On Wednesday, Fitch Ratings affirmed the issuer default rating
) at "A+" and the insurer financial strength rating of its
principal insurance operating subsidiary - Partner Reinsurance
Company Ltd. - at "AA-". The rating agency also affirmed the
"BBB+" rating on PartnerRe's cumulative redeemable perpetual
preferred securities and junior subordinated notes along with an
"A" rating on its senior unsecured notes. All the
above-mentioned ratings carry a stable outlook.
The affirmation of the ratings was based on PartnerRe's
impressive balance sheet, sturdy earnings growth trend,
competitive strength and regular capital generation. The ratings
take into consideration Fitch's confidence in the company's risk
management ability, which will help it overcome the phases of
volatile capital markets or increased underwriting losses without
affecting the strength or liquidity of its balance sheet.
However, these positive factors are partially offset by the
impact of PartnerRe's high exposure to catastrophic events, which
occur sporadically but have a significant impact on the
Nevertheless, PartnerRe has a high credit rating at present.
As a result, an upgrade in the near term by Fitch is not expected
unless PartnerRe witnesses a substantial decline in underwriting
volatility over a long time, leading to a significant improvement
in the risk profile. However, a downgrade is possible in the
upcoming 12-18 months if the company witnesses weak operating
results over a long frame of time, its balance sheet weakens due
to a substantial write-down in investments or a large adverse
loss reserve development, or if the underwriting results and
profits fall substantially lower than its peers.
Additionally, if the run-rate of PartnerRe's combined ratios
falls below the mid-90s or the operating earnings-based interest
coverage, and interest and preferred dividend coverage ratios
decline below 10x and 6x, respectively, then Fitch might revise
the rating downward. Moreover, an increase in the run-rate net
written premium to GAAP equity ratio above 1.0x for any reason
other than a considerable shift in business mix toward less
volatile lines can lead to a rating downgrade.
PartnerRe currently carries a Zacks Rank #2 (Buy). We maintain
a long-term Neutral recommendation on the stock. Peers
AmTrust Financial Services Inc.
) carry a Zacks Rank #1 (Strong Buy).
AMTRUST FIN SVC (AFSI): Free Stock Analysis
ALLSTATE CORP (ALL): Free Stock Analysis
PARTNERRE LTD (PRE): Free Stock Analysis
To read this article on Zacks.com click here.