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Rating agencies view Covéa takeover as beneficial for PartnerRe

5th March 2020 - Author: Matt Sheehan

Rating agencies Fitch and Moody’s have said that they view the recently confirmed acquisition of PartnerRe by Covéa as potentially beneficial for the Bermudian reinsurer.

covea-partnerre-exor-logosFitch has placed PartnerRe’s ratings on Rating Watch Positive after the news emerged yesterday, while Moody’s affirmed its ratings and noted that PartnerRe would likely benefit from being part of a larger insurance organisation.

French mutual insurer Covéa has entered into a memorandum of understanding with EXOR to acquire PartnerRe for a total cash consideration of $9 billion, plus a cash dividend of $50 million to be paid before closing.

Fitch views EXOR’s ownership as neutral to PartnerRe’s ratings, but said that Covéa would likely benefit the reinsurer’s ratings under a group credit approach, while allowing it to continue operating independently.

The rating agency also noted that PartnerRe will be strategically important to Covéa due to the diversification it provides outside of France.

Moody’s, meanwhile, explained that its rating affirmation reflects the expectation that the change in ownership will not have a meaningful impact on PartnerRe’s business strategy and credit profile in the short-term, and that the current management will remain in place.

It added that PartnerRe should benefit from being part of a larger insurance organization with substantial capital resources which could be used to alleviate capital strain in the event of large catastrophe losses or to help finance profitable growth opportunities.

Key considerations for PartnerRe going forward include its retention of client and broker support following the acquisition, its prospective capital adequacy and financial leverage, as well as implicit and explicit support provided by Covéa.

PartnerRe currently holds ‘A-‘ Issuer Default Rating (IDR) and ‘A+’ (Strong) Insurer Financial Strength (IFS) from Fitch and an A1 IFS ratings from Moody’s.

Analysts consider PartnerRe to hold a leading position in specialty reinsurance lines, with a broad international presence and operational platform, as well as a diversified book of business across a range of exposure classes, including life and health reinsurance.

Other strengths include its strong capitalisation, good core profitability and high quality investment portfolio.

However, it is also considered to have some earnings volatility due to its property catastrophe reinsurance exposures and claims inflation in its casualty reinsurance lines.

The highly competitive operating environment in the reinsurance market is also a consideration for the rating agencies, who highlighted an oversupply of capital from both traditional reinsurers and alternative capital providers.

A.M. Best has also acted following the news of the deal, placing under review with developing implications the FSR of A+ (Superior) and Long-Term ICR of “aa-” of the operating subsidiaries of PartnerRe, and, placed under review with developing implications the Long-Term ICR of “a-” of PartnerRe Ltd. and its existing Long-Term IR.

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