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

November 14, 2014

A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of Munich Reinsurance Company (Munich Re) (Germany) and its subsidiaries.

Concurrently, A.M. Best has affirmed all debt ratings of Munich Re. The outlook for all ratings is stable.

The ratings reflect Munich Re’s excellent risk-adjusted capitalization, strong competitive market position, resilient operating performance and robust risk-management framework.

Munich Re’s diversified operations have allowed it to withstand negative pressure from soft market conditions in some major property reinsurance segments over recent years. Absent the emergence of hardening market conditions in these segments, excellent diversification is expected to enable the group to withstand further negative pressure over the medium term. Having diverse primary and reinsurance operations also distinguishes Munich Re from many other global reinsurers.

Furthermore, the group’s good balance between life and non-life business allows it to maintain good overall performance in spite of pressure from the prolonged low interest rate environment on its life operations.

The company’s risk-adjusted capitalization is expected to remain at an excellent level. This is despite substantial dividend payments and share buy-backs over recent years and a relatively low reliance on hybrid debt.

The volatility in Munich Re’s available capital generated through unrealized gains and losses on its large fixed-interest investment portfolio is offset by its robust internal capital generation, along with the cushion of risk-adjusted capitalization that it maintains above that required for its current rating.

In addition, Munich Re has a sophisticated governance framework and a culture of risk management embedded throughout its operations. Munich Re’s enterprise wide risk management capabilities adequately meet requirements created through the group’s large size and diverse mix of business.

Munich Re is expected to report strong overall earnings in 2014, broadly in line with those of 2013 and 2012. Property and casualty reinsurance operations typically drive the group’s overall earnings. Moderate levels of catastrophe losses throughout 2012, 2013 and 2014-to-date have allowed the group to maintain a combined ratio for this segment comfortably below 95%.

Earnings from the group’s life reinsurance, primary and international health operations are more modest; however, provide stability over the longer term, particularly during years of high catastrophe losses.

Upward rating movement could occur if financial performance and risk-adjusted capitalization remain at an excellent level and compare favorably to Munich Re’s peer group of global reinsurers. Downward rating movement could occur if risk-adjusted capitalization or financial performance were to deteriorate substantially.

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

• Great Lakes Reinsurance (UK) plc
• New Reinsurance Company.

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