A.M. Best affirms and strengthens Munich Re’s rating

A.M. Best Co. revised its outlook on all its ratings for Munich Reinsurance Company (Munich Re) from negative to stable, as well as affirming the financial strength rating of A+ (Superior) and the issuer credit rating of “aa-” of Munich Re and its rated subsidiaries.
A.M. Best expects Munich Res operating performance to remain excellent in 2007, with a stable return on equity of approximately 14-15%, driven by higher investment returns from realising capital gains, but also a significant one-off tax benefit as a result of a lowering of the German corporate tax leading to a release of deferred tax liabilities, an A.M. Best release says.
This compensates for a deterioration in underwriting results with a combined ratio of approximately 98% in 2007 (from an exceptional 93%in 2006) and is mainly caused by the winter storm Kyrill and softening premium rates in reinsurance, the statement notes.
A.M. Bests expectations are also based on the assumption that total catastrophe losses in 2007 (including the hurricane season the second half of 2007) do not exceed Munich Res catastrophe loading of 7% of net premiums earned.
In A.M. Bests view Munich Re remains exposed to large catastrophe losses which could have a negative impact on earnings.
The rating agency goes on to say that Munich Re maintains a very strong business position in the global reinsurance market.
It expects the companys gross premium income to remain stable at approximately EUR 37 billion (approximately Cdn$ 53.73 billion) in 2007 as foreign acquisitions such as ISVICRE in Turkey and strong growth in emerging primary markets compensate for premium reduction in non-life reinsurance due to Munich Res prudent cycle management during a softening market.