S&P in New York said its rating actions came on the heels of the reinsurer's preliminary 2002 financial numbers made public this week.

The downgrades, S&P said, reflect the company's "disappointing overall earnings performance" from 2002, which followed its poor financial results from the previous year, despite underlying improvements in its reinsurance business.

The ratings agency also expressed concern for Munich Re's weakened capital base, which is "down from historically extremely strong levels."

S&P credit analyst Wolfgang Rief noted, "The negative outlook reflects the magnitude of challenges that Munich Re faces in order to restore operating performance, improve risk-based capitalization quantitatively, and alleviate some of the uncertainties arising from its exposure both to the U.S. reinsurance market and to the German banking sector."

S&P also questioned Munich Re's ability to meet the previously expected 104 percent combined ratio over the cycle. "Standard & Poor's therefore considers it likely that it will take the group longer than expected to bring profitability back to a very strong level--particularly if the currently challenging operating and financial environment persists."

Earlier, another major ratings agency had also begun to scrutinize the German reinsurance giant. Moody's Investors Service in New York had announced this week that it has put Munich Re on review for possible downgrades, citing concerns with its capitalization level.

S&P said it will continue to monitor developments at Munich Re and hinted that the company could face further downgrades if it fails to achieve substantial progress in improving profitability and risk-adjusted capitalization.