The mega-merger between reinsurance firms Axis and PartnerRe has been given the thumbs up by a ratings agency.

Moody’s gave the deal a positive rating — and placed Axis’ rating on review for an upgrade.

Moody’s said: “The combination of the two platforms would result in a firm with significantly greater scale and a top five position in the global property and casualty reinsurance market expanding its market presence in an increasingly competitive and tiered marketplace, where the ability to write large lines and provide a broad range of risk transfer products is highly valued by clients and brokers alike.

The agency added: “For PartnerRe, the transaction would augment its already strong position in the reinsurance market and improve its product diversification by gaining access to Axis Capital’s profitable specialty insurance platform.

“Although these prospective improvements are offset somewhat by modestly weaker pro forma financial metrics, including higher levels of operational leverage, natural catastrophe exposure as a percentage of equity and adjusted financial leverage, the proposed merger is a positive strategic step that would result in an overall credit profile consistent with PartnerRe’s current rating.”

The Moody’s analysis of the merger predicted that it would boost Axis’ business and financial profiles.

The report said: “In particular, the company would benefit from greater scale and product diversification in its reinsurance platform and gain access to PartnerRe’s deeper and broader international presence.”

Moody’s added: “With the exception of good will and intangible assets as a percentage of equity, we expect all our combined pro forma scorecard metrics to improve relative to the firm’s current metrics.”

The agency said that the deal would give the new firm a well-diversified mix spanning major areas like property and casualty, reinsurance, specialty insurance, life and health insurance and a growing accident and health insurance business.

It added that would create “meaningful premium volume” outside the large, but mature, US and European markets.

Moody’s said the predicted cost savings of $200 million a year had contributed to the approval rating. It added: “Although the transaction carries the typical risks associated with a merger of this size, the integration and execution risks are manageable.

“The cultural fit between the two firms appears to be reasonable, with current Axis Capital CEO Albert Benchimol, who previously spent ten years at PartnerRe as chief financial officer, designated to be the CEO of the new company.”

Moody’s said that the business of both firms complemented each other, with the exception of property and casualty where there is some overlap.

But the agency added: “Here we think the loss of premium volume is likely to be moderate given the combined entity’s prospective top tier market position.”

Moody’s said that the transaction financing was “creditor friendly”, in contrast to other major deals like the merger of Catlin and XL and Renaissance Re and Platinum.

“This deal does not include a cash or debt financing component that increases financial leverage and reduces the bottom line of projected cost synergies.”

The Moody’s view is at odds with rival ratings firm AM Best, which placed PartnerRe and Axis under review with negative implications.

AM Best said of PartnerRe: “The under review status reflects AM Best’s concerns regarding the complexity and scale of the merger. The new combined organisation will face execution risk and challenges relating to the integration, retention of key management and the merging of infrastructure, as well as company cultures.

But AM Best added: “Despite the aforementioned challenges, AM Best acknowledges the potential upside of the combined organisation, including its diversified product offering, increased scale and business profile.

And the ratings firm said of Axis also mentioned the size and complexity of the deal.

AM Best said: “Along with combining two company cultures under one leadership team, the successful integration will need to be completed in a timely manner and optimise operational and systems infrastructure while retaining key personnel.

“During the integration period, AM Best believes there is greater inherent risk to the ongoing operations of the combined company.

“This transaction has inherent execution risk although this is partially mitigated by the collaborative nature of both management teams.”