Best Affirms Munich Re and Subs ‘A+’ Ratings; Outlook Stable

December 3, 2012

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 and its subsidiaries. Best also affirmed all of Munich Re’s debt rating.

The outlook for all of the ratings is stable.

In addition Best has upgraded the ICR and senior debt rating to “a-” from “bbb+” of Munich Re America Corporation, based in Princeton, New Jersey, and has revised its outlook on these ratings to stable from positive.

Munich Re remains a leading global carrier in the reinsurance market with complementary primary and health insurance operations. As a result Best said the “company has the ability to write and service reinsurance clients on a worldwide basis through an extensive distribution system. Over the past several years, Munich Re made several successful business acquisitions enabling it to complement its numerous products and expand into new markets.

“Munich Re’s risk-adjusted capitalization remains at levels appropriate for its FSR. Capital levels increased in 2011 despite several large catastrophic losses. Capital levels have been further strengthened through September 30, 2012 as operating results benefitted from a benign level of catastrophes during the year.” Best also indicated that it “expects Munich Re’s risk-based capitalization to be maintained at year-end 2012 despite the effects of Hurricane Sandy.”

Best noted that the “company’s operating results through the first nine months of 2012 reflected the low level of catastrophes with a combined ratio of 93.6 percent. The primary insurance segment performed better than breakeven with a combined ratio of 96.9 percent during the first nine months of 2012. Likewise, the health segment performed slightly better than breakeven at 99.2 percent for the same period.”

Best also said it “considers Munich Re’s risk management program to be strong. Along with a formal risk management structure, the company dedicates a significant level of personnel to monitor risk in all operating segments throughout the world. The company also makes extensive use of its proprietary capital model to analyze various stress scenarios.”

However, Best also pointed out that “Munich Re maintains an appreciable level of sovereign risk from holdings in Italy, Spain and Ireland, albeit at lower levels than last year.” Somewhat mitigating Best’s concern with this risk is “that a large portion of any losses emanating from investments in these countries relates to products, which allows Munich Re to pass the loss directly to the client reducing its net exposure to manageable levels. Munich Re also maintains some risk attributable to European banks. At present, these exposure levels also seem manageable.

“Positive rating actions could occur if over the next several years, Munich Re’s operating performance and risk-adjusted capitalization significantly and consistently exceed its peer group of global reinsurers.

“Negative rating actions could occur if Munich Re’s operating performance and risk-adjusted capitalization consistently fall below A.M. Best’s expectations for its current rating level by a significant margin for a prolonged period.”

The FSR of A+ (Superior) and ICRs of “aa-” have been affirmed for Munich Reinsurance Company and its following core subsidiaries:
• Munich Reinsurance America, Inc.
• American Alternative Insurance Corporation
• The Princeton Excess & Surplus Lines Insurance Company
• Great Lakes Reinsurance (UK) PLC
• New Reinsurance Company
• Munich Reinsurance Company of Canada
• Temple Insurance Company
• Munich American Reassurance Company
• American Modern Home Insurance Company
• American Family Home Insurance Company
• American Western Home Insurance Company
• American Modern Surplus Lines Insurance Company
• American Modern Select Insurance Company
• American Southern Home Insurance Company
• American Modern Insurance Company of Florida, Inc.
• First Marine Insurance Company
• American Modern Lloyds Insurance Company

The following debt ratings have been affirmed:
Munich Reinsurance Company—
– “a+” on GBP 300 million 7.625 percent subordinated bonds, due 2028
– “a+” on EUR 1.5 billion fixed/floating rate undated subordinated bonds
– “a+” on EUR 3.0 billion 6.75 percent subordinated Eurobonds, due 2023
– “a+” on EUR 1.0 billion 6.0 percent subordinated fixed to floating rate bonds, due 2041
– “a+” on EUR 900 million 6.25 percent subordinated fixed to floating rate bonds, due 2042
– “a+” on GBP 450 million 6.625 percent fixed rate subordinated bonds, due 2042

The following debt rating has been upgraded:
Munich Re America Corporation—
– to “a-“ from “bbb+” on USD 500 million 7.45 percent senior unsecured notes, due
2026

Source: A.M. Best

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