A.M. Best Affirms and Upgrades Ratings of Munich Re

Business Wire, Sept 7, 2007

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Superior) and the issuer credit rating (ICR) of "aa-" of Munich Reinsurance Company (Munich Re) (Germany) and its rated subsidiaries. At the same time, A.M. Best has affirmed the ratings of "a" the EUR 1.5 billion fixed/floating rate undated subordinated bonds by Munich Re.. Concurrently, A.M. Best has upgraded the ratings of GBP 300 million 7.625% subordinated bonds and EUR 3 billion 6.75% subordinated Eurobonds issued by Munich Re Finance B.V. to "a " from "a" in order to reflect the ranking of debt relative to policyholder obligations of German reinsurers. The outlook on all ratings has been revised to stable from negative.

The ratings reflect Munich Re's unchanged risk-adjusted capitalization, continuing excellent operating performance and very strong business profile in the reinsurance segment. The ratings also factor the company's planned share buy-backs and continuing exposure to large natural catastrophes losses.

Munich Re's risk-adjusted capitalization remains unchanged despite the share-buy back concluded in the first half of 2007. The company is planning further share buy-backs and A.M. Best will evaluate these transactions in the light of prospective earnings and future capital requirements from organic growth or acquisitions. A.M. Best believes that although Munich Re's asbestos and environmental related claims reserves have stabilised, there remains a potential for adverse development as uncertainties regarding the development of claims inflation and claims pattern persist.

A.M. Best expects Munich Re's operating performance to remain excellent in 2007, with a stable return on equity of approximately 14-15%, driven by higher investment returns from realising capital gains, but also a significant one-off tax benefit of approximately EUR 400 million (USD 546 million) as a result of a lowering of the German corporate tax leading to a release of deferred tax liabilities. This compensates for a deterioration in underwriting results with a combined ratio of approximately 98% in 2007 (from an exceptional 93%in 2006) and is mainly caused by the winter storm "Kyrill" and softening premium rates in reinsurance. A.M. Best's expectations are also based on the assumption that total catastrophe losses in 2007 (including the hurricane season the second half of 2007) do not exceed Munich Re's catastrophe loading of 7% of net premiums earned. In A.M. Best's view Munich Re remains exposed to large catastrophe losses which could have a negative impact on earnings.

In life reinsurance, A.M. Best believes that the UK market has become highly competitive, thus putting pressure on margins.

In primary insurance, A.M. Best believes that the group is not an active participant in the ongoing pricing competition in its domestic non-life market which should result in a continuing excellent underwriting performance in 2007 results.

Munich Re maintains a very strong business position in the global reinsurance market and an excellent business profile in the domestic primary market. A.M. Best expects the company's gross premium income to remain stable at approximately EUR 37 billion (USD 50.5 billion) in 2007 as foreign acquisitions such as ISVICRE in Turkey and strong growth in emerging primary markets compensate for premium reduction in non-life reinsurance due to Munich Re's prudent cycle management during a softening market and a decline in primary life premiums from maturing policies as new business production is not sufficient to replace existing contracts.

The FSR of A (Superior) and the ICRs of "aa-" have been affirmed and the outlook has been revised to stable from negative for Munich Re and its following core subsidiaries:

* 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 affirmed and the outlook has been revised to stable from negative for the following issue:

Munich Reinsurance Company--

-- EUR 1.5 billion fixed/floating rate undated subordinated bonds

The debt rating for the following issues has been upgraded to "a " from "a" and the outlook has been revised to stable from negative:

Munich Re Finance B.V.--

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

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

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.