AMERICAN RE CORP, 10-K, 2000-03-30

AMERICAN RE CORP
10-K, 2000-03-30
FIRE, MARINE & CASUALTY INSURANCE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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

For the fiscal year ended December 31, 1999 Commission File #1-11688

AMERICAN RE CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
<S> <C>
AMERICAN RE CAPITAL--8.5% CUMULATIVE NEW YORK STOCK EXCHANGE
QUARTERLY
INCOME PREFERRED SECURITIES (AND THE
GUARANTEE
BY AMERICAN RE CORPORATION WITH RESPECT
THERETO)
</TABLE>

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

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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. / /

100% of the Company's voting stock is owned by Munich Reinsurance Company.
At March 20, 2000, the number of shares outstanding of the registrant's common
stock was 149.49712.

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AMERICAN RE CORPORATION

TABLE OF CONTENTS

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ITEM PAGE
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PART I

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

2. Properties............................................ 11

3. Legal Proceedings..................................... 11

4. Submission of Matters to a Vote of Security Holders... 12

PART II

5. Market for the Company's Common Equity and Related
Stockholder Matters................................... 13

6. Selected Financial Information of the Company......... 13

7. Management's Discussion and Analysis of the Company's
Results of Operations and Financial Condition......... 14

8. Financial Statements and Supplementary Data........... 23

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 27

PART III

10. Directors and Executive Officers of the Registrant.... 28

11. Executive Compensation................................ 31

12. Security Ownership of Certain Beneficial Owners and
Management............................................ 34

13. Certain Relationships and Related Transactions........ 34

PART IV

14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................... 35
</TABLE>
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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 Alternative Insurance Corporation
and The Princeton Excess and Surplus Lines Insurance Company. (These companies
together are the "reinsurance/ insurance subsidiaries"). 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.

ITEM 1. BUSINESS

THE COMPANY AND AMERICAN RE-INSURANCE

American Re Corporation (the "Company" or "American Re"), is the holding
company for various reinsurance and insurance entities which provide treaty and
facultative reinsurance, insurance and related services to insurance companies,
other large businesses, government agencies, pools and other self-insurers in
the United States and worldwide. The Company's principal subsidiary, American
Re-Insurance Company, a Delaware insurance company founded in 1917, ("American
Re-Insurance"), primarily underwrites property and casualty reinsurance on a
direct basis in the United States and international markets. Based on statutory
net premiums written of $2,821.3 million in 1999, American Re-Insurance ranked
as the second largest property and casualty reinsurer in the United States,
according to the Reinsurance Association of America. The Company had total
assets of $14,278.8 million and stockholder's equity of $2,489.0 million at
December 31, 1999. The Company and its subsidiaries employed approximately 1,600
persons as of December 31, 1999.

The Company is a wholly-owned 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 1998 net premiums written, according to BUSINESS
INSURANCE. The Munich Re Group, including American Re, includes reinsurance
subsidiaries, branches, service companies and liaison offices in more than 60
locations worldwide serving insurers in 150 countries.

In August, 1999, as part of its strategy to serve alternative market needs,
American Re signed a definitive agreement (the "Agreement") to acquire all of
the outstanding shares of American Insurance Service, Inc. ("AIS"), the holding
company that owns the United National Group of Companies ("UNG"). UNG includes
United National Insurance Company, Diamond State Insurance Company, and Hallmark
Insurance Company. UNG has admitted and non-admitted capabilities through these
entities to write business in all states except Alaska, and holds an A+
(Superior) rating from the insurance industry-rating firm A.M. Best. At
December 31, 1999, UNG had total assets of $1,301.2 million and shareholders'
equity of $285.3 million. See "--Acquisition of American Insurance Service."

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.

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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 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.

BUSINESS OPERATIONS AND STRATEGY

The Company's products include the full range of property and casualty
coverages, including worker's compensation, auto liability and physical damage,
surety, marine, construction, errors and omissions, accident and health,
non-standard auto, homeowners and commercial multi peril. American Re markets
domestically to insurance companies through Domestic Insurance Company
Operations ("DICO"), to the alternative market through Munich-American
RiskPartners, Inc. ("RiskPartners") and internationally, through International
Operations. For financial information about Segments, see Note 17 to the
consolidated financial statements, "Segment Reporting," included in this report.

DOMESTIC INSURANCE COMPANY OPERATIONS

The principal business of DICO is treaty and facultative reinsurance
underwritten on a direct basis throughout the United States. The majority of
DICO's business is written on a treaty basis. DICO markets treaty products to
small to medium sized regional property and casualty insurers and to an
increasing variety of differing insurance concerns, including 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 to volume and scope.

MUNICH AMERICAN RISKPARTNERS

RiskPartners insurance and reinsurance marketing efforts in the alternative
market 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.
The majority of RiskPartners business is written on a facultative basis.
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 marketing efforts,
RiskPartners utilizes the services

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of an affiliated primary insurance company, American Alternative Insurance
Corporation ("American Alternative"), which primarily serves alternative market
clients in addition to some DICO clients.

INTERNATIONAL OPERATIONS

International Operations markets both treaty and facultative reinsurance
outside the United States. International Operations maintains offices in sixteen
major international cities: Beijing, Bogota, Brussels, Buenos Aires, Cairo,
London, Melbourne, Mexico City, Montreal, Moscow, Sao Paulo, Santiago,
Singapore, Sydney, Tokyo and Toronto. In 1999, International Operations
primarily wrote business in the form of reinsurance treaties. 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.

The following table presents International Operations net premiums written
by region for the periods indicated:

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YEAR ENDED DECEMBER 31,
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REGION 1999 1998 1997
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(DOLLARS IN MILLIONS)
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Australia................... $ 45.3 8.9% $ 34.4 7.6% $ 23.8 5.5%
Canada...................... 7.0 1.4 1.2 0.3 31.7 7.3
Europe...................... 161.3 31.5 93.9 20.7 88.4 20.4
Far East.................... 22.3 4.3 18.0 4.0 15.7 3.6
Latin America............... 113.3 22.1 102.7 22.7 128.2 29.6
Middle East................. 26.2 5.1 32.4 7.2 12.5 2.9
Southeast Asia.............. 29.0 5.7 19.3 4.3 20.3 4.7
Ocean Marine/Other(1)....... 107.4 21.0 150.5 33.2 112.5 26.0
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Regions total............... $511.8 100.0% $452.4 100.0% $433.1 100.0%
====== ===== ====== ===== ====== =====
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(1) Includes net premiums written from ocean marine, international home office,
and corporate retrocessional charges.

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
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 $29.3 million, $32.3 million, and $41.2 million in 1999, 1998, and
1997, respectively.

UNDERWRITING

The Company underwrites its business on a worldwide basis for many different
clients and for many lines of property/casualty business. The Company provides a
broad array of products and coverages, individually evaluated and tailored to
meet each client's needs. Many factors are considered in evaluating the nature
of the risk to the Company. These include the client's underlying exposures, its
line of products, its underwriting controls, its pricing philosophy and its
geographical territory of operation. The Company strives to manage its net
income by monitoring and controlling its overall portfolio of business as to
line of business and geographical spread of risk. Taking all of these factors
into account, the Company is not materially dependent on a single customer,
small group of customers, line of business or geographical area.

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The Company believes the loss of any single customer would not have a material
adverse effect on its financial condition or earnings.

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.

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.

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. Underwriting standards for International
Operations are maintained through a series of written guidelines authorized by
the senior management of International Operations. Similarly, local limitations
on the commitment of resources granted to each international location are
controlled by International Operations' senior management and reviewed at least
annually. Underwriting opportunities that fall outside the established class
and/or limit parameters are referred to home office underwriters for evaluation
prior to commitment.

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, London, 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.

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

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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, 1999 the Company maintained a reserve for
uncollectible reinsurance and premiums and other receivables of $104.0 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 up to $50 million. For property business, the per-risk limit
accepted for treaty business is up to $50 million and for facultative business
up to $200 million. After retrocessions, and prior to co-participation, if any,
for its property and casualty business, $25 million net is retained per risk for
both treaty and 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 and casualty business,
treaty and facultative agreements are covered in excess of $25 million each and
every occurrence.

The Company has in place a corporate quota share retrocessional program
whereby the Company cedes 1.788% of all of its consolidated net premiums written
to the quota share participants. In return, the Company receives commission
offset as well as certain catastrophe reinsurance protection (described in the
next paragraph).

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 million of coverage for a catastrophic event in excess of
$100 million of retained losses. The $400 million of retrocessional coverage is
reduced by two factors: (i) a reduction of $14.7 million, due to shortfalls in
the placement of the retrocessional program; and (ii) co-participation of
$.3 million by the Company, which is customary in the industry. Thus, if a
$500 million domestic catastrophe loss was reported, the Company would retain
$115.0 million of catastrophe losses (prior to recovery of $2 million from the
quota share retrocessional program described above). Upon payment of additional
premiums, the coverage may be reinstated for additional events.

In November 1999, American Re Capital Markets, Inc., a subsidiary of the
Company ("ARCM"), entered into certain index-based catastrophe related swaps
("Catastrophe Swaps") with Gold Eagle Capital Limited ("Gold Eagle"), a special
purpose Bermuda company. Under the terms of the catastrophe swaps, ARCM may
receive approximately $182 million of potential payments from Gold Eagle in the
event of three types of certain catastrophic events: California earthquakes,
Midwest earthquakes, or Eastern and Gulf Coast windstorms, all as specifically
defined under the Catastrophe Swaps. See "Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF THE COMPANY'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION--Market
and Interest Rate Risk."

Changing domestic and international reinsurance markets impact the
retrocessional capacity available to all companies. The Company has successfully
managed its exposure to changing retrocessional capacity levels in the past by
diversifying its selection of retrocessionaires and expects to continue to
minimize risks associated with fluctuation in the underwriting cycle. In
accordance with the Company's underwriting guidelines, diversified
retrocessional capacity is obtained through Munich Re and its affiliated
companies, through existing trading relationships with retrocessional markets
accessed on a direct basis or through the

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Company's reinsurance intermediary, Am-Re Brokers, Inc., and through additional
potential retrocessional markets.

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, 1999, the reinsurance/insurance subsidiaries had in place
retrocessional arrangements with approximately 846 retrocessionaires, and
$3,034.9 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' retrocessionaire
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, 1999, a total of $529.7 million of
accrued retrocessional recoverables on a paid and unpaid losses (17.5% of total
retrocessional recoverables) were attributable to National Indemnity Company
(which had an A.M. Best rating of "A++ (Superior)" at December 31, 1999),
$513.7 million (16.9% of total retrocessional recoverables) were attributable to
Munich Re (which had an A.M. Best rating of "A++ (Superior)" at December 31,
1999), and $404.2 million (13.3% of total retrocessional recoverables) were
attributable to Travelers Property Casualty Corp. ("Travelers") (which had
an A.M. Best rating of "A+(Superior)" at December 31, 1999). 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
recoverables on paid and unpaid losses.

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 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, such as the securitization of insurance and
reinsurance risks, for primary insurers to transfer such risks directly to
investors.

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, American Alternative, and The
Princeton Excess and Surplus Lines Insurance Company ("Princeton E & S").

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. In general, the rates and policy terms of
primary insurance policies and insurance company operations and practices with
respect to policyholders are closely regulated by state insurance departments.
By contrast, reinsurance agreements generally are not subject to regulation by
any governmental authority with respect to rates or policy terms

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although reinsurers are required to maintain certain financial condition in
order to provide accredited reinsurance to authorized insurers in the states. 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
companies are subject relate primarily to the standards of solvency that must be
met and maintained (either through a process of becoming licensed or accredited
in a state) and their financial condition generally, including regulations on
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. American Re's management believes that American
Re-Insurance is in material compliance with all applicable laws and regulations
pertaining to its business and operations.

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

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, coverages offered, claims processing
operations, relations with producers, and mandatory participation in residual
markets. 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. American Alternative is licensed to transact insurance
or reinsurance business in all fifty states and the District of Columbia.

PRINCETON E & S. Princeton E & S, a Delaware insurance company, was formed
to provide insurance coverage on a non-admitted basis in the United States.
Princeton E & S is licensed as an admitted insurer in its domicile state,
Delaware, and to date has been authorized as eligible to write excess and
surplus lines insurance in four states on a non-admitted basis.

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

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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 Codes.

TRIENNIAL EXAMINATIONS. Insurance Departments usually conduct examinations
of domiciled insurers and reinsurers every three years, and may do so at such
other times as are deemed advisable by the Insurance Commissioners. The
reinsurance/insurance subsidiaries are currently undergoing routine triennial
examinations.

RISK BASED CAPITAL. The NAIC has adopted a risk based capital standard for
property and casualty insurance (and reinsurance) companies which measures the
amount of capital appropriate for a property and casualty insurance company to
support its overall business operations in light of its size and risk profile.
American Re-Insurance's 1999 adjusted surplus to policyholders of
$1,828.1 million is in excess of the authorized control level risk based capital
total of $704.7 million. American Alternative's 1999 adjusted surplus to
policyholders of $106.3 million is in excess of the authorized control level
risk based capital total of $8.4 million.

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 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, 1999 the maximum amount available for the payment
of dividends by American Re-Insurance during 2000 without prior approval of
regulatory authorities is $214.6 million. No prediction can be made as to
whether any legislative proposals relating to dividend rules in Delaware will be
made, whether any such legislative proposal will be adopted in the future, or
the effect, if any, any such proposal would have on the Company or American
Re-Insurance.

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.
The company is unable to

8
<PAGE>
predict whether any of these laws or regulations would be adopted in additional
states, the form in which any such laws and regulations would be adopted in
additional states, or the effect, if any, these developments will have on the
operations and financial condition of the Company or any of its subsidiaries.

HOLOCAUST VICTIMS INSURANCE LAWS. Several states have enacted legislation
pertaining to insurance policies that were issued in Europe to Holocaust victims
during the period 1920 through 1945, and legislation on this subject matter is
under consideration in other states. Insurance regulators in these states have
taken actions or threatened to take actions to sanction insurance companies
licensed in such states for alleged failure to comply with such laws. Most state
insurance regulators have subscribed to a private, non-governmental, voluntary
organization named the International Commission on Holocaust Era Insurance
Claims ("Holocaust Commission") that is dedicated to identifying and resolving
outstanding insurance claims from the Holocaust era for its members. Under some
of the recently enacted state laws, an insurer's participation in the Holocaust
Commission confers certain statutory benefits.

CALIFORNIA. California has two Holocaust era insurance related statutes.
The first purports to permit the suspension of an insurer's license if it or any
of its affiliates has failed to pay any claim of Holocaust victims proven to be
valid and unpaid. This statute also authorizes the Commissioner to include
consideration of whether an insurer is participating in the Holocaust Commission
in deciding whether to suspend the insurer's license. In July, 1999, the
California Insurance Department ("CID") initiated an examination and hearing
involving the Company's California licensed insurers and Munich Re in order to
investigate whether these companies or affiliated companies in Europe had
outstanding Holocaust era insurance claims. While the licensees named in the
examination and hearing process either were not in existence or did not do
business in Europe during the Holocaust era, and Munich Re, as a reinsurer,
never issued any insurance policies, the CID sought information on Holocaust era
insurance from European insurers in which Munich Re has an indirect investment
interest. The hearing and examination are ongoing.

The second California statute is the Holocaust Victim Insurance Relief Act
of 1999 ("California Registry Law") designed to create a publicly accessible
registry of Holocaust era policyholder information. The California Registry Law
requires California licensed insurers to report Holocaust era policyholder
information in their possession or in the possession of their "related
companies," as that term is defined in the California Registry Law. The CID
interprets this statute to require information even from companies that are not
controlled by the licensed insurers or their parent companies. In March 2000,
American Re-Insurance and the American Insurance Association, an insurance trade
association many of whose members are California licensed insurers, initiated
litigation in California challenging the validity of the California Registry Law
on constitutional and other grounds. That litigation is pending.

FLORIDA. Florida has enacted a statute ("Florida Holocaust Law") that seeks
reports of information on Holocaust era insurance. The Florida Holocaust Law
requires Florida licensed insurers to report certain information on insurance
policies issued in Europe during the Holocaust era by such licensees and their
affiliates. American Re-Insurance and American Alternative have no information
to report because they did not issue insurance policies in Europe during the
relevant time period. However, the companies have timely filed reports
disclosing information voluntarily provided by European insurers in which Munich
Re has an investment interest. The Florida Insurance Department has issued
subpoenas to American Re-Insurance, American Alternative, and approximately 40
other insurance companies seeking policyholder information in connection with
the Florida Holocaust Law. Recently, an unaffiliated company initiated
litigation against the Florida Insurance Department challenging the validity of
the subpoenas and the constitutionality of the Florida Holocaust Law. The
Department has stayed any further action under the Florida Holocaust Law, and
the litigation is pending.

9
<PAGE>
additional information in connection with Holocaust era insurance. American Re
promptly forwarded these requests to the European insurers which responded
directly to the Department. More recently, the Department has threatened to
attempt to fine American Re up to $1,000 per day for alleged reporting
violations unless Munich Re joins the Holocaust Commission, or agrees to pay
alleged Holocaust claims involving companies that Munich Re does not control, or
contributes to a humanitarian fund for the benefit of Holocaust survivors. No
court or administrative proceedings have been commenced against American Re in
New York to date.

WASHINGTON. Washington has enacted a statute similar to the California
Registry Law. American Re-Insurance and American Alternative have reported to
the Washington Insurance Department that they have nothing to report under the
statute. The Department has asserted that the companies' report is not in
compliance with the law and has indicated that it may initiate enforcement
action against American Re, although no action has been commenced to date.

* * * * *

American Re believes that it has fully complied with the requirements of
these statutes. However, there can be no assurance that insurance regulators
will not initiate administrative or other actions against American Re under
these laws. American Re does not believe that the ultimate resolution of these
matters will have a material adverse effect on the business, financial condition
or results of operations of American Re and its subsidiaries taken as a whole.

ACQUISITION OF AMERICAN INSURANCE SERVICE

In August, 1999, as part of its strategy to serve alternative market needs,
American Re signed an Agreement to acquire all of the outstanding shares of AIS,
the holding company that owns UNG. UNG includes United National Insurance
Company ("United National"), Diamond State Insurance Company, and Hallmark
Insurance Company. UNG has admitted and non-admitted capabilities through these
entities to write business in all states except Alaska, and holds an A+
(Superior) rating from the insurance industry-rating firm A.M. Best. At
December 31, 1999, UNG had total assets of $1,301.2 million and had
shareholders' equity of $285.3 million.

The consideration to be paid to the shareholders of AIS ("Sellers") by
American Re is $350.0 million in cash ("Purchase Price"), subject to certain
adjustments not expected to increase the Purchase Price in excess of
$5.0 million. Under the Agreement, the transaction is contingent upon AIS's
redemption of certain shares currently owned by the Sellers (the "Redemption"),
for a price of $150.0 million (the "Redemption Price"). The Redemption is
expected to occur simultaneously with or immediately prior to American Re's
purchase of the remaining outstanding shares from the Sellers. It is anticipated
that the funds to effectuate the transaction will come from available funds held
by American Re and from an existing bank credit facility.

Two of the three insurance departments that must approve the transaction
(Indiana and Wisconsin) have conducted hearings, completed their reviews and
granted their approvals of the transaction. However, the Pennsylvania Insurance
Department has subjected American Re to an excessive delay in reviewing the
Company's application regarding United National, allegedly based on the fact
that Munich Re has not joined the Holocaust Commission. As a result of this
delay, on February 8, 2000, American Re filed suit in Pennsylvania Commonwealth
Court against the Pennsylvania Insurance Department and the Pennsylvania
Insurance Commissioner, seeking to compel the Department to complete its review
of American Re's application to acquire United National. See "--Regulatory
Matters-HOLOCAUST VICTIMS INSURANCE LAWS" and "Item 3. LEGAL PROCEEDINGS".

10
<PAGE>
ITEM 2. PROPERTIES

The Company owns approximately 413,541 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
20,305 square feet in Mexico City, Cairo, Santiago, Bogota and Buenos Aires.

The Company also rents office space totaling approximately 344,872 square
feet in Atlanta, Boston, Burlington (VT), Chicago, Columbus (OH), Dallas,
Florham Park (NJ), Hartford, Honolulu, Kansas City (KS), Los Angeles,
Minneapolis, New York, Philadelphia, San Francisco, Seattle, Woodland Hills
(CA), Beijing, Bermuda, Brussels, Johannesburg, London, Melbourne, Montreal,
Moscow, Sao Paulo, 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.

The Company is involved in claims related litigation, arbitrations and other
adversarial proceedings in the ordinary course of business. The Company is also
involved in non-claim litigation incidental to its business principally related
to insurance company insolvencies or liquidation proceedings relating to
companies with whom it does business.

SUPERIOR NATIONAL INSURANCE GROUP, INC. V. AMERICAN RE-INSURANCE COMPANY, ET
AL.

On December 31, 1999, American Re-Insurance reached an agreement with
Superior National Insurance Group, Inc. ("Superior National") to settle certain
reinsurance disputes arising in connection with the sale of Business Insurance
Group ("BIG") by Foundation Health Systems, Inc., to Superior National. As
consideration for the execution of the settlement agreement, American
Re-Insurance simultaneously entered into an Excess of Loss Retrocessional
Reinsurance Agreement with Centre Reinsurance (US) Limited, pursuant to which
Centre Re agreed to indemnify American Re-Insurance up to $40.0 million in
excess of $135.0 million of aggregate ultimate net loss paid by American
Re-Insurance under an Aggregate Excess of Loss Agreement with BIG. All pending
litigations and arbitrations between the parties were terminated or dismissed
with prejudice.

AMERICAN RE-INSURANCE V. PENNSYLVANIA INSURANCE DEPARTMENT

In connection with American Re's efforts to acquire all of the outstanding
shares of AIS, the holding company that owns United National, Diamond State
Insurance Company, and Hallmark Insurance Company, American Re is required to
obtain the approval of three insurance departments which have regulatory
authority over the transaction.

11
<PAGE>
litigation against the Department. Furthermore, even if American Re is
successful in the litigation seeking to compel the Department to complete its
review, there can be no assurance that such review would result in a timely
approval of the transaction by the Department since, under the terms of the
Agreement, the Sellers have had the right to terminate the Agreement since
March 10, 2000 and they may elect to do so at any time. See "Item 1.
BUSINESS"--Acquisition of American Insurance Service" and "Item 1. BUSINESS--
Regulatory Matters-HOLOCAUST VICTIMS INSURANCE LAWS".

The Company does not believe that any of the pending legal proceedings will
have a material adverse effect on the consolidated financial condition or
results of operations of American Re and its subsidiaries. However, no assurance
can be given as to the ultimate outcome of any such legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS

None.

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<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 equity.

(b) 100% of the Company's Common Stock is owned by Munich Re.

(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--Regulatory Matters-DIVIDENDS.

ITEM 6. SELECTED FINANCIAL INFORMATION OF THE COMPANY

Set forth below are five years of selected financial information derived
from the audited consolidated financial statements and related notes of the
Company. The statutory data have been derived from statutory financial
statements. Such statutory financial statements are prepared in accordance with
statutory accounting principles, which differ from GAAP. For additional
information, see the Consolidated Financial Statements of the Company, and the
related notes thereto included elsewhere in this report.

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net premiums written....................... $2,905.7 $2,406.8 $2,497.7 $1,902.4 $1,629.5
Net premiums earned........................ 2,927.5 2,418.9 2,486.1 1,796.7 1,530.9
Losses and LAE (1)......................... 2,654.4 1,682.4 1,716.3 1,167.8 1,340.2
Underwriting expenses...................... 870.7 816.4 838.4 533.5 452.4
Underwriting gain (loss)................... (597.6) (79.9) (68.6) 95.4 (261.7)
Net investment income...................... 415.1 417.5 427.5 248.2 222.6
Net realized capital gains................. 82.9 92.8 87.7 4.8 4.7
Interest expense........................... 41.9 42.2 42.8 54.1 60.7
Income (loss) before income taxes.......... (178.0) 321.5 224.3 232.6 (159.5)
Income taxes (benefits).................... (90.1) 82.4 (3.4) 73.8 (76.6)
Income (loss) before minority interest,
distributions on preferred securities of
subsidiary trust and extraordinary
loss..................................... (87.9) 239.1 227.7 158.8 (82.9)
Minority interest.......................... -- -- 6.8 -- --
Distributions on preferred securities of
subsidiary trust......................... (13.1) (13.1) (13.1) (13.1) (4.4)
Income (loss) before extraordinary loss.... (101.0) 226.0 221.4 145.7 (87.3)
Extraordinary loss, net of applicable
income tax effect........................ -- -- -- (34.0) (0.3)
Net income (loss) available to common
shareholders............................. (101.0) 226.0 221.4 111.7 (87.6)
OTHER GAAP OPERATING DATA (2):
Loss and LAE ratio......................... 90.7% 69.6% 69.0% 65.0% 87.5%
Underwriting expense ratio................. 29.7 33.7 33.8 29.7 29.6
-------- -------- -------- -------- --------
Combined ratio............................. 120.4% 103.3% 102.8% 94.7% 117.1%
STATUTORY DATA (3):
Ratio of net premiums written to surplus... 1.31x 0.87x 1.07x 1.21x 1.23x
Policyholders' surplus..................... $2,166.0 $2,631.1 $2,323.4 $2,178.1 $1,892.8
Loss and LAE ratio......................... 86.3% 68.2% 68.8% 67.5% 83.5%
Underwriting expense ratio................. 28.9 35.5 35.1 31.0 32.1
-------- -------- -------- -------- --------
Combined ratio............................. 115.2% 103.7% 103.9% 98.5% 115.6%
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Total investments and cash................. $7,439.9 $7,801.3 $7,673.4 $7,007.3 $3,957.5
Total assets............................... 14,278.8 13,544.0 13,216.9 12,114.7 7,804.8
Loss and LAE reserves...................... 8,369.0 7,334.1 7,469.3 7,178.3 4,786.0
Senior bank debt........................... 75.0 75.0 75.0 75.0 75.0
Senior notes............................... 498.5 498.5 498.5 498.4 --
Senior subordinated debt................... -- -- -- -- 450.0
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding as all its assets Junior
Subordinated Debentures.................. 237.5 237.5 237.5 237.5 237.5
Stockholder's equity....................... $2,489.0 $2,853.1 $2,586.4 $1,792.5 $ 847.1
</TABLE>

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

(1) "LAE" means loss adjustment expenses.

(2) 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."

(3) 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, 1999, COMPARED WITH YEAR ENDED DECEMBER 31, 1998

The Company incurred a net loss to common stockholder of $101.0 million for
the year ended December 31, 1999 compared to net income of $226.0 million in
1998.

The Company's net premiums written increased 20.7% to $2,905.7 million for
the year ended December 31, 1999, from $2,406.8 million in 1998. The Company
experienced increases in both treaty and facultative net premiums written.
Treaty net premium writings increased 22.9% to $1,952.4 million for the year
ended December 31, 1999, from $1,588.8 million for the same period in 1998. This
increase was primarily attributable to DICO, which increased treaty net written
premiums 22.4% to $1,277.8 million for the year ended December 31, 1999, from
$1,044.1 million for the same period in 1998, as a result of retrospective
premium adjustments on several reinsurance contracts. The Company's two other
major business segments, RiskPartners, the Company's alternative market
operation, and International Operations, also had increased treaty net premium
writings: RiskPartners increased treaty net written premiums 62.8% to
$207.4 million for the year ended December 31, 1999, from $127.4 million for the
same period in 1998, and International Operations increased treaty net written
premiums 11.9% to $467.0 million for 1999, from $417.3 million for 1998.

Facultative net premiums written increased 16.5% to $953.3 million for the
year ended December 31, 1999, from $818.0 million for the same period in 1998.
This increase was partially due to a change in the Company's facultative
retrocessional program to retain more of this business. Net facultative premiums
written changes included: (i) an 18.5% increase in DICO facultative net premiums
written to $561.3 million for the year ended December 31, 1999, from
$473.8 million for the same period in 1998; (ii) a 12.3%

14
<PAGE>
increase in RiskPartners' facultative net premiums written to $347.2 million for
1999, from $309.1 million for 1998; and (iii) a 27.6% increase in International
Operations' facultative net premiums written to $44.8 million for 1999, from
$35.1 million for 1998.

Included in the results described above were increased net premiums written
resulting from changes in the Company's retrocessional programs and
retrospective premium adjustments under several reinsurance contracts under
which higher losses were also ceded to the Company. In addition, the Company's
initiative with healthcare providers yielded $123.1 million of net premiums
written for the year ended December 31, 1999, compared to $45.2 million for the
same period in 1998.

The Company's net premiums earned increased 21.0% to $2,927.5 million for
the year ended December 31, 1999, from $2,418.9 million in 1998. The increase in
premiums earned was primarily attributable to the increase in net premiums
written.

Net losses and LAE incurred increased 57.8% to $2,654.4 million for the year
ended December 31, 1999, from $1,682.4 million in 1998. The 1999 period includes
provisions for increased losses for the current and recent accident years to
reflect adverse market conditions and a loss in connection with the settlement
of a dispute concerning a finite reinsurance agreement. In addition, the Company
incurred $122.5 million of catastrophe losses during the year ended
December 31, 1999, compared to $65.5 million during the year ended December 31,
1998.

During 1999, the Company undertook a study to reevaluate its reserves for
asbestos, environmental-related and other latent liabilities ("latent liability
exposures"). This was a result of the Company's assessment of its reported
claims activity, which reflected continued emergence of newly reported claims in
each of these areas and recent insurance industry efforts to accelerate the
settlement of outstanding latent liability claims. As a result of this
reevaluation, during the fourth quarter of 1999, the Company increased its gross
incurred but not reported ("IBNR") loss reserves for latent liability exposures.
This charge was partially offset by reserves in other accident years and by the
utilization of the remaining limit under the Company's Adverse Loss Agreement
with Travelers, covering losses for accident years 1991 and prior. See "Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA--Reserves for Unpaid Losses and Loss
Adjustment Expenses--ASBESTOS, ENVIRONMENTAL-RELATED AND OTHER LATENT LIABILITY
CLAIMS".

Underwriting expense, consisting of commission expense plus operating
expense, increased 6.7% to $870.7 million for the year ended December 31, 1999,
from $816.4 million in 1998. This increase included a 1.9% increase in
commission expense to $595.3 million for the year ended December 31, 1999 from
$584.3 million in 1998. Operating expenses increased 18.7% to $275.4 million for
the year ended December 31, 1999 from $232.1 million for 1998. This increase is
primarily due to a decrease in the capitalization of deferred acquisition costs
and an increase in pension costs.

The Company experienced an underwriting loss (net premiums earned minus
losses and LAE incurred and underwriting expenses) of $597.6 million for the
year ended December 31, 1999, compared to an underwriting loss of $79.9 million
in 1998. The Company's loss ratio increased to 90.7% for the year ended
December 31, 1999 from 69.6% in 1998, while the underwriting expense ratio
decreased to 29.7% in 1998 from 33.7% in 1998. The combined ratio for the year
ended December 31, 1999, increased to 120.4% from 103.3% in 1998.

Pre-tax net investment income decreased slightly to $415.1 million for the
year ended December 31, 1999, from $417.5 million in 1998. This decrease is the
result of a decrease in the Company's invested asset base, offset in part by
higher portfolio yields.

The Company realized net capital gains of $82.9 million for the year ended
December 31, 1999, compared to net capital gains of $92.8 million in 1998. The
1999 period included net capital gains of $87.9 million on the sale of common
stock, offset by net capital losses of $3.8 million on the sale of bonds. The
1998 period included net capital gains of $103.0 million on the sale of bonds
and $5.0 million on the

15
<PAGE>
sale of common stock, offset by the $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.

Other income decreased 13.5% to $27.5 million for the year ended
December 31, 1999, from $31.8 million in 1998. The decrease in the 1999 period
was attributable to a decrease in fee subsidiary revenue of $3.0 million. Other
expenses decreased 35.0% to $64.0 million for the year ended December 31, 1999
from $98.5 million in 1998. This decrease was primarily attributable to the
reversal of an expense accrual related to the Company's long term incentive
compensation program.

The Company incurred a loss before income taxes, minority interest and
distributions on preferred securities of subsidiary trust of $178.0 million for
the year ended December 31, 1999, compared to income of $321.5 million in 1998.

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 treaty
premiums written by DICO was partially offset by a 32.2% increase in treaty
premiums written by RiskPartners, to $127.4 million for the year ended
December 31, 1998, from $96.4 million for the same period in 1997, and
International Operations, which increased treaty premiums written 2.9% to
$417.3 million for the year ended December 31, 1998, from $405.5 million for the
same period in 1997.

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 increased facultative net premiums
written 27.2% to $35.1 million for the same period in 1997. The increases in
facultative net premiums written by 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% and $1,682.4 million for the year
ended December 31, 1998, from $1,716.3 million in 1997. The Company primarily
attributes this decrease 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

16
<PAGE>
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 for 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 its overall investment portfolio to
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 the $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 stock 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.

Other income decreased 23.7% to $31.8 million for the year ended
December 31, 1998, from $41.7 million in 1997. The decrease in the 1997 period
was 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 a merger
in the 1997 period.

Income before income taxes, minority interest, and distributions on
preferred securities of subsidiary 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
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").

17
<PAGE>
Net income to common stockholder was $226.0 million for the year ended
December 31, 1998 compared to net income of $221.4 million in 1997.

FINANCIAL CONDITION

The Company is a holding company, which includes its principal subsidiary,
American Re-Insurance. Based on statutory net premiums written of
$2,821.3 million in 1999, American Re-Insurance ranked as the second largest
property and casualty reinsurer in the U.S., according to Reinsurance
Association of America statistics.

Total consolidated assets increased by 5.4% to $14,278.8 million at
December 1999, from $13,544.0 million at December 31, 1998. This increase was
primarily due to an increase in reinsurance recoverables on paid and unpaid
losses of $691.8 million. Total consolidated liabilities increased by 10.5% to
$11,552.3 million at December 31, 1999, from $10,453.4 million at December 31,
1998. This increase was primarily due to increases in loss and loss adjustment
expense reserves of $1,034.9 million.

Common stockholder's equity decreased 12.8% to $2,489.0 million at
December 31, 1999, from $2,853.1 million at December 31, 1998. This decrease was
primarily attributable to the net loss of $101.0 million for the year ended
December 31, 1999, and recognized net market depreciation of $263.1 million in
accumulated other comprehensive income, after applicable income tax effect.

The Company's reinsurance/insurance subsidiaries' statutory surplus
decreased to $2,166.0 million at December 31, 1999, from $2,631.1 million at
December 31, 1998. Operating leverage, as measured by such subsidiaries'
premiums-to-surplus ratio, on an annualized basis was 1.31 to 1 and 0.87 to 1 at
December 31, 1999, and December 31, 1998, respectively.

INVESTMENTS

The total financial statement value of investments and cash decreased to
$7,439.9 million at December 31, 1999, from $7,801.3 million at December 31,
1998, primarily due to decreases in cash flows from operating activities, and a
decrease in the fair value of investments held. The financial statement value of
the investment portfolio at December 31, 1999, included a net decrease from
amortized cost to fair value of $161.2 million for debt and equity investments,
compared to a net increase of $244.5 million at December 31, 1998. At
December 31, 1999, the Company recognized a cumulative unrealized loss of
$104.8 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 represents a
net decrease to stockholder's equity of $263.7 million from the cumulative
unrealized gain on debt and equity securities of $158.9 million recognized at
December 31, 1998.

18
<PAGE>
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>
1999 1998
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government agency bonds............. $ 730.8 9.8% $ 645.1 8.3%
Municipal bonds......................................... 2,070.3 27.8 2,637.0 33.8
Mortgage backed securities.............................. 1,106.8 14.9 1,218.6 15.6
Domestic corporate bonds................................ 1,637.8 22.0 1,585.9 20.3
Foreign bonds........................................... 769.5 10.4 789.4 10.1
Redeemable preferred stock.............................. 84.6 1.2 77.3 1.0
Equity securities......................................... 402.1 5.4 545.2 7.0
Other investments......................................... 40.5 0.5 27.9 0.4
Cash and cash equivalents................................. 597.5 8.0 274.9 3.5
-------- ----- -------- -----
Total fair value.................................... $7,439.9 100.0% $7,801.3 100.0%
======== ===== ======== =====
</TABLE>

The net decrease 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 $6,315.2 million
and $6,876.0 million of bonds carried at fair value as available for sale
securities at December 31, 1999 and 1998 respectively.

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>
1999 1998
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
AAA....................................... $3,912.8 62.0% $4,181.4 60.8%
AA........................................ 1,324.8 21.0 1,660.5 24.2
A......................................... 712.7 11.3 766.5 11.1
BBB....................................... 210.4 3.3 110.7 1.6
BB and below and not rated................ 154.5 2.4 156.9 2.3
-------- ----- -------- -----
Total fair value.................... $6,315.2 100.0% $6,876.0 100.0%
======== ===== ======== =====
</TABLE>

The Company continues to seek opportunities to enhance investment yield
primarily through a conservative, fixed maturity investment strategy, while
investigating various nontraditional investment opportunities. 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 4.62 and 5.09 years at December 31,
1999, and 1998, 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company's only material investment is the capital stock of American
Re-Insurance. 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

19
<PAGE>
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. 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 1999 operating
results, the maximum amount available for payment of dividends to the Company by
American Re-Insurance in 2000 without approval of regulatory authorities is
$214.6 million.

The Company's cash flow from operations may be influenced by a variety of
other 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 used in operations for
the Company were $38.5 million for 1999; cash flows provided by operations were
$202.7 million for 1998, and $366.1 million for 1997. This decrease is primarily
attributable to higher paid losses during the 1999 period. The decrease in the
1998 period is attributable to several factors, including the Company's lower
level of premium writings in the soft market, a higher level of paid losses from
its book of proportional business, and payments related to catastrophes.

Total cash proceeds in 1999 from sales of investments were $3,321.3 million
compared to $6,164.7 million in 1998 and $4,266.6 million in 1997. The decreased
activity in 1999 was the result of an abnormally high level of activity during
1998. Much of the increased activity in 1998 was due to the Company's investment
strategy to restructure the overall investment portfolio into tax-exempt
securities and increase common equity holdings. Cash and cash equivalents were
$597.5 million, $274.9 million, and $641.6 million, at December 31, 1999, 1998,
and 1997, respectively. Cash and short-term investments are maintained for
liquidity purposes and represented 8.0%, 3.5% and 8.4%, 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, 1999, $75 million remained available under the
bank credit agreement.

CREDIT RATINGS

In February, 2000, 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 March, 2000, Standard & Poor's Corporation ("S&P") affirmed American
Re-Insurance's claims paying ability rating of "AAA." The "AAA" rating
represents 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. At the
same time, S&P affirmed its "AA" counterparty credit and senior unsecured debt
ratings of the Company.

20
<PAGE>
In October, 1999, Moody's Investors Service ("Moody's") affirmed American
Re-Insurance's financial strength rating of "Aaa." The "Aaa" rating represents
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 the Company or American Re-Insurance will
continue to maintain the current ratings.

SAFE HARBOR DISCLOSURE

The Company has disclosed certain forward-looking statements concerning 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 risks related thereto. These statements are based upon a
number of assumptions and estimates that are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company, and reflect future business decisions that 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 stockholder's equity, investments, capital plans, dividends, plans
relating to products or services of American Re, estimates concerning the
effects of litigation or other disputes, adverse state or federal legislation or
regulation, adverse publicity or news coverage or changes in general economic
factors as well as the 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. These changes may be due to
fluctuations in interest and foreign exchange rate and equity prices. The major
components of market risk affecting the Company are interest rate, foreign
currency and equity risk.

The Company has both fixed and variable (including mortgage backed
securities and collateralized mortgage obligations) income investments with a
value of $6,399.8 million at December 31, 1999 that are subject to changes in
value due to market interest rates. The Company also has 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 Belgium 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 somewhat offset because the Company's reinsurance premiums and
invested assets are partially offset by losses incurred and loss reserves,
respectively, generally denominated in the same currency. At December 31, 1999,
the Company had no material currency rate exposure.

In addition to interest rate and foreign exchange risk, the Company's common
equity portfolio of $402.1 million at December 31, 1999 is subject to changes in
value based on changes in equity prices, predominately from the United States.
To hedge a portion of its exposure to movements in its equity portfolio, the
Company entered into options contracts with a notional value of $6.4 million at
December 31, 1999.

ARCM, a subsidiary of the Company, has been engaged primarily in the weather
derivative business, which exposes the Company to losses or gains based on
movements in temperature at certain U.S. weather stations. At December 31, 1999,
ARCM had entered into 78 weather derivative contracts with a notional

21
<PAGE>
value of $139.3 million. At December 31, 1999, the maximum payment amount of the
contracts was $85.7 million, and the maximum receivable amount was
$111.4 million.

In November 1999, ARCM entered into certain index-based Catastrophe Swaps
with Gold Eagle Capital Limited, a special purpose Bermuda company. Under the
terms of the catastrophe swaps, ARCM may receive approximately $182 million of
potential payments from Gold Eagle in the event of three types of certain
catastrophic events: California earthquakes, Midwest earthquakes, or Eastern and
Gulf Coast windstorms, all as specifically defined under the Catastrophe Swaps
("Catastrophes"). Payment amounts under the catastrophe swaps will be determined
based upon an index of modeled insurance industry losses from Catastrophes as
calculated by Risk Management Solutions, Inc. American Re Securities
Corporation, a subsidiary of the Company, acted as placement agent for Gold
Eagle in the placement of catastrophe related securities, called Modeled Index
Linked Securities-SM- (ModILS-SM-), intended to collateralize any potential
payments by Gold Eagle to ARCM under the catastrophe swaps.

The Company adjusts the catastrophe swaps to fair value using a model
pricing based upon interest rate spreads above comparable U.S. Treasury
investments, applied to a notional value outstanding of $182.1 million. The fair
value adjustment at December 31, 1999 was $0.6 million.

SENSITIVITY ANALYSIS OF MARKET RISK AND DISCLOSURES ABOUT MODEL

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 the mark interest rates. The following table
presents the Company's projected change in fair value of the Company's financial
instruments at December 31, 1999. All market sensitive instruments presented 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, 1999, with adjustments made to reflect the shift in the Treasury
yield curve as appropriate.

<TABLE>
<CAPTION>
FAIR VALUE OF TOTAL PERCENTAGE
INVESTMENTS, EXCLUDING HYPOTHETICAL HYPOTHETICAL
PERCENT CHANGE IN INTEREST RATES COMMON EQUITIES CHANGE CHANGE
- -------------------------------- ---------------------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
200 basis point rise............................... $6,493.6 $(544.2) (7.7)%
100 basis point rise............................... 6,757.7 (280.1) (4.0)
Base Scenario...................................... 7,037.8 -- --
100 basis point decline............................ 7,330.2 292.4 4.2
200 basis point decline............................ 7,630.7 592.9 8.4
</TABLE>

<TABLE>
<CAPTION>
FAIR VALUE OF SENIOR PERCENTAGE
BANK DEBT, SENIOR HYPOTHETICAL HYPOTHETICAL
PERCENT CHANGE IN INTEREST RATES NOTES AND QUIPS CHANGE CHANGE
- -------------------------------- -------------------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
200 basis point rise................................. $684.5 $(92.5) (11.9)%
100 basis point rise................................. 726.9 (50.1) (6.5)
Base Scenario........................................ 777.0 -- --
100 basis point decline.............................. 836.8 59.8 7.7
200 basis point decline.............................. 908.6 131.6 16.9
</TABLE>

The preceding tables indicate that at December 31, 1999, 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

22
<PAGE>
prevailing market interest rates, the fair value of the Company's fixed maturity
investments and debt instruments would be expected to increase.

DISCLOSURES ABOUT 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.

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
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 establishes IBNR reserves
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

23
<PAGE>
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 1989 through 1999, and the subsequent changes in those reserves,
presented on a combined basis for the reinsurance/ insurance subsidiaries. The
following data is not accident year data, but a display of 1989 through
1999 year-end reserves and the subsequent changes in those reserves. For
instance, the "Redundancy (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 1989 reserves have developed
a $561 million deficiency through December 31, 1999.

CHANGES IN HISTORICAL RESERVES FOR UNPAID LOSSES AND LAE
FOR THE LAST TEN YEARS--GAAP BASIS AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for unpaid losses and LAE.... $3,025 $3,203 $3,267 $3,254 $3,573 $3,922 $4,501 $4,849
Paid (cumulative) as of:
One year later............................. 634 811 864 739 889 1,076 1,124 1,295
Two years later............................ 1,201 1,423 1,318 1,316 1,566 1,787 1,895 2,230
Three years later.......................... 1,700 1,755 1,667 1,791 2,058 2,303 2,517 3,104
Four years later........................... 1,949 2,004 1,985 2,137 2,421 2,744 3,097
Five years later........................... 2,131 2,243 2,252 2,414 2,748 3,159
Six years later............................ 2,326 2,463 2,483 2,671 3,060
Seven years later.......................... 2,511 2,669 2,689 2,936
Eight years later.......................... 2,688 2,858 2,922
Nine years later........................... 2,866 3,079
Ten years later............................ 3,080

Net liability re-estimated as of:
End of year................................ $3,025 $3,203 $3,267 $3,254 $3,573 $3,922 $4,501 $4,849
One year later............................. 3,073 3,258 3,194 3,317 3,640 4,369 4,512 4,920
Two years later............................ 3,113 3,183 3,224 3,363 3,986 4,397 4,610 4,863
Three years later.......................... 3,048 3,216 3,244 3,666 4,017 4,347 4,555 5,039
Four years later........................... 3,077 3,225 3,474 3,686 4,009 4,297 4,756
Five years later........................... 3,087 3,472 3,493 3,705 3,986 4,463
Six years later............................ 3,357 3,489 3,558 3,698 4,117
Seven years later.......................... 3,391 3,600 3,580 3,820
Eight years later.......................... 3,505 3,623 3,651
Nine years later........................... 3,527 3,699
Ten years later............................ 3,586

Redundancy (Deficiency).................... $ (561) $ (496) $ (384) $ (566) $ (544) $ (541) $ (255) $ (190)

<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net liability for unpaid losses and LAE.... $5,103 $5,065 $5,480
Paid (cumulative) as of:
One year later............................. 1,509 1,986
Two years later............................ 2,809
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 $5,480
One year later............................. 5,165 5,635
Two years later............................ 5,533
Three years later..........................
Four years later...........................
Five years later...........................
Six years later............................
Seven years later..........................
Eight years later..........................
Nine years later...........................
Ten years later............................
Redundancy (Deficiency).................... $ (430) $ (570)
</TABLE>

<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gross liability--end of year....................... $7,039 $7,178 $7,469 $ 7,334 $8,369
Reinsurance recoverables on unpaid losses.......... 2,538 2,329 2,366 2,269 2,889
------ ------ ------ ------- ------
Net liability--end of year......................... 4,501 4,849 5,103 5,065 5,480

Gross re-estimated liability--latest............... $7,495 $7,682 $8,238 $ 8,494
Re-estimated reinsurance recoverables on latest
unpaid losses.................................... 2,739 2,643 2,705 2,859
------ ------ ------ -------
Net re-estimated liability--latest................. 4,756 5,039 5,533 5,635

Gross cumulative redundancy (deficiency)........... $ (456) $ (504) $ (769) $(1,160)
</TABLE>

24
<PAGE>
The reconciliation between statutory basis and GAAP basis reserves for each
of the three years in the period ended December 31, 1999, is shown below:

RECONCILIATION OF RESERVES FOR UNPAID LOSSES AND LAE
FROM STATUTORY BASIS TO GAAP BASIS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Statutory reserves.......................................... $5,346.7 $5,064.7 $5,196.1
Adjustments to a GAAP basis(1).............................. 133.0 0.2 (93.3)
Reinsurance recoverables on unpaid losses................... 2,889.3 2,269.2 2,366.5
-------- -------- --------
Reserves on a GAAP basis.................................... $8,369.0 $7,334.1 $7,469.3
======== ======== ========
</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 loss reserves for Princeton
Eagle West Insurance Company, a Bermuda Insurance Company.

RECONCILIATION OF RESERVES FOR UNPAID LOSSES AND LAE
(GAAP BASIS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Reserves at beginning of period............................. $ 7,334.1 $ 7,469.3 $ 7,178.3
Reinsurance recoverable on unpaid losses.................... (2,269.2) (2,366.5) (2,329.6)
--------- --------- ---------
Net reserves at beginning of period......................... 5,064.9 5,102.8 4,848.7
Net incurred related to:
Current period............................................ 2,084.0 1,620.4 1,642.1
Prior periods............................................. 570.4 62.0 74.2
--------- --------- ---------
Total net incurred.......................................... 2,654.4 1,682.4 1,716.3
Net paid related to:
Current period............................................ 253.6 207.2 167.5
Prior periods............................................. 1,986.0 1,513.1 1,294.7
--------- --------- ---------
Total net paid.............................................. 2,239.6 1,720.3 1,462.2
--------- --------- ---------

Net reserves at end of period............................... 5,479.7 5,064.9 5,102.8
Reinsurance recoverables on unpaid losses................... (2,889.3) (2,269.2) (2,366.5)
--------- --------- ---------

Reserves at end of year..................................... $ 8,369.0 $ 7,334.1 $ 7,469.3
========= ========= =========
</TABLE>

25
<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 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. American
Re-Insurance'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.

During 1999, the Company undertook a study to reevaluate its reserves for
latent liability exposures. This was a result of the Company's assessment of its
reported claims activity, which reflected continued emergence of newly reported
claims in each of these areas and recent insurance industry efforts to
accelerate the settlement of outstanding latent liability claims. Each of the
Company's related exposures was evaluated individually to determine its expected
ultimate liability for losses and LAE. As a result of this reevaluation, during
the fourth quarter of 1999, the Company increased its IBNR loss reserves for
such exposures. This charge was partially offset by favorable development on
reserves in other accident years and by the utilization of the remaining limit
under the Company's Adverse Loss Agreement with Travelers.

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, 1999, the Company has utilized the full limit of the Cover.

The Company had reserves for latent liability exposures, prior to cession to
the Cover, at December 31, as follows:

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
GROSS NET GROSS NET
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Asbestos................................... $ 786.6 $470.9 $399.9 $258.5
Environmental-related and other latent
liability................................ 646.2 466.7 237.3 150.1
-------- ------ ------ ------
Total...................................... $1,432.8 $937.6 $637.2 $408.6
======== ====== ====== ======
</TABLE>

Loss reserves for latent liability exposures at December 31, 1999 and 1998,
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. 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
adverse loss coverage for 1992 and prior years, which are not allocated to
specific causative events.

26
<PAGE>
THREE YEAR DEVELOPMENT
ASBESTOS LIABILITIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Gross Basis:
Beginning net reserve balance............................. $399.9 $457.7 $499.8
Incurred loss and LAE..................................... 483.9 -- --
Loss and LAE paid......................................... 97.2 57.8 42.1
------ ------ ------
Ending reserve balance.................................... $786.6 $399.9 $457.7
====== ====== ======
Net Basis:
Beginning net reserve balance............................. $258.5 $297.1 $326.6
Incurred loss and LAE..................................... 277.9 -- --
Loss and LAE paid......................................... 65.5 38.6 29.5
------ ------ ------
Ending reserve balance.................................... $470.9 $258.5 $297.1
====== ====== ======
</TABLE>

ENVIRONMENTAL-RELATED AND
OTHER LATENT LIABILITIES

Net Basis:
Beginning net reserve balance............................. $150.1 $218.6 $273.9
Incurred loss and LAE..................................... 411.9 -- --
Loss and LAE paid......................................... 95.3 68.5 55.3
------ ------ ------
Ending reserve balance.................................... $466.7 $150.1 $218.6
====== ====== ======
</TABLE>

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

None.

27
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

DIRECTORS

DR. JUR. CLAUS HELBIG, age 58, became a Director of the Company in
November 1996. Dr. Helbig has been a Member of the Board of Management of Munich
Re since 1993. Dr. Helbig is a member of the Supervisory Board of Ingolstadt,
Class KGa A, Harsewinkel, Deutsche Asset Management, Frankfurt, Karlsruher
Rendite, Karlsruhe and various Munich Re affiliates.

EDWARD J. NOONAN, age 41, became President, Chief Executive Officer and a
Director of the Company and Chairman, President and Chief Executive Officer of
American Re-Insurance in March 1997. From February 1997 to March 1997,
Mr. Noonan was Executive Vice President of the Company and American
Re-Insurance. From September 1994 to March 1997, Mr. Noonan was President,
Domestic Insurance Company Operations of American Re-Insurance. 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 1988 to April 1990, he was Vice President,
Treaty Division of American Re-Insurance.

DR. JUR. HANS-JURGEN SCHINZLER, age 58, became a Director of the Company in
November 1996 and Chairman of the Company in March 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 the
Chairman of the Supervisory Board of ERGO Versicherungsgruppe AG, Dusseldorf; MR
Beteiligungen AG, Grafelfing; and MRE Beteilingungen AG Munich; Dr. Schinzler is
also a Member of the Supervisory Board of each of Allianz
Lebensversicherung--AG, Stuttgart; Aventis S.A., Schiltigheim; Dresdner Bank
Aktiengesellschaft, Frankfurt; and MAN Aktiengesellschaft, Munich.
Dr. Schinzler is a Member of the Board of Directors of Allianz of America Inc.,
Delaware and Kleinwort Benson North America Inc., New York.

KARL WITTMAN, age 55, became a Director of the Company in December 1998.
Mr. Wittmann has been a Member of the Board of Management of Munich Re since
January 1998 responsible for Asia and Australasia, United Kingdom and Ireland
and from January 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;
and is a Director of various Munich Re affiliates.

EXECUTIVE OFFICERS

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

MAHMOUD M. ABDALLAH, age 51, became an Executive Vice President of the
Company and American Re-Insurance in February 1997. Mr. Abdallah has been
President, International Operations for American Re-Insurance since
September 1994. Since July 1998 he has also been Chairman and CEO of the Munich
American Global Services Group with responsibility for overseeing its member
companies, Am-Re Brokers, Inc., ARB International, Ltd., Am-Re
Consultants, Inc., and the Becher+Carlson Companies. In addition, the
Information Technology Division of American Re-Insurance reports to
Mr. Abdallah. Mr. Abdallah has been a Director of American Re-Insurance since
September 1992.

28
<PAGE>
ALBERT J. BEER, age 49, is Executive Vice President of the Company and
President of Munich American RiskPartners, Inc. Mr. Beer assumed the position of
Executive Vice President in March 1997 and became President of RiskPartners in
December 1997. Mr. Beer was President of American Re-Insurance, Domestic
Operations from March 1997 to December 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.

ROBERT K. BURGESS, age 51, is Executive Vice President, General Counsel and
Secretary of the Company and American Re-Insurance. He became Executive Vice
President in February 1997. From April 1995 to February 1997, he was Senior Vice
President, General Counsel and Secretary of both companies. 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.

GREGORY T. DOYLE, age 39, became Executive Vice President of the Company and
a Director, Executive Vice President and President of Domestic Insurance Company
Operations of American Re-Insurance in December 1997. From February 1997 to
December 1997, Mr. Doyle was Senior Vice President of American Re-Insurance and
Senior Vice President of Domestic Insurance Company Operations. From
December 1994 to February 1997, Mr. Doyle was Eastern Region Vice President of
American Re-Insurance. From March 1990 to December 1994, he was Account
Management Vice President.

WOLFGANG ENGSHUBER, age 43, became Executive Vice President of the Company
and a Director of American Re-Insurance in October 1998. He is 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.

GEORGE T. O'SHAUGHNESSY, JR., age 44, is Executive Vice President and Chief
Financial and Accounting Officer of the Company and American Re-Insurance. He
assumed his current position in April 1998. From April 1997 to April 1998,
Mr. O'Shaughnessy was Senior Vice President, Chief Financial and Accounting
Officer of the Company and American Re-Insurance. Mr. O'Shaughnessy became a
director of American Re-Insurance in December, 1997. From January 1995 to
April 1997, Mr. O'Shaughnessy was Vice President and Controller of the Company
and American Re-Insurance.

EDWARD E. DUESS, age 48, is Senior Vice President and Chief Underwriting
Officer for American Re-Insurance. He assumed his current position in
July 1996. His primary functions include managing the Company's underwriting
process on a world-wide basis. He is also responsible for overseeing American
Re's Underwriting Management Services, Home Office Contracts, and Account
Services departments. Mr. Duess has been with American Re for 24 years. Over
that time, he has held a number of positions including Vice President and Chief
Underwriting Officer for the Domestic Insurance Company Operations Division.

ROBERT E. HUMES, age 56, is Senior Vice President--Human Resources Division
of American Re-Insurance. He assumed his current position in September 1994.
Mr. Humes was Vice President--Human Resources Division from July 1993 to
September 1994. He was previously employed by Bristol-Myers Squibb Company as
Senior Vice President of Corporate Resources and by its predecessor, Squibb
Corporation, in management positions in Human Resources, most recently as Senior
Vice President of Human Resources.

JOHN W. RODGERS, age 48, became Senior Vice President-Claims of American Re
in August 1999. Prior thereto, he held a number of management positions in the
Claims Division, most recently as Vice President-Branch Claims Operations from
March 1994 to August 1999. Mr. Rodgers has been with American Re from
February 1989. Mr. Rodgers holds the CPCU, ARM and ARe designations, and is a
member of the Chartered Property and Casualty Society.

29
<PAGE>
PHILIP ROEPER, age 39, became Senior Vice President and Chief Information
Officer of American Re-Insurance in January, 1999. Mr. Roeper joined American Re
in September 1996 as the Vice President of Infrastructure and Operations. Prior
to joining American Re-Insurance, he was employed by DHL Systems, Inc. in
Burlingame, CA from August 1990 to September 1996, where he was most recently
the Director of Global Network Services.

THOMAS E. SMITH, age 47, became President of Am-Re University in
August 1999. Am-Re University is the Company's initiative to create a learning
organization. Mr. Smith was Senior Vice President-Claims of American Re from
July 1996 to August 1999. Prior to joining American Re-Insurance, Mr. Smith was
Vice President and Senior Claim Officer for the Commercial Division of the
Farmers Insurance Group. Mr. Smith was with Farmers for over 20 years.
Mr. Smith is both a Chartered Property & Casualty Underwriter and a Chartered
Life Underwriter.

DAVID SPIEGLER, age 39, became Senior Vice President & Chief Actuary of
American Re-Insurance in February 2000. Prior thereto, he was the Chief
Underwriting Officer of American Re Financial Products (from December 1998 to
February 2000); Senior Vice President & Chief Pricing Actuary of American
Re-Insurance (from April 1998 to December 1998); Vice President & Chief Pricing
Actuary of American Re-Insurance (from July 1997 to April 1998); Vice
President & Treaty Underwriting Manager in the Western Region of Domestic
Insurance Company Operations of American Re-Insurance (from January 1996 to
July 1997); and Vice President and Department Head of Domestic Insurance Company
Operations' Actuarial Services Department (from July 1991 to January 1996).

30
<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, 1999 (the "named executive officers"), information concerning
compensation earned in 1999, 1998, and 1997 by such persons for services with
the Company and its subsidiaries.

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION PAYOUTS
---------------------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------------------ SECURITIES PAYOUTS
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS LTIP COMPENSATION(2)
- --------------------------- -------- -------- -------- --------------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward J. Noonan........... 1999 $611,250 $ 0 0 0 0 $545,731
President and Chief 1998 575,000 500,000 0 0 0 520,094
Executive Officer 1997 475,000 500,000 0 0 0 497,525

Mahmoud M. Abdallah........ 1999 $451,250 $410,000 0 0 0 $431,798
Executive Vice President 1998 430,000 425,000 0 0 0 411,588
1997 400,000 425,000 0 0 0 391,696

Albert J. Beer............. 1999 $411,250 $225,000 0 0 0 $130,581
Executive Vice President 1998 387,500 400,000 0 0 0 124,894
1997 341,000 400,000 0 0 0 117,444

Robert K. Burgess.......... 1999 $451,250 $250,000 0 0 0 $258,754
Executive Vice President, 1998 430,000 400,000 0 0 0 246,908
General Counsel and 1997 400,000 400,000 0 0 0 235,956
Secretary

Wolfgang Engshuber......... 1999 $321,250 $225,000 0 0 0 $ 21,175
Executive Vice President 1998 77,500 112,500 0 0 0 4,161
</TABLE>

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

(1) During each of the three years ended December 31, 1999, 1998 and 1997,
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 such 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 Special
Deferred Compensation Plan as follows: Mr. Noonan, $509,943 in 1999,
$485,224 in 1998, and $461,702 in 1997; Mr. Abdallah, $403,664 in 1999,
$384,097 in 1998 and $365,477 in 1997; Mr. Beer, $104,845 in 1999, $99,763
in 1998, and $94,927 in 1997; and Mr. Burgess, $230,620 in 1999, $219,441 in
1998, and $208,803 in 1997; (ii) employer contributions under the American
Re-Insurance Company Savings Plan, a 401(k) plan, of $8,000 in 1999, $8,000
in 1998, and $8,000 in 1997 for Mr. Noonan; of $6,250 in 1999, $6,250 in
1998, and $6,560 in 1997 for Mr. Abdallah; of $8,000 in 1999, $8,000 in
1998, and $8,023 in 1997 for Mr. Beer; of $8,615 in 1999, $6,250 in 1998,
and $6,419 in 1997 for Mr. Burgess; of $6,215 in 1999, and $2,980 in 1998
for Mr. Engshuber; (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, 1999, of $21,596 in 1999, $20,884 in 1998, and $22,285 in 1997
for Mr. Noonan; of $16,038 in 1999, $15,788 in 1998, and $14,291 in 1997 for
Mr. Abdallah; of $12,173 in 1999, $12,000 in 1998, and $9,530 in 1997 for
Mr. Beer; of $13,673 in 1999, $15,763 in 1998, and $14,563 in 1997 for
Mr. Burgess; of $10,000 in 1999 for Mr. Engshuber; and (iv) employer
contributions for group term life, accidental death and dismemberment and
disability insurance of $6,192 in 1999, $5,986 in 1998, and $5,538 in 1997
for Mr. Noonan; of $5,846 in 1999, $5,453 in 1998, and $5,368 in 1997 for
Mr. Abdallah; of $5,563 in 1999, $5,131 in 1998, and $4,964 in 1997 for
Mr. Beer; of $5,846 in 1999, $5,454 in 1998, and $6,171 in 1997 for
Mr. Burgess; and $4,925 in 1999, and $1,181 in 1998 for Mr. Engshuber.

31
<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 1999 under the Company's Long-Term
Incentive Plan.

<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
- ---------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
-----------------------------------
(A) (B) (C) (D) (E) (F)
NUMBER OF PERFORMANCE OR
SHARES, UNITS OR OTHER PERIOD UNTIL
OTHER RIGHTS MATURITIES OR THRESHOLD TARGET MAXIMUM
NAME (#) PAYOUT(1) ($ OR #) ($ OR #) ($ OR #)
- ---------------------------- ---------------- ------------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Edward J. Noonan............ 2001 0 $1,200,000 $2,400,000
Mahmoud M. Abdallah......... 2001 0 $ 900,000 $1,800,000
Albert J. Beer.............. 2001 0 $ 900,000 $1,800,000
Robert K. Burgess........... 2001 0 $ 900,000 $1,800,000
Wolfgang Engshuber.......... 2001 0 $ 900,000 $1,800,000
</TABLE>

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

(1) Under the Company's Long-Term Incentive Plan, performance goals are
established by the Company's Executive Committee for which performance
targets are chosen. These performance targets are applicable to a
performance period consisting of three fiscal years, 1999-2001. 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 within the performance
period. The performance goals selected by the Committee for the performance
period are Aggregate Operating Income and Return on Equity.

MUNICH RE LONG-TERM INCENTIVE PLAN

The following table sets forth sets forth for the Chief Executive Officer of
the Company, and the four named executive officers information concerning stock
appreciation rights awarded by Munich Re in 1999 under the Munich Re Long-Term
Incentive Plan.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF TOTAL INDIVIDUAL GRANTS AT ASSUMED ANNUAL
SAR'S ----------------------- RATES OF STOCK PRICE
GRANTED TO APPRECIATION FOR TERM
SAR'S EMPLOYEES IN EXERCISE EXPIRATION ------------------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE(3) DATE(4) 5% 10%
- ---- ---------- -------------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Noonan....................... 1,770 21.37% EUR 182.6 6/30/06 EUR 131,582 EUR 306,627
Mahmoud M. Abdallah.................... 1,310 15.82% EUR 182.6 6/30/06 EUR 97,385 EUR 226,944
Albert J. Beer......................... 1,200 14.49% EUR 182.6 6/30/06 EUR 89,208 EUR 207,888
Robert K. Burgess...................... 1,310 15.82% EUR 182.6 6/30/06 EUR 97,385 EUR 226,944
Wolfgang Engshuber..................... 940 11.35% EUR 182.6 6/30/06 EUR 69,880 EUR 162,846
</TABLE>

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

(1) The Munich Re Long-Term Incentive Plan is a stock appreciation rights plan
which provides to eligible participants in the Munich Re Group organization
stock appreciation rights linked to the performance of Munich Re stock. Each
right entitles the holder, after a two year vesting period, to draw in cash
up to certain limits, the difference between the share price applicable at
the time of the award and that at the time when the right is exercised.

(2) Individual percentage totals represent the percentage of total SAR's
granted to American Re employees.

(3) The initial stock price is calculated from the average of the closing
prices for Munich Re shares of stock in Frankfurt Xetra trading over the
ten trading days prior to July 1, 1999. That amount was equivalent to EUR
182.6. The exchange rate into US dollars will be the rate applicable on the
exercise date.

(4) The stock appreciation rights may be exercised at any time after a
two-year vesting period. Stock appreciation rights may only be exercised if
the price of Munich Re shares has (i) increased by at least 20% compared to
the initial share price and (ii) outperformed the DAX 30, an index of 30
publicly traded German corporations, for a specified period of time.

32
<PAGE>
COMPENSATION OF DIRECTORS

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

EMPLOYMENT AGREEMENTS

American Re-Insurance has 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 such other bonus payment, 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. To the extent the
bonus amounts set forth in the Summary Compensation Table for any of such
persons are less than they would have been entitled to under their Agreements
for 1999, such executives voluntarily waived the contractual amount for 1999.

Under the Agreements, American Re-Insurance has also agreed to pay a
severance benefit to such 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 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.

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.

33
<PAGE>
MAXIMUM RETIREMENT BENEFITS PAYABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 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 compensation columns of the
Summary Compensation Table. The credited years of service on December 31, 1999
for the persons named in the Summary Compensation Table are as follows:
Mr. Noonan, 15.2 years; Mr. Abdallah, 17 years; Mr. Beer, 7 years; Mr. Burgess,
4.6 years; and Mr. Engshuber, 1.25 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 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 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 100% of the outstanding Common Stock of the
Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

34
<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.

35
<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, 2000.

<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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CLAUS HELBIG Director
------------------------------------------- March 30, 2000
Claus Helbig

/s/ EDWARD J. NOONAN President, Chief Executive
------------------------------------------- Officer and Director March 30, 2000
Edward J. Noonan

/s/ HANS JURGEN SCHINZLER Chairman of the Board and
------------------------------------------- Director March 30, 2000
Hans Jurgen Schinzler

/s/ KARL WITTMANN Director
------------------------------------------- March 30, 2000
Karl Wittmann
</TABLE>

36
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets--December 31, 1999 and 1998..... F-3
Consolidated Statements of Income--Years ended December 31,
1999, 1998, and 1997...................................... F-4
Consolidated Statements of Stockholder's Equity--Years ended
December 31, 1999, 1998, and 1997......................... F-5
Consolidated Statements of Cash Flows--Years ended December
31, 1999, 1998, and 1997.................................. F-6
Notes to Consolidated Financial Statements--December 31,
1999...................................................... F-7

INDEX TO SCHEDULES TO FINANCIAL STATEMENTS

Summary of Investments Other Than Investments in Related
Parties--December 31, 1999................................ S-1
Condensed Financial Information of Registrant (Parent
Company only):
Condensed Balance Sheets--December 31, 1999 and 1998...... S-2
Condensed Statements of Operations and Retained
Earnings--Years ended December 31, 1999, 1998, and
1997.................................................... S-3
Condensed Statements of Cash Flows--Years ended December
31, 1999, 1998, and 1997................................ S-4
Notes to Condensed Financial Information--December 31,
1999.................................................... S-5
Supplemental Insurance Information--Years ended December 31,
1999, 1998, and 1997...................................... S-6
Reinsurance--Years ended December 31, 1999, 1998, and
1997...................................................... S-7
Supplemental Information (for Property-Casualty Insurance
Underwriters)--Years ended December 31, 1999, 1998, and
1997...................................................... S-8
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of
American Re Corporation

We have audited the accompanying consolidated balance sheets of American Re
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholder's equity and cash flows for each
of the years in the three-year period ended December 31, 1999. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedules as listed in the accompanying index. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, 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

New York, New York
February 25, 2000

F-2
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1999 AND 1998

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities
Bonds available for sale, at fair value (amortized cost:
December 31, 1999 and 1998--$6,511.6 and $6,688.6,
respectively).......................................... $ 6,315.2 $ 6,876.0
Preferred stock available for sale, at fair value
(amortized cost: December 31, 1999 and 1998--$84.4 and
$76.7, respectively)................................... 84.6 77.3
Equity securities available for sale, at fair value (cost:
December 31, 1999 and 1998--$367.1 and $488.7,
respectively)........................................... 402.1 545.2
Other invested assets................................... 40.5 27.9
Cash and cash equivalents................................... 597.5 274.9
--------- ---------
Total investments and cash............................ 7,439.9 7,801.3
Accrued investment income................................... 83.5 85.4
Premiums and other receivables.............................. 1,181.2 1,315.5
Deferred policy acquisition costs........................... 324.5 357.7
Reinsurance recoverables on paid and unpaid losses.......... 3,034.9 2,343.1
Funds held by ceding companies.............................. 609.7 408.9
Prepaid reinsurance premiums................................ 138.8 148.2
Deferred federal income taxes............................... 376.0 142.6
Other assets................................................ 1,090.3 941.3
--------- ---------
Total assets.......................................... $14,278.8 $13,544.0
========= =========
LIABILITIES
Loss and loss adjustment expense reserves................... $ 8,369.0 $ 7,334.1
Unearned premium reserve.................................... 1,223.4 1,280.5
--------- ---------
Total insurance reserves.............................. 9,592.4 8,614.6
Loss balances payable....................................... 421.3 412.1
Funds held under reinsurance treaties....................... 322.6 273.7
Senior bank debt............................................ 75.0 75.0
Senior notes................................................ 498.5 498.5
Other liabilities........................................... 642.5 579.5
--------- ---------
Total liabilities..................................... 11,552.3 10,453.4
Commitments and contingent liabilities (Note 15)

Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding as all of its
assets Junior Subordinated Debentures..................... 237.5 237.5
--------- ---------
STOCKHOLDER'S EQUITY
Common stock, par value: $0.01 per share; authorized: 1,000
shares; issued and outstanding: 149.49712 shares at
December 31, 1999, and 1998............................... -- --
Additional paid-in capital.................................. 1,332.4 1,332.4
Retained earnings........................................... 1,296.6 1,397.6
Accumulated other comprehensive income (loss)............... (140.0) 123.1
--------- ---------
Total stockholder's equity............................ 2,489.0 2,853.1
--------- ---------
Total liabilities, Company-obligated mandatorily
redeemable preferred securities of subsidiary trust,
and stockholder's equity............................. $14,278.8 $13,544.0
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Premiums written.......................................... $2,905.7 $2,406.8 $2,497.7
Change in unearned premium reserve........................ 21.8 12.1 (11.6)
-------- -------- --------
Premiums earned......................................... 2,927.5 2,418.9 2,486.1
Net investment income..................................... 415.1 417.5 427.5
Net realized capital gains................................ 82.9 92.8 87.7
Other income.............................................. 27.5 31.8 41.7
-------- -------- --------
Total revenue......................................... 3,453.0 2,961.0 3,043.0
-------- -------- --------
LOSSES AND EXPENSES
Losses and loss adjustment expenses....................... 2,654.4 1,682.4 1,716.3
Commission expense........................................ 595.3 584.3 623.5
Operating expense......................................... 275.4 232.1 214.9
Interest expense.......................................... 41.9 42.2 42.8
Other expenses............................................ 64.0 98.5 221.2
-------- -------- --------
Total losses and expenses............................. 3,631.0 2,639.5 2,818.7
-------- -------- --------
Income (loss) before income taxes, minority interest and
distributions on preferred securities of subsidiary
trust................................................... (178.0) 321.5 224.3
Federal and foreign income taxes.......................... (90.1) 82.4 (3.4)
-------- -------- --------
Income (loss) before minority interest and distributions
on preferred securities of subsidiary trust............. (87.9) 239.1 227.7
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)
-------- -------- --------
Net income (loss) to common stockholder............... $ (101.0) $ 226.0 $ 221.4
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
ACCUMULATED
ARC MARC MARC ADDITIONAL OTHER
COMMON COMMON PREFERRED PAID IN RETAINED COMPREHENSIVE
STOCK STOCK STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
-------- -------- --------- ---------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997............ $ -- $ 1.9 $19.5 $ 801.0 $ 950.6 $ 19.5 $1,792.5
Comprehensive income:
Net income.......................... 221.4
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) (0.4)
Capital contribution.................. 85.0 85.0
Acquisition of MARC minority
interest............................ 425.0 425.0
Merger-related capital restructure
(Note 14)........................... (1.9) (19.5) 21.4 --
------- ------ ----- -------- -------- ------- --------
Balance at December 31, 1997.......... -- -- -- 1,332.4 1,171.6 82.4 2,586.4

Comprehensive income:
Net income.......................... 226.0
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.......... -- -- -- 1,332.4 1,397.6 123.1 2,853.1

Comprehensive income (loss):
Net loss............................ (101.0)
Net change in unrealized loss on
foreign exchange.................. 0.6
Net change in unrealized
appreciation of investments
Fixed maturities.................. (249.7)
Equity securities................. (14.0)
Total comprehensive loss.............. (364.1)
------- ------ ----- -------- -------- ------- --------
Balance at December 31, 1999.......... $ -- $ -- $ -- $1,332.4 $1,296.6 $(140.0) $2,489.0
======= ====== ===== ======== ======== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (101.0) $ 226.0 $ 221.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Decrease in accrued investment income................... 1.9 8.5 11.3
Decrease (increase) in premiums and other receivables... 134.3 (231.9) (167.6)
Decrease (increase) in deferred policy acquisition
costs.................................................. 33.2 (1.0) (19.8)
Increase (decrease) in insurance reserves............... 977.8 (124.6) 280.4
Increase (decrease) in current and deferred federal and
foreign income tax assets and liabilities.............. (154.8) (5.0) (57.5)
Change in other assets and liabilities.................. (863.5) 371.9 96.4
Depreciation expense on property and equipment.......... 10.0 7.2 8.4
Write-down of property and equipment.................... -- -- 38.2
Net realized capital gains.............................. (82.9) (92.8) (87.7)
Change in other, net.................................... 6.5 44.4 42.6
--------- --------- ---------
Net cash provided by (used in) operating activities... (38.5) 202.7 366.1
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments available for sale
Purchases............................................... (3,262.8) (7,130.2) (5,173.3)
Maturities.............................................. 321.0 429.7 606.5
Sales................................................... 3,321.3 6,164.7 4,266.6
Other investments
Purchases............................................... (23.0) (12.6) (3.0)
Sales................................................... 16.0 0.1 1.9
Costs of additions to property and equipment.............. (10.7) (18.2) (23.1)
--------- --------- ---------
Net cash provided by (used in) investing activities... 361.8 (566.5) (324.4)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend to common stockholders........................... -- -- (0.4)
Loan from parent company.................................. -- -- (35.9)
Capital contribution from parent company.................. -- -- 85.0
--------- --------- ---------
Net cash provided by financing activities............. -- -- 48.7
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................. (0.7) (2.9) (1.9)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.......................................... 322.6 (366.7) 88.5
Cash and cash equivalents, beginning of period............ 274.9 641.6 553.1
--------- --------- ---------
Cash & cash equivalents, end of period.................... 597.5 $ 274.9 $ 641.6
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded), net......................... $ (11.3) $ (59.3) $ 29.3
Interest paid and distributions on preferred securities of
subsidiary trust........................................ $ 62.1 $ 62.4 $ 63.0
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

1. 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 primarily in the alternative market
through a primary insurance company, American Alternative Insurance Corporation
("American Alternative"). (American Re-Insurance, American Alternative and The
Princeton Excess and Surplus Lines Insurance Company together are the
"reinsurance/insurance subsidiaries.") American Re conducts its business through
14 domestic and 16 international offices.

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

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
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

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 or 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, 2000.
Currently, the Company does not expect the adoption of FAS No. 133 to have a
material impact on its consolidated financial statements.

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. The Company

F-7
<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)
does not expect the application of SOP No. 98-7 to have a material impact on its
consolidated financial statements.

CODIFICATION OF STATUTORY ACCOUNTING PRINCIPLES

In 1999, the National Association of Insurance Commissioners ("NAIC")
adopted the Accounting Practices Manual, which includes Statements of Statutory
Accounting Principles. The codification of Statutory Accounting Principles,
which is effective January 1, 2001, prescribes statutory accounting practices
which may differ from individual state "prescribed or permitted" practices.
Where there is a difference, individual state "prescribed or permitted" practice
will take precedence over codified statutory accounting practices. The Company
is currently evaluating the financial statement impact, if any, which may result
from the codification of Statutory Accounting Principles.

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 stockholder's 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

F-8
<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)
debt (see Note 9) have been deferred. Such costs are being amortized over the
remainder of their respective lives, using the interest-rate method.

The amortization of deferred financing fees was $0.3, $0.3 and $1.9 for the
years ended December 31, 1999, 1998, and 1997, 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 $63.0 and $55.1 at December 31, 1999, and 1998,
respectively.

H. GOODWILL

Goodwill represents the cost in excess of net assets required for the
acquisitions of American Re-Insurance in 1992 and the minority interests in
Munich American Reinsurance Company ("MARC") (See Note 14) in 1997. The
goodwill, which is amortized over 40 years, was $251.3 and $258.3 at
December 31, 1999 and 1998, respectively. The amortization of goodwill was $7.0,
$7.0 and $4.7 for each of the years ended December 31, 1999, 1998, and 1997,
respectively.

The Company regularly evaluates the recoverability of goodwill and other
acquired intangible assets. The carrying value of such assets would be reduced
through a direct write-off 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 $670.4 and $645.0 at December 31, 1999, and 1998,
respectively.

Management believes that the reserves for losses and LAE as of December 31,
1999 are adequate to cover the ultimate gross cost of losses and LAE incurred
through December 31, 1999. 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-9
<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 $2,889.3 and $2,269.2 at
December 31, 1999, and 1998, 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, 1999, and 1998. Although the Company is not aware of any factors
that would significantly affect the estimated fair value amounts, such

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)
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 16--"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'
stockholder's equity.

OTHER INVESTED ASSETS. Generally, the carrying amounts of these financial
instruments were a reasonable estimate of their fair value.

WEATHER DERIVATIVES. The value of weather derivatives is determined under
an alternative approach model pricing. The determination of this value considers
various factors, including: time value and volatility factors underlying the
derivatives, including the degree day data received from the National Climatic
Data Center used to calculate 10-year averages and 30-year volatility; price
activity for equivalent or synthetic instruments in markets located in similar
geographic locations; and counterparty credit quality.

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 1998 and 1997 financial statement presentations have been
reclassified to conform with the 1999 presentation.

F-11
<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>
1999
----------------------------------------------
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............. $ 754.1 $ 2.5 $ 25.8 $ 730.8
Obligations of states and political subdivisions... 2,123.1 10.1 62.9 2,070.3
Corporate securities............................... 2,484.7 4.6 82.0 2,407.3
Mortgage backed securities......................... 1,149.7 2.1 45.0 1,106.8
-------- ----- ------ --------
Total bonds available for sale................... 6,511.6 19.3 215.7 6,315.2
Preferred stock...................................... 84.4 0.2 -- 84.6
-------- ----- ------ --------
Total fixed maturities........................... $6,596.0 $19.5 $215.7 $6,399.8
======== ===== ====== ========
</TABLE>

<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>

The amortized cost and fair value of fixed maturities at December 31, 1999,
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>
1999
---------------------------
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Due to mature:
One year or less.......................................... $ 352.8 $ 352.6
After one year through five years......................... 2,138.6 2,108.7
After five years through ten years........................ 2,326.3 2,236.1
After ten years........................................... 628.6 595.6
Mortgage backed securities................................ 1,149.7 1,106.8
-------- --------
Total fixed maturities.................................. $6,596.0 $6,399.8
======== ========
</TABLE>

F-12
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

3. INVESTMENTS (CONTINUED)
Proceeds from sales of investments available for sale and the related gains
and losses realized on those sales were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Proceeds from sales............................ $3,321.3 $6,164.7 $4,266.6
Gross gains realized........................... 154.0 156.8 121.8
Gross losses realized.......................... 71.1 64.0 34.1
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Change in unrealized appreciation (depreciation)
Fixed maturities......................................... $(384.2) $ 24.3
Equity securities........................................ (21.5) 38.6
------- ------
Subtotal............................................... (405.7) 62.9
Income tax effect.......................................... (142.0) 22.0
------- ------
Net change in unrealized appreciation...................... (263.7) 40.9
Balance, beginning of year................................. 158.9 118.0
------- ------
Balance, end of year....................................... $(104.8) $158.9
======= ======
</TABLE>

At December 31, 1999, and 1998, the Company's investments in bonds on a
financial statement basis were $6,315.2 or 84.9% and $6,876.0 or 88.1%,
respectively, of total investments and cash. The bond portfolio is diversified
within various industry segments.

Bond investment by market sector at December 31, were as follows:

<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. government....................................... $ 754.1 $ 730.8 $ 610.0 $ 645.1
Foreign government.................................... 357.1 349.7 329.5 342.9
State and municipal................................... 2,123.1 2,070.3 2,561.1 2,636.9
Mortgage backed securities............................ 1,149.7 1,106.8 1,194.9 1,218.6
Financial............................................. 692.9 666.2 667.8 684.6
Utilities............................................. 117.4 112.1 117.2 119.2
Transportation/capital................................ 7.6 6.8 10.7 11.2
Health care........................................... 24.9 22.7 24.9 25.9
Natural resources..................................... 10.2 9.9 3.1 3.1
Other corporate securities............................ 1,274.6 1,239.9 1,169.4 1,188.5
-------- -------- -------- --------
Total............................................... $6,511.6 $6,315.2 $6,688.6 $6,876.0
======== ======== ======== ========
</TABLE>

F-13
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

3. INVESTMENTS (CONTINUED)
Sources of net investment income were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities.................................... $383.6 $392.2 $407.7
Short-term investments.............................. 16.8 22.0 21.9
Other............................................... 35.6 28.9 16.3
------ ------ ------
Gross investment income......................... 436.0 443.1 445.9
Investment expenses................................. (20.9) (25.6) (18.4)
------ ------ ------
Net investment income........................... $415.1 $417.5 $427.5
====== ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities..................................... $ (3.8) $102.3 $21.4
Equity securities.................................... 87.9 (3.8) 67.9
Other................................................ (1.2) (5.7) (1.6)
------ ------ -----
Net capital gains................................ $ 82.9 $ 92.8 $87.7
====== ====== =====
</TABLE>

At December 31, 1999, and 1998, securities in the amount of $493.5 and
$408.5 (par value), respectively, were on deposit with governmental authorities
as required by law.

4. ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income (loss) are as
follows:

<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION NET UNREALIZED
(DEPRECIATION) LOSS ON FOREIGN
OF 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
Period change........................... (322.8) 0.9 (321.9)
Tax effect.......................... 113.0 (0.3) 112.7
Reclassification adjustment for
gain/loss included in net income...... (82.9) -- (82.9)
Tax effect.......................... 29.0 -- 29.0
------- ------ -------
Balance at December 31, 1999.............. $(104.8) $(35.2) $(140.0)
======= ====== =======
</TABLE>

F-14
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

5. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

The reconciliation of loss and loss adjustment expense reserves for the
years ended December 31, 1999, 1998, and 1997 is shown below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Loss and LAE reserves at beginning of
period..................................... $ 7,334.1 $ 7,469.3 $ 7,178.3
Reinsurance recoverables on unpaid losses.... (2,269.2) (2,366.5) (2,329.6)
--------- --------- ---------
Net reserves at beginning of period.......... 5,064.9 5,102.8 4,848.7
Net incurred related to:
Current period............................. 2,084.0 1,620.4 1,642.1
Prior periods.............................. 570.4 62.0 74.2
--------- --------- ---------
Total net incurred....................... 2,654.4 1,682.4 1,716.3
Net paid related to:
Current period............................. 253.6 207.2 167.5
Prior periods.............................. 1,986.0 1,513.1 1,294.7
--------- --------- ---------
Total net paid........................... 2,239.6 1,720.3 1,462.2
--------- --------- ---------
Net reserves at end of period................ 5,479.7 5,064.9 5,102.8
Reinsurance recoverables on unpaid losses.... (2,889.3) (2,269.2) (2,366.5)
--------- --------- ---------
Loss and LAE reserves at end of period....... $ 8,369.0 $ 7,334.1 $ 7,469.3
========= ========= =========
</TABLE>

As a result of changes in estimates of insured events in prior years, the
losses and LAE incurred (net of reinsurance recoveries of $1,024.2, $252.1 and
$373.0 for the years ended December 31, 1999, 1998, and 1997, respectively)
increased by $570.4 in 1999, $62.0 in 1998, and $74.2 in 1997. The increase
during 1999 is primarily due to increased losses in recent accident years to
reflect adverse market conditions, in addition to an increase in the Company's
loss reserves associated with asbestos and environmental-related claims. (See
Note 15).

6. 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 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

F-15
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

6. REINSURANCE (CONTINUED)
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,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Premiums written
Direct....................................... $ 277.6 $ 208.6 $ 146.0
Assumed...................................... 3,259.5 2,908.9 2,935.1
Ceded........................................ (631.4) (710.7) (583.4)
-------- -------- --------
Net.......................................... 2,905.7 2,406.8 2,497.7
======== ======== ========
Premiums earned
Direct....................................... 263.5 194.1 119.0
Assumed...................................... 3,325.0 2,914.8 3,003.5
Ceded........................................ (661.0) (690.0) (636.4)
-------- -------- --------
Net.......................................... 2,927.5 2,418.9 2,486.1
======== ======== ========
Losses incurred
Direct....................................... 266.4 136.4 56.9
Assumed...................................... 3,412.2 1,798.1 2,032.4
Ceded........................................ (1,024.2) (252.1) (373.0)
-------- -------- --------
Net.......................................... $$2,654.4 $1,682.4 $1,716.3
======== ======== ========
</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 $104.0 and $79.6 at December 31,
1999 and 1998, 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, 1999), a subsidiary of Berkshire Hathaway, Inc., accounted for
approximately 17.5% and 23.5% of the reinsurance recoverables on paid and unpaid
losses at December 31, 1999, and 1998, respectively. Munich Re (which had
an A.M. Best rating of "A++" at December 31, 1999) accounted for approximately
16.9% and 9.6% of the reinsurance recoverables on paid and unpaid losses at
December 31, 1999, and 1998, respectively. Travelers Property Casualty Corp.
(which had an A.M. Best rating of "A+" at December 31, 1999), accounted for
approximately 13.3% and 7.2% of the reinsurance recoverables on paid and unpaid
losses at December 31, 1999, and 1998, respectively.

F-16
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

7. FEDERAL AND FOREIGN INCOME TAXES

The net deferred tax asset recorded at December 31, 1999, and 1998,
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>
1999 1998
-------- --------
<S> <C> <C>
Loss reserves............................................... $369.2 $323.6
Deferred compensation....................................... 85.5 54.7
Unearned premiums........................................... 77.2 78.8
Investment losses........................................... 59.7 --
Alternative minimum tax ("AMT") credit carryforward......... 55.5 7.2
Other deferred tax assets................................... 23.6 --
------ ------
Deferred tax asset........................................ 670.7 464.3
------ ------
Deferred policy acquisition costs........................... 113.7 125.2
Reinsurance recoverable on paid and unpaid losses........... 107.4 100.1
Investment gains............................................ -- 73.8
Other deferred liabilities.................................. 73.6 22.6
------ ------
Deferred tax liability.................................... 294.7 321.7
------ ------
Net deferred tax asset...................................... $376.0 $142.6
====== ======
</TABLE>

A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. At December 31, 1999,
the Company believes it is more likely than not that the deferred tax asset is
fully realizable. 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 could be reduced, however, if estimates
of future taxable income are reduced.

F-17
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Income-federal and foreign tax expense (benefit)............ $ (24.7) $(94.4) $(119.1)
Federal tax expense (benefit) on net realized capital
gains..................................................... 29.9 (0.9) 29.0
------- ------ -------
Total federal and foreign tax expense................... $ 5.2 $(95.3) $ (90.1)
======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
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
------------------------------
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
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>

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,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before taxes.................................. $(178.0) $321.5 $224.3
Income tax rate............................................. 35% 35% 35%
------- ------ ------
Tax expense at federal statutory income tax rate............ (62.3) 112.5 78.5
Tax effect of:
Tax-exempt investment income................................ (32.6) (31.0) (20.7)
Goodwill.................................................... 2.5 2.5 1.6
Reversal of the valuation allowance--U. S. Branch........... -- -- (37.7)
Net operating loss utilization--U.S. Branch................. -- -- (24.4)
Other, net.................................................. 2.3 (1.6) (0.7)
------- ------ ------
Federal and foreign income tax expense (benefit)............ $ (90.1) $ 82.4 $ (3.4)
======= ====== ======
</TABLE>

As a result of the Redomestication (see Note 14), certain deferred tax
assets of the U.S Branch associated with the operations of the Branch were
transferred to the Company. These deferred tax assets had been reduced by a
valuation allowance on the books of the U.S. Branch. The Company was not subject
to a valuation allowance on these deferred tax assets after the transfer and was
thus able to recognize a tax benefit of $62.1 in 1997.

F-18
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

8. 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.

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,
1999 and 1998, and a statement of the funded status at December 31:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at January 1..................................... $194.2 $159.5 $ 31.3 $ 25.8
Service cost.............................................. 14.9 11.6 2.8 2.1
Interest cost............................................. 12.7 10.8 2.1 1.7
Plan amendments........................................... -- -- (0.2) --
Actuarial (gain) loss..................................... (34.9) 18.8 (6.1) 1.7
Benefit payments.......................................... (5.7) (6.5) -- --
------ ------ ------ ------
Obligation at December 31................................... $181.2 $194.2 $ 29.9 $ 31.3
------ ------ ------ ------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at January 1...................... $114.6 $109.1 $ -- $ --
Actual return on plan assets.............................. 13.7 12.0 -- --
Employer contributions.................................... -- -- 0.5 0.4
Benefit payments.......................................... (5.6) (6.5) (0.5) (0.4)
------ ------ ------ ------
Fair value of plan assets at December 31.................... $122.7 $114.6 $ -- $ --
------ ------ ------ ------
FUNDED STATUS
Funded status at December 31................................ $(58.5) $(79.5) $(29.9) $(31.3)
Unrecognized prior service cost............................. 0.8 0.9 2.4 2.8
Unrecognized (gain) loss.................................... (7.7) 31.0 (1.4) 4.3
------ ------ ------ ------
Net amount recognized in other liabilities.................. $(65.4) $(47.6) $(28.9) $(24.2)
====== ====== ====== ======
</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 $11.0 and $8.8 at December 31, 1999 and 1998,
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 $29.9 and $31.3 at December 31, 1999 and 1998, respectively.

F-19
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

8. BENEFIT PLANS (CONTINUED)
Net periodic benefit cost for the years ended December 31, included the
following components:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost.............................................. $14.9 $11.6 $ 9.6 $2.8 $2.1 $1.5
Interest cost............................................. 12.7 10.8 9.5 2.1 1.7 1.4
Expected return on plan assets............................ (10.8) (9.7) (8.6) -- -- --
Amortization of prior service cost........................ 0.1 0.1 -- 0.2 0.2 0.1
Amortization of net loss.................................. 1.0 0.1 -- 0.1 -- --
----- ----- ----- ---- ---- ----
Net periodic benefit cost............................... $17.9 $12.9 $10.5 $5.2 $4.0 $3.0
===== ===== ===== ==== ==== ====
</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
------------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Discount rate................................ 7.5% 6.5% 7.0% 7.5% 6.5% 7.0%
Expected return on plan assets............... 9.5% 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 2000. The rate was assumed
to decrease gradually over 17 years, to a rate of 5.0% 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...... $1.2 $(0.9)
Effect on the health care component of the accumulated
postretirement benefit obligation......................... $6.8 $(5.4)
</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 $5.3, $5.0, and $5.0 for the years
ended December 31, 1999, 1998, and 1997, 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 Company. Charges to
operations for such incentives were $17.1, $21.6 and $23.4 for the years ended
December 31, 1999, 1998, and 1997, respectively.

American Re-Insurance has Employment Agreements (the "Agreements"), with
Messrs. Noonan, Abdallah, Beer, and Burgess pursuant to which each such
executive has agreed to serve in his position

F-20
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

8. BENEFIT PLANS (CONTINUED)
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 such other bonus payment, 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. To the extent the bonus amounts set forth in the Summary
Compensation Table for any of such persons are less than they would have been
entitled to under their Agreements for 1999, such executives voluntarily waived
the contractual amount for 1999.

At the time of the acquisition by Munich Re, 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, 1999, and 1998, the Company's consolidated balance sheets reflected
$115.2 and $126.5, respectively, of deferred option proceeds, which is reflected
in other liabilities.

9. 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-21
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

9. 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, 1999 and 1998, $75.0 remained
outstanding under the bank revolving credit agreement.

In 1998, the Company guaranteed the repayment of principle, 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 it obligations under such derivatives contracts and for other
general corporate purposes. At December 31, 1999 ARCM had no outstanding
indebtedness under the agreement.

10. SENIOR NOTES

In December 1996, the Company sold $500.0 aggregate principal amount of its
Senior Notes due December 15, 2026 (the "Notes"). 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
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.

F-22
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

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, 1999, and 1998, were $2,166.0 and $2,631.1, respectively.
Statutory net income (loss) for the years ended December 31, 1999, 1998, and
1997, on a combined basis was $(183.3), $319.9 and $196.7, respectively.
Dividends declared and paid by American Re-Insurance to the Company were $260.8,
$35.0 and $105.0 in 1999, 1998, and 1997, respectively.

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, 1999, American
Re-Insurance could declare dividends of approximately $214.6 during 2000 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.

F-23
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

13. PERMITTED STATUTORY ACCOUNTING PRACTICES (CONTINUED)
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. MERGER OF MARC AND THE U.S. BRANCH

On July 1, 1997, American Re and Munich Re, completed the merger of 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 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. Munich Re has
subsequently acquired the shares of common stock owned by VICTORIA and Allianz,
bringing its ownership interest to 100.0%.

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 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-24
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

14. MERGER OF MARC AND THE U.S. BRANCH (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>

15. 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, 1996. The aggregate
principal and interest amounts of these guarantees outstanding were $593.7 and
$153.9 at December 31, 1999 and 1998, respectively. The aggregate principal and
interest amount reflects the Company's extent of involvement in financial
guarantees.

DERIVATIVES

American Re Capital Markets, Inc., a subsidiary of the Company ("ARCM"), has
been engaged primarily in the weather derivative business, which exposes the
Company to losses/gains based on movements in tempertaure at certain U.S.
weather stations. At December 31, 1999, ARCM had entered into 78 such weather
derivative contracts with a notional value of $139.3. At December 31, 1999, the
maximum payment amount of such contracts was $85.7, and the maximum receivable
amount was $111.4.

In November 1999, ARCM entered into certain index-based catastrophe related
swaps ("catastrophe swaps") with Gold Eagle Capital Limited, a special purpose
Bermuda company ("Gold Eagle"). Under the terms of the catastrophe swaps, ARCM
may receive approximately $182 of potential payments from Gold Eagle in the
event of three types of certain catastrophic events: California earthquakes,
Midwest earthquakes, or Eastern and Gulf Coast windstorms, all as specifically
defined under the Catastrophe Swaps

F-25
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
("Catastrophes"). Payment amounts under the catastrophe swaps will be determined
based upon an index of modeled insurance industry losses from Catastrophes as
calculated by Risk Management Solutions, Inc. American Re Securities
Corporation, a subsidiary of the Company, acted as placement agent for Gold
Eagle in the placement of catastrophe related securities, called Modeled Index
Linked Securities-SM- (ModILS-SM-), intended to collateralize any potential
payments by Gold Eagle to ARCM under the catastrophe swaps.

The Company adjusts the catastrophe swaps to fair value using a model
pricing based upon interest rate spreads above comparable U.S. Treasury
investments, applied to the notional value outstanding of $182.1. The fair value
adjustment at December 31, 1999 was $0.6.

B. RELATED PARTY TRANSACTIONS

Gross premiums assumed from Munich Re and its affiliated companies were
$48.4, $10.5, and nil for the years ended December 31, 1999, 1998, and 1997,
respectively. Munich Re and its affiliated companies also participate on several
of the Company's existing retrocessional programs. Total premiums ceded to
Munich Re and its affiliated companies relating to such programs were
approximately $159.2, $174.4 and $97.0 for the years ended December 31, 1999,
1998, and 1997, respectively. Total losses and LAE ceded to Munich Re and its
affiliated companies were $252.8 and $(12.9) for the years ended December 31,
1999, and 1998, respectively. Total insurance reserves outstanding with Munich
Re and its affiliated companies were $493.2 and $256.7 at December 31, 1999 and
1998, respectively.

Munich Re Capital Management, an affiliated registered investment advisor,
is responsible for the management of the fixed income portion of the Company's
investment portfolio. Fees paid to Munich Re Capital Management were $2.6, $2.1,
and $1.6 for the years ended December 31, 1999, 1998, and 1997, respectively.

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 $22.8, $20.3, and $23.2, for the years ended
December 31, 1999, 1998, and 1997. Future net minimum payments under
non-cancelable leases at December 31, 1999, were estimated to be as follows:

<TABLE>
<CAPTION>
2005 and
2000 2001 2002 2003 2004 thereafter
- --------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$19.3 $16.1 $14.0 $10.1 $3.4 $6.0
---------- ---------- ---------- ---------- ---------- ----------
</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

F-26
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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.

During 1999, the Company undertook a study to reevaluate its reserves for
latent liability exposures. This was a result of the Company's assessment of its
reported claims activity, which reflected continued emergence of newly reported
claims in each of these areas and recent insurance industry efforts to
accelerate the settlement of outstanding latent liability claims. Each of the
Company's related exposures was evaluated individually to determine its expected
ultimate liability for losses and LAE. As a result of this reevaluation, during
the fourth quarter of 1999, the Company increased its gross incurred but not
reported ("IBNR") loss reserves for latent liability exposures.

The Company had latent liability exposure loss reserves as follows at
December 31:

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
GROSS NET GROSS NET
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Asbestos................................... $ 786.6 $470.9 $399.9 $258.5
Environmental-related and other latent
liability................................ 646.2 466.7 237.3 150.1
-------- ------ ------ ------
Total.................................... $1,432.8 937.6 $637.2 $408.6
======== ====== ====== ======
</TABLE>

Loss reserves for latent liability exposures at December 31, 1999, and 1998,
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

SUPERIOR NATIONAL INSURANCE GROUP, INC. V. AMERICAN RE-INSURANCE COMPANY, ET
AL.

On December 31, 1999, American Re-Insurance reached an agreement with
Superior National Insurance Group, Inc. ("Superior National") to settle certain
reinsurance disputes arising in connection with the sale of Business Insurance
Group ("BIG") by Foundation Health Systems, Inc., to Superior National. As
consideration for the execution of the settlement agreement, American
Re-Insurance simultaneously entered into an Excess of Loss Retrocessional
Reinsurance Agreement with Centre Reinsurance (US) Limited, pursuant to which
Centre Re agreed to indemnify American Re-Insurance up to $40.0 in excess of
$135.0 of aggregate ultimate net loss paid by American Re-Insurance under an

F-27
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Aggregate Excess of Loss Agreement with BIG. All pending litigations and
arbitrations between the parties were terminated or dismissed with prejudice.

AMERICAN RE-INSURANCE V. PENNSYLVANIA INSURANCE DEPARTMENT

In connection with American Re's efforts to acquire all of the outstanding
shares of AIS, the holding company that owns United National Insurance Company,
Diamond State Insurance Company, and Hallmark Insurance Company, American Re is
required to obtain the approval of three insurance departments which have
regulatory authority over the transaction.

As a result of this delay, on February 8, 2000, American Re filed suit in
Pennsylvania Commonwealth Court against the Pennsylvania Insurance Department
and the Pennsylvania Insurance Commissioner, seeking to compel the Department to
complete its review of American Re's application to acquire United National. At
the present time, no assurance can be given as to the ability of American Re to
prevail in the litigation against the Department. Furthermore, even if American
Re is successful in the litigation seeking to compel the Department to complete
its review, there can be no assurance that such review would result in a timely
approval of the transaction by the Department since, under the terms of the
Agreement, the Sellers have had the right to terminate the Agreement since March
10, 2000.

HOLOCAUST VICTIMS INSURANCE LAWS

Several states have enacted legislation pertaining to insurance policies
that were issued in Europe to Holocaust victims during the period 1920 through
1945, and legislation on this subject matter is under consideration in other
states. Insurance regulators in these states have taken actions or threatened to
take actions to sanction insurance companies licensed in such states for alleged
failure to comply with such laws. Most state insurance regulators have
subscribed to a private, non-governmental, voluntary organization named the
International Commission on Holocaust Era Insurance Claims ("Holocaust
Commission") that is dedicated to identifying and resolving outstanding
insurance claims from the Holocaust era for its members. Under some of the
recently enacted state laws, an insurer's participation in the Holocaust
Commission confers certain statutory benefits.

F-28
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
insurance policies, the CID sought information on Holocaust era insurance from
European insurers in which Munich Re has an indirect investment interest. The
hearing and examination are ongoing.

NEW YORK. New York has enacted a statute ("New York Holocaust Law") similar
to the Florida Holocaust Law. American Re-Insurance and American Alternative
timely filed reports responsive to the New York Holocaust Law disclosing
information voluntarily provided by European insurers in which Munich Re has an
investment interest. The New York Insurance Department subsequently requested
additional information in connection with Holocaust era insurance. American Re
promptly forwarded these requests to the European insurers which responded
directly to the Department. More recently, the Department has threatened to fine
American Re up to $1,000 per day for alleged reporting violations unless Munich
Re joins the Holocaust Commission, or agrees to pay alleged Holocaust claims
involving companies that Munich Re does not control, or contributes to a
humanitarian fund for the benefit of Holocaust survivors. No court or
administrative proceedings have been commenced against American Re in New York
to date.

* * * * *

F-29
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

15. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
American Re believes that it has fully complied with the requirements of
these statutes. However, there can be no assurance that insurance regulators
will not initiate administrative or other actions against American Re under
these laws. American Re does not believe that the ultimate resolution of these
matters will have a material adverse effect on the business, financial condition
or results of operations of American Re and its subsidiaries taken as a whole.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments at December 31, 1999, and 1998, were
as follows:

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Bonds available for sale............ $6,315.2 $6,315.2 $6,876.0 $6,876.0
Preferred stock..................... 84.6 84.6 77.3 77.3
Equity securities................... 402.1 402.1 545.6 545.6
Other invested assets............... 40.5 40.5 27.9 27.9
-------- -------- -------- --------
Total investments................. 6,842.4 6,842.4 7,526.8 7,526.8
Cash and cash equivalents........... 597.5 597.5 274.9 274.9

Liabilities:
Senior bank debt.................... 75.0 75.0 75.0 75.0
Senior Notes........................ 498.5 474.0 498.5 568.6
QUIPS............................... 237.5 228.0 237.5 246.1
</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.

17. 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 actuarial and financial analysis, due diligence consulting
for mergers and acquisitions, and reinsurance and insurance brokerage. The
financial results of these subsidiaries have been aggregated along with holding
company operations for presentation of segment results.

F-30
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

17. SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
TOTAL
REINSURANCE/
INSURANCE HOLDING CO.
YEAR ENDED DECEMBER 31, 1999 DICO RISKPARTNERS INTERNATIONAL OPERATIONS & OTHER TOTAL
- ---------------------------- -------- ------------ ------------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
GROSS PREMIUMS WRITTEN........... $2,138.6 $810.7 $ 587.6 $3,536.9 $0.2 $3,537.1
-------- ------ ------- -------- --- --------
NET PREMIUMS WRITTEN............. 1,839.1 554.6 511.8 2,905.5 0.2 2,905.7
-------- ------ ------- -------- --- --------
PREMIUMS EARNED................ 1,828.3 582.0 517.0 2,927.3 0.2 2,927.5
Net investment income............ -- -- -- 400.7 14.4 415.1
Net realized capital gains....... -- -- -- 83.0 (0.1) 82.9
Other income..................... -- -- -- (1.8) 29.3 27.5
-------- ------ ------- -------- --- --------
Total revenue.................. 3,409.2 43.8 3,453.0
-------- --- --------
LOSSES AND EXPENSES
LOSSES AND LAE................... 1,731.4 479.1 443.9 2,654.4 -- 2,654.4
UNDERWRITING EXPENSES............ 539.2 166.9 164.3 870.4 0.3 870.7
Interest expense................. -- -- -- -- 41.9 41.9
Other expense.................... -- -- -- 28.3 35.7 64.0
-------- ------ ------- -------- --- --------
Total losses and expenses...... 3,553.1 77.9 3,631.0
-------- --- --------
Income (loss) before income
taxes........................ $ (178.0)
========
UNDERWRITING GAIN (LOSS)....... $ (442.3) $(64.0) $ (91.2) $ (597.5) ($0.1) $ (597.6)
======== ====== ======= ======== === ========

LOSS AND LAE RATIO............... 94.7% 82.3% 85.9% 90.7% N/M 90.7%
UNDERWRITING EXPENSE RATIO....... 29.5 28.7 31.8 29.7 N/M 29.7
-------- ------ ------- -------- --- --------
COMBINED RATIO................... 124.2% 111.0% 117.7% 120.4% N/M 120.4%
======== ====== ======= ======== === ========
</TABLE>

F-31
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

17. SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
TOTAL
REINSURANCE/
INSURANCE HOLDING CO.
YEAR ENDED DECEMBER 31, 1998 DICO RISKPARTNERS INTERNATIONAL OPERATIONS & OTHER TOTAL
- ---------------------------- -------- ------------ ------------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
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 GAIN (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)

17. SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
TOTAL
REINSURANCE/
INSURANCE HOLDING CO.
YEAR ENDED DECEMBER 31, 1997 DICO RISKPARTNERS INTERNATIONAL OPERATIONS & OTHER TOTAL
- ---------------------------- -------- ------------ ------------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
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>

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

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.

F-33
<PAGE>
AMERICAN RE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

18. UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data were as follows:

<TABLE>
<CAPTION>
1999
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING DATA
Premiums written.......................................... $757.5 $667.2 $757.7 $ 723.3
Premiums earned........................................... 579.8 676.8 792.9 878.0
Losses and LAE............................................ 396.7 511.3 677.3 1,069.1
Underwriting expenses..................................... 210.1 214.0 209.8 236.8
Underwriting loss......................................... (27.0) (48.5) (94.2) (427.9)
Net investment income..................................... 107.0 101.7 104.7 101.7
Interest expense.......................................... 10.5 10.0 10.8 10.6
Net income (loss) to common stockholder................... 57.0 45.7 4.4 (208.1)
Comprehensive loss........................................ (20.7) (45.7) (52.2) (245.5)
</TABLE>

<TABLE>
<CAPTION>
1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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 stockholder.......................... 82.9 64.2 32.6 46.3
Comprehensive income...................................... 73.1 67.3 72.4 53.9
</TABLE>

F-34
<PAGE>
SCHEDULE I

AMERICAN RE CORPORATION

SUMMARY OF INVESTMENTS

OTHER THAN INVESTMENTS IN RELATED PARTIES

DECEMBER 31, 1999

(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
AMOUNT AT WHICH
TYPE OF AMORTIZED FAIR SHOWN IN THE
INVESTMENT COST VALUE BALANCE SHEET
- -------------------------------------------------------- --------- -------- ---------------
<S> <C> <C> <C>
FIXED MATURITIES:
Bonds available for sale:
U.S. Government and government agencies............. $ 754.1 $ 730.8 $ 730.8
States, municipalities and political subdivisions... 2,123.1 2,070.3 2,070.3
Mortgage backed securities.......................... 1,149.7 1,106.7 1,106.7
Foreign governments................................. 357.1 349.7 349.7
Public utilities.................................... 117.4 112.1 112.1
Corporate bonds..................................... 2,010.2 1,945.6 1,945.6
-------- -------- --------
Total bonds available for sale.................... 6,511.6 6,315.2 6,315.2
-------- -------- --------
Preferred securities................................ 84.4 84.6 84.6
-------- -------- --------
Total fixed maturities............................ 6,596.0 6,399.8 6,399.8
-------- -------- --------
EQUITY SECURITIES:
Common stock:
Public utilities...................................... 2.8 2.5 2.5
Banks, trust and insurance companies................ 35.6 31.7 31.7
Industrial and miscellaneous and all other.......... 328.7 367.9 367.9
-------- -------- --------
Total equity securities........................... 367.1 402.1 402.1
-------- -------- --------
Other investments..................................... 40.5 40.5 40.5
-------- -------- --------
Total investments................................. $7,003.6 $6,842.4 $6,842.4
======== ======== ========
</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, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Investment in subsidiaries................................ $3,004.5 $3,622.3
Bonds available for sale, at fair value (amortized cost:
$116.8)................................................. 117.3 --
Cash...................................................... 121.4 27.5
Deferred financing fees................................... 25.3 26.0
Current federal income taxes recoverable.................. 55.2 25.6
Other assets.............................................. 111.8 154.2
-------- --------
Total assets............................................ $3,435.5 $3,855.6
======== ========
LIABILITIES
Interest payable.......................................... $ 0.9 $ 1.2
Bank debt--term loan...................................... 75.0 75.0
Senior notes.............................................. 498.5 498.5
Junior subordinated debt.................................. 244.8 244.8
Other liabilities......................................... 127.3 183.0
-------- --------
Total liabilities....................................... 946.5 1,002.5
-------- --------
STOCKHOLDER'S EQUITY
Common stock.............................................. -- --
Additional paid in capital................................ 1,332.4 1,332.4
Retained earnings......................................... 1,296.6 1,397.6
Accumulated other comprehensive income (loss)............. (140.0) 123.1
-------- --------
Total stockholder's equity.............................. 2,489.0 2,853.1
-------- --------
Total liabilities and stockholder's equity.............. $3,435.5 $3,855.6
======== ========
</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, 1999 DECEMBER 31,1998 DECEMBER 31,1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUE
Net investment income....................... $ 8.6 $ 1.4 $ 1.1
Other income................................ 25.1 20.5 11.5
-------- -------- --------
Total..................................... 33.7 21.9 12.6
-------- -------- --------

EXPENSES
Interest expense............................ 62.7 63.0 63.6
Operating expenses.......................... (25.9) 27.5 30.6
-------- -------- --------
Total expenses............................ 36.8 90.5 94.2
-------- -------- --------
Operating loss before federal income
taxes................................... (3.1) (68.6) (81.6)
Federal income taxes.......................... (0.7) (23.6) (27.1)
-------- -------- --------
Loss before equity in undistributed net
income of subsidiaries.................. (2.4) (45.0) (54.5)
Equity in undistributed net income (loss) of
subsidiaries................................ (98.6) 271.0 275.9
-------- -------- --------
Net income (loss) to common stockholder... (101.0) 226.0 221.4
Retained earnings at beginning of period...... 1,397.6 1,171.6 950.6
-------- -------- --------
1,296.6 1,397.6 1,172.0
Dividends to common stockholder............. -- -- (0.4)
-------- -------- --------
Retained earnings at end of period............ $1,296.6 $1,397.6 $1,171.6
======== ======== ========
</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. 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) to common stockholder.... $(101.0) $226.0 $221.4
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH
PROVIDED BY OPERATING ACTIVITIES:
Equity in undistributed net income of
subsidiaries............................. 98.6 (271.0) (275.9)
Interest payable (receivable).............. (0.3) 0.3 --
Increase (decrease) in intercompany
payables................................. (22.1) (19.3) 15.1
Increase (decrease) in current and deferred
federal income tax liability............. 10.5 35.6 (56.4)
Increase (decrease) in other, net.......... (34.8) 14.9 24.3
------- ------ ------
Net cash used in operating
activities........................... (49.1) (13.5) (71.5)

CASH FLOWS FROM INVESTING ACTIVITIES:
Investments available for sale
Purchases................................ (158.8) -- --
Sales.................................... 41.0 -- --
------- ------ ------
Net cash used in investing
activities........................... (117.8) -- --

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received from subsidiary.......... 260.8 35.0 105.0
Loan from parent........................... -- -- (35.9)
Investment in subsidiary................... -- -- (12.5)
Dividends to common stockholder............ -- -- (0.4)
------- ------ ------
Net cash provided by financing
activities........................... 260.8 35.0 56.2
------- ------ ------
Net increase (decrease) in cash........ 93.9 21.5 (15.3)
Cash and cash equivalents, beginning of
period..................................... 27.5 6.0 21.3
------- ------ ------
Cash and cash equivalents, end of period..... $ 121.4 $ 27.5 $ 6.0
======= ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded), net.......... $ (11.3) $(59.3) $ 29.3
Interest paid.............................. $ 62.7 $ 63.0 $ 63.6
</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, 1999, 1998, and 1997, 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
DEFERRED BENEFITS, LOSSES, CLAIMS
POLICY CLAIMS AND NET AND CLAIM
ACQUISITION LOSS UNEARNED EARNED INVESTMENT ADJUSTMENT
SEGMENT COSTS EXPENSES PREMIUMS PREMIUMS INCOME (1) EXPENSE
- ------- ----------- ----------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
DICO............................ $227.9 $3,853.4 $ 770.8 $1,828.3 -- $1,731.4
RiskPartners.................... 49.0 813.5 294.3 582.0 -- 479.1
International................... 47.6 807.4 157.6 517.0 -- 443.9
Other........................... -- 5.4 0.7 0.2 -- --
------ -------- -------- -------- --------
Total........................... $324.5 $5,479.7 $1,223.4 $2,927.5 $2,654.4
====== ======== ======== ======== ========

YEAR ENDED DECEMBER 31, 1998
DICO............................ $235.7 $3,636.4 $ 782.6 $1,573.3 -- $1,073.8
RiskPartners.................... 69.9 667.7 325.9 392.1 -- 273.2
International................... 52.1 760.8 172.0 453.5 -- 335.4
------ -------- -------- -------- --------
Total........................... $357.7 $5,064.9 $1,280.5 $2,418.9 $1,682.4
====== ======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1997
DICO............................ $254.1 $3,762.1 $ 823.3 $1,782.4 -- $1,250.6
RiskPartners.................... 56.7 727.6 275.6 286.0 -- 194.2
International................... 45.9 613.1 171.0 417.7 -- 271.5
------ -------- -------- -------- --------
Total........................... $356.7 $5,102.8 $1,269.9 $2,486.1 $1,716.3
====== ======== ======== ======== ========

AMORTIZATION OF
DEFERRED POLICY UNDERWRITING PREMIUMS
SEGMENT ACQUISITION COSTS EXPENSES WRITTEN
- ------- ----------------- ------------ ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
DICO............................ $235.7 $539.2 $1,839.1
RiskPartners.................... 69.9 166.9 554.6
International................... 52.1 164.3 511.8
Other........................... -- 0.3 0.2
------ ------ --------
Total........................... $357.7 $870.7 $2,905.7
====== ====== ========
YEAR ENDED DECEMBER 31, 1998
DICO............................ $254.1 $561.3 $1,517.9
RiskPartners.................... 56.7 132.6 436.5
International................... 45.9 122.5 452.4
------ ------ --------
Total........................... $356.7 $816.4 $2,406.8
====== ====== ========
YEAR ENDED DECEMBER 31, 1997
DICO............................ $236.8 $585.5 $1,790.8
RiskPartners.................... 58.8 108.2 273.8
International................... 41.3 144.7 433.1
------ ------ --------
Total........................... $336.9 $838.4 $2,497.7
====== ====== ========
</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, 1999:
Life insurance in force................. $ -- $ -- $ -- $ --
====== ====== ======== ========
PREMIUMS:
Life insurance.......................... $ -- $ -- $ -- $ -- --%
Accident and health insurance........... -- -- -- -- --
Property-liability insurance............ 263.5 661.0 3,325.0 2,927.5 113.6
Title insurance......................... -- -- -- -- --
------ ------ -------- -------- -----
Total Premiums........................ $263.5 $661.0 $3,325.0 $2,927.5 113.6%
====== ====== ======== ======== =====
</TABLE>

<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%
====== ====== ======== ======== =====
</TABLE>

<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, 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%
====== ====== ======== ======== =====
</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
RESERVES FOR DISCOUNT, EXPENSES INCURRED
DEFERRED UNPAID CLAIMS IF ANY RELATED TO:
POLICY AND CLAIMS DEDUCTED NET -------------------
ACQUISITION ADJUSTMENT IN PREVIOUS UNEARNED EARNED INVESTMENT CURRENT PRIOR
AFFILIATION WITH REGISTRANT COSTS EXPENSES COLUMN PREMIUMS PREMIUMS INCOME YEAR YEAR
- --------------------------- ----------- ------------- ----------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
(a) Consolidated
property-casualty insurance
entities..................... $324.5 $8,369.0 Note (1 ) $1,223.4 $2,927.5 $415.1 $2,084.0 $570.4
(b) Unconsolidated property-
casualty insurance
entities.....................
------ -------- ------- -------- -------- ------ -------- ------
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 $ 62.0
(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 $ 74.2
(b) Unconsolidated property-
casualty insurance
entities.....................
------ -------- ------- -------- -------- ------ -------- ------

AMORTIZATION
OF DEFERRED PAID CLAIMS
POLICY AND CLAIMS
ACQUISITION ADJUSTMENT PREMIUMS
AFFILIATION WITH REGISTRANT COSTS EXPENSES WRITTEN
- --------------------------- ------------ ----------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
(a) Consolidated
property-casualty insurance
entities..................... 357.7 $2,239.6 2,905.7
(b) Unconsolidated property-
casualty insurance
entities.....................
------ -------- --------
YEAR ENDED DECEMBER 31, 1998
(a) Consolidated
property-casualty insurance
entities..................... $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..................... $336.9 $1,462.2 $2,497.7
(b) Unconsolidated property-
casualty insurance
entities.....................
------ -------- --------
</TABLE>

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

(1) Workers' compensation reserves are discounted at 4.5%. The estimated amount
of discount is $670.4, $645.0, and $592.7 as of December 31, 1999, 1998, and
1997, respectively.

S-8
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
PAGE NUMBER IN
SEQUENTIAL NUMBERING
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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 July 1, 1997, by
and among the Company, American Re-Insurance, and Munich
American Reinsurance Company is incorporated by reference
from the Company's Form 8-K as filed with the Securities
and Exchange Commission on July 15, 1997.

3.1 Restated Certificate of Incorporation of the Company is
incorporated by reference from the Company's Form S-1,
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 Securities and Exchange Commission on January 25,
1993.

3.3 By-laws of the Company, adopted on November 25, 1996 are
incorporated by reference from the Company's Form S-4,
Registration No. 333-20663, Exhibit 3.2, as filed with the
Securities and Exchange Commission on January 29, 1997.

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 S-4, Registration No.
333-20663, Exhibit 4.4, as filed with the Securities and
Exchange Commission on January 29, 1997.
</TABLE>

<PAGE>

<TABLE>
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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 S-3, Registration Statement No. 33-94558,
Exhibit 4.2, as filed with the Securities and Exchange
Commission on August 21, 1995.

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 reference from Amendment No. 1 to the
Company's Form S-3, Registration Statement No. 33-94558,
Exhibit 4.3, as filed with the Securities and Exchange
Commission on August 21, 1995.

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. 33-94558,
Exhibit 4.6, as file with the Securities and Exchange
Commission on August 21, 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.
30280 dated as of September 30, 1992 by and between
American Re-Insurance Company and The Aetna Casualty and
Surety Company is incorporated by reference from the
Company's Form 10-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,
Registration Statement No. 33-49110, Exhibit 10.4, as
filed with the Securities and Exchange Commission on
August 28, 1992.

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.
</TABLE>

<PAGE>

<TABLE>
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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.

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 S-8, Registration Statement
No. 33-76374, 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.

10.13+ American Re-Insurance Company Employees Pension Plan as
amended and restated effective as of January 1, 1994 is
incorporated by reference from the Company's Form 10-K,
Exhibit 10.37, as filed with the Securities and Exchange
Commission on March 31, 1995.
</TABLE>

<PAGE>

<TABLE>
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10.14 First Casualty Facultative 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 10-K, 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 is incorporated by
reference from the Company's 10-K, Exhibit 10.16, as filed
with the Securities and Exchange Commission on March 30,
1999.

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.

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.

10.20+* Long Term Incentive Plan for Board Members and top
Executives of Munich Re and its International
Organization.

21* Subsidiaries of the Company.

27* Financial Data Schedule.
</TABLE>

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

* Filed herewith

+ Management contract or compensation plan or arrangement

<PAGE>

Exhibit 10.20

1 AIMS OF THE LONG-TERM INCENTIVE PLAN (LIP)

The Munich Reinsurance Company (MR) wishes to take account of its
shareholders' legitimate interest in maintaining and enhancing Munich
Re's corporate success in the long term and has therefore decided to
set up a long-term incentive plan. This additional compensation
component is intended to reward Board members and top executives for
their part in achieving this success, for which they carry major
responsibility. The plan provides members with the possibility of
participating in the price performance of Munich Re stock once a
vesting period has elapsed and two thresholds have been exceeded.

With this plan, the Munich Re aims to integrate the idea of shareholder
value into the compensation system, thereby promoting harmonization of
the interests of management and shareholders.

At the same time, the plan results in increased emphasis on variable
compensation and thus in greater identification by management with
Munich Re's corporate goals and performance.

Since long-term incentives are now common internationally as an element
of compensation packages, Munich Re will also enhance its
attractiveness to international executives.

2 DESIGN OF THE PLAN

The Long-Term Incentive Plan is a "stock appreciation rights plan"
which provides for stock appreciation rights linked to the performance
of Munich Re shares. These rights will be issued free of charge to
those taking part in the plan.

Each stock appreciation right entitles the holder to draw in cash, up
to a certain level, the difference between the MR share price at the
time when the right is exercised and that applying at the start of the
plan.

However, in order to comply with the goal of increasing the company's
value in the long term, exercise of the stock appreciation rights is
possible only under the following conditions:

1. MR stock must outperform the DAX 30 at the end of a
three-month period twice during the term of the plan (index
threshold).

2. The MR share price at the time the stock appreciation rights
are exercised must also have risen by at least 20 percent
compared to the price at the start of the plan (price
threshold).

3. The rights may be exercised only in fixed time windows and in
accordance with the statutory regulations on insider trading.

<PAGE>

The Long-Term Incentive plan has an overall term of 7 years. The plan
details are described in the following sections of this brochure.

FIGURE 1: DESIGN OF THE LONG-TERM INCENTIVE PLAN*

[captions]

MR-Akienkurs MR stock price
Sperrfrist Vesting period
Kurssteigerung Price increase
Maximum Maximum
Kurshurde 20% 20% price threshold
Jahr Year
Planlaufzeit Plan term

Assumed point in time
at which the DAX 30
has been outperformed
twice after 3 months
in each case.
--------------------------------------------------------------------
EXERCISE POSSIBLE?

--------------------------------------------------------------------
---------- ---------------------------------------------------------
1 Exercise not possible, as within the vesting period.
2 Exercise not possible, as index threshold not passed.
3 Exercise not possible, as price threshold not exceeded.
4 Exercise possible within the framework of the exercise
conditions, as both exercise thresholds passed.

---------- ---------------------------------------------------------
(Explanations to graph*)

* For the full graph, please see page 03 of the German brochure (copy
attached).

<PAGE>

3 TERM

The Long-Term Incentive Plan starts on 1st July 1999 and will end after
a term of 7 years on 30th June 2006.

4 PARTICIPANTS

Those taking part in the Long-Term Incentive Plan will be the Board
Members of the Munich Reinsurance Company and the top executives of MR
and its International Organization.

Participation in the Long-Term Incentive Plan is subject to special
conditions which supplement the contract of employment existing between
a participant in the plan and the company concerned.

5 NUMBER OF STOCK APPRECIATION RIGHTS

All participants in the plan will receive a personal written statement
of the number of stock appreciation rights granted to them.

The stock appreciation rights are personal and cannot be transferred
except in the case of succession.

6 DETERMINATION OF INITIAL STOCK PRICE

The price of MR stock at the start of the plan on 1st July 1999, i.e.
the initial stock price, has been calculated from the average of the
closing prices for MR shares in Frankfurt Xetra trading over the ten
trading days before 1st July 1999. It currently amounts to EUR 182.6.
Should during the term of the plan the price of MR stock be affected by
a capital measure such that the assumptions of the plan are distorted,
the initial stock price will be adjusted by the Munich Reinsurance
Company, taking account of the original intentions of the plan.

7 DETERMINATION OF THE EXERCISE PRICE

The decisive price when exercising stock appreciation rights is the
closing price in Frankfurt Xetra trading.

When rights are exercised while the stock exchange is open1, the
closing price of that business day will be taken. The participant can
set a selling limit in this case. When rights are exercised after
closing but before opening of the stock exchange, the last closing
price then applies.

1 The business hours of Frankfurt Xetra trading are currently 8:30 a.m. to
5:00 p.m. CET.

<PAGE>

8 EXERCISE OF STOCK APPRECIATION RIGHTS

Once the two-year vesting period has elapsed, exercise of the stock
appreciation rights will be possible between 1st July 2001 and the end
of the plan term on 30th June 2006, provided the following conditions
are fulfilled:

EXERCISE THRESHOLDS

Stock appreciation rights may only be exercised if the price of MR
shares has increased by at least 20 percent compared with the initial
share price. In addition, during the term of the plan the DAX 30 must
have been outperformed twice by MR shares at the end of a three-month
period on the basis of the respective performance figures. These
periods may not overlap. The participants will be informed as soon as
this condition has been met.

OBSERVANCE OF INSIDER REGULATIONS

In order to avoid the possibility of advantages being obtained through
special knowledge when stock appreciation rights are exercised, these
rights may be exercised in the period stated only within precisely
defined time windows and in compliance with the statutory regulations
on insider trading. At the start of each plan year in the exercise
period, the participants in the plan will be informed about the time
windows in which the exercise of stock appreciation rights is possible.

Observance of the exercise times does not, however, release the
participants from the duty to comply with the national statutory
regulations on insider trading as if the stock appreciation rights were
stock options or shares.

EXERCISE OF STOCK APPRECIATION RIGHTS IN TRANCHES

Stock appreciation rights may be exercised as a whole or also in
tranches of at least 100 rights.

If after an exercise order fewer than 100 stock appreciation rights
remain, these are also exercised for the participant in the plan.

UNEXERCISED OPTION RIGHTS

Stock appreciation rights which on the last trading day of the plan
term have not been exercised by the participant shall be exercised for
the participant, provided the prerequisites are met.

<PAGE>

9 POSSIBLE PROFITS FROM THE LONG-TERM INCENTIVE PLAN

The gross profit achieved from exercising stock appreciation rights is
calculated from the difference between the exercise price and the
initial MR share price.

The gross profit is limited to an increase of 150 percent of the
initial MR share price.

In accordance with the exercise conditions, it is up to the plan
participants to determine themselves when is the best time for them to
exercise their rights.

The net profit is the gross profit achieved in this way, less statutory
deductions.

If MR shares have not (a) outperformed the DAX 30 twice for three
months by the end of the plan term and (b) achieved a price increase of
20 percent, the profit from the plan is then nil.

SPECIMEN CALCULATION

-----------------------------------------------------------------------
ASSUMPTIONS
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Exercise of 500 stock appreciation rights
Initial price of MR share: EUR 182.6
Exercise price of MR share: EUR 232.6
-----------------------------------------------------------------------

-----------------------------------------------------------------------
CALCULATION OF GROSS PROFIT
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Gross profit =500 stock appreciation rights x (232/6-182.6)
=EUR 25,000 (=DEM 48,896)
-----------------------------------------------------------------------

10 TAXATION AND PAYMENT OF PROFITS

The profits from the Long-Term Incentive Plan are paid out by the
company which has granted the stock appreciation rights to the plan
participant. Payment is effected, less the statutory deductions, with
the salary slip for the month following the exercise of the rights.

The statutory deductions depend on the tax legislation in the
particular county in which the plan participant is liable for tax.
Responsibility for the proper taxation of the profits from the plan
lies with the participant.

The exchange rate will be the rate applying on the exercise date.

<PAGE>

11 WHAT HAPPENS

IN THE EVENT OF DISABILITY AND INCAPACITY?
Participants who become disabled or incapacitated during the term of
the plan will keep their stock appreciation rights.

IN THE EVENT OF RETIREMENT?
Participants who retire during the term of the plan will also deep
their stock appreciation rights. If retirement occurs within one year
of the start of the plan, however, the number of stock appreciation
rights will be reduced pro rata temporis.

IN THE EVENT OF DEATH?
If a participant dies during the term of the plan, the stock
appreciation rights will be exercised, subject to the exercise
conditions, for the heir or heirs at the next possible time.

IN THE EVENT OF A CHANGE OF JOB?
Participant who change jobs within the Munich Re Group during the term
of the plan will keep their stock appreciation rights.
In all other cases in which a participant leaves the service of the
company which granted the stock appreciation rights before the end of
the plan term, the stock appreciation rights will be forfeited, and in
the case of dismissal for exceptional reasons any profits from the
stock appreciation rights will have to be repaid.

12 FUTURE INCENTIVE PLANS

The decision as to whether LIPs will be set up in the years ahead and,
if so, under what conditions, is open. Likewise, participation in this
plan will not create any entitlement to participation in future plans.

13 NOTES ON ADMINISTRATION

The Long-Term Incentive Plan will be administered by Dresdner Bank AG.
The bank will keep track of the stock appreciation rights granted to
each participant.

After the plan starts, all participants will receive written
notification of the number of stock appreciation rights, but at lease
once every year during the exercise period, participants will be
notified of the stock appreciation rights remaining. Requests from
participants to exercise their stock appreciation rights must be made
to the bank in writing. Participants will receive further information
from the bank direct.

Questions from participants may be directed to the persons at Munich Re
responsible for personnel management.

<PAGE>

MUNICH REINSURANCE COMPANY
CONDITIONS FOR THE 1999 LONG-TERM INCENTIVE PLAN*

ART. 1 CONTRACTING PARTNERS

Within the framework of the Long-Term Incentive Plan (hereinafter "LIP"),
contractual relations shall exist only between the respective Plan participant
and the company from which the participant has received the statement granting
rights under the LIP.

ART. 2 TERM OF THE LIP

The LIP starts on 1st July 1999 and ends after a period of 7 years on 30th June
2006.

ART. 3 OBJECT OF THE LIP

The Munich Reinsurance Company (MR) is promoting the long-term increase in
Munich Re's value, measured by the increase in the price of MR shares, by
setting up a "stock appreciation rights plan". This plan involved giving stock
appreciation rights, free of charge, to the persons responsible for achieving
this corporate goal. By exercising stock appreciation rights, the participants
in the plan have the possibility of participating in the Munich Reinsurance
Company's success..

ART. 4 NUMBER OF STOCK APPRECIATION RIGHTS

After the plan starts, all participants in the plan will be notified in writing
of the number of stock appreciation rights granted to them.

ART. 5 CONTENT OF STOCK APPRECIATION RIGHTS

(1) Each stock appreciation right shall entitle its holder, when exercising the
right under the conditions set out in Articles 7 to 11, to realize as (taxable)
profit the difference between the price of MR shares at the time of exercise and
their initial price established at the start of the plan, up to a maximum of 150
percent of the initial price. (2) The stock appreciation rights may only be
exercised personally and are not transferable, except in the case of succession,
in which case the arrangements set out in Art. 11(3) shall apply.

ART. 6 INITIAL PRICE OF MUNICH RE SHARES

(1) The price of MR stock at the start of the plan on 1st July 1999, i.e. the
initial share price, shall be calculated from the average of closing prices for
MR shares in Frankfurt

* This translation of the German conditions is for information purposes only.
The German conditions constitute the legal basis of the plan.

<PAGE>

Xetra trading over the ten trading days before 1st July 1999. It currently
amounts to EUR 182.6.
(2) In the case of capital measures, the initial share price shall be adjusted
by the Munich Reinsurance Company, taking account of the original intentions of
the plan.

ART. 7 PREREQUISITES FOR THE EXERCISE OF STOCK APPRECIATION RIGHTS

(1) Stock appreciation rights may be exercised after a two-year blocking period
has elapsed and up to the last trading day before 1st July 2006.
(2) It is a prerequisite for the exercise of stock appreciation rights that
during the term of the plan the DAX 30 must have been outperformed twice by MR
shares at the end of a three-month period on the basis of the respective
performance figures. The periods may not overlap. The index is outperformed as
soon as MR shares lie 0.01 points above the index.
(3) Another prerequisite for the exercise of stock appreciation rights is that
MR shares must show a price increase of at least 20 percent compared with their
initial price.
(4) In order to exclude the possibility of advantages being obtained through
special knowledge when stock appreciation rights are exercised, the exercise of
stock appreciation rights during the exercise period specified in (1) shall only
be possible in precisely defined exercise windows and in accordance with the
statutory regulations on insider trading:
(a) The exercise of stock appreciation rights is basically prohibited 4 weeks
prior to publication of the quarterly reports and 8 weeks prior to publication
of the annual reports. At the start of each plan year in the exercise period,
the participants in the plan will be informed about the time windows in which
the exercise of stock appreciation rights is in principle possible.
(b) Within the exercise windows, the participants in the plan shall be obliged
to observe their country's relevant statutory regulations for the prevention of
insider trading as if the stock appreciation rights were stock options or
shares.

ART. 8 EXERCISE OF STOCK APPRECIATION RIGHTS

(1) At least 100 stock appreciation rights must be exercised per order. If after
an exercise order fewer than 100 stock appreciation rights remain, these rights
shall also be exercised for the plan participant by the bank administering the
stock appreciation rights.
(2) If a participant exercises the rights after closing (currently 5.00 p.m.
CET) but before opening of the stock exchange (currently 8.30 a.m. CET), the
closing price for MR shares in Frankfurt Xetra trading shall be taken as the
basis for settlement (exercise price). Where exercise takes plan while the stock
exchange is open, the closing price of that trading day shall apply. The
participant can set a selling limit for the duration of that trading day.
(3) Stock appreciation rights which on the last trading day of the plan term
have not been exercised, although the prerequisites for this exist, shall be
exercised on the participant's behalf.
(4) Stock appreciation rights which on the last trading day of the plan term
cannot be exercised owing to non-fulfillment of the prerequisites specified in
Art. 8 shall lapse.

<PAGE>

ART. 9 PAYMENT OF THE PROFIT

(1) Payment of the profit from the exercise of stock appreciation rights shall
be effected by the company from which the plan participant received the
statement granting rights under the LIP, in national currency, less the
statutory deductions, with the next salary payment of the month following the
time of exercise.
(2) The exchange rate shall be the rate fixed by the European Central Bank on
the Exercise date.

ART. 10 TAXATION OF PROFITS

Profits shall be taxed in accordance with the tax legislation in the particular
country in which the plan participant is liable for tax.

ART. 11 SPECIAL CASES

(1) Participants who become disabled or incapacitated during the term of the
plan shall keep their stock appreciation rights.
(2) Participants who retire shall retain their stock appreciation rights. If
retirement occurs within one year of the start of the plan, however, the number
of stock appreciation rights shall be reduced pro rata temporis.
(3) Where a participant dies, the stock appreciation rights shall be exercised,
subject to the exercise conditions, on behalf of and for the account of the
heirs on the next possible day after the date of death.
(4) Plan participants who change jobs within the MR Group shall keep their stock
appreciation rights vis-a-vis the company from which they received the statement
granting rights under the LIP.
(5) In all other cases in which participants leave the service of the company
from which they received the statement granting rights under the LIP, the stock
appreciation rights shall be forfeited. Where a participant leaves the company's
service on account of dismissal for exceptional reasons, any profits received
shall be repaid.
(6) Should the company which granted the rights under the LIP be acquired by a
third party not belonging to the MR Group, and the acquired company's membership
of the MR Group be ended as a result, the stock appreciation rights shall be
deemed to be exercised on the first trading day in Frankfurt am Main after the
transfer to the acquirer became effective externally. Should at this point in
time the exercise prerequisites in accordance with Art. 7 of these terms and
conditions of business no longer exist, the stock appreciation rights shall
lapse.

ART. 12 FUTURE LIPS

The Munich Reinsurance Company reserves the right to decide on whether to
implement further LIPs and, if so, under what conditions. In no case may
participation in this plan be deemed to create any right to participation in a
future plan.

<PAGE>

ART. 13 ADMINISTRATION

(1) The plan shall be administered by Dresdner Bank AG, which will operate an
account for each plan participant in respect of the stock appreciation rights
granted.

(2) Participants shall give their orders to exercise stock appreciation
rights to Dresdner Bank AG, using the "Exercise Order" form and stating the
number desired.

(3) After each exercise order, but at least once a year, plan participants
will receive written notification of the stock appreciation rights remaining.

ART. 14 GENERAL CLAUSE

(1) Where claims arising from these provisions are made against the Munich
Reinsurance Company, these shall be subject to German law. The place of
jurisdiction for such claims shall be Munich.
(2) Any claims arising out of the LIP between the company from which the plan
participant received the statement granting rights under the LIP and the plan
participant shall be subject to the law on which the contract of employment is
based.
(3) Should one or more of these provisions be invalid or no longer applicable,
the parties to the contract shall, in agreement with the Munich Reinsurance
Company, replace them to the necessary extent with other valid and applicable
provisions coming as close as possible to the original purpose. The other
provisions shall be unaffected thereby.

<PAGE>
EXHIBIT 21

<TABLE>
<CAPTION>
STATE/COUNTRY/DATE PRIMARY
NAME OF INCORPORATION BUSINESS ACTIVITIES
- ---- ------------------ ----------------------------
<S> <C> <C>
American Re Corporation....................... Delaware/1991 Holding Company
American Re-Insurance Company............... Delaware/1917 Reinsurance
American Re Inversiones, S.A.............. Chile/1986 Holding Company
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
Munich-American 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
Munich-American 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................................... 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
Munich-American RiskPartners, Inc............. Delaware/1988 Alternative Markets
Risk Management Products Canada, Inc........ 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............... England/1994 Risk Management
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 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 6,400
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 402
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 6,842
<CASH> 598
<RECOVER-REINSURE> 3,035
<DEFERRED-ACQUISITION> 325
<TOTAL-ASSETS> 14,279
<POLICY-LOSSES> 8,369
<UNEARNED-PREMIUMS> 1,223
<POLICY-OTHER> 421
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 571
238<F1>
0
<COMMON> 0
<OTHER-SE> 2,489
<TOTAL-LIABILITY-AND-EQUITY> 14,279
2,928
<INVESTMENT-INCOME> 415
<INVESTMENT-GAINS> 83
<OTHER-INCOME> 28
<BENEFITS> 2,654
<UNDERWRITING-AMORTIZATION> 871
<UNDERWRITING-OTHER> 106
<INCOME-PRETAX> (178)
<INCOME-TAX> (90)
<INCOME-CONTINUING> (88)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 5,065
<PROVISION-CURRENT> 2,084
<PROVISION-PRIOR> 570
<PAYMENTS-CURRENT> 254
<PAYMENTS-PRIOR> 1,986
<RESERVE-CLOSE> 5,480
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING AS ALL OF ITS ASSETS JUNIOR SUBORDINATED DEBENTURES.
</FN>

</TABLE>