Despite the negative action by A.M.Best, shares of Partner Re Ltd. PRE fell by a mere 0.01% in yesterday’s trading session.
After signing of the sale agreement by PartnerRe Ltd. to Italian company EXOR S.p.A. and turning down of the proposal from AXIS Capital Holdings Limited , the rating agency A.M. Best sprung into action.
As part of its rating action, A.M.Best downgraded the issuer credit rating (ICR) to “bbb+” from “a-” of PartnerRe Ltd. It also downgraded the financial strength rating (FSR) to A from A+ and the issuer credit ratings (ICR) to “a+” from “aa-” of Partner Reinsurance Company Ltd. and its units. The ratings remain under review with negative implications.
EXOR’s revised offer appeared more lucrative and advantageous to PartnerRe in comparison to the AXIS agreement. Alongside the premium valuation, the most significant and obvious motivation is the all-cash offer from EXOR against the all-stock merger with AXIS. This would not only provide additional liquidity to PartnerRe but would also add certainty since EXOR may not need to raise any additional capital to fund the acquisition.
But A.M.Best is concerned about the business concentration risk of PartnerRe Ltd. in reinsurance business and its lack of a well-developed product portfolio. The rating agency was of the view that the partnership with AXIS would have resolved these issues, but since the transaction has fallen apart these once again need to be pondered over.
On the other hand, the rating agency also remains uncertain about the absorption of senior leadership at PartnerRe Ltd. by EXOR.
A.M. Best gives its “under review” outlook following an event-driven case. The rating outlook may change after the closing of the transaction expected by the end of this year.
PartnerRe carries a Zacks Rank # 3 (Hold). Some better-ranked stocks in the same space are AmTrust Financial Services, Inc. AFSI and Arch Capital Group Ltd. ACGL and Argo Group International Holdings, Ltd. AGII, each carrying a Zacks Rank #2 (Buy).
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