The Long and Short

PartnerRe offers attractive single-A yield in the P&C/reinsurance segment

| March 11, 2022

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

PartnerRe Ltd (PRE) is being purchased by a France-based mutual P&C insurance company Covea Group (AA-) in a $9 billion all-cash transaction, announced on 10/29/21, and scheduled to close in the first half of this year. The Bermuda-based reinsurance company is currently owned by EXOR N.V., a diversified holding company that purchased PRE back in 2016 for $6 billion. Ownership by the new larger, diversified parent company should lend ratings support, although PRE is expected to continue to operate independently. The PRE 2029 bonds offer good relative value to the P&C/reinsurance peer group, and good overall risk compensation for a solidly low-A rated operator in the segment, particularly with the recent back-up in credit spreads.

Exhibit 1: P&C/Reinsurance credits – BBB+ or higher ratings

Source: Amherst Pierpont, Bloomberg/Barclays US Corp Index

PRE 3.70% 07/02/29 @ 135/10yr, G+136, 3.35%, $102.20
Issuer: PartnerRe Finance B LLC (PRE)
CUSIP: 25466AAR2
Ratings: A3/A-/BBB+*+
Amount Outstanding: $500 million
Global Deal

REINSURANCE/SPECIALTY P&C COMPS – Spread Indications:
(Baa2/A-)             CNA       2.90%    5/29      125/120
(A3/A)                  L             3.20%    5/30      125/120
(A3/A-)                 RNR       3.60%    4/29      140/135

Following the announcement of the pending purchase by Covea Group, PRE had its A- rating affirmed by S&P and the outlook revised to stable from negative, reflecting the rating agency’s expectation that PRE will likely be held as strategically important to the new, higher-rated parent (S&P rates Covea AA-). Fitch, which does not rate Covea, placed the BBB+ rating of PRE on watch positive, reflecting the proposed ownership by a larger, diversified insurance operator. The decision to upgrade the rating will be based on Fitch’s view of the strategic importance to the new parent after the deal is consummated.

PRE is a pure-play reinsurance company, unlike many of its hybrid peers that operate as both reinsurers and P&C underwriters. The company is well diversified by both geography and product, offering nearly every class of reinsurance across its broad, global footprint.

PRE has $28 billion in total assets, $20 billion in total cash and investments, and $7.5 billion in total equity. Total revenue has been consistent in the $7.3 to $7.9 billion range over the past three years with $5.8 to $6.3 billion in annual net premiums written. PRE is well capitalized with redundancy at the AAA confidence level by S&P.

PRE has experienced some earnings volatility in recent years due to Covid-related losses in 2020 and elevated catastrophe losses in more recent quarters. We anticipate that both of these will continue to moderate significantly in the current operating year. Combined ratio increased to 106.0% in fiscal year 2020 but improved back to 90.5% in fiscal year 2021.

Dan Bruzzo, CFA
dan.bruzzo@santander.us
1 (646) 776-7749

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