Munich Re to Raise Over $4 Billion, $300 Million to American Re

October 20, 2003

The world’s largest reinsurer intends to make sure it stays there. On Friday Munich Re unveiled plans to raise 3.8 billion euros ($4.42 billion) through a rights offering.

The new shares constitute the biggest single increase in Munich Re’s capital that it has ever made. $300 million of that money will go to its U.S. subsidiary American Re.

Munich Re plans to offer two new shares to existing investors for every seven shares they currently own, a total of 50.9 million new shares. They will be priced at no less than 75 euros ($87.38) each, more than a 20 percent discount over current trading levels. The offering period is scheduled to begin on Tuesday, Oct. 28, and extends until Monday, Nov. 10.

The capital raising initiative was not unexpected. As recently as two years ago Munich Re was a triple ‘A’ rated company. But a series of loss events, which began with the Sept.11 attacks, and the meltdown in global equity markets have reduced its capital position. S&P now rates it as ‘A+, four notches below ‘AAA,” and lower than rival Swiss Re, as well as Berkshire Hathaway’s Gen Re. The need for more capital to address the situation, as well as guarantee needed capacity became a prime consideration.

In a separate announcement American Re said that its parent company intends to contribute $300 million of new capital to the company “to enhance its financial strength and to position American Re for profitable growth opportunities in the U.S. marketplace.”

CEO John Phelan, commented, “This capital infusion reinforces Munich Re’s continuing commitment to American Re and the U.S. market”….and “will enable American Re to take full advantage of the attractive opportunities in the market, and leverage it to successfully meet our ambitious financial targets for 2003.”

What Munich Re’s shareholders think about the offer hasn’t yet become clear, but according to a report from Agence France Presse, at least one of them, Germany’s HypoVereinsbank, which owns a 13.2 percent stake, said it intended to fully participate in the offer. On the other hand Allianz, which currently has a 13.6 percent stake in Munich Re, reportedly committed to take up “at least half” of the shares.

The German stock market didn’t like the news very much either, as Munich Re’s shares fell by one euro to close at 97 on Friday, losing some of the gains posted earlier in the week when the German government confirmed that tax relief for the country’s insurers would be part of its reform proposals. (See International News)

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