Fitch Affirms PartnerRe's Ratings Following Block Purchase of PARIS RE Shares; Outlook to Negative

The revision in PartnerRe's Rating Outlook to Negative from Stable, reflects uncertainty over whether the combined entity will generate returns and stability of returns that are commensurate with those required at PartnerRe's current 'AA' rating level.

Fitch believes that the combined entity has the potential to generate results that are generally consistent with PartnerRe's current ratings level, based on information provided by the companies. If the combined entity demonstrates the ability to generate such returns over the 12-18 months following the transaction's completion while retaining its risk-adjusted capitalization, Fitch will likely revise PartnerRe's Rating Outlook to Stable. Otherwise, Fitch believes that PartnerRe's ratings would likely be downgraded by one notch.

Over time, Fitch expects the acquisition to provide a modest stabilizing effect on PartnerRe's financial results due to diversification benefits derived from PARIS RE's reinsurance portfolio, which is weighted relatively more heavily toward emerging markets and facultative business than PartnerRe's existing portfolio.

Fitch also believes that PartnerRe's competitive position will benefit modestly from the enhanced size of its capital base and overall scale of its operations. On a pro forma basis as of June 30, 2009, Fitch estimates that PartnerRe's GAAP basis total capital would increase to roughly $7.2 billion from $5.3 billion and its first-half 2009 gross premiums written would increase to $3.2 billion from $2.2 billion.

Fitch views the integration risks associated with the transaction as largely mitigated given PARIS RE's high-quality balance sheet, the relative size and scope of the company's operations, and the existence of a guaranty issued by Axa Re, PARIS RE's former parent, that covers 2005 and prior accident year reserves.

Fitch expects the transaction's immediate effect on PartnerRe's combined pro forma balance sheet to be largely favorable, except for a modestly increased exposure to intangible assets. PARIS RE currently employs no senior or subordinated debt. Fitch therefore expects PartnerRe's post-acquisition consolidated financial leverage to decline and interest and preferred dividend coverage to improve. Fitch believes that the combined entity's financial leverage and interest and preferred dividend coverage will likely return toward PartnerRe's historical levels over time.

In Fitch's view, PARIS RE, which began operations in its current form in 2006 following its spin-off from Axa Re has yet to demonstrate the same strong track record of profitability as PartnerRe, although the company's results generally compare favorably to the reinsurance industry during this period. Fitch also notes that PARIS RE's operating results have exhibited greater volatility than PartnerRe's over this admittedly short time period.

On Oct. 4, PartnerRe announced the successful closing of its previously announced block purchase of common shares of PARIS RE. As of the close of business on Oct. 2, 2009, PartnerRe had acquired via block purchase approximately 71% of the outstanding PARIS RE shares, with an additional 6% of the outstanding PARIS RE shares subject to physical settlement in the coming days.

Following the settlement of these trades, PartnerRe's total shareholding of PARIS RE will increase to 83%, which includes PartnerRe's previously announced acquisition of 6% of the outstanding PARIS RE shares. With this level of ownership, PartnerRe takes control of the PARIS RE Board of Directors through the appointment of six directors, all of whom are existing PartnerRe management.

In closing the block purchase, PartnerRe has received all necessary approvals of insurance and competition regulatory authorities. It is expected that PARIS RE will call a meeting of its shareholders to vote on a proposal to effect a merger of PARIS RE into a wholly-owned subsidiary of PartnerRe. The merger, when approved by the holders of at least 90% of all outstanding PARIS RE voting rights, is expected to become effective in December 2009.

The individual ratings affirmed are listed below:

Partner Reinsurance Company

--Insurer Financial Strength at 'AA'.

PartnerRe Ltd.

--Issuer Default Rating at 'AA-'; Rating Outlook to Negative from Stable;

--$290 million 6.75% series C cumulative redeemable perpetual preferred securities at 'A';

--$230 million 6.5% series D cumulative redeemable perpetual preferred securities at 'A';

--$250 million junior subordinated notes due Dec 1, 2066 at 'A';

--$250 million 6.875% senior unsecured notes due June 1, 2018 at 'A+'.

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SOURCE: Fitch Ratings

Fitch Ratings 
Gregory Dickerson, +1-212-908-0220 (New York) 
Mark Rouck, +1-312-368-2085 (Chicago) 
or 
Brian Bertsch, +1-212-908-0549 
(Media Relations, New York) 
brian.bertsch@fitchratings.com