A.M. Best Affirms PartnerRe - Analyst Blog

On Thursday, PartnerRe Ltd. (PRE) got its issuer credit rating (ICR) of "a-" and debt ratings affirmed by rating agency, A.M. Best, reflecting a stable outlook for all.

Alongside A.M. Best has also affirmed the ICR of "aa-" and the financial strength rating (FSR) of "A+" (Superior) for the whole PartnerRe Group, which includes the company's subsidiaries as well.

The stable ratings outlook reflects the overall operational synergies of PartnerRe in order to augment its long-term growth profile. The steady growth in net investments remains significant and positive, implying the strong cash position of the company. This is due to the growth of net investment income drawn on the basis of strong positive cash flow from operations and a straightforward portfolio of fixed income and equity securities that steer clear of alliances and hedge fund investments. As a result, 95% of the fixed income holdings enjoy the status of being in the investment grade or better, positioning PartnerRe in the top five global reinsurance companies.

Moreover, the acquisition of Paris Re is well positioned for PartnerRe's long term goals, as it appears to blend well with the company's core growth strategies. Besides, Paris Re's diversified business portfolio is expected to benefit PartnerRe's clients with a broader product spread and increased magnitude of investments.

Further, the acquisition has augmented total capital to approximately $8 billion as of March 31, 2010. Although near term risks related to amalgamation, finances and proper execution prevails, the Paris Re acquisition is projected to generate earnings and add to shareholder value in the long run.

Besides, the company enjoys above-average liquidity and a low-risk balance sheet. Despite the soft market conditions and catastrophe losses, PartnerRe's above-average risk appetite and apparent underwriting discipline have helped it maintain a five-year average underwriting combined ratio of 91.4%, which is satisfactory compared with its peer group. This also paves the way to uphold a modest return on equity at the target rate of 13% in the long term.

Over the last several quarters, PartnerRe has enjoyed a stable outlook on its securities and debts from rating agencies such as S&P, Moody's Investor Service of Moody's Corp. (MCO), Fitch and A.M. Best. This not only enhances the goodwill and market value of the company, but also reflects PartnerRe's conservative investment strategy, reserve strength, low level of recoverable reinsurance and low reliance on retrocession reinsurance. These factors appear to be strong drivers that can also offset the company's loss reserve, investment and credit risks in the future.

Besides,  the rating agency has recently affirmed or revised its outlook on a good number of financial and insurance companies such as HSBC Holdings Inc. (HBC), ProAssurance Corp. (PRA), StanCorp Financial Group (SFG), Torchmark Corp. (TMK), Montpelier Re Holdings Ltd. (MRH) and Prudential Financial Inc. (PRU), among others.