Fitch Ratings averred the financial and credit strength of PartnerRe Ltd. (PRE), maintaining its confidence in this Zacks Rank #3 (Hold) stock. The outlook remained stable.
Accordingly, the ratings agency asserted the issuer default rating (:IDR) of “A+” on PartnerRe and insurer financial strength (:IFS) rating of its principal insurance operating subsidiary – Partner Reinsurance Company Ltd. at “AA-.” Moreover, Fitch affirmed the “BBB+” rating on the company’s perpetual preferred securities andjunior subordinated notes along with an “A” rating on its senior unsecured notes.
Fitch remains assured of PartnerRe’s steady earnings growth potential on the heels of improved pricing and underwriting capabilities as well as superior risk management. Although catastrophe losses deter the desired upside in the company’s results, the ratings agency projects lower catastrophe losses in the second half of 2013. Subsequently, this should boost the underwriting results and earnings in 2013.
Further, PartnerRe’s impressive balance sheet, competitive strength and steady capital generation reflect adequate liquidity and operating leverage, thereby enjoying a high credit rating. Even the modest debt levels keep the financial leverage in control. These factors also help overcome the volatile phases in capital markets, which directly affects the company’s investment portfolio.
Although high investment and catastrophe losses deteriorated PartnerRe’s earnings, combined ratio and annualized operating return on equity during the first half of 2013, combined ratio was still in the 90% range, which considered favorable by Fitch.
Nonetheless, a downgrade is possible in the upcoming 12–18 months if PartnerRe witnesses weak operating results, investment portfolio and balance sheet over a long frame of time. Additionally, if the run-rate of PartnerRe’s combined ratios falls below the mid-90s, the net leverage exceeds 3.0x as well as interest and preferred dividend coverage ratios decline below 8x, any of these factors could lead to a downward rating.
While we remain neutral on PartnerRe at present, other strong performers in the insurance sector include Global Indemnity Plc (GBLI), EMC Insurance Group Inc. (EMCI) and Everest Re (RE).All these stocks carry a Zacks Rank #1 (Strong Buy).
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