A.M. Best Places Ratings for American Re Under Review; Negative Implications

A.M. Best Co. has placed the financial strength ratings of A (Excellent) under review with negative implications for American Re Corporation Group’s (American Re) member companies, which include American Re-Insurance Company (American Re-Insurance), American Alternative Insurance Corporation and The Princeton Excess & Surplus Lines Insurance Company (all domiciled in Wilmington, Del.). A.M. Best has also placed the issuer credit rating (ICR) of “a” for American Re-Insurance and the ICR and senior debt ratings of “bbb” of American Re Corporation (Princeton, N.J.) under review with negative implications.

These rating actions have been precipitated by a recent comment by its parent, Munich Reinsurance (Munich Re) (Germany) that they will be conducting an in-depth reserve review at American Re to determine if additional strengthening might be required for prior year reserves and a follow-up meeting with Munich Re.

This review follows the $482.3 million, pre-tax of prior year adverse development in 2004. The quality of American Re’s risk-adjusted capitalization and underwriting performance, as well as its earnings trend over the past five years, have been negatively affected by significant and repeated adverse development charges covering the 1997-2001 accident years, asbestos charges and catastrophe-related exposure.

Therefore, despite any anticipated future capital support from Munich Re, American Re’s ratings remain under pressure reflecting A.M. Best’s ongoing concerns over the ability of its current management team to improve its operating performance and sustain its capitalization without a continued material dependence on its parent. The resolution of this under review status is dependent upon the outcome of the reserve study, the level of support provided by Munich Re and A.M. Best’s view of American Re’s prospective operating performance.

The financial strength ratings of A (Excellent) have been placed under review for the following subsidiaries of American Re Corporation Group:

American Re-Insurance Company
American Alternative Insurance Corporation
The Princeton Excess & Surplus Lines Insurance Company
The issuer credit rating of “a” has been placed under review for American Re-Insurance Company.