Munich Re in £2.6bn rights offering

THE world's largest reinsurer Munich Re stunned markets with news of a rights issue of at least e3.8bn (£2.6bn).

The company, badly hit by 11 September and the floods in eastern Germany last year, will offer shareholders two new shares for every seven they hold. The new stock would be offered at a price of at least e75 a share, it said.

Munich Re, rated AAA by Standard & Poor's until last year, has had its credit rating cut four levels to A-plus, below that of competitors including Swiss Re, as falling stock markets depleted the reserves it needs to write business. The stock fell e1.74 to e96.26.

'The company intends to make use of the stronger capital base to expand its leading market position, especially in the reinsurance market, by taking selective advantage of profitable growth opportunities,' Munich Re said.

Allianz, which owns about 14% of Munich Re, is committed to take up at least half of its entitlement. Allianz and Munich Re also have cross-shareholdings but have said they would like to reduce them.

The issue is one of the largest in corporate history and comes in a week when the shares in the company have rallied due to the prospect of paying less tax.

The price jumped 5% on Monday after the German Finance Ministry said it was moving to change tax regulations to prevent insurers being forced into paying higher taxes on portfolio write-downs.

'Naturally such a step would be a positive as the current situation makes no sense. They are paying taxes even though they make no profit,' said Trudbert Merkel, fund manager at Deka Group in Frankfurt.

The group, headed by chief Hans-Jurgen Schinzler, lost billions in World Trade Centre claims after the 11 September attacks on the US, and the subsequent decline in equity markets resulted in a reduction in industry capacity because it was left with less capital to deal with the crisis.