A.M. Best Affirms Ratings of Munich Re and Its Core Subsidiaries; Assigns Issuer Credit Rating

Business Wire, Nov 9, 2004

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A (Superior) of Muenchener Rueckversicherungs-Gesellschaft (Munich Re) and its core subsidiaries. The outlook remains stable. At the same time, A.M. Best has assigned an issuer credit rating of "aa" with a negative outlook to each of these companies. The ratings on the debt securities guaranteed by Munich Re (see list below) have been affirmed, and the outlook on these ratings has been revised 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. 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.

Strong consolidated earnings, particularly from non-life reinsurance--Although consolidated reinsurance earnings have improved throughout 2004, the impact (approximately EUR 550 million (USD 711 million)) of recent hurricanes in the United States and the typhoon in Japan are likely to limit Munich Re's full year earnings between EUR 1.8 billion - EUR 2 billion (USD 2.3 billion- USD 2.6 billion) (EUR 1.5 billion (USD 1.9 billion) for the first nine months of 2004 following a loss of EUR 487 million (USD 629 million) during the same period last year). Profit contributions from primary operations remain small due to high life bonus pay outs and high expenses.

Potential pressures on risk-based capital--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, A.M. Best 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%). Recent catastrophes are unlikely to reverse the softening experienced in 2004, but 2005 rates could be maintained or soften more moderately than initially expected.

The 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 the following:

Muenchener Rueckversicherungs-Gesellschaft--
   -- EUR 1.15 billion exchangeable bond into Allianz shares, due 2005

   The debt rating of "a " has been assigned to the following:

   Munich Re Finance B.V.--
   -- GBP 300 million 7.625% subordinated bond, due 2028

   The debt rating of "a " has been affirmed for the following:

   Munich Re Finance B.V.--
   -- EUR 3 billion 6.75% subordinated bond, due 2023

For a list of A.M. Best's debt ratings, please visit http://www.ambest.com/debt.>

For current Best's Ratings, independent data and analysis on more than 3,000 individual property/casualty companies, groups and industry composites, please visit http://www.ambest.com/pc.>

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