Moody’s Investors Services has backed the financial strength of Munich Re and affirmed an Aa3 rating for the overall group, its US non-life reinsurance subsidiary and its German life subsidiaries.

The agency says its rating “reflects Munich Re’s excellent business franchise, strong business diversification and capital adequacy, relatively conservative investment portfolio… and management practices”.

However, such strengths are somewhat offset by the effect of low interest rates on investment yields and the inherent volatility of its catastrophe-exposed business.

The effect of catastrophe exposure was evident last year, causing capital adequacy levels to fall from 135% to 111% in the calendar year and pushing average return on capital from 7.5% to 2.4%.

Moody’s sees Munich Re’s reinsurance market position as “excellent in both absolute and relative terms”.

The agency has also reaffirmed the Baa1 rating of US insurance group Ironshore’s operating subsidiaries.

The ratings “are based on good capitalisation, a high-quality investment portfolio, moderate operational and financial leverage and… increasing market presence”, Moody’s says.

Ironshore, founded in 2006, has made “meaningful progress in building its operational infrastructure and franchise over the past few years”.

A ratings upgrade is possible if it raises return on capital to high single-digit levels and holds down leverage in its business financing and underwriting.

Moody’s is also reviewing US insurer Genworth Financial, with a view to downgrading its Baa3 rating.

The agency is concerned Genworth’s US mortgage insurance operations will weaken the whole group.

“Moody’s will continue to focus on the evaluation of holding-company financial flexibility over the near to medium term,” Senior VP Scott Robinson said.