S&P Removes PartnerRe Ltd Rtgs from WatchNeg, Affirms.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 5, 2001

Standard & Poor's today removed from CreditWatch and affirmed its single-'A'-plus counterparty credit and single-'A'-minus preferred stock rating ratings on PartnerRe Ltd. (PartnerRe), and affirmed its double-'A' financial strength ratings on the operating subsidiaries of PartnerRe Ltd (see list).

The outlook is negative.

At the same time, Standard & Poor's assigned its single-'A'-plus preliminary senior unsecured debt, single-'A' preliminary subordinated debt, and single-'A'-minus preferred stock ratings on PartnerRe Ltd.'s universal shelf registration filed on Oct. 6, 2001. PartnerRe is expected to issue equity-like securities from the shelf to replenish reductions in capital as of Sept. 30, 2001, related to U.S. terrorist loss events occurring earlier in that month, and to support additional growth.

The ratings on PartnerRe were placed on CreditWatch with negative implications on Sept. 21, 2001, because of losses announced from the Sept. 11 terrorist attacks.

The preliminary rating actions consider PartnerRe's pro forma Sept. 30, 2001, reduction in capital as well as management's commitment and expected ability to access capital markets to raise more than $350 million of permanent capital by the end of the year. Just as the company quickly recovered following large catastrophe losses in 1999, PartnerRe management is acting quickly to replenish its financial strength in the aftermath of the Sept. 11 events.

The two planned securities, aggregating $350 million, will both be treated as equity for capital modeling purposes. The provisions of the convertible preferred issue allow it to receive equity credit in calculations of financial leverage. The trust preferred issue will receive hybrid treatment, with the portion contributing to preferred leverage above 15% recharacterized as debt. The issuance is expected to return the company's capital adequacy ratio (CAR) to more than 165% by year-end 2001.

This commitment reflects the importance of capital strength in PartnerRe's market positioning as a provider of strong and consistent reinsurance capacity and the willingness to take appropriate steps within management's resources to support the maintenance of capital adequacy at this rating level.

Offsetting these positives are the sub-par operating performance of the growing U.S. franchise and the lower base levels of operating performance relative to past periods, both of which would be expected to improve with hardening markets in most of the segments in which PartnerRe is active.

PartnerRe expects losses at a high of $450 million gross, $400 million net of retrocession, and $375 million net of taxes for the Sept. 11 terrorist attacks. Losses by line of business are concentrated in U.S. property, catastrophe, and global risk covers, with global losses divided into aviation, property, and other international risks. In the U.S. property portfolio, PartnerRe is also exposed for more modest losses from workers' compensation and clash covers. PartnerRe shared a contract-by-contract review of its entire portfolio, demonstrating a rigorous approach and significant contract-by-contract data to inform its reserving. Recoverables are modest (principally on the aviation and workers' compensation book only) and with small exceptions, are of very strong credit quality.

Major Rating Factors:

-- Very strong capital adequacy. PartnerRe's capital adequacy ratio (CAR) has fallen by a full category from 164% at year-end 2000 because of the Sept. 11 losses, but is expected to return to double-'A' range following the issuance of permanent capital by year-end 2001. With stress modeling of charges for property-catastrophe and financial guarantee exposures, and significant write-offs of noncash assets, PartnerRe's quality of capital is very strong.

-- Conservative balance sheet. PartnerRe has maintained a very clean balance sheet, with low levels of noninvestment-grade fixed assets, few higher risk investments, and very low financial leverage. Portfolio liquidity is expected to be sufficient to satisfy loss payments from the recent losses, with more than $350 million in cash and short-term investments.

-- Consistent growth in premiums. PartnerRe continues to build its business franchise through the growth of property and specialty casualty risk underwriting in its key markets. In the hardening markets, PartnerRe will be focused on improving terms and building premium volume with existing business rather than increasing exposure levels. As a gross line writer, PartnerRe is not dependent on retrocessional cover, and expects to distinguish itself by offering renewed coverage at the same capacity level.

-- Good management team. PartnerRe has assembled a good management team, and is building core competencies in regional markets for deployment across the global organization. The transition in CEOs from the founding CEO has been smooth.

-- Execution risk. Although unexpected, PartnerRe is at risk for a downgrade should it not be able to raise capital. This risk is mitigated by good share-price performance and fundamentals.

-- Reduced profitability with lower volatility. With PartnerRe's diversification, the franchise had been expected to realize lower ROR (10%-15%) than those historically enjoyed. Expectations for significantly improved pricing at January 2002 renewals may reverse this trend.

-- Developing U.S. franchise. PartnerRe's U.S. operations are considered core by management, but are not yet performing as strongly as the rest of the group.

Partner Reinsurance Co. Ltd., PartnerRe SA, and Partner Reinsurance Co. of U.S. are Security Circle insurers, which means that they voluntarily underwent Standard & Poor's most comprehensive analysis and were assigned ratings in one of the top four categories for financial security.

OUTLOOK: NEGATIVE

Earnings will be poor for 2001, but for 2002 are expected to rebound, with an increase in ROR to 12%-17%. Nonstandard notching between the holding company and operating company reflects that debt leverage remains within double-'A' tolerance levels. Debt leverage is expected to increase to 13% and debt plus preferred leverage is expected to rise to 28% following the capital raise. Interest coverage is expected to return to very strong levels in 2002, with a fixed-charge coverage of more than 5 times.

OUTSTANDING RATINGS REMOVED FROM CREDITWATCH AND AFFIRMED
PartnerRe Ltd.
  Counterparty credit rating         A+/Neg
  Preferred stock rating             A-

OUTSTANDING RATINGS AFFIRMED
Partner Reinsurance Co. Ltd.
PartnerRe SA
Partner Reinsurance Co. of U.S.
  Counterparty credit rating         AA
  Financial strength rating          AA

PRELIMINARY RATINGS ASSIGNED
PartnerRe Ltd.
  Senior debt rating                 A+
  Subordinated debt rating           A
  Preferred stock rating             A-