PartnerRe Ltd. has had its AA insurer financial strength rating affirmed by Fitch Ratings with a rating outlook of negative.

The affirmation follows an updated review of PartnerRe's financial performance, capital position, liquidity, and investment exposures. The rationale for the ratings includes the company's strong competitive position, solid long-term operating profitability, and high-quality balance sheet.

Partially offsetting these favourable factors is the company's relatively higher exposure to low-frequency but high-severity events - an exposure highlighted by the first-half 2010 Chilean earthquake and European windstorm losses and material hurricane losses in 2008.

PartnerRe's ratings also reflect Fitch's belief that the company's risk management capabilities will enable it to maintain its strong and liquid balance sheet during periods of heightened capital market volatility, such as those experienced in 2008, when PartnerRe experienced relatively little capital deterioration despite very difficult capital market conditions and significant catastrophe-related losses.

Notably, Fitch views PartnerRe's investment portfolio as high quality and liquid. The company's investment portfolio and capitalisation remain supportive of PartnerRe's current ratings under stress test scenarios where Fitch assumes credit-related losses on the company's fixed-income portfolio and asset valuation losses on the company's very modest equity portfolio.

Key rating drivers underlying the negative outlook are uncertainty over whether PartnerRe's returns and stability of returns, over an extended period will remain commensurate with those required at the 'AA' rating level following the company's late 2009 acquisition of Paris Re.

Fitch revised PartnerRe's outlook to negative from stable when that acquisition was completed and believes that it is too early to assess the transaction's ultimate impact on PartnerRe.

Additionally, the negative outlook reflects ongoing and expected near-term future industry-wide pressure on premium rates that Fitch believes is currently adversely impacting PartnerRe's (and other reinsurers') underwriting margins.