S&P, Best Comment on PartnerRe’s EU Centralization Move

August 23, 2007

The rating agencies reacted positively to PartnerRe’s move to centralize all of its European operations in its Dublin-based subsidiary (See previous article).

Standard & Poor’s Ratings Services assigned its ‘AA-‘ counterparty credit and financial strength ratings to Partner Reinsurance Europe Ltd. (PRE Europe) with a stable outlook.

A.M. Best Co. said its financial strength rating of “A+” (Superior), issuer credit ratings of “aa-” and all related debt ratings of the PartnerRe Group its rated members “are unchanged following the announcement that the group will centralize its global reinsurance structure.” Best also indicated it would “assign ratings to the new formation after further review of the finalized structure’s business plan and risk-adjusted capitalization.”

S&P noted that centralizing PRE’s global reinsurance business will have two key benefits:
— Compliance with regulatory requirements in an efficient and effective way as PRE unifies its regulatory compliance in Europe under one regulator (Ireland).
— Enhancement of its capital structure and capital efficiency.

“The ratings on PRE Europe reflect our view that the reinsurance business that will be written through this company will be a core and integral part of PRE’s competitive position, explained S&P credit analyst Taoufik Gharib.

S&P also noted that PRE Europe “is separately incorporated for legal, regulatory, and tax purposes.” Nonetheless the rating agency views it as “wholly integral to the group’s current identity and future strategy,” which will be further supported by “various inter-group capital arrangements.”

S&P added: “On a pro forma basis, PRE Europe would have constituted a significant proportion of PRE’s consolidated position at year-end 2006 in terms of revenues and earnings, which strengthen its core status. Furthermore, PRE Europe will be adequately capitalized in excess of $1 billion in shareholders’ equity as projected for the Jan 1, 2008, renewal season.

“The ratings on PRE’s core operating entities reflect the group’s very strong competitive position, disciplined underwriting, excellent ERM, strong operating performance, and improved capital adequacy in 2006. Partially offsetting these positive factors are potential underwriting volatility because of low retrocessional usage, historically lower-than-peer-group capital adequacy, as well as risks associated with further diversification into alternative risk transfer businesses and–to a lesser extent–certain areas within life reinsurance.”

Source: S&P, A.M. Best

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