S&P Rates PartnerRe Preferred Stock Issue ‘BBB+’; Affirms Rating, Stable Outlook

November 11, 2004

Standard & Poor’s Ratings Services announced that it has assigned its “BBB+” preferred stock rating to Bermuda-based PartnerRe Ltd.’s (PRE’s) proposed $200 million Series D Cumulative Redeemable Preferred Shares issuance (See IJ Website Nov.10).

At the same time, S&P said it has affirmed its “A” counterparty credit rating on PRE and its “AA-” counterparty credit and financial strength ratings on PRE’s subsidiaries: Partner Reinsurance Co. Ltd., Partner Re S.A., and Partner Reinsurance Co. of U.S.

The outlook on all the ratings is stable.

“The ratings are based on PRE’s very strong operating results, strong competitive position and well-diversified franchise, conservative balance sheet, and strong capital adequacy,” S&P said. “Partially offsetting these positive factors are the group’s potential volatility in underwriting performance because of low retrocessional usage as well as its developing U.S. and European franchises. Standard & Poor’s expects proceeds from the issuance to be primarily used for the repurchase of common stock.”

S&P also indicated that it expects PRE’s 2004 combined ratio to be 94 to 95 percent, “reflecting about 2-3 percentage points of hurricane-related catastrophe losses. Premium volume is expected to be flat to down for the rest of 2004 and into 2005 because of changing market conditions and PRE’s commitment to maintaining strict underwriting standards.

“Capital adequacy is expected to strengthen, reflecting strong earnings and flat or declining premiums for the year. Investment quality as well as cash flows should remain very strong through the remainder of 2004 and into 2005. Debt plus preferred leverage, which was 24 percent as of Sept. 30, 2004, is expected to remain between 24 to 26 percent over the medium-term. Fixed-charge coverage is expected to be 6x-8x.”

S&P also noted additional major rating factors – summarized as follows:
— Very strong operating performance. In the past two years, PRE has outperformed many of its peers. Partially contributing to PRE’s better results relative to the industry is its relatively moderate exposure to U.S. business written before 2001, with the group reporting relatively small reserve deficiencies in the past three years.
— Strong competitive position. PRE ranked 10th among global reinsurance groups in 2003, with $3.6 billion in net reinsurance premiums written. This is an increase in market share from a ranking of 13th in 2001 and reflects the group’s ability to take advantage of considerable market dislocation within the global reinsurance industry in the past three years.
— Conservative balance sheet. PRE has maintained a clean balance sheet, with low levels of non-investment-grade fixed assets, few higher-risk investments, and low financial leverage.
— Strong capital adequacy. PRE’s capital adequacy ratio remained strong at year-end 2003 and is expected to strengthen within in the next two years. Further supporting the capital adequacy position are the group’s relatively modest exposure to U.S. liabilities before 2001 as well as its conservative reserving strategy.
— Potential volatility in underwriting performance. As a gross line catastrophe writer with limited retrocessional purchases, PRE remains subject to large catastrophe losses even though property-catastrophe premiums constituted only 10 percent of net premiums for the nine months ended Sept. 30, 2004.
— Developing U.S. and European franchises. As part of its effort to diversify its operations beyond its property-catastrophe roots, PRE expanded into the U.S. and European regions through a few acquisitions in the late 1990s. PRE’s U.S. operations are considered core by management and had markedly improved operating performance in 2002 and in 2003, with U.S. P/C combined ratios of 101.1 percent in 2002 and 101.9 percent in 2003, down from 153.1 percent in 2001 (reflecting the exposure to World Trade Center-related losses). The operating performance of the European business has also improved; however, the track record of improved operating profitability in these regions is still relatively recent.

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