S&P Puts Positive Outlook On Munich, Am Re

Standard & Poor's has changed the rating outlooks for Munich Reinsurance Co. and its U.S. affiliate American Re-Insurance from stable to positive and indicated the two firms might qualify for a "double-A" rating.

The decision won't come until year-end, S&P said, noting that a potential upgrade of current "A-plus" ratings is contingent on several factors impacting the Munich, Germany-based group.

In a statement released on Tuesday, S&P credit analyst Simon Marshall in London said such factors would include the satisfactory conclusion of S&P's review of group loss reserves, an assessment of enterprise risk management as at least strong, and continuing positive trends in earnings.

S&P expects to be in a position to finalize its view on loss reserves and ERM in the fourth quarter of 2006, the company said, noting that the outlook could be revised to stable by less favorable outcomes in any of these areas.

Explaining the current outlook change to positive, Mr. Marshall said it "reflects the significant progress the group has made in strengthening its underwriting, pricing and risk management processes." His statement continued: "We consider that these improvements in management, along with the introduction of a performance culture, are permanent in nature and are a leading indicator of improved financial strength."

S&P said key management actions, which have enhanced financial strength, include a focus on integrated risk management and the full integration of Princeton, N.J.-based American Re Corp.

While the benign operating environment of recent years has contributed to improved earnings, management actions have also played a significant part and are expected to drive less volatile earnings when the reinsurance cycle turns downward again, S&P said.

S&P said current ratings on Munich Re and its operating units reflect a very strong competitive position and very strong capitalization, but that the group's relatively short-term track record of strong profitability is an offsetting factor.