A.M. Best Downgrades Ratings of American Re; Revises Outlook to Stable

A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) of American Re Corporation Group's (American Re) member companies, which include American Re-Insurance Company, American Alternative Insurance Corporation and The Princeton Excess & Surplus Lines Insurance Company (all domiciled in Wilmington, DE). A.M. 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.

Published on February 17, 2005

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. 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. 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.

In December 2004, A.M. Best 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.

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.

The financial strength rating of A+ (Superior) has been downgraded to A (Excellent) for the following subsidiaries of American Re Corporation Group:

-- American Re-Insurance Company

-- American Alternative Insurance Corporation

-- The Princeton Excess & Surplus Lines Insurance Company

The issuer credit rating has been downgraded to "a" from "aa-"of American Re-Insurance Company.

The issuer credit rating has been downgraded to "bbb" from "a-"of American Re Corporation.

The following debt rating has been downgraded:

American Re Corporation--

-- to "bbb" from "a-" on $500 million 7.45% senior unsecured notes, due 2026