Fitch Rates PartnerRe Subsidiary’s Notes ‘BBB+’; Affirms Ratings

Business Wire

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'BBB+' rating to the EUR750 million 1.25% notes due Sept. 15, 2026 issued by PartnerRe Ireland Finance DAC (PRE Ireland). Fitch has also affirmed PartnerRe Ltd.'s (PRE) ratings, including its 'A-' Issuer Default Rating (IDR) and the 'A+' Insurer Financial Strength (IFS) rating of Partner Reinsurance Company Ltd. The Rating Outlook is Stable. See the full list of rating actions at the end of this release.

KEY RATING DRIVERS

PRE has unconditionally and irrevocably guaranteed the notes issued by PRE Ireland, a wholly owned subsidiary of PRE. PRE Ireland's issuance ranks pari passu with PRE's currently outstanding senior unsecured notes, and are thus rated equivalent.

The company expects to use the net proceeds from the offering to refinance its USD250 million of senior notes due June 1, 2018 and redeem all USD150 million outstanding 6.5% series D cumulative redeemable preferred shares and 7.25% series E cumulative redeemable preferred shares, as well as for general corporate purposes. Pro forma for the debt issuance, refinancing and redemption, financial leverage increases to approximately 19.7% from 14.3% at June 30, 2016, just below Fitch's rating expectation of 20%-25%.

The affirmation reflects the company's large reinsurance market position, very strong capitalization with moderate operating leverage, reasonable financial leverage and favorable reserve adequacy. These favorable factors are partially offset by PRE's limited diversity outside of reinsurance and Fitch's negative sector outlook on global reinsurance with industry earnings pressured.

Fitch considers PRE to have a large reinsurance market position and scale, writing a diverse mix of reinsurance lines. However, its overall market position trails several of its larger, more diversified (re)insurance peers. Fitch views PRE's minimal presence in primary lines as a disadvantage relative to companies that have a more balanced platform of both reinsurance and insurance business. This limited business diversity outside of reinsurance renders PRE more susceptible to the currently unfavorable reinsurance market conditions.

Underwriting results deteriorated in the first six months of 2016, with a combined ratio of 101.7% compared to 86.7% in the first six months of 2015. This increase was primarily due to higher catastrophe and weather-related losses, including the Fort McMurray, Alberta, Canada wildfire, the Japanese earthquake, floods in Germany and France, hailstorms in Texas, and an energy loss.

PRE's loss reserves have exhibited consistent redundant development experience. Over the most recent five-year period (2011-2015), the company produced prior year reserve releases totaling $3.4 billion, or 16.7% of net premiums earned, averaging 6.6% and 9.8% of beginning of year reserves and shareholders' equity, respectively. Through the first half of 2016, PRE posted an additional $332 million of favorable prior-year reserve, benefiting the combined ratio by 18 points. Fitch expects prior-year reserve development to remain favorable, but decline somewhat going forward, adding pressure to run-rate profitability.

RATING SENSITIVITIES

The key rating triggers that could result in an upgrade include:

--Improved competitive position while demonstrating favorable run-rate earnings and low volatility in the challenging reinsurance environment, with a combined ratio in the low 90s;

--Growth in risk-adjusted capital while maintaining a net premiums written-to-equity ratio of 0.8x or lower and a financial leverage ratio at or below 20%, and fixed charge coverage (FCC) of at least 8x.

The key rating triggers that could result in a downgrade include:

--Changes to PRE's operating profile that Fitch views as increasing overall risk;

--Failure to maintain consistent underwriting profitability or FCC of at least 6x;

--Adverse loss reserve development of a magnitude that causes Fitch to question balance sheet strength;

--A net premiums written-to-equity ratio increase to more than 1.0x or a financial leverage ratio above 25%;

--Deterioration in EXOR S.p.A.'s (PRE's parent company) credit profile;

--Hybrid securities ratings could be lowered by one notch to reflect non-performance risk should Fitch view Bermuda's regulatory environment as becoming more controlling in its supervision of (re)insurers.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following rating:

PartnerRe Ireland Finance DAC

--EUR750 million 1.25% notes due Sept. 15, 2026 'BBB+'.

Fitch has affirmed the following ratings with a Stable Outlook:

PartnerRe Ltd.

--IDR at 'A-';

--Series D,E,G and H cumulative redeemable preferred securities at 'BBB';

--Series F and I non-cumulative redeemable preferred securities at 'BBB';

--USD63 million junior subordinated notes due Dec. 1, 2066 at 'BBB';

-- USD250 million 6.875% senior unsecured notes due June 1, 2018 at BBB+';

--USD500 million 5.5% senior unsecured notes due June 1, 2020 at 'BBB+'.

Partner Reinsurance Company Ltd.

--IFS at 'A+'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 17 May 2016)

https://www.fitchratings.com/site/re/881564

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011409

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011409

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Fitch Ratings

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