While Standard & Poor’s Ratings Services is positive in its outlook for PARIS RE (See related article), it is less so when it comes to the acquiring company, Bermuda-based PartnerRe. S&P said it has revised its outlook on the company and its related operating entities to negative from stable.
However S&P also affirmed its ‘A’ counterparty credit and senior debt, ‘A-‘ subordinated debt, and ‘BBB+’ preferred stock ratings on PartnerRe Ltd., as well as its ‘AA-‘ counterparty credit and financial strength ratings on PartnerRe’s operating subsidiaries.
The outlook revision is a direct result of the acquisition deal stated credit analyst Laline Carvalho. S&P also indicated that after the two step acquisition is completed it “will place PartnerRe among the largest global reinsurance groups in the world, with estimated pro forma total capital of $6.6 billion and approximately $5 billion in net premium writings.”
Carvalho explained that, “although we believe the proposed acquisition will significantly enhance PartnerRe’s competitive position in the global reinsurance sector and provide broader client and distribution channel diversification, the negative outlook reflects concerns about potential integration risk, particularly given the large size of the acquisition, which we expect to increase PartnerRe’s premium writings by 30 percent and capital base by 37 percent.”
In addition S&P noted that “to the degree we view PartnerRe’s historical earnings track record as stronger than PARIS RE’s, we believe there is some risk of earnings dilution of the combined group. The merged group will also have a relatively larger property/catastrophe component within its business mix relative to that of peers, which could expose PartnerRe to more volatile earnings and capital. We believe PartnerRe’s ability to successfully integrate the culture and risk-management practices of both organizations, retain key talent at PARIS RE, and translate its enhanced competitive position into sustainable, strong earnings on a prospective basis will be important elements in measuring the success of this transaction.”
Source: Standard & Poor’s – www.standardandpoors.com
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