AMERICAN RE CORP, 10-K, 1999-03-30

AMERICAN RE CORP
10-K, 1999-03-30
FIRE, MARINE & CASUALTY INSURANCE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
---------------

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998 Commission File #1-11688

AMERICAN RE CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 13-3672116
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)

555 COLLEGE ROAD EAST
PRINCETON, NEW JERSEY 08543
(609) 243-4200
(Address including zip code, and telephone number, including area code,
of registrant's principle executive office)

------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
American Re Capital--8.5% Cumulative Quarterly New York Stock Exchange
Income Preferred Securities (and the Guarantee by American
Re Corporation with respect thereto)
</TABLE>

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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

------------------------

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

93.06% of the Company's voting stock is owned by Munich Reinsurance Company.
At March 26, 1999, the number of shares outstanding of the registrant's common
stock was 149.49712.

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<PAGE>
AMERICAN RE CORPORATION
TABLE OF CONTENTS

PART I

1. Business........................................................................................... 1

2. Properties......................................................................................... 20

3. Legal Proceedings.................................................................................. 20

4. Submission of Matters to a Vote of Security Holders................................................ 20

PART II

5. Market for the Company's Common Equity and Related Stockholder Matters............................. 21

6. Selected Financial Information of the Company...................................................... 21

7. Management's Discussion and Analysis of the Company's Results of Operations
and Financial Condition........................................................................... 22

8. Financial Statements and Supplementary Data........................................................ 34

9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................................................. 34

PART III

10. Directors and Executive Officers of the Registrant................................................ 35

11. Executive Compensation............................................................................ 37

12. Security Ownership of Certain Beneficial Owners and Management.................................... 40

13. Certain Relationships and Related Transactions.................................................... 40

PART IV

14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................. 41
</TABLE>
<PAGE>
PART I

Unless indicated otherwise, all financial data presented herein are derived
from or based on the Company's consolidated financial statements prepared in
accordance with generally accepted accounting principles ("GAAP"). Statutory
data, where specifically identified as such, is presented on a combined basis
for American Re-Insurance Company ("American Re-Insurance") and American
Alternative Insurance Corporation ("American Alternative"). The statutory data
are derived from statutory financial statements. Such statutory financial
statements are prepared in accordance with statutory accounting principles,
which differ from GAAP.

The Company is a subsidiary of Munchener Ruckversicherungs-Gesellschaft
Aktiengesellschaft in Munchen ("Munich Re"), a company organized under the laws
of Germany. Munich Re is the world's largest reinsurance company, based on 1997
net premiums written, according to BUSINESS INSURANCE. Following the acquisition
of American Re Corporation (the "Company" or "American Re") by Munich Re in
1996, Munich Re and American Re completed, in 1997, the merger of Munich
American Reinsurance Company ("MARC"), a 50% controlled subsidiary of Munich Re,
into American Re-Insurance. At that time, Munich Re also contributed the
insurance assets and liabilities of its United States Branch (the "U.S. Branch")
to American Re-Insurance. These transactions are collectively referred to herein
as the "Merger."

The Company's consolidated statements of income and cash flows for the year
ended December 31, 1997, represent the fully consolidated operations of American
Re-Insurance, MARC and the U.S. Branch for the period then ended, with 50% of
MARC's net loss for the six-month period ended June 30, 1997, accounted for as
minority interest. As a result, significant variances exist when comparing the
results of operations for the years ended December 31, 1998 and 1997, with the
same period in 1996. See "Management's Discussion and Analysis of the Company's
Results of Operations and Financial Condition--Results of Operations--Year Ended
December 31, 1997, Compared with Year Ended December 31, 1996".

ITEM 1. BUSINESS

THE COMPANY AND AMERICAN RE-INSURANCE

American Re is the holding company for American Re-Insurance, a reinsurance
company that primarily underwrites property and casualty reinsurance on a direct
basis in the United States and international markets. American Re-Insurance was
founded in 1917 as the first U.S.-owned reinsurance company. Based on statutory
net premiums written of $2,276.2 million in 1998, American Re-Insurance ranked
as the third largest property and casualty reinsurer in the United States,
according to the Reinsurance Association of America. The Company had total
assets of $13,554.0 million and stockholders' equity of $2,853.1 million at
December 31, 1998.

OVERVIEW OF THE REINSURANCE INDUSTRY

Reinsurance is a form of insurance in which a reinsurer indemnifies a
primary insurer against part or all of the liability assumed by the primary
insurer under one or more insurance policies. Reinsurance provides a primary
insurer with several major benefits, including a reduction in net liability on
individual risks, protection against catastrophic losses and assistance in
maintaining acceptable financial ratios. Reinsurance also provides a primary
insurer with additional underwriting capacity in that the primary insurer can
accept larger risks and can expand the book of business it underwrites at a
faster rate than would be possible while maintaining acceptable financial ratios
without a corresponding increase in its capital and surplus position.

There are two basic types of reinsurance agreements: treaty contracts and
facultative certificates. A treaty is an agreement between a primary insurer and
a reinsurer under which the primary insurer is

1
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required to cede and the reinsurer is required to assume a specified portion of
a type or category of risks insured by the primary insurer under designated
types of policies issued during the term of the treaty contract. Under a
facultative certificate, the primary insurer cedes and the reinsurer assumes all
or part of the risks insured under a single primary insurance policy. A
facultative certificate is separately negotiated for each risk or group of risks
ceded. Facultative reinsurance is normally purchased by insurance companies for
individual risks not covered by their reinsurance treaties, for limits in excess
of those provided in their reinsurance treaties, and for unusual risks.

Reinsurers indemnify primary insurers in treaties and facultative
certificates on either a pro rata or excess of loss basis. In the case of pro
rata reinsurance, the reinsurer, in return for a predetermined portion or share
of the insurance premium charged by the primary insurer, indemnifies the primary
insurer against a predetermined portion of the losses and loss adjustment
expenses ("LAE") of the primary insurer under the covered primary policy or
policies. In the case of excess of loss reinsurance, the reinsurer indemnifies
the primary insurer against all or a specific portion of losses on underlying
insurance policies in excess of a specified dollar amount, known as the
"retention" or "attachment point," most often subject to a negotiated limit.
Premiums payable to the reinsurer by the primary insurer for excess of loss
coverage are not directly proportional to the premiums the primary insurer
receives because the reinsurer does not assume a proportionate risk.

Excess of loss reinsurance is often written in layers, possibly involving
multiple reinsurers. Excess of loss reinsurance allows the reinsurer to better
control the relationship of the premium charged to the exposures assumed. The
reinsurer taking on the risk just above the primary insurer's retention layer is
said to write "working layer" or "low layer" excess of loss reinsurance. A loss
that reaches just beyond the primary insurer's retention layer will create a
loss for the lower layer reinsurer, but not for the reinsurers on higher layers.
Losses incurred in low layer reinsurance tend to be more predictable than those
in high layers due to a higher expected frequency of losses.

MARKETING AND CUSTOMERS

American Re's treaty and facultative products are marketed domestically to
insurance companies by American Re-Insurance's Domestic Insurance Company
Operations ("DICO") division and to the alternative market by Munich-American
RiskPartners, Inc., a wholly-owned subsidiary of the Company ("RiskPartners").
Internationally, both types of products are marketed through American
Re-Insurance's International Operations division. See"--International
Operations."

2
<PAGE>
Net written premium by operating unit by reinsurance type was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996
-------------------- -------------------- --------------------

<CAPTION>
$ % $ % $ %
--------- --------- --------- --------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
DICO
Treaty................................................. $ 1,044.1 43.4% $ 1,304.1 52.2% $ 847.8 44.6%
Facultative............................................ 473.8 19.7 486.7 19.5 329.7 17.3
--------- --------- --------- --------- --------- ---------
Total................................................ 1,517.9 63.1 1,790.8 71.7 1,177.5 61.9
RiskPartners
Treaty................................................. 127.4 5.3 96.4 3.9 99.5 5.2
Facultative............................................ 309.1 12.8 177.4 7.1 182.8 9.6
--------- --------- --------- --------- --------- ---------
Total................................................ 436.5 18.1 273.8 11.0 282.3 14.8
International Operations
Treaty................................................. 417.3 17.3 405.5 16.2 411.4 21.6
Facultative............................................ 35.1 1.5 27.6 1.1 31.2 1.7
--------- --------- --------- --------- --------- ---------
Total................................................ 452.4 18.8 433.1 17.3 442.6 23.3
Consolidated
Treaty................................................. 1,588.8 66.0 1,806.0 72.3 1,358.7 71.4
Facultative............................................ 818.0 34.0 691.7 27.7 543.7 28.6
--------- --------- --------- --------- --------- ---------
Grand Total.......................................... $ 2,406.8 100.0% $ 2,497.7 100.0% $ 1,902.4 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

Treaty marketing to insurance company clients through DICO primarily focuses
on small to medium sized regional property and casualty insurers. In addition,
DICO's marketing strategy has been recently refocused, to include a variety of
differing insurance concerns, which include: large account specialists, national
multiline insurers, personal lines companies, excess and specialty writers and
professional line specialties. DICO's facultative business is marketed to both
large primary insurers that comprise the largest segment of the commercial
insurance market and small regional primary insurers whose commercial insurance
risks are more limited in volume and scope.

The Company's marketing efforts in the alternative market, which involves
both reinsurance and insurance products, through RiskPartners focus on large
commercial insurance buyers, such as major corporations and governmental
entities, seeking alternatives to the primary insurance companies that
traditionally service these insurance buyers. These large commercial
enterprises, which retain or self-insure risks (through captives, risk retention
groups or other means) as an alternative to procuring traditional insurance, are
developing the same financial concerns and administrative characteristics as
insurance companies as they retain increasing levels of risk. RiskPartners works
with insurance brokers, ultimate insureds and their captives or risk retention
groups to provide specialized reinsurance/insurance coverages to fit their
particular needs. To assist in its reinsurance business, American Re also has a
primary insurance company, American Alternative, which primarily serves
alternative market clients in addition to some DICO clients. (American
Re-Insurance and American Alternative together are referred to herein as the
"reinsurance/insurance subsidiaries.")

International Operations markets both treaty and facultative reinsurance and
alternative markets products outside the United States. International Operations
maintains offices in fourteen major international cities: Beijing, Bogota,
Brussels, Buenos Aires, Cairo, London, Melbourne, Mexico City, Montreal,
Santiago, Singapore, Sydney, Tokyo and Toronto. The geographic diversity of the
international market for reinsurance requires decentralized operations. To
maintain quality performance under these circumstances, International Operations
has staffed its offices with experienced local personnel.

3
<PAGE>
The Company underwrites its business on a worldwide basis for many different
clients and for many lines of property/casualty business. Its products provide a
broad array of coverages. However, the amount of business written with respect
to a particular customer is not the sole basis for determining the risk in the
Company's exposure to such customer. Many factors such as net retentions, loss
exposures and loss ratios as well as premium amounts must be evaluated to
determine such exposure. Taking all of these factors into account, the net
income of the Company is not materially dependent on a single customer, small
group of customers, line of business or geographical area, and the Company
believes the loss of any single customer would not have a material adverse
effect on its financial condition or earnings. However, the Company's net
earnings could be materially adversely affected, during any quarter or annual
reporting period, by the incurrence of reinsured or insured losses under one or
more treaties or contracts with a single customer or group of customers or in a
line of business or geographical area, depending on individual and aggregate
exposures assumed by the Company. (See also "--Risk Management and Retrocession
Arrangements.") The Company's largest single client represented net premiums of
$152.8 million or 6.3%, $68.0 million or 2.7%, and $128.4 million or 6.7% of
total net premiums during the years ended December 31, 1998, 1997, and 1996,
respectively.

REINSURANCE/INSURANCE UNDERWRITING

The Company's property and casualty reinsurance/insurance business includes
the reinsurance/insurance of risks set forth in the following table by statutory
annual statement line of business classifications for the years ended December
31, as indicated:
<TABLE>
<CAPTION>
NET PREMIUMS WRITTEN
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% OF % OF % OF
LINE OF BUSINESS 1998 TOTAL 1997 TOTAL 1996 TOTAL
- --------------------------------------------------------- --------- --------- --------- --------- --------- ---------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Fire..................................................... $ 162.7 6.8% $ 194.1 7.8% $ 161.3 8.5%
Allied lines............................................. 38.8 1.6 35.2 1.4 29.0 1.5
Homeowners multi peril................................... 69.0 2.9 69.2 2.8 53.9 2.8
Commercial multi peril................................... 250.2 10.4 288.5 11.5 179.2 9.4
Ocean marine............................................. 54.2 2.2 86.5 3.4 65.5 3.4
Inland marine............................................ 28.0 1.2 46.6 1.9 23.1 1.2
Earthquake............................................... 19.5 0.8 25.8 1.0 26.8 1.4
Workers' compensation.................................... 364.7 15.2 367.6 14.7 411.1 21.6
Other liability(1)....................................... 506.7 21.0 407.2 16.3 384.7 20.2
Auto liability........................................... 533.3 22.2 586.7 23.5 367.8 19.3
Auto physical damage..................................... 160.0 6.6 144.3 5.8 48.9 2.6
Fidelity and surety...................................... 43.9 1.8 52.0 2.1 48.7 2.6
Other(2)................................................. 175.8 7.3 194.0 7.8 102.4 5.5
--------- --------- --------- --------- --------- ---------
Line of business total................................... $ 2,406.8 100.0% $ 2,497.7 100.0% $ 1,902.4 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

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(1) Includes premium amounts for classes of business such as construction and
alteration liability, contractual liability, errors and omissions liability
and umbrella liability, among others.

(2) Includes premium amounts for lines of business such as, group and other
accident and health, aircraft, glass, burglary and theft, boiler and
machinery, credit, financial guaranty, international bulk class codes, and
American Re-Insurance Company (Chile) S.A.

The Company generally seeks to avoid assuming material exposures for
asbestos, environmental and other difficult risks. When, in the opinion of
management, such exposures may be material under a particular contract, the
reinsurance/insurance subsidiaries either exclude the exposure, set a limit for
the potential for losses, or gain assurance that the ceding company is following
conservative and professional claims and underwriting practices. See "--Reserves
for Unpaid Losses and Loss Adjustment Expenses."

4
<PAGE>
The mix of reinsurance/insurance business based on statutory gross premiums
written is set forth in the following table for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
-------------------- -------------------- -------------------- -------------------- --------------------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Treaty Property
Pro rata.......... $ 539.5 18.1% $ 658.6 21.5% $ 467.1 20.3% $ 419.4 20.9% $ 353.3 18.4%
Excess............ 305.9 10.3 311.5 10.1 212.3 9.2 245.2 12.2 212.0 11.0
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total........... 845.4 28.4 970.1 31.6 679.4 29.5 664.6 33.1 565.3 29.4

Treaty Casualty
Pro rata.......... 606.5 20.3 686.3 22.4 583.2 25.3 374.5 18.6 410.8 21.4
Excess............ 446.6 15.0 452.3 14.7 311.3 13.5 320.2 16.0 360.9 18.8
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total........... 1,053.1 35.3 1,138.6 37.1 894.5 38.8 694.7 34.6 771.7 40.2

Facultative Property
Pro rata........... 90.2 3.0 71.5 2.3 73.0 3.2 59.1 3.0 56.0 2.9
Excess............. 209.6 7.0 200.9 6.5 107.6 4.7 88.8 4.4 63.2 3.3
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total............ 299.8 10.0 272.4 8.8 180.6 7.9 147.9 7.4 119.2 6.2

Facultative Casualty
Pro rata........... 7.6 0.3 34.3 1.1 2.5 0.1 0.2 0.0 0.6 0.0
Excess............. 775.9 26.0 655.5 21.4 546.6 23.7 499.2 24.9 466.3 24.2
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total............ 783.5 26.3 689.8 22.5 549.1 23.8 499.4 24.9 466.9 24.2
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Grand Total...... $ 2,981.8 100.0% $ 3,070.9 100.0% $ 2,303.6 100.0% $ 2,006.6 100.0% $ 1,923.1 100.0%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>

5
<PAGE>
The following table sets forth certain information with respect to the
treaty and facultative reinsurance written by American Re-Insurance for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net premiums written:
Treaty....................................................... $ 1,588.8 $ 1,806.0 $ 1,358.7 $ 1,128.2 $ 1,103.1
Facultative.................................................. 818.0 691.7 543.7 501.3 450.2
--------- --------- --------- --------- ---------
Total net premiums written................................... $ 2,406.8 $ 2,497.7 $ 1,902.4 $ 1,629.5 $ 1,553.3
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net premiums earned:
Treaty....................................................... $ 1,618.2 $ 1,782.6 $ 1,304.8 $ 1,075.6 $ 1,047.4
Facultative.................................................. 800.7 703.5 491.9 455.3 414.0
--------- --------- --------- --------- ---------
Total net premiums earned.................................... $ 2,418.9 $ 2,486.1 $ 1,796.7 $ 1,530.9 $ 1,461.4
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Losses and LAE:
Treaty....................................................... $ 1,197.0 $ 1,273.1 $ 909.4 $ 876.1 $ 761.6
Facultative.................................................. 485.4 443.2 258.4 464.1 249.4
--------- --------- --------- --------- ---------
Total losses and LAE......................................... $ 1,682.4 $ 1,716.3 $ 1,167.8 $ 1,340.2 $ 1,011.0
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Underwriting expenses:
Treaty....................................................... $ 511.4 $ 573.0 $ 377.9 $ 309.1 $ 298.3
Facultative.................................................. 305.0 265.4 155.6 143.3 141.0
--------- --------- --------- --------- ---------
Total underwriting expenses.................................. $ 816.4 $ 838.4 $ 533.5 $ 452.4 $ 439.3
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Underwriting gains (losses):
Treaty....................................................... $ (90.2) $ (63.5) $ 17.5 $ (109.6) $ (12.5)
Facultative.................................................. 10.3 (5.1) 77.9 (152.1) 23.6
--------- --------- --------- --------- ---------
Total underwriting gains (losses)............................ $ (79.9) $ (68.6) $ 95.4 $ (261.7) $ 11.1
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Loss and LAE ratios:
Treaty....................................................... 74.0% 71.4% 69.7% 81.4% 72.7%
Facultative.................................................. 60.6 63.0 52.5 101.9 60.3
Total loss and LAE ratios.................................... 69.6% 69.0% 65.0% 87.5% 69.2%
Underwriting expense ratios:
Treaty....................................................... 31.6% 32.1% 29.0% 28.7% 28.5%
Facultative.................................................. 38.1 37.7 31.6 31.5 34.1
Total underwriting expense ratios............................ 33.7% 33.8% 29.7% 29.6% 30.0%
Combined ratios:
Treaty....................................................... 105.6% 103.6% 98.7% 110.1% 101.2%
Facultative.................................................. 98.7 100.7 84.1 133.4 94.4
Total combined ratios........................................ 103.3% 102.9% 94.7% 117.1% 99.2%
Statutory combined ratios:
Treaty....................................................... 106.8% 106.3% 101.1% 115.7% 106.3%
Facultative.................................................. 97.0 98.1 84.9 133.0 96.7
Total statutory combined ratios.............................. 103.7% 103.9% 96.6% 121.0% 103.8%
</TABLE>

FACULTATIVE REINSURANCE. Under a facultative certificate, the primary
insurer cedes and the reinsurer assumes part or all of the risks insured by the
primary insurer under a single primary insurance policy. Facultative
reinsurance, therefore, involves a review of each individual risk, with the
reinsurer having the right to accept or reject each risk. Because facultative
reinsurance usually involves the assumption of greater risks than treaty
reinsurance and is sold in separate transactions, facultative reinsurance is
typically priced for higher profit margins than treaty business. However, the
reinsurer's losses may be higher for facultative business because the reinsurer
may assume a higher potential liability and because the risks involved may be
more volatile. In addition, underwriting expenses and, in particular, personnel
costs, are higher on facultative business because each risk is individually
underwritten and administered.

6
<PAGE>
The Company's facultative risks are predominantly assumed on a "program"
basis. Under this approach, which encompasses treaty concepts, pricing is agreed
upon in advance for homogeneous risks and such risks are assumed without
individual review, subject only to after-the-fact review and rejection as
appropriate.

TREATY REINSURANCE. A treaty is a contractual arrangement between a primary
insurer and a reinsurer under which the primary insurer must cede and the
reinsurer must assume a specified portion of a type or category of risks.
Accordingly, under its treaties, the Company assumes risks without having
reviewed them individually, but rather, the review is on an overall portfolio
basis.

Through underwriting procedures, treaties are screened for compliance with
general standards for ceding insurers and risks to be assumed and are then
priced based on actuarial models the Company has developed. The actuarial models
are tailored in each case to the risk exposures underlying the specific treaty
and the loss experience for the risk covered thereunder. The Company determines
whether to write or renew a particular treaty by considering many factors,
including its past experience with the client, the types of risks to be covered,
total exposure to risks underwritten by the client or to the type of risk to be
assumed, and its evaluation of the client's financial strength, claims handling
ability, and the overall underwriting capability.

INTERNATIONAL OPERATIONS

The following table presents information with respect to the International
Operations net premiums written by region for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REGION 1998 TOTAL 1997 TOTAL 1996 TOTAL
- --------------------------------------------------------------- --------- --------- --------- --------- --------- ---------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Australia...................................................... $ 34.4 7.6% $ 23.8 5.5% $ 30.4 6.9%
Canada......................................................... 1.2 0.3 31.7 7.3 29.0 6.6
Europe......................................................... 93.9 20.7 88.4 20.4 108.5 24.5
Far East....................................................... 18.0 4.0 15.7 3.6 20.6 4.7
Latin America.................................................. 102.7 22.7 128.2 29.6 110.9 25.0
Middle East.................................................... 32.4 7.2 12.5 2.9 17.4 3.9
Southeast Asia................................................. 19.3 4.3 20.3 4.7 18.9 4.3
Ocean Marine/Other(1).......................................... 150.5 33.2 112.5 26.0 106.9 24.1
--------- --------- --------- --------- --------- ---------
Region total................................................... $ 452.4 100.0% $ 433.1 100.0% $ 442.6 100.0%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

- ------------------------------

(1) Includes net premiums written from ocean marine, international home office
and Princeton Eagle West Insurance Company, a Bermuda domiciled insurance
subsidiary of the Company ("Princeton Eagle West") and corporate
retrocessional charges.

Substantially the same underwriting and reserve procedures are utilized for
domestic and international reinsurance operations, although local political,
economic and other factors are considered in pricing models, reserving
evaluations and underwriting decisions.

FEE-BASED SERVICES

In addition to its core reinsurance business, the Company, through various
subsidiaries, offers a broad array of related services. These services include
investment management, risk management, underwriting management, actuarial
analysis, financial analysis, claims management, data processing, due diligence
consulting for mergers and acquisitions, reinsurance and insurance brokerage,
and captive and risk retention group management services. Such services have
generated fees from clients of $32.3 million, $41.2 million, and $46.7 million
in 1998, 1997, and 1996, respectively.

7
<PAGE>
INVESTMENTS

Munich Re Capital Management ("MRCM"), an affiliated investment advisor, is
primarily responsible for the management of the fixed income portion of the
Company's portfolio. American Re Asset Management ("ARAM"), the Company's
registered investment advisor, is responsible for the Company's equity
investments, in addition to providing operational support and advisory services
to the Company. The Company employs two other investment advisory firms that
manage portions of the Company's investment portfolio, one of whom specializes
in foreign currency-denominated investments. These firms were chosen for their
extensive experience with portfolio management, and the particular requirements
of American Re.

The Company follows a conservative investment strategy that emphasizes
maintaining a high-quality investment portfolio and maximizing after-tax current
income. The composition of the Company's investment portfolio, on a fair value
basis, for the periods ending December 31, was as follows:

<TABLE>
<CAPTION>
1998 1997
-------------------- ----------------------
<S> <C> <C> <C> <C>
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- -----------
Fixed maturities:
U.S. Government and government agency bonds....................... $ 645.1 8.3% $ 1,150.6 15.0%
Municipal bonds................................................... 2,637.0 33.8 1,763.8 23.0
Mortgage backed securities........................................ 1,218.6 15.6 1,023.5 13.3
Domestic corporate bonds.......................................... 1,585.9 20.3 1,889.3 24.6
Foreign bonds..................................................... 789.4 10.1 817.0 10.6
Redeemable preferred stock........................................ 77.3 1.0 71.4 1.0
Equity securities................................................... 545.2 7.0 293.3 3.8
Other investments................................................... 27.9 0.4 22.9 0.3
Cash and cash equivalents........................................... 274.9 3.5 641.6 8.4
--------- --------- --------- -----
Total fair value.................................................. $ 7,801.3 100.0% $ 7,673.4 100.0%
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>

The net increase in the financial statement value of investments and cash
reflects underwriting results, reinvestment of investment income received,
interest expense, income tax payments, and fair value adjustments on bonds and
equity securities classified as available for sale. There were $6,876.0 million
and $6,644.2 million of bonds carried at fair value as available for sale
securities at December 31, 1998 and 1997 respectively.

The following table reflects investment results for the three-year period
indicated:

<TABLE>
<CAPTION>
PRE-TAX NET
AVERAGE INVESTMENT EFFECTIVE PRE-TAX REALIZED
INVESTMENTS(1) INCOME(2) YIELD(3) NET CAPITAL GAINS
-------------- ----------- ------------- -------------------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Year ended December 31,
1998.............................. $ 7,737.4 $ 417.5 5.4% $ 92.8
1997.............................. 7,340.4 427.5 5.8 87.7
1996.............................. 4,130.0 248.2 6.0 4.8
</TABLE>

- ------------------------------

(1) Simple average of beginning-of-period and end-of-period financial statement
investments and cash for applicable periods.

(2) After investment expenses, excluding net realized capital gains (losses).

(3) Net pre-tax investment income for the period divided by average investments
for the same period.

8
<PAGE>
The following table indicates the composition of the Company's bond
portfolio, on a fair value basis, by rating as assigned by Standard & Poor's at
December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- -----------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
AAA............................................... $ 4,181.4 60.8% $ 3,815.7 57.4%
AA................................................ 1,660.5 24.2 1,598.9 24.1
A................................................. 766.5 11.1 915.3 13.8
BBB............................................... 110.7 1.6 121.0 1.8
BB and below and not rated........................ 156.9 2.3 193.3 2.9
--------- ----- --------- -----
Total fair value................................ $ 6,876.0 100.0% $ 6,644.2 100.0%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>

The following table indicates the composition of the Company's bond
portfolio, on a fair value basis, by contractual maturity date at December 31:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
AMOUNT PERCENT AMOUNT PERCENT
--------- ----------- --------- -----------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
One year or less.................................... $ 266.7 3.9% $ 433.0 6.5%
Over one year through five years.................... 1,883.4 27.4 1,691.8 25.5
Over five years through ten years................... 2,645.2 38.5 2,275.7 34.3
Over ten years...................................... 862.1 12.5 1,220.2 18.3
Mortgage backed securities.......................... 1,218.6 17.7 1,023.5 15.4
--------- ----- --------- -----
Total fair value.................................. $ 6,876.0 100.0% $ 6,644.2 100.0%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>

At December 31, 1998, American Re-Insurance held approximately $102.1
million of strategic investments, mostly in its client companies, in the form of
senior debt, subordinated debt, and preferred or common securities. These client
company investments allow American Re-Insurance an opportunity to integrate its
various products and services, such as investment management and reinsurance
brokerage, with the underwriting of reinsurance risks, adding value to these
client relationships. While such investments are not a material part of the
overall investment portfolio, American Re-Insurance will continue to engage in
client company and other strategic investment opportunities on a selected basis.

The Company continues to seek opportunities to enhance investment yield
primarily through a high-quality, fixed maturity investment strategy, while
adding common equities and various nontraditional investments. The Company also
monitors investment and liability duration to ensure optimal investment
performance. In addition, the Company continues to invest at a range of
maturities to ensure a consistent maturity profile, thereby minimizing the need
for security sales to raise liquidity levels. The modified duration of the
Company's bond portfolio was estimated at 5.09 and 4.25 years at December 31,
1998, and 1997, respectively. The Company continually tracks the allocation of
the bond portfolio invested in tax-advantaged securities based on tax planning
considerations and their value relative to taxable investments.

RESERVES FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

GENERAL. The reinsurance/insurance subsidiaries are required to maintain
reserves to cover their estimated ultimate liability for losses and LAE with
respect to reported and unreported claims incurred as of the end of each
accounting period (net of estimated related salvage and subrogation claims).
These reserves are estimates that involve actuarial and statistical projections
of the expected cost of the ultimate settlement and administration of claims
based on facts and circumstances then known, predictions of future events,
estimates of future trends in claims severity and other variable factors. The
inherent uncertainties of estimating loss reserves are exacerbated for
reinsurers by the significant periods of time that often elapse between the
occurrence of an insured loss, the reporting of the loss to the primary insurer

9
<PAGE>
and, ultimately, to the reinsurer, and the primary insurer's payment of that
loss and subsequent indemnification by the reinsurer (the "tail"). As a
consequence, actual losses and LAE paid may deviate, perhaps substantially, from
estimates reflected in the reinsurance/insurance subsidiaries' reserves in their
financial statements. If actual net losses and LAE paid exceed the
reinsurance/insurance subsidiaries' net reserves, the Company's net income will
be reduced in the year determined.

When a claim is reported to a ceding company, its claims personnel establish
a "case reserve" for the estimated amount of the ultimate payment. The estimate
reflects the informed judgment of such personnel based on general insurance
reserving practices and on the experience and knowledge of such personnel
regarding the nature and value of the specific type of claim. The Company, in
turn, typically establishes a case reserve when it receives notice of a claim
from the ceding company. Such reserves are based on an independent evaluation by
the Claims Division, taking into consideration coverage, liability, severity of
injury or damage, jurisdiction, an assessment of the ceding company's ability to
evaluate and handle the claim and the amount of reserves recommended by the
ceding company. Case reserves are adjusted periodically by the Claims Division
based on subsequent developments and audits of ceding companies.

In accordance with industry practice, the Company maintains incurred but not
reported ("IBNR") loss reserves. Such reserves are established to provide for
future case reserves and loss payments on incurred claims that have not yet been
reported to an insurer or reinsurer. In calculating its IBNR reserves, the
reinsurance/insurance companies use generally accepted actuarial reserving
techniques that take into account quantitative loss experience data, together,
where appropriate, with qualitative factors. IBNR reserves are based on loss
experience and are grouped both by class of business and by accident year. IBNR
reserves are also adjusted to take into account certain factors such as changes
in the volume of business written, reinsurance contract terms and conditions,
the type of business, claims processing and other variable factors that can be
expected to affect the Company's liability for losses over time.

CHANGES IN HISTORICAL RESERVES. The following table shows the year-end
reserves from 1988 through 1998, and the subsequent changes in those reserves,
presented on a combined basis for the Company, MARC, and the U.S. Branch. (See
"Management's Discussion and Analysis of the Company's Results of Operation and
Financial Condition--Results of Operations--Year Ended December 31, 1997,
Compared with Year Ended December 31, 1996.") The following data is not accident
year data, but a display of 1988 through 1998 year-end reserves and the
subsequent changes in those reserves. For instance, the "Deficiency" shown in
the table for each year represents the aggregate amount by which original
estimates of reserves at that year-end have changed in subsequent years.
Accordingly, the cumulative deficiency for a year relates only to reserves at
that year-end and such amounts are not additive. For example, the initial
year-end 1988 reserves have developed a $606 million deficiency through December
31, 1998.

10
<PAGE>
CHANGES IN HISTORICAL RESERVES FOR UNPAID LOSSES AND LAE
FOR THE LAST TEN YEARS--GAAP BASIS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- --------- --------- --------- ---------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for unpaid
losses and LAE............ $ 2,936 $ 3,025 $ 3,203 $ 3,267 $ 3,254 $ 3,573 $ 3,922 $ 4,501 $ 4,849
Paid (cumulative) as of:
One year later.............. 821 634 811 864 739 889 1,076 1,124 1,295
Two years later............. 1,211 1,201 1,423 1,318 1,316 1,566 1,787 1,895 2,230
Three years later........... 1,604 1,700 1,755 1,667 1,791 2,058 2,303 2,517
Four years later............ 1,995 1,949 2,004 1,985 2,137 2,421 2,744
Five years later............ 2,179 2,131 2,243 2,252 2,414 2,748
Six years later............. 2,327 2,326 2,463 2,483 2,671
Seven years later........... 2,491 2,511 2,669 2,689
Eight years later........... 2,663 2,688 2,858
Nine years later............ 2,824 2,866
Ten years later............. 2,998

Net liability re-estimated
as of:
End of year................. $ 2,936 $ 3,025 $ 3,203 $ 3,267 $ 3,254 $ 3,573 $ 3,922 $ 4,501 $ 4,849
One year later.............. 3,012 3,073 3,258 3,194 3,317 3,640 4,369 4,512 4,920
Two years later............. 3,055 3,113 3,183 3,224 3,363 3,986 4,397 4,610 4,863
Three years later........... 3,107 3,048 3,216 3,244 3,666 4,017 4,347 4,555
Four years later............ 3,061 3,077 3,225 3,474 3,686 4,009 4,297
Five years later............ 3,086 3,087 3,472 3,493 3,705 3,986
Six years later............. 3,107 3,357 3,489 3,558 3,698
Seven years later........... 3,388 3,391 3,600 3,580
Eight years later........... 3,431 3,505 3,623
Nine years later............ 3,515 3,527
Ten years later............. 3,542

Deficiency.................. $ (606) $ (502) $ (420) $ (313) $ (444) $ (413) $ (375) $ (54) $ (14)

<S> <C> <C>
1997 1998
--------- ---------

<S> <C> <C>
Net liability for unpaid
losses and LAE............ $ 5,103 $ 5,065
Paid (cumulative) as of:
One year later.............. 1,509
Two years later.............
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
Net liability re-estimated
as of:
End of year................. $ 5,103 $ 5,065
One year later.............. 5,165
Two years later.............
Three years later...........
Four years later............
Five years later............
Six years later.............
Seven years later...........
Eight years later...........
Nine years later............
Ten years later.............
Deficiency.................. $ (62)
</TABLE>

<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gross liability--end of year..................................... $ 6,080 $ 7,039 $ 7,178 $ 7,469 $ 7,334
Reinsurance recoverables on unpaid losses........................ 2,158 2,538 2,329 2,366 2,269
--------- --------- --------- --------- ---------
Net liability--end of year....................................... 3,922 4,501 4,849 5,103 5,065

Gross re-estimated liability--latest............................. $ 6,363 $ 6,888 $ 7,134 $ 7,517
Re-estimated reinsurance recoverables on latest unpaid losses.... 2,066 2,333 2,271 2,352
--------- --------- --------- ---------
Net re-estimated liability--latest............................... 4,297 4,555 4,863 5,165

Gross cumulative redundancy (deficiency)......................... $ (283) $ 151 $ 44 $ (48)
</TABLE>

11
<PAGE>
The reconciliation between statutory basis and GAAP basis reserves for each
of the three years in the period ended December 31, 1998, is shown below:

RECONCILIATION OF RESERVES FOR UNPAID LOSSES AND LAE
FROM STATUTORY BASIS TO GAAP BASIS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Statutory reserves.......................................................... $ 5,064.7 $ 5,196.1 $ 3,129.5
Adjustments to GAAP basis(1)................................................ 0.2 (93.3) (27.1)
Reinsurance recoverables on unpaid losses................................... 2,269.2 2,366.5 1,775.1
---------- ---------- ----------
Reserves on GAAP basis...................................................... 7,334.1 7,469.3 4,877.5
Merger-related adjustment................................................... -- -- 2,300.8
---------- ---------- ----------
Reserves (restated)......................................................... $ 7,334.1 $ 7,469.3 $ 7,178.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

- ------------------------------

(1) Consists primarily of the application of risk transfer and retroactive
accounting rules of Financial Accounting Statement No. 113 ("FAS No. 113"),
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts", and the inclusion of Princeton Eagle West loss
reserves.

RECONCILIATION OF RESERVES FOR UNPAID LOSSES AND LAE
(GAAP BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Reserves at beginning of period............................................. $ 7,469.3 $ 7,178.3 $ 4,786.0
Reinsurance recoverables on unpaid losses................................... (2,366.5) (2,329.6) (1,941.4)
---------- ---------- ----------

Net reserves at beginning of period......................................... 5,102.8 4,848.7 2,844.6
Net incurred related to:
Current period............................................................ 1,620.4 1,642.1 1,167.7
Prior periods............................................................. 62.0 74.2 0.1
---------- ---------- ----------
Total net incurred.......................................................... 1,682.4 1,716.3 1,167.8
Net paid related to:
Current period............................................................ 207.2 167.5 89.5
Prior periods............................................................. 1,513.1 1,294.7 820.5
---------- ---------- ----------
Total net paid.............................................................. 1,720.3 1,462.2 910.0
---------- ---------- ----------

Net reserves at end of period............................................... 5,064.9 5,102.8 3,102.4
Merger-related adjustment(1).............................................. -- -- 1,746.3
---------- ---------- ----------
Net reserves at end of period............................................... 5,064.9 5,102.8 4,848.7

Reinsurance recoverables on unpaid losses................................... (2,269.2) (2,366.5) (1,775.1)
Merger-related adjustment(1).............................................. -- -- (554.5)
---------- ---------- ----------
Reinsurance recoverables on unpaid losses................................... (2,269.2) (2,366.5) (2,329.6)
---------- ---------- ----------

Reserves at end of year..................................................... $ 7,334.1 $ 7,469.3 $ 7,178.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

- ------------------------------

(1) 1996 Balance Sheet data has been restated to reflect the July 1997 Merger.
See "Management's Discussion and Analysis of the Company's Results of
Operation and Financial Condition--Results of Operations--Year Ended
December 31, 1997 Compared with Year Ended December 31, 1996."

12
<PAGE>
ASBESTOS, ENVIRONMENTAL-RELATED AND OTHER LATENT LIABILITY CLAIMS. Since
the early 1980s, American Re-Insurance's underwriting results have been
adversely affected by claims developing from asbestos, environmental and other
latent liabilities ("Latent Liability Exposures"). During this period, reserves
established by American Re-Insurance for Latent Liability Exposures necessarily
reflected the uncertainty inherent in estimating the ultimate future claim
amounts arising from these types of exposures and the lack of credible actuarial
methods to measure and quantify these exposures. The Company's difficulty in
accurately quantifying these exposures was attributable to the need for Latent
Liability Exposures to be first quantified by the insured party and then the
primary insurer before the information was made available to the reinsurer.

Travelers Property Casualty Corp. ("Travelers"), provides indemnification in
the form of an Adverse Loss Agreement (the "Cover") for adverse development of
losses and allocated loss adjustment expenses of $500.0 million representing an
80% pro rata share (American Re-Insurance retains the remaining 20%) of up to
$625.0 million of losses in excess of $2,700.0 million incurred on or prior to
December 31, 1991. At December 31, 1998, the reinsurance recoverable balance
from Travelers was $266.1 million; thus there is $233.9 million of limit
remaining to cover additional adverse loss development for losses incurred on or
prior to December 31, 1991. The Company anticipates that any additional adverse
loss development of losses incurred on or prior to December 31, 1991 would
likely be related to Latent Liability Exposures, although the Cover is not
limited to such types of losses.

The Company had Latent Liability Exposure Loss Reserves, prior to cession to
the Cover, at December 31, as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
GROSS NET GROSS NET
--------- --------- --------- ---------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Asbestos................................................................... $ 399.9 $ 258.5 $ 457.7 $ 297.1
Environmental-Related and Other Latent Liability........................... 237.3 150.1 327.9 218.6
--------- --------- --------- ---------
Total...................................................................... $ 637.2 $ 408.6 $ 785.6 $ 515.7
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

Latent Liability Exposure loss reserves at December 31, 1998 and 1997,
represent best estimates drawn from a range of possible outcomes based upon
currently known facts, projected forward for additional claimants using
assumptions and methodologies considered reasonable. Notwithstanding current
loss reserve levels and the remaining protection under the Cover, there can be
no assurance that future losses resulting from these exposures will not
materially adversely affect future earnings.

The following table presents three calendar years of development of losses
and LAE reserves associated with Latent Liability Exposures, including case and
IBNR reserves. The application of reinsurance recoveries to calculate net
incurred and net paid losses, and the reinsurance recoverables on unpaid losses,
are based on specific reinsurance contracts only, before the application of any
general adverse loss retrocessional coverage for 1992 and prior years, which are
not allocated to specific causative events.

13
<PAGE>
THREE YEAR DEVELOPMENT
ASBESTOS LIABILITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Gross Basis:
Beginning net reserve balance...................................................... $ 457.7 $ 499.8 $ 519.9
Incurred loss and LAE.............................................................. -- -- --
Loss and LAE paid.................................................................. 57.8 42.1 65.8
--------- --------- ---------
Ending reserve balance............................................................. 399.9 457.7 454.1
Merger-related adjustment........................................................ -- -- 45.7
--------- --------- ---------
Ending reserve balance............................................................. $ 399.9 $ 457.7 $ 499.8
--------- --------- ---------
--------- --------- ---------
Net Basis:
Beginning net reserve balance...................................................... $ 297.1 $ 326.6 $ 328.5
Incurred loss and LAE.............................................................. -- -- --
Loss and LAE paid.................................................................. 38.6 29.5 37.2
--------- --------- ---------
Ending reserve balance............................................................. 258.5 297.1 291.3
Merger-related adjustment........................................................ -- -- 35.3
--------- --------- ---------
Ending reserve balance............................................................. $ 258.5 $ 297.1 $ 326.6
--------- --------- ---------
--------- --------- ---------
</TABLE>

ENVIRONMENTAL-RELATED AND
OTHER LATENT LIABILITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Gross Basis:
Beginning net reserve balance...................................................... $ 327.9 $ 391.6 $ 427.2
Incurred loss and LAE.............................................................. -- -- --
Loss and LAE paid.................................................................. 90.6 63.7 91.2
--------- --------- ---------
Ending reserve balance............................................................. 237.3 327.9 336.0
Merger-related adjustment........................................................ -- -- 55.6
--------- --------- ---------
Ending reserve balance............................................................. $ 237.3 $ 327.9 $ 391.6
--------- --------- ---------
--------- --------- ---------
Net Basis:
Beginning net reserve balance...................................................... $ 218.6 $ 273.9 $ 282.6
Incurred loss and LAE.............................................................. -- -- --
Loss and LAE paid.................................................................. 68.5 55.3 50.7
--------- --------- ---------
Ending reserve balance............................................................. 150.1 218.6 231.9
Merger-related adjustment........................................................ -- -- 42.0
--------- --------- ---------
Ending reserve balance............................................................. $ 150.1 $ 218.6 $ 273.9
--------- --------- ---------
--------- --------- ---------
</TABLE>

14
<PAGE>
In managing its business, the Company actively monitors all of its accounts,
both ongoing or terminated. As a part of this activity, attempts are made to
reduce its administrative and legal costs by commuting (buying out) certain
accounts. Since 1985, several major commutations have been negotiated, whereby
certain reinsurance contracts were terminated and American Re-Insurance was
discharged from all future liability in exchange for a payment of cash to the
primary insurer. Existing liabilities associated with these contracts were
consequently removed from American Re-Insurance's balance sheet. The potential
ultimate losses which were removed as a result of commutations attributable to
potential latent exposure liabilities cannot be determined and are not included
in the above development table. The Company pursues opportunities to commute
contracts with potential Latent Liability Exposures to the extent feasible.

CLAIMS

Specific claims are reviewed and monitored by the Claims Division. The
Claims Division is centralized in the home office. Claims are also handled
regionally by various claims personnel in certain domestic and international
offices, namely Chicago, Columbus, New York, and San Francisco (domestically)
and Brussels, Santiago, Sydney, and Toronto (internationally). Claims
administration includes reviewing initial loss reports, monitoring claims
handling activities of clients, requesting additional information where
appropriate, recommending proper reinsurance case reserves and approving payment
of individual claims. In addition to reviewing claims and discussing claims
issues with ceding companies, the Claims Division conducts periodic reviews of
both specific claims and overall claims handling procedures at the offices of
client companies. The Company relies upon its ability to monitor effectively the
claims handling and claims reserving practices of ceding companies in order to
establish the proper reinsurance premium for reinsurance agreements and to
establish proper loss reserves. See also "--Reinsurance/Insurance Underwriting."

RISK MANAGEMENT AND RETROCESSION ARRANGEMENTS

The Company purchases reinsurance to manage its own risk exposures. The
insurance or indemnification of reinsurance is called a retrocession, and a
reinsurer of a reinsurer is called a retrocessionaire. Reinsurance companies
enter into retrocessional agreements for reasons similar to those that cause
primary insurers to purchase reinsurance, namely to reduce net liability on
individual risks, to protect against catastrophic losses, to stabilize their
financial ratios and to obtain additional underwriting capacity. Generally,
retrocessional agreements are contracts that are renewable on an annual basis,
but that may be terminated by either party upon notice stated in the agreement.
A retrocessionaire that does not renew a retrocession with a reinsurer is not
discharged from existing liabilities to the reinsurer under the contract. A
retrocession does not discharge a reinsurer from liability to its clients.

The retrocessional coverages purchased by the Company include (i) routine
coverage for its property and casualty business, (ii) property and casualty
clash coverage for potential accumulation of liability in its casualty business
from treaties and facultative agreements covering losses arising from the same
event or occurrence, (iii) catastrophe retrocessions for its property business,
(iv) quota share treaties that enhance underwriting capacity, and (v) stop loss
protection (excess of loss reinsurance that indemnifies the company against
losses that exceed a specific retention).

The Company records an uncollectible reserve when it believes that it is
probable that it will not be able to collect a receivable from a
retrocessionaire. At December 31, 1998 the Company maintained a reserve for
uncollectible reinsurance and premiums and other receivables of $79.6 million.

The Company adheres to specified limits on the amount of exposure to single
risks that it will accept and purchases retrocessions to reduce its per risk
exposure. Generally, for treaty and facultative casualty, the per risk limit
accepted is $10.0 million, on selected cases up to $25.0 million, with capacity
to $50.0 million. For property business, the per risk limit accepted for treaty
business is $10.0 million and on

15
<PAGE>
selected cases up to $41.0 million and for facultative business is $10.0 million
and on selected cases up to $166.0 million. After retrocessions, for casualty
business, $10.0 million net is retained per treaty risk, but can expand to $15.0
million on a selected basis, and up to $6.5 million net per risk for
facultative. After retrocessions, and prior to co-participation, if any, for its
property business, $10.0 million net is generally retained per risk for treaty
and up to $10.0 million net per risk for facultative. The Company will consider
expanding both its maximum per risk acceptance, and its net retentions for both
property and casualty business, on a selected basis, dependent upon a specific
client's needs.

Currently, the Company maintains retrocessional coverage for property and
casualty clash events for treaty and facultative business, where treaty or
facultative agreements are exposed to a loss from two or more products and/or
reinsureds involved in a common occurrence. For property business, losses
resulting from non-perils, treaty and facultative agreements are covered in
excess of $15.0 million each and every occurrence. For casualty business, treaty
and facultative agreements are covered in excess of $10.0 million each and every
occurrence.

The Company purchases catastrophe retrocessions for both its treaty and
facultative property business. Property catastrophe retrocessions cover the
potential accumulation of all property exposures that may be involved in the
same catastrophe, such as an earthquake or hurricane. Catastrophe retrocessions
provide $400.0 million of coverage, for a catastrophic event in excess of $100.0
million of retained losses. The $400.0 million of retrocessional coverage is
reduced by two factors: (i) a reduction of $14.0 million, due to shortfalls in
the placement of the retrocessional program; and (ii) co-participation of $0.3
million by the Company, which is customary in the industry. Thus, prior to any
cession to accident year stop loss covers, the Company retains $114.3 million of
the first $500 million of any single catastrophe loss as well as any loss above
that amount. Upon payment of additional premiums, the coverage may be reinstated
for additional events.

Historically, the Company believes that it has minimized the credit risk
with respect to its retrocessions by monitoring its retrocessionaires,
diversifying its retrocessions and collateralizing obligations from foreign
retrocessionaires. Potential deterioration of the financial condition of
retrocessional markets is carefully monitored and appropriate actions are taken
to eliminate or minimize exposures.

As of December 31, 1998, the reinsurance/insurance subsidiaries had in place
retrocessional arrangements with approximately 785 retrocessionaires, and
$2,343.1 million of accrued retrocessional recoverables on paid and unpaid
losses and LAE (including IBNR). In structuring their retrocessional programs,
the reinsurance/insurance subsidiaries have placements with certain
retrocessionaires that result in sizable reinsurance recoverable obligations to
the reinsurance/insurance subsidiaries. Certain select retrocessionaires
participate in many of the reinsurance/insurance subsidiaries' retrocessional
coverages including quota share, working layer excess of loss, catastrophe, and
stop loss programs as well as specific cessions of assumed business. Cessions of
significant amounts to a single retrocessionaire are contemplated only when
excellent financial strength and/or the ability to collateralize obligations are
clearly demonstrated. As of December 31, 1998, a total of $550.5 million of
accrued retrocessional recoverables on paid and unpaid losses (23.5% of total
retrocessional recoverables) were attributable to National Indemnity Company
(which had an A.M. Best rating of "A++ (Superior)" at December 31, 1998). Except
as described above, recoverable amounts attributable to any one or related
groups of retrocessionaires did not in the aggregate exceed 10% of the
reinsurance/insurance subsidiaries' statutory surplus.

COMPETITION

The property and casualty reinsurance business is highly competitive.
Competition with respect to the types of reinsurance in which the Company is
engaged is based on many factors, including the perceived overall financial
strength of the reinsurer, ratings of the reinsurer, underwriting expertise,
premiums charged, contract terms and conditions, services offered, speed of
claims payment, reputation and experience. The Company competes in the United
States and international reinsurance markets with

16
<PAGE>
independent reinsurance companies, subsidiaries or affiliates of established
worldwide insurance companies, reinsurance departments of primary insurance
companies and underwriting syndicates from the United States and abroad, some of
which have greater financial resources than the Company. The Company also
competes with providers of alternative forms of risk transfer, such as
investment banks which offer capital market mechanisms for primary insurers and
reinsurers to transfer insurance risks directly to investors.

EMPLOYEES

At December 31, 1998, the Company and its subsidiaries employed a total of
approximately 1,532 persons. None of these employees are represented by a labor
union and the Company believes that its employee relations are good.

No employees of the Company receive commissions or similar compensation
based on volume. There are no minimum volume production requirements.

REGULATORY MATTERS

The Company is subject to regulation under the insurance statutes, including
insurance holding company statutes, of various states, including Delaware, the
domiciliary state of American Re-Insurance and American Alternative.

GENERAL. U.S. domestic property and casualty insurers, including
reinsurers, are subject to regulation by their states of domicile and by those
states in which they are licensed. The rates and policy terms of primary
insurance policies and agreements generally are closely regulated by state
insurance departments. Unlike many primary insurance policies, the terms and
conditions of reinsurance agreements generally are not subject to regulation by
any governmental authority with respect to rates or policy terms. As a practical
matter, however, the rates charged by primary insurers do have an effect on the
rates that can be charged by reinsurers.

AMERICAN RE-INSURANCE. The regulation and supervision to which reinsurance
is subject relate primarily to licensing requirements of reinsurers, the
standards of solvency that must be met and maintained, the nature of and
limitations on investments, restrictions on the size of risks which may be
insured, deposits of securities for the benefit of ceding companies, methods of
accounting, periodic examinations of the financial condition and affairs of
reinsurers, the form and content of financial statements required to be filed
with state insurance regulators, and reserves for unearned premiums, losses and
other purposes. In general, such regulation is for the protection of the ceding
companies and ultimately, their policyholders, rather than security holders. The
Company's management believes that American Re-Insurance is in material
compliance with all applicable laws and regulations pertaining to its business
and operations.

AMERICAN ALTERNATIVE. In order to write primary insurance business
primarily for the alternative market, American Alternative must comply with
substantial regulatory requirements in each state where it does business. In
addition to the rate and policy form requirements mentioned above, depending
upon the nature of the primary business being written and the production sources
for the business, these regulatory requirements include, but are not limited to,
requirements with regard to licensing, the producer distribution system, the
rate and policy form filing process, participation in residual markets, and
claims handling procedures. This regulation is primarily designed for the
protection of policyholders. The Company's management believes that American
Alternative is in material compliance with all applicable laws and regulations
pertaining to its business and operations.

LICENSES. American Re-Insurance is licensed to transact insurance or
reinsurance business in all fifty states, the District of Columbia, Puerto Rico,
Canada (including the provinces of Ontario and Quebec), Australia, Singapore and
the United Kingdom. American Re-Insurance Company (Chile) S.A. is a licensed

17
<PAGE>
reinsurer in Chile. In addition, American Re-Insurance and/or one or more of its
affiliates is licensed or registered to transact non-insurance business in
Argentina, Australia, Belgium, Bermuda, Bolivia, Canada, Chile, China, Columbia,
Ecuador, Egypt, Japan, Mauritius, Mexico, New Zealand, Paraguay, Peru,
Singapore, South Africa, the United Kingdom, Uruguay and Venezuela.

American Alternative is licensed to transact insurance or reinsurance
business in all fifty states and the District of Columbia.

The Company's subsidiaries also maintain necessary licenses for their
reinsurance intermediary and other operations.

INVESTMENT LIMITATIONS. The Insurance Code of Delaware contains rules
governing the types and amounts of investments that are permissible for the
reinsurance/insurance subsidiaries. These rules are designed to ensure the
safety and liquidity of the insurer's investment portfolio.

In general, these rules only permit insurers to purchase investments that
are interest bearing, interest accruing, entitled to dividends or otherwise
income earning and not then in default in any respect, and the insurer must be
entitled to receive for its exclusive account and benefit the interest or income
accruing thereon. No security or investment is eligible for purchase at a price
above its fair value or market value. In addition, these rules require
investments to be diversified.

Subject to the restrictions described above, insurers generally may only
invest in certain types of investments, including certain U.S., state and
municipal government obligations, secured and unsecured debt instruments and
preferred and common stocks of solvent U.S. and certain foreign corporations
(including insurers), limited partnership interests, insured savings accounts,
collaterized mortgage obligations and real estate. In addition to specifically
permitted types of investments, insurers generally may make other loans or
investments in an aggregate amount not exceeding a fixed percentage of their
assets, provided that any such loan or investment is not expressly prohibited
under the Insurance Code.

American Re-Insurance and American Alternative are prohibited from investing
in securities issued by any corporation or enterprise the controlling interest
of which is, or after such investment will be, held directly or indirectly by or
for the benefit of their directors or officers.

TRIENNIAL EXAMINATIONS. The Delaware Insurance Department conducts
examinations of domiciled insurers and reinsurers every three years, and may do
so at such other times as are deemed advisable by the Insurance Commissioner of
Delaware.

INSURANCE REGULATORY INFORMATION SYSTEM RATIOS. The National Association of
Insurance Commissioners (the "NAIC") annually calculates 12 financial ratios to
assist state insurance departments in monitoring the financial condition of
insurance companies. Results are compared against a "usual range" of results for
each ratio, established by the NAIC. Although American Re-Insurance has not
received the official IRIS test results for 1998, American Re-Insurance believes
that no 1998 test results are outside of the usual range of results for each
test. In 1998, American Alternative had one ratio outside of the usual range:
the change in net writings ratio exceeded the ceiling ratio value of 33%; the
1998 ratio result of 101% is attributable to expanded writings as the company
continues to grow.

RISK BASED CAPITAL. The NAIC has adopted a risk based capital standard for
property and casualty insurance (and reinsurance) companies. American
Re-Insurance included in its 1998 annual statement filing with the Insurance
Department of the State of Delaware a risk based capital adjusted surplus to
policyholders of $2,278.3 million, well in excess of the authorized control
level risk based capital total of $671.3 million. American Alternative included
in its 1998 annual statement filing with the Insurance Department of the State
of Delaware an adjusted surplus to policyholders of $109.7 million, well in
excess of the authorized control level risk based capital total of $5.8 million.

18
<PAGE>
INSURANCE HOLDING COMPANY REGULATIONS. The insurance holding company laws
and regulations vary from state to state, but generally require an insurance
holding company to register with the state regulatory authorities and file
certain reports that include current information concerning the capital
structure, ownership, management, financial condition and general business
operations of the insurance holding company and its subsidiary insurers which
are licensed in the state. State holding company laws and regulations with
respect to domestic insurers also require prior notice or regulatory approval of
changes in control of an insurer or its holding company and of material
inter-affiliate transactions within the holding company structure. See
"--Dividends."

DIVIDENDS

Because the operations of the Company are conducted primarily through its
reinsurance/insurance subsidiaries, the Company is dependent upon dividends and
tax allocation payments primarily from American Re-Insurance to meet its debt
and other obligations and to pay dividends in the future if the Company's Board
of Directors so determines. The payment of dividends to the Company by American
Re-Insurance and American Alternative is subject to limitations imposed by the
Delaware Insurance Code.

Under the Delaware Insurance Code, no Delaware insurer may pay any (i)
dividend or distribution without 10 days' prior notice to the Delaware Insurance
Department or (ii) "extraordinary" dividend or distribution until (a) 30 days
after the Delaware Insurance Commissioner has received notice of the declaration
thereof and has not within such period disapproved such payment or (b) the
Delaware Insurance Commissioner has approved such payment within the 30-day
period. Under the Delaware Insurance code, an "extraordinary" dividend for a
property and casualty insurer is a dividend, the amount of which, when taken
together with all other dividends made in the preceding twelve months, exceeds
the greater of (i) 10% of an insurer's statutory surplus as of the end of the
prior calendar year or (ii) the insurer's statutory net income, not including
realized capital gains, for the prior calendar year. Under this definition, as
of December 31, 1998 the maximum amount available for the payment of dividends
by American Re-Insurance during 1999 without prior approval of regulatory
authorities will be $260.8 million. There can be no assurance that these
dividend restrictions will not be amended in the future or, if amended, that
they will not have a material adverse effect on the Company.

LEGISLATIVE AND REGULATORY PROPOSALS

From time to time, various regulatory and legislative changes have been
proposed in the insurance and reinsurance industry, which may have an effect on
reinsurers. Some states have adopted, or are considering adopting laws,
regulations and administrative practices which, among other things, may limit
the ability of primary insurance companies to effect premium rate increases or
to cancel or not renew existing policies. Additionally, a number of states are
considering insurance company liquidation procedures that may significantly
increase and accelerate the payment of reinsurance obligations, or otherwise
alter contractual rights of reinsurers. There can be no assurance that any of
these laws or regulations will not be adopted in additional states or, if
adopted, that they will not have a material adverse effect on the Company.

19
<PAGE>
ITEM 2. PROPERTIES

The Company owns approximately 424,000 square feet of space in four
contiguous executive office properties in Princeton, New Jersey, on land owned
by Princeton University and subject to long-term ground leases. The Company also
owns properties for its foreign subsidiaries and representative offices totaling
18,545 square feet in Mexico City, Cairo, Santiago, Bogota and Buenos Aires.

The Company also rents office space totaling approximately 355,000 square
feet in Atlanta, Boston, Burlington (VT), Chicago, Columbus (OH), Dallas,
Denver, Florham Park (NJ), Hartford, Honolulu, Kansas City (KS), Los Angeles,
Minneapolis, New York, Philadelphia, San Francisco, Seattle, Woodland Hills
(CA), Beijing, Bermuda, Brussels, London, Melbourne, Montreal, Singapore,
Sydney, Tokyo, and Toronto.

The Company believes that its office space is adequate for its current needs
and will enter into new leases to meet future needs as such needs arise and as
general market conditions permit.

The Company has invested significant amounts in computer resources,
including electronic data processing equipment and the development of
proprietary software to support its business. As part of the Company's disaster
control strategy, all key data is backed up regularly for off site storage.

ITEM 3. LEGAL PROCEEDINGS.

In addition to claim-related litigation arising in the ordinary course of
its reinsurance and insurance businesses, the Company is involved in non-claim
litigation and adversarial proceedings incidental to its business principally
related to insurance company insolvencies or liquidation proceedings.

Based upon its familiarity with or review and analysis of such matters, the
Company believes that none of the pending litigation matters, individually or in
the aggregate, will have a material adverse effect on the consolidated financial
statements of the Company. However, no assurance can be given as to the ultimate
outcome of any such litigation matters.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS

None.

20
<PAGE>
PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) There is no established public trading market for the Company's common
equity securities.

(b) 93.06% of the Company's Common Stock is owned by Munich Re and 6.94% is
owned by Allianz Aktiengesellschaft ("Allianz").

(c) It is the Company's understanding that Munich Re intends to further
strengthen the capital position of the Company by allowing net income to be
retained; therefore, at this time no cash dividends on the Common Stock are
anticipated. The dividend capacity of the reinsurance/insurance subsidiaries is
discussed in Part I, Item 1, "Business--Dividends."

ITEM 6. SELECTED FINANCIAL INFORMATION OF THE COMPANY

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
OPERATING DATA:
Net premiums written.................................. $ 2,406.8 $ 2,497.7 $ 1,902.4 $ 1,629.5 $ 1,553.3
Net premiums earned................................... 2,418.9 2,486.1 1,796.7 1,530.9 1,461.4
Losses and LAE (2).................................... 1,682.4 1,716.3 1,167.8 1,340.2 1,011.0
Underwriting expenses................................. 816.4 838.4 533.5 452.4 439.3
Underwriting gain (loss).............................. (79.9) (68.6) 95.4 (261.7) 11.1
Net investment income................................. 417.5 427.5 248.2 222.6 188.7
Net realized capital gains (losses)................... 92.8 87.7 4.8 4.7 (0.2)
Interest expense...................................... 42.2 42.8 54.1 60.7 60.0
Income (loss) before income taxes..................... 321.5 224.3 232.6 (159.5) 120.7
Income taxes (benefits)............................... 82.4 (3.4) 73.8 (76.6) 23.2
Income (loss) before minority interest, distributions
on preferred securities of subsidiary trust,
extraordinary loss.................................. 239.1 227.7 158.8 (82.9) 97.5
Minority interest..................................... -- 6.8 -- -- --
Distributions on preferred securities of subsidiary
trust............................................... (13.1) (13.1) (13.1) (4.4) --
Income (loss) before extraordinary loss............... 226.0 221.4 145.7 (87.3) 97.5
Extraordinary loss, net of applicable income tax
effect.............................................. -- -- (34.0) (0.3) --
Net income (loss) available to common shareholders.... 226.0 221.4 111.7 (87.6) 97.5
OTHER GAAP OPERATING DATA (3):
Loss and LAE ratio.................................... 69.6% 69.0% 65.0% 87.5% 69.2%
Underwriting expense ratio............................ 33.7 33.8 29.7 29.6 30.0
--------- --------- --------- --------- ---------
Combined ratio........................................ 103.3% 102.8% 94.7% 117.1% 99.2%
STATUTORY DATA (1) (4):
Ratio of net premiums written to surplus.............. 0.87x 1.07x 1.21x 1.23x 1.26x
Policyholders' surplus................................ $ 2,631.1 $ 2,323.4 $ 2,178.1 $ 1,892.8 $ 1,753.7
Loss and LAE ratio.................................... 68.2% 68.8% 67.5% 83.5% 75.2%
Underwriting expense ratio............................ 35.5 35.1 31.0 32.1 32.6
--------- --------- --------- --------- ---------
Combined ratio........................................ 103.7% 103.9% 98.5% 115.6% 107.8%
</TABLE>

21
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1) (AT END OF PERIOD):
Total investments and cash............................ $ 7,801.3 $ 7,673.4 $ 7,007.3 $ 3,957.5 $ 3,308.9
Total assets.......................................... 13,544.0 13,216.9 12,114.7 7,804.8 6,677.9
Loss and LAE reserves................................. 7,334.1 7,469.3 7,178.3 4,786.0 3,971.9
Senior bank debt...................................... 75.0 75.0 75.0 75.0 200.0
Senior notes.......................................... 498.5 498.5 498.4 -- --
Senior subordinated debt.............................. -- -- -- 450.0 450.0
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding as all its
assets Junior Subordinated Debentures............... 237.5 237.5 237.5 237.5 --
Stockholders' equity.................................. $ 2,853.1 $ 2,586.4 $ 1,792.5 $ 847.1 $ 789.2
</TABLE>

- ------------------------

(1) 1996 balance sheet data and statutory data for all years prior have been
restated to reflect the July 1997 Merger. See "Management's Discussion and
Analysis of the Company's Results of Operations and Financial Condition."

(2) "LAE" means loss adjustment expenses.

(3) GAAP loss and LAE ratio represents the sum of losses and LAE as a percentage
of net premiums earned. GAAP underwriting expense ratio represents
underwriting expenses as a percentage of net premiums earned. GAAP combined
ratio represents the sum of the GAAP loss and LAE ratio and GAAP
underwriting expense ratio. See "Management's Discussion and Analysis of the
Company's Results of Operations and Financial Condition."

(4) Represents statutory data for the applicable period. Ratio of net premiums
written to surplus represents statutory net premiums written for the period
over statutory policyholders' surplus at the end of such period. Statutory
loss and LAE ratio represents the sum of statutory losses and LAE as a
percentage of statutory net premiums earned. Statutory underwriting expense
ratio represents statutory underwriting expenses as a percentage of
statutory net premiums written. Statutory combined ratio represents the sum
of the statutory loss and LAE ratio and the statutory underwriting expense
ratio. See "Management's Discussion and Analysis of the Company's Results of
Operations and Financial Condition."

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S RESULTS OF
OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997

The Company's net premiums written decreased 3.6% to $2,406.8 million for
the year ended December 31, 1998, from $2,497.7 million in 1997. The decrease in
net premiums written was generally attributable to what the Company perceives to
be depressed market conditions, increases in client retentions and the Company's
declining to write business at prices it considered inadequate. As a result, the
Company experienced a 12.0% decrease in treaty net premiums written to $1,588.8
million for the year ended December 31, 1998, from $1,806.0 million for the same
period in 1997. The decrease in treaty premiums was primarily attributable to
declines in traditional and finite risk treaty business written by DICO, which
decreased 19.9% to $1,044.1 million for the year ended December 31, 1998, from
$1,304.1 million for the same period in 1997. The decrease in DICO was primarily
attributable to the non-renewal of and decreases in the amounts ceded to
American Re-Insurance under several traditional and finite risk treaty programs,
which were related in several instances to mergers of clients. In addition, the
1997 period included a rescission of a large retrocession which increased that
period's net writings. The decrease in DICO was partially offset by an increase
in treaty premiums written by RiskPartners (formerly known as Am-Re Managers,
Inc.), of 32.2% to $127.4 million for the year ended December 31, 1998, from
$96.4 million for the same period in 1997, and by the Company's International
Operations, of 2.9% to $417.3 million for the year ended December 31, 1998, from
$405.5 million for the same period in 1997.

22
<PAGE>
Facultative net premiums written increased 18.3% to $818.0 million for the
year ended December 31, 1998, from $691.7 million for the same period in 1997.
This increase is primarily attributable to increased program business from
RiskPartners, which increased 74.2% to $309.1 million for the year ended
December 31, 1998, from $177.4 million for the same period in 1997, and the
Company's International Operations, which increase 27.2% to $35.1 million for
the same period in 1997. The increases in RiskPartners and International
Operations were offset by a 2.7% decrease in facultative net premiums written by
DICO, to $473.8 million for the year ended December 31, 1998, from $486.7
million for the same period in 1997.

The Company's net premiums earned decreased 2.7% to $2,418.9 million for the
year ended December 31, 1998, from $2,486.1 million in 1997. The decrease in
premiums earned was primarily attributable to the decrease in net premiums
written, partially offset by the timing of premiums earned on business in force.

Net losses and LAE incurred decreased 2.0% to $1,682.4 million for the year
ended December 31, 1998, from $1,716.3 million in 1997. The Company attributes
this decrease primarily to the reduction in net premiums earned, partially
offset by an increase in catastrophe losses in 1998. The Company incurred $65.5
million of catastrophe losses during the year ended December 31, 1998. There
were no significant catastrophe losses in the 1997 period.

Underwriting expense, consisting of commission expense plus operating
expense, decreased 2.6% to $816.4 million for the year ended December 31, 1998,
from $838.4 million in 1997. This decrease included a 6.3% decrease in
commission expense to $584.3 million for the year ended December 31, 1998 from
$623.5 million in 1997. This decrease was partially due to the decrease in
premiums earned during the year ended December 31, 1998, in addition to the
non-renewal or decreases of several large domestic quota share treaties in the
1998 period with high commission ratios. Operating expenses increased 8.0% to
$232.1 million for the year ended December 31, 1998 from $214.9 million in 1997.
This increase is primarily the result of increased overhead costs, including
expenditures for technological and process improvements.

The Company experienced an underwriting loss (net premiums earned minus
losses and LAE incurred and underwriting expenses) of $79.9 million for the year
ended December 31, 1998, compared to an underwriting loss of $68.6 million in
1997. The Company's loss ratio increased to 69.6% for the year ended December
31, 1998 from 69.0% in 1997, while the underwriting expense ratio decreased to
33.7% in 1998 from 33.8% in 1997. The combined ratio for the year ended December
31, 1998, increased to 103.3% from 102.8% in 1997.

Pre-tax net investment income decreased 2.3% to $417.5 million for the year
ended December 31, 1998, from $427.5 million in 1997. This decrease was
primarily attributable to repositioning the Company's investment portfolio into
tax-exempt securities, in addition to overall lower interest rates in the 1998
period, as compared to the 1997 period. The Company's after-tax net investment
income increased 1.4% to $305.3 million for the year ended December 31, 1998,
from $301.2 million in 1997.

The Company realized net capital gains of $92.8 million for the year ended
December 31, 1998, compared to net capital gains of $87.7 million in 1997. This
increase was primarily due to the Company's investment strategy, which included
sales of taxable investments, as the Company repositioned its investment
portfolio to include a larger portion of tax-exempt securities. The 1998 period
included net capital gains of $103.0 million on the sale of bonds and $5.0
million on the sale of common stock, offset by a $15.7 million write-down of
common stock and other invested asset holdings, as the decline in fair value of
these securities is considered to be other than temporary. The 1997 period
included capital gains of $67.9 million on the sale of common stocks and $26.2
million on the sale of bonds. The net gains realized in the 1997 period were
based on investment management and tax planning considerations.

23
<PAGE>
Other income decreased 23.7% to $31.8 million for the year ended December
31, 1998, from $41.7 million in 1997. The decrease was primarily attributable to
a decrease in fee subsidiary revenue of $8.8 million. Other expenses decreased
to $98.5 million for the year ended December 31, 1998 from $221.2 million in
1997. This decrease was primarily attributable to the inclusion of one-time
charges of $124.3 million, primarily related to the Merger, in the 1997 period.

Income before income taxes, minority interest, distributions on preferred
securities of subsidiary trust and extraordinary loss increased 43.3% to $321.5
million for the year ended December 31, 1998, compared to $224.3 million in
1997.

Federal and foreign income tax expense was $82.4 million for the year ended
December 31, 1998, compared to a tax benefit of $3.4 million in 1997. The
increase in Federal and foreign taxes was primarily attributable to higher
pre-tax income in the 1998 period, in addition to the recognition of $62.1
million of income tax benefits in 1997, representing net operating loss
carry-forwards and the reversal of a deferred federal income tax asset valuation
allowance associated with the U.S. Branch's reserve discount in the 1997 period,
which reduced the corresponding federal income tax expense.

The Company recognized an after-tax charge of $13.1 million for each of the
years ended December 31, 1998 and 1997, representing the Company's minority
interest in the earnings of American Re Capital, a single-purpose wholly owned
subsidiary trust. The charge is due to the distributions incurred by American Re
Capital on the Cumulative Quarterly Income Preferred Securities ("QUIPS").

Net income to common stockholders was $226.0 million for the year ended
December 31, 1998 compared to net income of $221.4 million in 1997.

YEAR ENDED DECEMBER 31, 1997, COMPARED WITH YEAR ENDED DECEMBER 31, 1996

On July 1, 1997, American Re and Munich Re completed the Merger. Prior to
this transaction, MARC was owned 27.5% by Munich Re, 22.5% by the U.S. Branch,
40% by Allianz, and 10% by VICTORIA Versicherung AG ("VICTORIA"). This
transaction was effected by exchanging 100% of the common shares of MARC for
newly issued shares of the Company. On July 2, 1997, the U.S. Branch exchanged
its newly acquired shares of the Company with Munich Re for cash in the amount
of $85.0 million. This amount approximated the statutory accounting value of the
U.S. Branch's ownership in MARC at the time of the Merger. On July 3, 1997,
Munich Re contributed the insurance-related assets and liabilities of the U.S.
Branch to American Re-Insurance in exchange for additional shares of the
Company.

The exchange of MARC shares for American Re shares by Allianz and VICTORIA
(totaling 50% of MARC's ownership) was accounted for using the purchase method
for business combinations. The exchange of MARC shares for the Company's shares
by Munich (the remaining 50% of MARC's ownership) was accounted for as an
"as-if-pooling of interests" business combination between parties under common
control of the same parent company, Munich Re. The exchange of the insurance
assets and liabilities of the U.S. Branch for the Company's shares was also
accounted for as an "as-if-pooling of interests" business combination between
parties under common control. Common control for American Re, MARC and the U.S.
Branch was considered effective at December 31, 1996. As such, the Company's
December 31, 1996, balance sheet and related footnote disclosures as originally
filed in its 1996 Form 10-K have been restated to reflect a 50% ownership by
Munich Re of MARC, a 50% minority interest in the ownership of MARC by Allianz
and VICTORIA, and a 100% ownership of the U.S. Branch.

As common control was considered effective at December 31, 1996, the
Company's consolidated statements of income and cash flows for the year ended
December 31, 1996, have not been restated. The Company's consolidated statements
of income and cash flows for the year ended December 31, 1997, represent the
fully consolidated operations of American Re, MARC, and the U.S. Branch for the
period then ended, with 50% of MARC's net loss for the six-month period ended
June 30, 1997, accounted for as minority interest. As a result, significant
variances exist when comparing the results of operations for the

24
<PAGE>
year ended December 31, 1997, with the same period in 1996. Accordingly,
selected financial results have been presented below on a pro forma basis for
the year ended December 31, 1996, as if the merger transactions which took place
in July 1997 had occurred on January 1, 1996. Pro forma adjustments to reflect
such transactions have been applied to the respective historical income
statements of the Company.

The pro forma consolidated data does not purport to represent what the
Company's financial position or results would have been had the Merger in fact
occurred on the dates indicated above, or to project the Company's financial
position or results of operations for any future dates or periods. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable in the circumstances.

25
<PAGE>

<TABLE>
<CAPTION>
ACTUAL PRO FORMA
1997 1996 VARIANCE
--------- ----------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Premiums written...................................................... $ 2,497.7 $ 2,621.2 $ (123.5) (4.7)%
Change in unearned premium reserve.................................... (11.6) (127.1 ) 115.5 (90.9)
--------- ----------- --------- ---------
Premiums earned..................................................... 2,486.1 2,494.1 (8.0) (0.3)
Net investment income................................................. 427.5 392.2 35.3 9.0
Net realized capital gains............................................ 87.7 27.8 59.9 N/M
Other income.......................................................... 41.7 47.9 (6.2) (12.9)
--------- ----------- --------- ---------
Total revenue....................................................... 3,043.0 2,962.0 81.0 2.7
--------- ----------- --------- ---------
Losses and expenses:
Losses and loss adjustment expenses................................... 1,716.3 1,675.1 41.2 2.5
Commission expense.................................................... 623.5 565.7 57.8 10.2
Operating expense..................................................... 214.9 182.4 32.5 17.8
Interest expense...................................................... 42.8 54.1 (11.3) (20.9)
Other expense......................................................... 221.2 113.8 107.4 94.4
--------- ----------- --------- ---------
Total losses and expenses........................................... 2,818.7 2,591.1 227.6 8.8
--------- ----------- --------- ---------
Income before income taxes, minority interest, distributions on
preferred securities of subsidiary trust and extraordinary loss... $ 224.3 $ 370.9 $ (146.6) (39.5)%
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>

The Company's net premiums written increased 31.3% to $2,497.7 million for
the year ended December 31, 1997, from $1,902.4 million in 1996. On a pro forma
basis, 1996 net premiums written for the period were $2,621.2 million, resulting
in a decrease of 4.7%. The pro forma decrease in net premiums written was
attributable to a 15.7% decrease in facultative net premiums written to $691.7
million for the year ended December 31, 1997, from $820.7 million in 1996,
offset slightly by a 0.3% increase in treaty net premiums written to $1,806.0
million for 1997 from $1,800.5 million in 1996.

The decrease in facultative premiums was attributable to decreases of $107.0
million or 18.0% in DICO, $11.2 million or 5.9% in RiskPartners, and $10.8
million or 28.1% in the Company's International Operations. These decreases
generally were the result of what the Company perceives to be deteriorating
market conditions in the facultative market in the 1997 period, which include
depressed reinsurance prices and premiums, lower renewal retention ratios on
existing business, increased net retentions by primary companies, and new
entrants into the facultative market.

The increase in treaty net premiums written for the year ended December 31,
1997, from the same period in 1996 on a pro forma basis, was primarily
attributable to an increase in DICO of $46.4 million or 3.7% offset by decreases
in International Operations of $37.8 million or 8.5%, and RiskPartners of $3.1
million or 3.1%. The slight growth in treaty premiums also was attributable to
what the Company perceives as deteriorating market conditions, which include
decreased pricing on the primary insurance company level, primary companies
increasing net retentions on excess of loss business as a result of surplus
growth, and conversion of certain reinsurance programs from a pro rata to an
excess of loss basis, which generally result in a reduction of reinsurance
premiums. The decrease in International Operations' net premium written was
primarily due to the assumption or renewal of certain aviation treaties by
Munich Re in 1997 period, which were previously written through MARC and the
U.S. Branch in the 1996 period, in addition to the effect of foreign exchange
translations from other currencies into the strengthening U.S. dollar.

The Company's net premiums earned increased 38.4% to $2,486.1 million for
the year ended December 31, 1997, from $1,796.7 million in 1996. On a pro forma
basis, 1996 net premiums earned were $2,494.1 million, resulting in a decrease
of 0.3%. The pro forma decrease in premiums earned was

26
<PAGE>
primarily attributable to the pro forma decrease in net premiums written, offset
by the timing of premiums earned on business in force.

Net losses and LAE incurred increased 47.0% and $1,716.3 million for the
year ended December 31, 1997, from $1,167.8 million in 1996. On a pro forma
basis, 1996 net losses and LAE incurred were $1,675.1 million, resulting in an
increase of 2.5%. This increase was primarily attributable to an overall
increase in the proportion of treaty net premiums earned in the 1997 period,
which carries a higher overall loss ratio than facultative business.

Underwriting expense, consisting of commission expense plus operating
expense, increased 57.2% to $838.4 million for the year ended December 31, 1997,
from $533.5 million in 1996. On a pro forma basis, underwriting expense for the
1996 period was $748.1 million, resulting in an increase of 12.1%. This increase
included a 10.2% increase in commission expense to $623.5 million for the year
ended December 31, 1997 from $565.7 million on a pro forma basis in 1996. This
increase was due to a higher overall commission rate on treaty business during
1997 compared to 1996, especially on new business written, in addition to
changes in the structure of the Company's retrocessional programs to include
more excess of loss arrangements, which generally provide less offset to
commission expense. Operating expenses increased 17.8% to $214.9 million for the
year ended December 31, 1997 from $182.4 million on a pro forma basis for 1996.
This increase is primarily the result of increased overhead costs, including
expenditures for technological and process improvements.

The Company experienced an underwriting loss (net premiums earned minus
losses and LAE incurred and underwriting expenses) of $68.6 million for the year
ended December 31, 1997, compared to an underwriting gain of $95.4 million in
1996. On a pro forma, the Company experienced an underwriting gain of $71.0
million in 1996. The Company's loss ratio increased to 69.0% for the year ended
December 31, 1997 from 67.2% on a pro forma basis in 1996, while the
underwriting expense ratio increased to 33.8% in 1997 from 30.0% on a pro forma
basis in 1996. The combined ratio for the year ended December 31, 1997,
increased to 102.8% from 97.2% on a pro forma basis in 1996.

Net investment income increased 72.3% to $427.5 million for the year ended
December 31, 1997, from $248.2 million in 1996. On a pro forma basis, net
investment income was $392.2 million for the 1996 period, resulting in an
increase of 9.0%. This increase was primarily attributable to an increase in the
invested asset base in the 1997 period, as compared to the 1996 period.

The Company's interest expense decreased by 20.9% to $42.8 million for the
year ended December 31, 1997, from $54.1 million in 1996. This decrease was
primarily attributable to the lower interest rate on the senior notes
outstanding during the 1997 period, as compared to that of the senior
subordinated debt outstanding during the 1996 period. In December 1996, the
Company issued $500.0 million principal amount of 7.45% Senior Notes, and
in-substance defeased its existing issue of 10 7/8% Senior Subordinated
Debentures in the principal amount of $450.0 million, which were redeemed in
September 1997.

The Company realized net capital gains of $87.7 million for the year ended
December 31, 1997, compared to net capital gains of $4.8 million in 1996. On a
pro forma basis, the Company experienced net capital gains of $27.8 million in
1996. This increase was primarily due to net capital gains of $67.9 million
realized on equity securities sold in 1997, as compared to net capital gains of
$22.8 million realized for the same period of 1996, and net capital gains
realized on bonds sold of $26.2 million as compared to net capital gains of $9.8
million realized in 1996. MARC and the U.S. Branch had combined realized capital
losses of $5.0 million in futures contracts during the 1996 period.

Other income decreased 12.5% to $41.7 million for the year ended December
31, 1997, from $47.5 million in 1996. The decrease in the 1997 period was
attributable to a decrease in fee subsidiary revenue of $5.5 million. Other
expenses increased substantially to $221.2 million for the year ended December
31, 1997 from $109.2 million in 1996. The increase in the 1997 period was
primarily attributable to one-time charges incurred during the second quarter of
1997 of $38.2 million related to the write-down

27
<PAGE>
of the value of data processing equipment, one-time severance and other
personnel related charges of $72.8 million, and $13.3 million of other
miscellaneous charges primarily due to the Merger, compared to $36.1 million of
acquisition-related expenses incurred during 1996. In addition to these one-time
charges, the Company also incurred an expense of $20.3 million related to the
Company's long-term incentive compensation program established in the 1997
period; there was no similar program in effect in 1996.

Income before income taxes, minority interest, distributions on preferred
securities of subsidiary trust and extraordinary loss decreased slightly to
$224.3 million for the year ended December 31, 1997, compared to $232.6 million
in 1996. On a pro forma basis, this total was $370.9 million.

Federal and foreign income tax benefits were $3.4 million for the year ended
December 31, 1997, compared to tax expense of $73.8 million in 1996. The
decrease in Federal and foreign taxes was primarily due to recognition of net
operating losses by the U.S. Branch prior to the Merger, resulting in a tax
benefit of $24.4 million, in addition to the reversal of a valuation allowance
that reduced the deferred tax asset associated with the U.S. Branch's loss
reserve discount. This reversal of the valuation allowance resulted in a tax
benefit of $37.7 million; the valuation allowance was reversed as the Company
believes that the recognition of the deferred tax asset is more likely than not,
based on its consolidated tax position.

The Company recognized an after-tax increase to income of $6.8 million
representing the minority interest in the net loss of MARC for the six months
ended June 30, 1997, prior to the Merger.

The Company recognized an after-tax charge of $13.1 million for each of the
years ended December 31, 1997 and 1996, representing the Company's minority
interest in the earnings of American Re Capital, a single-purpose wholly owned
subsidiary trust. The charge is due to the distributions incurred by American Re
Capital on the Cumulative Quarterly Income Preferred Securities ("QUIPS").

In 1996, the Company recognized an extraordinary loss of $34.0 million
after-tax, resulting from the in-substance defeasance of the senior subordinated
debentures. This amount represents the write-off of the remaining unamortized
financing fees from the subordinated debentures, interest payable through the
redemption date of September 19, 1997, and a call premium of 4.75% of the
redemption price. There was no comparable charge for the Company in 1997.

Net income to common stockholders was $221.4 million for the year ended
December 31, 1997, compared to net income of $111.7 million in 1996.

FINANCIAL CONDITION

The Company is a holding company, the principal subsidiary of which is
American Re-Insurance. Based on statutory net premiums written of $2,276.2
million in 1998, American Re-Insurance ranked as the third largest property and
casualty reinsurer in the U.S., according to Reinsurance Association of America
statistics. The Company had total assets of $13,544.0 million and stockholders'
equity of $2,853.1 million at December 31, 1998.

Total consolidated assets increased by 2.5% to $13,544.0 million at December
1998, from $13,216.9 million at December 31, 1997. This increase was primarily
due to an increase in premiums due and other receivables of $231.9 million and
cash and investments of $127.9 million.

The total financial statement value of investments and cash increased to
$7,801.3 million at December 31, 1998, from $7,673.4 million at December 31,
1997, primarily due to cash flows from operating activities, and an increase in
the fair value of investments held. The financial statement value of the
investment portfolio at December 31, 1998, included a net increase from
amortized cost to fair value of $244.5 million for debt and equity investments,
compared to a net increase of $181.5 million at December 31, 1997. At December
31, 1998, the Company recognized a cumulative unrealized gain of $158.9 million
due to the net adjustment to fair value on debt and equity investments, after
applicable income tax effects, which was reflected as a separate component of
accumulated other comprehensive income. This

28
<PAGE>
represents a net increase to stockholders' equity of $40.9 million from the
cumulative unrealized gain on debt and equity securities of $118.0 million
recognized at December 31, 1997.

Total consolidated liabilities increased by 0.6% to $10,453.4 million at
December 31, 1998, from $10,393.0 million at December 31, 1997. This increase
was primarily due to increases in loss balances payable of $197.6 million,
offset by decreases in loss and loss adjustment expense reserves of $135.2
million.

Common stockholders' equity increased 10.3% to $2,853.1 million at December
31, 1998, from $2,586.4 million at December 31, 1997. This increase was
primarily attributable to net income of $226.0 million for the year ended
December 31, 1998, and recognized net market appreciation of $40.7 million in
accumulated other comprehensive income, after applicable income tax effect.

The Company's reinsurance/insurance subsidiaries' statutory surplus
increased to $2,631.1 million at December 31, 1998, from $2,323.4 million at
December 31, 1997. Operating leverage, as measured by such subsidiaries'
premiums-to-surplus ratio, on an annualized basis was 0.87 to 1 and 1.07 to 1 at
December 31, 1998, and December 31, 1997, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As a holding company, the Company is dependent on dividends and tax
allocation payments, primarily from American Re-Insurance, to meet its short-
and long-term liquidity requirements, including its debt service obligations. It
is the Company's understanding that it is Munich Re's intention to further
strengthen the capital position of the Company by allowing net income to be
retained; therefore, at this time, no cash dividends on the Company's common
stock are anticipated.

The Company is required to apply a portion of its operating cash flow to the
servicing and repayment of its debt obligations expected to total approximately
$62.0 million in 1999. The payment of dividends to the Company by American
Re-Insurance is subject to limitations imposed by the Delaware Insurance Code.
Based upon these restrictions and 1998 operating results, the maximum amount
available for payment of dividends to the Company by American Re-Insurance in
1999 without approval of regulatory authorities is estimated to be $260.8
million.

The Company's cash flow from operations may be influenced by a variety of
factors, including cyclical changes in the property and casualty reinsurance
market, insurance regulatory initiatives, and changes in general economic
conditions. Liquidity requirements are met on both a short- and long-term basis
by funds provided by operations and from the maturity and sale of investments.
Cash provided by operations primarily consists of premiums collected, investment
income, and reinsurance recoverable balances collected, less paid claims,
retrocession payments, underwriting and interest expenses, QUIPS distributions,
and income tax payments. Cash flows provided by operations for the Company were
$202.7 million for 1998, $366.1 million for 1997, and $365.9 million in 1996.
The decrease in the 1998 period is attributable to several factors, including
the Company's lower level of premium writings in the soft insurance market, a
higher level of paid losses from its book of proportional business, and payments
related to catastrophe losses.

Total cash proceeds in 1998 from sales of investments were $6,164.8 million
compared to $4,268.5 million in 1997 and $1,203.5 million in 1996. Much of the
increased activity in 1998 was due to the Company's investment strategy to
continue to restructure the overall investment portfolio into tax-exempt
securities and increase common equity holdings. Much of the increased activity
in 1997 was due to the Merger, as the investment portfolio was significantly
larger than prior years, in addition to a portfolio restructure, based on new
investment managers' decisions and a redeployment into tax-exempt securities.
Cash and cash equivalents were $274.9 million, $641.6 million, and $553.1
million, at December 31, 1998, 1997, and 1996,

29
<PAGE>
respectively. Cash and short-term investments are maintained for liquidity
purposes and represented 3.5%, 8.4% and 7.9%, respectively, of total financial
statement investments and cash on such dates.

American Re has a $150 million unsecured bank credit agreement with Bank of
America, N.A. At December 31, 1998, $75 million remained available under the
bank credit agreement.

CREDIT RATINGS

In October 1998, A.M. Best affirmed its rating of American Re-Insurance of
"A++ (Superior)", the highest of A.M. Best's 15 qualitative ratings. "A++
(Superior)" is assigned by A.M. Best to those companies which, in its opinion,
have demonstrated superior overall performance when compared to the standards
established by A.M. Best and have demonstrated a very strong, ability to meet
their policyholder and other contractual obligations over a long period of time.
According to A.M. Best, the objectives of its rating system are to evaluate the
factors affecting overall performance of an insurance or reinsurance company and
to provide A.M. Best's opinion of the company's relative financial strength and
ability to meet its obligation to policyholders currently and in the future.

In February 1999, Standard & Poor's Corporation ("S&P") affirmed American
Re-Insurance's claims paying ability rating of "AAA," which is the highest of
S&P's ratings. A rating of "AAA" is assigned by S&P to those companies which, in
its opinion, have superior financial security on an absolute and relative basis
and their capacity to meet policyholder obligations is overwhelming under a
variety of economic and underwriting conditions.

In April 1998, Moody's Investors Service ("Moody's") affirmed American
Re-Insurance's financial strength rating of "Aaa," which is the highest of
Moody's 19 qualitative ratings. A rating of "Aaa" is assigned by Moody's to
those companies which, in Moody's opinion, offer exceptional financial security.

There can be no assurance that American Re-Insurance will continue to be
rated "A++ (Superior)" by A.M. Best, "AAA" by S&P, or "Aaa" by Moody's.

THE YEAR 2000 PROBLEM

IMPACT OF THE YEAR 2000 PROBLEM. The "Year 2000 problem" refers to the
potential failure of computer software and embedded computer chips to properly
recognize the year 2000 and later dates, because such dates are represented only
by the last two digits of the year and may be interpreted during computer
operations as preceded by 19 rather than 20. The Company has been aware of the
Year 2000 problem for several years and has assigned a team of dedicated
in-house information technology staff, working with retained consultants and
designated representatives from each of the Company's major business areas, to
review all critical systems for their Year 2000 compliance and to correct all
problems identified.

THE COMPANY'S STATE OF READINESS. Some of the Company's Year 2000 problems
have been eliminated in the ordinary course of ongoing upgrades to the Company's
technology platforms. However, in order to address the remainder of the
Company's Year 2000 non-compliant systems (e.g. certain mainframe systems, old
software applications, and some facilities equipment), in 1997 management
initiated a Year 2000 Compliance Program consisting of 5 phases: Phase
1--Planning, which consisted of defining the project scope, organizing a project
team, developing a detailed project plan and obtaining management approval;
Phase II--Inventory/Impact Analysis, which consisted of inventorying all of the
Company's technology as well as non-technology-based systems and equipment
containing embedded chips, determining whether there exists a potential Year
2000 problem, and analyzing the impact on the Company of such problem, and which
resulted in the creation of a Year 2000 database including all products and
services that need to be evaluated for Year 2000 compliance; Phase
III--Renovation, which consists of repairing or replacing critical items that
are not Year 2000 compliant; Phase IV--Vendor Compliance, pursuant to which,
among other things, the Company is seeking representations from vendors that
their products are

30
<PAGE>
Year 2000 compliant or modifications to make such products Year 2000 compliant
and has retained research consultants to independently verify vendors' Year 2000
compliance; and Phase V--Enterprise Wide Testing and Compliance Certification,
which consists of performing a final integrated testing of the corrected
business operations and underlying technical infrastructure in a controlled
environment. The Company completed Phase I in January 1998 and Phase II in May
1998. The Company is currently in the final stages of Phases III, IV and V,
which are expected to be completed by July 1999.

RISKS ASSOCIATED WITH YEAR 2000 ISSUES. The major business risks of a Year
2000 failure facing the Company are (i) the inability of the Company to maintain
critical business operations dependent on technology or the loss of facilities
infrastructure such as telephone communications, with the potential for lost
revenue and profits due to business disruptions, (ii) the direct costs
associated with restoring operations after disruption, (iii) the loss of
competitive market position due to a significant disruption of long duration,
and (iv) potential legal liabilities of the Company to third parties who may
claim dependence on, or to have been harmed by the failure of, the Company's
systems and operations. After Phases III, IV and V are completed, the Company
believes its systems will be no more likely to suffer disruptions from the Year
2000 problem than from any other type of hardware or software failures that can
occur from time to time with many complex systems. The Company has backup
systems for power, certain facilities infrastructure, and computer systems and
has response procedures in place with vendors in the event of such "ordinary"
failures. Unlike other businesses such as banking or computer based, transaction
intensive retail operations, in the worst case scenario, the Company could
briefly cease computer-related business operations without significant legal,
regulatory, or financial impact. As a result, the Company has no additional
contingency plan specific to potential Year 2000 failures after the renovation
and compliance testing phases are completed. The Company will continue to
monitor the progress of its Year 2000 compliance effort and will continue to
review the adequacy of its response mechanisms for systems failures with respect
to the Year 2000 problem. The Company is prepared to implement a Year 2000
specific contingency plan should any phase of this Year 2000 compliance effort
fall materially behind schedule.

In addition to the risks and costs associated with its internal systems and
third party vendors, the Company continues to evaluate its underwriting risk
arising from potential losses associated with Year 2000 failures. Due to a
significant number of variables associated with the extent and severity of the
Year 2000 problem, the Company's underwriting risk arising from potential Year
2000 losses cannot be quantified. These variables include actual pervasiveness
and severity of Year 2000 system flaws, the amount of costs and expenses
directly attributable to Year 2000 failures, the portion of such amount, if any,
that constitutes insurable losses, and the extent of governmental intervention.
Moreover, standard insurance and reinsurance contracts neither explicitly
include nor explicitly exclude coverage for Year 2000 failures. As a result,
some Year 2000 related losses may or may not be determined to be covered under
standard insurance and reinsurance contracts, depending upon the specific
contract language, the applicable case law, and the facts and circumstances of
each loss. The Company is proactively seeking to minimize its potential Year
2000 underwriting exposures by (1) assisting clients in evaluation of their
potential Year 2000 exposure, (2) performing an underwriting evaluation of each
individual client's potential Year 2000 exposure, (3) structuring reinsurance
and insurance contract language where possible to mitigate potential exposure;
(4) recommending computer systems and technical support as appropriate, and (5)
providing a combination of financial protection and risk management solutions.
However, the Company cannot be certain that these steps will adequately minimize
its Year 2000 underwriting exposures, and given the possible magnitude of the
Year 2000 problem, the Company may incur a significant amount of Year 2000
related losses, including litigation expenses, and such losses may have a
material adverse impact on the Company's business, operations or financial
condition. The Company believes it is taking reasonable and appropriate measures
in the course of its business operations and client relationships to avoid or
mitigate such Year 2000 related liability exposure.

COSTS ASSOCIATED WITH YEAR 2000 ISSUES. Year 2000 specific expenditures for
1998, not including in-house resources, were approximately $5.1 million. These
expenses were paid out of working capital and

31
<PAGE>
were in line with budgeted projections. The Company has budgeted $4.5 million in
additional expenses in connection with the Company's Year 2000 compliance effort
in 1999. It is anticipated that the total Year 2000 compliance expenditures will
not have a material adverse effect on the Company's business, operations or
financial condition.

SAFE HARBOR DISCLOSURE

The Company has made certain statements herein that may be deemed to be
"forward-looking statements" that relate to, among other things, its operations,
economic performance and financial condition, including, in particular the
likelihood of the Company's success in developing and expanding its business and
the Company's readiness to handle issues related to Year 2000 and risks related
thereto. These statements are based upon a number of assumptions and estimates
which are inherently subject to significant uncertainties and contingencies,
many of which are beyond the control of the Company, and reflect future business
decisions which are subject to change. Some of these assumptions inevitably will
not materialize, and unanticipated events will occur which will affect the
Company's results. Such statements may include, but are not limited to,
projections of premium revenue, investment income, other revenue, losses,
expenses, earnings, cash flows, plans for future operations, common
stockholders' equity, investments, capital plans, dividends, plans relating to
products or services of American Re, and estimates concerning the effects of
litigation or other disputes. Such statements may also include, but are not
limited to, projections relating to the Company's ability to complete the
various phases of its Year 2000 Compliance Plan in a timely manner; the ability
of third party vendors and client companies to eliminate or minimize their Year
2000 exposures and the accuracy of their representations and warranties to the
Company; the Company's ability to minimize any possible Year 2000 underwriting
losses and the effects of Year 2000 reinsurance claims, litigation or other
disputes, as well as assumptions for any of the foregoing and are generally
expressed with words such as "believes," "estimates," "expects," "anticipates,"
"plans," "projects," "forecasts," "goals," "could have," "may have" and similar
expressions.

MARKET AND INTEREST RATE RISK

The Company is subject to market risk arising from the potential change in
the value of its various financial instruments. The major components of market
risk affecting the Company are interest rates, foreign currency exchange rates
and equity risk.

The Company had both fixed and variable (primarily mortgage backed
securities and collateralized mortgage obligations) income investments with a
value of $6,953.3 million at December 31, 1998 that are subject to changes in
value due to changes in market interest rates. The Company also has debt
obligations outstanding, which are the Senior Bank Debt of $75.0 million, Senior
Notes of $498.5 million, and QUIPS of $237.5 million. The Senior Bank Debt is a
variable rate loan, while the Senior Notes and QUIPS are fixed rate instruments.

The Company has exposure to movements in various currencies around the
world, particularly the Belgian Franc and the Australian dollar. Changes in
currency exchange rates primarily affect the international components of the
Company's balance sheet, income statement, and statement of cash flows. This
exposure is substantially mitigated because the Company's losses incurred and
loss reserves are generally denominated in the same currency as premiums and
invested amounts. At December 31, 1998, the Company had no material currency
rate exposure.

In addition to interest rate and foreign exchange risk, the Company's common
equity portfolio, aggregately $545.2 million at December 31, 1998, is subject to
changes in value based on changes in equity prices. To hedge a portion of its
exposure to movements in its equity prices, the Company entered into options
contracts with a notional value of $18.5 million at December 31, 1998. A change
in the fair value of the Company's equity portfolio would affect the calculation
of the Company's other comprehensive income in its financial statements.

32
<PAGE>
The Company has recently established American Re Capital Markets, Inc. to
provide its clients with integrated solutions for mitigating risk in the
financial markets. Currently, American Re Capital Markets is principally engaged
in transactions in the weather derivative market, which exposes the Company to
movement in weather related indexes. As of December 31, 1998, the Company was a
party to 59 contracts with a notional value of $110.8 million. At December 31,
1998, the maximum payment amount of these contracts was $61.3 million, and the
maximum receivable amount was $60.7 million.

SENSITIVITY ANALYSIS OF MARKET RISK. Interest rate sensitivity analysis is
used to measure the Company's interest rate price risk by computing estimated
changes in fair value of fixed and variable rate assets and liabilities in the
event of a range of assumed changes in market interest rates. This analysis
assesses the risk of loss in market risk sensitive instruments in the event of a
sudden and sustained 100 to 200 basis point increase or decrease in market
interest rates. The following table presents the Company's projected change in
fair value of the Company's financial instruments at December 31, 1998 based on
the assumptions indicated. All market sensitive instruments reflected in this
table are available for sale. The Company has no significant trading securities.

The calculation of fair value is based on the net present value of estimated
discounted cash flows expected over the life of the market rate sensitive
instruments, using market prepayment assumptions and market rates of interest
provided by independent broker quotations and other public sources as of
December 31, 1998, with adjustments made to reflect the shift in the Treasury
yield curve as appropriate.

<TABLE>
<CAPTION>
FAIR VALUE OF
TOTAL
INVESTMENTS, PERCENTAGE
EXCLUDING HYPOTHETICAL HYPOTHETICAL
PERCENT CHANGE IN INTEREST RATES COMMON EQUITIES CHANGE CHANGE
- -------------------------------------------------------------------- ---------------- ------------ -------------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
200 basis point rise................................................ $ 6,570.8 $ (685.3) (9.4)%
100 basis point rise................................................ 6,909.3 (346.8 ) (4.8 )
Base Scenario....................................................... 7,256.1 -- --
100 basis point decline............................................. 7,612.3 356.2 4.9
200 basis point decline............................................. 7,991.8 735.7 10.1
</TABLE>

<TABLE>
<CAPTION>
FAIR VALUE OF
SENIOR BANK PERCENTAGE
DEBT, SENIOR HYPOTHETICAL HYPOTHETICAL
PERCENT CHANGE IN INTEREST RATES NOTES AND QUIPS CHANGE CHANGE
- -------------------------------------------------------------------- ---------------- ------------ -------------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
200 basis point rise................................................ $ 750.2 $ (139.5) (15.7)%
100 basis point rise................................................ 816.9 (72.8 ) (8.2 )
Base Scenario....................................................... 889.7 -- --
100 basis point decline............................................. 973.7 84.0 9.4
200 basis point decline............................................. 1,075.0 185.3 20.8
</TABLE>

The preceding tables indicate that at December 31, 1998, in the event of a
sudden and sustained increase in prevailing market interest rates, the fair
value of the Company's investment and debt instruments would be expected to
decrease, and that in the event of a sudden and sustained decrease in prevailing
market interest rates, the fair value of the Company's fixed maturity
investments and debt instruments would be expected to increase. A change in fair
value in the Company's fixed maturity investments would affect the calculation
of the Company's other comprehensive income in its financial statements. A
change in fair value in the Company's debt instruments would affect the
Company's ability to redeem these instruments, especially the Senior Notes,
which has a redemption feature that is based on the yield to maturity of the
equivalent U.S. Treasury security, plus 15 basis points.

33
<PAGE>
LIMITATIONS OF SENSITIVITY ANALYSIS. Computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates and loan prepayments, and should not be
relied on as indicative of future results.

Certain shortcomings are inherent in the method of analysis presented in the
computation of the fair value of fixed rate instruments. Actual values may
differ from those projections presented should market conditions vary from
assumptions used in the calculation of the fair value. In the event of a change
in interest rates, prepayment and early withdrawal levels could deviate
significantly from those assumed in the calculation of fair value. Finally, the
desire of many borrowers to repay their fixed-rate mortgage loans may decrease
in the event of interest rate increases.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the items included in Item 14(a) of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

34
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

DIRECTORS

DR. JUR. CLAUS HELBIG, age 57, became a Director of the Company on November
25, 1996. Dr. Helbig has been a Member of the Board of Management of Munich Re
since 1993. Dr. Helbig is also currently Vice Chairman of the Board of Directors
of Allgemeine Kreditversicherung AG, Mainz, Germany and a Member of the Board of
Directors of each of Deutsche Gesellschaft fuer Fondsverwaltung (DEGEF)
Frankfurt, Germany (Deutsche Bank Group); and Karlsruher Rendite, Karlsruhe.
From 1989 to 1992 Dr. Helbig was a member of the Board of Directors of each of
Westdeutsche Landesbank (Austria) AG, Vienna, Austria; Westdeutsche Landesbank
International S.A., Luxembourg; Banque Franco Allemande S.A., Paris, France; and
a Member of the Board of Management of Suedwestdeutsche Landesbank.

EDWARD J. NOONAN, age 40, became President, Chief Executive Officer and a
Director of the Company and Chairman, President and Chief Executive Officer of
American Re-Insurance on March 14, 1997. From February 5, 1997 to March 14,
1997, Mr. Noonan was Executive Vice President of the Company and American
Re-Insurance. From September 1994 to March 14, 1997, Mr. Noonan was President of
DICO. Mr. Noonan has also been a Director of American Re-Insurance since
September 1992. Mr. Noonan was a Senior Vice President of American Re-Insurance
from July 1991 to February 1997. From April 1990 to July 1991, Mr. Noonan was
Senior Vice President, Treaty Division. From May 1987 to April 1990, he was Vice
President, Treaty Division of American Re-Insurance and from October 1983
through December 1987 he was a Vice President of American Re-Insurance.

DR. JUR. HANS-JURGEN SCHINZLER, age 57, became a Director of the Company on
November 25, 1996 and Chairman of the Company on March 14, 1997. Dr. Schinzler
has been Chairman of the Board of Management of Munich Re since 1993. From 1981
to 1993 Dr. Schinzler was a Member of the Board of Management of Munich Re. Dr.
Schinzler currently holds positions on the Supervisory Boards of various
subsidiaries within the Munich Re holding company system. Dr. Schinzler is also
Deputy Chairman of the Supervisory Board of Allianz
Versicherungs-Aktiengesellschaft, Munich; a Member of the Supervisory Board of
each of D.A.S., Munich; Degussa Aktiengesellschaft, Frankfurt; Dresdner Bank
Aktiengesellschaft, Frankfurt; Hoechst Aktiengesellschaft, Frankfurt; and MAN
Aktiengesellschaft, Munich. Dr. Schinzler is a Member of the Board of Directors
of Allianz of America Inc., Delaware and Dresdner Securities (USA) Inc., New
York.

KARL WITTMANN, age 54, became a Director of the Company on December 31,
1998. Mr. Wittmann has been a Member of the Board of Management of Munich Re
since January 1, 1998 responsible for Asia and Australasia, United Kingdom and
Ireland and from January 1, 1999 for North America. From 1985 to 1995 Mr.
Wittmann was a Member of the Executive Management, Fire Treaty Underwriting,
Munich Re. From 1995 to 1997 he was a Member of the Executive Management, Head
of Operational Division Asia and Australasia, Munich Re. Mr. Wittmann is
currently Chairman of Munichre General Services Ltd., London; Munichre Life
Services Ltd., London; Munichre Services Ltd., London; The Great Lakes
Reinsurance (UK) Plc., London; a Director of Munich Re Holding Co. (UK) Ltd.,
London; Munich Holdings of Australia Pty., Ltd., Sydney; Munich Management Pty.
Ltd., Sydney; Munich Management Pte. Ltd., Singapore; Munich Reinsurance Company
of Australasia Ltd., Sydney; Munichre Service Ltd., Hong Kong; International
Insurance Society, Inc. (IIS), New York; Temple Insurance Company, Toronto;
Munich Reinsurance Company of Canada, Toronto; Munich Life Management Corp.
Ltd., Toronto; Munich American Reassurance Company, Atlanta; and Munich Canada
Management Corp., Toronto.

35
<PAGE>
EXECUTIVE OFFICERS

In addition to Mr. Noonan, the executive officers of the Company are as
follows:

MAHMOUD M. ABDALLAH, age 50, became an Executive Vice President of the
Company and American Re-Insurance on February 5, 1997. Mr. Abdallah has also
been Chairman and CEO of AM-RE Global Services, Inc. since July 20, 1998.
Additionally, Mr. Abdallah is President, International Operations for American
Re-Insurance and AM-RE Brokers, which positions he assumed in September 1994.
Mr. Abdallah has been a Director of American Re-Insurance since September 1992.
From May 1989 to September 1994, he was Senior Vice President of American
Re-Insurance. Prior to that, he was Vice President, responsible for
International Operations from July 1987 to May 1989. Mr. Abdallah also serves on
the Board of U.S. International Insurance Council (IIC).

ALBERT J. BEER, age 48, is Executive Vice President of the Company and
President of RiskPartners. Mr. Beer assumed the position of Executive Vice
President on March 14, 1997 and became President of RiskPartners on December 5,
1997. Prior to that, Mr. Beer was President of DICO from March 14, 1997 to
December 5, 1997. From December 1992 to March 1997, Mr. Beer was Senior Vice
President--Branch Operations of American Re-Insurance. Mr. Beer has been a
Director of American Re-Insurance since December 1992. From April 1989 to
December 1992, he was Chief Actuary for Skandia America. Prior to that, Mr. Beer
was with Tillinghast & Co. (professional actuaries) from November 1984 to April
1989, most recently as a principal.

ROBERT K. BURGESS, age 50, is Executive Vice President, General Counsel and
Secretary of the Company and American Re-Insurance. He became Executive Vice
President on February 5, 1997, having served as Senior Vice President, General
Counsel and Secretary of both companies from April 1, 1995. Mr. Burgess has been
a Director of American Re-Insurance since May 1995. Prior to April 1995, Mr.
Burgess was a partner in the law firm of Latham & Watkins from 1981 and an
associate prior thereto.

GREGORY T. DOYLE, age 38, became Executive Vice President of the Company and
a Director, Executive Vice President and President of DICO on December 5, 1997.
From February 5, 1997 to December 1997, Mr. Doyle was Senior Vice President of
American Re-Insurance and Senior Vice President of DICO. From December 1994 to
February 1997, Mr. Doyle was Eastern Region Vice President of American
Re-Insurance. From March 26, 1990 to December 1994, he was Account Management
Vice President. Mr. Doyle was Assistant Vice President of Account Management,
New York since August 1, 1988. Prior to that, he was Director of Account
Management. Mr. Doyle joined American Re-Insurance in December 1985 as a
Production Assistant in the Treaty Production Department in New York.

GEORGE T. O'SHAUGHNESSY, JR., age 43, has been Executive Vice President
Chief Financial and Accounting Officer of American Re Corporation and American
Re-Insurance since April 1998. Prior thereto he was Senior Vice President, Chief
Financial and Accounting Officer and Controller of the Company from April 1,
1997. Mr. O'Shaughnessy became a Director of American Re-Insurance on December
5, 1997. Mr. O'Shaughnessy had been Vice President of American Re since April
1990.

WOLFGANG ENGSHUBER, age 42, became Executive Vice President of the Company
and Executive Vice President and a Director of American Re-Insurance on October
26, 1998, responsible for American Re Financial Products and American Re Asset
Management, Inc. Prior to that, Mr. Engshuber had been a Member of the Executive
Board of Munich Reinsurance Company in Munich, Germany since October 1986.

36
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth for the Chief Executive Officer of the
Company, and the four other executive officers of the Company who were the most
highly compensated executive officers of the Company for the year ended December
31, 1998, (the "named executive officers"), information concerning compensation
earned in 1998, 1997, and 1996 by such persons for services with the Company and
its subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
AWARDS
ANNUAL COMPENSATION ----------- PAYOUTS
-------------------------------------------------------- SECURITIES ---------------
OTHER ANNUAL UNDERLYING LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS PAYOUTS
- ------------------------------------ --------- ---------- ---------- --------------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Noonan.................... 1998 $ 575,000 $ 500,000 0 0 0
President and Chief 1997 475,000 500,000 0 0 0
Executive Officer 1996 295,000 375,000 0 0 0

Mahmoud M. Abdallah................. 1998 $ 430,000 $ 425,000 0 0 0
Executive Vice President 1997 400,000 425,000 0 0 0
1996 295,000 375,000 0 0 0

Albert J. Beer...................... 1998 $ 387,500 $ 400,000 0 0 0
Executive Vice President 1997 340,000 400,000 0 0 0
1996 270,000 375,000 0 0 0

Robert K. Burgess................... 1998 $ 430,000 $ 400,000 0 0 0
Executive Vice President, 1997 400,000 400,000 0 0 0
General Counsel and Secretary 1996 365,000 375,000 0 0 0

Gregory T. Doyle.................... 1998 $ 299,000 $ 300,000 0 0 0
Executive Vice President 1997 200,000 200,000 0 0 0
1996 171,000 120,000 0 0 0

ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(2)
- ------------------------------------ ----------------
<S> <C>
Edward J. Noonan.................... $ 520,094
President and Chief 497,525
Executive Officer 9,274,065
Mahmoud M. Abdallah................. 411,588
Executive Vice President 391,696
9,274,731
Albert J. Beer...................... 124,894
Executive Vice President 117,444
1,924,199
Robert K. Burgess................... 246,908
Executive Vice President, 235,956
General Counsel and Secretary 4,119,633
Gregory T. Doyle.................... 119,739
Executive Vice President 109,024
1,878,604
</TABLE>

- ------------------------------

(1) During each of the three years ended December 31, 1998, 1997 and 1996,
perquisites for each individual named in the Summary Compensation Table
aggregated less than 10% of the total annual salary and bonus reported for
such individual in the Summary compensation Table, or $50,000, if lower.

(2) Includes (i) accrued above market or preferential interest earned on
deferred option proceeds under the Company's Senior Executive Deferred
Compensation Plan as follows: Mr. Noonan, $485,224 in 1998, $461,702 in 1997
and $43,842 in 1996; Mr. Abdallah, $384,097 in 1998, $365,477 in 1997 and
$34,704 in 1996; Mr. Beer, $99,763 in 1998, $94,927 in 1997 and $9,014 in
1996; Mr. Burgess, $219,441 in 1998, $208,803 in 1997 and $19,827 in 1996;
Mr. Doyle, $99,982 in 1998, $95,135 in 1997 and $9,034 in 1996; (ii)
employer contributions under the American Re-Insurance Company Savings Plan,
a 401(k) plan, of $8,000 in 1998, $8,000 in 1997, and $7,500 in 1996, for
Mr. Noonan; of $6,250 in 1998, $6,560 in 1997, and $7,500 in 1996, for Mr.
Abdallah; of $8,000 in 1998, $8,023 in 1997 and $7,500 in 1996, for Mr.
Beer; of $6,250 in 1998, $6,419 in 1997 and $7,500 in 1996, for Mr. Burgess;
of $6,538 in 1998, $5,945 in 1997 and $7,500 in 1996 for Mr. Doyle; (iii)
employer contributions under the American Re-Insurance Supplemental Savings
Plan, a deferred compensation plan designed to supplement the 401(k) plan,
of which 100% is vested as of December 31, 1998 of $20,884 in 1998, $22,285
in 1997 and $7,199 in 1996 for Mr. Noonan; of $15,788 in 1998, $14,291 in
1997, and $16,292 in 1996 for Mr. Abdallah; of $12,000 in 1998, $9,530 in
1997 and $6,250 in 1996 for Mr. Beer; of $15,763 in 1998, $14,563 in 1997
and $6,968 in 1996 for Mr. Burgess; of $8,750 in 1998, $4,299 in 1997 and
$837 in 1996 for Mr. Doyle; (iv) employer contributions for group term life,
accidental death and dismemberment and disability insurance of $5,986 in
1998, $5,538 in 1997 and $3,647 in 1996 for Mr. Noonan; of $5,453 in 1998,
$5,368 in 1997 and $4,358 in 1996 for Mr. Abdallah; of $5,131 in 1998,
$4,964 in 1997 and $4,183 in 1996 for Mr. Beer; of $5,454 in 1998, $6,171 in
1997 and $6,588 in 1996 for Mr. Burgess; of $4,469 in 1998, $3,645 in 1997
and $2,876 in 1996 for Mr. Doyle; and (v) amounts paid or elected to be
deferred in 1996 pursuant to canceled options under the Company's two stock
option plans which were terminated as a result of the change in control of
the Company in 1996 as follows: Mr. Noonan, $9,211,877; Mr. Abdallah,
$9,211,877; Mr. Beer, $1,897,252; Mr. Burgess, $4,078,750; and Mr. Doyle,
$1,858,357.

37
<PAGE>
LONG-TERM INCENTIVE PLAN

The following table sets forth for the Chief Executive Officer of the
Company, and the four named executive officers information concerning long term
incentive compensation awards made in 1998 under the Company's Long-term
Incentive Compensation Plan.

LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
-------------------------------------------
(B) (C)
NUMBER OF PERFORMANCE OR (D) (E) (F)
(A) SHARES, UNITS OR OTHER PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS (#) MATURITIES OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
- ----------------------------------- ----------------- --------------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>

Gregory T. Doyle................... 2000 0 $ 600,000 $ 1,200,000
</TABLE>

Under the Company's Long-Term Incentive Plan, performance goals are selected
by the Company's Executive Committee for which performance targets are chosen.
The 1998 performance target for Mr. Doyle, as well as the 1997 performance
target awards for Messrs. Noonan, Abdallah, Beer and Burgess, originally based
upon a four-year performance cycle, 1997-2000, and reported in the Company's
10-K for the year ended December 31, 1997, were equally divided in amount by the
Executive Committee in 1998 between two performance periods consisting of three
fiscal years each, 1997--1999 and 1998-- 2000, with all amounts still subject to
payment following the end of the four-year period. The incentive amounts to be
earned by each participant is 100% at risk and will vary from 0% to 200% of the
individual target award based upon the achievement of the applicable performance
targets under the applicable performance period. The performance goals selected
by the Committee for both performance periods are Aggregate Operating Income and
Return on Equity.

COMPENSATION OF DIRECTORS

Directors receive no additional compensation for their Board or Committee
service.

EMPLOYMENT AGREEMENTS

In 1998, American Re-Insurance entered into Employment Agreements (the
"Agreements"), with Messrs. Noonan, Abdallah, Beer and Burgess pursuant to which
each such executive has agreed to serve in his position indicated in the Summary
Compensation Table for a period of five years and the Company agreed to provide
certain compensation and severance benefits as provided therein. Under the
Agreements, each executive's cash compensation, which consists of the
executive's annual rate of base salary and the annual incentive compensation
award or other bonus as may be paid, is determined by American Re-Insurance from
time to time, but shall not be less than a minimum guaranteed amount equal to
the executive's annual rate of pay in effect as of April 15, 1998 plus the bonus
amount paid to such executive for the 1997 calendar year.

Under the Agreements, American Re-Insurance has also agreed to pay a
severance benefit to each executive if the executive's employment with American
Re-Insurance or an affiliate is terminated during the term of the Agreement by
the Company not for "Cause" or by the executive upon a "Constructive Discharge"
(as such terms are defined in the Agreements). Upon either such termination, the
executive would be entitled to receive, for a period commencing on the date of
termination and ending on the earlier of the second anniversary thereof or the
date of the executive's reemployment, severance benefits consisting of (i)
continued salary and bonus (based on the salary in effect on the date of
termination and the most recent bonus paid); (ii) amounts under the Company's
Long-Term Incentive Plan equal to the payments the executive would otherwise
have been entitled to receive had the executive remained

38
<PAGE>
employed for the entire performance cycle, prorated based on the number of
months the executive was employed during the performance period; and (iii)
continued participation in all other benefit programs available from the Company
as in effect as of the date of termination.

During the employment period and any severance period and, in the event the
executive is terminated by American Re-Insurance for Cause or by the executive
other than by reason of Constructive Discharge, for an additional period of six
months following the date of termination, the executive is subject to a covenant
not to compete with American Re-Insurance or any affiliate thereof.

The Company has also entered into an Executive Severance and Non-Competition
Agreement with Mr. Doyle pursuant to which he has agreed to serve initially in
his position held at the time such agreement was entered into and thereafter in
such positions as the Board of Directors of American Re-Insurance shall
designate, on an "at-will" employment basis, and American Re-Insurance has
agreed to pay a severance benefit if his employment with American Re-Insurance
or an affiliate is terminated at any time on or before December 31, 2001,
pursuant to an involuntary termination by the Company not for "Cause" or on a
voluntary basis by the executive upon a "Constructive Discharge" (as such terms
are defined in the agreement. Under the agreement, upon such termination, Mr.
Doyle would be entitled to continuation of annual base salary for a period of
two years. He would also be entitled to receive any amounts accrued to the date
of termination under any long term compensation plan and all other benefits
available under the Company's personnel policy manual as in effect as of the
date of the agreement. For a period of two years after the date of termination,
Mr. Doyle would be subject to a covenant not to compete with American Re-
Insurance or any affiliate thereof.

RETIREMENT PLAN

American Re-Insurance provides for its employees a noncontributory, defined
benefits pension plan (the "American Re Pension Plan") and a nonqualified
supplemental excess pension plan (the "Supplemental Pension Plan"). The table
below shows the combined estimated maximum annual retirement benefits payable
under both plans, at selected earnings levels and after selected periods of
credited service to employees who retire at age 65. The benefits as presented do
not take into account any reduction for joint and survivorship payments or any
offset for Social Security Benefits to be received by the employee. The table
shows benefits computed as in a straight life annuity.

MAXIMUM RETIREMENT BENEFITS PAYABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REMUNERATION 15 20 25 30 35
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
$ 300,000............................................ $ 78,750 $ 105,000 $ 131,250 $ 157,500 $ 183,750
400,000............................................ 105,000 140,000 175,000 210,000 245,000
500,000............................................ 131,250 175,000 218,750 262,500 306,250
600,000............................................ 157,500 210,000 262,500 315,000 367,500
700,000............................................ 183,750 245,000 306,250 367,500 428,750
800,000............................................ 210,000 280,000 350,000 420,000 490,000
900,000............................................ 236,250 315,000 393,750 472,500 551,250
1,000,000........................................... 262,500 350,000 437,500 525,000 612,500
1,100,000........................................... 288,750 385,000 481,250 577,500 673,750
1,200,000........................................... 315,000 420,000 525,000 630,000 735,000
</TABLE>

Compensation covered by the American Re-Insurance Pension Plan, together
with the Supplemental Pension Plan for the named executive officers, corresponds
with the compensation set forth in the annual

39
<PAGE>
compensation columns of the Summary Compensation Table. The credited years of
service on December 31, 1998 for the persons named in the Summary Compensation
Table are as follows: Mr. Noonan, 14.2 years; Mr. Abdallah, 16 years; Mr. Beer,
6 years; Mr. Burgess, 3.6 years; and Mr. Doyle, 14.0 years.

To be eligible to participate in the American Re-Insurance Pension Plan, an
employee must have completed one year of service and attained age 21, or
attained age 45. Retirement benefits are computed by multiplying the average of
an employee's highest five years' base salary, including incentive compensation
awards, by 1.75% and multiplying by the number of years of covered service, not
in excess of 35, with American Re-Insurance. Base salary does not include
overtime earnings, service awards and American Re Savings Plan match awards
(supplemental and non-supplemental). Normal retirement age is 65. A participant
is 100% vested in his retirement benefits after five years of service.

The American Re-Insurance Pension Plan provides for reduced benefits upon
early retirement prior to age 62. Early retirement is available to participants
age 55 to 64 with at least ten years of service. Upon the death of a vested
participant before retirement, the American Re-Insurance Pension Plan provides
for a survivor annuity benefit to the participant's spouse of approximately 50%
of the employee's accrued benefit at the time of death beginning on the date of
the participant's earliest eligibility for retirement. The same benefits are
payable to minor children if there is no surviving spouse.

The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
limits the maximum annual benefit that may be accrued under and paid from a
tax-qualified plan. As a result, and as contemplated by ERISA, American
Re-Insurance has established a supplemental plan to provide benefits (included
in the foregoing table) which would exceed the ERISA limit. The Supplemental
Pension Plan also is used to pay other pension benefits not otherwise payable
under the American Re-Insurance Pension Plan, including benefits attributable to
the Annual Incentive Compensation Plan, and covered compensation in excess of
that permitted under the American Re-Insurance Pension Plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Munich Reinsurance Company owns 93.06% of the outstanding Common Stock of
the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

40
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents

1. The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this report. The Schedules to
Financial Statements listed in the accompanying Index to Schedules to
Financial Statements are filed as part of this report.

2. The accompanying Exhibit Index is hereby incorporated herein by this
reference. The exhibits listed in the accompanying Index to Exhibit are
filed or incorporated by reference as part of this report.

(b) Reports on Form 8-K:

None.

41
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized, in the
Township of Plainsboro, State of New Jersey, on March 30, 1999.

<TABLE>
<S> <C> <C>
AMERICAN RE CORPORATION

By: /s/ GEORGE T. O'SHAUGHNESSY, JR.
-----------------------------------------
George T. O'Shaughnessy, Jr.
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL AND ACCOUNTING OFFICER
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ CLAUS HELBIG
- ------------------------------ Director March 30, 1999
Claus Helbig

/s/ EDWARD J. NOONAN
- ------------------------------ President, Chief Executive March 30, 1999
Edward J. Noonan Officer and Director

/s/ HANS JURGEN SCHINZLER
- ------------------------------ Chairman of the Board and March 30, 1999
Hans Jurgen Schinzler Director

/s/ KARL WITTMANN
- ------------------------------ Director March 30, 1999
Karl Wittmann
</TABLE>

42
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-2

Independent Auditors' Report......................................................... F-3

Consolidated Balance Sheets--December 31, 1998 and 1997.............................. F-4

Consolidated Statements of Income--Years ended December 31, 1998, 1997, and 1996..... F-5

Consolidated Statements of Stockholders' Equity--Years ended December 31, 1998, 1997,
and 1996............................................................................ F-6

Consolidated Statements of Cash Flows--Years ended December 31, 1998, 1997, and
1996................................................................................ F-7

Notes to Consolidated Financial Statements--December 31, 1998........................ F-8

INDEX TO SCHEDULES TO FINANCIAL STATEMENTS

Summary of Investments Other Than Investments in Related Parties--December 31,
1998................................................................................ S-1

Condensed Financial Information of Registrant (Parent Company only):

Condensed Balance Sheets--December 31, 1998 and 1997................................. S-2

Condensed Statements of Operations and Retained Earnings--Years ended December 31,
1998, 1997, and 1996................................................................ S-3

Condensed Statements of Cash Flows--Years ended December 31, 1998, 1997, and 1996.... S-4

Notes to Condensed Financial Information--December 31, 1998.......................... S-5

Supplemental Insurance Information--Years ended December 31, 1998, 1997, and 1996.... S-6

Reinsurance--Years ended December 31, 1998, 1997, and 1996........................... S-7

Supplemental Information (for Property-Casualty Insurance Underwriters)--Years ended
December 31, 1998, 1997, and 1996................................................... S-8
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
American Re Corporation

We have audited the accompanying consolidated balance sheets of American Re
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedules as listed in
the accompanying index as of December 31, 1998 and 1997 and for the years then
ended. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American Re
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

KPMG LLP
Short Hills, New Jersey
February 22, 1999

F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of

American Re Corporation

We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of American Re Corporation and subsidiaries
(the "Company") for the year ended December 31, 1996. Our audit also included
the financial statement schedules for the year ended December 31, 1996 as listed
in the Index at Item 14. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of American Re
Corporation and subsidiaries the year ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

Deloitte & Touche LLP
Parsippany, New Jersey
February 4, 1997
(March 14, 1997 as to Note 10,
July 3, 1997 as to Note 1B)

F-3
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1998 AND 1997

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities
Bonds available for sale, at fair value (amortized cost: December 31, 1998 and
1997--$6,688.6 and $6,481.4, respectively)..................................... $ 6,876.0 $ 6,644.2
Preferred stock available for sale, at fair value (amortized cost: December 31,
1998 and 1997--$76.7 and $70.8, respectively).................................. 77.3 71.4
Equity securities available for sale, at fair value (cost: December 31, 1998 and
1997--$488.7 and $275.2, respectively)........................................... 545.2 293.3
Other invested assets.............................................................. 27.9 22.9
Cash and cash equivalents............................................................ 274.9 641.6
------------ ------------
Total investments and cash................................................... 7,801.3 7,673.4
Accrued investment income............................................................ 85.4 93.9
Premiums and other receivables....................................................... 1,315.5 1,083.6
Deferred policy acquisition costs.................................................... 357.7 356.7
Reinsurance recoverables on paid and unpaid losses................................... 2,343.1 2,449.0
Funds held by ceding companies....................................................... 408.9 383.0
Prepaid reinsurance premiums......................................................... 148.2 127.6
Deferred federal income taxes........................................................ 142.6 185.6
Other assets......................................................................... 941.3 864.1
------------ ------------
Total assets................................................................. $ 13,544.0 $ 13,216.9
------------ ------------
------------ ------------
LIABILITIES
Loss and loss adjustment expense reserves............................................ $ 7,334.1 $ 7,469.3
Unearned premium reserve............................................................. 1,280.5 1,269.9
------------ ------------
Total insurance reserves..................................................... 8,614.6 8,739.2
Loss balances payable................................................................ 412.1 214.5
Funds held under reinsurance treaties................................................ 273.7 243.3
Senior bank debt..................................................................... 75.0 75.0
Senior notes......................................................................... 498.5 498.5
Other liabilities.................................................................... 579.5 622.5
------------ ------------
Total liabilities............................................................ 10,453.4 10,393.0
Commitments and Contingent Liabilities (Note 14)
Company-obligated mandatorily redeemable preferred securities of subsidiary trust
holding as all of its assets Junior Subordinated Debentures........................ 237.5 237.5
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value: $0.01 per share; authorized: 1,000 shares; issued and
outstanding: 149.49712 and 100 shares at December 31, 1998, and 1997,
respectively....................................................................... -- --
Additional paid-in capital........................................................... 1,332.4 1,332.4
Retained earnings.................................................................... 1,397.6 1,171.6
Accumulated other comprehensive income............................................... 123.1 82.4
------------ ------------
Total stockholders' equity................................................... 2,853.1 2,586.4
------------ ------------
Total liabilities, Company-obligated mandatorily redeemable preferred
securities of subsidiary trust, and stockholders' equity................... $ 13,544.0 $ 13,216.9
------------ ------------
------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Premiums written............................................................. $ 2,406.8 $ 2,497.7 $ 1,902.4
Change in unearned premium reserve........................................... 12.1 (11.6) (105.7)
--------- --------- ---------
Premiums earned............................................................ 2,418.9 2,486.1 1,796.7
Net investment income........................................................ 417.5 427.5 248.2
Net realized capital gains................................................... 92.8 87.7 4.8
Other income................................................................. 31.8 41.7 47.5
--------- --------- ---------
Total revenue............................................................ 2,961.0 3,043.0 2,097.2
--------- --------- ---------
LOSSES AND EXPENSES
Losses and loss adjustment expenses.......................................... 1,682.4 1,716.3 1,167.8
Commission expense........................................................... 584.3 623.5 390.1
Operating expense............................................................ 232.1 214.9 143.4
Interest expense............................................................. 42.2 42.8 54.1
Other expenses............................................................... 98.5 221.2 109.2
--------- --------- ---------
Total losses and expenses................................................ 2,639.5 2,818.7 1,864.6
--------- --------- ---------
Income before income taxes, minority interest, distributions on preferred
securities of subsidiary trust and extraordinary loss...................... 321.5 224.3 232.6
Federal and foreign income taxes............................................. 82.4 (3.4) 73.8
--------- --------- ---------
Income before minority interest, distributions on preferred securities of
subsidiary trust and extraordinary loss.................................... 239.1 227.7 158.8
Minority interest............................................................ -- 6.8 --
Distributions on preferred securities of subsidiary trust, net of applicable
income tax of $7.1......................................................... (13.1) (13.1) (13.1)
--------- --------- ---------
Income before extraordinary loss............................................. 226.0 221.4 145.7
Extraordinary loss, net of applicable income tax of $18.3.................... -- -- (34.0)
--------- --------- ---------
Net income to common stockholders........................................ $ 226.0 $ 221.4 $ 111.7
--------- --------- ---------
--------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ARC MARC MARC ADDITIONAL
COMMON COMMON PREFERRED PAID IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996............................. $ 0.5 $ -- $ -- $ 710.5 $ 87.3
Comprehensive income:
Net income........................................... 111.7
Net change in unrealized loss on foreign exchange....
Net change in unrealized appreciation of
investments........................................
Fixed maturities...................................
Equity securities..................................
Total comprehensive income.............................
Dividend to common stockholders........................ (14.2)
Merger-related capital restructure..................... (0.5) 0.5
Stock option and award settlement tax effect........... 69.5
Other, net............................................. 5.1
----- ----- ----------- ----------- ---------
Balance at December 31,1996............................ -- -- -- 785.6 184.8

Capital restatement resulting from Merger.............. -- 1.9 19.5 15.4 765.8
----- ----- ----------- ----------- ---------
Balance at December 31, 1996........................... -- 1.9 19.5 801.0 950.6

Comprehensive income:
Net income........................................... 221.4
Net change in unrealized loss on foreign exchange....
Net change in unrealized appreciation of
investments........................................
Fixed maturities...................................
Equity securities..................................
Total comprehensive income.............................
Shareholder dividends.................................. (0.4)
Capital contribution................................... 85.0
Acquisition of MARC minority interest.................. 425.0
Merger-related capital restructure..................... (1.9) (19.5) 21.4
----- ----- ----------- ----------- ---------
Balance at December 31, 1997........................... -- -- -- 1,332.4 1,171.6

Comprehensive income:
Net income........................................... 226.0
Net change in unrealized loss on foreign exchange....
Net change in unrealized appreciation of
investments........................................
Fixed maturities...................................
Equity securities..................................
Total comprehensive income.............................
----- ----- ----------- ----------- ---------
Balance at December 31, 1998........................... $ -- $ -- $ -- $ 1,332.4 $ 1,397.6
----- ----- ----------- ----------- ---------
----- ----- ----------- ----------- ---------

<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
--------------- ---------
<S> <C> <C>
Balance at January 1, 1996............................. $ 48.8 $ 847.1
Comprehensive income:
Net income...........................................
Net change in unrealized loss on foreign exchange.... (13.4)
Net change in unrealized appreciation of
investments........................................
Fixed maturities................................... (30.5)
Equity securities.................................. (5.8)
Total comprehensive income............................. 62.0
Dividend to common stockholders........................ (14.2)
Merger-related capital restructure..................... --
Stock option and award settlement tax effect........... 69.5
Other, net............................................. 5.1
------ ---------
Balance at December 31,1996............................ (0.9) 969.5
Capital restatement resulting from Merger.............. 20.4 823.0
------ ---------
Balance at December 31, 1996........................... 19.5 1,792.5
Comprehensive income:
Net income...........................................
Net change in unrealized loss on foreign exchange.... 0.1
Net change in unrealized appreciation of
investments........................................
Fixed maturities................................... 70.0
Equity securities.................................. (7.2)
Total comprehensive income............................. 284.3
Shareholder dividends.................................. (0.4)
Capital contribution................................... 85.0
Acquisition of MARC minority interest.................. 425.0
Merger-related capital restructure..................... --
------ ---------
Balance at December 31, 1997........................... 82.4 2,586.4
Comprehensive income:
Net income...........................................
Net change in unrealized loss on foreign exchange.... (0.2)
Net change in unrealized appreciation of
investments........................................
Fixed maturities................................... 15.8
Equity securities.................................. 25.1
Total comprehensive income............................. 266.7
------ ---------
Balance at December 31, 1998........................... $ 123.1 $ 2,853.1
------ ---------
------ ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................................. $ 226.0 $ 221.4 $ 111.7
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease in accrued investment income..................................................... 8.5 11.3 1.7
Increase in premiums and other receivables................................................ (231.9) (167.6) (131.2)
Increase in deferred policy acquisition costs............................................. (1.0) (19.8) (24.4)
Increase (decrease) in insurance reserves................................................. (124.6) 280.4 250.3
Increase (decrease) in current and deferred federal and foreign income tax assets and
liabilities.............................................................................. (5.0) (57.5) 68.1
Change in other assets and liabilities.................................................... 371.9 96.4 54.8
Depreciation expense on property and equipment............................................ 7.2 8.4 8.5
Write-down of property and equipment...................................................... -- 38.2 --
Net realized capital gains................................................................ (92.8) (87.7) (4.8)
Change in other, net...................................................................... 44.4 42.6 31.2
--------- --------- ---------
Net cash provided by operating activities............................................... 202.7 366.1 365.9
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments held to maturity
Maturities................................................................................ -- -- 75.0
Investments available for sale
Purchases................................................................................. (7,130.2) (5,173.3) (1,981.1)
Maturities................................................................................ 429.7 606.5 359.6
Sales..................................................................................... 6,164.7 4,266.6 1,202.7
Other investments
Purchases................................................................................. (12.6) (3.0) (11.3)
Sales..................................................................................... 0.1 1.9 0.8
Costs of additions to property and equipment................................................ (18.2) (23.1) (22.7)
--------- --------- ---------
Net cash used in investing activities................................................... (566.5) (324.4) (377.0)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing of senior notes..................................................... -- -- 498.4
Defeasance of principal of senior subordinated debentures................................... -- -- (450.0)
Dividend to common stockholders............................................................. -- (0.4) (14.2)
Stock option and award proceeds received from parent........................................ -- -- 204.2
Stock option and award payments............................................................. -- -- (203.5)
Merger-related expense payments............................................................. -- -- (34.1)
Loan from parent company.................................................................... -- (35.9) 35.9
Capital contribution from parent company.................................................... -- 85.0 --
Other capital contribution sources, net..................................................... -- -- 5.2
--------- --------- ---------
Net cash provided by financing activities............................................... -- 48.7 41.9
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents................................ (2.9) (1.9) (0.1)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.................................... (366.7) 88.5 30.7
Cash and cash equivalents, beginning of period.............................................. 641.6 553.1 294.2
--------- --------- ---------
Cash and cash equivalents, end of period.................................................... 274.9 641.6 324.9
Merger-related adjustment................................................................. -- -- 228.2
--------- --------- ---------
Cash & cash equivalents, end of period...................................................... $ 274.9 $ 641.6 $ 553.1
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded), net........................................................... $ (59.3) $ 29.3 $ (21.0)
Interest paid and distributions on preferred securities subsidiary trust.................... $ 62.4 $ 63.0 $ 117.1
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

1. THE COMPANY

A. NATURE OF OPERATIONS

American Re Corporation (the "Company" or "American Re") primarily acts as
the holding company for American Re-Insurance Company ("American Re-Insurance").
American Re-Insurance underwrites property and casualty reinsurance on a direct
basis in both the domestic and international markets. To assist in its
reinsurance business, American Re operates in the alternative market through a
primary insurance company, American Alternative Insurance Corporation ("American
Alternative"). (American Re-Insurance and American Alternative together are the
"reinsurance/insurance subsidiaries.") American Re conducts its business through
14 domestic and 14 international offices.

B. ACQUISITION BY MUNICH RE

The Company is a subsidiary of Munchener Ruckversicherungs-Gesellschaft
Aktiengesellschaft in Munchen ("Munich Re"), a company organized under the laws
of Germany.

On August 13, 1996, the Company entered into an Agreement and Plan of Merger
with Munich Re and Puma Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Munich Re. Pursuant to the terms of the Merger
Agreement, on November 25, 1996, following approval of the Merger by the
Company's stockholders and applicable regulatory authorities, Puma Acquisition
Corp. was merged with and into the Company, which became a wholly owned
subsidiary of Munich Re (the "Acquisition"), and all of the outstanding shares
of the Company's common stock, $.01 par value, were converted into the right to
receive $65.00 per share in cash. In addition, the Merger Agreement canceled all
outstanding Company stock options. Holders of the canceled Company stock options
were entitled to receive a cash payment equal to the product of (i) the number
of Company stock options outstanding at the merger date, and (ii) the excess of
the Merger Consideration, over the cumulative exercise price total of the
Company's stock options outstanding. In addition, certain holders of the
Company's stock options were given the opportunity to defer the receipt of up to
100% of their option proceeds until 2001.

Aggregate cash consideration paid by Munich Re was $3,278.3, including
aggregate cash payment of canceled stock options of $124.2 and aggregate
canceled stock option proceeds deferred of $79.9. The Company established a
stockholders' equity benefit of $69.5, representing current and deferred tax
benefits associated with the cancellation and settlement of the Company's stock
options. In addition, the Company incurred a one-time charge to operating
earnings of $36.1 ($35.1 on an after-tax basis), primarily consisting of
financial advisory fees in connection with the Acquisition. On November 26,
1996, the Company's Common Stock was voluntarily delisted from the New York
Stock Exchange. As a result of the Acquisition, the 47.3 million shares of
Common Stock previously issued and outstanding, were converted to 100 common
shares issued and outstanding.

On July 1, 1997, American Re and Munich Re, completed the merger of Munich
American Reinsurance Company ("MARC") into American Re-Insurance. Prior to this
transaction, MARC was owned 27.5% by Munich Re, 22.5% by Munich Re's U.S. Branch
(the "U.S. Branch"), 40% by Allianz Aktiengesellschaft ("Allianz"), and 10% by
VICTORIA Versicherung AG ("VICTORIA"). This transaction was effected by
exchanging 100% of the common shares of MARC for 25.92804 newly issued shares of
the Company. On July 2, 1997, the U.S. Branch exchanged its newly acquired
shares of the Company with Munich Re for cash in the amount of $85.0 million.
This amount approximated the statutory accounting value of the U.S. Branch's
ownership in MARC at the time of the Merger. On July 3, 1997, Munich Re

F-8
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

1. THE COMPANY (CONTINUED)
contributed the insurance-related assets and liabilities of the U.S. Branch to
American Re-Insurance in exchange for 23.56908 additional shares of the Company
("the Redomestication"). As a result of these transactions (collectively, the
"Merger"), the shares of common stock held by Allianz and VICTORIA represented
minority interests in the Company's common stock equal to less than 9% on an
aggregate basis. In 1998, Munich Re acquired the shares of common stock owned by
VICTORIA, bringing Munich Re's ownership interest to 93.06%.

The exchange of MARC shares for the Company shares by Allianz and VICTORIA
(totaling 50% of MARC's ownership) was accounted for using the purchase method
for business combinations. The exchange of MARC shares for the Company's shares
by Munich Re and the U.S. Branch (totaling 50% of MARC's ownership) was
accounted for as an "as-if-pooling of interests" business combination between
parties under common control of the same parent company, Munich Re.

The exchange of the insurance assets and liabilities of the U.S. Branch for
the Company's shares was also accounted for as an "as-if-pooling of interests"
business combination between parties under common control. Common control for
American Re, MARC and the U.S. Branch was considered effective at December 31,
1996. As such, the Company's December 31, 1996, balance sheet and related
footnote disclosures, as originally filed in its 1996 Form 10-K, have been
restated to reflect a 50% ownership of MARC, a 50% minority interest in the
ownership of MARC by Allianz and VICTORIA, and a 100% ownership of the U.S.
Branch. As common control was considered effective at December 31, 1996, the
Company's consolidated statements of income and cash flows for the year ended
December 31, 1996, have not been restated.

The Company's consolidated statements of income and cash flows for the year
ended December 31, 1997 represent the fully consolidated operations of American
Re, MARC, and the U.S. Branch for the periods then ended, with 50% of MARC's net
loss for the six-month period ended June 30, 1997 accounted for as minority
interest in the net income of the Company. Revenue and net income for the
separate entities for the six-month period ended June 30, 1997, prior to the
Merger were as follows:

<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
JUNE 30, 1997
-------------
<S> <C>
Revenue:
American Re................................................................ $ 1,094.1
MARC/U.S. Branch........................................................... 517.0
-------------
Total.................................................................... $ 1,611.1
-------------
-------------
Net income:
American Re................................................................ $ 22.3
MARC/U.S. Branch........................................................... 63.5
-------------
Total.................................................................... $ 85.8
-------------
-------------
</TABLE>

F-9
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

1. THE COMPANY (CONTINUED)
The purchase of the 50% minority interest in the ownership of MARC was based
upon a purchase price of $425.0, as agreed upon by all parties. The non-cash
transaction was accounted for as follows:

<TABLE>
<S> <C>
Purchase price:
Consideration given as newly issued shares of American Re........... $ 425.0
Less: Book value of minority interest at July 1, 1997............... 240.2
---------
Excess of purchase price over net assets acquired................... $ 184.8
---------
---------
</TABLE>

The excess of the purchase price of the net assets acquired was allocated
entirely to goodwill, which is included in the "Other assets" classification in
the Consolidated Balance Sheets (see Note 2H).

During 1997, the Company incurred one-time Merger-related charges, including
the following:

<TABLE>
<CAPTION>
MARC/U.S.
AMERICAN RE BRANCH TOTAL
------------- ------------- ---------
<S> <C> <C> <C>
Severance and other personnel related charges............ $ 8.9 $ 65.7 $ 74.6
Write-down of data processing equipment.................. 22.7 15.5 38.2
Sale leaseback write-down................................ 13.3 -- 13.3
----- ----- ---------
$ 44.9 $ 81.2 $ 126.1
----- ----- ---------
----- ----- ---------
</TABLE>

For informational purposes, the pro forma condensed results of operations
shown below are presented as if the Merger transactions which took place in July
1997 had occurred at January 1, 1996. Adjustments have been made to the 1997
amounts to exclude Merger-related expenses, minority interest, and reversal of
the U.S. Branch deferred tax asset valuation allowance (see Note 6), and to the
1997 and 1996 amounts to include goodwill amortization.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Revenue.............................................................. $ 3,043.0 $ 2,962.0
Income before income taxes, distributions on preferred securities of
subsidiary trust and extraordinary loss............................ 348.1 370.9
Net income........................................................... $ 256.6 $ 234.6
</TABLE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PRESENTATION

The Company's primary business is reinsuring property-casualty risks of
domestic and foreign insurance organizations under excess of loss and pro rata
reinsurance contracts. The Company and American Re-Insurance operate on a
calendar year basis.

The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles and include the accounts of the Company
and its subsidiaries. Intercompany accounts and transactions have been
eliminated. The preparation of financial statements in conformity with generally

F-10
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

B. APPLICATION OF NEW ACCOUNTING STANDARDS

REPORTING COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted Financial Accounting Standard
No. 130 ("FAS No. 130"), "Reporting Comprehensive Income." FAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components in financial statements. FAS 130 requires unrealized gains and
losses on investments, unrealized foreign currency translation adjustments, and
minimum pension liability adjustments, if any, to be included as components of
other comprehensive income. Prior to the adoption of FAS 130 these amounts were
reported as separate components in stockholders' equity. Prior years' financial
statements have been reclassified to conform with the requirements of FAS 130.
The components of other comprehensive income are shown net of tax in the
Consolidated Statement of Stockholders' Equity. The adoption of this statement
had no financial impact on the Company's net income or stockholders' equity. The
components of accumulated other comprehensive income are as follows:

<TABLE>
<CAPTION>
NET UNREALIZED
NET UNREALIZED LOSS ON
APPRECIATION OF FOREIGNS
INVESTMENTS EXCHANGE TOTAL
--------------- --------------- ---------
<S> <C> <C> <C>
Balance at December 31, 1997............................................ $ 118.0 $ (35.6) $ 82.4
Period change....................................................... 155.7 (0.3) 155.4
Tax effect........................................................ (54.5) 0.1 (54.4)
Reclassification adjustment for gain/loss included in net income.... (92.8) -- (92.8)
Tax effect........................................................ 32.5 -- 32.5
------ ------ ---------
Balance at December 31, 1998............................................ $ 158.9 $ (35.8) $ 123.1
------ ------ ---------
------ ------ ---------
</TABLE>

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the FASB issued Financial Accounting Standard No. 133 ("FAS
No. 133"), "Accounting for Derivative Instruments and Hedging Activities." FAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets of liabilities in the statement of financial
position and measure those instruments at fair value. FAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Currently, the Company does not expect the adoption of FAS No. 133 to have a
material impact on its consolidated financial statements.

F-11
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPOSIT ACCOUNTING

In October 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position No. 98-7 ("SOP No. 98-7"), "Deposit Accounting:
Accounting for Insurance and Reinsurance Contracts That Do Not Transfer
Insurance Risk." SOP No. 98-7 provides guidance on how to apply the deposit
method of accounting when it is required for insurance and reinsurance contracts
that do not transfer insurance risk. This SOP is effective for fiscal years
beginning after June 15, 1999. Currently, the Company does not expect the
application of SOP No. 98-7 to have a material impact on its consolidated
financial statements.

C. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, money market instruments and
other debt issues purchased with a maturity of ninety days or less when
purchased.

D. INVESTMENTS

All debt and equity securities are classified as available for sale and
reported at fair value, with unrealized gains and losses excluded from earnings
and reflected in stockholders' equity as a component of other comprehensive
income, net of related income taxes. Realized gains and losses on the sale or
maturity of investments are determined on the basis of the specific
identification method and are included in net income. Purchases and sales are
recorded on a trade date basis.

If a decline in fair value of an invested asset is considered to be other
than temporary, or if the asset is deemed to be permanently impaired, the
investment is reduced to its net realizable value and the reduction is accounted
for as a realized investment loss.

The cost for mortgage-backed securities is adjusted for unamortized premiums
and discounts, which are amortized or accreted using the interest method over
the estimated remaining term of the securities, adjusted for anticipated
prepayments.

E. DEFERRED POLICY ACQUISITION COSTS

Deferred policy acquisition costs represent acquisition costs, primarily
commissions and certain operating expenses. These costs were deferred and were
limited to their estimated realizable value based on the related unearned
premiums, anticipated claims and claims expenses and anticipated investment
income. These costs are amortized ratably over the terms of the related
contracts, which are generally a year in duration.

F. DEFERRED FINANCING FEES

Financing, underwriting, attorneys and accountants fees related to the
issuance of the Senior Notes (see Note 10), the Cumulative Quarterly Income
Preferred Securities (See Note 11), and the senior bank debt (see Note 8) have
been deferred. Such costs are being amortized over the remainder of their
respective lives, using the interest-rate method.

As discussed in Note 10--"Senior Notes," the obligation of the Company's
Senior Subordinated Debentures was extinguished through an in-substance
defeasance in December 1996. Due to this early

F-12
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
extinguishment, the Company recognized an extraordinary charge of $34.0, after
applicable federal income tax effects of $18.3, representing the write-off of
the remaining unamortized senior subordinated debt related financing fees of
$14.1, interest payable through the redemption date of September 19, 1997 of
$16.8, and a premium of 4.75% of the redemption price of $21.4.

The amortization of deferred financing fees was $0.3, $1.9 and $1.9 for the
years ended December 31, 1998, 1997, and 1996 respectively.

G. PROPERTY AND EQUIPMENT

The Company uses straight-line depreciation for all of its depreciable
assets, with the useful lives varying depending on the type of asset.
Accumulated depreciation was $35.9 and $33.5 at December 31, 1998, and 1997,
respectively.

H. GOODWILL

Goodwill represents the cost in excess of net assets acquired for the
acquisitions of American Re-Insurance in 1992 and the minority interests in MARC
in 1997. The goodwill, which is amortized over 40 years, was $258.3 and $265.3
at December 31, 1998 and 1997, respectively. The amortization of goodwill was
$7.0, $4.7 and $2.4 for each of the years ended December 31, 1998, 1997, and
1996, respectively.

The Company regularly evaluates the recoverability of goodwill and other
acquired intangible assets. The carrying value of such assets would be reduced
if, in management's judgment, it was probable that projected future operating
income, before amortization of goodwill, would not be sufficient on an
undiscounted basis to recover the carrying value.

I. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

The reserve for losses and loss adjustment expenses ("LAE") is based upon
reports received from other insurers supplemented with the Company's own case
reserve estimates provided by the Company's claims department. Loss and LAE
reserves also include estimates of incurred but not reported losses based on
past experience modified for current trends, and estimates of expenses for
investigating and settling claims, reduced for anticipated salvage and
subrogation. Generally, it is the Company's policy to discount all workers'
compensation claims on reported and unreported losses to present value using an
interest rate of 4.5%. Such discount resulted in a reduction in gross loss
reserves of approximately $645.0 and $592.7 at December 31, 1998, and 1997,
respectively.

Management believes that the reserves for losses and LAE as of December 31,
1998 are adequate to cover the ultimate gross cost of losses and LAE incurred
through December 31, 1998. The reserves are based on estimates of losses and LAE
incurred and, therefore, the amount ultimately paid may be more or less than
such estimates. The inherent uncertainties of estimating loss reserves are
exacerbated for reinsurers by the significant periods of time that often elapse
between the occurrence of an insured loss, the reporting of the loss to the
primary insurer and, ultimately, to the reinsurer, and the primary insurer's
payment of that loss and subsequent indemnification by the reinsurer. As a
consequence, actual losses and LAE paid may deviate, perhaps substantially, from
estimates reflected in the reinsurance/insurance companies' reserves in their
financial statements. Any adjustments of these estimates or differences between
estimates and amounts subsequently paid or collected are reflected in income as
they occur.

F-13
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. REINSURANCE RECOVERABLES ON UNPAID LOSSES

Reinsurance recoverables on unpaid losses were $2,269.2 and $2,366.5 at
December 31, 1998, and 1997, respectively. These recoverables were based upon
the application of estimates of unpaid loss and LAE reserves in conjunction with
terms specified under individual retrocessional contracts. The amounts
ultimately collected may be more or less than such estimates. Any adjustments of
these estimates or differences between estimates and amounts subsequently
collected are reflected in income as they occur.

K. INCOME TAXES

The Company and its subsidiaries file a consolidated U.S. income tax return
and separate foreign income tax returns as required. The Company uses the
liability method of accounting for income taxes, whereby deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws. The Company is required to establish a "valuation allowance" for
any portion of the deferred tax asset that management believes will not be
realized.

L. FOREIGN CURRENCY TRANSLATION

Foreign currency revenue and expenses are translated at average exchange
rates during the year. Assets and liabilities are translated at the rate of
exchange in effect at the close of the respective year-end. Translation gains
and losses are recorded in accumulated other comprehensive income, net of tax,
while transaction gains and losses are included in other expenses.

M. PREMIUMS AND UNEARNED PREMIUMS

Premiums are recognized as revenue ratably over the terms of the contracts.
Unearned premiums are computed using the monthly pro rata method on a gross of
reinsurance premiums ceded basis for balance sheet purposes, and on a net of
reinsurance premiums ceded basis for income statement purposes. On
retrospectively rated contracts, estimated additional or return premiums are
accrued.

Assumed reinsurance and retrocessional contracts that do not both transfer
significant insurance risk and result in the reasonable possibility that the
Company or its retrocessionaires may realize a significant loss from the
insurance risk assumed are required to be accounted for as deposits. These
contract deposits are included in other assets and other liabilities in the
Consolidated Balance Sheets and are accounted for as financing transactions with
interest income or expense credited or charged to the contract deposits.

N. FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value. Accordingly,
the Company's estimates of fair value are not necessarily indicative of the
amounts that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. Furthermore, fair value estimates
disclosed are based on pertinent information available to the Company at
December 31, 1998, and 1997. Although the Company is not aware of any factors
that would significantly affect the estimated fair value amounts, such

F-14
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts have not been comprehensively revalued for purposes of these financial
statements since that date; therefore, current estimates of fair value may
differ significantly from the amounts disclosed in the financial statements.

The following methods and assumptions were used by the Company in estimating
its fair value disclosures (as presented in Note 15--"Fair Value of Financial
Instruments"):

BONDS. Fair values for bonds were based on quoted market prices, where
available. If quoted market prices were not available, fair values were based on
quoted market prices of comparable instruments or were determined by dealers or
a pricing service specializing in "matrix pricing" and modeling techniques.

PREFERRED STOCK. The fair value of these instruments was based on quoted
market price, where available. Where market values were unavailable, the Company
used discounted cash flow models, using discount rates of securities of similar
maturities and credit characteristics.

EQUITY SECURITIES. The fair value of these securities was based on quoted
market price, where available. Securities accounted for on the equity method
represent the Company's ownership portion of respective securities'
stockholders' equity.

CASH AND CASH EQUIVALENTS. The carrying amounts of these financial
instruments were a reasonable estimate of their fair value.

SENIOR BANK DEBT. Given the fluctuating rate on the senior bank debt, the
carrying amounts for these financial instruments were a reasonable estimate of
their fair value.

SENIOR NOTES. The fair value of this obligation was based on a quoted
market price.

CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES. The fair value of this
obligation was based on a quoted market price.

O. FINANCIAL STATEMENT PRESENTATION

Certain 1997 and 1996 financial statement presentations have been
reclassified to conform with the 1998 presentation.

F-15
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

3. INVESTMENTS

Investments in fixed maturities at December 31, were as follows:

<TABLE>
<CAPTION>
1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Bonds available for sale:
U.S. Treasury securities and obligations of U.S. government
agencies and corporations...................................... $ 610.0 $ 35.9 $ 0.8 $ 645.1
Obligations of states and political subdivisions................. 2,561.1 77.1 1.2 2,637.0
Corporate securities............................................. 2,322.6 60.1 7.4 2,375.3
Mortgage backed securities....................................... 1,194.9 25.8 2.1 1,218.6
----------- ----------- ----- ---------
Total bonds available for sale................................. 6,688.6 198.9 11.5 6,876.0
Preferred stock.................................................... 76.7 0.6 -- 77.3
----------- ----------- ----- ---------
Total fixed maturities......................................... $ 6,765.3 $ 199.5 $ 11.5 $ 6,953.3
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</TABLE>

<TABLE>
<CAPTION>
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Bonds available for sale:
U.S. Treasury securities and obligations of U.S. government
agencies and corporations...................................... $ 1,125.1 $ 25.6 $ 0.1 $ 1,150.6
Obligations of states and political subdivisions................. 1,706.6 57.4 0.2 1,763.8
Corporate securities............................................. 2,652.6 57.4 3.7 2,706.3
Mortgage backed securities....................................... 997.1 28.5 2.1 1,023.5
----------- ----------- ----- ---------
Total bonds available for sale................................. 6,481.4 168.9 6.1 6,644.2
Preferred stock.................................................... 70.8 0.6 -- 71.4
----------- ----------- ----- ---------
Total fixed maturities......................................... $ 6,552.2 $ 169.5 $ 6.1 $ 6,715.6
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</TABLE>

F-16
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

3. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1998,
are shown below by contractual maturity. Actual maturities may differ from
contractual maturities because securities may be called or prepaid with or
without call or prepayment penalties.

<TABLE>
<CAPTION>
1998
---------------------------
AMORTIZED COST FAIR VALUE
-------------- -----------
<S> <C> <C>
Due to mature:
One year or less................................................. $ 265.0 $ 266.7
After one year through five years................................ 1,844.2 1,883.4
After five years through ten years............................... 2,627.6 2,702.5
After ten years.................................................. 833.6 882.1
Mortgage backed securities....................................... 1,194.9 1,218.6
-------------- -----------
Total fixed maturities......................................... $ 6,765.3 $ 6,953.3
-------------- -----------
-------------- -----------
</TABLE>

Proceeds from sales of investments in fixed maturities available for sale
and the related gains and losses realized on those sales were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Proceeds from sales........................................ $ 6,164.7 $ 4,266.6 $ 1,202.7
Gross gains realized....................................... 113.7 43.2 9.0
Gross losses realized...................................... 11.4 21.8 5.1
</TABLE>

Net unrealized appreciation (depreciation) on investments included within
accumulated other comprehensive income was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Change in unrealized appreciation (depreciation)
Fixed maturities......................................................... $ 24.3 $ 107.6
Equity securities........................................................ 38.6 (11.0)
--------- ---------
Subtotal............................................................... 62.9 96.6
Income tax effect.......................................................... 22.0 33.8
--------- ---------
Net change in unrealized appreciation...................................... 40.9 62.8
Balance, beginning of year................................................. 118.0 55.2
--------- ---------
Balance, end of year....................................................... $ 158.9 $ 118.0
--------- ---------
--------- ---------
</TABLE>

At December 31, 1998, and 1997, the Company's investments in bonds on a
financial statement basis were $6,876.0 or 88.1% and $6,644.2 or 86.6%,
respectively, of total investments and cash. The bond portfolio is diversified
within various industry segments.

F-17
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

3. INVESTMENTS (CONTINUED)
Bond investment by market sector at December 31, were as follows:

<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. government................................ $ 610.0 $ 645.1 $ 1,125.0 $ 1,150.6
Foreign government............................. 329.5 342.9 306.0 315.7
State and municipal............................ 2,561.1 2,636.9 1,706.6 1,763.8
Mortgage backed securities..................... 1,194.9 1,218.6 997.1 1,023.5
Financial...................................... 667.8 684.6 1,058.9 1,080.9
Utilities...................................... 117.2 119.2 273.7 278.7
Transportation/capital......................... 10.7 11.2 160.4 163.6
Health care.................................... 24.9 25.9 18.1 18.6
Natural resources.............................. 3.1 3.1 2.4 2.4
Other corporate securities..................... 1,169.4 1,188.5 833.2 846.4
----------- --------- ----------- ---------
Total...................................... $ 6,688.6 $ 6,876.0 $ 6,481.4 $ 6,644.2
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>

Sources of net investment income were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Fixed maturities................................................. $ 392.2 $ 407.7 $ 239.1
Short-term investments........................................... 22.0 21.9 9.6
Other............................................................ 28.9 16.3 13.8
--------- --------- ---------
Gross investment income...................................... 443.1 445.9 262.5
Investment expenses.............................................. (25.6) (18.4) (14.3)
--------- --------- ---------
Net investment income........................................ $ 417.5 $ 427.5 $ 248.2
--------- --------- ---------
--------- --------- ---------
</TABLE>

Net realized capital investment gains (losses) were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Fixed maturities..................................................... $ 102.3 $ 21.4 $ 3.9
Equity securities.................................................... (3.8) 67.9 --
Other................................................................ (5.7) (1.6) 0.9
--------- --------- ---
Net realized capital gains....................................... $ 92.8 $ 87.7 $ 4.8
--------- --------- ---
--------- --------- ---
</TABLE>

At December 31, 1998, and 1997, securities in the amount of $408.5 and
$399.9 (par value), respectively, were on deposit with governmental authorities
as required by law.

F-18
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

4. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

The reconciliation of loss and loss adjustment expense reserves for the
years ended December 31, 1998, 1997, and 1996 is shown below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Loss and LAE reserves at beginning of period................................ $ 7,469.3 $ 7,178.3 $ 4,786.0
Reinsurance recoverables on unpaid losses................................... (2,366.5) (2,329.6) (1,941.4)
---------- ---------- ----------
Net reserves at beginning of period......................................... 5,102.8 4,848.7 2,844.6

Net incurred related to:
Current period............................................................ 1,620.4 1,642.1 1,167.7
Prior periods............................................................. 62.0 74.2 0.1
---------- ---------- ----------
Total net incurred...................................................... 1,682.4 1,716.3 1,167.8
Net paid related to:
Current period............................................................ 207.2 167.5 89.5
Prior periods............................................................. 1,513.1 1,294.7 820.5
---------- ---------- ----------
Total net paid.......................................................... 1,720.3 1,462.2 910.0
---------- ---------- ----------

Net reserves at end of period............................................... 5,064.9 5,102.8 3,102.4
Merger-related adjustment................................................. -- -- 1,746.3
---------- ---------- ----------
Net reserves at end of period............................................... 5,064.9 5,102.8 4,848.7
Reinsurance recoverables on unpaid losses................................... (2,269.2) (2,366.5) (1,775.1)
Merger-related adjustment................................................. -- -- (554.5)
---------- ---------- ----------
Reinsurance recoverables on unpaid losses................................... (2,269.2) (2,366.5) (2,329.6)
---------- ---------- ----------

Loss and LAE reserves at end of period...................................... $ 7,334.1 $ 7,469.3 $ 7,178.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

As a result of changes in estimates of insured events in prior years, the
losses and LAE incurred (net of reinsurance recoveries of $252.1, $373.0 and
$99.2 for the years ended December 31, 1998, 1997, and 1996, respectively)
increased by $62.0 in 1998, $74.2 in 1997, and $0.1 in 1996.

5. REINSURANCE

The Company purchases reinsurance (retrocessional agreements) for certain
risks. Reinsurance companies enter into retrocessional agreements for reasons
similar to those that cause primary insurers to purchase reinsurance, namely to
reduce net liability on individual risks, to protect against catastrophic
losses, to stabilize their financial ratios and to obtain additional
underwriting capacity.

The Company believes that it has minimized the credit risk with respect to
its retrocessions by monitoring its retrocessionaires, diversifying its
retrocessions and collateralizing obligations from foreign retrocessionaires.
Potential deterioration of the financial condition of retrocessional markets is
carefully monitored and appropriate actions are taken to eliminate or minimize
exposures. As a general rule, the Company requires that unpaid losses and LAE
(including IBNR) for certain admitted and non-admitted reinsurers (unregulated
by United States insurance regulatory authorities) be collateralized by letters
of

F-19
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

5. REINSURANCE (CONTINUED)
credit, funds withheld or pledged trust agreements. In certain cases, the full
limit ceded to non-admitted reinsurers is required to be collateralized
regardless of actual claim activity. Actions such as drawdowns of letters of
credit provided as collateral, cessation of relationships and commutations may
be taken to reduce or eliminate exposure when necessary.

Although reinsurance agreements contractually obligate the Company's
reinsurers to reimburse it for the agreed-upon portion of its gross paid losses,
they do not discharge the primary liability of the Company. The income statement
amounts for premiums written premiums earned and losses and loss adjustment
expenses are net of reinsurance. Direct, assumed, ceded and net amounts for
these items are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Premiums written
Direct................................................... $ 208.6 $ 146.0 $ 71.2
Assumed.................................................. 2,908.9 2,935.1 2,262.0
Ceded.................................................... (710.7) (583.4) (430.8)
--------- --------- ---------
Net...................................................... 2,406.8 2,497.7 1,902.4
--------- --------- ---------
--------- --------- ---------
Premiums earned
Direct................................................... 194.1 119.0 34.7
Assumed.................................................. 2,914.8 3,003.5 2,161.0
Ceded.................................................... (690.0) (636.4) (399.0)
--------- --------- ---------
Net...................................................... 2,418.9 2,486.1 1,796.7
--------- --------- ---------
--------- --------- ---------
Losses incurred
Direct................................................... 136.4 56.9 (45.6)
Assumed.................................................. 1,798.1 2,032.4 1,312.6
Ceded.................................................... (252.1) (373.0) (99.2)
--------- --------- ---------
Net...................................................... $ 1,682.4 $ 1,716.3 $ 1,167.8
--------- --------- ---------
--------- --------- ---------
</TABLE>

The Company maintains an allowance for doubtful accounts for amounts due
from companies in receivership or believed to be in financial difficulty. The
total allowance reflected in both reinsurance recoverables on paid and unpaid
losses, and premiums and other receivables was $79.6 and $81.0 at December 31,
1998 and 1997, respectively. There can be no assurance future charges for
uncollectible reinsurance will not materially adversely affect results of
operations in any future period, although any such charges would not be expected
to have a material adverse effect on the Company's liquidity or financial
condition.

National Indemnity Company (which had an A.M. Best rating of "A++" at
December 31, 1998), a subsidiary of Berkshire Hathaway, Inc., accounted for
approximately 23.5% and 24.7% of the reinsurance recoverables on paid and unpaid
losses at December 31, 1998, and 1997, respectively. Allianz A.G. Holdings
(which had an A.M. Best rating of "A+" at December 31, 1998), accounted for
approximately 9.2% and 12.0% of the reinsurance recoverables on paid and unpaid
losses at December 31, 1998, and 1997, respectively.

F-20
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

6. FEDERAL AND FOREIGN INCOME TAXES

The net deferred tax asset recorded at December 31, 1998, and 1997,
represents the net temporary differences between the tax bases of assets and
liabilities and their amounts for financial reporting. The components of the net
deferred tax asset, based on a tax rate of 35% at December 31, were as follows:

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Loss reserves........................................................................ $ 323.6 $ 310.0
Unearned premiums.................................................................... 78.8 79.6
Alternative minimum tax ("AMT") credit carryforward.................................. 7.2 19.2
Other deferred tax assets............................................................ 54.7 80.4
--------- ---------
Deferred tax asset................................................................. 464.3 489.2

Reinsurance recoverable on paid and unpaid losses.................................... 100.1 98.7
Deferred policy acquisition costs.................................................... 125.2 124.9
Investments.......................................................................... 73.8 60.0
Other deferred liabilities........................................................... 22.6 20.0
--------- ---------
Deferred tax liability............................................................. 321.7 303.6
--------- ---------
Net deferred tax asset............................................................. $ 142.6 $ 185.6
--------- ---------
--------- ---------
</TABLE>

At December 31, 1998, the Company believes it is more likely than not that
the deferred tax asset is fully realizable, and therefore, no valuation
allowance has been recorded. Realization of the net deferred tax asset is
dependent on generating sufficient taxable income in future periods. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income are reduced.

F-21
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

6. FEDERAL AND FOREIGN INCOME TAXES (CONTINUED)
Income tax expense (benefit) was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------
<S> <C> <C> <C>
CURRENT DEFERRED TOTAL
----------- ----------- ---------
Income--federal and foreign tax expense......................... $ 23.0 $ 26.9 $ 49.9
Federal tax expense (benefit) on net realized capital gains..... 40.6 (8.1) 32.5
----- ----------- ---------
Total federal and foreign tax expense......................... $ 63.6 $ 18.8 $ 82.4
----- ----------- ---------
----- ----------- ---------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------
<S> <C> <C> <C>
CURRENT DEFERRED TOTAL
----------- ----------- ---------
Income--federal and foreign tax expense (benefit)............... $ 19.8 $ (49.1) $ (29.3)
Federal tax expense (benefit) on net realized capital gains..... 32.6 (6.7) 25.9
----- ----------- ---------
Total federal and foreign tax expense (benefit)............... $ 52.4 $ (55.8) $ (3.4)
----- ----------- ---------
----- ----------- ---------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
<S> <C> <C> <C>
CURRENT DEFERRED TOTAL
----------- ----------- ---------
Income--federal and foreign tax expense......................... $ 48.3 $ 23.8 $ 72.1
Federal tax expense (benefit) on net realized capital gains..... 3.3 (1.6) 1.7
----- ----------- ---------
Total federal and foreign tax expense......................... $ 51.6 $ 22.2 $ 73.8
----- ----------- ---------
----- ----------- ---------
</TABLE>

At December 31, 1996, the U.S. Branch had a valuation allowance to reflect
the estimated amount of the deferred tax assets that may not be realized due to
the expiration of net operating losses, tax credit carryforwards and loss
reserve discounting. As part of the Redomestication of the U.S. Branch, the
remaining net operating losses and the tax credit carryforwards remained with a
successor Federal taxable entity to the U.S. Branch. As a result, the deferred
tax assets for the net operating loss carryforwards and tax credit
carryforwards, and the offsetting valuation allowances, are not included in the
Company's deferred tax asset or liability calculation at December 31, 1997.
However, the loss reserve discount deferred tax asset and corresponding
valuation allowance were transferred to American Re as a part of the
Redomestication. The valuation allowance associated with the discount on the
loss reserves was reversed subsequent to the Redomestication, as the Company
believes, based on its consolidated Federal tax position, that it is more likely
than not that the deferred tax asset is fully realizable. This reversal resulted
in a tax benefit of $37.7 million during the 1997 period.

F-22
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

6. FEDERAL AND FOREIGN INCOME TAXES (CONTINUED)
Reconciliations of the differences between income taxes computed at the
federal statutory tax rate and consolidated provisions for income taxes were as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Income before taxes.................................................................. $ 321.5 $ 224.3 $ 232.6
Income tax rate...................................................................... 35% 35% 35%
--------- --------- ---------
Tax expense at federal statutory income tax rate................................... 112.5 78.5 81.4
Tax effect of:
Tax-exempt investment income....................................................... (31.0) (20.7) (19.9)
Goodwill........................................................................... 2.5 1.6 0.8
Reversal of the valuation allowance associated with the loss reserve discount--U.
S. Branch........................................................................ -- (37.7) --
Net operating loss utilization--U.S. Branch........................................ -- (24.4) --
Merger-related expenses, not deductible for federal income tax purposes............ -- -- 11.6
Other, net......................................................................... (1.6) (0.7) (0.1)
--------- --------- ---------
Federal and foreign income tax expense (benefit)................................. $ 82.4 $ (3.4) $ 73.8
--------- --------- ---------
--------- --------- ---------
</TABLE>

7. BENEFIT PLANS

The Company has several qualified and nonqualified pension plans and other
post retirement benefit plans for its employees. The Company has a
non-contributory defined benefit pension plan covering substantially all of its
employees. Benefits are based on years of service and the employee's final
compensation. Accrued costs represent estimates based upon current information.
Those estimates are subject to change due to changes in the underlying
information supporting such estimates in the future. The Company's policy is to
fund pension costs as required, subject to the amounts that are currently
deductible for tax reporting purposes. Vested benefits are fully funded.

The Company also provides post retirement health care benefits to
individuals eligible to receive benefits under the Company's non-contributory
defined benefit pension plan and who are covered under a Company medical
insurance plan at retirement. The Company funds its obligation currently and no
contributions are required by retirees.

F-23
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

7. BENEFIT PLANS (CONTINUED)
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the years ended December 31,
1998 and 1997, and a statement of the funded status at December 31:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at January 1..................................................... $ 159.5 $ 127.0 $ 25.8 $ 19.6
Service cost.............................................................. 11.6 9.6 2.1 1.5
Interest cost............................................................. 10.8 9.5 1.7 1.4
Plan amendments........................................................... -- 0.9 -- --
Actuarial (gain) loss..................................................... 18.8 12.9 1.7 1.5
Acquisitions (divestitures)............................................... -- 3.0 -- 1.8
Benefit payments.......................................................... (6.5) (3.4) -- --
--------- --------- --------- ---------
Obligation at December 31................................................... $ 194.2 $ 159.5 $ 31.3 $ 25.8
--------- --------- --------- ---------
--------- --------- --------- ---------

RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at January 1...................................... $ 109.1 $ 94.8 $ -- $ --
Actual return on plan assets.............................................. 12.0 16.3 -- --
Employer contributions.................................................... -- 1.4 0.4 0.4
Benefit payments.......................................................... (6.5) (3.4) (0.4) (0.4)
Settlements............................................................... -- -- -- --
--------- --------- --------- ---------
Fair value of plan assets at December 31.................................... $ 114.6 $ 109.1 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------

FUNDED STATUS
Funded status at December 31................................................ $ (79.5) $ (50.3) $ (31.3) $ (25.8)
Unrecognized prior service cost............................................. 0.9 0.9 2.8 2.9
Unrecognized (gain) loss.................................................... 31.0 14.6 4.3 2.2
--------- --------- --------- ---------
Net amount recognized in other liabilities.................................. $ (47.6) $ (34.8) $ (24.2) $ (20.7)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

The Company's nonqualified pension plan was the only pension plan with an
accumulated benefit obligation in excess of plan assets. The plan's accumulated
benefit obligation was $8.8 and $10.7 at December 31, 1998 and 1997,
respectively. There are no plan assets in the nonqualified plan due to the
nature of the plan. The Company's plans for post retirement benefits other than
pensions also have no plan assets. The aggregate benefit obligation for those
plans is $31.3 and $25.8 at December 31, 1998 and 1997, respectively.

F-24
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

7. BENEFIT PLANS (CONTINUED)
Net periodic benefit cost for the years ended December 31, included the
following components:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997
--------- --------- --------- --------- ---------
Service cost......................................................... $ 11.6 $ 9.6 $ 7.1 $ 2.1 $ 1.5
Interest cost........................................................ 10.8 9.5 5.9 1.7 1.4
Expected return on plan assets....................................... (9.7) (8.6) (5.7) -- --
Amortization of prior service cost................................... 0.1 -- -- 0.2 0.1
Amortization of net (gain) loss...................................... 0.1 -- -- -- --
--------- --------- --- --- ---
Net periodic benefit cost.......................................... $ 12.9 $ 10.5 7.3 $ 4.0 $ 3.0
--------- --------- --- --- ---
--------- --------- --- --- ---

<S> <C>
1996
---------
Service cost......................................................... $ 1.3
Interest cost........................................................ 1.2
Expected return on plan assets....................................... --
Amortization of prior service cost................................... --
Amortization of net (gain) loss...................................... --
---
Net periodic benefit cost.......................................... $ 2.5
---
---
</TABLE>

The prior service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and the market-related
value of assets are amortized over the average remaining service period of
active participants.

The assumptions used in the measurement of the Company's benefit obligation
are shown in the following table:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
Discount rate.................................................... 6.5% 7.0% 7.5% 6.5% 7.0% 7.5%
Expected return on plan assets................................... 9.0% 9.0% 9.0% N/A N/A N/A
Rate of compensation expense..................................... 5.5% 5.5% 5.5% N/A N/A N/A
</TABLE>

For measurement purposes, a 7.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998. The rate was assumed
to decrease gradually over 18 years, to a rate of 5% and remain at that level
thereafter.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A 1% change in assumed health care
cost trend rates would have the following effects:

<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
--------------- -------------
<S> <C> <C>
Effect on total of service and interest cost components of net
periodic postretirement health care benefit cost................. $ 1.0 $ (1.3)

Effect on the health care component of the accumulated
postretirement benefit obligation................................ $ 6.0 $ (7.6)
</TABLE>

Substantially all employees are eligible to participate in a savings plan
under which designated contributions, which are invested in various investment
programs, are matched, up to 5% of compensation, by the Company. The costs of
the Company's matching contributions were $5.0, $5.0, and $3.6 for the years
ended December 31, 1998, 1997, and 1996, respectively.

Key employees are eligible for plans that provide compensation incentives
based upon operating results and that reward specific individuals for
performance and contribution to the success of the

F-25
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

7. BENEFIT PLANS (CONTINUED)
Company. Charges to operations for such incentives were $21.6, $23.4 and $14.9
for the years ended December 31, 1998, 1997, and 1996, respectively.

In 1998, American Re-Insurance entered into Employment Agreements (the
"Agreements"), with certain senior executives pursuant to which each such
executive has agreed to serve in his current position for a period of five years
and the Company agreed to provide certain compensation and severance benefits as
provided therein. Under the Agreements, each executive's cash compensation,
which consists of the executive's annual rate of base salary and the annual
incentive compensation award or such bonus as may be paid, is determined by
American Re-Insurance from time to time, but shall not be less than a minimum
guaranteed amount equal to the executive's annual rate of pay in effect as of
April 15, 1998 plus the bonus amount paid to such executive for the 1997
calendar year.

Under the Agreements, American Re-Insurance has also agreed to pay a
severance benefit to each executive if the executive's employment with American
Re-Insurance or an affiliate is terminated during the term Agreement by the
Company not for "Cause" or by the executive upon a "Constructive Discharge" (as
such terms are defined in the Agreements). Upon either such termination, the
executive would be entitled to receive, for a period commencing on the date of
termination and ending on the earlier of the second anniversary thereof or the
date of the executive's reemployment, severance benefits consisting of (i)
continued salary and bonus (based on the salary in effect on the date of
termination and the most recent bonus paid); (ii) amounts under American
Re-Insurance's Long Term Incentive Plan equal to the payments the executive
would otherwise have been entitled to receive had the executive remained
employed for the entire performance cycle, prorated based on the number of
months the executive was employed during the performance period; and (iii)
continued participation in all other benefit programs available from the Company
as in effect as of the date of termination.

At the time of the Acquisition, the Company established the Senior Executive
Deferred Compensation Plan. Participants in the plan were provided the
opportunity to defer, for five years, up to 100% of the option proceeds which
they otherwise were eligible to receive from the cancellation of their options
in accordance with the terms of the Acquisition. Participants elected to defer
an aggregate of $79.9 of option proceeds which the Company used to establish and
fund a trust, the assets of which will be dedicated to the payment of such
future obligations in the absence of insolvency by the Company. At the direction
of the participants, the trust proceeds were invested by the Company in one or
more of two index-related investment vehicles and a fixed rate investment
vehicle. In addition thereto, participants are eligible to receive an additional
return from the Company in the amount of 5% of the participant's original
deferred principal provided certain conditions are met. At December 31, 1998,
and 1997, the Company's consolidated balance sheets reflected $126.5 and $79.9,
respectively, of deferred option proceeds, which is reflected in other
liabilities.

8. SENIOR BANK DEBT

In 1995, the Company borrowed $75.0 from Bank of America, N.A., in
anticipation and as part of a new unsecured bank revolving credit agreement
established on January 29, 1996, which allows the Company to borrow an aggregate
amount up to $150.0. Outstanding amounts under the revolving credit

F-26
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

8. SENIOR BANK DEBT (CONTINUED)
agreement bear interest, at the election of the Company, currently at (i) the
Bank of America Base Rate (that is a fluctuating rate equal to the greater of
(x) Bank of America's announced rate of interest, identified as its "reference
rate" or (y) the sum of the federal funds rate plus 0.5%), (ii) a Eurodollar
reserve adjusted InterBank Offered Rate ("IBOR"), or (iii) a competitive bid
rate as determined by the participating banks. Any amount not paid when due will
bear interest at a rate of 2.00% in excess of the rate otherwise applicable. The
revolving credit agreement has a term of five years and, except with respect to
amounts outstanding under IBOR or bid loans, may be prepaid at any time at the
option of the Company. The revolving credit agreement contains certain covenants
relating to, among other things, restrictions on debt, liens, disposition of
assets, consolidations, mergers, use of proceeds, changes in business and
minimum statutory surplus. At December 31, 1998 and 1997, $75.0 remained
outstanding under the bank revolving credit agreement.

In 1998, the Company guaranteed the repayment of principal, interest and
other fees and expenses under a Bank Credit Agreement between American Re
Capital Markets, Inc., a wholly owned subsidiary of the Company ("ARCM") and
Bank of America, N.A. The agreement currently permits ARCM to borrow funds or
obtain letters of credit in an aggregate amount up to $50.0.

ARCM shall use the proceeds of these loans and the letters of credit to
cover losses incurred under weather-related and other derivatives contracts, to
support certain of its obligations under such derivatives contracts and for
other general corporate purposes. At December 31, 1998 ARCM had no outstanding
indebtedness under the agreement.

9. IN-SUBSTANCE DEFEASANCE

On December 24, 1996, the Company defeased in-substance its existing issue
of 10 7/8% Senior Subordinated Debentures due 2004 (the "Debentures"). On
September 19, 1997, the Company redeemed all then outstanding Debentures ($450.0
in principal amount) at 104.75% of par, plus accrued interest to the date of
redemption, in accordance with the terms of the indenture under which the
Debentures were issued. As described in Note 2F--"Deferred Financing Fees", the
Company recognized an extraordinary charge of $34.0, after applicable income tax
of $18.3, resulting from the in-substance defeasance.

As described in Note 10--"Senior Notes," funds for the redemption were
raised through a private offering of $500.0 of the Company's 7.45% Senior Notes
due 2026. The Company completed the offering of the Notes on December 24, 1996.
The net proceeds of $494.1 raised from the offering of the Notes, in addition to
$7.7 of funds from the working capital of the Company, were simultaneously
deposited with the trustee under the indenture for the Debentures (the
"Indenture"). These funds, plus accrued interest, were used to redeem the
Debentures in full on September 19, 1997.

10. SENIOR NOTES

As described in Note 9--"In-Substance Defeasance," in connection with the
in-substance defeasance of the Debentures, the Company sold $500.0 aggregate
principal amount of its Senior Notes due December 15, 2026 (the "Notes") on
December 24, 1996. The Notes bear interest at a rate of 7.45% annually, payable
on June 15 and December 15 each year. The offering price of the notes was
99.687% of the aggregate principal amount, resulting in a yield to maturity of
7.476%.

The Notes are redeemable in whole or in part, at the option of the Company
at any time, at a redemption price equal to the greater of (i) 100% of the
principal amount of such notes and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted, on a

F-27
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

10. SENIOR NOTES (CONTINUED)
semiannual basis, at the rate per annum equal to the yield to maturity of the
United States Treasury securities issue with comparable maturities to the
remaining term of the Notes, plus 15 basis points, together with accrued
interest to the date of redemption. The Indenture contains certain covenants,
including, but not limited to, covenants imposing limitations on liens, and
restrictions on mergers and sale of assets.

The Notes were not registered under the Federal Securities Act of 1933 or
registered or qualified under the securities laws of the various states.
Pursuant to the terms of the Senior Notes, the Company agreed to make an offer
to exchange the Notes for a new issue of debt securities of the Company which
would be registered under the Securities Act of 1933, with terms substantially
similar to the Notes (the "Exchange Offer"). The Exchange Offer was completed on
March 14, 1997, with 100% of the holders of the $500.0 aggregate principal
amount of the Notes accepting the Exchange Offer.

11. CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES

In 1995, American Re Capital, a Delaware business trust formed and wholly
owned by the Company, completed the sale of 9,500,000 Cumulative Quarterly
Income Preferred Securities ("QUIPS") ($237.5 aggregate principal amount), due
in 2025.

The net proceeds from the offering were used by American Re Capital to
purchase a like amount of $244.8 principal amount of 8.5% Junior Subordinated
Debentures of the Company. The $244.8 principal amount of 8.5% Junior
Subordinated Debentures due September 30, 2025, represent all of the assets of
the subsidiary trust. The Company used the proceeds from the sale of the
Debentures to retire the Company's revolving bank credit facility with Chase
Manhattan Bank, N.A. at the time of offering and to contribute $50.0 to the
capital and surplus of American Re-Insurance Company. The remaining net proceeds
from the sale were used for general corporate purposes. The Junior Subordinated
Debentures and related income statement effects are eliminated in the Company's
consolidated financial statements.

The QUIPS accrue and pay distributions quarterly at a rate of 8.5% per annum
of the stated liquidation value of $25 per preferred security. The Company has,
through a guarantee agreement, a trust agreement, the Junior Subordinated
Debentures and an expense agreement, taken together, fully and unconditionally
guaranteed, on a subordinated basis, the Trust's obligation under the preferred
securities to the extent that funds are available therefore, and as more fully
set forth in such agreements.

The QUIPS are mandatorily redeemable upon the maturity of the Junior
Subordinated Debentures, on September 30, 2025 or upon earlier redemption as
provided in the Indenture. The Company has the right to redeem the Junior
Subordinated Debentures, in whole or in part, on or after September 30, 2000, at
a redemption price of $25 per preferred security plus any accrued but unpaid
interest to the redemption date.

12. CAPITAL AND SURPLUS AND STOCKHOLDER DIVIDEND RESTRICTIONS

Statutory surplus for the reinsurance/insurance subsidiaries on a combined
basis at December 31, 1998, and 1997, were $2,631.1 and $2,323.4, respectively.
Statutory net income for the years ended December 31, 1998, 1997, and 1996, on a
combined basis was $319.9, $196.7 and $356.6, respectively. Dividends declared
and paid by American Re-Insurance to the Company were $35.0, $105.0 and $70.0 in
1998, 1997, and 1996, respectively.

F-28
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

12. CAPITAL AND SURPLUS AND STOCKHOLDER DIVIDEND RESTRICTIONS (CONTINUED)
The Company is dependent upon dividends received from its
reinsurance/insurance subsidiaries to meet its debt and other obligations.
Dividend payments by the reinsurance/insurance subsidiaries are restricted by
the insurance laws of the State of Delaware. At December 31, 1998, American
Re-Insurance could declare dividends of approximately $260.8 during 1999 without
approval of the Commissioner of Insurance of the State of Delaware.

13. PERMITTED STATUTORY ACCOUNTING PRACTICES

American Re-Insurance prepares its statutory financial statements in
accordance with accounting practices prescribed or permitted by the Insurance
Department of the State of Delaware. Prescribed statutory accounting practices
include a variety of publications of the National Association of Insurance
Commissioners, as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all rules not so
prescribed.

American Re-Insurance received written approval from the Insurance
Department of the State of Delaware to discount all workers' compensation
reserves for losses at a rate of 4.5% for statutory accounting purposes.
Delaware statutes allow discounting of certain types of reserves at various
discount rates.

14. COMMITMENTS AND CONTINGENT LIABILITIES

A. DERIVATIVES AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

FINANCIAL GUARANTEES

In 1998, the Company recommenced writing financial guarantee programs on a
limited basis. In addition, the Company has principal and interest guarantees
outstanding from programs written prior to December 31, 1986. The aggregate
principal and interest amounts of these guarantees outstanding were $153.9 and
$49.0 at December 31, 1998 and 1997, respectively. The aggregate principal and
interest amount reflects the Company's extent of involvement in financial
guarantees.

There were no material concentrations of off-balance sheet financial
instruments at December 31, 1998, and 1997.

B. RELATED PARTY TRANSACTIONS

In November 1996, the Company borrowed $35.9 from Munich Re for the payment
of Acquisition-related expenses. In July 1997, the Company repaid this amount in
full plus accrued interest.

Munich Re and its affiliated companies participate on several of the
Company's existing retrocessional programs. Total ceded premiums to Munich Re
and its affiliated companies relating to such programs were approximately $174.4
and $97.0 for the years ended December 31, 1998 and 1997, respectively. Total
insurance reserves outstanding with Munich Re and its affiliated companies were
$256.7 and $236.3 at December 31, 1998 and 1997, respectively.

Munich Re Capital Management, an affiliated registered investment advisor,
is primarily responsible for the management of the fixed income portion of the
Company's investment portfolio.

C. LEASES

The Company has operating leases for certain of its furniture, fixtures, and
computer equipment, and office space used by its branch office and subsidiary
locations. Lease expense was $20.3, $23.2, and $14.8,

F-29
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

14. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
for the years ended December 31, 1998, 1997, and 1996. Future net minimum
payments under noncancellable leases at December 31, 1998, were estimated to be
as follows:

<TABLE>
<CAPTION>
2004 AND
1999 2000 2001 2002 2003 THEREAFTER
- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
$18.7 $ 13.9 $ 11.6 $ 9.5 $ 6.7 $ 9.7
- --------- --------- --------- --- --- ---
</TABLE>

D. ASBESTOS, ENVIRONMENTAL-RELATED AND OTHER LATENT LIABILITY CLAIMS

Since the early 1980s, American Re's underwriting results have been
adversely affected by claims developing from asbestos, environmental-related and
other latent liability coverage exposures ("Latent Liability Exposures"). During
this period, reserves established by American Re for Latent Liability Exposures
necessarily reflected the uncertainty inherent in estimating the ultimate future
claim amounts arising from these types of exposures and the lack of credible
actuarial methods to measure and quantify these exposures. The Company's
difficulty in accurately quantifying these exposures was attributable to the
need for Latent Liability Exposures to be first quantified by the insured party
and then the primary insurer before the information was made available to the
reinsurer.

The Company had Latent Liability Exposure loss reserves, before the
application of any adverse loss coverage for 1992 and prior years, as follows at
December 31:

<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
GROSS NET GROSS NET
--------- --------- --------- ---------
Asbestos............................................... $ 399.9 $ 258.5 $ 457.7 $ 297.1
Environmental-Related and Other Latent Liability....... 237.3 150.1 327.9 218.6
--------- --------- --------- ---------
Total.................................................. $ 637.2 $ 408.6 $ 785.6 $ 515.7
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

Latent Liability Exposure loss reserves at December 31, 1998, and 1997,
represent best estimates drawn from a range of possible outcomes based on
currently known facts, projected forward using assumptions and methodologies
considered reasonable. Notwithstanding these loss reserves, there can be no
assurance that future losses resulting from these exposures will not materially
adversely affect future earnings.

E. LITIGATION

The Company is involved in non-claim litigation incidental to its business
principally related to insurance company insolvencies or liquidation proceedings
in the ordinary course of business. Also, in the ordinary course of business,
the Company is sometimes involved in adversarial proceedings incidental to its
insurance and reinsurance business.

Based upon its familiarity with or review and analysis of such matters, the
Company believes that none of the pending litigation matters will have a
material adverse effect on the consolidated financial statements of the Company.
However, no assurance can be given as to the ultimate outcome of any such
litigation matters.

F-30
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments at December 31, 1998, and 1997, were
as follows:

<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
Assets:
Bonds available for sale............................... $ 6,876.0 $ 6,876.0 $ 6,644.2 $ 6,644.2
Preferred stock........................................ 77.3 77.3 71.4 71.4
Equity securities...................................... 545.6 545.6 293.3 293.3
Other invested assets.................................. 27.9 27.9 22.9 22.9
--------- --------- --------- ---------
Total investments.................................... 7,526.8 7,526.8 7,031.8 7,031.8

Cash and cash equivalents................................ 274.9 274.9 641.6 641.6

Liabilities:
Senior bank debt....................................... 75.0 75.0 75.0 75.0
Senior Notes........................................... 498.5 568.6 498.5 539.0
QUIPS.................................................. 237.5 246.1 237.5 246.4
</TABLE>

It is not practicable to estimate a fair value for the Company's financial
guarantees, as there is no quoted market price for such contracts, and it is not
possible to reliably estimate the timing and amount of all future cash flows due
to the unique nature of each of these contracts.

16. SEGMENT REPORTING

American Re's Domestic Insurance Company Operations ("DICO") serves U.S.
insurance companies by providing them with customized, integrated treaty,
facultative and finite risk reinsurance programs on a direct basis. American
Re's alternative market strategic business unit, Munich-American RiskPartners
("RiskPartners") provides customized risk transfer, risk sharing, and risk
management solutions to self-insured clients worldwide. International Operations
("International") provides treaty, facultative and finite risk reinsurance along
with a range of other customized products and services to insurance companies
and other entities worldwide. In addition to its core reinsurance business,
American Re, through various subsidiaries, offers a broad array of related
services including investment management, actuarial and financial analysis, due
diligence consulting for mergers and acquisitions, and reinsurance and insurance

F-31
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

16. SEGMENT REPORTING (CONTINUED)
brokerage. The financial results of these subsidiaries have been aggregated
along with holding company operations for presentation of segment results.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL
INTERNATIONAL INSURANCE FEE SUBS &
DICO RISKPARTNERS OPERATIONS OPERATIONS HOLDING CO. TOTAL
--------- ------------- ------------- ----------- ------------- ---------
REVENUES
GROSS PREMIUMS WRITTEN........... $ 1,888.5 $ 670.1 $ 558.9 $ 3,117.5 -- $ 3,117.5
--------- ------ ------ ----------- ----- ---------
NET PREMIUMS WRITTEN........... 1,517.9 436.5 452.4 2,406.8 -- 2,406.8
--------- ------ ------ ----------- ----- ---------
PREMIUMS EARNED.................. 1,573.3 392.1 453.5 2,418.9 -- 2,418.9
Net investment income............ -- -- -- 420.7 (3.2) 417.5
Net realized capital gains....... -- -- -- 92.8 -- 92.8
Other income..................... -- -- -- (0.5) 32.3 31.8
--------- ------ ------ ----------- ----- ---------
Total revenue.................. 2,931.9 29.1 2,961.0
----------- ----- ---------
LOSSES AND EXPENSES
LOSSES AND LAE................... 1,073.8 273.2 335.4 1,682.4 -- 1,682.4
UNDERWRITING EXPENSES............ 561.3 132.6 122.5 816.4 -- 816.4
Interest expense................. -- -- -- -- 42.2 42.2
Other expense.................... -- -- -- 18.7 79.8 98.5
--------- ------ ------ ----------- ----- ---------
Total losses and expenses...... 2,517.5 122.0 2,639.5
----------- ----- ---------
Income before income taxes....... $ 321.5
---------
---------
UNDERWRITING LOSS................ $ (61.8) $ (13.7) $ (4.4) $ (79.9)
--------- ------ ------ -----------
--------- ------ ------ -----------

LOSS AND LAE RATIO................. 68.2% 69.7% 74.0% 69.6%
UNDERWRITING EXPENSE RATIO......... 35.7 33.8 27.0 33.7
--------- ------ ------ -----------
COMBINED RATIO..................... 103.9% 103.5% 101.0% 103.3%
--------- ------ ------ -----------
--------- ------ ------ -----------
</TABLE>

F-32
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

16. SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL
INTERNATIONAL INSURANCE FEE SUBS &
DICO RISKPARTNERS OPERATIONS OPERATIONS HOLDING CO. TOTAL
--------- ------------- ------------- ----------- ------------- ---------
REVENUES
GROSS PREMIUMS WRITTEN........... $ 2,056.4 $ 471.1 $ 553.5 $ 3,081.0 -- $ 3,081.0
--------- ------ ------ ----------- ----- ---------
NET PREMIUMS WRITTEN............. 1,790.8 273.8 433.1 2,497.7 -- 2,497.7
--------- ------ ------ ----------- ----- ---------
PREMIUMS EARNED................ 1,782.4 286.0 417.7 2,486.1 -- 2,486.1
Net investment income............ -- -- -- 429.8 (2.3) 427.5
Net realized capital gains....... -- -- -- 87.7 -- 87.7
Other income..................... -- -- -- 1.0 40.7 41.7
--------- ------ ------ ----------- ----- ---------
Total revenue.................. 3,004.6 38.4 3,043.0
----------- ----- ---------
LOSSES AND EXPENSES
LOSSES AND LAE................... 1,250.6 194.2 271.5 1,716.3 -- 1,716.3
UNDERWRITING EXPENSES............ 585.5 108.2 144.7 838.4 -- 838.4
Interest expense................. -- -- -- -- 42.8 42.8
Other expense.................... -- -- -- 133.8 87.4 221.2
--------- ------ ------ ----------- ----- ---------
Total losses and expenses...... 2,688.5 130.2 2,818.7
----------- ----- ---------
Income before income taxes..... $ 224.3
---------
---------
UNDERWRITING GAIN (LOSS)......... $ (53.7) $ (16.4) $ 1.5 $ (68.6)
--------- ------ ------ -----------
--------- ------ ------ -----------

LOSS AND LAE RATIO................. 70.2% 67.9% 65.0% 69.0%
UNDERWRITING EXPENSE RATIO......... 32.8 37.8 34.6 33.8
--------- ------ ------ -----------
COMBINED RATIO..................... 103.0% 105.7% 99.6% 102.8%
--------- ------ ------ -----------
--------- ------ ------ -----------
</TABLE>

F-33
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

16. SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL
INTERNATIONAL INSURANCE FEE SUBS &
DICO RISKPARTNERS OPERATIONS OPERATIONS HOLDING CO. TOTAL
--------- ------------- ------------- ----------- ------------- ---------
REVENUES
GROSS PREMIUMS WRITTEN........... $ 1,351.6 $ 422.8 $ 558.8 $ 2,333.2 -- $ 2,333.2
--------- ------ ------ ----------- ----- ---------
NET PREMIUMS WRITTEN............. 1,177.4 283.7 441.3 1,902.4 -- 1,902.4
--------- ------ ------ ----------- ----- ---------
PREMIUMS EARNED................ 1,091.9 290.4 414.4 1,796.7 -- 1,796.7
Net investment income............ -- -- -- 254.6 (6.4) 248.2
Net realized capital gains....... -- -- -- 5.3 (0.5) 4.8
Other income..................... -- -- -- 0.3 47.2 47.5
--------- ------ ------ ----------- ----- ---------
Total revenue.................. 2,056.9 40.3 2,097.2
----------- ----- ---------
LOSSES AND EXPENSES
LOSSES AND LAE................... 728.8 185.6 253.4 1,167.8 -- 1,167.8
UNDERWRITING EXPENSES............ 313.0 91.4 129.1 533.5 -- 533.5
Interest expense................. -- -- -- -- 54.1 54.1
Other expense.................... -- -- -- 9.6 99.6 109.2
--------- ------ ------ ----------- ----- ---------
Total losses and expenses...... 1,710.9 153.7 1,864.6
----------- ----- ---------
Income before income taxes..... $ 232.6
---------
---------
UNDERWRITING GAIN.............. $ 50.1 $ 13.4 $ 31.9 $ 95.4
--------- ------ ------ -----------
--------- ------ ------ -----------

LOSS AND LAE RATIO............... 66.7% 63.9% 61.1% 65.0%
UNDERWRITING EXPENSE RATIO....... 28.7 31.5 31.2 29.7
--------- ------ ------ -----------
COMBINED RATIO................... 95.4% 95.4% 92.3% 94.7%
--------- ------ ------ -----------
--------- ------ ------ -----------
</TABLE>

- ------------------------

Elements of underwriting result are BOLD.

The Company does not allocate certain items of revenues and expenses, nor
are they included in the assessment of the segment results as reviewed by the
Company's management. The assets and liabilities of the Company are generally
not maintained on a segment or geographical basis. An allocation of such assets
and liabilities is considered by the Company to be impracticable.

The Company assumed net premiums written from a primarily domestic client of
$152.8 or 6.3%, $68.0 or 2.7%, and $128.4 or 6.7% of total net premiums during
the years ended December 31, 1998, 1997, and 1996, respectively.

F-34
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

17. UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data were as follows:

<TABLE>
<CAPTION>
1998
------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
Operating Data
Premiums written............................................... $ 682.3 $ 564.0 $ 557.6 $ 602.9
Premiums earned................................................ 592.9 576.1 581.8 668.1
Losses and LAE................................................. 395.4 394.9 441.4 450.7
Underwriting expenses.......................................... 193.9 194.0 189.9 238.6
Underwriting loss.............................................. 3.6 (12.8) (49.5) (21.3)
Net investment income.......................................... 110.6 105.5 103.3 98.1
Interest expense............................................... 10.5 10.6 10.5 10.6
Net income to common stockholders.............................. 82.9 64.2 32.6 46.3
Comprehensive income........................................... 73.1 67.3 72.4 53.9
</TABLE>

<TABLE>
<CAPTION>
1997
------------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
Operating Data
Premiums written............................................... $ 840.6 $ 636.0 $ 550.0 $ 471.1
Premiums earned................................................ 654.3 679.8 552.8 599.2
Losses and LAE................................................. 449.9 469.4 398.4 398.6
Underwriting expenses.......................................... 210.9 213.7 198.2 215.6
Underwriting loss.............................................. (6.5) (3.2) (43.9) (15.0)
Net investment income.......................................... 103.6 106.3 107.6 110.0
Interest expense............................................... 11.2 10.5 10.6 10.5
Net income to common stockholders.............................. 52.7 33.1 50.9 84.7
Comprehensive income........................................... $ (20.3) $ 88.1 $ 112.7 $ 103.8
</TABLE>

F-35
<PAGE>
SCHEDULE I

AMERICAN RE CORPORATION
SUMMARY OF INVESTMENTS

OTHER THAN INVESTMENTS IN RELATED PARTIES

DECEMBER 31, 1998

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
AMOUNT AT
WHICH
SHOWN IN THE
AMORTIZED FAIR BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
- ---------------------------------------------------------------------------- ----------- --------- ------------
<S> <C> <C> <C>
FIXED MATURITIES:
Bonds available for sale:
U.S. Government and government agencies................................. $ 610.0 $ 645.1 $ 645.1
States, municipalities and political subdivisions....................... 2,561.1 2,637.0 2,637.0
Mortgage backed securities.............................................. 1,194.9 1,218.6 1,218.6
Foreign governments..................................................... 329.5 342.9 342.9
Public utilities........................................................ 93.6 94.8 94.8
Corporate bonds......................................................... 1,899.5 1,937.6 1,937.6
----------- --------- ------------
Total bonds available for sale........................................ 6,688.6 6,876.0 6,876.0
----------- --------- ------------
Preferred securities.................................................... 76.7 77.3 77.3
----------- --------- ------------
Total fixed maturities................................................ 6,765.3 6,953.3 6,953.3
----------- --------- ------------

EQUITY SECURITIES:
Common stock:
Public utilities........................................................ 33.2 40.7 40.7
Banks, trust and insurance companies.................................... 70.7 74.4 74.4
Industrial and miscellaneous and all other.............................. 384.8 430.1 430.1
----------- --------- ------------
Total equity securities............................................... 488.7 545.2 545.2
----------- --------- ------------
Other investments....................................................... 27.9 27.9 27.9
----------- --------- ------------
Total investments..................................................... $ 7,281.9 $ 7,526.4 $ 7,526.4
----------- --------- ------------
----------- --------- ------------
</TABLE>

S-1
<PAGE>
SCHEDULE II

AMERICAN RE CORPORATION

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY ONLY)

CONDENSED BALANCE SHEET

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Investment in subsidiaries............................................... $ 3,622.3 $ 3,337.8
Cash..................................................................... 27.5 6.0
Deferred financing fees.................................................. 26.0 26.8
Current federal income taxes recoverable................................. 25.6 57.3
Other assets............................................................. 154.2 113.2
-------- --------
Total assets........................................................... $ 3,855.6 $ 3,541.1
-------- --------
-------- --------
LIABILITIES
Interest payable......................................................... $ 1.2 $ 0.9
Bank debt--term loan..................................................... 75.0 75.0
Senior notes............................................................. 498.5 498.5
Junior subordinated debt................................................. 244.8 244.8
Other liabilities........................................................ 183.0 135.5
-------- --------
Total liabilities...................................................... 1,002.5 954.7
-------- --------
STOCKHOLDERS' EQUITY
Common stock............................................................. -- --
Additional paid in capital............................................... 1,332.4 1,332.4
Retained earnings........................................................ 1,397.6 1,171.6
Accumulated other comprehensive income................................... 123.1 82.4
-------- --------
Total stockholders' equity............................................. 2,853.1 2,586.4
-------- --------
Total liabilities and stockholders' equity............................. $ 3,855.6 $ 3,541.1
-------- --------
-------- --------
</TABLE>

S-2
<PAGE>
SCHEDULE II

AMERICAN RE CORPORATION

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY ONLY)

CONDENSED STATEMENT OF OPERATIONS AND RETAINED EARNINGS

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUE
Net investment income................................. $ 1.4 $ 1.1 $ 1.0
Other income.......................................... 20.5 11.5 11.9
-------- -------- -------
Total............................................... 21.9 12.6 12.9
-------- -------- -------
EXPENSES
Interest expense...................................... 63.0 63.6 74.9
Operating expenses.................................... 27.5 30.6 42.1
-------- -------- -------
Total expenses...................................... 90.5 94.2 117.0
-------- -------- -------
Operating loss before federal income taxes.......... (68.6) (81.6) (104.1)
Federal income taxes.................................... (23.6) (27.1) (24.4)
-------- -------- -------
Loss before equity in undistributed net income of
subsidiaries...................................... (45.0) (54.5) (79.7)
Equity in undistributed net income of subsidiaries...... 271.0 275.9 225.4
-------- -------- -------
Income before extraordinary loss.................... 226.0 221.4 145.7
Extraordinary loss, net of applicable income taxes of
$18.3................................................. -- -- (34.0)
-------- -------- -------
Net income to common stockholders................... 226.0 221.4 111.7
Retained earnings at beginning of period................ 1,171.6 950.6 87.3
-------- -------- -------
1,397.6 1,172.0 199.0
Dividends to common stockholders...................... -- (0.4) (14.2)
-------- -------- -------
Retained earnings at end of period...................... 1,397.6 1,171.6 184.8
Merger-related adjustment............................. -- -- 765.8
-------- -------- -------
Retained earnings (restated)............................ $ 1,397.6 $ 1,171.6 $ 950.6
-------- -------- -------
-------- -------- -------
</TABLE>

S-3
<PAGE>
SCHEDULE II

AMERICAN RE CORPORATION

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

(PARENT COMPANY ONLY)

CONDENSED STATEMENT OF CASH FLOWS

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31. 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to common stockholders..................... $ 226.0 $ 221.4 $ 111.7
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY
OPERATING ACTIVITIES:
Equity in undistributed net income of subsidiaries.... (271.0) (275.9) (225.4)
Interest payable (receivable)......................... 0.3 -- (13.5)
Increase (decrease) in intercompany payables.......... (19.3) 15.1 10.0
Increase (decrease) in current and deferred federal
income tax liability................................ 35.6 (56.4) (27.4)
Increase (decrease) in other, net..................... 14.9 24.3 53.3
------- ------- -------
Net cash used in operating activities............... (13.5) (71.5) (91.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received from subsidiary..................... 35.0 105.0 70.0
Proceeds from borrowing of senior notes............... -- -- 498.4
Defeasance of principal of senior subordinated debt... -- -- (450.0)
Stock option and award proceeds from parent........... -- -- 204.2
Stock option and award payments....................... -- -- (203.5)
Merger-related expense payments....................... -- -- (34.1)
Loan from parent...................................... -- (35.9) 35.9
Investment in subsidiary.............................. -- (12.5) --
Dividends to common stockholders...................... -- (0.4) (14.2)
Other capital contributions........................... -- -- 5.2
------- ------- -------
Net cash provided by financing activities........... 35.0 56.2 111.9
------- ------- -------
Net increase (decrease) in cash..................... 21.5 (15.3) 20.6
Cash and cash equivalents, beginning of period.......... 6.0 21.3 0.7
------- ------- -------
Cash and cash equivalents, end of period................ $ 27.5 $ 6.0 $ 21.3
------- ------- -------
------- ------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded), net..................... $ (59.3) $ 29.3 $ (21.0)
Interest paid......................................... $ 63.0 $ 63.6 $ 117.7
</TABLE>

S-4
<PAGE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT

AMERICAN RE CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION

The condensed financial information of American Re Corporation for the years
ended December 31, 1998, 1997, and 1996, should be read in conjunction with the
consolidated financial statements of American Re Corporation and subsidiaries
and the notes thereto. Investment in subsidiaries is accounted for using the
equity method of accounting.

S-5
<PAGE>
SCHEDULE III
AMERICAN RE CORPORATION
SUPPLEMENTAL INSURANCE INFORMATION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NET
BENEFITS,
DEFERRED LOSSES,
POLICY CLAIMS AND NET
ACQUISITION LOSS UNEARNED EARNED INVESTMENT
SEGMENT COSTS EXPENSES PREMIUMS PREMIUMS INCOME (1)
- ------------------------------------------------------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998

DICO....................................................... $ 235.7 $ 3,636.4 $ 782.6 $ 1,573.3 --
RiskPartners............................................... 69.9 667.7 325.9 392.1 --
International Operations................................... 52.1 760.8 172.0 453.5 --
----------- ---------- ---------- ---------- ----------
Total...................................................... $ 357.7 $ 5,064.9 $ 1,280.5 $ 2,418.9 --
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
YEAR ENDED DECEMBER 31, 1997
DICO....................................................... $ 254.1 $ 3,762.1 $ 823.3 $ 1,782.4 --
RiskPartners............................................... 56.7 727.6 275.6 286.0 --
International Operations................................... 45.9 613.1 171.0 417.7 --
----------- ---------- ---------- ---------- ----------
Total...................................................... $ 356.7 $ 5,102.8 $ 1,269.9 $ 2,486.1 --
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
YEAR ENDED DECEMBER 31, 1996
DICO....................................................... 236.8 $ 3,659.2 $ 888.5 $ 1,091.9 --
RiskPartners............................................... 58.8 613.3 279.6 290.4 --
International Operations................................... 41.3 576.2 153.9 414.4 --
----------- ---------- ---------- ---------- ----------
Total...................................................... $ 336.9 $ 4,848.7 $ 1,322.0 $ 1,796.7 --
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------

AMORTIZATION
CLAIMS OF DEFERRED
AND CLAIM POLICY
ADJUSTMENT ACQUISITION UNDERWRITING PREMIUMS
SEGMENT EXPENSE COSTS EXPENSES WRITTEN
- ------------------------------------------------------------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
DICO....................................................... $ 1,073.8 $ 254.1 $ 561.3 $ 1,517.9
RiskPartners............................................... 273.2 56.7 132.6 436.5
International Operations................................... 335.4 45.9 122.5 452.4
---------- ------ ------------ ----------
Total...................................................... $ 1,682.4 $ 356.7 $ 816.4 $ 2,406.8
---------- ------ ------------ ----------
---------- ------ ------------ ----------
YEAR ENDED DECEMBER 31, 1997
DICO....................................................... $ 1,250.6 $ 236.8 $ 585.5 $ 1,790.8
RiskPartners............................................... 194.2 58.8 108.2 273.8
International Operations................................... 271.5 41.3 144.7 433.1
---------- ------ ------------ ----------
Total...................................................... $ 1,716.3 $ 336.9 $ 838.4 $ 2,497.7
---------- ------ ------------ ----------
---------- ------ ------------ ----------
YEAR ENDED DECEMBER 31, 1996
DICO....................................................... $ 728.8 $ 145.1 $ 313.0 $ 1,177.4
RiskPartners............................................... 185.6 56.0 91.4 283.7
International Operations................................... 253.4 34.1 129.1 441.3
---------- ------ ------------ ----------
Total...................................................... $ 1,167.8 $ 235.2 $ 533.5 $ 1,902.4
---------- ------ ------------ ----------
---------- ------ ------------ ----------
</TABLE>

- ------------------------

(1) The Company does not allocate net investment income by reportable segment,
as it is not included in the assessment of the segment results as reviewed by
the Company's management.

S-6
<PAGE>
SCHEDULE IV
AMERICAN RE CORPORATION AND SUBSIDIARIES

REINSURANCE

(DOLLARS IN MILLIONS, EXCEPT PERCENTAGES)

<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE
GROSS OTHER FROM OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
--------- ----------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Life insurance in force....................................... $ -- $ -- $ -- $ --
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
PREMIUMS:
Life insurance................................................ $ -- $ -- $ -- $ -- --%
Accident and health insurance................................. -- -- -- -- --
Property-liability insurance.................................. 194.1 690.0 2,914.8 2,418.9 120.5
Title insurance............................................... -- -- -- -- --
--------- ----------- ----------- --------- -----
Total Premiums............................................ $ 194.1 $ 690.0 $ 2,914.8 $ 2,418.9 120.5%
--------- ----------- ----------- --------- -----
--------- ----------- ----------- --------- -----

YEAR ENDED DECEMBER 31, 1997:
Life insurance in force....................................... $ -- $ -- $ -- $ --
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
PREMIUMS:
Life insurance................................................ $ -- $ -- $ -- $ -- --%
Accident and health insurance................................. -- -- -- -- --
Property-liability insurance.................................. 119.0 636.4 3,003.5 2,486.1 120.8
Title insurance............................................... -- -- -- -- --
--------- ----------- ----------- --------- -----
Total Premiums............................................ $ 119.0 $ 636.4 $ 3,003.5 $ 2,486.1 120.8%
--------- ----------- ----------- --------- -----
--------- ----------- ----------- --------- -----

YEAR ENDED DECEMBER 31, 1996:
Life insurance in force....................................... $ -- $ -- $ -- $ --
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
PREMIUMS:
Life insurance................................................ $ -- $ -- $ -- $ -- --%
Accident and health insurance................................. -- -- -- -- --
Property-liability insurance.................................. 34.7 399.0 2,161.0 1,796.7 120.3
Title insurance............................................... -- -- -- -- --
--------- ----------- ----------- --------- -----
Total Premiums............................................ $ 34.7 $ 399.0 $ 2,161.0 $ 1,796.7 120.3%
--------- ----------- ----------- --------- -----
--------- ----------- ----------- --------- -----
</TABLE>

S-7
<PAGE>
SCHEDULE VI

AMERICAN RE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION (FOR PROPERTY-CASUALTY INSURANCE UNDERWRITERS)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
CLAIMS
AND CLAIM
ADJUSTMENT
EXPENSES
RESERVES FOR DISCOUNT, INCURRED
DEFERRED UNPAID CLAIMS IF ANY RELATEDTO:
POLICY AND CLAIMS DEDUCTED NET ---------
ACQUISITION ADJUSTMENT IN PREVIOUS UNEARNED EARNED INVESTMENT CURRENT
AFFILIATION WITH REGISTRANT COSTS EXPENSES COLUMN PREMIUMS PREMIUMS INCOME YEAR
- --------------------------------------- ----------- ------------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
(a) Consolidated property-casualty
insurance entities................... $ 357.7 $ 7,334.1 Note (1) $ 1,280.5 $ 2,418.9 $ 417.5 $ 1,620.4
(b) Unconsolidated property-casualty
insurance entities...................
----------- ------------- ----------- --------- --------- ----------- ---------
YEAR ENDED DECEMBER 31, 1997
(a) Consolidated property-casualty
insurance entities................... $ 356.7 $ 7,469.3 Note (1) $ 1,269.9 $ 2,486.1 $ 427.5 $ 1,642.1
(b)Unconsolidated property-casualty
insurance entities...................
----------- ------------- ----------- --------- --------- ----------- ---------
YEAR ENDED DECEMBER 31, 1996
(a) Consolidated property-casualty
insurance entities................... $ 336.9 $ 7,178.3 Note (1) $ 1,322.0 $ 1,796.7 $ 248.2 $ 1,167.7
(b)Unconsolidated property-casualty
insurance entities...................
----------- ------------- ----------- --------- --------- ----------- ---------

AMORTIZATION
OF DEFERRED PAID CLAIMS
POLICY AND CLAIMS
PRIOR ACQUISITION ADJUSTMENT PREMIUMS
AFFILIATION WITH REGISTRANT YEAR COSTS EXPENSES WRITTEN
- --------------------------------------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
(a) Consolidated property-casualty
insurance entities................... $ 62.0 $ 356.7 $ 1,720.3 $ 2,406.8
(b) Unconsolidated property-casualty
insurance entities...................
--------- ------ ----------- -----------
YEAR ENDED DECEMBER 31, 1997
(a) Consolidated property-casualty
insurance entities................... $ 74.2 $ 336.9 $ 1,462.2 $ 2,497.7
(b)Unconsolidated property-casualty
insurance entities...................
--------- ------ ----------- -----------
YEAR ENDED DECEMBER 31, 1996
(a) Consolidated property-casualty
insurance entities................... $ 0.1 $ 235.2 $ 910.0 $ 1,902.4
(b)Unconsolidated property-casualty
insurance entities...................
--------- ------ ----------- -----------
</TABLE>

- ------------------------

(1) Workers' compensation reserves are discounted at 4.5%. The estimated amount
of discount is $645.0, $592.7, and $505.5 as of December 31, 1998, 1997 and
1996, respectively.

S-8
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIAL NUMBERING
NO. DESCRIPTION SYSTEM
- --------- -------------------------------------------------------------------------------- -----------------------
<C> <S> <C>

2.1 Agreement and Plan of Merger, dated as of August 13, 1996, by and among the
Company, Munich Re and Puma Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Munich Re ("Sub"), is incorporated by reference from
the Company's Form 8-K, Exhibit 2, as filed with the Securities and Exchange
Commission on August 14, 1996.

2.2 Amendment dated as of October 23, 1996, to the Agreement and Plan of Merger,
dated as of August 13, 1996, by and among the Company, Munich Re and Sub, is
incorporated by reference from the Company Form 10-K, Exhibit 2.2, as filed with
the Securities and Exchange Commission on March 27, 1997.

2.3 Agreement and Plan of Merger, dated as of May 1, 1997, by and among the Company.
American Reinsurance, and Munich American Reinsurance Company.

3.1 Restated Certificate of Incorporation of the Company is incorporated by
reference from the Company's Form S-I, Registration Statement No. 33-49110.
Exhibit 3.1, as filed with the Securities and Exchange Commission on July 1,
1992.

3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the
Company is incorporated by reference from Amendment No. 2 to the Company's Form
S-1. Registration Statement No. 33-54938. Exhibit 3.3. as filed with the

4.1 Indenture, dated as of December 24, 1996, among the Company and State Street
Bank and Trust Company, as Trustee, relating to the 7.45% Senior Notes, Due 2026
is incorporated by reference from the Company's Form S-4, Registration No.
333-20663, Exhibit 4.1, as filed with the Securities and Exchange Commission on
January 29, 1997.

4.2 Registration Rights Agreement, dated as of December 24, 1996, among the Company,
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette, Merrill Lynch & Co.. J.P.
Morgan & Co., Morgan Stanley & Co. Incorporated, Solomon Brothers Inc., Smith
Barney Inc. and UBS Securities is incorporated by reference from the Company's
Form 5-4, Registration No. 333-20663, Exhibit 4.4, as tiled with the Securities
and Exchange Commission on January 29, 1997.

4.3 Form of Amended and Restated Trust Agreement between the Company and The Bank of
New York, as Property Trustee, The Bank of New York (Delaware) as Delaware
Trustee, and the Administrative Trustees named therein, relating to the 8 1/2%
Cumulative Quarterly Preferred Securities due 2025 (including the form of
Preferred Securities), is incorporated by reference from Amendment No. 1 to the
Company's Form S3, Registration Statement No. 33-94558, Exhibit 4.2, as filed
with the Securities and Exchange Commission on August 21, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIAL NUMBERING
NO. DESCRIPTION SYSTEM
- --------- -------------------------------------------------------------------------------- -----------------------
<C> <S> <C>
4.4 Form of Indenture between the Company and The Bank of New York, as Debenture
Trustee, relating to the 8 1/2% Cumulative Quarterly Preferred Securities due
2025 (including the form of Junior Subordinated Debentures), is incorporated by

4.5 Form of Guarantee Agreement between the Company and The Bank of New York, as
Guarantee Trustee, relating to the 8 1/2% Cumulative Quarterly Preferred
Securities due 2025. is incorporated by reference from Amendment No. 1 to the
Company's Form S-3, Registration Statement No. 33-94553, Exhibit 4.6, as file
with the Securities and Exchange Commission on August 22, 1995.

10.1 Aggregate Excess of Loss Reinsurance Contract No. 2815-0010 dated as of April 6.
1992. between National Indemnity Company and American Re, as amended by
Endorsement No. 1 thereto dated as of November 11, 1990 and Endorsement No. 2
thereto dated June 11, 1992 (together with letter of confirmation dated June 11,
1992 between such parties) is incorporated by reference from the Company's Form
S-1, Registration Statement No. 33-49110, Exhibit 10.2, as filed with the
Securities and Exchange Commission on July 1, 1992.

10.2 Aggregate Excess of Loss Reinsurance Agreement Contract No. 30230 dated as of
September 30, 1992 by and between American Re-lnsurance Company and The Aetna
Casualty and Surety Company is incorporated by reference from the Company's Form
20-K, Exhibit 10.3, as filed with the Securities and Exchange Commission on
March 31, 1993.

10.3 American Re-Insurance Company Supplemental Employees Pension Plan for certain
employees of American Re-Insurance Company effective January 1, 1985 and as
amended and restated as of January 1, 1992 is incorporated by reference from
Amendment No. 2 to The Company's Form S-1,

10.4 American Re-Insurance Company Incentive Compensation Plan for officers and other
key employees as amended and in effect October 26, 1990 is incorporated by
reference from Amendment No. 2 to the Company's Form S-1, Registration Statement
No. 33-49110, Exhibit 10.5, as filed with the Securities and Exchange Commission
on August 28, 1992.

10.5 American Re Insurance Company Supplemental Incentive Savings Plan for certain
employees of American Re-Insurance Company as adopted January 29, 1988 is
incorporated by reference from Amendment No. 2 to the Company's Form S-1,
Registration Statement No. 33-49110, Exhibit 10.8 as filed with the Securities
and Exchange Commission on August 28, 1992.

10.6 American Re-Insurance Company Savings Plan for certain employees of American
Re-Insurance Company effective October 1, 1992 is incorporated by reference from
the Company's Form S-1 Registration Statement. No. 33-54938, Exhibit 10.7, as
filed with the Securities and Exchange Commission on November 24, 1992.
</TABLE>
<PAGE>
<TABLE>
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10.7 Multiple Line Domestic Quota Share Reinsurance Contract together with
endorsements thereto (American Re reference #2815-9001) effective January 1,
1986 between American Re and National Indemnity Company is incorporated by
reference from the Amendment No. 2 to the Company's Form S-1 Registration
Statement No. 33-54938, Exhibit 10.27, as filed with the Securities Exchange
Commission on January 25, 1993.

10.8 Amended and Restated American Re-Insurance Company Group Incentive Compensation
Plan for officers and other key employees; renamed the American Re-Insurance
Company Group Senior Executive Compensation Plan, effective as of January 1,
1993, is incorporated by reference from the Company's Form 10-Q, Exhibit 10.89,
as filed with the Securities and Exchange Commission on November 15, 1993.

10.9 American Re-Insurance Company Group Executive Incentive Compensation Plan,
effective as of January 1. 1993, is incorporated by reference from the Company's
Form 10-Q Exhibit 10.9, as filed with the Securities and Exchange Commission on
November 15, 1993.

10.10 Amendment of the American Re-Insurance Company Savings Plan, dated November 18,
1993, is incorporated by referenced from the Company's form 5-8, Registration
Statement No. 33-763 74, Exhibit 4.22, as filed with the Securities and Exchange
Commission on March 11, 1994.

10.11 Amendment of the American Re-Insurance Company Savings Plan dated March 9, 1994
is incorporated by reference from the Company's Form S-8, Registration Statement
No. 33-76374, Exhibit 4.23, as filed with the Securities and Exchange Commission
on March 11, 1994.

10.12 American Re-Insurance Company Savings Plan as amended and restated effective as
of January 1, 1994 is incorporated by reference from the Company's Form 10-K.
Exhibit 10.36, as filed with the Securities and Exchange Commission on March 31,
1995.

10.14 First Casualty Facultativc Excess Reinsurance Agreement between American
Re-Insurance and National Indemnity Company effective January 11, 1992 is
incorporated by reference from the Company's Form 10-K. Exhibit 10.41, as filed
with the Securities and Exchange Commission on March 31, 1995,

10.15 Credit Agreement dated as of January 29, 1996 among the Company, Bank of America
National Trust and Savings Association, as Agent, and other Financial
Institutions Party thereto is incorporated by reference from the Company's 104,
Exhibit 10.42, as filed with the Securities and Exchange Commission on March 29,
1996.

*10.16 Form of Employment Agreement between the Company and certain executive officers
of the Company.

10.17 Senior Executive Deferred Compensation Plan is incorporated by reference from
the Company's 10-K. Exhibit 10.20, as filed with the Securities and Exchange
Commission on March 27, 1997.
</TABLE>
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10.19 Long Term Incentive Plan for Executive and Key Employees of the Company is
incorporated by reference from the Company's 10-K, Exhibit 10.19, as filed with
the Securities and Exchange Commission on March 30, 1998.

*21 Subsidiaries of the Company.

*27 Financial Data Schedule.
</TABLE>

- ------------------------

* filed herewith

<PAGE>

Exhibit 10.16

================================================================================

EMPLOYMENT AGREEMENT

BY AND BETWEEN

AMERICAN RE-INSURANCE COMPANY

AND

[FIRSTNAME] [MI] [LASTNAME]

================================================================================

<PAGE>

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of September 1, 1998
(the "Effective Date"), is by and between AMERICAN RE-INSURANCE COMPANY, a
Delaware insurance company (the "Company"), and the executive identified on the
signature page hereof (the "Executive").

RECITALS

A. The Company desires to acknowledge the value of the Executive and
assure itself of the services of Executive by engaging Executive to perform such
services under the terms hereof;

B. Executive desires to commit himself to serve the Company on the terms
herein provided;

C. Executive acknowledges that, while in the employ of the Company and/or
any Affiliate thereof (as defined below), and in order for the Company and/or
any Affiliate thereof to operate efficiently and profitably, Executive will be
exposed to, and the Company must take reasonable steps to protect, ideas,
methods, developments, strategies, business plans and financial and other
information of the Company and/or any Affiliate thereof which are confidential
and/or proprietary in nature and which are of significant value to other persons
or entities that operate in the insurance and reinsurance industries.

<PAGE>

AGREEMENT

NOW, THEREFORE, in consideration of the mutual agreements set forth herein
and for other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, the Company and Executive hereby agree as follows:

1. Definitions. The following terms shall have the meanings set forth
below:

"Affiliate" shall mean a corporation or other entity that directly
or indirectly through one or more intermediaries controls, is controlled by, or
is under common control with the corporation or other entity specified.

"Annual Incentive Compensation Award" for any period shall be
Executive's total award paid during such period under all Annual Incentive
Compensation Plans.

"Annual Incentive Compensation Plan" shall mean The American
Re-Insurance Company Group Senior Executive Incentive Compensation Plan, The
American Re-Insurance Company Group Executive Compensation Plan, any other
similar annual bonus plan, and any successor to any of them.

"Board" shall mean the Board of Directors of the Company.

"Cause" shall mean that Executive shall have (i) been convicted of a
felony. (ii) willfully failed to perform the duties of his position, (iii)
stolen or embezzled

2
<PAGE>

property, or (iv) committed an act of willful misconduct which is damaging or
detrimental to the Company and/or any Affiliate thereof.

"Competition" means directly or indirectly (i) soliciting
reinsurance or retrocession business from any Customer, (ii) interfering with
any contractual relationships between the Company and/or any Affiliate thereof,
and any Customer, or (iii) otherwise engaging in, having an interest in, or
managing any person, firm, corporation, partnership or business (whether as a
director, officer, employee, agent, representative, partner, consultant or
otherwise) that engages in any business which competes with any business of the
Company or any Affiliate thereof.

"Constructive Discharge" shall be deemed to have occurred if (i) the
Company and/or any Affiliate thereof shall have (A) made a material adverse
change to Executive's title as set forth on the signature page hereof or
Executive's responsibilities, (B) failed to comply with its obligation set forth
in the first sentence of Section 4 hereof, or (C) required, as a condition to
continued employment with the Company and/or any Affiliate thereof, that
Executive's principal work location be relocated to a location that is more than
75 miles from its location as of the Effective Date and (ii) Executive shall
have within thirty days of such event asserted in writing to the Company and/or
any Affiliate thereof that such event has occurred (and specifying same and the
basis therefor) and that Executive is terminating employment with the Company
and all Affiliates thereof by reason thereof; provided that the Company and/or
such Affiliate thereof shall have fifteen days from receipt of such written
notice from the Executive to cure the event(s) that constituted such
Constructive Discharge prior to such termination becoming effective.

3
<PAGE>

"Customer" shall mean, as of the date of Executive's termination of
employment, any insurance or reinsurance company, insurance or reinsurance agent
or broker, or other corporation, individual or consultant with which the Company
and/or any Affiliate thereof is doing business.

"Date of Termination" shall mean the date of Termination of
Employment.

"Final Year Employment Fraction" in the event of Executive's
Termination of Employment shall mean the ratio of (i) the number of full
calendar months for which Executive was employed hereunder in the final calendar
year of Executive's employment, to (ii) 12.

"LTIP" shall mean the American Re Corporation Long-Term Incentive
Plan and any successor thereto.

"Non-Competition Period" is defined in Section 7.

"Re-employment" shall mean full-time employment for compensation by
any person or entity but shall not include self-employment.

"Release" shall mean a general release of the Company and its
Affiliates from and against any and all claims which Executive has or may have
against the Company and its Affiliates and each employee, officer, director or
"controlling" person of the Company and/or its Affiliates arising out of or
relating to Executive's employment by or termination of employment with the
Company and/or any Affiliate thereof or otherwise, substantially in the form
attached hereto.

4
<PAGE>

"Severance Benefits" is defined in Section 5.

"Severance Period" is defined in Section 5.

"Solicitation" shall mean directly or indirectly, through any other
person or entity, soliciting or otherwise inducing any person to leave the
employ of the Company or any Affiliate thereof or otherwise interfering with the
relationship between any such employee and the Company or any Affiliate thereof.

"Termination of Employment" shall mean the time when the
employer-employee relationship between Executive and the Company and/or an
Affiliate thereof is terminated for any reason, with or without Cause.

2. Term. This Agreement shall govern Executive's employment by the Company
and its Affiliates for the period commencing on the Effective Date and
terminating on the fifth anniversary thereof. To the extent applicable, the
provisions of Sections 5, 7, 8, 10, 11, 13, 14, 15, 16, 17, 18 and 19 shall
continue to apply beyond such date in accordance with their terms.

3. Position. Executive hereby agrees to serve in the position set forth on
the signature page hereof with the powers and duties customarily associated with
such position at the Company. While in the employ of the Company and/or any
Affiliate thereof, Executive shall devote his best efforts and his full business
time and attention to the performance of the services customarily incident to
such office and to such other services of an executive nature as may be
reasonably requested by the Board and senior management.

5
<PAGE>

4. Compensation and Benefits: Executive's cash compensation shall be
determined by the Company from time to time, provided that the total of
Executive's cash compensation for any calendar year from 1998 through and
including 2002 shall not be less than the amount set forth on the signature page
hereto as the "Guaranteed Amount." For purposes of the foregoing sentence, total
cash compensation for any calendar year shall be the sum of the Executive's
annual rate of base salary in effect as of April 15 of each such year and the
Annual Incentive Compensation Award and/or any other bonus payment or award paid
to Executive with respect to such year on or before March 31 of the following
year. Executive shall be eligible to participate in the Annual Incentive
Compensation Plans. So long as awards thereunder are generally granted to
officers of the Company, Executive shall also be entitled to participate in the
LTIP in accordance with the terms thereof. Executive shall also be entitled to
participate in any and all other benefit plans generally available to officers
of the Company.

5. Severance Benefits. In the event that Executive's employment hereunder
is terminated by the Company not for Cause or by the Executive by reason of a
Constructive Discharge, then, provided Executive executes a Release, for the
period commencing on the Date of Termination and ending on the earlier of the
second anniversary thereof or Executive's Re-employment (the "Severance Period")
the Company shall pay or provide to Executive, and Executive shall be entitled
to, the following benefits ("Severance Benefits"):

(a) bi-weekly payments commencing on the two week anniversary of the
commencement of the Severance Period with each such payment equal to the ratio
of

6
<PAGE>

(i) the sum of (A) the Executive's annual rate of base salary in effect on the
Date of Termination and (B) the payment received on the last annual payment date
prior to the Date of Termination under each Annual Incentive Compensation Plan
in which Executive participates as of the Date of Termination, to (ii) 26;

(b) following conclusion of each performance cycle of the LTIP in
which falls the Executive's Date of Termination, a payment equal to the product
of (i) the payment to which Executive would have been entitled under the LTIP
had Executive remained employed for the entirety of such performance period (and
satisfied any other conditions for receiving such award) and (ii) the fraction
equal to (A) the number of full calendar months in such performance period in
which Executive was employed by the Company and its Affiliates, divided by (B)
the number of full calendar months in such performance period; and

(c) to the extent permitted by law, the Severance Period shall be
treated as a period of employment by the Company for purposes of any of the
following benefit programs in which Executive was participating as of the date
of Executive's Date of Termination: American Re-Insurance Company Employees'
Pension Plan, American Re-Insurance Company Savings Plan, and the Company's
medical, dental, life and accidental death and dismemberment insurance programs.
To the extent that such treatment is not permitted by law, the Company shall
provide Executive with equivalent benefits, in cash or in kind, outside the
applicable plan or program. Upon such payment of cash and other benefits, the
Company's obligations hereunder shall terminate.

7
<PAGE>

6. No Right of Continued Employment; No Other Liability; Termination for
Cause. Nothing in this Agreement shall confer upon Executive any right to
continue in the employ of the Company and/or any Affiliate thereof or shall
interfere with or restrict in any way the rights of the Company and/or any
Affiliate thereof, which are hereby expressly reserved, to discharge Executive
at any time for any reason whatsoever, with or without Cause. Executive hereby
agrees that Executive's employment with the Company and/or any Affiliate thereof
may be terminated, without liability, except as provided in this Agreement and
without regard to (a) any general or specific policies (whether written or oral)
of the Company and/or any Affiliate thereof relating to the employment or
termination of its employees other than as set forth herein, or (b) any
statements made to Executive (whether written or oral) pertaining to Executive's
relationship with the Company and/or any Affiliate thereof. Executive further
agrees that if Executive's employment with the Company and/or any Affiliate
thereof is terminated for Cause, then neither the Company nor any of its
Affiliates shall have any liability for, and Executive shall not be entitled to,
any benefits payable with respect to the termination of Executive's employment
with the Company and/or any Affiliate under the Company's Severance Pay Plan (or
any successor thereto) or otherwise.

7. Non-Competition; Non-Solicitation. Executive will not engage in any
activity constituting Competition for the period consisting of (a) the period of
his employment hereunder, (b) any Severance Period and (c) in the event that
Executive's employment hereunder is terminated by the Company for Cause or by
the Executive other than by reason of a Constructive Discharge, for a period of
six months following

8
<PAGE>

the Date of Termination (the Non-Competition Period"). In addition, for the
duration of the Non-Competition Period and one year thereafter, Executive shall
not engage in any activity constituting Solicitation.

8. Covenant of Confidentiality. Executive agrees to keep confidential, and
not to disclose to any third party, any ideas, methods, developments,
strategies, business plans and financial and other information about the
Company, its Affiliates and their employees or clients which is confidential
information of the Company and/or any Affiliate thereof. Confidential
information shall not include any information that becomes generally available
to the public other than as a result of a disclosure, directly or indirectly, by
Executive.

9. Certain Obligations. Upon termination of Executive's employment with
the Company and/or any Affiliate thereof, Executive shall be deemed to have
resigned from all offices and directorships then held with the Company and/or
any Affiliate of the Company.

10. Assignment; Successors and Assigns. Executive agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, any rights or obligations under this Agreement. Any purported
assignment, transfer, or delegation in violation of this Section shall be null
and void. Nothing in this Agreement shall prevent the merger or the
consolidation of the Company and/or any Affiliate thereof with any other entity,
or the sale by the Company and/or any Affiliate thereof of all or substantially
all of its properties or assets, or the assignment by the Company and/or any
Affiliate thereof of this Agreement and the performance of its

9
<PAGE>

obligations hereunder to any successor in interest or any Affiliate. Subject to
the foregoing, this Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective heirs, legal representatives,
successors, and permitted assigns, and shall not benefit any person or entity
other than those enumerated above.

11. Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to the other
shall be in writing and delivered in person or by courier, or mailed by
certified mail, postage prepaid, return receipt requested (such mailed notice to
be effective on the date of such receipt), as follows:

If to Executive, to the address set forth on the
signature page hereof

If to the Company:

Secretary - American Re-Insurance Company
555 College Road East
Princeton. NJ 08543

or to such other place and with such other copies as any party may designate as
to itself by written notice to the other.

12. Entire Agreement. The terms and this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of Executive by the Company and/or any Affiliate thereof and may not
be contradicted by evidence of any prior agreement (including, but not limited
to, any Senior Executive or Executive Severance and Non-Competition Agreement),
which such agreement or agreements are expressly superseded and terminated
hereby. The parties further intend that this Agreement shall constitute the
complete and exclusive statement of its terms and

10
<PAGE>

that no extrinsic evidence whatsoever may be introduced in any judicial,
administrative, or other legal proceeding involving this Agreement.

13. Amendment; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by Executive and by a duly
authorized representative of the Company, and approved by the Board. By an
instrument in writing similarly executed, either party may waive compliance by
the other party with any provision of this Agreement; provided, however, that
such waiver shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No failure to exercise and no delay in exercising
any right, remedy, or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, remedy, or power hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, or power provided herein or by law or in equity.

14. Limitation of Liability. No representative, stockholder, officer,
director, Affiliate, employee or agent of the Company shall be liable for any
debt, claim, demand, judgment, decree, liability or obligation of any kind,
against or with respect to the Company arising out of action taken or omitted
for or on behalf of the Company under or pursuant to this Agreement.

15. Withholding; Set-off. All amounts payable to Executive under this
Agreement shall be subject to applicable withholding of income, wage and other
taxes. Executive agrees that the Company and/or any Affiliate thereof shall have
the right to set off against the Severance Benefits any amounts that Executive
owes the Company and/or

11
<PAGE>

any Affiliate thereof at the time of his/her termination of employment with the
Company and/or any Affiliate thereof.

16. Severability; Enforcement. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect. In the event
that the provisions of Section 7 shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its extending for too great a
period of time or over too great a geographic area or by reason of its being too
extensive in any other respect, it shall be deemed amended automatically
(without execution of any documentation by the parties hereto) so that it may be
interpreted to extend only over the maximum period of time for which it may be
enforceable and/or over the maximum geographic area as to which it may be
enforceable and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.

17. Discretion of Board. The Board, in its sole discretion, acting in good
faith, shall determine all matters and questions relating to Termination of
Employment, including, but not by way of limitation, whether a Termination of
Employment was voluntary or involuntary or resulted from a Constructive
Discharge or discharge for Cause, and all questions of whether particular leaves
of absence constitute Termination of Employment.

12
<PAGE>

18. Remedies. Executive acknowledges that a breach of this Agreement will
cause irreparable damage to the Company, the exact amount of which will be
difficult to ascertain, and that the remedies at law for any such breach will be
inadequate. Accordingly, Executive agrees that, if Executive breaches this
Agreement, the Company shall be entitled to specific performance and injunctive
relief, without posting bond or other security, in addition to any other remedy
which may be available at law or in equity.

19. Governing Law. This Agreement will be governed by and interpreted in
accordance with the laws of the State of New Jersey, without reference to
conflicts of law rules thereof.

20. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, and all such counterparts
together shall constitute one and the same instrument.

The parties have duly executed this Agreement as of the date first written
above.

AMERICAN RE-INSURANCE COMPANY EXECUTIVE

By:
--------------------------------- ------------------------------------
Signature

Name: Dr. jur. Hans-Jurgen Schinzler Name: [FIRSTNAME] [MI] [LASTNAME]
Title: Chairman of the Board of
Directors American Re Corporation Title: Executive Vice President
American Re-Insurance Company

By:
---------------------------------
Guaranteed Amount: $ [TOTAL
COMPENSATION]
Name: Edward J. Noonan
Title: Chairman, President and Address: [STREET]
Chief Executive Officer [CITY], [STATE] [ZIP]
American Re-Insurance Company

<PAGE>

RELEASE AGREEMENT

This Release (hereafter referred to as ("Release Agreement"), made this ________
day of ________, in the State of New Jersey, between:

American Re-Insurance Company
(A Delaware Corporation)
with principal place of business at
P. 0. Box 5241
555 College Road East
Princeton, New Jersey 08543-5241

And
______________________________________

(hereinafter referred to as "Executive")
(Address)
______________________________________
______________________________________
______________________________________

For good and valuable consideration, as set forth in the Employment
Agreement dated September 1, 1998, by and between American Re-Insurance Company
and ___________________________, Executive does hereby fully, finally, and
forever release and discharge American Re-Insurance Company, its predecessors,
successors, divisions, affiliates, representatives, officers, directors,
shareholders, agents, employees, attorneys and assigns (collectively, the
"Company"), of and from all claims, demands, actions, causes of action, suits,
damages, losses, and expenses, of any and every nature whatsoever, whether known
or not known, from the beginning of time to the date of this Release Agreement,
including but not limited to all such claims arising out of or relating to the
employment of Executive by American Re-Insurance Company and its affiliates, and
including, but not limited to, any and all acts that have been or could have
been alleged to have violated Executive's rights under Federal, State or local
law, including but not limited to the following: Civil Rights Acts of 1866,
1871, 1964 and 1991; the Age Discrimination in Employment Act of 1967, as
amended ("ADEA"); the Older Workers Benefit Protection Act; the Americans with
Disabilities Act of 1990; the New Jersey Law Against Discrimination; the New
Jersey Conscientious Employee Protection Act; the Employee Retirement Income
Security Act ("ERISA"),State and Federal Family and Medical Leave Acts, and any
contract of employment, express or implied; and any provision of any other law
whatsoever, common or statutory, including but not limited to any law of the
United States, New Jersey, or any other State or Government entity.

<PAGE>

For good and valuable consideration set forth herein, Executive
acknowledges that he is voluntarily signing this Release Agreement and that by
signing this Release Agreement he understands that he is releasing the Company
from any claims that he might have prior to, following, or otherwise arising as
a result of his separation from the Company, pursuant to the ADEA. Said waiver
of ADEA rights applies only to claims that he has as of the date of this Release
Agreement.

This Release Agreement shall not in any way be construed as an admission
by the Company of any acts of wrongdoing against the Executive or any other
person or that the Executive has any claim, whatsoever, against the Company.

The undersigned Executive acknowledges that he has been advised by
American Re-Insurance Company to consult with an attorney of his choosing before
executing this Release Agreement; that he has been given at least TWENTY-ONE
(21) DAYS to consider whether or not to execute this Release Agreement; he
further acknowledges that he has been advised that for a period of SEVEN (7)
DAYS following execution of this Release Agreement, he may revoke it by notice
delivered within the SEVEN (7) DAY period to Robert E. Humes, American
Re-Insurance Company. American Re Plaza, 555 College Road East, P.O. Box 5241,
Princeton, New Jersey 08543-5241, and that upon doing so this Release Agreement
shall thereupon become null and void. If at the expiration of SEVEN (7) DAYS
following execution of this Release Agreement. Executive has not revoked it,
this Release Agreement and all of its terms shall become effective and binding
on the parties hereto. Executive affirms that the terms stated in this Release
Agreement and in the Employment Agreement dated September 1, 1998, by and
between American Re-Insurance Company are the only consideration for his signing
this Release Agreement and that no other premise or agreement of any kind has
been made to or with him by any person or entity whomsoever to cause him to
execute this instrument. Furthermore, Executive states that he fully understands
the meaning and intent of this Release Agreement.

IN WITNESS WHEREOF, the parties have executed this Release Agreement as of
the date first written above.

AMERICAN RE-INSURANCE COMPANY EXECUTIVE

By:
----------------------------- -------------------------------------
Signature
Name: Name:
--------------------------- -------------------------------

Title:
--------------------------

<PAGE>

Exhibit 21

<TABLE>
<CAPTION>
STATE/COUNTRY/DATE PRIMARY
NAME OF INCORPORATION BUSINESS ACTIVITIES
- ---- ---------------- -------------------
<S> <C> <C>
American Re Corporation1...................................... Delaware/1991 Holding Company
American Re-Insurance Company................................. Delaware/1917 Reinsurance
American Re Inversiones, S.A............................... Chile/1986 Holding Company
111 East 50th Street Corporation........................... New York/1979 Real Estate
American Alternative Insurance Corporation.................... Delaware/1923 Alternative Market Insurance
American Re Asset Management, Inc............................. Delaware/1995 Investment Management
American Re Capital........................................... Delaware/1995 Business Trust
American Re Capital Markets, Inc.............................. Delaware/1998 Weather Derivatives
AM-RE Global Services, Inc.................................... Delaware/1998 Holding Company
AM-RE Consultants, Inc..................................... Delaware/1994 Consulting Services
AM-RE Brokers, Inc......................................... Delaware/1978 Reinsurance Brokerage
AM-RE Brokers (Bermuda), Ltd............................. Bermuda/1997 Reinsurance Brokerage
Princeton Eagle West (Holding) Inc......................... Delaware/1995 Holding Company
Princeton Eagle West Insurance Co.Ltd.................... Bermuda/1995 Rent-a-Captive Facility
Princeton Eagle Holding (Bermuda) Ltd...................... Bermuda/1994 Holding Company
Princeton Eagle Insurance Company Ltd.................... Bermuda/1994 Rent-a-Captive Facility
AM-RE Global Services (Munich) GmbH........................ Germany/1979 Insurance Brokerage
Becher + Carlson Risk Management Inc....................... California/1983 Risk Management
Becher + Carlson Insurance Services, Inc................. California/1981 Insurance Agency
Becher + Carlson Insurance Agency of Ohio................ Ohio/1994 Insurance Agency
Becher + Carlson South Africa (Pty), Ltd.2............... South Africa/1997 Risk Management
Becher + Carlson Mauritius............................... Mauritius/1997 Risk Management
Becher + Carlson Management, Ltd......................... Bermuda/1981 Captive Management
Becher + Carlson Brokerage, Ltd....................... Bermuda/1986 Brokerage
Becher+Carlson Insurance Agency of Texas, Inc.3.......... Texas/1998 Insurance Agency
Munich-American RiskPartners, Inc............................. Delaware/1988 Alternative Markets
American Alternative Management, Inc....................... Delaware/1997 Alternative Markets Consulting
Risk Management Products Canada, Inc.4..................... Canada/1997 Risk Management
AM-RE Managers (Bermuda) Ltd.................................. Bermuda/1990 Underwriting Management
AM-RE Services, Inc........................................... Delaware/1980 Consulting Services
American Re Holdings, Ltd..................................... England/1988 Holding Company
American Re Management, Ltd................................ England/1988 Underwriting Management
AM-RE Managers International, Ltd.......................... England/1988 Representative Office
American Re Management (Vienna) GmbH....................... Austria/1991 Representative Office
ARB International, Ltd..................................... England/1989 Lloyd's Brokerage
Risk Management Partners, Ltd.5............................ England/1994 Insurance
American Re Securities Corporation............................ Delaware/1998 Broker/Dealer
The Princeton Excess and Surplus Lines
Insurance Company.......................................... Delaware/1995 Surplus Lines Insurance
</TABLE>

<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN RE
CORPORATION'S REPORT ON FORM 10K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 6,953
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 545
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 7,526
<CASH> 275
<RECOVER-REINSURE> 2,343
<DEFERRED-ACQUISITION> 358
<TOTAL-ASSETS> 13,544
<POLICY-LOSSES> 7,334
<UNEARNED-PREMIUMS> 1,281
<POLICY-OTHER> 412
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 574
238<F1>
0
<COMMON> 0
<OTHER-SE> 2,853
<TOTAL-LIABILITY-AND-EQUITY> 13,544
2,419
<INVESTMENT-INCOME> 418
<INVESTMENT-GAINS> 93
<OTHER-INCOME> 32
<BENEFITS> 1,682
<UNDERWRITING-AMORTIZATION> 816
<UNDERWRITING-OTHER> 141
<INCOME-PRETAX> 322
<INCOME-TAX> 82
<INCOME-CONTINUING> 239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 5,103
<PROVISION-CURRENT> 1,620
<PROVISION-PRIOR> 62
<PAYMENTS-CURRENT> 207
<PAYMENTS-PRIOR> 1,513
<RESERVE-CLOSE> 5,065
<CUMULATIVE-DEFICIENCY> (62)
<FN>
<F1>REPRESENTS COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING AS ALL OF ITS ASSESTS JUNIOR SUBORDINATED DEBENTURES.
</FN>

</TABLE>