Fitch Ratings announced that it has affirmed the ‘AA’ insurer financial strength rating of Bermuda’s Partner Reinsurance Company and the ‘A+’ long-term issuer rating of Partner Reinsurance Company’s parent, PartnerRe Limited.
Fitch also affirmed the ‘A’ ratings of PartnerRe’s $200 million series B cumulative redeemable preferred shares, $290 million series C cumulative redeemable preferred shares and the $200 million in trust preferred securities of PartnerRe Capital Trust I. The Rating Outlook is Stable.
Fitch said the “ratings reflect PartnerRe’s strong capitalization, conservative investment philosophy, low reliance on retrocessional reinsurance, low level of reinsurance recoverables and modest exposure to legacy issues such as asbestos. However, Fitch’s rating also considers PartnerRe’s high exposure to low-frequency but high-severity events.”
The rating agency said it “believes PartnerRe has benefited greatly from excellent pricing and conditions in the property/casualty reinsurance market in recent years. Though insurance pricing, terms and conditions are not currently as robust as they were, Fitch believes overall reinsurance pricing is adequate. Fitch also notes PartnerRe’s flexibility in offering multiple products in multiple markets which enables it to emphasize those products whose pricing is favorable and de-emphasize those whose pricing is not.”
Fitch observed that “PartnerRe focuses on the reinsurance market, selling both property/casualty and life reinsurance. This market is less highly regulated than the primary insurance market, giving PartnerRe greater flexibility in pricing; setting terms and conditions; and entering and exiting lines of business.”
Commenting on the hard/soft market cycle, Fitch said it “believes the hardest part of the pricing cycle has now passed, though pricing still appears to be adequate in many lines. As such, Fitch expects a tapering off in the growth of written premium. Absent unusual large events, Fitch expects PartnerRe to report strong earnings in 2004 supported by the profit embedded in its Dec. 31, 2003 unearned premium reserve balance.”
Fitch also noted that “the holders of PartnerRe’s mandatorily redeemable preferred securities must purchase PartnerRe common shares by Dec. 31, 2004,” and that the company had “recently increased its common share repurchase authorization. Fitch interprets the increased authorization as: 1) an indication that the reinsurance market continues to soften, resulting in fewer opportunities to profitably deploy capital and 2) initial steps in maintaining a constant level of financial leverage in anticipation of the redemption of the mandatorily redeemable preferred securities later in 2004.”
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