of $411 million, which represented approximately 8% of total revenues. In addition, we recorded net realized and unrealized gains on investments of $26 million during 2016, which are recognized in net income. While the Board has implemented what it believes to be prudent risk management and investment asset allocation practices, we are exposed to significant financial and capital market risks, including changes in interest rates, credit spreads, equity and real estate prices, foreign exchange rates, market volatility, the performance of the economy in general and other factors outside our control.

Interest rates are highly sensitive to many factors, including fiscal and monetary policies of major economies, inflation, economic and political conditions and other factors outside our control. Changes in interest rates can negatively affect us in two ways. In a declining interest rate environment, we will be required to invest our funds at lower rates, which would have a negative impact on investment income. We may be forced to liquidate investments prior to maturity at a loss in order to cover liabilities. In a rising interest rate environment, the market value of our fixed income portfolio may decline.

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Our fixed maturity portfolio is primarily invested in high quality, investment grade securities. However, we invest a portion of the portfolio in securities that are below investment grade. We also invest a portion of our portfolio in other investments such as fixed income type mutual funds, notes receivable, loans receivable, private placement bond investments, derivative exposure assumed and other specialty asset classes. These securities generally pay a higher rate of interest and have a higher degree of credit or default risk. These securities may also be less liquid in times of economic weakness or market disruptions.

We also invest a portion of our portfolio in preferred and common stocks or equity-like securities. The value of these assets fluctuates with equity markets. In times of economic weakness, the market value and liquidity of these assets may decline, and may impact net income and capital. We use the term equity-like investments to describe our investments that have market risk characteristics similar to equities and are not investment grade fixed maturity securities. This category includes high-yield and convertible fixed maturity investments and private placement equity investments. Fluctuations in the fair value of our equity-like investments may reduce our income in any period or year and cause a reduction in our capital. Our equity risk has declined during 2016 due to a reduction in investments in equities from $444 million at December 31, 2015 to $39 million at December 31, 2016.

Foreign currency fluctuations may reduce our net income and our capital levels.

Through our multinational reinsurance operations, we conduct business in a variety of foreign (non-U.S.) currencies, the principal exposures being the Euro, British pound, Canadian dollar, Swiss Franc and Australian dollar. Assets and liabilities denominated in foreign currencies are exposed to changes in currency exchange rates, which may be material. Our reporting currency is the U.S. dollar, and exchange rate fluctuations relative to the U.S. dollar may materially impact our results and financial position. We employ various strategies (including hedging) to manage our exposure to foreign currency exchange risk. To the extent that these exposures are not fully hedged or the hedges are ineffective, our results or shareholders’ equity may be reduced by fluctuations in foreign currency exchange rates.

We may suffer losses due to defaults by others, including issuers of investment securities, reinsurance and derivative counterparties.

Issuers or borrowers whose securities we hold, reinsurers, clearing agents, clearing houses, derivative instrument counterparties and other financial intermediaries may default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons. Even if we are entitled to collateral when a counterparty defaults, such collateral may be illiquid or proceeds from such collateral when liquidated may not be sufficient to recover the full amount of the obligation. All or any of these types of default could have a material adverse effect on our results of operations, financial condition and liquidity.

We may be adversely affected if Colisée Re, AXA or their affiliates fail to honor their obligations to Paris Re or its clients.

As part of the AXA Acquisition, PARIS RE Holdings Limited (Paris Re) entered into the 2006 Acquisition Agreements. See Liquidity and Capital Resources—Non-life and Life and Health Reserves —Reserve Agreement and Funds Held-Directly Managed Account in Item 5 of this report.

Pursuant to the Quota Share Retrocession Agreement, the benefits and risks of Colisée Re’s reinsurance agreements were ceded to Paris Re France, which is now Partner Reinsurance Europe SE (PartnerRe Europe), but Colisée Re (formerly known as AXA RE), a subsidiary of AXA SA (AXA), remains both the legal counterparty for all such reinsurance contracts and the legal holder of the assets relating to such reserves.

Under the Run Off Services and Management Agreement, PartnerRe Europe has agreed that AXA Liabilities Managers (AXA LM) will manage claims arising from all reinsurance and retrocession contracts subject to the Reserve Agreement. If AXA LM does not take into account PartnerRe Europe’s commercial concerns in the context of PartnerRe Europe’s on-going business relations with the relevant ceding companies and retrocessionaires, our ability to renew reinsurance and retrocession contracts with them may be adversely affected.

There can be no assurance that our business activities, financial condition, results or future prospects may not be adversely affected in spite of the existence of the 2006 Acquisition Agreements. In general, if AXA or its affiliates breach or do not satisfy their obligations under the 2006 Acquisition Agreements (potentially as a result of insolvency or inability or unwillingness to make payments under the terms of the 2006 Acquisition Agreements), we could be materially adversely affected.

Our debt, credit and International Swap Dealers Association (ISDA) agreements may limit our financial and operational flexibility, which may affect our ability to conduct our business.

We have incurred indebtedness, and may incur additional indebtedness in the future. Additionally, we have entered into credit facilities and ISDA agreements with various institutions. Under these credit facilities, the institutions provide revolving lines of credit to us and our major operating subsidiaries and issue letters of credit to our clients in the ordinary course of business.

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The agreements relating to our debt, credit facilities and ISDA agreements contain various covenants that may limit our ability, among other things, to borrow money, make particular types of investments or other restricted payments, sell assets, merge or consolidate. Some of these agreements also require us to maintain specified ratings and financial ratios, including a minimum net worth covenant. If we fail to comply with these covenants or meet required financial ratios, the lenders or counterparties under these agreements could declare a default and demand immediate repayment of all amounts owed to them.

If we are in default under the terms of these agreements, then we would also be restricted in our ability to declare or pay any dividends, redeem, purchase or acquire any shares or make a liquidation payment.

If any one of the financial institutions that we use in our operations, including those that participate in our credit facilities, fails or is otherwise unable to meet their commitments, we could incur substantial losses and reduced liquidity.

We maintain cash balances significantly in excess of the U.S. Federal Deposit Insurance Corporation insurance limits at various depository institutions. We also have funding commitments from a number of banks and financial institutions that participate in our credit facilities. See Liquidity and Capital Resources—Shareholders’ Equity and Capital Resources Management—Credit Agreements in Item 5 of this report. Access to funds under these existing credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding requirements. Those banks may not be able to meet their funding requirements if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time, and we might be forced to replace credit sources in a difficult market. If we cannot obtain adequate financing or sources of credit on favorable terms, or at all, our business, operating results and financial condition could be adversely impacted.

Operational risks, including human or systems failures, are inherent in our business.

Operational risks and losses can result from many sources including fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorization, failure to comply with regulatory requirements or information technology failures.

We believe our modeling, underwriting and information technology and application systems are critical to our business and reputation. Moreover, our technology and applications have been an important part of our underwriting process and our ability to compete successfully. Such technology is and will continue to be a very important part of our underwriting process. We have also licensed certain systems and data from third parties. We cannot be certain that we will have access to these, or comparable service providers, or that our technology or applications will continue to operate as intended. In addition, we cannot be certain that we would be able to replace these service providers or consultants without slowing our underwriting response time. A major defect or failure in our internal controls or information technology and application systems could result in management distraction, harm to our reputation, a loss or delay of revenues or increased expense.

Cybersecurity events could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

We are dependent upon the effective functioning and availability of our information technology and application systems platforms. These platforms include, but are not limited to, our proprietary software programs such as catastrophe models as well as those licensed from third-party vendors including analytic and modeling systems. We rely on the security of such platforms for the secure processing, storage and transmission of confidential information. Examples of significant cybersecurity events are unauthorized access, computer viruses, deceptive communications (phishing), malware or other malicious code or cyber attack, catastrophic events, system failures and disruptions and other events that could have security consequences (each, a Cybersecurity Event). A Cybersecurity Event could materially impact our ability to adequately price products and services, establish reserves, provide efficient and secure services to our clients, brokers, vendors and regulators, value our investments and to timely and accurately report our financial results. Although we have implemented controls and have taken protective measures to reduce the risk of Cybersecurity Events, we cannot reasonably anticipate or prevent rapidly evolving types of cyber attacks and such measures may be insufficient to prevent a Cybersecurity Event. Cybersecurity Events could expose us to a risk of loss or misuse of our information, litigation, reputational damage, violations of applicable privacy and other laws, fines, penalties or losses that are either not insured against or not fully covered by insurance maintained. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities.

The loss of key management personnel could adversely affect us.

Our success has depended, and will continue to depend, partly upon our ability to attract and retain executive officers. If any of these executives ceased to continue in his or her present role, we could be adversely affected.

We believe there are only a limited number of available qualified executives in the business lines in which we compete. Our ability to execute our business strategy is dependent on our ability to attract and retain a staff of qualified executive officers, underwriters and other key personnel. The skills, experience and knowledge of the reinsurance industry of our management team

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constitute important competitive strengths. If some or all of these managers leave their positions, and even if we were able to find persons with suitable skills to replace them, our operations could be adversely affected.

We may be adversely impacted by inflation.

Deficit spending by governments in the Company’s major markets and monetary stimulus provided by central banks exposes the Company to a heightened risk of inflation. We monitor the risk that the principal markets in which we operate could experience increased inflationary conditions, which would, among other things, cause policyholder loss costs to increase, and impact the performance of our investment portfolio. Inflation related to medical costs, construction costs and tort issues in particular impact the property and casualty industry, and broader market inflation has the potential risk of increasing overall loss costs. The impact of inflation on loss costs could be more pronounced for those lines of business that are considered to be long-tail in nature, as they require a relatively long period of time to finalize and settle claims. Changes in the level of inflation also result in an increased level of uncertainty in our estimation of loss reserves, particularly for long-tail lines of business. The onset, duration and severity of an inflationary period cannot be estimated with precision.

Risks Related to Our Industry

Our profitability is affected by the cyclical nature of the reinsurance industry.

Historically, the reinsurance industry has experienced significant fluctuations in operating results due to competition, levels of available capacity, trends in cash flows and losses, general economic conditions and other factors. Demand for reinsurance is influenced significantly by underwriting results of primary insurers, including catastrophe losses, and prevailing general economic conditions. The supply of reinsurance is related directly to prevailing prices and levels of capacity that, in turn, may fluctuate in response to changes in rates of return on investments being realized in the reinsurance industry. If any of these factors were to result in a decline in the demand for reinsurance or an overall increase in reinsurance capacity, our profitability could be impacted. In recent years, we have experienced a generally softening market cycle, with increased competition, surplus underwriting capacity, deteriorating rates and less favorable terms and conditions all having an impact on our ability to write business.

Currently, the Company is facing a challenging and limited growth environment, which is driven by price decreases in most markets and lines of business, reflecting increased competition and excess capacity in the industry, cedants choosing to utilize fewer reinsurers by consolidating their reinsurance panels, relatively low loss experience and a prolonged period of low interest rates, which has impacted our investment portfolio.

We anticipate that competition and pricing pressure may adversely affect our profitability and results of operations in future periods, and the impact may be material.

We operate in a highly competitive environment.

The reinsurance industry is highly competitive and we compete with a number of worldwide reinsurance companies, including, Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft (Munich Re), Swiss Re Ltd. (Swiss Re), Hannover Rück SE (Hannover Re), SCOR SE, Transatlantic Reinsurance Company Inc. (Transatlantic), General Reinsurance Corporation (GenRe), Reinsurance Group of America, Incorporated, Everest Re Group, Ltd. (Everest Re), RenaissanceRe Holdings Ltd. (RenRe), and Validus Holdings, Ltd. (Validus).

The lack of strong barriers to entry into the reinsurance business means that we may also compete with new companies that may be formed to enter the insurance and reinsurance markets. In addition, we may experience increased competition as a result of the consolidation in the reinsurance industry. These consolidated entities may try to use their enhanced market power to negotiate price reductions for our products and services and/or obtain a larger market share through increased line sizes.

Competition in the types of reinsurance that we underwrite is based on many factors, including the perceived and relative financial strength, pricing and other terms and conditions, services provided, ratings assigned by independent rating agencies, speed of claims payment, geographic scope of business, client and broker relationships, reputation and experience in the lines of business to be written. If competitive pressures reduce our prices, we would expect to write less business. In addition, competition for customers would become more intense and we could incur additional expenses relating to customer acquisition and retention, further reducing our operating margins.

Further, insurance-linked securities, derivatives and other non-traditional risk transfer mechanisms and alternative vehicles are being developed and offered by other parties, which could impact the demand for traditional insurance or reinsurance. A number of new, proposed or potential industry or legislative developments could further increase competition in our industry. New competition from these developments could cause the demand for reinsurance to fall or the expense of customer acquisition and retention to increase, either of which could have a material adverse effect on our growth and profitability. As a result of new and alternative capital inflows into the industry and cedants retaining more business, there is an excess supply of reinsurance capital which is also driving pricing lower and putting pressure on terms and conditions.

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All of the above factors may adversely affect our profitability and results of operations in future periods, the impact of which may be material, and may adversely affect our ability to successfully execute our strategy as a global diversified reinsurance company.

Legal and Regulatory Risks

Political, regulatory, governmental and industry initiatives could adversely affect our business.

Our reinsurance operations are subject to extensive laws and regulations that are administered and enforced by a number of different governmental and non-governmental self-regulatory authorities and associations in each of their respective jurisdictions and internationally. Our businesses in each jurisdiction are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our reinsurance subsidiaries are domiciled require, among other things, maintenance of minimum levels of statutory capital, surplus, and liquidity; various solvency standards; and periodic examinations of subsidiaries’ financial condition. In some jurisdictions, laws and regulations also restrict payments of dividends and reductions of capital. Applicable statutes, regulations, and policies may also restrict the ability of these subsidiaries to write insurance and reinsurance policies, to make certain investments, and to distribute funds.

Some of these authorities regularly consider enhanced or new regulatory requirements intended to prevent future crises or otherwise assure the stability of institutions under their supervision. These authorities may also seek to exercise their supervisory authority in new and more robust ways, and new regulators could become authorized to oversee parts of our business.

It is not possible to predict all future impacts of these types of changes but they could affect the way we conduct our business and manage our capital, and may require us to satisfy increased capital requirements, any of which, in turn, could affect our results of operations, financial condition and liquidity. Our material subsidiaries’ regulatory environments are described in detail in Business Overview—Regulation in Item 4 of this report. Regulations relating to each of our material subsidiaries may in effect restrict each of those subsidiaries’ ability to write new business, to make certain investments and to distribute funds or assets to us.

Recent government intervention and the possibility of future government intervention have created uncertainty in the insurance and reinsurance markets. Government regulators are generally concerned with the protection of policyholders to the exclusion of other interested parties, including shareholders of reinsurers. We believe it is likely there will continue to be increased regulation of, and other forms of government participation in, our industry in the future, which could adversely affect our business by, among other things:


•	Providing reinsurance capacity in markets and to clients that we target or requiring our participation in industry pools and guaranty associations;


•	Further restricting our operational or capital flexibility;


•	Expanding the scope of coverage under existing policies;


•	Regulating the terms of reinsurance policies; or


•	Disproportionately benefiting the companies domiciled in one country over those domiciled in another.

The insurance industry is also affected by political, judicial and legal developments that may create new and expanded theories of liability, which may result in unexpected claim frequency and severity and delays or cancellations of reinsurance products and services we provide, which could adversely affect our business.

U.S. regulatory changes may adversely impact our business.

It is not possible to predict whether U.S. legislation, rules or regulatory changes will be adopted or enacted in the future or what impact, if any, such legislation, rules or changes could have on our business, financial condition or results of operations.

Compliance with these new laws and regulations may result in additional costs which may adversely impact our results of operations, financial condition and liquidity.

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Legislative and regulatory activity in healthcare may affect our profitability as a provider of accident and health reinsurance benefit products.

We derive revenues from the provision of accident and health premiums in the U.S., by providing reinsurance to institutions that participate in the U.S. healthcare delivery infrastructure. Changes in U.S. healthcare legislation, specifically the Patient Protection and Affordable Care Act of 2010 (the Healthcare Act), have made significant changes to the regulation of health insurance and may negatively affect our healthcare liability business including, but not limited to, the healthcare delivery system and the healthcare cost reimbursement structure in the U.S. In addition, the Company may be subject to regulations, guidance or determinations emanating from the various regulatory authorities authorized under the Healthcare Act. It is difficult to predict the effect that the Healthcare Act, or any regulatory pronouncement made thereunder, will have on its results of operations or financial condition. Additionally, future healthcare proposals could include tort reform provisions under which plaintiffs would be restricted in their ability to bring suit against healthcare providers, which could negatively impact the demand for our healthcare liability products. Any material changes in how healthcare providers insure their malpractice liability risks could have a material adverse effect on our results of operations.

Legal and enforcement activities relating to the insurance industry could affect our business and our industry.

The insurance industry has experienced substantial volatility as a result of litigation, investigations and regulatory activity by various insurance, governmental and enforcement authorities concerning certain practices within the insurance industry.

These investigations have resulted in changes in the insurance and reinsurance markets and industry business practices. While at this time, none of these changes have caused an adverse effect on our business, we are unable to predict the potential effects, if any, that future investigations may have upon our industry. As noted above, because we frequently assume the credit risk of the counterparties with whom we do business throughout our insurance and reinsurance operations, our results of operations could be adversely affected if the credit quality of these counterparties is severely impacted by investigations in the reinsurance or insurance industry or by changes to industry practices.

Emerging claim and coverage issues could adversely affect our business.

Unanticipated developments in the law, as well as changes in social and environmental conditions could potentially result in unexpected claims for coverage under our reinsurance and other contracts. These developments and changes may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. With respect to our casualty businesses, these legal, social and environmental changes may not become apparent until sometime after their occurrence. Our exposure to these uncertainties could be exacerbated by an increase in insurance and reinsurance contract disputes, arbitration and litigation.

The full effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict. As a result, the full extent of our liability under our coverages, and in particular, our casualty reinsurance contracts, may not be known for many years after a contract is issued.

The reinsurance industry is also affected by political, judicial and legal developments that may create new and expanded theories of liability, which may result in unexpected claim frequency and severity and delays or cancellations of products and services we provide, which could adversely affect our business.

Our international business is subject to applicable laws and regulations relating to sanctions, foreign corrupt practices and money laundering, the violation of which could adversely affect our operations.

Our activities are subject to applicable economic and trade sanctions, anti-bribery and money laundering laws and regulations in the jurisdictions where we operate including the U.S. and the European Community (EU), among others. Compliance with these regulations may impose significant costs, limit or restrict our ability to do business or engage in certain activities, or subject us to the possibility of civil or criminal actions or proceedings. Although we have policies and controls in place designed to comply with applicable laws and regulations, it is possible that we, or an employee or agent acting on our behalf could fail to comply with applicable laws and regulations as interpreted by the relevant authorities and, given the complex nature of the risks, it may not always be possible for us to attain compliance with such laws and regulations. The implementation of the Joint Comprehensive Plan of Action, and the resulting divergence of regulatory requirements between U.S. and EU entities and persons regarding business with Iran, has increased these risks. Failure to accurately interpret or comply with or obtain appropriate authorizations and/or exemptions under such laws or regulations could expose us to civil penalties, criminal penalties and other sanctions, including fines or other punitive actions. In addition, such violations could damage our business and/or our reputation. Such criminal or civil sanctions, penalties, other sanctions, and damage to our business and/or reputation could have a material adverse effect on our financial condition and results of operations.

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Our international business is subject to applicable laws and regulations relating to data privacy, the changes or the violation of which could affect our operations.

Regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection. In addition, the interpretation and application of data protection laws in the U.S., Europe and elsewhere are often uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could have an adverse effect on our business and results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

As a group operating worldwide, we strive to comply with all applicable data protection laws and regulations. It is however possible that we fail to comply with applicable laws and regulations. The failure or perceived failure to comply may result in inquiries and other proceedings or actions against us by government entities or others, or could cause us to lose clients which could potentially have an adverse effect on our business.

Changes in current accounting practices and future pronouncements may materially impact our reported financial results.

Developments in accounting practices may require considerable additional time and cost to comply, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively. The impact of changes in current accounting practices and future pronouncements may be significant. The impact may affect the results of our operations, including among other things, the calculation of net income, and may affect our financial position, including among other things, the calculation of unpaid losses and loss expenses, policy benefits for life and annuity contracts and total shareholders’ equity. In particular, recent guidance and ongoing projects put in place by standard setters globally have indicated a move away from the current insurance accounting models toward more “fair value” based models which could introduce significant volatility in the earnings of reinsurance industry participants for certain significant accounts not already at fair value, such as reserves and debt.

Risks Related to Our Preferred Shares

We are a holding company, and if our subsidiaries do not make dividend and other payments to us, we may not be able to pay dividends or make payments on our preferred shares and other obligations.

We are a holding company with no operations or significant assets other than the capital stock of our subsidiaries and other intercompany balances. We have cash outflows in the form of other expenses and dividends to both common and preferred shareholders. We rely primarily on cash dividends and payments from our subsidiaries to meet our cash outflows. We expect future dividends and other permitted payments from our subsidiaries to be the principal source of funds to pay expenses and dividends. The ability of our subsidiaries to pay dividends or to advance or repay funds to us is subject to general economic, financial, competitive, regulatory and other factors beyond our control. In particular, the payment of dividends by our reinsurance subsidiaries is limited under Bermuda and Irish laws and certain statutes of various U.S. states in which our U.S. subsidiaries are licensed to transact business and include minimum solvency and liquidity thresholds. As of December 31, 2016, there were no significant restrictions on the payment of dividends by the Company’s subsidiaries that would limit the Company’s ability to pay preferred shareholders’ dividends and its corporate expenses. However, in 2016, EXOR S.p.A. and the Company agreed, as part of the terms of the preferred share exchange (see Note 11 to the Consolidated Financial Statements in Item 18 of this report), that the payment of dividends on common shares be restricted to an amount not exceeding 67% of net income per fiscal quarter until December 31, 2020. In addition, as a condition of the acquisition by Exor N.V., Partner Reinsurance Company of the U.S. and PartnerRe America Insurance Company committed that it would not take any action to pay any dividend for the two-year period from March 18, 2016 to March 18, 2018 without the prior approval of the New York State Department of Financial Services and the Delaware Commissioner of Insurance, respectively. At December 31, 2016, there were no other restrictions on the Company’s ability to pay common and preferred shareholders’ dividends from its retained earnings, except for certain regulatory and statutory restrictions on dividend payments applicable to our reinsurance subsidiaries (see Note 13 to the Consolidated Financial Statements in Item 18 of this report for a description of these restrictions). Because we are a holding company, our right, and hence the right of our creditors and shareholders, to participate in any distribution of assets by any of our subsidiaries, upon our liquidation or reorganization or otherwise, is subject to the prior claims of policyholders and creditors of these subsidiaries.

Our controlling shareholder owns a significant majority of our common shares, and its interest may differ from the interests of our preferred shareholders.

EXOR beneficially owns a significant majority of the outstanding common shares of the Company. As a result, EXOR has power to elect our directors and to determine the outcome of any action requiring shareholder approval. EXOR’s interests may differ from the interests of the holders of our preferred shares and, given EXOR’s majority controlling interest in the Company, circumstances may arise under which EXOR will exercise its control in a manner that is not favorable to the interests of the holders of the preferred shares.

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Preferred shareholders may encounter difficulties in service of process and enforcement of judgments against us in the United States.

We are a Bermuda company and some of our directors and officers are residents of various jurisdictions outside the U.S. All, or a substantial portion, of the assets of our officers and directors and of our assets are or may be located in jurisdictions outside the U.S. Although we have appointed an agent and irrevocably agreed that the agent may be served with process in New York with respect to actions against us arising out of violations of the U.S. Federal securities laws in any Federal or state court in the U.S., it could be difficult for investors to effect service of process within the U.S. on our directors and officers who reside outside the U.S. It could also be difficult for investors to enforce against us or our directors and officers judgments of a U.S. court predicated upon civil liability provisions of U.S. Federal securities laws.

There is no treaty in force between the U.S. and Bermuda providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. As a result, whether a U.S. judgment would be enforceable in Bermuda against us or our directors and officers depends on whether the U.S. court that entered the judgment is recognized by the Bermuda court as having jurisdiction over us or our directors and officers, as determined by reference to Bermuda conflict of law rules. A judgment debt from a U.S. court that is final and for a sum certain based on U.S. Federal securities laws will not be enforceable in Bermuda unless the judgment debtor had submitted to the jurisdiction of the U.S. court, and the issue of submission and jurisdiction is a matter of Bermuda law and not U.S. law.

In addition to and irrespective of jurisdictional issues, Bermuda courts will not enforce a U.S. Federal securities law that is either penal or contrary to public policy. An action brought pursuant to a public or penal law, the purpose of which is the enforcement of a sanction, power or right at the instance of the state in its sovereign capacity will not be entered by a Bermuda court. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies under U.S. Federal securities laws, would not be available under Bermuda law or enforceable in Bermuda court, as they would be contrary to Bermuda public policy. Further, no claim can be brought in Bermuda against us or our directors and officers in the first instance for violation of U.S. Federal securities laws because these laws have no extra jurisdictional effect under Bermuda law and do not have force of law in Bermuda. A Bermuda court may, however, impose civil liability on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Bermuda law.

Taxation Risks

Changes in our effective income tax rate could affect our results of operations.

Our effective income tax rate could be adversely affected in the future by net income being lower than anticipated in jurisdictions where we have a relatively lower statutory tax rate and net income being higher than anticipated in jurisdictions where we have a relatively higher statutory tax rate, or by changes in corporate tax rates and tax regulations in any of the jurisdictions in which we operate. We are subject to regular audit by tax authorities in the various jurisdictions in which we operate. Any adverse outcome of such an audit could have an adverse effect on our net income, effective income tax rate and financial condition.

In addition, the determination of our provisions for income taxes requires significant judgment, and the ultimate tax determination related to some tax positions taken is uncertain. Although we believe our provisions are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our net income and effective income tax rate in the period such determination is made.

If our non-U.S. operations become subject to U.S. income taxation, our net income will decrease.

We believe that we and our non-U.S. subsidiaries (other than business sourced by PartnerRe Europe through PartnerRe Miami Inc. (PartnerRe Miami) and PartnerRe Connecticut Inc. (PartnerRe Connecticut)) have operated, and will continue to operate, our respective businesses in a manner that will not cause us to be viewed as engaged in a trade or business in the U.S. and, on this basis, we do not expect that either we or our non-U.S. subsidiaries will be required to pay U.S. corporate income taxes (other than potential withholding taxes on certain types of U.S. source passive income) or branch profits taxes. Because there is considerable uncertainty as to the activities that constitute being engaged in a trade or business within the U.S., the IRS may contend that either we or our non-U.S. subsidiaries are engaged in a trade or business in the U.S. In addition, legislation regarding the scope of non-U.S. entities and operations subject to U.S. income tax has been proposed in the past, and may be proposed again in the future. If either we or our non-U.S. subsidiaries are subject to U.S. income tax, our shareholders’ equity and net income will be reduced by the amount of such taxes, which might be material.

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The Organisation for Economic Co-operation and Development’s (OECD) initiative to limit harmful tax competition may result in higher taxation and increased complexity, burden and cost of compliance.

The OECD has published reports and launched a global initiative among member and non-member countries on measures to limit harmful tax competition, known as the Base Erosion and Profit Shifting (BEPS) project. On June 21, 2016, the EU’s ministers of Finance and Economic Affairs unanimously approved the Anti-Tax Avoidance Directive to harmonize potential BEPS changes in the EU. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. We expect that countries may change their tax laws in response to this project, and several countries have already changed or proposed changes to their tax laws. Changes to tax laws and additional reporting requirements could increase the complexity, burden and cost of doing business with our Bermuda companies and/or subject our Bermuda companies to increased tax and compliance burdens.

U.S. tax reform proposals could decrease the demand for our services, increase taxes payable by our U.S. reinsurance subsidiary, or otherwise adversely affect us.

New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted that could result in increased tax expenditures in the future. In June of 2016, House Republicans issued a policy paper (the Blueprint) setting forth certain proposals for significant tax reforms. President Trump also issued a high-level outline of his tax reform plan during his campaign that is consistent with the Blueprint in many respects. The most significant part of the Blueprint relates to border tax adjustments. If border tax adjustments were to be applied to the reinsurance industry, a U.S. company purchasing offshore reinsurance may not be allowed to deduct the expense of the premium in computing its taxable income. As such, the purchase of offshore reinsurance may become less efficient for any U.S. company. If such proposed legislation were to become law, it could have an adverse effect on our business, financial condition and results of operations.

Further, currently, our U.S. reinsurance subsidiary retrocedes or may retrocede a portion of its U.S. business to our non-U.S. reinsurance subsidiaries and is generally entitled to deductions for premiums paid for such retrocessions. Proposed legislation has been introduced that if enacted would impose a limitation on such deductions, which could result in increased U.S. tax on this business and decreased net income. It is not possible to predict whether this or similar legislation may be enacted in the future. In addition, it is possible that other legislative proposals could be introduced in the future that could have an adverse impact on us or our shareholders.

U.S. tax law changes could reduce demand for insurance products, which could adversely affect our business, financial condition and results of operations.

Under the U.S. Internal Revenue Code, income tax payable by policyholders on investment earnings is deferred during the accumulation period of some life insurance and annuity products. To the extent that the U.S. Internal Revenue Code is revised to reduce benefits associated with the tax-deferred status of life insurance and annuity products (for example, by reducing individual income tax rates) or to increase the tax-deferred status of competing products, all life insurance companies would be adversely affected with respect to their ability to sell such products, and, depending on grandfathering provisions, by the surrenders or existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. The estate tax provisions of the U.S. Internal Revenue Code have been revised frequently in the past. If Congress adopts legislation in the future to reduce or eliminate the estate tax, our U.S. life insurance company customers could face reduced demand for some of their life insurance products, which in turn could negatively affect our reinsurance business. We cannot predict whether any tax legislation impacting corporate taxes or insurance products will be enacted, what the specific terms of any such legislation will be or whether any such legislation would have a material adverse effect on our business, financial condition and results of operations.

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Risk Management

In the reinsurance industry, the core of the business model is the assumption and management of risk. A key challenge is to create total shareholder value through the intelligent and optimal assumption and management of reinsurance and investment risks while limiting and mitigating those risks that can destroy tangible as well as intangible value, those risks for which the organization is not sufficiently compensated, and those risks that could threaten the ability of the Company to achieve its objectives. While many companies start with a return goal, the Company starts with a capital-based risk appetite and then looks for risks that meet its return targets within that framework. Management believes that this construct allows the Company to balance the cedants’ need for certainty of claims payment with the common shareholder’s and preferred shareholders’ need for an adequate total return.

All business decisions entail a risk/return trade-off, and these decisions are applicable to the Company’s risks. In the context of assumed business risks, this requires an accurate evaluation of risks to be assumed, and a determination of the appropriate economic returns required as fair compensation for such risks. In the context of other than voluntarily assumed business risks, the decision relates to comparing the probability and potential severity of a risk event against the costs of risk mitigation strategies. In many cases, the potential impact of a risk event is so severe as to warrant significant, and potentially expensive, risk mitigation strategies. In other cases, the probability and potential severity of a risk does not warrant extensive risk mitigation.

Successful risk management is the foundation of the Company’s value proposition, with diversification of risks at the core of its risk management strategy. The Company’s ability to succeed in risk assumption and business management is dependent on its ability to accurately analyze and quantify risk, to understand volatility and how risks aggregate or correlate, and to establish the appropriate capital requirements and limits for the risks assumed. All risks, whether they are reinsurance-related risks or capital market risks, are managed by the Company within an integrated framework of policies and processes to ensure the intelligent and consistent evaluation and valuation of risk, and to ultimately provide an appropriate return to shareholders.

The Company’s results are primarily determined by how well the Company understands, prices and manages assumed risk. Management also believes that every organization faces numerous risks that could threaten the successful achievement of a company’s goals and objectives. These include all factors which can be viewed as either strategic, financial or operational risks that are common to any industry, such as choice of strategy and markets, economic and business cycles, competition, changes in regulation, data quality and security, fraud, business interruption and management continuity. See Risk Factors above.

The Company has a clearly defined governance structure for risk management. Executive Management and the Board are responsible for setting the overall vision and goals of the Company, which include the Company’s risk appetite and return expectations. The Company’s risk framework, including key risk policies, is recommended by Executive Management and approved by the Board. Each of the Company’s risk policies relates to a specific risk and describes the Company’s approach to risk management, defines roles and responsibilities relating to the assumption, mitigation, and control processes for that risk, and an escalation process for exceptions. Key policies are established by the Chief Executive Officer (CEO) and operating policies and risk controls at the next level down are established by Business Unit and Support Unit management as appropriate. Risk management policies and processes are coordinated by Group Risk Management and compliance is verified by Internal Audit on a periodic basis. The results of audits are monitored by the Audit Committee of the Board.

The Company utilizes a multi-level risk management structure, whereby critical exposure limits, return requirement guidelines, capital at risk and key policies are established by the Executive Management and Board, but day-to-day execution of risk assumption activities and related risk mitigation strategies are delegated to the Business Units and Support Units. Reporting on risk management activities is integrated within the Company’s annual planning process, quarterly operations reports, periodic reports on exposures and large losses, and presentations to the Executive Management and Board. Individual Business Units and Support Units employ, and are responsible for reporting on, operating risk management procedures and controls, while Internal Audit periodically evaluates the effectiveness of such procedures and controls.

Strategic Risks

Strategic risks are discussed and agreed to between the CEO and the Board, and managed by the CEO, and include the direction and governance of the Company, as well as its response to key external factors faced by the reinsurance industry, such as changes in cedants’ risk retention behavior, regulation, competitive structure, and macroeconomic, legal and social trends. Management considers that strong governance procedures, including a robust system of processes and internal controls are appropriate to manage risks related to its reputation and risks related to new initiatives, including acquisitions, new products or markets. The Company seeks to preserve its reputation through high professional and ethical standards and manages the impact of identified risks through the adoption and implementation of a sound and comprehensive assumed risk framework.

Assumed Risks

Central to the Company’s assumed risk framework is its risk appetite. The Company’s risk appetite is a statement of how much and how often the Company will tolerate economic losses during an annual period. The Company’s risk appetite is expressed

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as the maximum economic loss that the Board is willing to incur based on various modeled probability return periods. The Company’s risk appetite is approved by the Board on an annual basis. Definitions for the maximum economic loss and available economic capital are as follows:

Economic Loss. The Company defines an economic loss as a decrease in the Company’s economic value, which is defined as common shareholder’s equity attributable to PartnerRe Ltd. plus the “time value of money” discount of the Non-life reserves that is not recognized in the consolidated financial statements in accordance with U.S. GAAP, net of tax, plus the embedded value of the Life portfolio that is not recognized in the consolidated financial statements in accordance with U.S. GAAP, net of tax, less goodwill and intangible assets, net of tax.

Available Economic Capital. The Company defines economic capital as the economic value, as defined above, plus preferred shareholders’ equity and the carrying value of debt recognized in the consolidated financial statements in accordance with U.S. GAAP.

The Maximum Economic Loss. The maximum economic loss is a loss expressed as a percentage of economic capital under various modeled probability return periods.

The Company manages exposure levels from multiple risk sources to provide reasonable assurance that modeled operating or economic losses are contained within the risk appetite approved by the Board. The Company utilizes an internal model to evaluate capital at risk levels and compliance with the Company’s risk appetite. The results of the Company’s assessment of capital at risk levels in relation to the risk appetite are reported to the Board on a periodic basis.

To mitigate the chance of operating losses and economic losses exceeding the risk appetite, the Company relies upon diversification of risk sources and risk limits to manage exposures. Diversification enables losses from one risk source to be offset by profits from other risk sources so that the chance of overall losses exceeding the Company’s risk appetite is reduced. However, if multiple losses from multiple risk sources occur within the same year, there is the potential that operating and economic losses can exceed the risk appetite. In addition, there is the chance that the Company’s internal assessment of capital at risk for a single source of risk or for multiple sources of risk proves insufficient resulting in actual losses exceeding the Company’s risk appetite. To reduce the chance of either of these unfavorable outcomes, the Company uses risk limits to minimize the chance that losses from a single risk source or from multiple risk sources will cause operating losses and economic losses to exceed the Company’s risk appetite, and embeds correlations within its internal model to capture the possibility of multiple losses from multiple risk sources.

The Company establishes key risk limits net of any reinsurance/retrocession for any risk source deemed by management to have the potential to cause operating losses or economic losses greater than the Company’s risk appetite. The Company may also establish risk limits for any risk source deemed to have the possibility of causing reputational damage. The Board approves the key risk limits. Executive, Business and Support Unit Management may set additional specific and aggregate risk limits within the key risk limits approved by the Board. The actual level of risk is dependent on current market conditions and the need for balance in the Company’s portfolio of risks. On a periodic basis, management reviews and reports to the Board the actual limits deployed against the approved limits.

Individual Business and Support Units manage assumed risks, subject to the appetite, principles and limits approved by the Board and policies established by Executive and Business Unit Management. At an operational level, Business and Support Units manage assumed risk through risk mitigation strategies including strong processes, technical risk assessment and collaboration among different groups of professionals who each contribute a particular area of expertise.

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Management established key risk limits that are approved by the Board for ten risk sources. The approved limits and the actual limits deployed at December 31, 2016 and 2015 were as follows (in billions of U.S. dollars, except interest rate risk data):



	December 31, 2016				December 31, 2015
	Limit approved⁽²⁾		Actual deployed⁽²⁾		Limit approved⁽²⁾		Actual deployed⁽²⁾
Natural Catastrophe Risk	$	2.3	$	1.4	$	2.3	$	1.3
Long-Tail Reinsurance Risk	$	1.2	$	0.8	$	1.2	$	0.8
Market Risk	$	3.4	$	1.4	$	3.4	$	2.0
Equity and equity-like sublimit	$	2.8	$	1.1	$	2.8	$	1.4
Interest Rate Risk (duration)—excess fixed income investment portfolio⁽¹⁾	6.0 years		4.4 years		6.0 years		3.0 years
Default and Credit Spread Risk	$	9.5	$	5.6	$	9.5	$	5.6
Trade Credit Risk	$	0.9	$	0.6	$	0.9	$	0.6
Longevity Risk	$	2.0	$	1.5	$	2.0	$	1.5
Pandemic Risk	$	1.3	$	0.7	$	1.3	$	0.6
Agriculture Risk	$	0.3	$	0.1	$	0.3	$	0.1
Mortgage Reinsurance Risk	$	1.0	$	0.8	$	1.0	$	0.6
Any one country sub-limit	$	0.8	$	0.7	$	0.8	$	0.5


(1)	The excess fixed income investment portfolio relates to fixed income securities included in the Company’s capital funds, which are in excess of those included in the Company’s liability funds and which support the net reinsurance liabilities. See capital and liability funds defined and described further in Liquidity and Capital Resources—Investments in Item 5 of this report.


(2)	The limits approved and the actual limits deployed in the table above are shown net of retrocession.

Natural Catastrophe Risk

The Company defines this risk as the risk that the aggregate losses from natural perils materially exceed the net premiums that are received to cover such risks, which may result in operating and economic losses to the Company. The Company considers both catastrophe losses due to a single large event and catastrophe losses that would occur from multiple (but potentially smaller) events in any year.

Natural catastrophe risk is managed through the allocation of catastrophe exposure capacity in each exposure zone to different Business Units, regular catastrophe modeling and a combination of quantitative and qualitative analysis. The Company considers a peril zone to be an area within a geographic region, continent or country in which losses from insurance exposures are likely to be highly correlated to a single catastrophic event. Not all peril zones have the same limit and peril zones are broadly defined so that it would be unlikely for any single event to substantially erode the aggregate exposure limits from more than one peril zone. Even extremely high severity/low likelihood events will only partially exhaust the limits in any peril zone, as they are likely to only affect a part of the area covered by a wide peril zone.

The Company imposes a limit to natural catastrophe risk from any single loss through exposure limits, net of retrocession, in each peril zone and to each peril and also utilizes probable maximum loss (PML) estimates to manage its exposures to specific peril zones. Limits from catastrophe exposed business include limits on both reinsurance treaties and insurance-linked securities. Specifically, the Company uses the lesser of any contractually defined limits or the PML per contract as the measure of capacity per treaty including proportional exposures for the key peak exposures. This capacity measure is aggregated by contract within a peril zone to establish the total exposures. Actual exposure limits deployed and estimated PML in a specific peril zone will vary from period to period depending on management’s assessment of current market conditions, the results of the Company’s exposure modeling, and other analysis. See Natural Catastrophe PML below for a discussion of the Company’s estimated exposures for selected peak industry natural catastrophe perils.

Long-Tail Reinsurance Risk

The Company defines this risk as the risk that the estimates of ultimate losses for casualty and other long-tail lines will prove to be too low, leading to the need for substantial reserve strengthening, which may result in operating and economic losses to the Company. One of the greatest risks in long-tail lines of business, and particularly in U.S. casualty, is that loss trends are higher than the assumptions underlying the Company’s ultimate loss estimates, resulting in ultimate losses that exceed recorded loss reserves. When loss trends prove to be higher than those underlying the reserving assumptions, the impact can be large because of an

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accumulation effect. For long-tail lines, the Company carries reserves to cover claims arising from several years of underwriting activity and these reserves are likely to be similarly affected by unfavorable loss trends. The effect is likely to be more pronounced for recent underwriting years because, with the passage of time, actual loss emergence and data provide greater confidence around the adequacy of ultimate liability estimates for older underwriting years. Management believes that the volume of long-tail business most exposed to these reserving uncertainties is limited.

The Company manages and mitigates the reserving risk for long-tail lines in a variety of ways. Underwriters and pricing actuaries follow a disciplined underwriting process that utilizes all available data and information, including industry trends, and the Company establishes prudent reserving policies for determining recorded reserves. These policies are systematic and management endeavors to apply them consistently over time. The Company’s limit for long-tail reinsurance risk represents the written premiums for casualty and other long-tail lines for the four most recent calendar quarters. See Liquidity and Capital Resources—Critical Accounting Policies and Estimates—Non-life and Life and Health Reserves in Item 5 of this report.

Market Risk

The Company defines this risk as the risk of a substantial decline in the value of its risk assets. Risk assets comprise the Company’s equity and equity-like securities which include all invested assets that are not investment grade standard fixed income securities and certain fixed income asset classes that are not liquid (but excludes certain insurance-linked securities as that risk is aggregated with liability risks). The Company limits the market value of risk assets as well as sub-limits the market value of equity and equity-like securities that it will hold in its investment portfolio. During 2016, the Company substantially reduced its exposures to equity and equity-like risk assets. The Company moved some of these assets into other investments including real estate. Refer to Note 3 to the Consolidated Financial Statements in Item 18 of this report for further details of equities and changes in composition of investments, including equities, over the prior year.

The Company sets strict limits on investments in any one name and any one industry, which creates a diversified portfolio and allows management to focus on the systemic effects of equity risks. Systemic risk is managed by asset allocation, subject to strict caps on Risk Assets as a percentage of shareholders’ equity. The Company’s fully integrated information system provides real-time investment data, allowing for continuous monitoring and decision support. Each portfolio is managed against a predetermined benchmark to enable alignment with appropriate risk parameters and achievement of desired returns. See Quantitative and Qualitative Disclosures about Market Risk—Equity Price Risk in Item 11 of this report.

Interest Rate Risk

The Company defines this risk as the risk of a substantial mismatch of asset and liability durations, which may result in economic losses to the Company. Economically, the Company is hedged against changes in asset and liability values resulting from small parallel changes in the risk-free yield curve to the degree asset and liability durations are matched. Nonparallel shifts in the yield curve or extremely large changes in yields can introduce interest rate risk and investment losses to the degree asset maturity and coupon payments are not exactly matched to liability payments. Investment losses associated with interest rate risk of a magnitude that have the potential to exceed the Company’s risk appetite are associated with extremely large increases in interest rates over an annual period. The Company limits and monitors the interest rate exposure on its fixed income assets held in excess of those that are matched against liabilities. The Company both matches assets and liabilities to hedge against changes in interest rates and limits the total amount of interest rate exposure. See Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk in Item 11 of this report.

Default and Credit Spread Risk

The Company defines this risk as the risk of a substantial increase in defaults in the Company’s standard fixed income credit securities (which includes investment grade corporate bonds and asset-backed securities) leading to realized investment losses or a significant widening of credit spreads resulting in realized or unrealized investment losses, either of which may result in economic losses to the Company. Investment losses of the magnitude that have the potential to exceed the Company’s risk appetite are associated with the systemic impacts of severe economic and financial stress. As a result, the Company limits the exposure to the standard fixed income credit securities so that investment losses will be mitigated in an extreme economic or financial crisis. See Quantitative and Qualitative Disclosures about Market Risk—Credit Spread Risk in Item 11 of this report.

Trade Credit Risk

The Company defines this risk as the risk that aggregated trade credit losses materially exceed the net premiums that are received to cover such risks, which may result in operating and economic losses to the Company. Trade credit losses of the magnitude that have the potential to exceed the Company’s risk appetite are associated with the systemic impacts of severe economic and financial stress. In these events, with respect to underwriting, losses may arise from defaults of single large named insureds and from a high frequency of defaults of smaller insureds. In addition, trade credit risk is highly correlated with default and

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credit spread widening risk of the standard investment grade fixed income portfolio during times of economic stress or financial crises.

In order to determine a trade credit limit metric for the purposes of risk accumulation, the Company examines extreme scenarios and measures its exposure to loss under those scenarios. Examples of these scenarios include historical losses from the largest trade credit defaults, prior periods of financial crisis and economic stress (e.g. 1990-1991 recession and 2008-2009 financial crisis) and potential impacts of financial crisis and economic stress scenarios. The Company does not rely upon modeled losses to determine the limit metric, but benchmarks the scenario results against existing tests, scenarios and models. For risk accumulation purposes, the Company examines the extreme scenario that would result in 100% of loss ratio adverse deviation on the trade credit portfolio written on a proportional basis (which far exceeds any adverse deviation of the loss ratio experienced in past periods of economic stress or financial crises) increased by the net PMLs of the two largest named insureds in the Company’s trade credit portfolio.

Longevity Risk

The Company considers longevity exposure to have a material accumulation potential and has established a limit to manage the risk of loss associated with this exposure, which may result in operating and economic losses to the Company. The Company defines longevity risk as the potential for increased actual and future expected annuity payments resulting from annuitants living longer than expected, or the expectation that annuitants will live longer in the future. Assuming longevity risk, through reinsurance or capital markets transactions, is part of the Company’s strategy of building a diversified portfolio of risks. While longevity risk is highly diversifying in relation to other risks in the Company’s portfolio (e.g. mortality products), longevity risk itself is a systemic risk with little opportunity to diversify within the risk class. Longevity risk accumulates across cedants, geographies, and over time because mortality trends can impact diverse populations in the same manner. Longevity risk can manifest slowly over time as experience proves annuitants are living longer than original expectations, or abruptly as in the case of a “miracle drug” that increases the life expectancy of all annuitants simultaneously.

In order to determine a longevity limit metric for the purposes of risk accumulation, the Company examines extreme scenarios and measures its exposure to loss under those scenarios. Examples of these scenarios include immediate elimination of major causes of death and an extreme improvement in mortality continuing indefinitely. For risk accumulation purposes, the Company selects the most financially adverse scenario and adds an additional margin for potential deviation. To measure utilization of the longevity limit (accumulation of longevity exposure) the Company accumulates the net present value of adverse losses resulting from the application of the selected most extreme scenario, adds an additional margin to every in-force longevity treaty for potential delays in recognizing that an observed mortality deviation is not short term in nature and, where appropriate, includes the notional value of longevity insurance-linked securities.

Pandemic Risk

The Company considers mortality exposure to have a material accumulation potential to common risk drivers, in particular to pandemic events, which may result in operating and economic losses to the Company. The Company defines pandemic risk as the increase in mortality over an annual period associated with a rapidly spreading virus (either within a highly populated geographic area or on a global basis) with a high mortality rate. Assuming mortality risk, through reinsurance or capital markets transactions, is part of the Company’s strategy of building a diversified portfolio of risks. While mortality risk is highly diversifying in relation to other risks in the Company’s portfolio (e.g. longevity products), mortality risk itself is a systemic risk when the risk driver is a pandemic with little opportunity to diversify within the risk class. Mortality risk from pandemics can accumulate across cedants and geographies.

In order to determine a pandemic limit metric for the purposes of risk accumulation, the Company examines extreme scenarios and measures its exposure to loss under those scenarios. Examples of these scenarios include increased mortality associated with past pandemic events (e.g. 1918 Spanish flu) and potential mortality outcomes from transmission scenarios across differing age groups, and across developed and developing countries. For risk accumulation purposes, the Company selects an extreme mortality scenario applied to the insured portfolio in developing and developed countries that would have twice the assumed fatality rate of the 1918 Spanish flu recurring today, combined with an adverse mortality age pattern, and with the same transmissibility characteristics.

Agriculture Risk

The Company defines this risk as the risk that losses from multi-peril crop insurance materially exceed the net premiums that are received to cover such risks, which may result in operating and economic losses to the Company. Multi-peril crop underwriting losses of the magnitude that have the potential to exceed the Company’s risk appetite are associated with the systemic impacts of severe weather events, particularly drought or flooding, over a large geographic area. Localized events such as convective

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thunderstorms or hail, while potentially devastating, are unlikely to have the large geographic footprint necessary to create material losses exceeding the net premiums collected.

Multi-peril crop risk is managed through geographic diversification both within individual countries and across countries. This is accomplished through the allocation and tracking of capacity across exposure zones (defined as individual countries) and is accompanied by regular extreme event modeling, and a combination of quantitative and qualitative analysis.

The Company utilizes PML estimates particularly for the U.S., net of retrocession, to manage its exposures. The limit approved measure is aggregated by contract within an exposure zone to establish the total exposures. Actual exposures deployed and estimated PMLs in a specific zone will vary from period to period depending on management’s assessment of current market conditions, the results from exposure modeling, and other analysis.

Mortgage Reinsurance Risk

The Company defines this risk as the risk that losses from mortgage reinsurance materially exceed the net premiums that are received to cover such risks, which may result in operating and economic losses to the Company. Mortgage insurance underwriting losses that have the potential to exceed the Company’s risk appetite are associated with the systemic impacts of severe mortgage defaults, driven by large scale economic downturns and high unemployment. Localized or regional economic downturns are unlikely to have a large enough geographic footprint necessary to create material losses exceeding the net premiums collected.

At December 31, 2016, the majority of the Company’s exposure to mortgage risk related to risks in the U.S. The Company’s U.S. mortgage portfolio consists of prime mortgages, with most of the underlying risks related to policies written post-financial crisis and subject to enhanced post-financial crisis underwriting procedures that differentiate between risks. Mortgage insurance is managed through geographic diversification both within countries and across countries. This is accomplished through the allocation and tracking of capacity across exposure zones (defined as individual countries) and is accompanied by regular extreme event modeling, and a combination of quantitative and qualitative analysis.

The Company utilizes total limits deployed, net of retrocession, to manage its exposures. The limits per individual contract are aggregated within an exposure zone to establish the total exposures. Actual exposures deployed and estimated PMLs in a specific zone will vary from period to period depending on management’s assessment of current market conditions, the results from exposure modeling, and other analysis.

Operational and Financial Risks

Operational and financial risks are managed by designated functions within the organization. These risks include, but are not limited to, failures or weaknesses in financial reporting and controls, regulatory non-compliance, poor cash management, fraud, breach of information technology security, disaster recovery planning and reliance on third-party vendors. The Company seeks to minimize these risks through robust processes and monitoring throughout the organization.

Other Underwriting Risk and Exposure Controls

The Company’s underwriting is conducted at the Business Unit level through specialized underwriting teams with the support of technical staff in disciplines such as actuarial, claims, legal, risk management and finance.

The Company’s underwriters generally speak the local language and/or are native to their country or area of specialization. They develop close working relationships with their ceding company counterparts and brokers through regular visits, gathering detailed information about the cedant’s business and local market conditions and practices. As part of the underwriting process, the underwriters also focus on the reputation and quality of the proposed cedant, the likelihood of establishing a long-term relationship with the cedant, the geographic area in which the cedant does business and the cedant’s market share, historical loss data for the cedant and, where available, historical loss data for the industry as a whole in the relevant regions, in order to compare the cedant’s historical loss experience to industry averages, and to gauge the perceived insurance and reinsurance expertise and financial strength of the cedant. The Company trains its underwriters extensively and strives to maintain continuity of underwriters within specific geographic markets and areas of specialty.

Given the Company underwrites volatile lines of business, such as catastrophe reinsurance, the operating results and financial condition of the Company can be adversely affected by catastrophes and other large losses that may give rise to claims under reinsurance coverages provided by the Company. The Company manages its exposure to catastrophic and other large losses by (i) limiting its aggregate exposure on catastrophe reinsurance in any particular geographic zone, (ii) selective underwriting practices, (iii) diversification of risks by geographic area and by lines and classes of business, and (iv) purchasing retrocessional reinsurance.

The Company generally underwrites risks with specified limits per treaty program. Like other reinsurance companies, the Company is exposed to multiple insured losses arising out of a single occurrence, whether a natural event such as hurricane,

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windstorm, tornado, flood or earthquake, or man-made events. Any such catastrophic event could generate insured losses in one or many of the Company’s reinsurance treaties and facultative contracts and in one or more lines of business. The Company considers such event scenarios as part of its evaluation and monitoring of its aggregate exposures to catastrophic events.

Retrocessional Reinsurance

The Company uses retrocessional reinsurance agreements to reduce its exposure on certain reinsurance risks assumed and to mitigate the effect of any single major event or the frequency of medium-sized events. These agreements provide for the recovery of a portion of losses and loss expenses from retrocessionaires. The majority of the Company’s retrocessional reinsurance agreements cover property and specialty lines (e.g. agriculture, aviation, marine, mortgage and certain risks included in the credit/surety line) exposures, predominantly those that are catastrophe exposed. The Company also utilizes retrocessions in the Life and Health segment to manage the amount of per-event and per-life risks to which it is exposed. Retrocessionaires must be pre-approved based on their financial condition and business practices, with stability, solvency and credit ratings being important criteria. Strict limits per retrocessionaire are also put into place and monitored to mitigate counterparty credit risk.

The Company remains liable to its cedants to the extent that the retrocessionaires do not meet their obligations under retrocessional agreements, and therefore retrocessions are subject to credit risk in all cases and to aggregate loss limits in certain cases. The Company holds collateral, including escrow funds, trusts, securities and letters of credit under certain retrocessional agreements. Provisions are made for amounts considered potentially uncollectible and reinsurance losses recoverable from retrocessionaires are reported after allowances for uncollectible amounts.

In addition to the retrocessional agreements, PartnerRe Europe has a Reserve Agreement in place with Colisée Re (see Liquidity and Capital Resources— Reserves in Item 5 of this report).

Claims

In addition to managing and settling reported claims and consulting with ceding companies on claims matters, the Company conducts periodic audits of specific claims and the overall claims procedures at the offices of ceding companies. The Company attempts to evaluate the ceding company’s claim adjusting techniques and reserve adequacy and whether it follows proper claims processing procedures. The Company also provides recommendations regarding procedures and processes to the ceding company.

Natural Catastrophe PML

The following discussion of the Company’s natural catastrophe PML information contains forward-looking statements based upon assumptions and expectations concerning the potential effect of future events that are subject to uncertainties. See Risk Factors in Item 3 of this report for a list of the Company’s risk factors. Any of these risk factors could result in actual losses that are materially different from the Company’s PML estimates below.

Natural catastrophe risk is a source of significant aggregate exposure for the Company and is managed by setting risk appetite and limits, as discussed above. Natural catastrophe perils can impact geographic regions of varying size and can have economic repercussions beyond the geographic region directly impacted.

The Company considers a peril zone to be an area within a geographic region, continent or country in which losses from insurance exposures are likely to be highly correlated to a single catastrophic event. The Company defines peril zones to capture the vast majority of exposures likely to be incorporated by typical modeled events. There is, however, no industry standard and the Company’s definitions of peril zones may differ from those of other parties.

The Company has exposures in other peril zones that can potentially generate losses greater than the PML estimates below. The Company’s PMLs represent an estimate of loss for a single event for a given return period. The table below discloses the Company’s 1-in-250 and 1-in-500 year return period estimated loss for a single occurrence of a natural catastrophe event in a one-year period. In other words, the 1-in-250 and 1-in-500 year return period PMLs mean that there is a 0.4% and 0.2% chance, respectively, in any given year that an occurrence of a natural catastrophe in a specific peril zone will lead to losses exceeding the stated estimate.

The PML estimates below include all significant exposure from our Non-life and Life and Health business operations. This includes coverage for property, marine, energy, engineering, workers’ compensation, mortality, and exposure to catastrophe from insurance-linked securities. The PML estimates do not include casualty coverage that could be exposed as a result of a catastrophic event. In addition, they do not include estimates for contingent losses to insureds that are not directly impacted by the event (e.g. loss of earnings due to disruption in supply lines).

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The Company’s single occurrence estimated net PML exposures (pre-tax and net of retrocession and reinstatement premiums) for certain selected peak industry natural catastrophe perils as at October 1, 2016 were as follows (in millions of U.S. dollars):



			Single Occurrence Estimated Net PML Exposure
Zone	Peril	1-in-250 year PML			1-in-500 year PML (Earthquake Perils Only)
U.S. Southeast	Hurricane		$	496		$	—
U.S. Northeast	Hurricane		$	560		$	—
U.S. Gulf Coast	Hurricane		$	502		$	—
Caribbean	Hurricane		$	165		$	—
Europe	Windstorm		$	387		$	—
Japan	Typhoon		$	190		$	—
California	Earthquake		$	462		$	595
British Columbia	Earthquake		$	161		$	317
Japan	Earthquake		$	315		$	349
Australia	Earthquake		$	187		$	258
New Zealand	Earthquake		$	147		$	211



ITEM 4.	INFORMATION ON THE COMPANY

A. History and Development of the Company

PartnerRe Ltd., an exempt company incorporated under the laws of Bermuda with limited liability, is the holding company for our international reinsurance group and was incorporated in Bermuda in August 1993. The principal office is located at 90 Pitt’s Bay Road, Pembroke, Bermuda (telephone number: +1 441-292-0888). The Company predominantly provides reinsurance on a worldwide basis through its principal wholly-owned subsidiaries, including Partner Reinsurance Company Ltd. (PartnerRe Bermuda), Partner Reinsurance Europe SE (PartnerRe Europe), Partner Reinsurance Company of the U.S. (PartnerRe U.S.) and, effective April 1, 2015, Partner Reinsurance Asia Pte. Ltd. (PartnerRe Asia). The Company’s principal office in the U.S. is located at One Greenwich Plaza, Greenwich, Connecticut (telephone number: +1 203 485 4200).

In July 1997, the Company completed the acquisition of SAFR (subsequently renamed PartnerRe SA and reinsurance business transferred into PartnerRe Europe), a well-established global professional reinsurer based in Paris. In December 1998, the Company completed the acquisition of the reinsurance operations of Winterthur Re, further enhancing the Company’s expansion strategy. In December 2009, the Company completed the acquisition of PARIS RE Holdings Limited (Paris Re), a French-listed, Swiss-based holding company and its operating subsidiaries. Effective December 31, 2012, the Company completed the acquisition of Presidio Reinsurance Group, Inc. (Presidio, subsequently renamed and referred to herein as PartnerRe Health), a U.S. specialty accident and health reinsurance and insurance writer.

On October 20, 2016, the Company entered into a definitive agreement to acquire 100% of the outstanding ordinary shares of Aurigen Capital Limited (Aurigen), a North American life reinsurance company. This acquisition enables the Company to expand its life reinsurance footprint in Canada and the U.S. The acquisition was completed on April 3, 2017. See Note 22 to the Consolidated Financial Statements in Item 18 for further details.

On August 2, 2015, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Exor N.V., Pillar Ltd., a wholly-owned subsidiary of Exor N.V., and solely with respect to certain specified sections thereof, EXOR S.p.A., a European investment company controlled by the Agnelli family, whereby Pillar Ltd. would be merged with and into the Company, with the Company continuing as the surviving company and a wholly-owned subsidiary of Exor N.V. (the Merger). On March 18, 2016, the Company announced completion of the acquisition by Exor N.V. following receipt of all regulatory approvals. Pursuant to the terms of the Merger Agreement, each PartnerRe common share issued and outstanding immediately prior to the effective time of the Merger was cancelled and converted into $137.50 in cash per share and a one-time special pre-closing cash dividend in the amount of $3.00 per common share (the Merger Special Dividend) was paid. Subsequently, one common share at $1.00 par value was issued to Exor N.V., representing 100% common share ownership of the Company.

Pursuant to the terms of the Merger Agreement, PartnerRe common shares are no longer traded on the NYSE. The Company’s preferred shares continue to be traded on the NYSE following the closing of the transaction.

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Effective November 24, 2016, the one common share of $1.00 par value was subdivided into 100 million shares of $0.00000001 par value each, which are wholly owned by EXOR Nederland N.V. (formerly Exor N.V.).

B. Business Overview

The Company provides reinsurance for its clients in approximately 150 countries around the world. The Company’s principal offices are located in Hamilton (Bermuda), Dublin, Greenwich (Connecticut, U.S.), Paris, Singapore and Zurich.

Effective July 1, 2016, the Company’s business units have been consolidated into three worldwide business units comprised of Property & Casualty (P&C), Specialty and Life and Health. The Company has determined that these three business units represent its segments as the Company monitors the performance of its operations for these business units. The combined business included in the P&C and Specialty segments is collectively referred to in this report as Non-life business. The P&C, Specialty and Life and Health segments each separately represent markets that are reasonably homogeneous in terms of client types, buying patterns, underlying risk patterns and approach to risk management.

The Company provides reinsurance of risks to ceding companies (primary insurers, cedants or reinsureds). Risks reinsured include, but are not limited to, agriculture, aviation/space, casualty, catastrophe, energy, engineering, financial risks, marine, motor, multiline and other lines, property, mortality, longevity, accident and health and alternative risk products. The Company’s alternative risk products include weather and credit protection to financial, industrial and service companies on a worldwide basis.

Reinsurance is offered on either a proportional or non-proportional basis through treaties or facultative reinsurance:

•In a proportional (or quota share) treaty reinsurance agreement, the reinsurer assumes a proportional share of the original premiums and losses incurred by the cedant. The reinsurer pays the ceding company a commission, which is generally based on the ceding company’s cost of acquiring the business being reinsured (including commissions, premium taxes, assessments and miscellaneous administrative expenses) and may also include a profit.

•In a non-proportional (or excess of loss) treaty reinsurance agreement the reinsurer indemnifies the reinsured against all or a specified portion of losses on underlying insurance policies in excess of a specified amount, which is called a retention or attachment point. Non-proportional business is written in layers and a reinsurer or group of reinsurers accepts a band of coverage up to a specified amount. The total coverage purchased by the cedant is referred to as a program and is typically placed with predetermined reinsurers in pre-negotiated layers. Any liability exceeding the upper limit of the program reverts to the ceding company.

•In a facultative (proportional or non-proportional) reinsurance agreement the reinsurer assumes individual risks. The reinsurer separately rates and underwrites each risk rather than assuming all or a portion of a class of risks as in the case of treaty reinsurance.

The Company’s businesses are geographically diversified with premiums being written on a worldwide basis.

Premium Distribution

The Company’s gross premiums written by segment for the years ended December 31, 2016, 2015 and 2014 are as follows (in millions of U.S. dollars). Segment data included below for prior years has been recast to conform to the current year presentation.



	2016		2015		2014
Non-life business:
P&C segment	$	2,269	$	2,371	$	2,539
Specialty segment	1,920		1,906		2,128
Total Non-life business	4,189		4,277		4,667
Life and Health segment	1,168		1,271		1,265
	$	5,357	$	5,548	$	5,932

See Note 20 to the Consolidated Financial Statements in Item 18 of this report for additional disclosure of the geographic distribution of gross premiums written and for information about the Company’s segments.

The Company’s results by segment are presented in Operating Results—Results by Segment in Item 5 of this report.

Non-life Business

Non-life business is comprised of the P&C and Specialty segments, which are as follows:

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•	The P&C segment provides holistic access to property and casualty risks, including property catastrophe and facultative risks, through five regional units: North America; Europe; Asia; Latin America; and Middle East, Africa and Russia.


•	The Specialty segment is comprised of business written on a worldwide basis, through a centralized specialty unit offering specialty lines treaty and facultative solutions, generally considered to be specialized due to the sophisticated technical underwriting required to analyze these risks.

Distribution

The Company’s Non-life business is generated both through brokers and through direct relationships with insurance companies. For the year ended December 31, 2016, the Company had two brokers that individually accounted for 10% or more of the Company’s total gross premiums written.

The percentage of Non-life gross premiums written through these two brokers for the year ended December 31, 2016 was as follows:



Broker	Percentage
Marsh (including Guy Carpenter)	27	%
Aon Group (including the Benfield Group)	25	%

The combined percentage of Non-life gross premiums written through these two brokers by segment for the year ended December 31, 2016 was as follows:



Non-life segment	Percentage
P&C	57	%
Specialty	46	%

The majority of the Company’s gross premiums written were written on a proportional basis (more than 75%) for each of the years ended December 31, 2016, 2015 and 2014.

The gross premiums written in each of the P&C and Specialty segments, and the year-over-year comparisons, are described in Operating Results—Results by Segment in Item 5 of this report.

The geographic distribution of the Company’s total gross premiums written (total non-life and life and health business) is presented in Note 20 to the Consolidated Financial Statements in Item 18 of this report.

Competition

The Company competes with other reinsurers, some of which have greater financial, marketing and management resources than the Company, and it also competes with new market entrants, and, specifically in the catastrophe line of business, with alternative capital sources and insurance-linked securities. Competition in the types of reinsurance that the Company underwrites is based on many factors, including the perceived and relative financial strength; pricing and other terms and conditions; services provided; ratings assigned by independent rating agencies; speed of claims payment; and reputation and experience in the lines of business to be written.

Management believes that the Company’s major competitors are the larger European, U.S. and Bermuda-based international reinsurance companies, as well as specialty reinsurers and regional companies in certain local markets. These competitors include Munich Re, Swiss Re, Hannover Re, SCOR SE, Transatlantic, GenRe, Everest Re, RenRe, and Validus.

Management believes the Company ranks among the world’s largest professional reinsurers and is well positioned in terms of client services and highly technical underwriting expertise. Management also believes that the Company’s global franchise and diversified platform, which allows the Company to provide broad risk solutions across many lines of business and geographies, is increasingly attractive to cedants who are choosing to utilize fewer reinsurers by consolidating their reinsurance panels and focus on those reinsurers who can cover more than one line of business. Furthermore, the Company’s capitalization and strong financial ratios allow the Company to offer security to its clients.

Life and Health Business

The Company’s Life and Health segment includes the mortality, longevity and accident and health lines of business written primarily in the U.K., Ireland and France and accident and health business written in the U.S. The Company will also write mortality business originating in Canada following the acquisition of Aurigen. The acquisition was completed on April 3, 2017. See Note 22 to the Consolidated Financial Statements in Item 18 for further details.

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A description of the business written within the Life and Health segment is as follows:

•Mortality—The Company provides reinsurance coverage to primary life insurers and pension funds to protect against individual and group mortality and disability risks. Mortality business is written primarily on a proportional basis through treaty agreements. Mortality business is subdivided into death and disability covers (with various riders) primarily written in Continental Europe, term assurance and critical illness (TCI) primarily written in the U.K. and Ireland, and guaranteed minimum death benefit (GMDB) primarily written in Continental Europe. The Company also writes certain treaties on a non-proportional basis, primarily in France.

•Longevity—The Company provides reinsurance coverage to employer sponsored pension schemes and primary life insurers who issue annuity contracts offering long-term retirement benefits to consumers, who, in turn, seek protection against outliving their financial resources. Longevity business is written on a long-term, proportional basis primarily in the U.K. The Company’s longevity portfolio is subdivided into standard and non-standard annuities. The non-standard annuities are annuities sold to consumers with aggravated health conditions and are usually medically underwritten on an individual basis. The main risk the Company is exposed to by writing longevity business is an increase in the future life span of the insured compared to the expected life span.

•Accident and Health—The Company provides reinsurance coverage to primary life insurers with respect to individual and group health risks. PartnerRe Health writes specialty accident and health business, predominantly in the U.S., including Health Maintenance Organizations (HMO) reinsurance, medical reinsurance and provider and employer excess of loss programs.

Distribution

The Company’s Life and Health business is generated both through brokers and through direct relationships with insurance companies. For the year ended December 31, 2016, only one broker, the Aon Group (including the Benfield Group), accounted for more than 10% of the Life and Health segment’s total gross premiums written at 13%. No one cedant, and no other broker, accounted for more than 10% of the Life and Health segment’s total gross premiums written.

The gross premiums written in the Life and Health segment for the years ended December 31, 2016, 2015 and 2014, and the year-over-year comparisons, are described in Operating Results—Results by Segment in Item 5 of this report.

The geographic distribution of the Company’s total gross premiums written (total Non-life and Life and Health business) for the years ended December 31, 2016, 2015 and 2014 is presented in Note 20 to the Consolidated Financial Statements in Item 18 of this report.

Competition

For the Company’s Life business, the competition differs by location but generally includes multi-national reinsurers and local reinsurers or state-owned insurers in the U.K., Ireland and Continental Europe for its mortality and longevity lines of business. The competition specifically related to the Health business generally includes other specialty accident and health reinsurance providers in the U.S. and departments of worldwide reinsurance companies. These competitors include Munich Re, Reinsurance Group of America, Incorporated, Swiss Re, Hannover Re, SCOR SE and General Reinsurance Corporation.

Reserves

See Liquidity and Capital Resources—Non-life and Life and Health Reserves in Item 5 and Notes 2(b) and 8 to the Consolidated Financial Statements in Item 18 of this report for further details for the Company’s loss reserves, including disclosures required by the SEC Industry Guide 4: Disclosures concerning unpaid claims and claim adjustment expenses of property-casualty insurance underwriters.

Regulation

The business of reinsurance is regulated in all countries in which we operate, although the degree and type of regulation varies significantly from one jurisdiction to another. Some jurisdictions impose complex regulatory requirements on reinsurance or insurance businesses while other jurisdictions impose fewer requirements. In certain foreign countries, reinsurers are required to be licensed by governmental authorities. These licenses may be subject to modification, suspension or revocation dependent on such factors as amount and types of reserves and minimum capital and solvency tests. The violation of regulatory requirements may result in fines, censures and/or criminal sanctions in various jurisdictions. See Risk Factors in Item 3 of this report.

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Bermuda has been deemed Solvency II equivalent under the European Union’s (EU) Solvency II initiative (Solvency II). Bermuda has been granted equivalence for an unlimited period for all three relevant equivalence areas: Articles 172, 227 and 260, with the exception of rules on captives and special purpose insurers, which are subject to a different regulatory regime in Bermuda. This determination has resulted in Bermuda-based reinsurers being exempt from the requirement to post collateral in the EU and allows reinsurance contracts concluded with undertakings having their head office in Bermuda to be treated in the same manner as reinsurance contracts concluded with undertakings authorized in accordance with the directive (Article 172); EU insurance groups can conduct their EU prudential reporting for a subsidiary in Bermuda under local rules instead of Solvency II if deduction and aggregation is allowed as the method of consolidation of group accounts (Article 227); and Bermuda insurance groups which are active in the EU are exempt from some aspects of group supervision in the EU as Member States will rely on the equivalent supervision exercised by the Bermuda Monetary Authority (BMA ) (Article 260). Bermuda was deemed Solvency II equivalent effective January 1, 2016.

One of the key concepts of Solvency II is the principal of one “home” regulator over all the operating entities in a particular insurance or reinsurance group (referred to as Group Supervision). The Insurance Act 1978 of Bermuda and related regulations, as amended (the Insurance Act) sets out provisions regarding Group Supervision, including the power of the BMA to include or exclude specified entities from Group Supervision, the power of the BMA to withdraw as group supervisor, the functions of the BMA as Group supervisor and the power of the BMA to make rules regarding Group Supervision. This Group Supervision regime is in addition to the regulation of the Company’s various operating subsidiaries in their local jurisdictions. The BMA’s Group Supervision rules set out the rules in respect of the assessment of the financial situation and solvency of an insurance group, the system of governance and risk management, and supervisory reporting and disclosures of an insurance group. The Group solvency rules set out the rules in respect of the capital and solvency return and enhanced capital requirements for an insurance group. The BMA has chosen PartnerRe Bermuda as the designated insurer for the purposes of Group Supervision, and the BMA currently acts as Group supervisor of the Company and its subsidiaries. As Group supervisor, the BMA gathers relevant and essential information on and assesses the financial situation of the Company, and coordinates the dissemination of such information to other relevant competent authorities for the purposes of assisting in their regulatory functions and the enforcement of regulatory action against the Company or any of its subsidiaries.

PartnerRe Ltd. is not a registered insurer; however, pursuant to its functions as Group supervisor, the BMA includes the Company and may include any member of the group within its Group Supervision.

Significant aspects of the Bermuda insurance regulatory framework and requirements imposed on Insurance and Reinsurance Groups include the solvency assessment. The Company must annually perform an assessment of its own risk and solvency requirements, referred to as a Group’s Solvency Self Assessment (GSSA). The GSSA allows the BMA to obtain an insurance group’s view of the capital resources required to achieve its business objectives and to assess a group’s governance, risk management and controls surrounding this process. In addition, the Company must file with the BMA a Catastrophe Risk Return which assesses an insurer’s reliance on vendor models in assessing catastrophe exposure.

Effective January 1, 2014, the BMA imposed the Enhanced Capital Requirement (ECR) on the Company pursuant to its function as the Company’s group supervisor. The PartnerRe group’s ECR may be calculated by either (a) the standard model developed by the BMA, or (b) an internal capital model which the BMA has approved for use for this purpose. The Company currently uses the BMA standard model in calculating its group ECR requirements. In addition, the Company is required to prepare and submit annual audited group U.S. GAAP financial statements, annual group statutory financial statements, annual group statutory financial return, annual group capital and solvency return and quarterly group unaudited financial returns.

Pursuant to the Insurance (Public Disclosure) Rules 2015, the BMA requires all commercial insurers and insurance groups (including PartnerRe Bermuda and PartnerRe group) to prepare and publish a Financial Condition Report (FCR) containing both qualitative and quantitative information on (i) the business and performance; (ii) governance structure; (iii) risk profile; (iv) solvency valuation; (v) capital management and (vi) subsequent events of commercial insurers (including PartnerRe Bermuda) and insurance groups (including the PartnerRe group). The FCR is required to be filed with the BMA annually with the first filing deadline being 30 June, 2017 for the 2016 financial year end. The FCR is required to be published on the PartnerRe website within fourteen days of filing the same with the BMA. The FCR must be signed off by the CEO and either the chief risk officer or chief financial officer (CFO) declaring the appropriateness of the information contained in the FCR.

Bermuda

The Insurance Act regulates the business of PartnerRe Bermuda. The Insurance Act imposes solvency and liquidity standards and auditing and reporting requirements on Bermuda insurance companies and grants the BMA powers to supervise, investigate and intervene in the affairs of Bermuda registered insurance companies. The Insurance Act makes no distinction between insurance and reinsurance business.

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PartnerRe Bermuda is licensed as a Class 4 and Class E insurer in Bermuda and is therefore authorized to carry on general and long-term insurance business, respectively. Significant aspects of the Bermuda insurance regulatory framework and requirements imposed on Class 4 and Class E insurers such as PartnerRe Bermuda include the following:

Minimum Capital Requirements. The BMA imposes certain minimum capital regulatory requirements on PartnerRe Bermuda, which are to hold statutory capital and surplus equal to or exceeding the Target Capital Level, which is equivalent to 120% of the ECR. PartnerRe Bermuda’s ECR should be calculated by either (a) the model developed by the BMA, or (b) an internal capital model which the BMA has approved for use for this purpose. PartnerRe Bermuda currently uses the BMA model in calculating its solvency requirements. The Bermuda risk-based regulatory capital adequacy and solvency margin regime provides a risk-based capital model (termed the Bermuda Solvency Capital Requirement (BSCR)) as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization. The BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers to the capital that is dedicated to their business;

Effective from the 2016 financial year end onwards, the BMA has implemented an Economic Balance Sheet (EBS) framework which will now be used as the basis to determine the ECR for all commercial insurers, including PartnerRe Bermuda. The EBS framework applies prudential filters and other EBS valuation adjustments to an insurers GAAP balance sheet to produce an economic valuation of the assets and liabilities of the insurer. The EBS framework includes BSCR capital charge amendments for cash and cash equivalents, credit risk, currency risk, concentration risk and geographic diversification.

Solvency Assessment. PartnerRe Bermuda must perform an assessment of its own risk and solvency requirements, referred to as a Commercial Insurer’s Solvency Self Assessment (CISSA). The CISSA allows the BMA to obtain an insurer’s view of the capital resources required to achieve its business objectives and to assess a company’s governance, risk management and controls surrounding this process. In addition, PartnerRe Bermuda must file with the BMA a Catastrophe Risk Return which assesses an insurer’s reliance on vendor models in assessing catastrophe exposure;

Reporting Requirements. PartnerRe Bermuda must prepare audited annual statutory financial statements and file them with the BMA, together with audited annual financial statements which are prepared in accordance with U.S. GAAP;

Dividends and Distributions. PartnerRe Bermuda is prohibited from declaring or paying any dividend of more than 25% of its total statutory capital and surplus, as shown in its previous financial year statutory balance sheet, unless at least seven days before payment of the dividend it files with the BMA an affidavit that it will continue to meet its minimum capital requirements as described above. In addition, PartnerRe Bermuda must obtain the BMA’s prior approval before reducing its total statutory capital, as shown in its previous financial year statutory balance sheet, by 15% or more.

In addition to the above, PartnerRe Bermuda maintains an operating branch in Canada and a representative office in Mexico. The Canadian branch is subject to regulation in Canada by the Office of the Superintendent of Financial Institutions (OFSI). For a further discussion of the regulations pertaining to the Canadian branch see below.

Ireland

The Central Bank of Ireland (the Central Bank) regulates insurance and reinsurance companies authorized in Ireland, including PartnerRe Europe and PartnerRe Ireland Insurance dac (PartnerRe Ireland). PartnerRe Holdings Europe Limited, a holding company for PartnerRe Europe and PartnerRe Ireland, is not subject to regulation by the Central Bank. PartnerRe Europe is a reinsurance company incorporated under the laws of Ireland and is duly authorized as a reinsurance undertaking to carry on non-life and life reinsurance business in accordance with the European Union (Insurance and Reinsurance) Regulations 2015. PartnerRe Ireland is an insurance company incorporated under the laws of Ireland and is duly authorized as an insurance undertaking to carry on non-life insurance business in accordance with the European Union (Insurance and Reinsurance) Regulations 2015.

Significant aspects of the Irish re/insurance regulatory framework and requirements imposed on PartnerRe Europe and PartnerRe Ireland include the following:

Solvency Requirements. The Solvency II European Directive related to the solvency standards applicable to insurers and reinsurers prescribes, at the level of PartnerRe Europe and PartnerRe Ireland, the minimum amounts of financial resources that both companies are required to have in order to cover the risks to which they are exposed and the principles that should guide their overall risk management and reporting.

This Directive became effective January 1, 2016. In addition to the Solvency II requirements, PartnerRe Europe and PartnerRe Ireland have similar governance requirements to those of PartnerRe Bermuda such as Economic Balance Sheet, Own Risk and Solvency Assessment, Solvency and Financial Condition Report and a Regular Supervisory Report.

Reporting Requirements. PartnerRe Europe and PartnerRe Ireland must file and submit annual audited financial statements in accordance with International Financial Reporting Standards and related reports to the Irish Companies Registration Office (CRO) together with an annual return of certain core corporate information. Changes to core corporate information during the year must

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also be notified to the CRO. These requirements are in addition to the regulatory returns required to be filed annually with the Central Bank and additionally, in the case of PartnerRe Ireland, with the National Association of Insurance Commissioners (NAIC) in the U.S.; and

Dividends and Distributions. Pursuant to Irish company law, PartnerRe Europe and PartnerRe Ireland are restricted to declaring dividends only out of “profits available for distribution”. Profits available for distribution are, broadly, a company’s accumulated realized profits less its accumulated realized losses. Such profits may not include profits previously utilized.

In addition to the above, PartnerRe Europe has also established operating branches in the U.K., France, Switzerland, Dubai and Hong Kong and a representative office in Brazil, which are subject to Irish reinsurance supervision regulations. In addition, the Hong Kong branch is subject to regulation by the Office of the Commissioner of Insurance of Hong Kong. PartnerRe Ireland, pursuant to the Nonadmitted and Reinsurance Reform Act of 2010 (part of the Dodd-Frank Act), is a nonadmitted alien insurer in the U.S. and is eligible to write business as an excess and surplus lines insurer in all U.S. states. PartnerRe Ireland has also established an operating branch in the U.K. which is subject to Irish reinsurance supervision regulations.

United States

PartnerRe U.S. Corporation is a Delaware domiciled holding company for its wholly-owned (re)insurance subsidiaries, PartnerRe U.S., PartnerRe Insurance Company of New York (PRNY) and PartnerRe America Insurance Company (PRAIC) (PartnerRe U.S., PRNY and PRAIC together being the PartnerRe U.S. Insurance Companies). The PartnerRe U.S. Insurance Companies are subject to regulation under the insurance statutes and regulations of their domiciliary states (New York in the case of PartnerRe U.S. and PRNY, and Delaware in the case of PRAIC, and all states where they are licensed, accredited or approved to underwrite insurance and reinsurance).

Currently, the PartnerRe U.S. Insurance Companies are licensed, accredited or approved reinsurers and/or insurers in all fifty states and the District of Columbia, and are subject to the requirements described below.

PartnerRe U.S. Corporation is also the owner of Presidio and its 100% owned subsidiaries Presidio Excess Insurance Services, Inc. (PXS), PartnerRe Management Ltd. (PRM) and Presidio Reinsurance Corporation Inc. (PRC). PXS is a managing general underwriter licensed in a number of states. PRM is domiciled in the U.K. and regulated by the Financial Services Authority. PRC is a Montana domiciled captive reinsurer and the Montana Department of Insurance is the domiciliary regulator of PRC. These entities are not subject to any significant regulatory requirements or restrictions that would have a material impact on the Company.

Risk-Based Capital Requirements. The Risk-Based Capital (RBC) for Insurers Model Act (the Model RBC Act), as it applies to property and casualty insurers and reinsurers, was initially adopted by the NAIC in December 1993. The Model RBC Act or similar legislation has been adopted by the majority of states in the U.S. The main purpose of the Model RBC Act is to provide a tool for insurance regulators to evaluate the capital of insurers with respect to the risks assumed by them and to determine whether there is a need for possible corrective action. U.S. insurers and reinsurers are required to report the results of their RBC calculations as part of the statutory annual statements that such insurers and reinsurers file with state insurance regulatory authorities. The Model RBC Act provides for four different levels of regulatory actions, each of which may be triggered if an insurer’s Total Adjusted Capital (as defined in the Model RBC Act) is less than a corresponding level of risk-based capital. Decreases in an insurer’s Total Adjusted Capital as a percentage of its Annualized Control Level (as defined in the Model RBC Act) triggers increasing regulatory actions. Such regulatory actions include but are not limited to issuance of orders for corrective action by the insurer, rehabilitation or liquidation of the insurer.

Insurance Regulatory Information System (IRIS) Ratios. A committee of state insurance regulators developed the NAIC’s IRIS primarily to assist state insurance departments in executing their statutory mandates to oversee the financial condition of insurance or reinsurance companies operating in their respective states. IRIS identifies thirteen industry ratios and specifies usual values for each ratio. Generally, a company will become subject to regulatory scrutiny if it falls outside the usual ranges with respect to four or more of the ratios, and regulators may then act, if the company has insufficient capital, to constrain the company’s underwriting capacity. No such action has been taken with respect to the PartnerRe U.S. Insurance Companies.

Reporting Requirements. Regulations vary from state to state, but generally require insurance holding companies and insurers and reinsurers that are subsidiaries of insurance holding companies to register and file with their state domiciliary regulatory authorities certain reports, including information concerning their capital structure, ownership, financial condition and general business operations. State regulatory authorities monitor compliance with, and periodically conduct examinations with respect to, state mandated standards of solvency, licensing requirements, investment limitations, and restrictions on the size of risks which may be reinsured, deposits of securities for the benefit of reinsureds, methods of accounting for assets, reserves for unearned premiums and losses, and other purposes. In general, such regulations are for the protection of reinsureds and, ultimately, their policyholders, rather than security holders. In the U.S., the New York State Department of Financial Services (NYDFS) is the domiciliary regulator of PartnerRe U.S. and PRNY, and the Delaware Department of Insurance is the domiciliary regulator of PRAIC.

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Dividends and Distributions. Under New York law, the NYDFS must approve any dividend declared or paid by PartnerRe U.S. or PRNY that, together with all dividends declared or distributed by each of them during the preceding twelve months, exceeds the lesser of 10% of their respective statutory surplus as shown on the latest statutory financial statements on file with the NYDFS, or 100% of their respective adjusted net investment income during that period. In addition, as a condition of the acquisition by Exor N.V., PartnerRe U.S. committed that it would not take any action to pay any dividend for the two-year period from March 18, 2016 to March 18, 2018 without the prior approval of the NYDFS (see Risk Factors in Item 3 of this report). Under Delaware law the Delaware Commissioner of Insurance must approve any dividend declared or paid by PRAIC that, together with all dividends or distributions made within the preceding 12 months exceeds the greater of (i) ten percent of PRAIC’s surplus as regards policyholders as of the preceding December 31 or (ii) the net income, not including realized capital gains, for the 12-month period ending the preceding December 31. In addition, as a condition of the acquisition by Exor N.V., PRAIC also committed that it would not take any action to pay any dividend for the two-year period from March 18, 2016 to March 18, 2018 without the prior approval of the Delaware Commissioner of Insurance (see Risk Factors in Item 3 of this report). Both Delaware and New York do not permit a dividend to be declared or distributed, except out of earned surplus.

In addition to the above, the Dodd-Frank Act currently impacts the PartnerRe U.S. Insurance Companies. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry in the U.S. and established a FIO within the U.S. Treasury Department. Although the FIO does not have general supervisory or regulatory authority over the business of insurance or reinsurance, it is charged with monitoring all aspects of the insurance industry, consulting with state insurance regulators, assisting in administration of the TRIA and other duties. Furthermore, the director of the FIO is a non-voting member of the multi-agency FSOC, and the FSOC may, among other things, subject an insurance company or an insurance holding company to heightened prudential standards in accordance with Title I of the Dodd-Frank Act following an extended determination process (which can require that such insurance company be subject also to supervision by the Board of Governors of the Federal Reserve System). The Dodd-Frank Act also made small changes to the regulation of credit for reinsurance and surplus lines insurance in the U.S. See Risk Factors in Item 3 of this report.

Cybersecurity Requirements. In February 2017, the NYDFS issued final Cybersecurity Requirements for Financial Service Companies that will require regulated entities, including PartnerRe U.S. Insurance Companies, to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of New York’s financial services industry. The regulation became effective on March 1, 2017, subject to certain phase-in periods. Depending on the regulation’s implementation and the NYDFS enforcement efforts with respect to it, the PartnerRe U.S. Insurance Companies and other financial services companies may be required to incur significant expense in order to meet its requirements.

Canada

Canadian branches of PartnerRe Bermuda and PartnerRe U.S. hold licenses to write reinsurance business in Canada. Each Canadian branch is authorized to insure, in Canada, risks falling within the classes of insurance and reinsurance as specified in their respective licenses and is limited to the business of reinsurance. The Canadian branch of PartnerRe Bermuda is licensed to write life business in Ontario. The Canadian branch of PartnerRe U.S. is licensed to write property and casualty business in Ontario. Each Canadian branch is subject to local regulation for its Canadian branch business, specified principally pursuant to Part XIII of the Insurance Companies Act (the Canadian Insurance Act) applicable to foreign property and casualty companies and to foreign life companies as well as relevant provincial insurance acts. OSFI supervises the application of the Canadian Insurance Act.

PartnerRe Bermuda and PartnerRe U.S. maintain sufficient assets, vested in trust at a Canadian financial institution approved by OSFI, to allow their branches to meet minimum statutory solvency requirements as required by the Act and the regulations made under it. Certain statutory information is filed with federal and provincial insurance regulators in respect of both property and casualty and life business written by branches. This information includes, among other things, a yearly business plan and an annual Dynamic Capital Adequacy Test report from the Appointed Actuary of the branch that tests the adequacy of the assets that are vested under various adverse scenarios.

Singapore

The Monetary Authority of Singapore (MAS) regulates insurance and reinsurance companies authorized in Singapore, including PartnerRe Asia.

PartnerRe Asia is the principal reinsurance carrier for the Company’s business underwritten in the Asia Pacific region, conducting general insurance business as a reinsurer and life insurance business as a reinsurer. PartnerRe Asia has an established operating branch in Labuan which is subject to regulation by the Labuan Financial Services Authority.

Significant aspects of the Singapore reinsurance regulatory framework and requirements include the following:

Solvency Requirements: As a licensed reinsurer, PartnerRe Asia is required to maintain minimum capital of SGD25 million. In addition, PartnerRe Asia is required to establish and maintain separate insurance funds for each class of business that it carries on

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for both Singapore and offshore policies. The solvency requirement in respect of each insurance fund shall at all times be not less than the total risk requirement of the fund (determined by reference to three components being insurance risks, asset portfolio risks and asset concentration risks). The MAS is entitled to require that a licensed reinsurer holds assets of a certain type and prescribed value in Singapore.

Reporting Requirements: PartnerRe Asia must file and submit annual audited financial statements in accordance with Singapore Financial Reporting Standards and related reports to the Accounting and Corporate Regulatory Authority (ACRA) together with an annual return of certain core corporate information. Changes to core corporate information during the year must also be notified to ACRA. These requirements are in addition to the regulatory returns required to be filed annually with the MAS.

Dividends and Distribution: Dividends are generally declared from unappropriated profits. The declaration of a dividend by PartnerRe Asia may be subject to relevant conditions and requirements being met as specified under the Insurance Act (Singapore) and its associated regulations. Any proposed reduction of capital or redemption of preference shares requires the prior approval of the MAS. In addition to the above, the laws and initiatives issued by the MAS regarding Corporate Governance, Outsourcings and Technology Risk Management currently impact or may impact Partner Re Asia in the future.

Other Regulatory Considerations

Moreover, there are various regulatory bodies and initiatives that impact the Company in multiple international jurisdictions and the potential for significant impact on the Company could be heightened as a result of recent industry and economic developments. In particular, Solvency II, adopted in the EU effective January 1, 2016, aims to establish a revised set of risk-based capital requirements and risk management standards that will replace the current Solvency I requirements. Solvency II sets out new, strengthened requirements applicable to the entire EU relating to capital adequacy and risk management for insurers. Other similar measures, such as the International Association of Insurance Supervisors (IAIS) announced plans to include a risk-based global insurance capital standard within the common supervision framework it is currently developing, also have the potential for significant impact on the Company. Furthermore, the IAIS has developed policy measures for institutions it designates as Global Systemically Important Insurers, including enhanced supervision standards, measures to facilitate resolution, and capital requirements to increase loss absorption capacity.

Taxation of the Company and its Subsidiaries

The following summary of the taxation of PartnerRe and its subsidiaries, PartnerRe Bermuda, PartnerRe Europe, PartnerRe Asia, and PartnerRe U.S. Corporation and its subsidiaries (collectively PartnerRe U.S. Companies) is based upon current law. Legislative, judicial or administrative changes may be forthcoming that could affect this summary, especially in the U.S. where significant tax reforms may be implemented by the new Administration in 2017. See Risk Factors—Taxation Risks in Item 3 above for discussion of potential tax reforms.

Certain subsidiaries, branch offices and representative offices of the Company are subject to taxation related to operations in Brazil, Canada, Chile, China, France, Hong Kong, Ireland, Labuan, Mexico, Singapore, Switzerland and the U.S. The discussion below covers the significant locations for which the Company or its subsidiaries are subject to taxation.

Bermuda

PartnerRe Ltd. and PartnerRe Bermuda have each received from the Bermuda Minister of Finance an assurance under The Exempted Undertakings Tax Protection Act, 1966 of Bermuda, that in the event that any legislation is enacted in Bermuda imposing tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax shall not be applicable to PartnerRe Ltd. or PartnerRe Bermuda or to any of their operations or the shares, debentures or other obligations of PartnerRe Ltd. or PartnerRe Bermuda until March 2035. These assurances are subject to the proviso that they are not construed to prevent the application of any tax or duty to such persons as are ordinarily resident in Bermuda (PartnerRe Ltd. and PartnerRe Bermuda are not currently so designated) or to prevent the application of any tax payable in accordance with the provisions of The Land Tax Act, 1967 of Bermuda or otherwise payable in relation to the property leased to PartnerRe Bermuda.

Canada

The Canadian life branch of PartnerRe Bermuda and the Canadian non-life branch of PartnerRe U.S. are subject to Canadian taxation on their profits.

The profits of the Canadian life branch of PartnerRe Bermuda and the Canadian non-life branch of PartnerRe U.S. are taxed at the federal level as well as the Ontario provincial level at a combined rate of 26.5% in 2016. See also the discussion of taxation in the United States below.

France

The French branch of PartnerRe Europe is conducting business in and is subject to taxation in France. Since January 1, 2016, the tax on corporate profits in France has been 34.43%. The French Bill for 2017, enacted on December 30, 2016, includes a decrease of the statutory corporate income tax rate from 34.43% to 28%. This new rate will be first applicable to small companies; it will have a partial effect on PartnerRe’s taxation in 2018 and a full effect in 2019. See also the discussion of taxation in Ireland below.

Ireland

The Company’s Irish subsidiaries, PartnerRe Holdings Europe Limited, PartnerRe Europe, PartnerRe Ireland, and PartnerRe Ireland Finance DAC conduct business in and are subject to taxation in Ireland. Profits of an Irish trade or business are subject to Irish corporation tax at the rate of 12.5%, whereas profits arising from other than a trade or business are taxable at the rate of 25%. The Swiss, U.S. and French branches and subsidiaries of PartnerRe Europe are subject to taxation in Ireland at the Irish corporation tax rate of 12.5%. However, under Irish domestic tax law, the amount of tax paid in Switzerland, U.S. and France can be credited or deducted against the Irish corporation tax. As a result, the Company does not expect to incur significant taxation in Ireland with respect to the Swiss, U.S., and French branches.

Singapore

The Company’s Singapore subsidiary, PartnerRe Asia, is subject to corporate taxation in Singapore at the rate of 17% on profits arising from onshore business and 10% on profits arising from offshore business. However, tax exemptions may apply to qualifying profits derived from certain lines of business.

Switzerland

The Swiss branch of PartnerRe Europe is subject to Swiss taxation, mainly on profits and capital. To the extent that net profits are generated, profits are taxed at a rate of 21.15%. The branch pays capital taxes at a rate of approximately 0.17% on its imputed branch capital calculated according to a procured taxation ruling. See also the discussion of taxation in Ireland above.

United States

PartnerRe U.S. Companies transact business in and are subject to taxation in the U.S. The Canadian non-life branch of PartnerRe U.S. conducts business in Canada and is subject to taxation in Canada as discussed above. Under U.S. tax law, the amount of tax paid in Canada by the Canadian non-life branch of PartnerRe U.S. can be credited or deducted against U.S. corporation tax.

In addition, PartnerRe Europe writes certain U.S. facultative and Latin American business, through its reinsurance intermediaries, PartnerRe Miami in Miami, Florida and PartnerRe Connecticut in Greenwich, Connecticut. As a result, PartnerRe Europe is deemed to be engaged in a U.S. trade or business and thus is subject to taxation in the U.S. Finally, PartnerRe Capital Investments Corp. (PCIC) is also a U.S. corporation subject to taxation in the U.S. The current statutory rate of tax on corporate profits in the U.S. is 35%. See the discussion of U.S. branch taxation below and the discussion of taxation in Ireland above.

On this basis, the Company does not expect that it and its subsidiaries, other than the PartnerRe U.S. Companies, PartnerRe Europe for its U.S. intermediaries (PartnerRe Miami and PartnerRe Connecticut) and PCIC, will be required to pay U.S. corporate income taxes (other than withholding taxes as described below). However, because there is considerable uncertainty as to the activities that constitute a trade or business in the U.S., there can be no assurance that the IRS will not contend successfully that the Company or its non-U.S. subsidiaries are engaged in a trade or business in the U.S. The maximum federal tax rate is currently 35% for a corporation’s income that is effectively connected with a trade or business in the U.S. In addition, U.S. branches of foreign corporations may be subject to the branch profits tax, which imposes a tax on U.S. branch after-tax earnings that are deemed repatriated out of the U.S., for a potential maximum effective federal tax rate of approximately 54% on the net income connected with a U.S. trade or business.

Foreign corporations not engaged in a trade or business in the U.S. are subject to U.S. income tax, effected through withholding by the payer, on certain fixed or determinable annual or periodic gains, profits and income derived from sources within the U.S. as enumerated in Section 881(a) of the Internal Revenue Code, such as dividends and interest on certain investments.

The U.S. also imposes an excise tax on insurance and reinsurance premiums paid to foreign insurers or reinsurers with respect to risks located in the U.S. The rate of tax applicable to reinsurance premiums paid to PartnerRe Bermuda is 1% of gross premiums.

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Legal Proceedings

The Company’s reinsurance subsidiaries, and the insurance and reinsurance industry in general, are subject to litigation and arbitration in the normal course of their business operations. In addition to claims litigation, the Company and its subsidiaries may be subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on reinsurance treaties. This category of business litigation typically involves, among other things, allegations of underwriting errors or omissions, employment claims or regulatory activity. While the outcome of business litigation cannot be predicted with certainty, the Company will dispute all allegations against the Company and/or its subsidiaries that management believes are without merit.

At December 31, 2016, the Company was not a party to any litigation or arbitration that it believes could have a material effect on the financial condition, results of operations or liquidity of the Company.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports filed with the SEC whether the issuer or any of its affiliates has knowingly engaged in certain activities, transactions or dealing with the Government of Iran, relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the annual or quarterly report. Disclosure is required even when the activities were conducted outside the U.S. by non-U.S. entities and even when such activities were conducted in compliance with applicable law.

On January 16, 2016, the United States and the EU eased sanctions against Iran pursuant to the Joint Comprehensive Plan of Action, and many of the reportable activities, transactions and dealings under Section 13(r) are no longer subject to U.S. sanctions and no longer prohibited by applicable local law.

Certain of our non-U.S. reinsurance operations provide reinsurance treaty coverage to non-U.S. insurers of marine & energy risks as well as mutual associations of ship owners that provide their members with protection and liability coverage. As a result of the recent lifting of European sanctions on Iran, some of these insurers have informed us that they have begun shipping, or will begin to ship, cargo to and from Iran, including transporting crude oil, petrochemicals and refined petroleum products. Because these non-U.S. subsidiaries insure or reinsure multiple voyages and fleets containing multiple ships, we are unable to attribute gross revenues and net profits from such policies to activities with Iran. As the activities of our insureds are permitted under applicable laws and regulations, the Company intends for its non-U.S. subsidiaries to continue providing such coverage to its insureds and reinsureds.

A non-U.S. subsidiary provides a property catastrophe excess of loss reinsurance to an Iranian pool of insurers of which one member is Bimeh Iran. Bimeh Iran is an entity that has been identified as owned or controlled by the Government of Iran and appears on the List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599. The agreement was executed in 2017 and coverage began on September 23, 2016 for one year. Expected gross revenue is €100,000 and expected net profits attributable to this contract are €10,000. The subsidiary intends to continue providing such coverage in accordance with applicable law.

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C. Organizational Structure

Following the acquisition of the Company’s common shares on March 18, 2016, the Company became a wholly-owned subsidiary of Exor N.V. and, as such, a subsidiary of the ultimate parent company, EXOR S.p.A., one of Europe’s leading investment companies, controlled by the Agnelli family.

On October 27, 2016, Exor N.V. changed its name to EXOR Nederland N.V.

On December 11, 2016, a cross-border merger of EXOR S.p.A. with and into EXOR HOLDING N.V. became effective. Following this merger, EXOR HOLDING N.V. was renamed EXOR N.V. As a result of this merger, EXOR N.V., headquartered in Amsterdam, the Netherlands, is the ultimate parent of the Company and the holding company of the EXOR Group. EXOR N.V. is listed on the Milan Stock Exchange.

In addition to the Company, significant subsidiaries of EXOR N.V. include Fiat Chrysler Automobiles, CNH Industrial, Ferrari, The Economist Group, Juventus Football Club, Welltec and Banca Leonardo.

The Company’s principal operating subsidiaries at December 31, 2016 are as follows:



	Jurisdiction	Percentage Interest Held
Partner Reinsurance Company Ltd.	Bermuda	100%
Partner Reinsurance Asia Pacific Pte. Ltd.	Singapore	100%
Partner Reinsurance Europe SE	Ireland	100%
Partner Reinsurance Company of the U.S.	New York, United States	100%

See Exhibit 8.1 to this annual report on Form 20-F for a listing of all of the Company’s subsidiaries.

D. Property, Plants and Equipment

The Company does not own any significant property, plants and equipment but does lease office space in Hamilton (Bermuda) where the Company’s principal executive offices are located. Additionally, the Company leases office space in various other locations, principally in Dublin, Connecticut in the U.S., Paris and Zurich.



ITEM 4.A	UNRESOLVED STAFF COMMENTS

None.



ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussions should be read in conjunction with our consolidated financial statements for the years ended December 31, 2016, 2015 and 2014 in Item 18 of this report.

The financial results below are presented in U.S. dollar as the reporting currency. The financial information presented below is based on, or has been derived from, the U.S. GAAP.

This discussion includes forward-looking statements, which, although based on assumptions that we consider reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ materially from those expressed or implied by the forward-looking statements. See Safe Harbor in Item 5 and Risk Factors in Item 3 of this report for a discussion of risks and uncertainties.

Executive Overview

The Company is a leading global reinsurer, with a broadly diversified and balanced portfolio of traditional reinsurance and insurance risks and capital markets risks. The Company has three segments comprised of two non-life segments: P&C and Specialty, and the Life & Health segment (see Results by Segment section below).

The Company’s long-term objective is to manage a portfolio of diversified risks that will create shareholder value. Given the Company’s profitability in any particular quarterly or annual period can be significantly affected by the level of large catastrophic losses or the impact of changes in interest rates on the change in fair value of investments (see Key Factors Affecting Year-over-Year Comparability below), management assesses this long-term objective over the reinsurance cycle since the Company’s performance during any particular quarterly or annual period is not necessarily indicative of its performance over the longer-term

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reinsurance cycle. For a discussion of the metrics that management uses to measure its success in achieving its long-term objective, see Key Financial Measures section below.

Industry Environment, Strategic Initiatives and Capital Management

The Company’s Non-life operations are facing a challenging and limited growth environment, which is driven by continued price decreases and significant pressure on terms and conditions in most markets and lines of business. These drivers reflect increased competition and excess capacity in the industry, and relatively low loss experience.

In 2016, management announced the formation of a new organizational structure that would provide increased value to its clients around the world and better align the Company’s product and global expertise with the needs of its client base. Effective July 1, 2016, PartnerRe’s business units have been consolidated into three worldwide business units comprised of P&C, Specialty and Life and Health, which, as noted above, represent the Company’s segments.

See Risk Factors—Legal and Regulatory Risks and Risk Factors—Taxation Risks in Item 3 of this report for a description of governmental, economic or political factors that may affect our business.

The following discussion provides an overview of business operations, trends and the outlook for 2017 with respect to each of the Company’s Non-life, Life and Health and Investment operations.

Non-life reinsurance operations, trends and 2017 outlook

The Company generates its Non-life reinsurance revenue from premiums. Premium rates and terms and conditions vary depending on market conditions. Pricing cycles are driven by supply of capital in the industry and demand for reinsurance and insurance and other risk transfer products. The reinsurance business is also influenced by several other factors, including variations in interest rates and financial markets, changes in legal, regulatory and judicial environments, loss trends, inflation and general economic conditions. The Company writes a large majority of its business on a treaty basis and the majority of the non-life treaty business renewed on January 1, 2017. The remainder of this business renews at other times during the year. In addition to treaty business, the Company writes direct and facultative business which renews throughout the year.

The Company differentiates itself through its risk management strategy, its financial strength, its underwriting selection process and its global presence. In assuming its clients’ risks, the Company removes the volatility associated with those risks from the client, and then manages those risks and the risk-related volatility. Through its broad product and geographic diversification, the Company is able to achieve a better portfolio diversification of risk compared to its clients, and its execution capabilities and global presence enables the Company to respond quickly to market needs.

A key challenge facing the Company is successfully managing risk through all phases of the reinsurance cycle. The Company believes that its long-term strategy of closely monitoring the progression of each business, being selective in the business that it writes, and maintaining the diversification and balance of its portfolio, will optimize returns over the reinsurance cycle. Individual businesses and markets have their own unique characteristics and are at different stages of the reinsurance pricing cycle at any given point in time. Management believes the Company has an appropriate portfolio diversification by product, geography, type of business, length of tail and distribution channel. Further, management believes that this diversification, in addition to the financial strength of the Company and its strong global franchise, will help to mitigate cyclical declines in underwriting profitability.

The Non-life reinsurance market has historically been highly cyclical in nature as evidenced by hard and soft markets. Since late 2003, with the exception of lines and markets impacted by specific catastrophic or large loss events, the Company has been experiencing a soft market with general decreases in pricing and profitability. Erosion of prices and terms, resulting from excess capital and benign loss activity, and limited new opportunities continue to provide a challenge to writing non-life business that meets our profitability requirements. This trend is expected to continue in the near future.

The outlook for 2017 for each of the P&C and Specialty segments are summarized as follows:

2017 P&C Segment Outlook

During the January 1, 2017 renewals, the Company observed challenging market conditions primarily driven by continued competition exhibited through both lower pricing and broader contractual terms. As a result of these factors, and given the limited new business or growth opportunities, the overall expected premium volume from the Company’s January 1, 2017 renewals, at constant foreign exchange rates, decreased compared to the prior year renewal. Although premium volume has decreased compared to the prior year renewal, overall profitability is expected to remain unchanged as the non-renewed business carried lower margins.

2017 Specialty Segment Outlook

During the January 1, 2017 renewals, the Company generally observed continued competitive conditions across all markets, with ample reinsurance capacity and pressure on terms. As a result of these factors, and given the limited new business or growth

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opportunities, the expected premium volume from the Company’s January 1, 2017 renewal, at constant foreign exchange rates, decreased compared to the prior year renewal. Although premium volume has decreased compared to the prior year renewal, the recent renewal was in line with management’s expectations.

Life and Health reinsurance operations, trends and 2017 outlook

The Company’s Life and Health segment derives revenues primarily from renewal premiums from existing reinsurance treaties and new premiums from existing or new reinsurance treaties. Within the Life and Health segment, the Company writes mortality (including disability), longevity and U.S. accident and health products. Management believes the Life and Health business provides the Company with diversification benefits and balance to its portfolio as they are generally not correlated to the Company’s Non-life business.

The long-term profitability of the life business (including the mortality and longevity lines of business) mainly depends on the volume and amount of death claims incurred and the ability to adequately price the risk the Company assumes. The majority of the premium arises from long-term in-force contracts. The life reinsurance policies are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a period of 10 to 30 years. The volume of the business may be reduced each year by terminations of the underlying treaties related to lapses, voluntary surrenders, death of insureds and recaptures by ceding companies. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and can fluctuate significantly from period to period.

The active January 1 renewals for Life business only impact the short-term mortality in-force premium, which is a relatively limited portion of the Life portfolio. For those treaties that actively renewed, pricing conditions and terms were under moderate pressure compared to the January 1, 2016 renewals. Management expects moderate continued growth in the Company’s Life portfolio in 2017 assuming constant foreign exchange rates.

The acquisition of Aurigen will enable the Company to expand its life reinsurance footprint in Canada and the U.S. with limited overlap in market coverage.

The long-term profitability of the accident and health business mainly depends on the volume and amount of medical claims and expenses. While the volume of medical claims can be predicted to a certain extent, the amount of claims and expenses depends on various factors, primarily healthcare inflation rates, driven by a shift towards the older population, reliance on expensive medical equipment and technology, and changes in demand for healthcare services over time.

At the January 1, 2017 renewals, the expected premium volume arising from the PartnerRe Health business, at constant foreign exchange rates, held steady compared to the prior year. Strong client retention and organic growth in the underlying portfolios were largely offset by continued market pressure on reinsurance pricing. Similar expectations remain for the remainder of 2017. We may see the impact of any material change contemplated by the new U.S. administration to the Healthcare Act reform on the reinsurance market during the January 1, 2018 renewals at the earliest.

Investment operations, trends and 2017 outlook

The Company generates revenue from its high quality investment portfolio, as well as the investments underlying the funds held–directly managed account, through net investment income, including coupon interest on fixed maturities and realized and unrealized gains and losses on investments.

For the Company’s investment risks, which include public, private market and real estate investments, diversification of risk is critical to achieving the risk and return objectives of the Company. The Company’s investment policy distinguishes between liquid, high quality assets that support the Company’s liabilities, and the more diversified, higher risk asset classes that are allowed within the Company’s capital funds (see Liquidity and Capital Resources— Shareholders’ Equity and Capital Resources Management—Liquidity below for a discussion of liability and capital funds).

While there will be years where such investments may earn less than the risk-free rate of return, or potentially even negative results, the Company believes the rewards for assuming these risks in a disciplined and measured way will produce a positive excess return to the Company over time. Additionally, since a portion of our investment risks are not fully correlated with the Company’s reinsurance risks, this increases the overall diversification of the Company’s total risk portfolio.

The Company follows prudent investment guidelines through a strategy that seeks to maximize returns while managing investment risk in line with the Company’s overall objectives of earnings stability and long-term book value growth. The Company allocates its invested assets into two categories: liability funds and capital funds. A key challenge for the Company is achieving the right balance between current investment income and total returns (that include price appreciation or depreciation) in changing market conditions. The Company regularly reviews the allocation of investments to asset classes within its investment portfolio and its funds held–directly managed account and allocates investments to those asset classes the Company anticipates will outperform in the future, subject to limits and guidelines. Similarly, the Company reduces its exposure to asset classes where returns are deemed

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unattractive. The Company may also lengthen or shorten the duration of its fixed maturity portfolio in anticipation of changes in interest rates, or increase or decrease the amount of credit risk it assumes, depending on credit spreads and anticipated economic conditions.

The Company’s investment operations continue to respond to uncertain market conditions. In 2016, while interest rates rose modestly from the prior year, there was volatility during the year. Generally, in 2016, equity markets were positive and corporate credit spreads remained tight. Assuming constant foreign exchange rates, management expects a decrease in net investment income in 2017, mainly due to changes in asset allocation.

A. Operating Results

As a result of the Company’s shares no longer being listed on the NYSE and the Company having only one common shareholder, operating earnings per share and book value per share data are no longer considered meaningful and have been excluded for both the current reporting period and for the comparative periods.

Key Financial Measures

The Company is in the business of assessing and assuming risk for an appropriate return. The Company creates value through its ability to understand, evaluate, diversify and distribute risk. Its strategy is founded on a capital-based risk appetite and the selected risks that management believes will allow the Company to meet its goals for appropriate profitability and risk management within that appetite. Management believes that this construct allows the Company to balance the cedant’s need for confidence of claims payment with its shareholder’s need for an appropriate return on their capital.

Throughout this annual report, the Company’s operating results and discussions on liquidity and capital resources have been presented in the way that management believes will be the most meaningful and useful to its common shareholder, preferred shareholders, debt holders, rating agencies and others who use financial information in evaluating the performance of the Company. These measures are presented in the following sections below.

Key Factors Affecting Year-over-Year Comparability

The key factors affecting the year-over-year comparison of the Company’s results for the years ended December 31, 2016, 2015 and 2014 include certain other expenses, volatility in capital markets, large catastrophic and large loss events, and foreign exchange movements. These factors may continue to affect our results of operations and financial condition in the future.

Other Expenses

The results for the years ended December 31, 2016 and 2015 were significantly impacted by certain expenses that are reasonably expected to not recur, included within Other expenses, as follows (in millions of U.S. dollars):



Year ended December 31,	Total
2016	$	128
2015	$	411

During the year ended December 31, 2016, the Company recorded $128 million of transaction and severance related costs as follows:


•	$45 million of severance expenses associated with the restructuring of the Company’s business units, certain changes to the Company’s investment operations and executive changes;


•	$38 million in stock-based compensation expense related to the Company’s share-based awards which fully vested and were settled in cash upon the change in control of the Company on March 18, 2016; and


•	$45 million were other transaction related costs, which included $38 million for professional fees.

During the year ended December 31, 2015, the Company recorded $411 million of transaction and severance related costs as follows:


•	$315 million paid to Axis Capital Holdings Limited (AXIS) as a termination fee and reimbursement of expenses (AXIS Amalgamation Agreement Termination Fee) in connection with the termination of the Agreement and Plan of Amalgamation (Amalgamation Agreement) that the Company previously entered into with AXIS. The Amalgamation

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Agreement was terminated in connection with the execution of the Merger Agreement with Exor N.V. and EXOR S.p.A (Merger Agreement);


•	$71 million other costs primarily related to professional fees and severance costs associated with the Amalgamation Agreement and Merger Agreement referred to above; and


•	$25 million negotiated earn-out consideration cost paid in 2015 to the former shareholders of Presidio. The Company previously accrued $4 million in connection with the Earn-out Agreement through December 31, 2014 for a total earn-out consideration of $29 million.

Volatility in Capital Markets

Operating results for the years ended December 31, 2016, 2015 and 2014 were significantly impacted by the volatility in the capital markets with the Company reporting net realized and unrealized gains (losses) on investments in net income as follows (in millions of U.S. dollars):



Year ended December 31,	Total
2016	$	26
2015	$	(297	)
2014	$	372

In 2016, U.S. risk-free interest rates increased at the end of the year and credit spreads narrowed compared to December 31, 2015 resulting in a net realized and unrealized gain on investments recorded in net income.

In 2015, U.S. risk-free interest rates increased, credit spreads widened and worldwide equity markets deteriorated compared to December 31, 2014. The result of these movements was a net realized and unrealized loss on investments recorded in net income.

In 2014, U.S. and European risk-free interest rates decreased and U.S. equity markets improved compared to December 31, 2013. The result of these movements was a net realized and unrealized gain on investments recorded in net income.

Large Catastrophic and Large Loss Events

As the Company’s reinsurance operations are exposed to low-frequency and high-severity risk events, some of which are seasonal, results for certain periods may include unusually low loss experience, while results for other periods may include modest or significant catastrophic losses. The Company considers losses greater than $35 million to be large catastrophic or large loss events.

The impact of the Canadian Wildfires, Hurricane Matthew and the Ghana energy loss in 2016 and the Tianjin Explosion in 2015 on the Company’s operating results for the years ended December 31, 2016 and 2015 were as follows (in millions of U.S. dollars):



2016	P&C segment			Specialty segment			Total Non-life⁽¹⁾
Large catastrophic and large losses	$	110		$	46		$	156

Impact on the loss ratio	5.8		%	2.2		%	4.2		%
Impact on the technical ratio	5.3		%	2.6		%	4.0		%
Impact on the non-life combined ratio							4.0		%


(1)	Large catastrophic and large losses, net of retrocession and reinstatement premiums, are comprised of $69 million related to the Canadian Wildfires, $45 million related to Hurricane Matthew, and $42 million related to the Ghana energy loss.

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2015	P&C segment			Specialty segment			Total Non-life⁽¹⁾
Large catastrophic and large losses	$	37		$	22		$	59

Impact on the loss ratio	1.7		%	1.2		%	1.5		%
Impact on the technical ratio	1.7		%	1.2		%	1.5		%
Impact on the non-life combined ratio							1.5		%


(1)	Large losses of $59 million related to the Tianjin Explosion, net of retrocession.

The loss ratio, technical ratio, and the non-life combined ratio are presented and defined in Note 20 in the Notes to Consolidated Financial Statements in Item 18 of this report. These ratios are calculated based on the losses noted in the table above divided by net premiums earned, as presented in Results by Segment section below.

Foreign Exchange Movements

The Company’s reporting currency is the U.S. dollar. The Company’s significant subsidiaries and branches have one of the following functional currencies: U.S. dollar, Euro or Canadian dollar. As a significant portion of the Company’s operations is transacted in foreign currencies, fluctuations in foreign exchange rates may affect year-over-year comparisons. To the extent that fluctuations in foreign exchange rates affect comparisons, their impact has been quantified, when possible, and discussed throughout this annual report. See Note 2(m) to the Consolidated Financial Statements in Item 18 of this report for a discussion of translation of foreign currencies.

The foreign exchange fluctuations for the principal currencies in which the Company transacts business were as follows:


•	the U.S. dollar average exchange rate for the year was stronger against most currencies, except the Japanese yen, in 2016 compared to 2015 and was stronger against most currencies in 2015 compared to 2014; and


•	the U.S. dollar ending exchange rate strengthened against most currencies, except the Japanese yen and the Canadian dollar, at December 31, 2016 compared to December 31, 2015.

The strengthening of the U.S. dollar in 2016 and 2015 had a significant impact on certain individual line items of the Company’s Consolidated Statement of Operations, including gross and net premiums written and earned and net foreign exchange gains. However, the overall net impact is not significant due to the matching of assets and liabilities by currency, resulting in foreign exchange movements offsetting, and due to the hedging of material foreign exchange exposures. See also section B. Liquidity and Capital Resources—Currency below for a discussion of the impact of foreign exchange movements on the Consolidated Balance Sheets.

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Review of Net Income

The components of net income and net income attributable to PartnerRe Ltd. common shareholders for the years ended December 31, 2016, 2015 and 2014 are presented in the Company’s Consolidated Statement of Operations, and the breakdown by segment in Note 20 to the Consolidated Financial Statements in Item 18 of this report.

Management analyzes the Company’s net income in three parts: underwriting result, investment result and other components of net income or loss not allocated to the Company’s Non-life (P&C and Specialty) and Life and Health segments.

The components of net income, as disclosed in Note 20 to the Consolidated Financial Statements in Item 18 of this report, for the years ended December 31, 2016, 2015 and 2014 were as follows (in millions of U.S. dollars):



	2016			2015			2014
Underwriting result:
Non-life	$	249		$	584		$	610
Life and Health	$	3		$	35		$	13
Investment result:
Net investment income	$	411		$	450		$	480
Net realized and unrealized investment gains (losses)	$	26		$	(297	)	$	372
Interest in (losses) earnings of equity method investments	$	(23	)	$	6		$	15
Other components of net income not allocated to segments:
Other income not allocated to segments	$	3		$	3		$	5
Other expenses not allocated to segments	$	(177	)	$	(509	)	$	(130	)
Interest expense	$	(49	)	$	(49	)	$	(49	)
Loss on redemption of senior notes	$	(22	)	$	—		$	—
Amortization of intangible assets	$	(26	)	$	(27	)	$	(27	)
Net foreign exchange gains (losses)	$	78		$	(9	)	$	18
Income tax expense	$	(26	)	$	(80	)	$	(239	)
Net income	$	447		$	107		$	1,068

The increase in net income in 2016 compared to 2015 was primarily due to the change from net realized and unrealized investment losses in 2015 to gains in 2016, and other expenses in 2015, which included the AXIS Amalgamation Agreement Termination Fee of $315 million. These were partially offset by the reduction in underwriting income and net investment income.

The decrease in net income in 2015 compared to 2014 was primarily due to the change from net realized and unrealized investment gains in 2014 compared to losses in 2015, the AXIS Amalgamation Agreement Termination Fee paid in 2015 and the reduction in net investment income. These decreases were partially offset by a decrease in income tax expense.

Each of the components of net income, and changes for the years presented above, is described below.

Underwriting Result

Underwriting result consists of net premiums earned and other income less losses and loss expenses, acquisition costs and other expenses. Underwriting result is a measurement that the Company uses to manage and evaluate its Non-life segments (P&C and Specialty) and Life and Health segment as it is a primary measure of underlying profitability for the Company’s core reinsurance operations, separate from the investment results. The Company believes that in order to enhance the understanding of its profitability, it is useful for our shareholders and other users of this report to evaluate the components of net income or loss separately and in the aggregate. Underwriting result should not be considered a substitute for net income or loss and does not reflect the overall profitability of the business, which is also impacted by investment results and other items.

2016 compared to 2015

The decrease in the Non-life underwriting result for 2016 compared to 2015 primarily reflected a higher level of reported large and mid-sized loss activity and a lower level of net favorable prior year loss development (see Note 8(a) to the Consolidated Financial Statements in Item 18 of this report). The most significant losses in 2016, net of any reinsurance and reinstatement premiums, were the Canadian Wildfires ($69 million), Hurricane Matthew ($45 million) and a Ghana energy loss ($42 million). The net favorable prior year loss development decreased compared to 2015 in both Non-life segments.

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The decrease in the underwriting result for the Life and Health segment, which excludes allocated investment income, was primarily due to a lower level of net favorable prior year loss development from both the mortality and health lines of business.

See Results by Segment below for further details.

2015 compared to 2014

The decrease in the Non-life underwriting result in 2015 compared to 2014 primarily reflected increasingly competitive pricing and conditions, resulting in higher downward prior year premium adjustments, modestly higher loss picks and higher acquisition costs, and large catastrophic losses related to the Tianjin Explosion. The net favorable prior year loss development increased compared to 2014, primarily as a result of increases in the Specialty segment.

The increase in the underwriting result for the Life and Health segment, which excludes allocated investment income, was primarily due to a higher level of net favorable prior year loss development from both the mortality and health lines of business.

See Results by Segment below.

Investment Result

Investment result consists of net investment income, net realized and unrealized investment gains or losses and interest in earnings or losses of equity method investments.

Net investment income includes interest, dividends and amortization, net of investment expenses, generated by the Company’s investment activities, as well as interest income generated on funds held assets.

Net realized and unrealized investment gains or losses include sales of the Company’s fixed income, equity and other invested assets and investments underlying the funds held–directly managed account and changes in net unrealized gains or losses.

Interest in earnings or losses of equity method investments represents the Company’s aggregate share of earnings or losses related to several private placement investments and limited partnership interests.

Net Investment Income

Net investment income by asset source for the years ended December 31, 2016, 2015 and 2014 was as follows (in millions of U.S. dollars):



	2016			2015			2014
Fixed maturities, short-term investments and cash and cash equivalents	$	398		$	426		$	445
Equities	4			31			40
Funds held and other	34			27			33
Funds held–directly managed	10			12			14
Investment expenses	(35		)	(46		)	(52		)
Net investment income	$	411		$	450		$	480

Because of the interest-sensitive nature of some of the Company’s life products, net investment income is considered in management’s assessment of the profitability of the Life and Health segment (see discussion on Life and Health segment above). The following discussion includes net investment income from all investment activities, including the net investment income allocated to the Life and Health segment.

2016 compared to 2015

Net investment income decreased in 2016 compared to 2015 due to lower income from fixed income securities, the strengthening of the U.S. dollar against most major currencies (which resulted in a 2% decrease in net investment income) and a decrease from equities, primarily due to a change in investment portfolio composition. These decreases were partially offset by lower investment expenses.

2015 compared to 2014

Net investment income decreased in 2015 compared to 2014 due to lower income from fixed income securities, the strengthening of the U.S. dollar against most major currencies (which resulted in a 4% decrease in net investment income) and a decrease from equities, primarily due to lower dividend income.

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2017 Outlook

Assuming constant foreign exchange rates, management expects net investment income to decrease in 2017 compared to 2016 primarily due to portfolio repositioning.

Net Realized and Unrealized Investment Gains (Losses)

The Company’s portfolio managers have a total return investment objective, achieved through a combination of optimizing current investment income and pursuing capital appreciation. To meet this objective, it is often desirable to buy and sell securities to take advantage of changing market conditions and to reposition the investment portfolios. Accordingly, recognition of realized gains and losses is considered by the Company to be a normal consequence of its ongoing investment management activities. In addition, the Company records changes in fair value for substantially all of its investments as unrealized investment gains or losses in its Consolidated Statements of Operations. Realized and unrealized investment gains and losses are generally a function of multiple factors, with the most significant being prevailing interest rates, credit spreads and equity market conditions.

The components of net realized and unrealized investment gains (losses) for the years ended December 31, 2016, 2015 and 2014 were as follows (in millions of U.S. dollars):



	2016			2015			2014
Net realized investment gains on fixed maturities and short-term investments	$	97		$	66		$	121
Net realized investment gains (losses) on other invested assets	5			(33		)	(21		)
Net realized investment gains on funds held–directly managed	1			1			2
Net realized investment gains on equities	—			138			99
Net realized investment gains	103			172			201
Change in net unrealized investment (losses) gains on fixed maturities and short-term investments	(90		)	(277		)	229
Change in net unrealized investment (losses) gains on equities	(15		)	(188		)	3
Change in unrealized investment gains (losses) on other invested assets	25			1			(58		)
Change in net unrealized investment (losses) gains on funds held–directly managed	—			(6		)	1
Net other realized and unrealized investment gains (losses)	3			1			(4		)
Change in net unrealized investment (losses) gains	(77		)	(469		)	171
Net realized and unrealized investment gains (losses)	$	26		$	(297	)	$	372

2016 compared to 2015

The net realized and unrealized investment gains of $26 million in 2016 were primarily due to narrowing of credit spreads, partially offset by increases in U.S. risk-free interest rates. Net realized and unrealized investment losses of $297 million in 2015 are described below.

2015 compared to 2014

The net realized and unrealized investment losses of $297 million in 2015 were primarily due to increases in U.S. risk-free interest rates, the widening of credit spreads, decreases in worldwide equity markets and realized losses on treasury note futures. Net realized and unrealized investment gains were $372 million in 2014 and were primarily due to decreases in U.S. and European risk-free interest rates and improvements in worldwide equity markets, which were partially offset by losses on treasury note futures and widening credit spreads.

Other Components of Net Income Not Allocated to Segments

Other Income

Other income primarily relates to income on insurance-linked securities and principal finance transactions within the Corporate and Other segment.

Other Expenses

The Company’s total other expenses for the years ended December 31, 2016, 2015 and 2014 were as follows (in millions of U.S. dollars, except ratios):

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	2016			2015			2014
Other expenses, as reported	$	472		$	791		$	450
AXIS Amalgamation Agreement Termination Fee and Presidio earn-out expense	—			(340		)	—
Other transaction and severance related costs	(128		)	(71		)	—
Other expenses, as adjusted for various transaction and Presidio related costs	$	344		$	380		$	450
Other expenses, as adjusted, as a % of total net premiums earned	6.9		%	7.2		%	8.0		%

2016 compared to 2015

Other expenses decreased by $319 million, or 40%, in 2016 compared to 2015 primarily due to the AXIS Amalgamation Agreement Termination Fee of $315 million and the Presidio earn-out expense of $25 million related to payments to former shareholders in 2015. In addition, other transaction and severance related costs were $57 million higher in 2016 than in 2015 primarily as a result of the closing of the acquisition by Exor N.V. in March 2016 and costs related to the reorganization of the Company’s operations (see Note 21 to the Consolidated Financial Statements in Item 18 of this report for further details).

2015 compared to 2014

Other expenses were higher in 2015 compared to 2014 by $341 million, or 76%, primarily due to the AXIS Amalgamation Agreement Termination Fee of $315 million, the Presidio earn-out expense of $25 million and the other transaction and severance related costs of $71 million in 2015 referred to above. These increases were partially offset by the impact of foreign exchange and lower personnel, facilities and information technology costs in 2015 compared to 2014.

Interest Expense

Interest expense in 2016 was comparable to 2015 and 2014.

Loss on Redemption of Senior Notes

The loss on redemption of senior notes related to the redemption of the $250 million senior notes during the year from the make whole payment to the note holders representing the present value of the remaining scheduled payments on the notes following their early redemption. See Note 10 to the Consolidated Financial Statements in Item 18 for further details of the Company’s redemption of senior notes.

Amortization of Intangible Assets

Amortization of intangible assets relates to intangible assets acquired upon acquisition of Paris Re in 2009 and Presidio in 2012.

Net Foreign Exchange Gains (Losses)

The Company hedges a significant portion of its currency risk exposure as discussed in Quantitative and Qualitative Disclosures about Market Risk in Item 11 of this report.

The net foreign exchange gains in 2016 resulted primarily from the impact of the strengthening of the U.S. dollar on certain unhedged non-U.S. denominated liabilities, partially offset by the cost of hedging activities.

The net foreign exchange losses in 2015 resulted primarily from the impact of the strengthening of the U.S. dollar on certain unhedged non-U.S. denominated investment portfolios, partially offset by gains related to the timing of hedging activities and the difference in forward points embedded in the Company’s hedges.

Income Taxes

The effective income tax rate, which the Company calculates as income tax expense or benefit divided by net income or loss before taxes, may fluctuate significantly from period to period depending on the geographic distribution of pre-tax net income or loss in any given period between different jurisdictions with comparatively higher tax rates and those with comparatively lower tax rates. The geographic distribution of pre-tax net income or loss can vary significantly between periods due to, but not limited to, the following factors: the business mix of net premiums written and earned, the geographic location, quantum and nature of net losses and loss expenses and life policy benefits incurred, the quantum and geographic location of other expenses, net investment income, net realized and changes in unrealized investment gains and losses and the quantum of specific adjustments to determine the income tax basis in each of the Company’s operating jurisdictions. In addition, a significant portion of the Company’s gross and net premiums are written and earned in Bermuda, a non-taxable jurisdiction, including the majority of the Company’s catastrophe business, which can result in significant volatility in the Company’s pre-tax net income or loss from period to period.

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The Company’s income tax expense and effective income tax rate for the years ended December 31, 2016, 2015 and 2014 were as follows (in millions of U.S. dollars):



	2016			2015			2014
Income tax expense	$	26		$	80		$	239
Effective income tax rate	5.5		%	42.6		%	18.3		%

2016 compared to 2015

Income tax expense and the effective income tax rate during 2016, 2015 and 2014 were primarily driven by the geographic distribution of the Company’s pre-tax net income between its various taxable and non-taxable jurisdictions.

In 2016, the income tax expense and the effective income tax rate included a significant portion of the Company’s pre-tax net income recorded in non-taxable jurisdictions and jurisdictions with comparatively lower tax rates driven by net favorable prior year loss development and net realized and unrealized gains, which were partially offset by catastrophe losses. A less significant portion of the Company’s pre-tax net income was recorded in jurisdictions with comparatively higher tax rates and was driven by net favorable prior year loss development, which was partially offset by net realized and unrealized investment losses. In addition, the income tax expense recorded in jurisdictions with comparatively higher tax rates included a tax benefit during 2016 following the favorable outcome of certain tax litigation and favorable adjustments related to certain tax-exempt bonds.

In 2015, the income tax expense and the effective income tax rate reflects the Company’s jurisdictions with comparatively higher tax rates recording a pre-tax net income, driven by net favorable prior year loss development, which was partially offset by net realized and unrealized investment losses. The Company’s non-taxable jurisdictions recorded a pre-tax net loss with no associated tax benefit, driven primarily by the AXIS Amalgamation Agreement Termination Fee and net realized and unrealized investment losses, which were partially offset by net favorable prior year loss development and the absence of large catastrophic losses. The Company’s jurisdictions with comparatively lower tax rates recorded a modest pre-tax net income and a tax benefit related primarily to the release of a valuation allowance previously recorded against tax loss carryforwards.

2015 compared to 2014

In 2014, the income tax expense and the effective income tax rate included a relatively even distribution of the Company’s pre-tax net income between its various jurisdictions. The Company’s pre-tax net income recorded in non-taxable jurisdictions and jurisdictions with comparatively lower tax rates was driven by net favorable prior year loss development and the absence of large catastrophic losses. The Company’s pre-tax net income recorded in jurisdictions with comparatively higher tax rates was driven by net realized and unrealized investment gains, net favorable prior year loss development and the absence of large catastrophic losses.

Results by Segment

Effective July 1, 2016, the Company’s business units have been consolidated into three worldwide business units comprised of P&C, Specialty and Life and Health. The new organizational structure provides increased value to the Company’s clients around the world and better aligns PartnerRe’s global expertise with the needs of its clients’ base.

Following the realignment of its business units, the Company monitors the performance of its operations in three segments: P&C, Specialty and Life and Health. Segments represent markets that are reasonably homogeneous in terms of client types, buying patterns, underlying risk patterns and approach to risk management. As a result of the realignment of its business units, segment data included below for prior periods has been recast to conform to the current year presentation. See the description of the Company’s segments as well as a discussion of how the Company measures its segment results in Note 20 to the Consolidated Financial Statements included in Item 18 of this report.

The following table reconciles the technical results presented in the P&C segment and Specialty segment sections below to the total Non-life underwriting results presented in the Review of Net Income above. See also Note 20 to the Consolidated Financial Statements in Item 18 for further details.



	2016							2015							2014
	P&C segment		Specialty segment		Total Non-life			P&C segment		Specialty segment		Total Non-life			P&C segment		Specialty segment		Total Non-life
Technical result	$	282	$	194	$	476		$	541	$	262	$	803		$	666	$	193	$	859
Other income					2							—							3
Other expenses					(229		)					(219		)					(252		)
Underwriting result					$	249						$	584						$	610

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P&C Segment

The P&C segment provides holistic access to property and casualty risks, including property catastrophe and facultative risks through five regions: North America; Europe; Asia; Latin America; and Middle East, Africa and Russia.

The components of the technical result, which is calculated as net premiums earned less losses and loss expenses and acquisition costs, and the corresponding ratios, which are calculated as a percentage of net premiums earned, for the P&C segment for the years ended December 31, 2016, 2015 and 2014 were as follows (in millions of U.S. dollars, except ratios):



	2016			2015			2014
Gross premiums written	$	2,269		$	2,371		$	2,539
Net premiums written	$	2,061		$	2,236		$	2,467
Net premiums earned	$	2,086		$	2,240		$	2,401
Losses and loss expenses	(1,248		)	(1,129		)	(1,136		)
Acquisition costs	(556		)	(570		)	(599		)
Technical result	$	282		$	541		$	666
Loss ratio	59.8		%	50.4		%	47.3		%
Acquisition ratio	26.7			25.4			24.9
Technical ratio	86.5		%	75.8		%	72.2		%

Premiums

The P&C segment represented 42%, 43% and 43% of total net premiums written in 2016, 2015 and 2014, respectively. Business reported in this segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars. The U.S. dollar can fluctuate significantly against other currencies and this should be considered when making year to year comparisons.

2016 compared to 2015

The decrease in gross premiums written resulted primarily from foreign exchange movements and cancellations and non-renewals due to continued pressure on pricing and increased retentions by clients, which were partially offset by new business written. Net premiums written and earned decreased due to the same factors driving the decrease in gross premiums written, in addition to higher premiums ceded in the catastrophe portfolio.

2015 compared to 2014

The decrease in gross premiums written was driven primarily by cancellations due to pricing and increased retentions by clients and downward prior year premium adjustments, which were partially offset by new business written. Net premiums written and earned decreased due to the same factors driving the decreases in gross premiums written, in addition to higher premiums ceded in the catastrophe portfolio.

Losses and loss expenses

See Liquidity and Capital Resources—Non-life and Life and Health Reserves—Non-life reserves in Item 5 and Note 8(a) to the Consolidated Financial Statements in Item 18 of this report for an analysis of losses and loss expenses.

Technical result and ratio

2016 compared to 2015

The decrease in the technical result (and the corresponding increase in the technical ratio) in 2016 compared to 2015 was primarily attributable to a higher level of mid-sized loss activity, large catastrophic losses related to the Canadian Wildfires and Hurricane Matthew during 2016 compared to the Tianjin Explosion in 2015 and a lower level of favorable prior year loss development.

2015 compared to 2014

The decrease in the technical result (and the corresponding increase in the technical ratio) in 2015 compared to 2014 was primarily attributable to a higher level of mid-sized loss activity and large catastrophic losses related to the Tianjin Explosion in 2015.

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Specialty Segment

The Specialty segment is composed of short-tail business in the form of agriculture and energy business and medium-tail business in the form of aviation/space, financial risks, engineering, marine and multiline business.

The components of the technical result and the corresponding ratios for this segment for the years ended December 31, 2016, 2015 and 2014 were as follows (in millions of U.S. dollars, except ratios):



	2016			2015			2014
Gross premiums written	$	1,920		$	1,906		$	2,128
Net premiums written	$	1,776		$	1,786		$	2,033
Net premiums earned	$	1,767		$	1,820		$	1,986
Losses and loss expenses	(1,073		)	(1,064		)	(1,327		)
Acquisition costs	(500		)	(494		)	(466		)
Technical result	$	194		$	262		$	193
Loss ratio	60.8		%	58.5		%	66.8		%
Acquisition ratio	28.3			27.1			23.5
Technical ratio	89.1		%	85.6		%	90.3		%

Premiums

The Specialty segment represented 36%, 34% and 36% of total net premiums written in 2016, 2015 and 2014, respectively. Business reported in this segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars.

2016 compared to 2015

The increase in gross premiums written was driven primarily by the impact of foreign exchange, new business written and a lower level of downward prior year premium adjustments in 2016 compared to 2015. These increases were partially offset by cancellations, reduced participations and changes in underlying cedant premium. Net premiums written and earned decreased largely due to higher premiums ceded in 2016, mainly due to the increased cession on financial risk business.

2015 compared to 2014

The decrease in gross premiums written was primarily driven by downward prior year premium adjustments, cancellations and reduced participations. These decreases were partially offset by new business written. Net premiums written and earned decreased due to the same factors driving the decrease in gross premiums written, as well as higher premiums ceded under the 2015 retrocessional programs.

Losses and loss expenses

Technical result and ratio

2016 compared to 2015

The decrease in the technical result (and the corresponding increase in the technical ratio) in 2016 compared to 2015 was primarily attributable to a lower level of favorable prior year loss development, large catastrophic losses related to Hurricane Matthew and the Ghana energy loss in 2016 and a marginal increase in the acquisition cost ratio, mainly related to profit commission adjustments in agriculture reflecting favorable experience, partially offset by a lower level of mid-sized loss activity during 2016 compared to 2015.

2015 compared to 2014

The increase in the technical result (and the corresponding decrease in the technical ratio) in 2015 compared to 2014 was primarily attributable to an increase in net favorable prior year loss development, partially offset by higher downward premium adjustments, an increase in the acquisition cost ratio driven by increasingly competitive market conditions and the restructuring of a significant financial risks treaty and large catastrophic losses related to the Tianjin Explosion in 2015.

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Life and Health Segment

The Company’s Life and Health segment includes the mortality, longevity and health business written primarily in the U.K., Ireland and France and accident and health business written in the U.S.

The components of the allocated underwriting result for the Life and Health segment for the years ended December 31, 2016, 2015 and 2014 were as follows (in millions of U.S. dollars):



	2016			2015			2014
Gross premiums written	$	1,168		$	1,271		$	1,265
Net premiums written	$	1,117		$	1,208		$	1,220
Net premiums earned	$	1,117		$	1,209		$	1,222
Losses and loss expenses	(927		)	(964		)	(1,000		)
Acquisition costs	(131		)	(153		)	(149		)
Technical result	$	59		$	92		$	73
Other income⁽¹⁾	10			6			8
Other expenses	(66		)	(63		)	(68		)
Underwriting result	$	3		$	35		$	13
Net investment income	58			59			60
Allocated underwriting result	$	61		$	94		$	73

(1) Other income represents fee income on deposit accounted contracts and longevity swaps.

Premiums

The Life and Health segment represented 23%, 23% and 21% of total net premiums written in 2016, 2015 and 2014, respectively. Business reported in this segment is, to a significant extent, originally denominated in foreign currencies and is reported in U.S. dollars.

2016 compared to 2015

The decreases in gross and net premiums written and net premiums earned were driven by reductions in the longevity line due to the increased participation on a significant longevity swap in 2015, downward prior year premium adjustments and cancellations in the mortality business, in addition to marginal decreases in the health business due to continued competitive pressures. The impact of changes in foreign exchange rates also contributed to these decreases.

2015 compared to 2014

While gross premiums written increased marginally as a result of growth in business being partially offset by foreign exchange impacts, net premiums written and earned decreased primarily due the impact of foreign exchange exceeding the growth in net premiums written and earned on a constant foreign exchange basis. Gross and net premiums written and net premiums earned increased on a constant foreign exchange basis driven by accident and health and longevity business, due to an increased participation on a significant longevity swap. The increase in accident and health premiums on a constant foreign exchange basis was impacted by growth in business arising from the Healthcare Act.

Losses and loss expenses

See Liquidity and Capital Resources—Non-life and Life and Health Reserves—Life and Health Reserves in Item 5 and Note 8(d) to the Consolidated Financial Statements in Item 18 of this report for an analysis of losses and loss expenses.

Allocated underwriting result

2016 compared to 2015

The allocated underwriting result decreased primarily due to a lower technical result in the health line of business due to an increase in loss ratio in a small number of accounts mainly related to recent underwriting years.

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2015 compared to 2014

The allocated underwriting result increased primarily due to a higher level of net favorable prior year loss development, increased profitability from the health business and a decrease in other expenses. These increases in the allocated underwriting result were partially offset by losses and lower profitability on certain short-term mortality treaties and on a significant longevity treaty.

B. Liquidity and Capital Resources

The following discussion of liquidity and capital resources principally focuses on the Company’s Consolidated Balance Sheets and Consolidated Statements of Cash Flows. See Risk Factors in Item 3 for additional information concerning risks related to our business, strategy and operations.

Capital Adequacy

A key challenge for management is to maintain an appropriate level of capital. Management’s first priority is to hold sufficient capital to meet all of the Company’s obligations to cedants, meet regulatory requirements and support its position as one of the stronger reinsurers in the industry. Management closely monitors its capital needs and capital level throughout the reinsurance cycle and in times of volatility and turmoil in global capital markets actively takes steps to increase or decrease the Company’s capital in order to achieve an appropriate balance of financial strength and shareholder returns. Capital management is achieved by either deploying capital to fund attractive business opportunities, or in times of excess capital and times when business opportunities are not so attractive, returning capital to its common shareholder by way of dividends.

Shareholders’ Equity and Capital Resources Management

As part of its long-term strategy, the Company will seek to grow capital resources to support its operations throughout the reinsurance cycle, maintain strong ratings from the major rating agencies and maintain the unquestioned ability to pay claims as they arise. The Company may also seek to restructure its capital through the repayment or purchase of debt obligations, or increase or restructure its capital through the issuance of debt, when opportunities arise.

The total debt liabilities and preferred and common shareholders’ equity of the Company at December 31, 2016 and 2015 was as follows (in millions of U.S. dollars):



	December 31, 2016				December 31, 2015
Senior notes	$	1,274	16	%	$	750	10	%
Capital efficient notes	63		1		63		1
Preferred shareholders’ equity, aggregate liquidation value	704		9		854		11
Common shareholders’ equity attributable to PartnerRe Ltd.	5,984		74		6,047		78
Total	$	8,025	100	%	$	7,714	100	%

The increase in senior notes during 2016 was primarily related to proceeds of €750 million ($774 million) from the issuance of the 2016 senior notes which was partially offset by the redemption of the 2008 senior notes of $250 million. See Note 10 to the Consolidated Financial Statements in Item 18 of this report for details of the Company’s issuances and redemptions of debt.

Shareholders’ equity attributable to PartnerRe Ltd., comprised of preferred and common shareholders’ equity in the table above, was $6.7 billion at December 31, 2016, a 3% decrease compared to $6.9 billion at December 31, 2015. The major factors contributing to this decrease were as follows:


•	common and preferred dividend payments of $496 million in 2016, including the payment of the Merger Special Dividend of $150 million related to the closing of the Exor acquisition in March 2016 and the loss on redemption of preferred shares of $5 million in November 2016;


•	redemption of the Series D and E preferred shares of $145 million in November 2016 (see Note 11 to the Consolidated Financial Statements in Item 18 of this report); and


•	settlement of certain share-based awards in 2016 by the Company of $75 million that vested upon acquisition by Exor N.V.; partially offset by


•	comprehensive income of $456 million, which was primarily related to net income in 2016; and


•	issuance of common shares under the Company’s terminated employee equity plans of $48 million in 2016 prior to the acquisition by Exor N.V.

See Operating Results above for a discussion of the Company’s net income for the year ended December 31, 2016.

Liquidity and Cash Flows

The Company aims to be a reliable and financially secure partner to its cedants. This means that the Company must maintain sufficient liquidity at all times so that it can support its cedants by settling claims quickly. The Company generates cash flows primarily from its underwriting and investment operations. Management believes that a profitable, well-run reinsurance organization will generate sufficient cash from premium receipts to pay claims, acquisition costs and other expenses in most years. To the extent that underwriting cash flows are not sufficient to cover operating cash outflows in any year, the Company may utilize cash flows generated from investments and may ultimately liquidate assets from its investment portfolio. Management ensures that its liquidity requirements are supported by maintaining a high quality, well balanced and liquid investment portfolio, and by matching the duration and currency of its investments and the investments underlying the funds held—directly managed account with that of its net reinsurance liabilities. In 2017, the Company expects to continue to generate positive operating cash flows, absent catastrophic events.

Liquidity is a measure of the Company’s ability to access sufficient cash flows to meet the short-term and long-term cash requirements of its business operations. Management believes that its significant cash flows from operations and high quality liquid investment portfolio will provide sufficient liquidity for the foreseeable future to meet its present requirements. At December 31, 2016 and 2015, cash and cash equivalents were $1.8 billion and $1.6 billion, respectively. The increase in cash and cash equivalents of $0.2 billion was primarily due to the issuance of the 2016 senior notes, partially offset by the redemptions of the Series D and E preferred shares and 2008 senior notes.

The Company’s Consolidated Statements of Cash Flows is included in the Consolidated Financial Statements in Item 18 of this report. Explanations of the cash flows presented in the Consolidated Statements of Cash Flows are as follows:

Net cash provided by operating activities of $445 million in 2016 increased from $319 million in 2015. Cash flows from operating activities include net investment income of $531 million in 2016 compared to $554 million in 2015 and underwriting cash flows of $75 million in 2016 compared to $265 million in 2015. These cash inflows are offset by other net cash outflows, including foreign exchange, and, for 2015, the cash payment of $315 million AXIS Amalgamation Agreement Termination Fee in 2015.

Net cash used in investing activities was $34 million in 2016 compared to net cash provided by investing activities of $295 million in 2015. The net cash used in investing activities in 2016 was primarily driven by purchases of securities, including the purchase of an equity method investment in Almacantar S.A. for $539 million in the second quarter of 2016 (see Note 19 to the Consolidated Financial Statements in Item 18 of this report), exceeding other sales and redemptions of securities. The net cash used in investing activities in 2015 reflects the timing of investing activities and asset reallocations.

Net cash used in financing activities was $153 million in 2016 compared to $309 million in 2015. Net cash used in financing activities in 2016 was primarily related to the dividend payments on common and preferred shares, including the payment of the Merger Special Dividend, the redemptions of $150 million of Series D and E preferred shares and $250 million 2008 senior notes, and the settlement of certain share-based awards upon acquisition by Exor N.V. These cash outflows were partially offset by the issuance of the 2016 €750 million senior notes. Net cash used in financing activities in 2015 was primarily related to dividend payments on common and preferred shares, the Company’s share repurchases and distributions related to Lorenz Re Ltd.

The Company’s ability to pay common shareholder’s and preferred shareholders’ dividends, interest payments on debt, and its corporate expenses is dependent mainly on cash dividends from PartnerRe Bermuda, PartnerRe Europe, PartnerRe U.S. and PartnerRe Asia (collectively, the reinsurance subsidiaries), which are the Company’s most significant subsidiaries. The payment of such dividends by the reinsurance subsidiaries to the Company is limited under Bermuda, Irish and Singapore laws and certain statutes of various U.S. states in which PartnerRe U.S. is licensed to transact business. 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. The reinsurance subsidiaries’ dividend restrictions at December 31, 2016 are described in Note 13 to the Consolidated Financial Statements in Item 18 of this report. In addition, the Merger Agreement limits the payment of dividends on common shares to an amount not exceeding 67% of net income per fiscal quarter until December 31, 2020.

The reinsurance subsidiaries of the Company depend upon cash inflows from the collection of premiums as well as investment income and proceeds from the sales and maturities of investments to meet their obligations. Cash outflows are in the form of claims payments, purchase of investments, other expenses, income tax payments, intercompany payments as well as dividend payments to the holding company (PartnerRe Ltd.), and additionally, in the case of PartnerRe U.S. Corporation, interest payments on the Debt related to senior notes and the Capital Efficient Notes (CENts). At December 31, 2016, PartnerRe U.S. Corporation and its subsidiaries have $563 million in senior notes and CENts outstanding and will pay approximately $30 million in aggregate interest payments in 2017 related to this debt. At December 31, 2016, PartnerRe Ireland Finance DAC has $774 million in senior notes outstanding and will pay approximately $10 million of interest payments in 2017 related to this debt.

Historically, the operating subsidiaries of the Company have generated sufficient cash flows to meet all of their obligations. Because of the inherent volatility of the business written by the Company, the seasonality in the timing of payments by cedants, the irregular timing of loss payments, the impact of a change in interest rates and credit spreads on the investment income as well as

seasonality in coupon payment dates for fixed income securities, cash flows from operating activities may vary significantly between periods. The Company believes that annual positive cash flows from operating activities will be sufficient to cover claims payments, absent catastrophic loss activity. In the event that paid losses accelerate beyond the ability to fund such payments from operating cash flows, the Company would use its cash and cash equivalents balances available, liquidate a portion of its high quality and liquid investment portfolio or access certain uncommitted credit facilities. As discussed in the Investments section below, the Company’s investments and cash and cash equivalents (excluding the funds held–directly managed account) totaled $16.3 billion at December 31, 2016, of which $13.4 billion was fixed income securities.

Financial strength ratings and senior unsecured debt ratings represent the opinions of rating agencies on the Company’s capacity to meet its obligations. In the event of a significant downgrade in ratings, the Company’s ability to write business and to access the capital markets could be impacted. Some of the Company’s reinsurance treaties contain special funding and termination clauses that would be triggered in the event the Company or one of its subsidiaries is downgraded by one of the major rating agencies to levels specified in the treaties, or the Company’s capital is significantly reduced. If such an event were to occur, the Company would be required, in certain instances, to post collateral in the form of letters of credit and/or trust accounts against existing outstanding losses, if any, related to the treaty. In a limited number of instances, the subject treaties could be canceled retroactively or commuted by the cedant.

The Company’s current financial strength ratings and outlooks are as follows:



Standard & Poor’s	A+	Stable
Moody’s	A1	Stable
A.M. Best	A	Stable
Fitch	A+	Stable

Credit Agreements

In the normal course of its operations, the Company enters into agreements with financial institutions to obtain unsecured and secured letter of credit facilities. At December 31, 2016, the total amount of such credit facilities available to the Company was approximately $664 million, with each of the significant facilities described below. Under the terms of certain reinsurance agreements, irrevocable letters of credit were issued on an unsecured and secured basis in the amount of $135 million and $379 million, respectively, at December 31, 2016, in respect of reported loss and unearned premium reserves.

The Company maintains a $300 million combined credit facility, with the first $100 million being unsecured and any utilization above the initial $100 million being secured. This credit facility matures each year on November 14 and, unless canceled by either counterparty, this credit facility automatically extends for a further year.

In addition, the Company maintains committed secured letter of credit facilities. These facilities are used for the issuance of letters of credit, which must be fully secured with cash, government bonds and/or investment grade bonds. The agreements include default covenants, which could require the Company to fully secure the outstanding letters of credit to the extent that the facility is not already fully secured and disallow the issuance of any new letters of credit. Included in the Company’s secured credit facilities at December 31, 2016 was a $200 million secured credit facility, which matures on December 31, 2019, and an $80 million secured credit facility, which matures on December 31, 2017. At December 31, 2016, no conditions of default existed under these facilities.

Investments

Investment philosophy

The Company employs a prudent investment philosophy. It maintains a high quality, well-balanced and liquid portfolio having a total return investment objective, achieved through a combination of optimizing current investment income and pursuing capital appreciation. The Company’s total invested assets of $16,887 million and $16,526 million at December 31, 2016 and 2015, respectively, are comprised of total investments, cash and cash equivalents, the investment portfolio underlying the funds held–directly managed account (which excludes other asset and liabilities underlying the funds held–directly managed account) and accrued interest. From a risk management perspective, the Company allocates its invested assets into two categories: liability funds and capital funds.

Liability funds (including funds held–directly managed) represent invested assets supporting the net reinsurance liabilities, and are invested primarily in investment-grade fixed maturity securities and cash and cash equivalents. The preservation of liquidity and protection of capital are the primary investment objectives for these assets. The portfolio managers are required to adhere to investment guidelines as to minimum ratings and issuer and sector concentration limitations. Liability funds are invested in a way that generally matches them to the corresponding liabilities (referred to as asset-liability matching) in terms of both duration and major currency composition to provide the Company with a natural hedge against changes in interest and foreign exchange rates. In addition, the Company utilizes certain derivatives to further protect against changes in interest and

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foreign exchange rates.

Capital funds represent shareholder capital of the Company and are invested in a diversified portfolio with the objective of maximizing investment return, subject to prudent risk constraints. Capital funds contain most of the asset classes typically viewed as offering a higher risk and higher return profile, subject to risk assumption and portfolio diversification guidelines which include issuer and sector concentration limitations. Capital funds may be invested in investment grade and below investment grade fixed maturity securities, publicly listed and private equities, bond and loan investments, real estate investments, structured credit (for example Principal Finance), and certain other specialty asset classes.

Overview

The Company’s total invested assets less net payable for securities purchased at December 31, 2016 and 2015 were split between liability and capital funds as follows (in millions of U.S. dollars):



	2016		% of Total Invested Assets		2015		% of Total Invested Assets
Liability funds	$	8,778	54	%	$	9,043	55	%
Capital funds	7,512		46		7,298		45
Total invested assets less net payable for securities purchased	$	16,290	100	%	$	16,341	100	%

The net decrease of $51 million in total invested assets less net payable for securities purchased at December 31, 2016 compared to December 31, 2015 was due an increase in net payable for securities purchased ($597 million at December 31, 2016 compared to $185 million at December 31, 2015) and a decrease in the investments held within funds held–directly managed (see below) partially offset by an increase in total investments and cash and cash equivalents. The increase in cash and cash equivalents is discussed in the Liquidity and Cash Flows above.

The Company’s investment strategy allows for the use of derivative instruments, subject to strict limitations. The Company may utilize various derivative instruments, such as treasury note and equity futures contracts, credit default swaps, foreign currency option contracts, foreign exchange forward contracts, total return and interest rate swaps, insurance-linked securities and to-be-announced mortgage-backed securities (TBAs) for the purpose of managing and hedging currency risk, market exposure and portfolio duration, hedging certain investments, mitigating the risk associated with underwriting operations, or enhancing investment performance that would be allowed under the Company’s investment policy if implemented in other ways. The use of financial leverage, whether achieved through derivatives or margin borrowing, requires approval from the Board.

At December 31, 2016, the Company had no financial leverage achieved through derivatives and no margin borrowing has been approved by the Board.

The components and carrying values of the Company’s total investments, and the percentages of total investments, at December 31, 2016 and 2015 were as follows (in millions of U.S. dollars):



	2016				2015
Fixed maturities	$	13,432	92	%	$	13,448	94	%
Short-term investments	22		—		47		—
Equities	39		—		444		3
Other invested assets	1,076		8		399		3
Total investments ⁽¹⁾	$	14,569	100	%	$	14,338	100	%


(1)	In addition to the total investments shown in the above table, the Company held cash and cash equivalents of $1.8 billion and $1.6 billion at December 31, 2016 and 2015, respectively.

The majority of the Company’s investments are carried at fair value with changes in fair value included in net realized and unrealized investment gains or losses in the Consolidated Statements of Operations. The fair value of the Company’s fixed maturities and short-term investments at December 31, 2016 compared to 2015 primarily reflects higher U.S. risk-free interest rates and the strengthening of the U.S. dollar against most major currencies, partially offset by narrowing credit spreads. In addition, the Company reduced its overall allocation to equities in 2016. The increase in other invested assets reflects new investments in certain real-estate and third-party funds described in Notes 3 and 19 to the Consolidated Financial Statements in Item 18 of this report.

The Company’s investment portfolio generated a total accounting return (calculated based on the carrying value of all investments in local currency) of 2.4% in 2016 compared to 0.8% in 2015. The total accounting return in 2016 reflected overall mark to market gains, notwithstanding increases in U.S. and European risk-free interest rates. The total accounting return in 2015

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was primarily due to net investment income, partially offset by increases in U.S. risk-free interest rates, the widening of credit spreads and decreases in worldwide equity markets.

The cost, fair value and credit ratings of the Company’s fixed maturities, short-term investments and equities carried at fair value at December 31, 2016 were as follows (in millions of U.S. dollars):



					Credit Rating ⁽²⁾
December 31, 2016	Cost ⁽¹⁾		Fair Value		AAA			AA			A			BBB			Below investment grade/ Unrated
Fixed maturities
U.S. government	$	3,519	$	3,489	$	—		$	3,489		$	—		$	—		$	—
U.S. government sponsored enterprises	52		52		—			52			—			—			—
U.S. states, territories and municipalities	670		685		81			480			—			—			124
Non-U.S. sovereign government, supranational and government related	1,089		1,136		513			479			136			—			8
Corporate	5,675		5,705		96			298			1,952			3,208			151
Asset-backed securities	125		124		—			—			—			—			124
Residential mortgage-backed securities	2,256		2,241		100			2,141			—			—			—
Fixed maturities	13,386		13,432		790			6,939			2,088			3,208			407
Short-term investments	22		22		1			19			—			—			2
Total fixed maturities and short-term investments	13,408		13,454		$	791		$	6,958		$	2,088		$	3,208		$	409
Equities	28		39
Total	$	13,436	$	13,493
% of Total fixed maturities and short-term investments					6		%	52		%	15		%	24		%	3		%


(1)	Cost is amortized cost for fixed maturities and short-term investments and cost for equity securities.


(2)	All references to credit rating reflect Standard & Poor’s (or estimated equivalent). Investment grade reflects a rating of BBB- or above.

At December 31, 2016, the Company did not have material investments in securities issued by peripheral European Union (EU) sovereign governments (Portugal, Italy, Ireland, Greece and Spain).

At December 31, 2016, approximately 92% of the Company’s fixed maturity and short-term investments, which includes fixed income type mutual funds, were publicly traded and approximately 97% were rated investment grade (BBB- or higher) by Standard & Poor’s (or estimated equivalent). The average credit quality, the year-end yield to maturity and the expected average duration of the Company’s fixed maturities and short-term investments (which includes fixed income type mutual funds) at December 31, 2016 and 2015 were as follows:



	2016		2015
Average credit quality	A		A
Year-end yield to maturity	2.7	%	2.9	%
Expected average duration	4.9	years	3.6	years

The average credit quality of fixed maturities and short-term investments at December 31, 2016 remained unchanged compared to December 31, 2015.

The average yield to maturity on fixed maturities and short-term investments decreased primarily due to decreases in U.S. and European risk-free interest rates for most of the year.

The expected average duration of fixed maturities and short-term investments increased during the fourth quarter of 2016 compared to December 31, 2015. After the 2016 U.S. Presidential election and the subsequent increase in U.S. treasury rates, the Company elected to extend the expected duration of its fixed maturities to 4.9 years, bringing it closer to the expected duration of its reinsurance liabilities. Duration can be adjusted through the utilization of interest rate futures and other instruments.

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Maturity Distribution

The distribution of fixed maturities and short-term investments at December 31, 2016 by contractual maturity date was as follows (in millions of U.S. dollars):



December 31, 2016	Cost		Fair Value
One year or less	$	264	$	264
More than one year through five years	5,361		5,381
More than five years through ten years	3,721		3,703
More than ten years	1,681		1,741
Subtotal