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Fitch Affirms PartnerRe's Ratings; Outlook Stable

Thursday, September 5, 2013 4:27 PM


Fitch Affirms PartnerRe's Ratings; Outlook Stable

Fitch Ratings today affirmed PartnerRe's existing ratings, including the 'A+' Issuer Default Rating (IDR) of PartnerRe and the 'AA-' Insurer Financial Strength (IFS) rating of Partner Reinsurance Company Ltd., the company's principal (re)insurance operating subsidiary. The Rating Outlook is Stable. A complete list of rating actions appears below.

KEY RATING DRIVERS

The ratings affirmation reflects the company's continued strong competitive position, solid balance sheet, moderate operating and financial leverage, and good long-term track record of earnings and capital generation. The company's ratings also reflect Fitch's belief that the company's risk management capabilities will enable it to maintain its strong and liquid balance sheet during periods that experience heightened underwriting losses and/or capital market volatility.

Partially offsetting these favorable factors is PartnerRe's relatively higher exposure to low-frequency but high-severity events. This was most recently illustrated by the company's pretax losses of $112 million (net of reinstatement premiums and retrocession) related to the European floods and flooding in Alberta, Canada in June 2013.

Despite the flood-related losses, PartnerRe's first-half 2013 underwriting and operating profitability were solid, characterized by a 90% combined ratio and 8.6% annualized operating return on common equity.

PartnerRe's net income to common shareholders during the first half of 2013 totaled only $20 million, due largely to $467 million of unrealized investment losses on fixed income investments during the period. Fitch notes that these valuation declines were largely related to the increase in risk free interest rates during the second quarter of 2013 and were similar to declines observed across the insurance sector during this time period.

Fitch anticipates that PartnerRe will report strong underwriting results and overall profitability for the full year 2013, assuming that catastrophe losses in the second half of the year remain at or below historical average levels.

RATING SENSITIVITIES

Due to PartnerRe's high current rating category, Fitch views a near-term rating upgrade as unlikely, in the absence of a material change in risk profile resulting in significantly lower underwriting volatility observed over an extended period.

Key ratings triggers that, if observed over the next 12-18 months, could result in a downgrade include a sustained period of poor operating results, investment write downs or adverse loss reserve development of a magnitude that caused Fitch to question the strength of PartnerRe's balance sheet, or if PartnerRe were to report significantly worse underwriting results and overall profitability than comparably rated peers.

Additional ratings triggers that could result in a downgrade when viewed on a run-rate or multi-year rolling average basis include:

--Barring a significant shift in business mix toward less volatile lines, an increase in net written premium to GAAP equity ratios to levels that exceed 0.9x;

--Net leverage (the sum of net premiums written and total liabilities, less any ceded reserves and debt, divided by equity) exceeding 3.0x;

--Failure to report calendar-year combined ratios in the mid 90%'s or better;

--Operating-earnings-based interest and preferred dividend coverage ratios that fall below approximately 8x.

Fitch has affirmed the following ratings with a Stable Outlook:

Partner Reinsurance Ltd.

--IFS at 'AA-'.

PartnerRe Ltd.

--IDR at 'A+';

--$230 million 6.5% series D cumulative redeemable perpetual preferred securities at 'BBB+';

--$374 million 7.25% series E cumulative redeemable perpetual preferred securities at 'BBB+';

--$250 million 5.875% series F non cumulative redeemable perpetual preferred securities at 'BBB+';

--$63 million junior subordinated notes due Dec. 1, 2066 at 'BBB+';

--$250 million 6.875% senior unsecured notes due June 1, 2018 at 'A';

--$500 million 5.5% senior unsecured notes due June 1, 2020 at 'A'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Aug. 19, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715468

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=801359

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

(Source: Business Wire )
(Source: Quotemedia)

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