A.M. Best Affirms Ratings of Munich Reinsurance Company and Its Subsidiaries

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Munich Reinsurance Company (Munich Re) (Munich, Germany) and its subsidiaries. Concurrently, A.M. Best has affirmed the debt ratings of “a+” on GBP 300 million 7.625% subordinated bonds, EUR 1.5 billion fixed/floating rate undated subordinated bonds and EUR 3 billion 6.75% subordinated eurobonds issued by Munich Re. The outlook for these ratings remains stable.

In addition, A.M. Best has affirmed the ICR and senior debt ratings of “bbb+” of Munich Re America Corporation (Princeton, NJ). The outlook for these ratings remains positive. (See below for a detailed listing of the companies and ratings.)

Munich Re’s risk-adjusted capitalization is likely to remain strong, despite a significant reduction in equity reserves in 2008. A.M. Best expects Munich Re to effectively manage the impact of the continuing uncertainty in the financial markets for the rest of 2009 as it shifts its investment portfolio towards lower risk fixed interest securities and loans. By year-end 2008, Munich Re had significantly reduced its dependency on the stock market through disposals or by means of suitable hedging instruments. In first quarter 2009, the company incurred additional reductions in equity reserves, but these were more than offset by an increase in foreign currency translation reserves. A.M. Best will continue to monitor any further write-downs in the company’s remaining non-fixed interest investment portfolio and evaluate the effect on its risk-adjusted capitalization. In May 2009, Munich Re suspended its strategic multi-year share buy back programs that started in May 2007. Shares purchased under the program had no material negative impact on its risk-adjusted capitalization.

A.M. Best expects Munich Re’s long-term excellent underwriting performance to continue in 2009 as it actively manages current adverse market conditions and focuses on sustainable profitable growth. In 2008, Munich Re’s overall performance was satisfactory, despite achieving a reduced consolidated result of EUR 1.5 billion (2007: EUR 3.9 billion), which fell short of its original target corridor of EUR 3.0–3.4 billion (forecast was lowered to EUR 2.0 billion at the half year stage). The main reasons were the reduction in the investment result, which was significantly lower than originally expected because of turmoil in the world’s financial markets, and larger losses from natural catastrophes such as Winter Storm Emma in Europe, Australian floods and Hurricanes Gustav and Ike in the United States. In the midst of the continuing financial crisis, Munich Re continued to perform satisfactorily in first quarter 2009, with gross written premium growth of 5.3% and a quarterly profit of EUR 420 million. The company’s published combined ratio was 97.3% for the reinsurance segment and 96.3% for primary insurance.

Munich Re remains a leading global carrier in the reinsurance market, and through its network of local subsidiaries, a dominant primary insurer in the German market, especially in health insurance. As part of its Changing Gear program launched in 2007, Munich Re conducted an extensive restructuring of its reinsurance group and made several strategic business acquisitions in 2008 and first quarter 2009. These included the acquisition of Hartford Steam Boiler Group (HSB Group) (Connecticut) in December 2008, which was concluded at the end of first quarter 2009. HSB Group is a market leader in machinery/plant and equipment breakdown insurance and also provides inspection, certification and engineering services. This acquisition further strengthens Munich Re’s global business profile and supports its entry into the U.S. niche specialty insurance segments.

Munich Re’s written premium volume rose by 1.5% in 2008 and 5.3% in first quarter 2009. Premium income increases were largely driven by first time consolidation of acquired companies and were partially offset by the strength of the Euro against the U.S. dollar and many other currencies. The effect of the strong Euro was particularly evident in the reinsurance segment, where Munich Re operates on a global basis, and in the primary segment’s international business, in particular life insurance, where growth was especially apparent.

The FSR of A+ (Superior) and ICRs of “aa-” have been affirmed for Munich Reinsurance Company and its following core subsidiaries:

• American Alternative Insurance Corporation
• Great Lakes Reinsurance (UK) PLC
• Munich American Reassurance Company
• Munich Reinsurance America, Inc.
• Munich Reinsurance Company of Canada
• New Reinsurance Company
• Temple Insurance Company
• The Princeton Excess & Surplus Lines Insurance Company

The following debt ratings have been affirmed:

Munich Reinsurance Company—

-- “a+” on GBP 300 million 7.625% subordinated bonds, due 2028

-- “a+” on EUR 1.5 billion fixed/floating rate undated subordinated bonds

-- “a+” on EUR 3 billion 6.75% subordinated eurobonds, due 2023

Munich Re America Corporation—

-- “bbb+” on USD 500 million 7.45% senior unsecured notes, due 2026

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

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.