AM Best shifts PartnerRe outlook to positive

Bermuda-based PartnerRe’s balance sheet strength and risk-adjusted capitalisation are said to be at the strongest level, according to rating agency AM Best.

AM Best has revised the outlooks to positive from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term ICR of “a+” for most of the operating subsidiaries of PartnerRe. It has also upgraded the Long-Term ICR to “a+” from “a” and affirmed the FSR of A (Excellent) of PartnerRe Life Reinsurance Company of Canada and PartnerRe Life Reinsurance Company of America.

The ratings reflect PartnerRe’s balance sheet strength, which AM Best categories as strongest, as well as its adequate operating performance, very favorable business profile and marginal enterprise risk management (ERM).

While PartnerRe’s ERM is categorised currently as marginal, AM Best’s improving view of the group’s ERM function is the primary driver behind the group’s positive outlook. This is due to PartnerRe’s strong non-life underwriting performance during 2017, where the industry experienced a significant level of catastrophic activity. Despite the catastrophic activity, PartnerRe was able to produce a small non-life underwriting profit, while the vast majority of peers had underwriting losses of varying degrees. AM Best attributes this to prudent risk selection and retrocession usage, which has kept PartnerRe’s net probable maximum loss at manageable levels but still allowing the group to provide meaningful market capacity.

PartnerRe’s balance sheet strength and risk-adjusted capitalisation are considered to be at the strongest level. The group’s quality of capital is considered in line with peers but has a superior history of favorable prior year reserve development. Under EXOR N.V. ownership, AM Best believes that PartnerRe’s financial flexibility remains more than sufficient, as it still has access to the capital markets on a stand-alone basis, as well as potentially through EXOR, which is a publicly traded company in Italy.

The group maintains a highly diversified book of reinsurance business across non-life and life lines of business, as well as a balanced geographic spread of risk. AM Best believes that PartnerRe’s current focus to build out life and health operations could provide additional diversification to help navigate challenging market conditions while enhancing earnings stability over the medium to long term.

According to the rating agency, PartnerRe’s overall earnings in recent years have been impacted by several non-operating activities and has seen net investment income trend lower over the current five-year period. However, PartnerRe’s overall underwriting results have proven to be consistently stable and profitable.

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