Oct. 6, 2009 (Business Wire) -- Fitch Ratings today affirmed the ratings of PartnerRe Ltd. (PartnerRe) and revised its Rating Outlook on the company to Negative from Stable. These ratings actions follow PartnerRe's recent announcement that it has acquired 83% of PARIS RE Holdings, Ltd.'s (PARIS RE) outstanding common shares in connection with its previously announced acquisition of PARIS RE.
The revision in PartnerRe's Rating Outlook to Negative from Stable, reflects uncertainty over whether the combined entity will generate returns and stability of returns that are commensurate with those required at PartnerRe's current 'AA' rating level.
Fitch believes that the combined entity has the potential to generate results that are generally consistent with PartnerRe's current ratings level, based on information provided by the companies. If the combined entity demonstrates the ability to generate such returns over the 12-18 months following the transaction's completion while retaining its risk-adjusted capitalization, Fitch will likely revise PartnerRe's Rating Outlook to Stable. Otherwise, Fitch believes that PartnerRe's ratings would likely be downgraded by one notch.
Over time, Fitch expects the acquisition to provide a modest stabilizing effect on PartnerRe's financial results due to diversification benefits derived from PARIS RE's reinsurance portfolio, which is weighted relatively more heavily toward emerging markets and facultative business than PartnerRe's existing portfolio.
Fitch also believes that PartnerRe's competitive position will benefit modestly from the enhanced size of its capital base and overall scale of its operations. On a pro forma basis as of June 30, 2009, Fitch estimates that PartnerRe's GAAP basis total capital would increase to roughly $7.2 billion from $5.3 billion and its first-half 2009 gross premiums written would increase to $3.2 billion from $2.2 billion.
Fitch views the integration risks associated with the transaction as largely mitigated given PARIS RE's high-quality balance sheet, the relative size and scope of the company's operations, and the existence of a guaranty issued by Axa Re, PARIS RE's former parent, that covers 2005 and prior accident year reserves.
Fitch expects the transaction's immediate effect on PartnerRe's combined pro forma balance sheet to be largely favorable, except for a modestly increased exposure to intangible assets. PARIS RE currently employs no senior or subordinated debt. Fitch therefore expects PartnerRe's post-acquisition consolidated financial leverage to decline and interest and preferred dividend coverage to improve. Fitch believes that the combined entity's financial leverage and interest and preferred dividend coverage will likely return toward PartnerRe's historical levels over time.
