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AM Best assigns negative outlook to PartnerRe

Financial ratings firm AM Best has removed Bermuda-based PartnerRe from under review with negative implications and assigned a negative outlook to the company’s financial strength rating A+ (Superior) and issuer credit ratings of “aa-” along with its affiliates.

AM Best also removed from under review with negative implications and assigned a negative outlook to the Issuer Credit Rating (ICR) of “a-” and debt ratings of its parent, PartnerRe Ltd.

According to Best, the negative outlook reflects the reinsurer’s 2011 financial performance, which “was not in line with other superior-rated companies and below AM Best’s expectations”.

“While one year’s operating performance does not indicate a trend, the accumulation of catastrophe losses experienced by PartnerRe in 2011 has strained average historical profitability measures,” said the ratings company in a statement.

PartnerRe Ltd reported a $520 million net loss in 2011 as it suffered $1.79 billion in net catastrophe losses. The $520.3 million net loss for 2011 amounted to $8.40 per share and compared to a profit of $852.6 million, or $10.46 per share, in 2010.

AM Best stated that it believes that PartnerRe has a solid risk management framework that identifies and measures risks to its organisation.

“However, as for the crucial component of managing risk, AM Best believes that PartnerRe’s mitigation of risk to an outsized market loss during the integration of the acquired Paris Re portfolio was contemplated, and accepted by the company, but represented a risk appetite that led to greater earnings volatility as compared to prior years and similarly rated peers,” it said.

The ratings firm added: “PartnerRe has made meaningful changes to its catastrophe risk profile, and going forward the anticipation is that operating results will be consistent with this adjusted profile and not outsized compared to other peer companies.”

According to Best, the ratings reflect the group’s strong risk-adjusted capitalisation, solid long-term track record and the company’s strong business profile as a truly global reinsurance organisation.

The company added that PartnerRe has a talented management team with the resources, access and ability to write multiple lines of business in various geographies around the world. “PartnerRe remains capable of delivering strong prospective operating results,” it said.

The ratings firm said that factors that could result in a downgrading of PartnerRe’s ratings include unfavourable operating profitability relative to the market. Additional factors that could place downward pressure on the ratings would be an altered view of PartnerRe’s risk management capability or a material decline in its risk-adjusted capital as a result of catastrophe or investment losses.

Factors that could lead to a stable outlook would be evidence of a return of PartnerRe’s long-term, strong operating profitability and maintenance of strong risk-adjusted capital levels.

PartnerRe’s share price fell $1.22, or 1.8 percent, to $66.39 in Friday trading in New York.

PartnerRe CEO Costas Miranthis

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Published April 16, 2012 at 9:33 am (Updated April 16, 2012 at 9:32 am)

AM Best assigns negative outlook to PartnerRe

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