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PartnerRe sale could reduce asset diversity for Exor: S&P

11th February 2020 - Author: Matt Sheehan

Analysts at S&P Global Ratings have warned that Exor’s potential sale of Bermudian reinsurance firm PartnerRe could improve the company’s financial flexibility, but to the detriment of its asset diversity.

Covea PartnerRe acquisitionExor confirmed yesterday that it is in discussions with French insurance group Covéa regarding a deal that could see PartnerRe bought for $9 billion.

This purchase price would be a significant increase on the $6.9 billion that Exor paid for PartnerRe when it acquired the reinsurer in 2016, but analysts have pointed out that it could leave Exor’s investment mix less resilient if the cash is not redeployed.

Notably, a PartnerRe sale could increase Exor’s portfolio exposure to the volatile automotive and capital goods sector from about 38% currently to 50%.

If the transaction goes ahead, S&P believes that Exor’s portfolio value could decrease to about $19 billion from more than $27 billion.

That said, S&P’s rating on the company is currently unaffected, given the uncertainty about the outcome of the transaction.

Exor acquired PartnerRe for a holding period of about 3.5 years back in 2016, and the reinsurance company today represents roughly 30% of Exor’s current portfolio.

If sold in full, S&P argues that Exor’s asset diversity would diminish as its three main holdings would be in FCA, Ferrari, and CNHI, hence increasing its exposure to automotive and capital goods.

But given the size of the potential transaction, and the financial flexibility Exor could gain, S&P maintained that Exor’s medium-term investment plans and its ability to quickly rotate its assets could also be pivotal for the rating.

Exor’s financial policy aims for an LTV ratio below 20% and its long-term gross debt aim is for below €2 billion.

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