A.M. Best Affirms Munich Re Group A++ -Superior- Rating

Business Wire, Nov 24, 1998

OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 24, 1998--A.M. Best Co. has affirmed the "A " (Superior) rating of Munich Re Group, Munich, Germany.

The group rating recognizes Munich Re's leadership position in Germany and the global reinsurance market and its outstanding operating performance. It also recognizes the group's superior capitalization, which is augmented by undervalued embedded assets on its balance sheet, its underwriting expertise and superior balance sheet strength.

A. M. Best acknowledges Munich Re's sustainable competitive advantage in the global market as a direct reinsurer, its numerous product offerings and diverse clientele--many of which are linked by equity participations. A.M. Best also recognizes the group's dedication to customer service and its global network of branches and subsidiaries.

A.M. Best also assigned the "A " (Superior) group rating to Munich Reinsurance Company of Canada, Toronto, and to the Canadian branch of the Munich Reinsurance Co., Munich Reinsurance Company of Australasia in Sydney, Australia; Munich Reinsurance Company of Africa Ltd., Johannesburg, South Africa; Munich Reinsurance Italy S.p.A, Milan, Italy; New Reinsurance Company in Geneva, and to Great Lakes Reinsurance (UK) PLC, London.

A.M. Best also assigned a rating of "A " (Superior) to Munich American Reassurance Co., Atlanta, in recognition of its growing role within the Munich Re group's strategy.

The rating also recognizes Munich Re's position as a leading financial group, combining direct insurance and reinsurance. Reflecting their importance, most of the direct insurance operations were combined in 1997 into the ERGO group, a holding company for Munich Re's direct insurers. These direct insurance operations now represent 44% of total group premiums. The ERGO group is the second-largest direct insurance group in Germany. The direct insurance operations (which include all major lines of life and non life insurance) lend a greater stability to the group's earnings, counterbalancing the volatility attached to the reinsurance sector. This benefit is reinforced by the ERGO group's leadership in the rapidly growing health insurance sector through its subsidiary, the DKV group, which constitutes the leading European health insurer. ERGO'S subsidiary, the DAS group, is the European leader in the field of legal expenses insurance. These are key elements in the strategy of increasing the direct insurance group's foreign revenues.

The Munich Re Group's leadership position enables it to influence terms and conditions of the reinsurance markets globally. Munich Re Group has further demonstrated its ability to rapidly take advantage of strategic market opportunities, through its acquisition of American Re in 1996 and the reorganization of the primary operations under the new ERGO holding structure in 1997. The Munich Re Group has gross premiums written of DEM 44.52 billion (US$ 24.62 billion), and with its conservatively understated, per German accounting regulations, shareholders' equity of DEM 9.55 billion (US$ 5.28 billion) as at June 30, 1998, is optimally positioned to successfully reap the opportunities and meet the challenges of the insurance and reinsurance markets.

These positive attributes are offset by the group's considerable exposure to the German market, where it generates 34% of its reinsurance business and most of its primary insurance business. Property/casualty rates are expected to drop due to severe competition resulting from deregulation, which has placed pressure on underwriting profitability. However, A.M. Best expects that this trend will be counterbalanced by the increase in both the reinsurance and primary insurance areas of the life/health areas. These offer stronger long-term growth and profitability prospects.

A. M. Best's rating outlook for the Munich Re Group is stable. A.M. Best expects Munich Re to sustain its superior earnings over the long term. The outlook also recognizes the group's substantial earnings power, its preeminent global leadership position in reinsurance, its position as the second-largest German direct insurer and sound operating fundamentals, reinforced by management emphasis on the pursuit and maintenance of profitable relationships.

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.