OREANDA-NEWS. S&P Global Ratings said today that it revised its outlook on the Bermuda-based reinsurer PartnerRe Ltd. and its operating companies (collectively PRE) to stable from negative. At the same time, we affirmed our 'A-' long-term counterparty credit rating on PartnerRe Ltd. and our 'A+' long-term counterparty credit and financial strength ratings on PRE's core operating subsidiaries.

"The outlook revision reflects our view that PRE will preserve its very strong business risk profile and strong financial risk profile. Our ratings are also based on PRE's extremely strong capital and earnings, and are partially offset by its high-risk position arising from the company's substantial exposure to severity risk such as property catastrophe," said S&P Global Ratings credit analyst Taoufik Gharib.

We have delinked the ratings on PRE from those on Exor. In our opinion, despite its 100% ownership of PRE, Exor doesn't exert full control due to the existence of substantial creditor protections. As a Bermuda-based reinsurer, PRE is prudently regulated by the Bermuda Monetary Authority (BMA) as the group supervisory role extends to the holding company and all of PRE's subsidiaries. Among other rules and regulations that PRE needs to comply with under the BMA's group supervision, PRE is required to maintain capital solvency on a group consolidated basis.

In addition, the newly formed independent board with a majority of independent directors (four out of seven) and Exor's long track record and ability not to affect or unduly influence the strategy of its investees were the main factors in supporting the substantial creditor protections. Furthermore, PRE is separately managed and maintains an arm's length relationship with Exor and other Exor investees, and there are no intercompany agreements (e. g., cross-default clauses, guarantees).

We expect that under its new ownership, PRE will maintain its extremely strong capitalization redundant at the 'AAA' level, continue to manage its business autonomously, and keep its own underwriting and investment risk tolerances. In general, reinsurance pricing continues to be soft across most lines of business and regions. As a result, we expect PRE's premium growth to be flat to slightly down 2% in 2016-2017. Assuming a catastrophe load of five percentage points in the loss ratio, we forecast PRE's combined ratio in the 92%-95% range and its return on revenue in the mid-teens in 2016-2017. Finally, we expect PRE's financial leverage between 20% and 25% and fixed-charge coverage at least 5x.

The stable outlook reflects our opinion that PRE's overall strategy, capital adequacy, control over investments decisions, and underwriting discipline will be preserved under Exor's ownership.

We could lower the ratings on PRE if:We believe that the assumptions considered for delinking the ratings no longer apply. For instance, PRE's board of directors is not independent or does not comply with its fiduciary duties, BMA's group oversight is not as substantive as assumed, significant change to PRE's underwriting and investments strategies accommodating Exor's risk appetite, which weaken PRE's financial risk profile;PRE suffers significant catastrophe losses outside of its risk tolerances that materially weaken PRE's earnings and capital adequacy relative to peers';PRE does not meet our performance expectations, especially if capital adequacy deteriorates as a result. We are unlikely to raise the ratings in the next 24 months because of the ongoing competitive pressures battering the global P/C reinsurance sector and potential earnings volatility arising from PRE's substantial exposure to severity risk such as property catastrophe.