Best Affirms Munich Re, Subsidiaries, Munich Re America ‘A+’ Ratings

October 28, 2011

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 its debt ratings for Munich Re. The outlook for the ratings is stable.

In addition Best affirmed the ICR of “bbb+” and senior debt rating of “bbb+” of Munich Re America Corporation with a positive outlook.

Munich Re “remains a leading global carrier in the reinsurance market with complementary primary and health insurance operations,” said Best. 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 the company to complement its numerous products and expand into new markets.”

Best also described Munich Re’s risk-adjusted capitalization as remaining “at levels appropriate for its FSR. Capital levels increased in 2010 despite several large catastrophic losses but declined through June 30, 2011, due to operating results being affected by major catastrophic events occurring during the first half of the year.

“Through the first half of 2011, Munich Re’s operating results were affected by losses emanating from the Japan earthquake and tsunami, the New Zealand earthquake and Australian typhoon, which resulted in a combined ratio of 133.1 percent. However, the primary and health insurance segments performed better than break even with combined ratios of 96.5 percent and 99.7 percent, respectively.”

In addition Best 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 did point out that Munich Re “maintains an appreciable level of sovereign risk from holdings in Italy, Spain, Ireland, Portugal and Greece.” Concerns about these holdings, however, are mitigated by the fact that “this risk is that approximately 50 percent of those investments are within Munich Re’s primary life and health operations where the risk is shared with policyholders. This reduces Munich Re’s net exposure to manageable levels. Additionally, Munich Re benefits from the appreciation of the market value of its overweight position in high quality bonds, in particular German bunds. Munich Re also maintains some risk attributable to European banks. At present, these exposure levels also seem manageable.”

Best summarized the ratings affected by its actions as follows:
The FSR of ‘A+’ (Superior) and ICR 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

The following debt ratings have been affirmed:
Munich Reinsurance Company—
–“a+” on £483 million [$777.3 million] 7.625 percent subordinated bonds due 2028 –“a+” on €1.5 billion [$2.125 billion] fixed/floating rate undated subordinated bonds –“a+” on €3.0 billion [$4.25 billion] 6.75 percent subordinated Eurobonds, due 2023
— “a+” on €1.0 billion [$1.417 billion] 6.0 percent subordinated fixed to floating rate bonds due 2041

Munich Re America Corporation—
–“bbb+” on $500 million 7.45 percent senior unsecured notes due 2026

Source: A.M. Best

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