MOODY'S COMMENTS ON RATING REVIEW OF MUNICH RE AND AMERICAN RE DEBT AND FINANCIAL STRENGTH RATINGS
London, September 28, 2001 -- In a press release dated September 24, 2001 Moody's Investors Service announced it had initiated a rating review of the financial strength rating of Munich Reinsurance Company (Aaa), and debt and financial strength ratings of its US subsidiary, American Re, for possible downgrade. Moody's initiated this review in light of the significant losses emanating from the September 11, 2001 terrorist attacks. Elaborating on its rationale, Moody's stated that Munich Re, as well as other reinsurers, faces a high level of uncertainty in estimating losses from the recent terrorist attacks, due to its remoteness from the businesses insured, and the complexity of coverages and contracts that are affected.
As loss estimates become firmer, Moody's will analyze their financial impact in the context of Munich Re Group's strong capitalization, stable franchise and conservative fiscal and underwriting management, which have been key considerations in its financial strength ratings. Partially offseting the company's key credit strengths are the modest earnings levels at Munich Re, and particularly the recent poor performance at its large US subsidiary American Re. This raises questions about the quality of earnings for the group, relative to other businesses in the Aaa rating category. Moody's believes that these recent catastrophes highlight the challenge faced by the reinsurance industry to generate long term operating returns that reflect the inherent volatility of their business.
Moody's further noted that the near term future business prospects for Munich Re could likely improve, as the rating agency expects that reinsurer size and quality will assume a greater role in reinsurance purchasing decisions. However, Moody's believes that while reinsurance market conditions are expected to improve, the profile of risk within the reinsurance industry has changed, at least for some period of time.
Moody's further noted that if losses relating to the recent terrorist attacks remain in line with Munich Re's initial estimate, it would expect to conclude its review with a confirmation of Munich Reinsurance Company's financial strength rating. In Moody's review of the financial strength and debt ratings of Munich Re's US subsidiary, American Re, the degree of explicit support provided to American Re by its parent Munich Re will be a major rating consideration.
The following rating were placed on review for possible downgrade:
Munich Reinsurance Company - insurance financial strength at Aaa;
American Re-Insurance Company - insurance financial strength at Aaa;
American Re Corporation - senior debt at Aa1;
American Re Capital Trust - trust preferred securities at Aa2;
Munich Re Group, based in Germany, is the largest global reinsurer with operations that include primary property and casualty insurance, life insurance and asset management. As of June 30, 2001, Munich Re Group reported year to date net income of 1.298 billion euros and shareholders' equity of 24.8 billion euros versus net income of 652 million euros and shareholders' equity of 23.6 billion euros for the comparable period in 2000.
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