S&P Global Ratings has revised its outlook on the Bermuda-based reinsurer PartnerRe and its operating companies (collectively PRE) to stable from negative.
The rating firm has also affirmed PartnerRe’s credit rating of ‘A-‘ and the rating agency’s ‘A+’ long-term counterparty credit and financial strength ratings on PRE’s core operating subsidiaries.
"The outlook revision reflects our view that PRE will preserve its very strong business risk profile and strong financial risk profile,” said Taoufik Gharib, S&P credit analyst.
“Our ratings are also based on PRE's extremely strong capital and earnings, and are partially offset by its high-risk position arising from the company's substantial exposure to severity risk such as property catastrophe."
S&P has also delinked the ratings on PRE from those on Exor. In the agency’s opinion, despite its 100 percent ownership of PRE, Exor doesn't exert full control due to the existence of substantial creditor protections.
As a Bermuda-based reinsurer, PRE is prudently regulated by the Bermuda Monetary Authority (BMA) as the group supervisory role extends to the holding company and all of PRE's subsidiaries.
Among other rules and regulations that PRE needs to comply with under the BMA's group supervision, PRE is required to maintain capital solvency on a group consolidated basis, S&P said.
S&P added: “In addition, the newly formed independent board with a majority of independent directors (four out of seven) and Exor's long track record and ability not to affect or unduly influence the strategy of its investees were the main factors in supporting the substantial creditor protections.
“Furthermore, PRE is separately managed and maintains an arm's length relationship with Exor and other Exor investees, and there are no intercompany agreements (e.g. cross-default clauses, guarantees).”
The agency expects that under its new ownership, PRE will maintain its extremely strong capitalisation redundant at the 'AAA' level, continue to manage its business autonomously, and keep its own underwriting and investment risk tolerances. In general, reinsurance pricing continues to be soft across most lines of business and regions.
The agency concluded: “As a result, we expect PRE's premium growth to be flat to slightly down 2 percent in 2016-2017.
Assuming a catastrophe load of five percentage points in the loss ratio, we forecast PRE's combined ratio in the 92 to 95 percent range and its return on revenue in the mid-teens in 2016-2017.
“Finally, we expect PRE's financial leverage between 20 and 25 percent and fixed-charge coverage at least 5x.”
S&P Global Ratings, North America, PartnerRe, Bermuda, PRE, Insurance, Reinsurance, Bermuda Monetary Authority, Ratings, Taoufik Gharib