S&P Removes AXIS, Partner Re from Credit Watch; Affirms Ratings

AXIS Capital Holdings Ltd. And PartnerRe Ltd. Ratings Affirmed, Removed From CreditWatch Negative; Outlook Stable

Standard & Poor’s Ratings Services announced that it has affirmed its ‘A-‘ long-term counterparty credit ratings on Bermuda-based AXIS Capital Holdings Ltd. and PartnerRe Ltd., including its ‘A+’ long-term counterparty credit and financial strength ratings on their respective operating companies and removed them from CreditWatch negative, where we initially placed them on Jan. 26, 2015.

The outlook for the ratings is stable.

Credit analyst Taoufik Gharib stated: “The affirmation reflects our opinion that this merger of equals will bring together two strong insurance and reinsurance franchises, which will benefit from increased scale and enhanced market presence. AXIS and PartnerRe will merge in an all-stock transaction that we believe will ultimately create a stronger global competitive position in the next two years, with 2014 pro forma gross premiums written in excess of $10 billion, total capital of more than $14 billion, and cash and invested assets of more than $31 billion.

“We believe the combination of the two companies will likely result in business overlap within their reinsurance business, which we think is limited with virtually no business overlap in the global specialty insurance business and minimal within the life, and accident and health business,” he continued.

S&P said it expects that the “combined company’s capitalization will remain very strong and redundant at the ‘AA’ level after the deal closes and through 2017. We also expect its financial leverage and coverage metrics will remain within our expectations. We anticipate the combined entity’s financial leverage will stay below 25 percent with fixed-charge coverage of at least 4x.

S&P also said it expects the “consolidated entity to continue to generate strong underwriting results with a combined ratio of 90 percent-95 percent if the management teams can integrate the two complex companies and effectively manage and optimize the consolidated exposures.

“We also expect the merger to achieve at least $200 million in annual pretax cost synergies in the first two years of operations. We expect the transaction to close in the third-quarter 2015, subject to approval by the shareholders of both companies, regulatory clearance, and customary closing conditions.

Gharib explained that the “stable outlook reflects our expectation that we are unlikely to change our ratings on AXIS and PartnerRe in the next 12-24 months. We expect the consolidated group will maintain very strong capital adequacy and successfully solidify its very strong competitive position and compete with other top global reinsurers given its new position in the market.”

He also indicated however, that S&P might “lower the ratings if the combined entity does not meet our performance expectations due to a significant shortfall in underwriting results or if the integration faces setbacks that materially affect the consolidated group’s performance, or if the combined ERM program is not holistically integrated to support a more complex risk profile. We may also lower the ratings if the consolidated group experiences outlier catastrophe losses that materially weaken earnings and capital relative to peers.”

On the positive side he explained that “raising our rating would require the consolidated group to successfully integrate the combined ERM program and adapt to the changing risk profile and risk tolerance as set by the new board, and its capital adequacy significantly improves and becomes sustainably redundant at the ‘AAA’ level.

“Other contributing factors would include the consolidated company’s ability to solidify its very strong competitive position and strong prospective operating earnings.”

Source: Standard & Poor’s Ratings Services

Topics Mergers & Acquisitions