Munich Reinsurance Subsidiaries Ratings Affirmed, Munich Re Africa Upgraded; Outlook Stable

  • Munich Re is a global leader in the property/casualty (P&C) and life reinsurance market with superior diversification across geographies and products, including sizable primary insurance operations under the ERGO brand.
  • The group has a strong track record of maintaining healthy capital adequacy levels under regulatory requirements, and within the 'AA' range based on S&P Global Ratings' capital model, backed by strong reserve adequacy.
  • The group has well-defined risk controls, but is also exposed to tail risk such as natural catastrophes, leading to potential earnings volatility, as experienced in recent years.
  • We are affirming our ratings on Munich Re's operating and holding entities, with the exception of Munich Reinsurance Co. of Africa Ltd., which we are upgrading to the level of its parent, based on the implementation of our revised criteria.
  • The stable outlook reflects our expectation that Munich Re will maintain its leading market position over the next 12-24 months, safeguarding its capital adequacy securely in the 'AA' range.
FRANKFURT (S&P Global Ratings) July 26, 2019-- S&P Global Ratings said today that it affirmed its 'AA-' long-term insurer financial strength and issuer credit ratings on the core subsidiaries of Germany-based global reinsurer Munich Reinsurance Co. At the same time, we affirmed the 'A+' long-term insurer financial strength and issuer credit ratings on the highly strategic subsidiaries (see the ratings list below for further details). The outlooks are stable.
We also affirmed our ratings on all outstanding hybrid and debt instruments issued by Munich Re.
At the same time, we raised the long-term insurer financial strength rating on South Africa-based Munich Reinsurance Co. of Africa Ltd (Munich Re SA) to 'AA-' from 'A-' following the implementation of our revised Group Rating Methodology published on July 1, 2019. We equalize the rating on Munich Re SA with that on Munich Reinsurance Co. (its guarantor). The outlook is stable.
The stable outlook reflects our view that the group will defend its extremely strong competitive position during the next 12-24 months by:
  • Continuing to leverage moderate price increases in global P&C reinsurance business in 2019;
  • Further optimizing growth opportunities in structured reinsurance;
  • Capturing increasing earnings potential from primary insurance operations; and
  • Maintaining capital adequacy securely in the 'AA' range in 2019-2021.
The global P&C reinsurance sector continues to face challenging business conditions, with only moderate price increases over the past two years. However, we might consider raising the rating if we saw a more favorable pricing environment on a sustainable basis in P&C reinsurance lines. An upgrade would also hinge on the group's ability to further diversify its earning streams, with a sustainable and sizable contribution from its primary insurance operations.
We regard a downgrade as remote over the next two years. However, we might consider a negative rating action if Munich Re's capital adequacy fell below the 'AA' level in our capital model over a prolonged period. This could occur, for example, as a result of materially higher investment charges, combined with unexpectedly large natural catastrophes or other large claims events, and prolonged weakened earnings well below our base-case assumptions.
Our rating on Munich Reinsurance Co. and its core and highly strategic operating companies (collectively Munich Re) reflect the group's extremely strong franchise as one of the global leading reinsurance companies, supported by solid and conservative financial capabilities. Munich Re offers life and P&C reinsurance products globally, with an extremely diverse regional and business line mix and leading account capabilities. Besides its market-leading position in reinsurance, it owns a sizable primary insurance operation, ERGO, with operations in Germany, Europe, and Asia across P&C, life, and health business.
The ratings also reflect our view of the group's healthy capitalization under its internal model and Solvency II, as well as under our capital model.
In our opinion, the global reinsurance sector is inherently more volatile than many other insurance sectors. Munich Re has built a strong capital buffer to safeguard its business against adverse market developments, including high catastrophe losses, as seen in 2017 and 2018, by diversifying its portfolio across various business lines and regions. The group actively manages volatility through stringent risk limits, group reinsurance optimization, and robust risk controls.
The ratings on ERGO Group AG and Munich Re America Corp. reflect these companies' group status as intermediate, non-operating holding companies. The wider notching for Munich Re America Corp. reflects our view of greater structural subordination within insurance groups in the U.S. compared with those outside the U.S.
Munich Re SA is licensed to write reinsurance business and it has a guarantee from Munich Reinsurance Co. that covers all of Munich Re SA's reinsurance obligations. The rating reflects our view that this guarantee qualifies for full credit substitution with Munich Reinsurance Co. We believe the group is willing and able to sufficiently support Munich Re SA during a stress associated with a sovereign default and therefore we are equalizing the rating on Munich Re SA with that on Munich Reinsurance Co.
We work across the world

From London to San Francisco, to our home base in (Saint Helier) Jersey, we’re looking for extraordinary and creative scientists to help us drive the field forward.

AC Investment Inc. currently does not act as an equities executing broker or route orders containing equities securities. If AC Invest’s business model were to change and it begins routing non-directed orders in NMS securities, it will comply with the disclosure requirement of Rule 606.

77 Massachusetts Avenue Cambridge, MA 02139 617-253-1000 pr@ademcetinkaya.com