PartnerRe (PRE) Ratings Affirmed by Fitch Following Updated Analysis

Fitch Ratings has downgraded the following PartnerRe Ltd. ratings (NYSE: PRE):

--Issuer Default Rating (IDR) to 'A-' from 'A';
--Senior unsecured notes to 'BBB+' from 'A-'
--Series D, E and F preferred securities to 'BBB' from 'BBB+';
--Insurer Financial Strength (IFS) to 'A+' from 'AA-'.

Today's rating action follows an updated analysis by Fitch of PRE concurrent with a credit quality review of EXOR S.p.A. (EXOR), an Italian-based listed investment company. EXOR today closed on its $6.9 billion acquisition of PRE. The review also considered EXOR's planned operating strategy for PRE.

The ratings have been removed from Rating Watch Negative. The Rating Outlook is Stable. A complete list of rating actions follows at end of this release.

KEY RATING DRIVERS

The one notch downgrade primarily reflects the agency's view that PRE's position in the challenging reinsurance market environment, which is expected to result in ongoing pressure on earnings, no longer supports the former ratings.

Further, while Fitch does not view EXOR's credit quality as unsupportive of PRE's ratings, Fitch does not view the change in ownership to EXOR as improving PRE's near-term competitive position. PRE will effectively maintain its current size, scale and reinsurance focused operating profile. Fitch expects EXOR to offer reasonable support to PRE as needed and to conservatively manage the reinsurers' capitalization with PRE continuing to manage its operations generally independent of EXOR.

Favorably, the ratings continue to reflect the company's very strong capitalization with moderate operating and financial leverage and favorable reserve adequacy.

The shifting market landscape in reinsurance is pressuring profitability and sparking consolidation as companies aim to enhance their relative competitive position. Fitch believes PRE has a large reinsurance market position and scale, writing a diverse mix of reinsurance lines. However, its overall market position trails several of its' larger, higher rated, more diversified (re)insurance peers.

Fitch also views PRE's minimal presence in primary lines as a disadvantage relative to companies that have a more balanced platform of both reinsurance and insurance businesses. This limited business diversity outside of reinsurance results in higher overall earnings volatility and renders PRE especially susceptible to the current market conditions that generally favor commercial primary insurance over reinsurance.

The downgrade also reflects Fitch's expectation that PRE's profitability will continue to be pressured and reduced from historical favorable levels. PRE's most recent five-year average (2011 - 2015) combined ratio and return on average common equity of 94.1% and 7.3%, respectively, and aligns with Fitch's median 'AA-' and 'BBB+' IFS reinsurance sector credit factors. The average ROAE is below guidelines for the previous ratings. This compares to more favorable 10-year averages (2006 - 2015) of 90.6% and 11.6%, respectively.

Fitch anticipates that the softening pricing environment will continue across a wide range of lines as the industry contends with record capitalization levels of traditional reinsurers and growing capacity provided by alternative capital providers. PRE's reinsurance concentration leaves the company vulnerable to a continuation in unfavorable reinsurance market pricing trends and sluggish demand.

PRE maintains a modest financial leverage ratio of 14.7% as of Dec. 31, 2015, down marginally from 14.9% at year-end 2014. Common shareholders' equity attributable to PRE declined to $6 billion at Dec. 31, 2015 from $6.2 billion at year-end 2014, as slight net income attributable to common shareholders of $48 million in 2015 was more than offset by dividends on common shares. The sizable decline in net income from $998 million in 2014 was driven by a $315 million termination fee paid to AXIS Capital Holdings Limited and $262 million of net after tax realized and unrealized investment losses, due to increases in U.S. risk-free interest rates, widening credit spreads and equity market declines.

Underwriting results remained strong in 2015 with a combined ratio of 85.6%. This included 1.5 points of large losses related to the Tianjin explosion and continued sizable favorable reserve development of 20.5 points.

PRE's loss reserves have exhibited consistent redundant development experience. Over the most recent five year period (2011 - 2015), the company produced prior year reserve releases totaling $3.4 billion, or 16.7% of net premiums earned, averaging 6.6% and 9.8% of beginning of year reserves and shareholders' equity, respectively. Fitch expects prior-year reserve development to remain favorable, but decline somewhat going forward, adding pressure to run-rate profitability.

RATING SENSITIVITIES

The key rating triggers that could result in an upgrade include:
--Improved competitive position while demonstrating favorable run-rate earnings and low volatility in the challenging reinsurance environment, with a combined ratio in the low 90s;
--Growth in risk-adjusted capital while maintaining a net premiums written-to-equity ratio of 0.8x or lower and a PRE financial leverage ratio at or below 20% and fixed charge coverage of at least 8x.

The key rating triggers that could result in a downgrade include:
--Changes to PRE's operating profile that Fitch views as increasing overall risk;
--Failure to maintain consistent underwriting profitability or fixed charge coverage of at least 6x;
--Adverse loss reserve development of a magnitude that causes Fitch to question balance sheet strength;
--A net premiums written-to-equity ratio increase to more than 1.0x or a PRE financial leverage ratio above 25%;
--Deterioration in EXOR's credit profile.

FULL LIST OF RATING ACTIONS

Fitch has downgraded and removed from Negative Watch the following ratings:

PartnerRe Ltd.
--IDR to 'A-' from 'A';
--$230 million 6.5% series D cumulative redeemable perpetual preferred securities to 'BBB' from 'BBB+';
--$374 million 7.25% series E cumulative redeemable perpetual preferred securities to 'BBB' from 'BBB+';
--$250 million 5.875% series F non-cumulative redeemable perpetual preferred securities to 'BBB' from 'BBB+';
--$63 million junior subordinated notes due Dec. 1, 2066 to 'BBB' from 'BBB+';
--$250 million 6.875% senior unsecured notes due June 1, 2018 to BBB+' from 'A-';
--$500 million 5.5% senior unsecured notes due June 1, 2020 to 'BBB+' from 'A-'.

Partner Reinsurance Company Ltd.
--IFS to 'A+' from 'AA-'.

The Rating Outlook is Stable

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