Fitch: Ratings on PartnerRe-AXIS Unchanged Following Revised Merger Agreement

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has taken no rating actions on either PartnerRe Ltd. (PRE) or AXIS Capital Holdings Ltd. (AXIS) following PRE's announcement today that it has rejected EXOR S.p.A.'s (EXOR) offer to acquire PRE for $130 per share in cash ($6.4 billion). A full ratings list follows at the end of this release.

In response to EXOR's rival bid, the PRE-AXIS amalgamation agreement has been revised to add an $11.50 per share dividend to be paid to PRE's shareholders immediately prior to closing. While weakening the post-close balance sheet moderately, Fitch considers this reduction of capital to be within its expected tolerances for the combined organization. Fitch understands that PRE may modify its share repurchase activity post-merger in order to lessen capital outflow after this one-time special dividend to PRE shareholders.

In the event the terms of the transaction are amended further, Fitch would review the revisions to determine any potential ratings impact. Fitch would have a negative view of any further revision of the amalgamation agreement that pushed operating leverage (net premiums written-to-shareholders' equity) significantly above the revised 0.8x expected level for the combined PRE-AXIS entity.

Fitch placed PRE on Rating Watch Negative when PRE and AXIS previously announced on Jan. 26, 2015 a definitive agreement to combine as a 100% stock merger of equals. The Negative Watch reflects an increased level of near-term uncertainty for PRE, including the departure of PRE's CEO Costas Miranthis immediately following the merger announcement with AXIS, and the potential for other key PRE employees that are not expected to be part of the combined company to depart PRE before the merger. As such, with its ownership put into play, Fitch has considered PRE to be in a more vulnerable competitive position. However, if the transaction with AXIS closes as planned, Fitch would likely affirm PRE's current ratings, as previously discussed.

Fitch's placement of AXIS on Rating Watch Positive at the time of the merger announcement reflects the one-notch-higher credit quality profile of PRE, and a view that a combined PRE-AXIS entity would create operating scale advantages that could prove beneficial in the current exceedingly competitive phase of the reinsurance market underwriting cycle. In the event AXIS no longer has an agreement to merge with PRE, Fitch would likely remove AXIS's ratings from Positive Watch and affirm the current ratings with a Stable Outlook.

Fitch views the PRE-AXIS transaction as presenting near-term credit negatives given execution and integration risk inherent to a merger. The noted $11.50 per share PRE dividend moderately reduces the cushion to absorb such contingencies. That said, successful execution of the PRE-AXIS combination could provide positive credit benefits relating to diversification of earnings and business profile, leveraging the benefits of a larger organization.

The PRE-AXIS merger creates a larger global specialty (re)insurer with significant size and scale. Pro forma annual gross premiums written for the combined company is approximately $10.6 billion, with 61% non-life reinsurance, 15% life/health/A&H reinsurance and 24% insurance, and pro forma total shareholders' equity is over $12 billion. Also, potential expense savings could improve the overall profitability of the combined organization. In addition, a larger organization will have better access to new profitable business and be under less pressure to retain business with less attractive terms under competitive market conditions.

Fitch's rating action commentaries published on Jan 26, 2015 related to the PRE-AXIS combination included the following rating sensitivities:

RATING SENSITIVITIES - PRE

Fitch could downgrade PRE's ratings should the merger with AXIS fail to be completed or should PRE experience a significant loss of business, a departure of key personnel or an increase in risk profile prior to the closing of the merger with AXIS.

Fitch would expect to affirm PRE's current ratings with a Stable Outlook if the transaction with AXIS closes as expected.

RATING SENSITIVITIES - AXIS

Fitch would expect to upgrade AXIS's ratings by one notch upon successful completion of the merger with PRE within stated terms.

Fitch expects that if the merger with PRE does not take place, AXIS's ratings would be affirmed at the current level with a Stable Outlook.

Fitch currently rates PRE and its subsidiaries as follows (Rating Watch Negative):

PartnerRe Ltd.

--IDR 'A+';

--$230 million 6.5% series D cumulative redeemable perpetual preferred securities 'BBB+';

--$374 million 7.25% series E cumulative redeemable perpetual preferred securities 'BBB+';

--$250 million 5.875% series F non-cumulative redeemable perpetual preferred securities 'BBB+';

--$63 million junior subordinated notes due Dec. 1, 2066 'BBB+';

--$250 million 6.875% senior unsecured notes due June 1, 2018 'A';

--$500 million 5.5% senior unsecured notes due June 1, 2020 'A'.

Partner Reinsurance Company Ltd.

--IFS 'AA-'.

Fitch currently rates AXIS and its subsidiaries as follows (Rating Watch Positive):

AXIS Capital Holdings, Ltd.

--IDR 'A';

--Series B 7.5% preferred securities rating 'BBB';

--Series C 6.875% preferred securities rating 'BBB';

--Series D 5.5% preferred securities rating 'BBB'.

AXIS Specialty Finance LLC

--5.875% senior debt rating 'A-'.

AXIS Specialty Finance PLC

--$250 million 2.65% senior notes due 2019 'A-';

--$250 million 5.15% senior notes due 2045 'A-'.

AXIS Specialty Limited (Bermuda)

AXIS Reinsurance Company

AXIS Insurance Company

AXIS Surplus Insurance Company

AXIS Specialty Insurance Company

--IFS ratings 'A+'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 4, 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Contact for PRE:
Primary Analyst
Brian C. Schneider, CPA, CPCU, ARe
Senior Director
+1 312-606-2321
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Christopher A. Grimes, CFA
Director
+1 312-368-3263
or
Contact for AXIS:
Primary Analyst
Douglas M. Pawlowski, CFA
Senior Director
+1 312-368-2054
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Martha M. Butler, CFA
Senior Director
+1 312-368-3191
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
or
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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