Fitch Ratings has placed PartnerRe Ltd.'s (PRE) ratings on Rating Watch Negative, including its 'A+' IDR and the 'AA-' Insurer Financial Strength (IFS) rating of Partner Reinsurance Company Ltd., the company's principal reinsurance operating subsidiary. A complete list of rating actions appears below.

KEY RATING DRIVERS

Fitch's rating action follows the announcement today that PRE and AXIS Capital Holdings Limited (AXIS; 'A+' IFS) have entered into a definitive agreement to combine. The transaction is structured as a 100% stock merger of equals with no new debt issued. The closing is expected in the second half of 2015, subject to regulatory approval and shareholder approval of both companies.

Following this announcement, Costas Miranthis has immediately stepped down as CEO of PRE and as a member of the PRE board of directors. AXIS CEO Albert A. Benchimol, who served as CFO of PRE from April 2000 to December 2010, will serve as CEO of the combined company.

The Rating Watch Negative reflects an increased level of near-term uncertainty for PRE in connection with the agreement to merge with AXIS. This includes the immediate departure of Mr. Miranthis and the potential for other key PRE employees that are not expected to part of the combined company to depart PRE before the merger. As such, Fitch considers PRE to be in a more vulnerable competitive position currently, which could lead to a rating downgrade, particularly should the merger fail to be completed.

However, if the transaction closes as planned, Fitch would likely affirm the current ratings with a Stable Rating Outlook.

The transaction presents near-term credit negatives to the combined entity given execution and integration risk inherent to a merger. That said, successful execution of this combination could provide longer term positive credit benefits relating to diversification of earnings and business profile, as well as potential expense savings. 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.

The merger with AXIS will expand PRE into a meaningfully larger global specialty (re)insurer, with greater size and scale. Pro forma annual net premiums written (NPW) for the combined company increases about 70% to approximately $9.7 billion (12 months trailing Sept. 30, 2014). Pro forma total shareholders' equity (S/E) increases 83% to near $13 billion.

Favorably, the merger with AXIS adds diversity into primary insurance lines with a pro forma combined NPW business mix of approximately 82% reinsurance (70% non-life and 12% life/health) and 18% insurance. As PRE currently has very limited business outside of reinsurance, this increased diversity should help the company to reduce its overall volatility.

Total pro forma reinsurance NPW increases almost 40% to $7.9 billion ($6.7 billion non-life and $1.2 billion life/health), diversified across catastrophe, property, liability and other specialty lines. This increased scale in reinsurance could potentially prove beneficial in the current competitive market environment where stronger, more established reinsurers are maintaining capacity at the expense of smaller, weaker players.

Fitch believes that the most significant risks of the transaction are the possible complications arising during the process of integrating the operations and risk management practices of the two companies. This is particularly the case given AXIS's relatively large size, addition of primary insurance lines in which PRE has limited expertise and PRE's somewhat mixed recent acquisition experience.

Nevertheless, execution and integration risk should be somewhat reduced given the similar reinsurance lines of business written by PRE and AXIS and cooperative nature of the deal. Fitch expects key senior management and underwriters to be retained.

Fitch expects the combined company to have moderate operating and financial leverage ratios of approximately 0.8x (NPW to total S/E) and 15%, respectively, with strong fixed-charge coverage of 8x-9x. These favorable ratios are in line with PRE's current levels.

RATING SENSITIVITIES

Fitch could downgrade the ratings should the merger 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 the current ratings with a Stable Rating Outlook if the transaction closes as expected.

However, assuming no material changes to the credit of PRE, Fitch may not take any additional rating action prior to closing.

For additional rating sensitivities, see Fitch's rating action commentary on PRE dated Sept. 5, 2014.

Fitch places the following ratings on Rating Watch Negative:

PartnerRe Ltd.

--IDR at 'A+';

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

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

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

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

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

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

Partner Reinsurance Company Ltd.

--IFS at 'AA-'.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978639

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