UPDATE 1-PartnerRe to buy rival Paris Re in $2 bln deal

* PartnerRe to become No. 4 with deal

* Deal values Paris Re at $1.7 bln

* Additional cash distribution of $310 million

By Lilla Zuill

NEW YORK, July 5 (Reuters) - Bermuda-based reinsurer
PartnerRe (PRE.N: Quote, Profile, Research) said late on Sunday it will acquire smaller
rival Paris Re (PRI.PA: Quote, Profile, Research) in a $2 billion deal that catapults the
company into the No. 4 spot among global reinsurers.

PartnerRe Chief Executive Patrick Thiele said the financial
and global economic crisis led the company to pursue the
acquisition.

"The world is in the process of change and reinsurers and
insurers will likely have to change as well. We feel we will be
more competitive with a larger amount of capital and
diversification," he said in a telephone interview.

PartnerRe will exchange 0.30 of its common shares for each
Paris Re common share in an exchange offer that currently
values the deal at $1.7 billion.

In addition, Paris Re also plans to make a special cash
distribution to shareholders of $310 million, or about $3.85 a
share, prior to PartnerRe securing majority ownership.

Paris Re's shares closed on Friday at 12.30 euros.

PartnerRe, which said it had already acquired about 6
percent of Paris Re's outstanding shares, intends to acquire
full ownership through a two-part exchange offer, including an
agreement with a group of Paris Re's founding private equity
shareholders to purchase about 57 percent of outstanding stock
through a block transaction expected to close in the fourth
quarter.

The company said it expects to be able to acquire the
balance of outstanding shares by the first quarter of 2010.

A final integration plan is not yet hammered out because
the deal is still six to nine months from closing, said
Thiele.

DEAL GROWTH

PartnerRe, which was formed in 1993 in response to
contraction in the property-catastrophe reinsurance market
after Hurricane Andrew, bought Paris reinsurer SAFR in 1997,
and Winterthur Re, the reinsurance operations of Winterthur
Insurance Group, in 1998.

The Paris Re acquisition is not expected to affect
PartnerRe's financial strength ratings, added Thiele.

PartnerRe, which derives nearly half of its premium volume
from the European market, has a large operation in Paris.

Thiele said that gives the two companies a "compatible
culture," and minimizes any risks in integrating Paris Re into
the company.

He did not rule out job cuts. Paris Re has about 400
employees, and PartnerRe has about 1,000.

Paris Re was formed in 2006 by a consortium of investors
led by Trident III, a fund managed by Stone Point Capital, the
former private equity arm of insurance broker Marsh & McLennan
(MMC.N: Quote, Profile, Research). Other investors included Hellman & Friedman, Vestar
Capital Partners and ABN Amro.

PartnerRe Chief Financial Officer Albert Benchimol told
Reuters the acquisition was expected to be modestly accretive
to PartnerRe's book value, and open up significant
opportunities.

In December 2006, Paris Re reached an agreement to assume
the reinsurance business of French insurer Axa (AXAF.PA: Quote, Profile, Research). Axa
still owns some Paris Re stock and has agreed to the Partner Re
exchange agreement, said Thiele.

In addition, Axa will remain responsible for maintaining
reserves for any Axa Re liabilities prior to 2006, cutting the
risk of prior-year claims.

While the company is not making financial projections
related to the deal, it does expect to achieve its goals of at
least 13 percent return on equity for investors, and 10 percent
growth in book value per share annually.

PartnerRe, based on shareholders' equity, currently ranks
as the 8th largest global reinsurer, and expects to land in the
No. 4 spot after the acquisition, said Benchimol.

The world's top three reinsurers are Munich Re (MUVGn.DE: Quote, Profile, Research),
Swiss Re (RUKN.VX: Quote, Profile, Research), and the reinsurance operations of Warren
Buffett's Berkshire Hathaway (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research).

Reinsurers assume risks from other insurers, thereby
spreading the risk of losses among several carriers.
Greenhill & Co LLC and UBS Investment Bank served as financial
advisers on the transaction and Davis Polk & Wardwell LLP
provided legal counsel to PartnerRe.
(Reporting by Lilla Zuill, additional reporting by Megan
Davies, editing by Matthew Lewis)