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Rating Action:

Moody's affirms PartnerRe's ratings on merger announcement; Reviews AXIS Capital's ratings for upgrade

26 Jan 2015

New York, January 26, 2015 -- Moody's Investors Service ("Moody's") has taken the following rating actions as a result of the merger announcement between PartnerRe Ltd. (NYSE: PRE, "PartnerRe") and AXIS Capital Holdings Limited (NYSE: AXS, "AXIS"):

- Affirmed the debt ratings of PartnerRe Ltd. and its financing subsidiaries (senior debt A3/stable);

- Affirmed the A1 insurance financial strength ratings of Partner Reinsurance Company Ltd. and Partner Reinsurance Company of the US (stable outlook);

- Placed the debt ratings of AXIS Capital Holdings Limited and its financing subsidiaries on review for upgrade (senior debt Baa1);

- Placed the A2 insurance financial strength ratings of AXIS Specialty Limited and certain other AXIS operating subsidiaries on review for upgrade.

The proposed transaction is a planned amalgamation of the companies. Following the amalgamation, PartnerRe shareholders will own approximately 51.6% of the combined company and AXIS shareholders will own the remaining 48.4%. Albert Benchimol, current CEO of AXIS, will become the CEO of the combined company. The combined company has pro forma total shareholders' equity of nearly $13 billion as of September 30, 2014. The transaction has been approved by the Boards of both companies, and is expected to close in the second half of 2015, subject to approval by the shareholders of both PartnerRe and AXIS, regulatory clearances, and other customary closing conditions.

SUMMARY RATING RATIONALE

Moody's believes that the combined group would likely have a credit profile consistent with an A1 insurance financial strength and an A3 senior debt rating. According to Moody's, the merger will provide both franchises with strategic and financial benefits. Currently, PartnerRe's business mix is predominantly reinsurance oriented, while AXIS is balanced between primary insurance and reinsurance. The combination of the two platforms would result in a firm with significantly greater scale, increasing their relevance to clients, and a highly diversified business mix. PartnerRe brings a highly reputable and well-diversified global reinsurance franchise, while AXIS brings a profitable global insurance business with particular expertise in professional lines, liability lines, and accident & health insurance as well as good capabilities in reinsurance. Financial benefits include improved prospective profitability due to management's estimated $200 million in projected annual pre-tax expense synergies. While the transaction carries some business and operational risks, Moody's believes that the integration and execution risks are manageable given Mr. Benchimol's prior tenure as CFO of PartnerRe and the complementary nature of much of the businesses, with the exception of moderate overlap in the P&C reinsurance lines.

RATIONALE FOR AFFIRMING PARTNERRE WITH A STABLE OUTLOOK

The affirmation of PartnerRe's A1 insurance financial strength and debt ratings (A3 senior) with a stable outlook reflects the prospective strengthening of its business profile through the increased scale resulting from the transaction, as well as improved product diversification by gaining access to AXIS' profitable specialty insurance platform. These prospective improvements are offset somewhat by modestly weaker pro forma financial metrics resulting from the transaction, including higher levels of operating, catastrophe and financial leverage. However, we view this transaction as a positive strategic step for PartnerRe that would result in an overall credit profile that remains consistent with the current rating level.

Given the planned amalgamation with AXIS, there is unlikely to be positive ratings pressure on PartnerRe's ratings over the next 12-18 months. That said, the following factors could lead to an upgrade: (1) a sustained reduction in the company's overall risk profile and volatility; (ii) sustained better-than peer performance through the cycle (e.g. resulting in a combined ratio consistently 5-10 combined ratio points better than peers); and (iii) sustained reduction in basket-adjusted financial leverage (e.g. below 15%), together with a strong capital position and an enhanced competitive position in the global reinsurance sector. The following factors could lead to negative ratings pressure or a downgrade: (i) a decline in shareholders' equity (including share repurchases) by more than 10% over a rolling twelve month period; (ii) adjusted financial leverage greater than 25%; (iii) gross underwriting leverage above 3.0x; and (iv) deteriorating profitability with returns on capital in the mid-single digit range.

RATIONALE FOR PLACING AXIS CAPITAL ON REVIEW FOR UPGRADE

The review for upgrade reflects an expected improvement in the business and financial profile of AXIS following the merger. In particular, AXIS will benefit from greater scale and product diversification in its reinsurance platform and gain access to PartnerRe's deeper and broader international presence. With the exception of goodwill and intangible assets, all of Moody's scorecard metrics, based on our pro forma estimates for the combined company, are expected to be an improvement over AXIS' current metrics. During the review period, Moody's will seek to better understand the catastrophe leverage of the combined company, integration of different catastrophe modeling and reserving platforms, and any changes to management's risk tolerance. Moody's expects to conclude its review following the completion of the merger.

The following factors could lead to an upgrade of AXIS Capital's ratings: (i) successful transaction execution and retention of key personnel; (ii) confirmation that Moody's metrics for the combined company will be an improvement over AXIS' current metrics, particularly those related to catastrophe leverage; (iii) loss of overlapping business tracks with management's expectations. Conversely, failure of these factors to materialize would likely lead us to return the outlook to stable.

LIST OF RATING ACTIONS

The following AXIS Capital ratings have been placed on review for possible upgrade:

AXIS Capital Holdings Limited -- preferred stock at Baa3(hyb); provisional senior unsecured debt at (P)Baa1, provisional subordinated debt at (P)Baa2, provisional junior subordinated debt at (P)Baa2, provisional preferred stock at (P)Baa3;

AXIS Specialty Finance LLC -- guaranteed senior unsecured at Baa1; provisional guaranteed senior unsecured debt at (P)Baa1, provisional guaranteed subordinated debt at (P)Baa2, provisional guaranteed junior subordinated debt at (P)Baa2;

AXIS Specialty Finance PLC -- guaranteed senior unsecured at Baa1; provisional guaranteed senior unsecured debt at (P)Baa1, provisional guaranteed subordinated debt at (P)Baa2, provisional guaranteed junior subordinated debt at (P)Baa2;

AXIS Specialty Limited -- insurance financial strength at A2;

AXIS Reinsurance Company -- insurance financial strength at A2;

AXIS Re SE -- insurance financial strength at A2;

AXIS Insurance Company -- insurance financial strength at A2.

The following PartnerRe ratings have been affirmed with a stable outlook:

Partner Reinsurance Company Ltd. -- insurance financial strength at A1;

Partner Reinsurance Company of the US -- insurance financial strength at A1;

PartnerRe Ltd. -- provisional senior unsecured debt at (P)A3, provisional subordinated debt at (P)Baa1, preferred stock at Baa2(hyb), provisional preferred stock at (P)Baa2;

PartnerRe Finance II Inc. -- provisional senior unsecured debt at (P)A3, provisional subordinated debt at (P)Baa1, junior subordinated debt at Baa1(hyb), provisional junior subordinated debt at (P)Baa1;

PartnerRe Finance A LLC -- guaranteed senior debt at A3; provisional senior unsecured debt at (P)A3, provisional subordinated debt at (P)Baa1, provisional junior subordinated debt at (P)Baa1;

PartnerRe Finance B LLC -- guaranteed senior debt at A3; provisional senior unsecured debt at (P)A3, provisional subordinated debt at (P)Baa1, provisional junior subordinated debt at (P)Baa1;

PartnerRe Finance C LLC - provisional senior unsecured debt at (P)A3, provisional subordinated debt at (P)Baa1, provisional junior subordinated debt at (P)Baa1;

PartnerRe Capital Trust II - provisional preferred securities at (P)Baa1; and

PartnerRe Capital Trust III - provisional preferred securities at (P)Baa1.

PartnerRe Ltd., based in Bermuda, is engaged through its subsidiaries in underwriting multi-line reinsurance on a worldwide basis. As of September 30, 2014, PartnerRe's total shareholders' equity was approximately $7.1 billion.

AXIS Capital Holdings Limited is a Bermuda-based global provider of specialty lines insurance and reinsurance with consolidated shareholders' equity of approximately $5.9 billion as of September 30, 2014.

The principal methodology used in these ratings was Global Reinsurers published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kevin Lee
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Stanislas F Rouyer
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms PartnerRe's ratings on merger announcement; Reviews AXIS Capital's ratings for upgrade
No Related Data.
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