Moody's Investors Service in New York affirmed the Aa3 financialstrength ratings of operating subsidiaries of PartnerRe Ltd. thismorning, pushing the outlook to stable from negative, after theBermuda-based company reported record third-quarter earnings.

Last night, PartnerRe reported third-quarter net income of$235.8 million, or $3.93 per share, compared to a loss of $288.7million, or $5.48 per share, in last year's third quarter.

During a conference call today, Patrick Thiele, PartnerRepresident and CEO, attributed the reversal to a low level of largeloss activity, increased pricing and participation in the U.S. windmarket and strong investment results.

He noted that the resulting annualized return-on-equity for thecompany was 24 percent. The results "demonstrate that strategy,process, policies we have in place at PartnerRe are working," hesaid.

Moody's agreed, citing strong earnings performance and thereplenishment of capital among reasons for the rating agency'srestoration of a stable outlook.

"The stable outlook also reflects Moody's comfort withPartnerRe's risk management practices," Moody's said in astatement, noting that it considers a "focused approach to riskanalysis and exposure management" to be a distinguishingcharacteristic for the reinsurer.

Moody's said that PartnerRe also distinguishes itself from peerswith sparing purchase of retrocessional protection and that itsratings affirmation reflected PartnerRe's sound fundamentals anddiversified business, as well as its ability to identify and adaptto market changes.

Mr. Thiele suggested that while returns will be good for thecompany in 2007--allowing it to achieve a stated goal of 10 percentgrowth on book value for another year--earnings this year are justabout as good as they get.

"Overall, we expect to see...returns-on-capital for non-lifebusiness lower than those of 2006, but still at attractive levels,"he said, predicting low to mid-teens returns on capital in2007.

He said strong pricing will continue for United States windbusiness, while in other areas--including U.S. casualtyreinsurance--he predicted a gradual erosion of profits.

Mr. Thiele noted that while clients are expecting reinsurers torecognize their good results over the past few years, there's"nothing dramatic" going on in renewal discussions and thatfinancially strong reinsurers are not yet seeing enormous pressurefrom clients.

Recently, he said he attended major insurance conferences inMonte Carlo, at the Greenbriar, and in Baden Baden, and "would haveto characterize all three events basically noneventful."

"Discussions we've had would suggest that renewals will beorderly and not acrimonious," Mr. Thiele related, highlighting U.S.wind business as the one possible exception where differencesbetween insurers and reinsurers could still come up. "Otherwise, Idon't think you should expect a lot of fireworks out of Jan. 1renewals."

Mr. Thiele also said there were no worrisome loss issues on thehorizon. "We looked at stock option issue. We don't believe that wewill see the same order of magnitude as some of the issues thatoccurred earlier in the decade," he said, explaining that he didn'tperceive the opportunity for many shareholder suits or classactions to arise from options backdating allegations.