S&P Upgrades Munich Re’s Ratings to ‘AA-‘ on Strong Results

Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on Germany’s Munich Reinsurance Co. and its core operating entities, including those in the ERGO and Munich Re America [formerly American Re] sub-groups, to “AA-” from “A+”. S&P also raised the counterparty credit rating on Munich Re’s intermediate holding company ERGO Versicherungsgruppe AG to “A” from “A-.” The outlook on all entities is stable.

“The upgrade reflects the group’s major and sustained improvements in operating performance, a strong enterprise risk management (ERM) framework, and increased certainty about the adequacy of Munich Re’s overall reserve position,” stated S&P credit analyst Karin Clemens. “Further factors supporting the rating are Munich Re’s very strong competitive position, capitalization, and financial flexibility.”

S&P further indicated that the rating “reflects Munich Re’s challenge to further expand its competitive position within the constraints of a more conservative risk profile and its underperformance during the past soft cycle.”

Clemens indicated that the stable outlook on Munich Re and its rated core subsidiaries reflects S&P’s expectation that the Group “will sustain strong earnings throughout the cycle, and maintain a very strong competitive position and capitalization, while further building its strong enterprise-risk-management framework.”

In that regard S&P indicated that it foresees “an ROE of at least 10 percent to 12 percent as well as a combined ratio of less than 100 percent in both reinsurance and primary insurance. ROR in reinsurance is expected to reach at least 10 percent. With respect to life and health primary insurance and reinsurance activities combined, the ratio of the value of new business to the present value of in-force business (PVIF) after cost of capital is expected to be about 7 percent and the overall new business margin about 3 percent.

“An outlook revision to positive would depend on the group significantly outperforming these targets over a sustained period. An outlook revision to negative is unlikely and would be driven by Munich Re performing significantly below our expectations,” the report added.