Best Affirms Munich Re and Subs Ratings; Outlook Stable

October 23, 2015

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

Best has also affirmed the “issue ratings” of Munich Re, as well as the ICR of “a-” and the issue rating of Munich Re America Corporation.

The outlook for all ratings is stable.

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

Best’s report also pointed out that, “despite persistently low interest rates and challenging conditions across global reinsurance markets, Munich Re has performed well during the past year. A low incidence of natural catastrophe losses in the group’s property/casualty reinsurance division offset the negative impact of reducing and volatile interest rates and enabled it to generate an overall return on risk-adjusted capital comfortably in the double-digit range.”

There are, however, “significant challenges” ahead for Munich Re over the medium term “in the form of low interest rates and soft reinsurance market conditions, and “despite indications that reinsurance premium rate decline is slowing, there continues to be over-supply of capacity within the industry and no sign of hardening conditions.”

Best also indicated that, “if natural catastrophe losses increase to a more normal level, there will be negative pressure on the company’s combined ratio. However, the excellent diversification within Munich Re’s (re)insurance portfolio, its solid distribution network and its conservative strategy place it in a strong position to withstand the aforementioned pressures.”

Best said it “expects that Munich Re will maintain a resilient level of operating performance through the market cycle and emerge strongly as conditions improve.”

The report also acknowledges that Munich Re “has an excellent level of risk-adjusted capitalization that benefits from the group’s moderate underwriting leverage and conservative investment strategy.”

Best’s assessment of Munich Re’s adjusted available capital shows that it has “increased over the past year largely due to unrealized gains on its investment portfolio. The group is expected to maintain a considerable capital buffer above its economic capital requirements for the foreseeable future.

“Furthermore, the group has a proven record of strong internal capital generation and benefits from a sophisticated enterprise wide risk management framework that is adequate to manage its complex risk profile.”

Best listed the specific ratings covered by the report as follows

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

The following issue ratings have also been affirmed:
Munich Reinsurance Company—
“a+” on £300 million 7.625 percent subordinated bonds, due 2028
“a+” on £ 450 million 6.625 percent fixed to floating rate subordinated bonds, due 2042
“a” on €1.5 billion 5.767 percent fixed to floating rate undated subordinated bonds
“a” on €1.0 billion 6.0 percent subordinated fixed to floating rate bonds, due 2041
“a” on €900 million 6.25 percent subordinated fixed to floating rate bonds, due 2042

Munich Re America Corporation—
“a-” on $500 million 7.45 percent senior unsecured notes, due 2026

Source: A.M. Best

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