Citing uncertainties related to the acquisition of PartnerRe by EXOR S.p.A and stressed conditions in the reinsurance market, Fitch Ratings announced that it is keeping the “AA-” insurer financial strength (IFS) rating for Partner Reinsurance Company Ltd. on Rating Watch Negative.
The company is the principal reinsurance operating subsidiary of PartnerRe Ltd. (PRE), for which Fitch is also maintaining a negative watch on the “A” issuer default rating.
The actions, Fitch said, are simply the result of a periodic annual review of PRE, noting that the high level of the ratings reflect the company’s historically strong competitive position, moderate operating and financial leverage, favorable reserve adequacy and track record of earnings and capital generation.
But then there is the negative outlook on the global reinsurance sector as a whole to consider.
“The current stressful reinsurance market conditions, with record capitalization levels of traditional reinsurers and the growing capacity provided by alternative capital providers, are promoting weaker pricing and more generous terms and conditions across a wide range of lines,” Fitch said in the PartnerRe rating announcement.
Turning back to PartnerRe specifically, and the deal with EXOR, Fitch said the Negative Watch reflect uncertainty over EXOR’s credit quality. EXOR’s purchase of PRE also presents near-term credit negatives related to execution risk of the transaction, Fitch said.
The rating agency does not currently rate EXOR but plans to address the Rating Watch after completing a more detailed analysis of EXOR’s credit quality and gaining an understanding of its operating strategy for PRE—business growth expectations and capital management plans, for example.
A shareholder vote on the deal is scheduled for Thursday, Nov. 19, Fitch noted, reporting that the deal is also subject to regulatory approval and is not expected to close until the first quarter of 2016. That is after the all-important Jan. 1, 2016 reinsurance treaty renewals, which will provide useful takeaways on about ceding company and reinsurance broker perspectives on the deal.
According to Fitch, PRE renews more than 60 percent of its total annual non-life treaty business on Jan. 1.
Source: Fitch Ratings