PartnerRe's Credibility Avowed By A.M. Best - Analyst Blog

Ratings agency A.M. Best has reasserted its faith in the multi-line insurer – PartnerRe Ltd. PRE by reiterating the debt and credit ratings of the company. Previously, in May 2013, A.M. Best had raised its outlook on the company to stable from negative, while affirming its above-average ratings and steady core growth.

The ratings agency asserted the debt ratings on preferred stock of “bbb”, issuer credit rating (ICR) of “a-” and subordinate debt rating of “bbb+” for PartnerRe. The outlook for all the ratings remained stable.

Additionally, the financial strength rating FSR of “A+” and ICR of “aa-” for Partner Reinsurance Co. Ltd. were affirmed by A.M. Best. Last year, A.M. Best had also raised the FSR of “A” from “A-” and ICR of “a+” from “a-” of PartnerRe America Insurance Co.

The reaffirmation of ratings and maintenance of a stable outlook elucidates PartnerRe's prudent risk management. This stems from a conservative investment strategy, firm capital competence, reserve strength, diverse business-mix, low level of reinsurance recoverable, and low reliance on retrocession reinsurance.

Moreover, PartnerRe enjoys a low-risk balance sheet given its meaningful debt de-leveraging of less than 15%, modest long-term operating profitability and superior capital position. The overall operational synergies and above-average liquidityfurther strengthen the company's competitive edge and long-term growth profile. These factors also enhance the goodwill and market value of the company.

While the reinsurance industry is currently at an inflection point, stiff competition from few dominant property-casualty players, pricing pressure and interest rate volatility are still some headwinds. Given this scenario, PartnerRe's limited primary-capital capacities may hurt its underwriting results. Nonetheless, the ratings agency believes that the company has the potential to maintain steady operating leverage and mitigate the cyclical declines in the market, as reflected in its financial results in 2013 and so far in 2014.

Currently, PartnerRe carries a Zacks Rank #2 (Buy). Some better-ranked insurers like AmTrust Financial Services Inc. AFSI, Hallmark Financial Services Inc. HALL and HCI Group Inc. HCI are also worth a look. All these stocks sport a Zacks Rank #1 (Strong Buy).