Best Affirms “A+” Rating on Munich Re and Core Subsidiaries; Assigns Issuer Credit Rating

November 10, 2004

A day after Muenchener Rueckversicherungs-Gesellschaft (Munich Re) reported good third quarter and nine-month earnings (See IJ Web site Nov. 9), A.M. Best Co. announced that it has affirmed its “A+” (Superior) financial strength rating on the company and its core subsidiaries with a stable outlook.

Concurrently, Best assigned an issuer credit rating of “aa” with a negative outlook to each of these companies. It also affirmed the ratings on the debt securities guaranteed by Munich Re, but revised the outlook on these ratings to negative from stable.

“These ratings reflect Munich’s Re superior reinsurance business profile worldwide and excellent position in the German primary insurance market via its wholly owned subsidiary, Ergo, ” said Best. “The ratings also reflect the company’s strong consolidated earnings and risk-based capital. The negative outlook on the issuer credit and debt ratings reflects the prospective pressure on Munich Re’s consolidated capitalisation primarily given the potential for further adverse reserve development at American Re and continued small profit contribution from primary operations.”

Best noted, as did Munich Re in its earnings report, that “although consolidated reinsurance earnings have improved throughout 2004,” the recent hurricanes did have a significant impact on the company. Estimated claims, including those from typhoons in Japan, are around 550 million euros [$711 million]. These are “likely to limit Munich Re’s full year earnings between 1.8 billion to 2 billion euros ($2.3 billion to $2.6 billion).” The company earned 1.5 billion euros ($1.9 billion) for the first nine months of 2004 following a loss of 487 million euros ($629 million) during the same period last year.

Best also indicated that “profit contributions from primary operations remain small due to high life bonus pay outs and high expenses.”

Commenting on the group’s capital position, Best said: “Munich Re’s consolidated risk-adjusted capitalisation has stabilised in 2004 as a result of the diminished volatility of its equity portfolio, in particular following the reduction of its participation in Allianz and Hypo-Vereinsbank, and a decline in reinsurance premium volume.” However, Best indicated it “believes that pressure could arise from uncertainties regarding overall claims patterns and future liability claims inflation in the United States and lower prospective earnings due to the cyclicality of non-life reinsurance business unlikely to be offset by earnings contributions from primary insurance.

“At last renewals, Munich Re experienced falling rates in some areas such as North American property catastrophe (overall reduction of approximately 15 percent). Recent catastrophes are unlikely to reverse the softening experienced in 2004, but 2005 rates could be maintained or soften more moderately than initially expected.”

Best’s financial strength rating of “A+” (Superior) has been affirmed and an issuer credit rating of “aa” has been assigned to Munich Re and its following core subsidiaries:

— Munich Reinsurance Company of Australasia Limited
— New Reinsurance Company
–Munich Reinsurance Italy S.p.A.
–Munich Reinsurance Company of Canada
–Munich American Reassurance Company
–Great Lakes Reinsurance (UK) PLC

The debt rating of “aa” has been affirmed and a negative outlook has been assigned to Muenchener Rueckversicherungs-Gesellschaft—
1.15 billion euro exchangeable bond into Allianz shares, due 2005

The debt rating of “a+” has been assigned to Munich Re Finance B.V.— £ 300 million 7.625 percent subordinated bond, due 2028

The debt rating of “a+” has been affirmed for Munich Re Finance B.V.— 3 billion euro 6.75 percent subordinated bond, due 2023

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