The Munich Re Group's result for the second quarter will be reduced by €0.4bn. The starting point: American Re has increased its reserves mainly for the accident years 1997 to mid-2002 by US$ 1.6bn ( after deduction of relief from extra-Group retrocessions ). The impact of this additional expenditure will only be partially felt at Group level, where general provision had already been made for long-tail losses. The reserve strengthening was preceded by an especially extensive review of the reserves as at 31 March 2005 initiated by the Munich Re Board of Management and aimed at drawing a line under the additions to reserves required several times in recent years. In connection with the reserve allocation, Munich Reinsurance Company is reinforcing the capital base of its US subsidiary by US$ 1.1bn; it is also converting financing instruments of US$ 1.6bn at two intermediate holdings into equity capital. In addition, American Re will be integrated even more closely into the Group through extended retrocession covers.

The Group's envisaged target of 12% return on equity after tax for the business year 2005 still stands, says Nikolaus von Bomhard, Chairman of Munich Re's Board of Management. "Altogether, we are drawing a line under the burdensome issue of reserve strengthening at American Re", he added. "The turnaround and current upward trend of our subsidiary since the managerial, strategic and structural reorganisation in mid-2002 will no longer be overshadowed by long-tail losses. Thus Munich Re is consistently pursuing the course it has adopted in recent years and underlining its clear commitment to the US market and its subsidiary American Re."

To counter the reduction in American Re's equity capital resulting from the reserve strengthening, Munich Re will finance a capital increase to underpin its US subsidiary's competitive position. Munich Reinsurance Company will make a capital injection of around US$ 1.1bn from existing resources, thus increasing American Re's equity capital to a total of US$ 3bn. Besides this, internal Group financing of US$ 1.6bn for two intermediate holding companies will be converted into equity capital. For the purposes of efficient capital management, the parent company will continue to provide retrocession cover, which will be expanded for active business and extended to reserves for losses from the accident years prior to 2002, so that the opportunities and risks from the run-off of the reserves are raised to the top Group level. These measures are subject to routine approval – where applicable – from the responsible supervisory authorities.

John Phelan, Chairman and CEO of American Re: "Now that the long-tail losses no longer overshadow our current performance, the success of our hard work over the last few years will also be evident in our bottom-line figures. We will exploit the opportunities of the largest insurance market in the world."

In relation to expected earned premiums for own account in non-life reinsurance, the Group's expenses amount to around 2.7 percentage points for the whole of 2005 and 10.7 percentage points for the second quarter. The extent of any tax effects will only be definitively ascertained in the course of accounting operations for the second quarter financial statements. Munich Re will report on this issue further when it publishes its half-year figures, as announced, on 4 August.

American Re Corporation, founded in 1917, is one of the leading providers of reinsurance in the United States. Through its subsidiaries, it writes treaty and facultative reinsurance, insurance, and provides related services to insurance companies, other large businesses, government agencies, pools and other self-insurers. American Re has over 1,300 employees with expertise in virtually all fields of underwriting, actuarial and claims. With approximately 850 clients and US$ 4.2bn in annual gross written premiums in 2004, American Re is also one of the largest reinsurers in the US.

Münchener Rückversicherungs-Gesellschaft
signed von Bomhard           signed Küppers