S&P’s assigns ‘BBB+’ rating to PartnerRe stock issuance

Standard & Poor’s Ratings Services assigned its ‘BBB+’ preferred stock rating to PartnerRe Ltd.’s (NYSE:PRE) issuance of US$250 million in junior subordinated capital efficient notes due in 2066.
At the same time, Standard & Poor’s affirmed its ‘A’ counterparty credit rating on PRE, a Bermuda-based reinsurance holding company.
The outlook remains negative, S&P’s announced.
“The ratings on PRE are based on the group’s very strong historical operating performance, reasonable (albeit large) 2005 catastrophe losses, very strong competitive position, strong modeling capabilities, and conservative reserving practices,” said Standard & Poor’s credit analyst Laline Carvalho.
“In addition, the group’s prudent underwriting approach is reflected in its strategy to cap its zonal exposures for all lines of business.”
As of Sept. 30, 2006, this maximum equated to 29% of its capital base, S&P’s reported.
“Offsetting these positives are the group’s potential underwriting volatility due to low retrocessional usage, lower-than-peer-group capital adequacy ratio (CAR), and risks associated with the group’s strategy to increase diversification through further expansion into relatively new lines of business such as life reinsurance,” Carvalho said in a press release.
S&P’s reported PartnerRe’s operating performance through the first nine months of 2006 remained consistent with expectations, “with a light catastrophe season leading the group to report a very strong non-life combined ratio of 86% and ROR of 18% for the nine-month period to Sept. 30, 2006.”
A continued light catastrophe year would be key to removing the negative outlook, S&P’s reported. “The negative outlook reflects lower-than-peer-group operating capital adequacy, which is currently at about 131% based on Standard & Poor’s CAR model,” the ratings agency said.
“The potential revision of PartnerRe’s outlook back to stable over the next six to 18 months is expected to be dependent on the group’s ability to improve its capital adequacy to levels more commensurate with the ratings.
“Assuming the continuation of a relatively benign catastrophe season in 2006, Standard & Poor’s expects PartnerRe’s full-year 2006 operating performance to improve significantly, with the group expected to report a combined ratio of 88%-90% and RORs of more than 18%. Capital adequacy is expected to improve modestly by year-end 2006, remaining in the strong range.”