Moody's Investors Service in New York yesterday upgraded the insurance financial strength rating of American Re-Insurance Company to Aa3 from A2, citing the support of parent company Munich as the main factor driving the change.
The two-notch financial strength rating upgrade, with a one-step boost in the senior debt rating of American Re Corporation--to A2 from A3--concludes a review for possible upgrade that was initiated on July 19, 2005, Moody's said, adding that the rating outlook is now stable.
The rating review was prompted by the announcement of a formidable recapitalization plan at Princeton, N.J.-based American Re, following a $1.6 billion reserve strengthening. The recapitalization was funded by the group's ultimate parent, Munich Reinsurance Company.
The reserve strengthening related mainly to liability and workers' compensation business written by ARIC from 1997 through mid-2002, as well as asbestos and environmental claims.
American Re's financial strength rating is now the same as Munich Re, "reflecting the strong explicit support" of Munich and "the strategic importance" of American Re to Munich Re as a global reinsurer, Moody's said.
Moody's noted that American Re has a history of adverse loss development totaling some $4.7 billion over the past four years. But Moody's believes that the 2005 reserve charge and recapitalization substantially reduce the uncertainty surrounding reserves.
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