PartnerRe Deal Gets Best Thumbs Up - Analyst Blog

A.M. Best Co. viewed PartnerRe Ltd.’s (PRE) decision to acquire a majority stake in Paris Re on July 5, 2009 as positive for the company.

The all-stock transaction, valued at about approximately $2 billion, will exchange 0.30 of PartnerRe shares for each Paris Re common share outstanding. The deal is expected to be completed in a number of steps. We think this will help PartnerRe’s visibility in a wider market and strengthen its operation to weather the ongoing market volatility.

After reviewing the offer, A.M. Best kept unchanged PartnerRe Group’s and its members’ financial strength rating and issuer credit ratings (ICR) at “A+” and “aa-“, respectively. The ICR and debt ratings of the parent company (PartnerRe Ltd) remained unchanged as well. The outlook for all ratings is stable.

The rating agency exudes optimism about the transaction and believes that PartnerRe will gain operating scale through a diversified geography with this acquisition. A.M. Best also believes that given the relative size of Paris Re, integration, operational and treaty overlap risk will be manageable.

We expect that the Paris Re acquisition would support PartnerRe’s already successful strategy, though, cannot rule out the possibility of uncontrollable integration risk. As such, we expect the company to perform better compared to its peer group, including ACE Ltd. (ACE), Axis Capital Holdings Ltd. (AXS), Everest Re Group Ltd. (RE), Montpelier Re Holdings Ltd. (MRH), RenaissanceRe Holdings Ltd. (RNR) and XL Capital Ltd. (XL), in the coming quarters.