S&P Downgrades Munich Re

NU Online News Service, March 28, 12:27 p.m.EST?Standard & Poor's Ratings Services said it haslowered its long-term ratings of Munich Reinsurance Co. and itssubsidiaries, citing the company's poor financial results from thepast year.

The downgrades include counterparty credit and insurer financialstrength ratings for the Munich, Germany-based reinsurance giantand its core insurance and reinsurance subsidiaries, whose ratingswere cut to "double-A-minus" from "double-A-plus" with a negativeoutlook.

S&P also lowered its long-term counterparty credit ratingfor Munich Re's subholding company ERGO Versicherungsgruppe AG to"A-plus" from "double-A" and cut its American Re-Insurance Co.ratings to A-plus" from "double-A-minus," also with a negativeoutlook.

S&P in New York said its rating actions came on the heels ofthe reinsurer's preliminary 2002 financial numbers made public thisweek.

The downgrades, S&P said, reflect the company's"disappointing overall earnings performance" from 2002, whichfollowed its poor financial results from the previous year, despiteunderlying improvements in its reinsurance business.

The ratings agency also expressed concern for Munich Re'sweakened capital base, which is "down from historically extremelystrong levels."

S&P credit analyst Wolfgang Rief noted, "The negativeoutlook reflects the magnitude of challenges that Munich Re facesin order to restore operating performance, improve risk-basedcapitalization quantitatively, and alleviate some of theuncertainties arising from its exposure both to the U.S.reinsurance market and to the German banking sector."

S&P also questioned Munich Re's ability to meet thepreviously expected 104 percent combined ratio over the cycle."Standard & Poor's therefore considers it likely that it willtake the group longer than expected to bring profitability back toa very strong level--particularly if the currently challengingoperating and financial environment persists."

Earlier, another major ratings agency had also begun toscrutinize the German reinsurance giant. Moody's Investors Servicein New York had announced this week that it has put Munich Re onreview for possible downgrades, citing concerns with itscapitalization level.

S&P said it will continue to monitor developments at MunichRe and hinted that the company could face further downgrades if itfails to achieve substantial progress in improving profitabilityand risk-adjusted capitalization.