Reinsurance giant Munich Re had its AA- debt rating affirmed by Fitch on Friday despite what the agency describes as “weakened” capital levels and less-than-strong property/casualty underwriting results.
“Munich Re benefits from the superior franchise of its reinsurance operations. However, in Fitch’s opinion Munich Re’s underwriting performance in the P&C reinsurance segment is a weakness relative to peers,” Fitch said in a statement.
The statement added that although Munich Re’s catastrophe risk was “reasonable” given is diversified perils capital position, P/C reinsurance performance was a drag on the reinsurer’s balance sheet.
Munich Re reported earlier this month “moderate” major losses in its property-casualty segment, with a total loss of to 264 million euros after retrocession and before tax. The P/C segments combined ratio was 94.6% of net earned premiums, with two points attributed to major losses prior to 2012.
“Fitch notes that in a year of more normalized catastrophe activity the group generates the majority of its profits from its P&C reinsurance operations, benefiting from overall solid margins within its catastrophe book,” the statement said, adding that the German reinsurer was able to push for rate increase of between 2% and 5% in the January and April renewals.
“Ratings could be upgraded if Munich Re improves profitability on a sustainable basis to a return on equity of 10% or above and a combined ratio of 96% or
lower, provided the capital base remains strong on a risk-adjusted basis,” Fitch added.