A.M. Best Downgrades Issuer Credit Rating of Munich Re; Affirms Financial Strength Rating and Removes From Under Review

Business Wire, Nov 3, 2005

OLDWICK, N.J. -- A.M. Best Co. has downgraded to "aa-" from "aa" the issuer credit rating (ICR) of Muenchener Rueckversicherungs (Munich Re) (Germany). At the same time, A.M. Best has affirmed the financial strength rating (FSR) of A (Superior) of Munich Re and downgraded the debt ratings to "a" from "a " of the subordinated debt issued by Munich Re Finance B.V. and guaranteed by Munich Re. All ratings have been removed from under review and assigned a negative outlook. (See below for detailed list of ratings.)

The ratings reflect Munich Re's reduced risk-adjusted capitalisation as a result of the significant reserve strengthening at American Re, as well from the impact of the recent hurricanes in the United States. The rating also factors more volatile prospective earnings due to Munich Re's high exposure to natural catastrophes. A further factor is Munich Re's excellent business position in the worldwide reinsurance market.

The negative outlook reflects the potential pressure on Munich Re's consolidated capitalisation from uncertainties regarding future claims patterns for U.S. liability and the increased frequency of natural catastrophes for which Munich Re provides significant reinsurance capacity.

Reduced risk-based capital--Munich Re's risk-adjusted capitalisation of its reinsurance operations is likely to be reduced from the impact of a number of hurricanes and floods as well as the reserve strengthening of USD 1.6 billion in combination with other measures at American Re. However, this is partially compensated by improved capitalisation, mainly due to higher revaluation reserves. A.M. Best recognises Munich Re's strong financial flexibility and low financial leverage.

Reduced but excellent earnings--Overall earnings are likely to remain excellent and within Munich Re's earnings target of 12% return on equity, as higher non-recurring capital gains are partially offsetting the impact of the U.S. hurricanes and other natural catastrophes as well as the reserve strengthening at American Re. Prospectively, A.M. Best believes earnings are likely to be more volatile due to Munich Re's significant exposure to worldwide natural catastrophes. In A.M. Best's opinion, Munich Re's ratings could become under pressure if the company is unable to achieve its own earnings targets in 2006.

Excellent business position--A.M. Best recognises Munich Re's excellent business position in the worldwide reinsurance market, where it remains one of the market leaders despite further premium reduction as a result of strict adherence to underwriting standards and the cancellation of a larger quota share contract. In primary insurance, Ergo Versicherungsgruppe benefits from higher demand for supplementary health insurance in Germany and stronger growth of life products abroad.

The FSR of A (Superior) has been affirmed and removed from under review and the ICR has been downgraded to "aa-" from "aa" for 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 "a " has been downgraded to "a" for the following issues:

Munich Re Finance B.V.

--GBP 300 million 7.625% subordinated bonds, due 2028

--EUR 3 billion 6.75% subordinated eurobonds, due 2023

For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.> 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 www.ambest.com.