A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of Munich Reinsurance Company and its subsidiaries. Best also affirmed all of the debt ratings for Munich Re. The outlook for the ratings is stable.

The ratings reflect Munich Re’s “excellent risk-adjusted capitalization and resilient operating performance in an environment characterized by soft reinsurance rates, a challenging primary domestic market and turbulent macroeconomic conditions,” Best said.

The report also noted that “Munich Re’s capitalization has improved further over the past two years, chiefly as a result of a substantial increase in unrealized gains on investments and a significant increase in profits. Return on equity was excellent in 2012 at roughly 12 percent.

“In 2013, the group fully redeemed a hybrid instrument of €3 billion [$4.04 billion] without compromising the level of risk-adjusted capital. In addition, a new share buy-back program of €1 billion [$1.347 billion] is planned to start in late 2013 and run into early 2014.”

Best indicated that “natural catastrophe losses in 2013 stemmed both from the non-life reinsurance and primary divisions and include the floods in Central Europe, the hailstorms in Germany and the hurricane in Mexico in the second and third quarters of the year. The life business has also seen adverse development in Australia and the United States in the third quarter of 2013. However, the group has posted solid results year-to-date with profits of €2.2 billion [$2.963 billion]. Munich Re is on track to achieve a profit after tax of roughly €3 billion [$4.04 billion] in 2013, compared to €3.2 billion [$4.31 billion] reported in 2012.

“Underwriting discipline and a relatively conservative investment strategy remain at the core of the organization’s enterprise risk management. Munich Re remains a leading global carrier in the reinsurance market with complementary primary and health insurance operations. The company has the ability to service reinsurance clients on a worldwide basis through an extensive distribution system.”

In conclusion Best said: “Upward rating movement could occur if underwriting 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.

Best summarized the rating included in its assessment as follows:
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
The following debt ratings have been affirmed:
Munich Reinsurance Company—
— “a+” on £300 million 7.625% subordinated bonds, due 2028
— “a+” on €1.5 billion fixed/floating rate undated subordinated bonds
— “a+” on €1.0 billion 6.0% subordinated fixed to floating rate bonds, due 2041
— “a+” on €900 million 6.25% subordinated fixed to floating rate bonds, due 2042
— “a+” on £450 million 6.625% fixed rate subordinated bonds, due 2042

Source: A.M. Best Europe