PartnerRe’s $6.9B Sale to EXOR Completed; Fitch Issues Downgrade

March 21, 2016

PrtnerRe’s new owner EXOR has closed its $6.9 billion acquisition of the Bermuda-based reinsurer, and Fitch Ratings quickly responded with a ratings downgrade that reflects some pessimism over the transaction and the broader market.

Fitch said it downgraded PartnerRe’s insurer financial strength rating to ‘A+’ from ‘AA-‘. Its issuer default ratings also dipped, to ‘A-‘ from ‘A’. At the same time, the ratings entity said it removed PartnerRe’s ratings from Ratings Watch Negative, and said its rating outlook is stable. The announcement came on March 18, the same day PartnerRe and EXOR disclosed the completion of their M&A deal.

Why the rating downgrade? Fitch said the move reflects its view that PartnerRe’s “position in the challenging reinsurance market environment, which is expected to result in ongoing pressure on earnings, no longer supports the former ratings.”

Fitch noted EXOR’s solid credit status and capitalization, and said it expected those factors to continue. At the same time, Ftich said PartnerRe’s new Italian investment firm-owner won’t necessarily improve the reinsurer’s “near-term competitive position.”

PartnerRe “will effectively maintain its current size, scale and reinsurance focused operating profile,” and EXOR will “offer reasonable support to [PartnerRe] as needed,” Fitch wrote. That support would include conservative management of PartnerRe’s capitalization, with the reinsurer continuing to operate essentially mostly independent of EXOR.

While Fitch said it sees PartnerRe as having a big reinsurance market position with diverse underwriting, it noted the reinsurer’s “overall market position trails several of its larger higher, rated, more diversified [reinsurance and insurance] peers.”

Another warning sign that Fitch notes: PartnerRe’s limited business diversity outside of reinsurance. Fitch said that this leads to more earnings volatility in the current market, and leaves PartnerRe “susceptible to current market conditions that generally favor commercial primary insurance over reinsurance.”

This matters on a larger scale because Fitch said it sees soft pricing continuing “across a wide range of lines” as the industry continues to confront record levels of capitalization for traditional reinsurers and growing capacity from alternative capital sources.

PartnerRe’s current reinsurance mix “leaves the company vulnerable to a continuation in unfavorable reinsurance market pricing trends and sluggish demand,” Fitch said.

Fitch also lowered ratings for PartnerRe’s senior unsecured notes to ‘BBB+’ from ‘A-‘, and its Series D, E and F preferred securities to ‘BBB’ from ‘BBB+’.

Source: Fitch Ratings, PartnerRe/EXOR

This article first appeared in Carrier Management, Insurance Journal’s sister publication. 

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