German insurer and bank credit spreads hit by downgrade fears

The cost of protection for German reinsurance company Munich Re and German banks Deutsche, Commerzbank and Dresdner widened today following negative rating and outlook changes by Moody's Investor Services.

Moody's downgraded the insurance financial strength rating of Munich Reinsurance Company from Aaa to Aa1 yesterday. The rating agency said the decision follows Munich Re's announcement on July 10 that it would be increasing reserves at its US subsidiary American Re by $2 billion, raising its provisions for the World Trade Center loss by $500 million, and recapitalising American Re.

Today, five-year credit protection on Munich Re was wider by 7-10 basis points to 60/70bp. Protection for fellow

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