Best Downgrades American Re Ratings; Revises Outlook to Stable

A.M. Best Co. announced that it has downgraded the financial strength rating to “A” (Excellent) from “A+” (Superior) of American Re Corporation Group’s member companies, which include American Re-Insurance Company, American Alternative Insurance Corporation and The Princeton Excess & Surplus Lines Insurance Company.

Best has also downgraded the issuer credit rating of American Re-Insurance Company to “a” from “aa-” and the senior debt rating of American Re Corporation to “bbb” from “a-“. The outlook for all ratings has been revised to stable from negative.

Standard & Poor’s announced on Wednesday, Feb. 16, that it had placed the Group’s ratings on its CreditWatch with negative implications, indicating that it too may lower them.

“These rating actions have been precipitated by American Re’s recent announcement that it has taken additional reserve strengthening of $180 million in the fourth quarter related to asbestos exposure, culminating in $482.3 million pre-tax of prior-year adverse reserve development in 2004,” said Best.

“The quality of American Re’s risk-adjusted capitalization and underwriting performance, as well as its earnings trend over the past five years, has been negatively affected by significant and repeated adverse development charges covering the 1997-2001 accident years, asbestos charges and catastrophe-related exposure,” best’s announcement continued. “Despite the historical explicit and implicit support provided by its parent, Munich Re (Germany), in the form of capital infusions, stop loss covers and retrocessional arrangements, American Re’s risk-adjusted capitalization and earnings performance remain below A.M. Best’s expectations.”

Best announced in December 2004 that it had revised American Re’s rating outlook to negative from stable, citing the protracted period of weak underwriting performance on a calendar year basis and declining risk-adjusted capitalization despite the previous explicit support from Munich Re.

The rating agency noted that “while American Re’s ratings and the stable outlook continue to reflect this benefit and anticipated future support, the amount of rating enhancement has decreased due to the continued poor earnings performance of American Re.”