Munich Re share offering receives mild enthusiasm

The recent announcement by Munich Reinsurance Co. of a share offering to raise at least 3.8 billion in "growth capital" has received a lukewarm response from the major rating agencies. The rights offering will be made before the end of this year, the reinsurer says, with any shares under the issue not taken up by existing shareholders to be made available to the general public priced at 75 a share. Munich Re says that the capital raised will be used to expand the group’s market position.
A.M. Best says it will maintain its existing "A+ (Superior)" financial strength rating on Munich Re in light of the proposed rights issue. Completion of the offering will improve the reinsurer’s capital position, the rating agency observes. "enabling the company to restore its reserves and further expand its business position in the worldwide reinsurance market". But, A.M. Best points out that pressure will remain on Munich Re’s earnings as the group continues to struggle with lower investment returns. Standard & Poor’s, which recently dropped Munich Re’s rating by a notch to "A-plus", also expects the share offering will improve the reinsurer’s capital position. Allianz AG Holdings, one of the major shareholders of Munich Re, says it will exercise at least half of its subscription rights under the offering which will see its stakeholding within the reinsurer drop to 12.5% compared with the current holding of 13.6%.