S&P Global Ratings has revised its outlook on Bermuda-based reinsurer PartnerRe to Stable from Positive following the collapse of its acquisition by French insurer Covéa.
It was revealed last week that the $9 billion deal had been called off after owner EXOR declined to renegotiate the price in the context of the COVID-19 pandemic.
S&P’s previously held Positive outlook on PartnerRe was based on the potential for stronger group support from a higher-rated new parent, in Covéa. But now the deal has been terminated, the ratings agency has revised its outlook down to Stable for the firm, and, at the same time, affirmed all of its ratings on the reinsurer and its operating companies.
Specifically, S&P has affirmed its ‘A-‘ long-term issuer credit on PartnerRe and its ‘A+’ long-term insurer financial strength and issuer credit ratings on its core subsidiaries.
S&P notes that it has affirmed all of its ratings based on the assumption that the COVID-19 related losses will be manageable and the reinsurer will also benefit from improving reinsurance rates.
Earlier this month, PartnerRe announced a net loss of $433 million for the first-quarter of 2020, driven by COVID-19-induced financial market volatility and fading equity markets. While the company’s investments suffered from the impacts of the ongoing pandemic, on the underwriting side, PartnerRe’s losses from the event were limited.
The ratings agency feels it is unlikely that a deal between Covéa and EXOR for PartnerRe will be revived, and notes that EXOR is not expected to entertain any other offers for the reinsurer in view of the current depressed valuations in the sector.
“Considering the strength of PartnerRe’s competitive position, the hardening reinsurance pricing, and the company’s strategic portfolio management initiatives, we expect the company to leverage resultant opportunities to strengthen its presence in the P/C segment and expand in the life segment despite difficult business conditions. Therefore, we expect the company to generate strong earnings in 2021 and beyond,” says S&P.
The ratings agency continues to stress that like many of its peers, PartnerRe’s performance in 2020 will take a hit from the pandemic. In light of this, S&P is lowering its 2020 performance expectations, anticipating a combined ratio of between 99% – 103% assuming a cat load of five percentage points. However, for 2021-2022, S&P expects the reinsurer to record a combined ratio of between 94% – 97%, expand its life earnings, and report a return on equity in the high single digits.
“The stable outlook reflects our view that PartnerRe will maintain its very strong competitive position and that prospective capitalization will be redundant at the ‘AAA’ level. In addition, we expect the company will maintain its underwriting discipline and produce strong operating results within its P/C and life segments,” explains S&P.
Just last week, Fitch removed PartnerRe’s ratings from Rating Watch Positive following news that the acquisition deal had fallen through.
