Fitch places PartnerRe on rating watch positive
Fitch Ratings has placed PartnerRe Ltd.'s (PRE) ratings on rating watch positive, including its 'A-' issuer default rating (IDR) and the 'A+' (Strong) insurer financial strength (IFS) rating of Partner Reinsurance Company Ltd., the company's principal reinsurance operating subsidiary.
Reacting to the intended $9-billion acquisition of the Bermuda reinsurer by the French mutual insurer Covéa, Fitch reviewed the history of the intended transaction.
EXOR N.V. acquired PartnerRe in 2016 and now expects to have a definitive sale agreement with Covéa by the end of 2021, with the transaction to be completed by mid-2022.
Fitch said: “The Rating Watch Positive reflects the potential for ownership by Covéa, a larger property/casualty (P/C), health and life insurance organisation, to benefit PRE's ratings under a group credit approach.
“Fitch does not currently rate Covéa. Fitch views EXOR's ownership as neutral to PRE's ratings.
“Fitch expects PRE would continue to operate independently, as it has under EXOR ownership.
“The PRE acquisition provides Covéa diversification outside of France, as Covéa maintains a leading market position in French P/C, but has minimal global reinsurance business.
“PRE writes a diverse international mix of property, casualty, specialty, and life and health reinsurance products.
“Resolution of the rating watch positive on PRE will consider Fitch's view on the consolidated credit strength of Covéa and the strategic importance of PRE to Covéa.
"The ratings analysis will weigh implications of the transaction for PRE in several key areas including underwriting and operating strategy, business growth, capital management and risk asset allocation.“
Fitch also noted that PartnerRe had been faced with a negative rating outlook, because of poor results.
Fitch said: “PRE's ratings had a negative rating outlook prior to the pending transaction with Covea.
“The negative outlook reflected PRE's operating results which have been pressured recently with the non-life business posting a three-year average (2018-2020) combined ratio and operating ratio of 102.7 per cent and 95.6 per cent, respectively, driven by increased catastrophe losses and reduced favourable reserve development, with adverse development reported in 2020.
Furthermore, the company has not achieved overall underwriting profitability since 2016.
These results are inconsistent with both the company's historical performance and Fitch's expectations for the rating of combined ratios below 100 per cent and operating ratios below 90 per cent. Favourably, PRE posted a half-year 2021 combined ratio of 92.4 per cent and operating ratio of 86.7 per cent.“