S&P lowers ratings of Munich Reinsurance Company to A+

London: Global rating agency Standard & Poor''s (S&P) ratings services has lowered its long term counterparty credit and insurer financial strength ratings on Munich-based global reinsurer Munich Reinsurance Company and related core subsidiaries of the Munich Re group (Munich Re) to A+ from AA-. The outlook is stable.

"The downgrade primarily reflects a re-evaluation by S&P of reinsurance industry risk, and of Munich Re''s position within that industry following the historic relative underperformance in its non-life underwriting profitability," says credit analyst Nigel Bond.

The action also reflects the slower-than-expected recovery in Munich Re''s earnings and the impact this could have on the group''s ability to replenish capital during the current hard phase of the cycle. Nevertheless, the ratings remain underpinned by Munich Re''s very strong business position.

The stable outlook is based on S&P expectation that Munich Re will improve earnings, rebuild capital, and maintain its very strong business position in both the non-life and life reinsurance markets.

Based on positive indicators for the first half of 2003, S&P expects operating results to rebound significantly for the year ending 31 December 2003, as the impact of price increases and tighter terms and conditions continues to take effect. Consequently, the reinsurance and primary insurance combined ratios should be well below 100 per cent for the year.

Following the successful hybrid debt issuance earlier this year, S&P expects risk-based capitalisation to continue to improve, both quantitatively and qualitatively, through retained profits and improvements to the balance sheet. Such improvements will include further substantial capital-raising initiatives in the short term, with the expectation of improving capital adequacy to very strong levels by the end of 2004. Quality of capital will continue to be impaired by investment concentrations.