Best Assigns Indicative “aa” Rating to Munich Re’s Subordinated Debt Issue

April 10, 2003

A.M. Best Co. announced that it has assigned an indicative “aa” rating to the forthcoming subordinated bonds to be issued by Munich Re Finance B.V., based in the Netherlands, and guaranteed by Munich Reinsurance Company.

“The proposed issues will be treated as hybrid capital and will not lead to Munich Re exceeding A.M. Best’s financial leverage tolerance,” said the rating agency. “Under the terms and conditions, the issuer will have the right to defer interest on a cumulative basis if no dividend has been declared by Munich Re on all classes of shares.”

Best explained that “The proceeds will be used to restore and strengthen Munich Re’s consolidated risk-adjusted capitalization while taking advantage of further growth opportunities in the reinsurance market. Maintenance of Munich Re’s current ratings are predicated upon successful completion of this issue.”

The announcement also recognized that “Munich Re, the world’s largest reinsurer, continues to benefit from its outstanding global presence, underwriting capacity and expertise. In the German primary insurance market, Munich Re has an excellent profile, ranking the second-largest composite group with approximately 41% of total premium.”

Best characterized the company’s “overall underwriting performance” as “unsatisfactory,” but noted that “its underlying non-life reinsurance underwriting results improved in 2002, leading to a consolidated combined ratio of 106.5%. Total after tax profit improved to EUR 1.1 billion (USD 1.2 billion) in 2002 from EUR 250 million (USD 272 million) in 2001.” Best said it “expects further improvements over the next two years that could allow Munich Re to achieve a combined ratio of approximately 100%,” but it continues to assign a negativbe out look to the group’s ratings, “indicating a potential downgrade if equity markets continue to fall and/or an adverse development in asbestos and environmental related claims were to materialise.”

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