to consider the purchase of a European reinsurer was swift yesterday.

Rating agency, Standard & Poor's (S&P), said PartnerRe's `AA-' claims paying ability rating may be cut, depending on analysts' discussions with the company about its financial plans.

PartnerRe is to discuss with the world's second largest reinsurer, Swiss Re, an opportunity to purchase Societe Anonyme Francaise de Reassurances (SAFR), a Paris-based reinsurer.

S&P immediately placed SAFR's double-`A'-minus claims-paying ability rating on CreditWatch with positive implications. The triple-`A' claims-paying ability rating of Swiss Re has been affirmed.

S&P sees the possible SAFR acquisition as a definitive departure for the Bermuda company from "cat'' excess of loss reinsurance. It was felt the financing of the proposed acquisition could diminish PartnerRe's capital adequacy. The PartnerRe rating was placed on CreditWatch, with negative implications.

They said they would meet with the respective management teams of the companies to discuss the possible role of SAFR in the future strategy of PartnerRe, together with the possibility of further diversification plans of PartnerRe, and the financing of the possible transaction between PartnerRe and Swiss Re.

It brings into focus a significant issue facing the Bermuda insurance industry. In the face of a soft market, the alternatives for Bermuda companies with an excess of capital, are either to expand their businesses or return cash to shareholders.

Swiss Re raised its stake in SAFR from 22 percent of the shares to 79 percent, with the purchase of shares held by Assurances Generales de France S.A. and French insurance group, Athena. Swiss Re has also let it be known that they are seeking the remaining 21 percent of publicly held shares.

At the same time, it provided PartnerRe with a chance to consider taking over SAFR, a specialist reinsurer in the motor, fire and surety sectors.

In an age of significant consolidation in the reinsurance industry, PartnerRe may see some significant advantages. The Bermuda-based company has steadfastly excluded writing business other than property catastrophe reinsurance, as other local `cat' reinsurers branched out into other lines.

The company's adherence to a pure `cat' philosophy was interesting because it is the largest capitalised specialist property catastrophe reinsurer in the world.

Asked why PartnerRe was looking at buying a non-catastrophe reinsurance company, PartnerRe president and CEO, Herbert Haag, said: "It was such a unique opportunity that it would be worthwhile to go ahead and look at it. If the companies are complementary and it adds value for our shareholders, it would be attractive.'' Mr. Haag admitted that PartnerRe's strategy up to now had been to be a monoline carrier, but he noted that diversification helped to reduce volatility.

He also said the company remained opposed to bringing new capital into markets, which this transaction would not do.