10-K 1 a2043014z10-k.txt 10-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K --------------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE #1-11688 ------------------------ AMERICAN RE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3672116 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.)

555 COLLEGE ROAD EAST PRINCETON, NEW JERSEY 08543 (609) 243-4200 (Address including zip code, and telephone number, including area code, of registrant's principle executive office) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ------------------------ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / 100% of the Company's voting stock is owned by Munich American Holding Corporation. At March 29, 2001, the number of shares outstanding of the registrant's common stock was 149.49712. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- AMERICAN RE CORPORATION TABLE OF CONTENTS

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 accounting principles generally accepted in the United States of America ("GAAP"). Statutory data, where specifically identified as such, are 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 $3,165.5 million in 2000, American Re-Insurance ranked as the third largest property and casualty reinsurer in the United States, according to the Reinsurance Association of America. The Company had total assets of $14,942.8 million and stockholder's equity of $2,420.1 million at December 31, 2000. The Company and its subsidiaries employed approximately 1,600 persons as of December 31, 2000. The Company is a wholly-owned subsidiary of Munich-American Holding Corporation, a Delaware holding company ("MAHC"), which in turn is wholly-owned owned by Munchener Ruckversicherungs-Gesellschaft Aktiengesellschaft in Munchen ("Munich Re"), a company organized under the laws of Germany. Effective September 30, 2000, Munich Re contributed the outstanding stock of American Re to MAHC. Munich Re is the world's largest reinsurance company, based on 1999 net premiums written, according to STANDARD & POOR'S. 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. OVERVIEW OF THE REINSURANCE INDUSTRY Reinsurance is a form of insurance in which a reinsurer indemnifies a primary insurer against part or all of the liability assumed by the primary insurer under one or more insurance policies. Reinsurance provides a primary insurer with several major benefits, including a reduction in net liability on individual risks, protection against catastrophic losses and assistance in maintaining acceptable financial ratios. Reinsurance also provides a primary insurer with additional underwriting capacity, in that the primary insurer can accept larger risks and can expand the book of business it underwrites at a faster rate than would be possible, while maintaining acceptable financial ratios without a corresponding increase in its capital and surplus position. There are two basic types of reinsurance agreements: treaty contracts and facultative certificates. A treaty is an agreement between a primary insurer and a reinsurer under which the primary insurer is 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 1 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. Risk management services for the health care marketplace are offered through American Re HealthCare ("HealthCare"), and credit enhancement, enterprise risk management and entertainment finance products are marketed through American Re Financial Products ("ARFP"). For financial information about Segments, see Note 18 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. In 2000, and prior years, an immaterial portion of DICO's business was written through reinsurance intermediaries. This business has recently been established as a separate unit entitled the American Re-Insurance Brokered Group beginning in 2001. 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, have developed 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 2 utilizes the services of an affiliated primary insurance company, American Alternative Insurance Corporation ("AAIC"), which primarily serves alternative market 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, Santiago, Sao Paulo, Singapore, Sydney, Tokyo and Toronto. In 2000, 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:

------------------------ (1) Includes net premiums written from ocean marine, international home office, and corporate retrocessional charges. AMERICAN RE HEALTHCARE HealthCare provides risk management services and innovative health care solutions that use reinsurance and other risk related products and services in the healthcare marketplace. These products and services span traditional risk transfer products on a quota share or excess of loss basis offered to insurers and other risk bearing organizations such as healthcare providers, health maintenance organizations and self-insured employer groups. HealthCare has also established business relationships with a select group of health care providers that offer catastrophic care management services. AMERICAN RE FINANCIAL PRODUCTS ARFP specializes in three areas of reinsurance, Credit Enhancement, Entertainment Finance and Enterprise Risk Management. Credit Enhancement primarily focuses on providing reinsurance to mono-line bond insurers. These companies insure against the risk of default as to principal and interest by issuers, mainly on municipal and asset-backed securities. Entertainment Finance focuses on providing reinsurance support for a variety of intellectual property assets such as film library revenues, music royalties, or television licensing fees. Its target markets include the large film studios and media companies. Enterprise Risk Management is defining and developing strategic alliances within the utility and energy industries to help client companies with managing and insuring risks related to weather, electricity, natural gas and other fuels, demand management and development of additional generation. 3 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, due diligence consulting for mergers and acquisitions, reinsurance and insurance brokerage, captive and risk retention group management services, and insurance risk securitizations. Such services have generated fees from clients of $30.2 million, $29.3 million, and $32.3 million in 2000, 1999, and 1998, 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. 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, treaty reinsurance products 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 assumed on either a "program" basis or an "individual risk" basis. Under the program approach, which encompasses treaty concepts, such risks are automatically assumed subject to the pre-determined guidelines or after-the-fact review. Those risks that are covered on an "individual risk" basis are individually evaluated and priced. Corporate underwriting guidelines and procedures generally govern all underwriting evaluations in the Company including International Operations, subject, at times, to further refinement in the divisional underwriting guidelines due to applicable local political, economic, and other factors. Underwriting authorities are delegated by the CEO and the Corporate Chief Underwriting Officer to each division. Underwriting opportunities which exceed these delegated authorities are referred to the appropriate underwriter, including, at times, the Corporate Chief Underwriting Officer, with the requisite authority 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, and San Francisco (domestically) and Brussels, London, Munich, Santiago, Singapore, 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 and insurance 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 4 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 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, 2000 the Company maintained a reserve for uncollectible reinsurance and premiums and other receivables of $106.3 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 $50.0 million. For property business, the per-risk limit accepted for treaty business is up to $50.0 million and for facultative business up to $200.0 million. After retrocessions, and prior to co-participation, if any, for its property and casualty business, $25.0 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 $25.0 million each and every occurrence. The Company has in place a corporate quota share retrocessional program whereby the Company cedes 1.662% 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 $201.1 million of coverage for a catastrophic event in excess of $100.0 million of retained losses. Thus, if a $500.0 million domestic catastrophe loss were reported, the Company would retain $298.9 million of catastrophe losses (prior to recovery of $5.0 million from the quota share retrocessional program described above). Upon payment of additional premiums, the coverage may be reinstated. 5 American Re Capital Markets, Inc., a subsidiary of the Company ("ARCM"), is a party to 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 $182.0 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. Payment amounts under the Catastrophe Swaps will be determined based upon an index of modeled insurance industry losses from specified types of catastrophic events, not by the actual losses incurred by the Company. The Catastrophe Swaps are intended to effectively provide certain financial protection in excess of $500 million. 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 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, 2000, the reinsurance/insurance subsidiaries had in place retrocessional arrangements with approximately 955 retrocessionaires, and $3,198.0 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, 2000, a total of $593.2 million of accrued retrocessional recoverables on paid and unpaid losses (18.5% of total retrocessional recoverables) were attributable to Munich Re (which had an A.M. Best rating of "A++ (Superior)" at December 31, 2000), $446.9 million (14.0% of total retrocessional recoverables) were attributable to National Indemnity Company (which had an A.M. Best rating of "A++ (Superior)" at December 31, 2000), and $416.5 million (13.0% 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, 2000). 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. 6 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, AAIC, 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 although reinsurers are required to maintain a 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. AAIC. In order to write primary insurance business primarily for the alternative market, AAIC 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 AAIC is in material compliance with all applicable laws and regulations pertaining to its business and operations. 7 AAIC 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 seven 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 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 most recent examination of the reinsurance/insurance subsidiaries by the Delaware Insurance Department covered the period January 1, 1995 (October 1, 1997 for Princeton E & S) to December 31, 1998. The Insurance Department's reports were issued in 2000 and contained no material adverse findings. RISK BASED CAPITAL. The NAIC has adopted a risk based capital ("RBC") 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. At December 31, 2000, American Re-Insurance's total adjusted capital was $1,649.7 million, or 1.93 times the authorized control level RBC total of $856.5 million. Because this ratio is less than 2.00 times, American Re-Insurance must submit a comprehensive financial plan to the Insurance Department of the State of Delaware which will address American Re-Insurance's plans for attaining the required levels of RBC. Achievement of the comprehensive financial plan depends on future events and circumstances, the outcome of which cannot be assured. AAIC's total adjusted capital in 2000 of $98.6 million is in excess of the authorized control level RBC total of $14.4 million. Princeton E & S's total adjusted capital in 2000 of $25.7 million is in excess of the authorized control level RBC total of $0.1 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." 8 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, 2000 the maximum amount available for the payment of dividends by American Re-Insurance during 2001 without prior approval of regulatory authorities is $216.5 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. The Gramm-Leach-Bliley Act, also known as the Financial Modernization Act, and corresponding regulatory proposals in the various states, contain a number of privacy provisions which are applicable to the Company. In general, the provisions require us to inform consumers of (i) the Company's information sharing practices with both affiliated and non-affiliated third parties, (ii) the consumers right, subject to certain exceptions, to opt out of such information sharing practices, and (iii) what type of security is provided by the Company for the consumer information. The deadline for compliance with these federal and state privacy regulations is July 1, 2001. In addition to the privacy provisions under Gramm-Leach, Congress has also adopted the Health Insurance Portability and Accountability Act ("HIPAA"). HIPAA, among other things, requires certain entities to adopt and enforce particular standards and procedures to protect the privacy and confidentiality of patient health care information. By reason of American Re-Insurance's HealthCare operation the Company will need to assess the extent, if any, to which it may be required to comply with the new privacy laws pertaining to health related information. The Company is unable to predict whether any of these laws or regulations would be adopted in the various states, the form in which any such laws and regulations would be adopted in such 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 (including California, Maryland, Minnesota, New York, and Washington) 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 (including New Jersey). Insurance regulators in some of 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 9 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. While the hearing and examination are pending, there are no regulatory actions currently in progress against any of the Company's licensed insurers or Munich Re. 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. In June, 2000, the U.S. District Court for the Eastern District of California issued a preliminary injunction against the CID from enforcing the California Registry Law. Upon appeal by the CID of that decision, the United States Court of Appeals for the Ninth Circuit, in February, 2001, affirmed the preliminary injunction, but rejected the constitutional basis presented in support of the injunction and remanded the case to the District Court for consideration of the constitutional issue of due process as the basis for injunction. 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 AAIC 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, AAIC, and approximately 40 other insurance companies seeking policyholder information in connection with the Florida Holocaust Law. In November 1999, an unaffiliated company initiated litigation against the Florida Insurance Department challenging the validity of the subpoenas and the constitutionality of the Florida Holocaust Law. In November 2000, the U.S. District Court for the Northern District of Florida held that Florida has no jurisdiction over the matters pertaining to Holocaust era insurance policies issued in Europe, and the Court enjoined Florida from enforcing the Florida Holocaust Law. Florida has appealed the District Court ruling. That appeal is pending. NEW YORK. New York has enacted a statute ("New York Holocaust Law") similar to the Florida Holocaust Law. American Re-Insurance and AAIC 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, and American Re promptly forwarded these requests to the European insurers which responded directly to the Department. Notwithstanding this, in March, 2000 the Department 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, and in April 2000, American Re-Insurance received a letter from the Department's Disciplinary Unit that disciplinary action against American Re-Insurance and/or its officers is being considered. However, no formal action has been taken by the Department to date. 10 WASHINGTON. Washington has enacted a statute similar to the California Registry Law. American Re-Insurance and AAIC 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 or in the alternative, that such statutes are unconstitutional. However, there can be no assurance that insurance regulators will not initiate administrative or other actions against American Re under these laws or that such statutes shall ultimately be found to be unconstitutional. 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. 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. In 2000, American Re-Insurance purchased a 10 acre parcel of land which is contiguous with the executive office properties for potential future expansion. 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. 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. 11 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 MAHC. (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.

------------------------ (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, 2000, COMPARED WITH YEAR ENDED DECEMBER 31, 1999 The Company incurred a net loss to common stockholder of $64.4 million for the year ended December 31, 2000 compared to a net loss of $101.0 million in 1999. The Company's net premiums written increased 10.5% to $3,211.7 million for the year ended December 31, 2000, from $2,905.7 million in 1999. RiskPartners experienced a 18.8% increase in net premiums written to $589.2 million for the year ended December 31, 2000, from $495.8 million for the same period in 1999. This increase was primarily attributable to a $35.0 million increase in RiskPartners' treaty business, a $45.4 million increase in its facultative business, and a $55.3 million increase in its direct business, offset by a $42.3 million decrease in its finite risk writings. HealthCare experienced an increase in treaty net premiums written to $329.1 million for the year ended December 31, 2000, from $123.1 million for the same period in 1999. International Operations experienced a 14.9% increase in net premiums written to $588.0 million for the year ended December 31, 2000, from $511.9 million for the same period in 1999. This increase was primarily attributable to a $109.5 million increase in International Operation's treaty business, partially offset by a $29.9 million decrease in its finite risk writings. These increases were partially offset by a 5.6% decrease in net premiums written in DICO to $1,640.3 million for the year ended December 31, 2000, from $1,737.6 million for the same period in 1999. This decrease was attributable to a $192.4 million decrease in DICO's finite risk business and a $89.3 million decrease in its treaty business, partially offset by a $167.3 million increase in facultative writings. 13 The Company's net premiums earned increased 10.7% to $3,240.2 million for the year ended December 31, 2000, from $2,927.5 million in 1999. The increase in premiums earned was primarily attributable to the increase in net premiums written and the timing of premiums earned on business in force. Net losses and LAE incurred increased 6.0% to $2,812.9 million for the year ended December 31, 2000, from $2,654.4 million in 1999. This increase is primarily attributable to the increase in net premiums earned. Both the 2000 and 1999 periods include provisions for increased losses for the recent accident years to reflect adverse market conditions. The 1999 period also included a loss in connection with the settlement of a dispute concerning a finite risk agreement. In addition, the Company incurred $62.4 million of catastrophe losses during the year ended December 31, 2000, in contrast to $122.5 million during the year ended December 31, 1999. Underwriting expense, which consists of commission expense plus operating expense, increased 13.7% to $990.4 million for the year ended December 31, 2000, from $870.7 million in 1999. This increase included a 26.2% increase in commission expense to $751.4 million for the year ended December 31, 2000 from $595.3 million in 1999. This increase was primarily attributable to the increase in net premiums earned, in addition to a lower commission ratio on several large, retrospectively rated contracts in the 1999 period. Operating expenses decreased 13.2% to $239.0 million for the year ended December 31, 2000 from $275.4 million for 1999, primarily due to a decrease in overhead costs. The Company experienced an underwriting loss (net premiums earned minus losses and LAE incurred and underwriting expenses) of $563.1 million for the year ended December 31, 2000, compared to an underwriting loss of $597.6 million in 1999. The Company's loss ratio decreased to 86.8% for the year ended December 31, 2000 from 90.7% in 1999, while the underwriting expense ratio increased to 30.6% in 1999 from 29.7% in 1999. The combined ratio for the year ended December 31, 2000, decreased to 117.4% from 120.4% in 1999. Pre-tax net investment income increased 12.0% to $464.9 million for the year ended December 31, 2000, from $415.1 million in 1999. This increase is the result of an increase in the Company's invested asset base and the repositioning of the investment portfolio into higher yielding taxable securities. The Company realized net capital gains of $104.9 million for the year ended December 31, 2000, compared to net capital gains of $82.9 million in 1999. The 2000 period included net capital gains of $86.4 million on the sale of common stock, and $23.6 million on the sale of bonds. 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. Other income decreased 5.5% to $26.0 million for the year ended December 31, 2000, from $27.5 million in 1999. Other expenses increased 38.6% to $88.7 million for the year ended December 31, 2000 from $64.0 million in 1999. This increase was primarily attributable to the reversal of an expense accrual related to the Company's long term incentive compensation program during the 1999 period. The Company experienced a loss before income taxes and distributions on preferred securities of subsidiary trust of $98.8 million for the year ended December 31, 2000, compared to a loss of $178.0 million in 1999. 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 14 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% 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. 15 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 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. FINANCIAL CONDITION The Company is a holding company, which includes its principal subsidiary, American Re-Insurance. Based on statutory net premiums written of $3,165.5 million in 2000, American Re-Insurance ranked as the third largest property and casualty reinsurer in the U.S., according to Reinsurance Association of America statistics. Total consolidated assets increased by 4.7% to $14,942.8 million at December 31, 2000, from $14,278.8 million at December 31, 1999. This increase was primarily due to increases in investments and cash of $453.9 million and reinsurance recoverables on paid and unpaid losses of $163.1 million. Total consolidated liabilities increased by 6.3% to $12,285.2 million at December 31, 2000, from $11,552.3 million at December 31, 1999. This increase was primarily due to increases in loss and loss adjustment expense reserves of $513.2 million, and funds held under reinsurance treaties of $108.7 million. In December, 2000, the Company entered into a three-year revolving credit agreement ("Euro Loan") with Munich Re, which allows the Company to borrow up to Euro E200.0 million. Outstanding amounts under the Euro Loan bear interest annually at a rate equal to the Eurocurrency Base Rate plus 0.1%. At that time, the Company borrowed Euro E85.0 million under the Euro Loan, which was used to repay the $75.0 million outstanding under the revolving credit agreement with Bank of America, N.A. The Euro Loan is recorded at its original cost, adjusted for changes in foreign exchange rate. Those adjustments in value are recognized through income as foreign exchange gain or loss. At December 31, 2000, $80.1 million was outstanding under the Euro Loan. At the time of the borrowing, the Company entered into a Cross-Currency Interest Rate Swap agreement ("Euro Swap") with Chase Manhattan Bank as an economic hedge, for other than trading purposes, against the foreign exchange risk related to the Euro Loan. Under the terms of the Euro Swap, the Company received $75.6 million on conversion of the Euro E85.0 million borrowed from Munich Re. 16 At the termination date, the Company will return $76.3 million to Chase Manhattan Bank in exchange for Euro E85.0 million for the purposes of paying off the Euro Loan. The Euro Swap bears interest on a notional amount of $76.3 million at an adjustable rate equal to the three month U.S. Dollar London InterBank Offered Rate ("USD LIBOR") plus 0.1%. The Euro Swap is recorded at its fair value with changes in that value recognized through investment income. Common stockholder's equity decreased to $2,420.1 million at December 31, 2000, from $2,489.0 million at December 31, 1999. This decrease was primarily attributable to the net loss of $64.4 million for the year ended December 31, 2000. The Company's reinsurance/insurance subsidiaries' statutory surplus increased to $2,177.1 million at December 31, 2000, from $2,166.0 million at December 31, 1999. During 2000, the Company contributed $250.0 million to the statutory surplus of American Re-Insurance. Operating leverage, as measured by the reinsurance/insurance subsidiaries' premiums-to-surplus ratio, on an annualized basis was 1.46 to 1 and 1.31 to 1 at December 31, 2000, and December 31, 1999, respectively. INVESTMENTS The total financial statement value of investments and cash increased to $7,893.8 million at December 31, 2000, from $7,439.9 million at December 31, 1999, primarily due to increases in cash flows from operating activities, and an increase in the fair value adjustment of investments held. The financial statement value of the investment portfolio at December 31, 2000, included a net decrease from amortized cost to fair value of $49.9 million for debt and equity investments, compared to a net decrease of $161.2 million at December 31, 1999. At December 31, 2000, the Company recognized a cumulative unrealized loss of $32.4 million due to the net adjustment to fair value on debt and equity investments, after applicable income tax effects, which was reflected as a component of accumulated other comprehensive income. This represents a net increase to stockholder's equity of $72.4 million from the cumulative unrealized loss on debt and equity securities of $104.8 million recognized at December 31, 1999. The Company follows an 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:

The net increase in the financial statement value of investments and cash reflects underwriting results, reinvestment of investment income received, interest expense, income tax payments, and fair value adjustments on bonds and equity securities classified as available for sale. There were $6,697.2 million and 17 $6,315.2 million of bonds carried at fair value as available for sale securities at December 31, 2000 and 1999, 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:

The Company continues to seek opportunities to enhance investment yield primarily through a 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 4.82 and 4.62 years at December 31, 2000, and 1999, 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. In 2000, American Re-Insurance entered into two securities lending agreements. The first, with State Street Bank and Trust Company involved predominately U.S. Treasury securities, which had a fair value of $218.5 million at December 31, 2000. Under the second agreement with Merrill Lynch, the securities loaned were comprised predominately of tax-exempt municipal securities, which had a fair value of $904.4 million at December 31, 2000. Income from the securities loaned under the agreement with Merrill Lynch is deemed to be taxable in nature, during the time the securities are on loan. Under both agreements, collateral must be maintained at 102% of the loaned securities and must have a weighted average credit rating of at least AA- by Standard and Poors Corporation ("S&P") or Aa3 by Moody's Investors Services ("Moody's"). Income from securities lending totaled $9.3 million for the fiscal year ended December 31, 2000. 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 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 2000 operating results, the maximum amount available for payment of dividends to the Company by American Re-Insurance in 2001 without approval of regulatory authorities is $216.5 million. 18 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 provided by operations for the Company were $291.6 million for 2000; cash flows used in operations were $38.5 million for 1999; and cash flows provided by operations were $202.7 million for 1998. The increase in 2000, as compared to 1999, is attributable to increased net premiums collected, in addition to increased net investment income received. The decrease in 1999 is primarily attributable to higher paid losses during the 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 2000 from sales of investments were $3,656.6 million compared to $3,321.3 million in 1999 and $6,164.7 million in 1998. The increased activity in 2000 was due to the Company's investment strategy to restructure certain segments of the investment portfolio and increase common equity holdings. The decreased activity in 1999 was the result of an abnormally high level of activity during 1998. Cash and cash equivalents were $607.3 million, $597.5 million, and $274.9 million, at December 31, 2000, 1999, and 1998, respectively. Cash and short-term investments are maintained for liquidity purposes and represented 7.7%, 8.0% and 3.5%, respectively, of total financial statement investments and cash on such dates. CREDIT RATINGS In December, 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, 2001, 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. In December 2000, Moody's affirmed the Company's and 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 ratings. 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 19 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 $6,769.6 million at December 31, 2000 that are subject to changes in value due to market interest rates. In addition to interest rate and foreign exchange risk, the Company's common equity portfolio of $500.5 million at December 31, 2000 is subject to changes in value based on changes in equity prices, predominately in the United States. The Company also has a loan from Munich Re of $80.1 million, Senior Notes of $498.5 million, and QUIPS of $237.5 million. The Munich Re loan is a variable rate instrument, while the Senior Notes and QUIPS are fixed rate instruments. The Company has exposure to movements in various currencies around the world, particularly the British pound, the Euro, 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. ARCM is a party to certain index-based Catastrophe Swaps with 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 ("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 ModILS(SM) securities, are different from other forms of catastrophe-related securities in that the protection they provide is triggered by the size of an index of modeled insurance industry losses from specified types of catastrophic events, not by the actual losses incurred by the Company. 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 was $0.7 and $0.6 at December 31, 2000 and 1999, respectively. 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, 2000. 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 20 market rates of interest provided by independent broker quotations and other public sources as of December 31, 2000, with adjustments made to reflect the shift in the Treasury yield curve as appropriate.

The preceding tables indicate that at December 31, 2000, in the event of a sudden and sustained increase in prevailing market interest rates, the fair value of the Company's investment and debt instruments would be expected to decrease, and that in the event of a sudden and sustained decrease in prevailing market interest rates, the fair value of the Company's fixed maturity investments and debt instruments would be expected to increase. 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 21 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 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 1990 through 2000, 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 1990 through 2000 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 1990 reserves have developed a $424 million deficiency through December 31, 2000. 22 CHANGES IN HISTORICAL RESERVES FOR UNPAID LOSSES AND LAE FOR THE LAST TEN YEARS--GAAP BASIS AS OF DECEMBER 31, 2000

23 The reconciliation between statutory basis and GAAP basis reserves for each of the three years in the period ended December 31, 2000, is shown below: RECONCILIATION OF RESERVES FOR UNPAID LOSSES AND LAE FROM STATUTORY BASIS TO GAAP BASIS

------------------------ (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)

ASBESTOS, ENVIRONMENTAL-RELATED AND OTHER LATENT LIABILITY CLAIMS. American Re-Insurance's underwriting results have been adversely affected by claims developing from latent liability exposures. Reserves established by American Re-Insurance for latent liability exposures necessarily have 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. 24 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, 2000, 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:

Loss reserves for latent liability exposures at December 31, 2000 and 1999, 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. 25 THREE YEAR DEVELOPMENT ASBESTOS LIABILITIES

ENVIRONMENTAL-RELATED AND OTHER LATENT LIABILITIES

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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY DIRECTORS EDWARD J. NOONAN, age 42, has served as President, Chief Executive Officer and a Director of the Company and Chairman, President and Chief Executive Officer of American Re-Insurance since March 1997. From February 1997 to March 1997, Mr. Noonan served as Executive Vice President of both 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 served as Senior Vice President of American Re-Insurance from July 1991 to February 1997, Senior Vice President, Treaty Division from April 1990 to July 1991, and as Vice President, Treaty Division from May 1988 to April 1990. Mr. Noonan has served as a Director of American Re-Insurance since September 1992. Mr. Noonan is also a member of the Company's Board of Management. DR. JUR. HANS-JURGEN SCHINZLER, age 60, has served as a Director of the Company since November 1996 and Chairman of the Company since March 1997. Dr. Schinzler has been a member of the Board of Management of Munich Re since 1981 and has served as Chairman of the Board of Management of Munich Re since 1993. Dr. Schinzler currently holds positions on the Supervisory Boards of various subsidiaries within the Munich Re holding company system. Dr. Schinzler serves as Chairman of the Supervisory Board of ERGO Versicherungsgruppe AG, Dusseldorf, MR Beteiligungen AG, Grafelfing, and MRE Beteiligungen AG, Munich. Dr. Schinzler is also Deputy Chairman of the Supervisory Board of Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart, as well as a member of the Supervisory Board of Dresdner Bank Aktiengesellschaft, Frankfurt, MAN Aktiengesellschaft, Munich and Aventis S.A., Strasburg, France. He currently serves as a member of the Board of Directors of Munich-American Holding Corporation, Delaware and Dresdner Kleinwort-Wasserstein, New York. KARL WITTMAN, age 56, has served as a Director of the Company since December 1998 as well as a member of the Board of Management of Munich Re since January 1998 responsible for Asia and Australasia, United Kingdom, Ireland and, since January 1999, North America. From 1985 to 1995 Mr. Wittmann served as a member of the Executive Management, Fire Treaty Underwriting, Munich Re, and from 1995 to 1997 as 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 serves as a Director of Munich-American Holding Corporation, Delaware, and various Munich Re affiliates. DR. JUR. HEINER HASFORD, age 53, has served as a Director of the Company since July 2000 and as a member of the Board of Management of Munich Re since March 1993. Dr. Hasford is currently Chairman of the Supervisory Board of Europaische Reiseversicherung AG, Munich, as well as Deputy Chairman of the Supervisory Boards of Mercur Assistance AG Holding, Munich, MR Beteiligungen AG, Grafelfing, and MRE Beteiligungen AG, Munich. He serves as a member of the Supervisory Board of D.A.S., Munich, ERGO Versicherungsgruppe AG, Dusseldorf, BHS tabletop AG, Selb, Karlsruher Rendite, Karlsruhe, MAN Nutzfahrzeuge AG, Munich, VICTORIA Lebensversicherung AG and VICTORIA Versicherung AG, Dusseldorf, and WMF, Geislingen/Steige, Germany. Dr. Hasford is also Joint Chairman of Munich London Investment Management Ltd., London, Munich and Director of Munich-American Holding Corporation, Delaware, and various Munich Re affiliates. 27 EXECUTIVE OFFICERS In addition to Mr. Noonan, the executive officers of the Company are as follows: MAHMOUD M. ABDALLAH--Mr. Abdallah, age 52, has served as Executive Vice President of the Company, and Executive Vice President of American Re-Insurance since February 1997. He has served as President, International Operations of American Re-Insurance since September 1994, and Chairman and CEO of the Munich American Global Services Group since July 1998 where his responsibilities include oversight of its member companies, Am-Re Brokers, Inc., ARB International, Ltd., Am-Re Consultants, Inc., and the Becher+Carlson Companies. In addition, Mr. Abdallah has oversight responsibility for the Information Technology Division of American Re-Insurance. Mr. Abdallah has been a member of the Board of Directors of American Re-Insurance since September 1992. Mr. Abdallah is also a member of the Company's Board of Management. ALBERT J. BEER--Mr. Beer, age 50, has served as Executive Vice President since March 1997. Mr. Beer has served as President of DICO since July, 2000. Prior to assuming his present responsibilities, Mr. Beer served as President of RiskPartners from December 1997 to July, 2000 and as President of DICO from March 1997 to December 1997. Mr. Beer joined the Company in December 1992 as Senior Vice President--Branch Operations of American Re-Insurance. Mr. Beer has been a Director of American Re-Insurance since December 1992. Prior to joining the Company, Mr. Beer was Chief Actuary for Skandia America. Mr. Beer is also a member of the Company's Board of Management. ROBERT K. BURGESS--Mr. Burgess, age 52, has been Executive Vice President, General Counsel and Secretary of both the Company and American Re-Insurance since February 1997 and has been a Director of American Re-Insurance since May 1995. Upon joining the Company in April 1995 until February 1997, Mr. Burgess served as Senior Vice President, General Counsel and Secretary of both companies. Mr. Burgess has oversight responsibility for Human Resources, Claims, American Re University, Investor Relations and Corporate Communications and Internal Audit. Prior to joining the Company, Mr. Burgess was a Partner in the law firm of Latham & Watkins, in Chicago, Illinois. Mr. Burgess is also a member of the Company's Board of Management. WOLFGANG ENGSHUBER--Mr. Engshuber, age 44, has served as Executive Vice President and as a Director of American Re-Insurance since October 1998. Mr. Engshuber is responsible for American Re Financial Products. Before joining the Company in October 1998, Mr. Engshuber served as a member of the Executive Management of Munich Reinsurance Company in Munich, Germany since October 1986. Mr. Engshuber is also a member of the Company's Board of Management. GEORGE T. O'SHAUGHNESSY, JR.--Mr. O'Shaughnessy, age 45, serves as Executive Vice President and Chief Financial and Accounting Officer of both the Company and American Re-Insurance. From April 1997 to April 1998, Mr. O'Shaughnessy served as Senior Vice President, Chief Financial and Accounting Officer of both Companies. Mr. O'Shaughnessy became a Director of American Re-Insurance in December 1997. From January 1995 to April 1997, Mr. O'Shaughnessy served as Vice President and Controller of both Companies. Mr. O'Shaughnessy joined the Company in April 1989 and is a member of the Company's Board of Management. EDWARD E. DUESS--Mr. Duess, age 49, serves as Senior Vice President and Chief Underwriting Officer for American Re-Insurance. Mr. Duess' responsibilities include management of the Company's underwriting process on a worldwide basis, as well as oversight of American Re's Underwriting Management Services, Home Office Contracts, and Account Services departments. Prior to assuming his current duties in July 1996, Mr. Duess held various management positions including Vice President and Chief Underwriting Officer for the Domestic Insurance Company Operations Division. Mr. Duess joined the Company in 1975. 28 ROBERT E. HUMES--Mr. Humes, age 57, has served as Senior Vice President--Human Resources Division of American Re-Insurance since September 1994. Mr. Humes served as Vice President--Human Resources from July 1993 to September 1994. Prior to joining the Company in July 1993, Mr. Humes served as Senior Vice President of Corporate Resources for Bristol-Myers Squibb Company and its predecessor, Squibb Corporation, in various management positions in Human Resources, including Senior Vice President of Human Resources. WILLIAM J. MOLL--Mr. Moll, age 45, has served as Senior Vice President of American Re-Insurance since February 1997 and President of RiskPartners since July 2000. Prior to assuming his present responsibilities, Mr. Moll served as Executive Vice President of RiskPartners from February 1997 to July 2000. Mr. Moll joined American Re-Insurance and Risk Partners in May 1990 as Vice President. Prior to joining American Re, Mr. Moll was the manager of Sedgwick James Captive Development Division and the casualty manager for Heddington Insurance, Ltd., a wholly-owned captive insurance subsidiary of Texaco. JOHN W. RODGERS--Mr. Rodgers, age 49, has served as Senior Vice President--Claims of American Re-Insurance since August 1999. Prior to assuming his current responsibilities, Mr. Rodgers held a number of management positions in the Claims Division, including Vice President--Branch Claims Operations from March 1994 to August 1999. Mr. Rodgers joined the Company in February 1989, holds the CPCU, ARM and ARe designations, and is a member of the Chartered Property and Casualty Society. PHILIP ROEPER--Mr. Roeper, age 40, has served as Senior Vice President and Chief Information Officer of American Re-Insurance since January, 1999. Prior to Mr. Roeper assuming his current responsibilities, he worked as Vice President of Infrastructure and Operations. Before joining American Re-Insurance in September 1996, Mr. Roeper held various positions with DHL Systems, Inc., in Burlingame, CA., from August 1990 to September 1996 most recently as Director of Global Network Services. THOMAS E. SMITH--Mr. Smith, age 48, has served as President of Am-Re University since August 1999. Am-Re University is the Company's initiative to create a learning organization. Prior to Mr. Smith assuming his current responsibilities he served as Senior Vice President--Claims of American Re-Insurance from July 1996 to August 1999. Prior to joining American Re-Insurance in July 1996, Mr. Smith worked with the Commercial Division of the Farmers Insurance Group for over 20 years in various management positions including Vice President and Senior Claim Officer. Mr. Smith is both a Chartered Property & Casualty Underwriter and a Chartered Life Underwriter. JOHN H. SNYDER--Mr. Snyder, age 40, has served as Senior Vice President of American Re-Insurance since joining the Company in January 2001. Mr. Snyder has oversight responsibilities for Strategic Planning and Strategic Investments. Prior to joining the Company, Mr. Snyder held various positions with A.M. Best Company since 1990, most recently as Executive Vice President and Chief Ratings Officer. Prior to joining A.M. Best, Mr. Snyder was an insurance equity analyst with Firemark Consultants and Smith Barney. Mr. Snyder also served as an underwriter with General Re. DAVID SPIEGLER--Mr. Spiegler, age 40, has served as Senior Vice President & Chief Actuary of American Re-Insurance since February 2000. Mr. Spiegler joined the Company in August 1987 and has held various managerial positions including 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). 29 ROBERT W. TRAINER--Mr. Trainer, age 51, has served as President of American Re HealthCare since July 2000 and as Executive Vice President of HealthCare prior thereto since June 1999. Mr. Trainer previously served as Executive Vice President of DICO where he managed its marketing activities from December 1997 to June 1999. Prior to joining American Re as a Senior Vice President of DICO in 1995, he held various financial and underwriting positions at The Hartford Steam Boiler Inspection and Insurance Company, including Senior Vice President, Underwriting and Special Risks, and Senior Vice President, Treasurer and Chief Financial Officer. Mr. Trainer is a Chartered Financial Analyst and a member of the Association for Investment Management & Research. 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, 2000 (the "named executive officers"), information concerning compensation earned in 2000, 1999, and 1998 by such persons for services with the Company and its subsidiaries.

------------------------ (1) During each of the three years ended December 31, 2000, 1999 and 1998, 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, $535,923 in 2000, $509,943 in 1999, and $485,224 in 1998; Mr. Abdallah, $424,229 in 2000, $403,664 in 1999, and $384,097 in 1998; Mr. Beer, $110,187 in 2000, $104,845 in 1999, and $99,763 in 1998; and Mr. Burgess, $242,369 in 2000, $230,620 in 1999, and $219,441 in 1998; (ii) employer contributions under the American Re-Insurance Company Savings Plan, a 401(k) plan, of $8,500 in 2000, $8,000 in 1999, and $8,000 in 1998 for Mr. Noonan; of $6,563 in 2000, $6,250 in 1999, and $6,250 in 1998, for Mr. Abdallah; of $8,500 in 2000, $8,000 in 1999, and 30 $8,000 in 1998 for Mr. Beer; of $8,500 in 2000, $8,615 in 1999, and $6,250 in 1998 for Mr. Burgess; of $6,563 in 2000, $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, 2000, of $22,077 in 2000, $21,596 in 1999, and $20,884 in 1998 for Mr. Noonan; of $16,014 in 2000, $16,038 in 1999, and $15,788 in 1998 for Mr. Abdallah; of $12,077 in 2000, $12,173 in 1999, and $12,000 in 1998 for Mr. Beer; of $14,076 in 2000, $13,673 in 1999, and $15,763 in 1998 for Mr. Burgess; of $11,004 in 2000 and $10,000 in 1999 for Mr. Engshuber; and (iv) employer contributions for group term life, accidental death and dismemberment and disability insurance of $6,054 in 2000, $6,192 in 1999, and $5,986 in 1998 for Mr. Noonan; of $5,748 in 2000, $5,846 in 1999, and $5,453 in 1998 for Mr. Abdallah; of $5,475 in 2000, $5,563 in 1999, and $5,131 in 1998 for Mr. Beer; of $5,748 in 2000, $5,846 in 1999, and $5,454 in 1998 for Mr. Burgess; and $4,327 in 2000, $4,925 in 1999, and $1,181 in 1998 for Mr. Engshuber. MUNICH RE 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 stock appreciation rights ("SAR's") awarded by Munich Re in 2000 under the Munich Re Long-Term Incentive Plan.

------------------------ (1) The Munich Re Long-Term Incentive Plan is a SAR plan which provides to eligible participants in the Munich Re Group organization SAR's 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 three months prior to July 1, 2000. That amount was equivalent to EUR 319.34. The exchange rate into US dollars will be the rate applicable on the exercise date. (4) The SAR's may be exercised at any time after a two-year vesting period. SAR's 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 Dow Jones Eurostoxx 50, an index of 50 publicly traded German corporations, for a specified period of time. 31 AGGREGATED SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END SAR VALUES The following table sets forth certain information concerning unexercised SAR's held at December 31, 2000 by the named executive officers.

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 2000 under the Company's Long-Term Incentive Plan.

------------------------ (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, 2000-2002. The performance goals selected by the Committee for the performance period are Net Income and Combined Ratio (Statutory) each as defined in the Plan. The incentive amounts to be earned by each participant are 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. Up to 100% of one-sixth of the participant's total Target Award (one-twelfth for each performance measure) may be earned if certain thresholds are met for the year 2000. Up to 100% of an additional one third of the Participant's total Target Award (one-sixth for each performance measure) may be earned if certain thresholds are met for the years 2000-2001 on a combined basis. 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, Burgess and Engshuber 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 (three years for Mr. Engshuber) 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 32 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 1998 plus the bonus amount paid such executive for the 1997 calendar year (or in the case of Mr. Engshuber, the annual rate of pay in effect as of October 2000, plus an estimate of the bonus amount to be paid to Mr. Engshuber for the 2000 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 or 2000, such executives voluntarily waived such contractual amounts. 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. MAXIMUM RETIREMENT BENEFITS PAYABLE

33 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, 2000 for the persons named in the Summary Compensation Table are as follows: Mr. Noonan, 16.2 years; Mr. Abdallah, 18 years; Mr. Beer, 8 years; Mr. Burgess, 5.6 years; and Mr. Engshuber, 2.25 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 American Holding Corporation owns 100% of the outstanding Common Stock of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In March, 2000, Mr. William J. Moll, an Executive Officer of the Company, borrowed $250,000 from an affiliate of the Company. The loan was in the form of a non-interest bearing promissory note which, under its terms, must be repaid no later than November 25, 2001, at the time of a payment due Mr. Moll under the Company's Senior Executive Special Deferred Compensation Plan. 34 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 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 28, 2001. AMERICAN RE CORPORATION By: /s/ GEORGE T. O'SHAUGHNESSY, JR. ----------------------------------------- George T. O'Shaughnessy, Jr. EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL AND ACCOUNTING OFFICER

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.

36 AMERICAN RE CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report................................ F-2 Consolidated Balance Sheets--December 31, 2000 and 1999..... F-3 Consolidated Statements of Income--Years ended December 31, 2000, 1999, and 1998...................................... F-4 Consolidated Statements of Stockholder's Equity--Years ended December 31, 2000, 1999, and 1998......................... F-5 Consolidated Statements of Cash Flows--Years ended December 31, 2000, 1999, and 1998......................... F-6 Notes to Consolidated Financial Statements--December 31, 2000...................................................... F-7

INDEX TO SCHEDULES TO FINANCIAL STATEMENTS Summary of Investments Other Than Investments in Related Parties--December 31, 2000................................ S-1 Condensed Financial Information of Registrant (Parent Company only): Condensed Balance Sheets--December 31, 2000 and 1999...... S-2 Condensed Statements of Operations and Retained Earnings--Years ended December 31, 2000, 1999, and 1998.................................................... S-3 Condensed Statements of Cash Flows--Years ended December 31, 2000, 1999, and 1998....................... S-4 Notes to Condensed Financial Information--December 31, 2000.................................................... S-5 Supplemental Insurance Information--Years ended December 31, 2000, 1999, and 1998...................................... S-6 Reinsurance--Years ended December 31, 2000, 1999, and 1998...................................................... S-7 Supplemental Information (for Property-Casualty Insurance Underwriters)--Years ended December 31, 2000, 1999, and 1998...................................................... S-8

F-1 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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 March 8, 2001 F-2 AMERICAN RE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)

See accompanying notes to consolidated financial statements. F-3 AMERICAN RE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (DOLLARS IN MILLIONS)

See accompanying notes to consolidated financial statements. F-4 AMERICAN RE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (DOLLARS IN MILLIONS)

See accompanying notes to consolidated financial statements. F-5 AMERICAN RE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (DOLLARS IN MILLIONS)

See accompanying notes to consolidated financial statements. F-6 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 ("AAIC"). (American Re-Insurance, AAIC, 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 Munich-American Holding Corporation, a Delaware holding company ("MAHC"), which in turn is wholly-owned by Munchener Ruckversicherungs-Gesellschaft Aktiengesellschaft in Munchen ("Munich Re"), a company organized under the laws of Germany. Effective September 30, 2000, Munich Re contributed the outstanding stock of American Re to MAHC. 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 in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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. FINANCIAL STATEMENT PRESENTATION Certain 1999 and 1998 financial statement presentations have been reclassified to conform with the 2000 presentation. 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 F-7 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. In 2000, American Re-Insurance entered into two securities lending agreements. The first, with State Street Bank and Trust Company involved predominately U.S. Treasury securities, which had a fair value of $218.5 at December 31, 2000. Under the second agreement with Merrill Lynch, the securities on loan are comprised predominately of tax-exempt municipal securities, which had a fair value of $904.4 at December 31, 2000. Income from the securities loaned under the agreement with Merrill Lynch is deemed to be taxable in nature, during the time they are on loan. Under both agreements, collateral must be maintained at 102% of the loaned securities and must have a weighted average credit rating of at least AA- by Standard and Poors Corporation ("S&P") or Aa3 by Moody's Investors Services ("Moody's"). Income from securities lending totaled $9.3 for the year ended December 31, 2000. E. DEFERRED POLICY ACQUISITION COSTS Deferred policy acquisition costs represent acquisition costs, primarily commissions and certain operating expenses. These costs are deferred and 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 12) and the Cumulative Quarterly Income Preferred Securities (see Note 13) 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 for each of the years ended December 31, 2000, 1999, and 1998. 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 $71.9 and $63.0 at December 31, 2000, and 1999, respectively. F-8 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. GOODWILL Goodwill represents the cost in excess of net assets acquired in the acquisitions of American Re-Insurance in 1992 and the minority interests in Munich American Reinsurance Company ("MARC") in 1997. The goodwill, which is amortized over 40 years, was $244.3 and $251.3 at December 31, 2000 and 1999, respectively. The amortization of goodwill was $7.0 for each of the years ended December 31, 2000, 1999, and 1998. 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 using an interest rate of 4.5%. Such discount resulted in a reduction in gross loss reserves of approximately $832.6 and $670.4 at December 31, 2000, and 1999, respectively. Management believes that the reserves for losses and LAE as of December 31, 2000 are adequate to cover the ultimate gross cost of losses and LAE incurred through December 31, 2000. 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. J. REINSURANCE RECOVERABLES ON UNPAID LOSSES Reinsurance recoverables on unpaid losses were $3,071.0 and $2,889.3 at December 31, 2000, and 1999, 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, F-9 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, 2000, and 1999. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such 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 17--"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. F-10 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. EURO SWAP. The fair value of this instrument was based on a quoted market price obtained from a major financial institution. 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. LOAN FROM PARENT. The fair value of this obligation was based on the outstanding principle of the loan converted at the foreign exchange rate in effect at the financial statement date. 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. F-11 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:

F-12 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 3. INVESTMENTS (CONTINUED) The amortized cost and fair value of fixed maturities at December 31, 2000, 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.

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

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

At December 31, 2000, and 1999, the Company's investments in bonds on a financial statement basis were $6,697.2 or 84.8% and $6,315.2 or 84.9%, respectively, of total investments and cash. The bond portfolio is diversified within various industry segments. F-13 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 3. INVESTMENTS (CONTINUED) Bond investment by market sector at December 31, were as follows:

Sources of net investment income were as follows:

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

At December 31, 2000, and 1999, securities in the amount of $641.3 and $493.5 (par value), respectively, were on deposit with governmental authorities as required by law. F-14 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 4. ACCUMULATED OTHER COMPREHENSIVE INCOME The components of accumulated other comprehensive income (loss) are as follows:

F-15 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, 2000, 1999, and 1998 is shown below:

As a result of changes in estimates of insured events in prior years, the losses and LAE incurred (net of reinsurance recoveries of $594.8, $1,024.2 and $252.1 for the years ended December 31, 2000, 1999, and 1998, respectively) increased by $948.6 in 2000, $570.4 in 1999, and $62.0 in 1998. The adverse development in 2000 is primarily due to increased losses in recent accident years reflecting adverse market conditions, in addition to losses associated with contracts which incepted prior to 2000, such as proportional treaties under which premiums are earned over multiple accident years but losses are reflected in the initial accident year. 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 16D). 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 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 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). F-16 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 6. REINSURANCE (CONTINUED) 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 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:

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 $106.3 and $104.0 at December 31, 2000 and 1999, 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. F-17 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 6. REINSURANCE (CONTINUED) Munich Re (which had an A.M. Best rating of "A++" at December 31, 2000) accounted for approximately 18.5% and 16.9% of the reinsurance recoverables on paid and unpaid losses at December 31, 2000, and 1999, respectively. National Indemnity Company (which had an A.M. Best rating of "A++" at December 31, 2000), a subsidiary of Berkshire Hathaway, Inc., accounted for approximately 14.0% and 17.5% of the reinsurance recoverables on paid and unpaid losses at December 31, 2000, and 1999, respectively. Travelers Property Casualty Corp. (which had an A.M. Best rating of "A++" at December 31, 2000), accounted for approximately 13.0% and 13.3% of the reinsurance recoverables on paid and unpaid losses at December 31, 2000, and 1999, respectively. 7. DEPOSIT ACCOUNTING Insurance and reinsurance contracts that do not transfer insurance risk are subject to deposit accounting. Deposit accounting is applied to contracts that, 1) transfer only significant timing risk, 2) transfer only significant underwriting risk, 3) transfer neither significant timing nor underwriting risk, or 4) those contracts with indeterminate risk. The deposit asset of $239.5 and $223.1 at December 31, 2000 and 1999, respectively, was primarily comprised of adverse loss development covers and certain retroactive reinsurance agreements which do not meet risk transfer guidelines. The increase in the deposit asset is the result of new agreements totaling $9.7 and interest accretion of $10.5, offset by payments of $3.9 during 2000. The deposit liability of $384.5 and $241.3 at December 31, 2000 and 1999, respectively, was primarily comprised of adverse loss development covers and certain retroactive reinsurance agreements which do not meet risk transfer guidelines. The increase in the deposit liability is primarily attributable to the commutation of a reinsurance agreement, with a net liability of $144.1, payable in 2003. In addition to the commutation, the increase in deposit liability is the result of $17.1 of new agreements and $27.2 of interest accretion, offset by $45.3 of payments. F-18 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 8. FEDERAL AND FOREIGN INCOME TAXES The net deferred tax asset recorded at December 31, 2000, and 1999, represents the net temporary differences between the tax basis 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:

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, 2000, 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. Income tax expense (benefit) was as follows:

F-19 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 8. FEDERAL AND FOREIGN INCOME TAXES (CONTINUED)

Reconciliations of the differences between income taxes computed at the federal statutory tax rate and consolidated provisions for income taxes were as follows:

9. 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 a normal or early retirement benefit under the Company's non-contributory defined benefit pension plan and who are covered under a Company medical insurance plan at retirement. The Company funds its obligation currently and no contributions are required by retirees. F-20 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 9. BENEFIT PLANS (CONTINUED) The following table provides a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the years ended December 31, 2000 and 1999, and a statement of the funded status at December 31:

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 $12.3 and $11.0 at December 31, 2000 and 1999, 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 $36.6 and $29.9 at December 31, 2000 and 1999, respectively. F-21 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 9. BENEFIT PLANS (CONTINUED) Net periodic benefit cost for the years ended December 31, included the following components:

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:

For measurement purposes, a 6.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001. The rate was assumed to decrease gradually over 16 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:

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 $6.0, $5.3, and $5.0 for the years ended December 31, 2000, 1999, and 1998, respectively. Key employees are eligible for plans that provide compensation incentives based upon operating results and that reward specific individuals for performance and contribution to the success of the F-22 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 9. BENEFIT PLANS (CONTINUED) Company. Charges to operations for such incentives were $13.7, $17.1 and $21.6 for the years ended December 31, 2000, 1999, and 1998, respectively. American Re-Insurance has Employment Agreements (the "Agreements"), with Messrs. Noonan, Abdallah, Beer, Burgess and Engshuber 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 (three years for Mr. Engshuber) 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 1998, plus the bonus amount paid such executive for the 1997 calendar year (or in the case of Mr. Engshuber, the annual rate of pay in effect as of October 2000, plus an estimate of the bonus amount to be paid to Mr. Engshuber for the 2000 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 or 2000, such executives voluntarily waived such contractual amounts. 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. At the time of the acquisition by Munich Re, the Company established the Senior Executive Special 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, 2000, and F-23 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 9. BENEFIT PLANS (CONTINUED) 1999, the Company's consolidated balance sheets reflected $152.4 and $115.2, respectively, of deferred option proceeds, which is reflected in other liabilities. 10. LOAN FROM PARENT On December 28, 2000, the Company borrowed Euro E85.0 million under a new three-year revolving credit agreement ("Euro Loan") with Munich Re, which allows the Company to borrow up to Euro E200.0 million. Outstanding amounts under the revolving credit agreement bear interest annually at a rate equal to the Eurocurrency Base Rate plus 0.1%. The proceeds of the Euro Loan were used to repay the $75.0 outstanding under the revolving credit agreement with Bank of America, N.A. (See Note 11). The Euro Loan is recorded at its original cost, adjusted for changes in foreign exchange rate. Those adjustments in value are recognized through income as foreign exchange gain or loss. At December 31, 2000, $80.1 was outstanding under the Euro Loan. At the time of the borrowing, the Company entered into a Cross-Currency Interest Rate Swap agreement ("Euro Swap") with Chase Manhattan Bank as an economic hedge, for other than trading purposes, against the foreign exchange risk related to the Euro Loan. As part of the Euro Swap, the Company received $75.6 on conversion of the Euro E85.0 million from Munich Re. At the termination date, the Company will return $76.3 to Chase Manhattan Bank in exchange for Euro E85.0 million for the purposes of paying off the Euro Loan. The Euro Swap bears interest on a notional amount of $76.3 at an adjustable rate equal to the three month U.S. Dollar London InterBank Offered Rate ("USD LIBOR") plus 0.1%. The Euro Swap is recorded at its fair value with changes in that value recognized through investment income. 11. 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 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. In December 2000, the Company repaid the $75.0 of borrowings under the revolving credit agreement with the proceeds of the Euro Loan. In 1998, the Company guaranteed the repayment of principal, interest and other fees and expenses under a 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 derivatives contracts, to support certain of its F-24 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 11. SENIOR BANK DEBT (CONTINUED) obligations under such derivatives contracts, and for other general corporate purposes. At December 31, 2000 ARCM had no outstanding indebtedness under the agreement. 12. SENIOR NOTES In 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. 13. 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. F-25 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 13. CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES (CONTINUED) 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. 14. CAPITAL AND SURPLUS AND STOCKHOLDER DIVIDEND RESTRICTIONS Statutory surplus for the reinsurance/insurance subsidiaries on a combined basis at December 31, 2000, and 1999, were $2,177.1 and $2,166.0, respectively. During 2000, the Company contributed $250.0 to the statutory surplus of American Re-Insurance. Statutory net income (loss) for the years ended December 31, 2000, 1999, and 1998, on a combined basis was $(96.1), $(183.3) and $319.9, respectively. Dividends declared and paid by American Re-Insurance to the Company were $0.0, $260.8 and $35.0 in 2000, 1999, and 1998, respectively. 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 expects that the effect of implementing codification will be an increase to the statutory surplus of the reinsurance/insurance subsidiaries. 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, 2000, American Re-Insurance could declare dividends of approximately $216.5 during 2001 without approval of the Commissioner of Insurance of the State of Delaware. The NAIC has adopted a risk based capital ("RBC") 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 2000 adjusted surplus to policyholders was $1,649.7, or 1.93 times the authorized control level RBC total of $856.5. Because this ratio is less than 2.00 times, American Re-Insurance must submit a comprehensive financial plan to the Insurance Department of the state of Delaware, which will address American Re-Insurance's plans for attaining the required levels of RBC. Achievement of the comprehensive financial plan depends on future events and circumstances, the outcome of which cannot be assured. AAIC's 2000 adjusted surplus to policyholders of $98.6 is in excess of the authorized control level RBC total of $14.4. Princeton E & S's 2000 adjusted surplus to policyholders of $25.7 is in excess of the authorized control level RBC total of $0.1. 15. 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 F-26 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 15. PERMITTED STATUTORY ACCOUNTING PRACTICES (CONTINUED) statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners, as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all rules not so prescribed. American Re-Insurance received written approval from the Insurance Department of the State of Delaware to discount all workers' compensation reserves for losses at a rate of 4.5% for statutory accounting purposes. Delaware statutes allow discounting of certain types of reserves at various discount rates. 16. COMMITMENTS AND CONTINGENT LIABILITIES A. DERIVATIVES AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS FINANCIAL GUARANTEES In 1998, the Company recommenced writing financial guarantee programs. In addition, the Company has principal and interest guarantees outstanding from programs written prior to December 31, 1986. The aggregate principal and interest amounts of these guarantees outstanding were $1,992.5 and $593.7 at December 31, 2000 and 1999, respectively. The aggregate principal and interest amount reflects the Company's extent of involvement in financial guarantees. DERIVATIVES In December, 2000, the Company entered into a three-year revolving credit agreement with Munich Re which allows the Company to borrow up to Euro E200.0 million. At the time the Company established the credit facility it borrowed Euro E85.0 million. At the same time, the Company entered into a Cross- Currency Interest Rate Swap agreement with Chase Manhattan Bank as an economic hedge, for other than trading purposes, against the foreign exchange risk related to the Euro Loan. (See Note 10.) American Re Capital Markets, Inc. ("ARCM"), a subsidiary of the Company, is a party to 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 $182.0 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 on 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 was $0.7 and $0.6 at December 31, 2000 and 1999, respectively. During 1999, ARCM was engaged primarily in the weather derivative business, which exposed the Company to losses/gains based on movements in temperature at certain U.S. weather stations. At December 31, 1999, ARCM had entered into 78 such weather derivative contracts with a notional value of F-27 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) $139.3. At December 31, 1999, the maximum payment amount of such contracts was $85.7, and the maximum receivable amount was $111.4. At December 31, 2000, ARCM had no weather derivative contracts outstanding. B. RELATED PARTY TRANSACTIONS Gross premiums assumed from Munich Re and its affiliated companies were $66.7, $48.4, and $10.5 for the years ended December 31, 2000, 1999, and 1998, 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 $67.7, $159.2, and $174.4 for the years ended December 31, 2000, 1999, and 1998, respectively. Total losses and LAE ceded to Munich Re and its affiliated companies were $116.8, $252.8, and $(12.9) for the years ending December 31, 2000, 1999, and 1998, respectively. Total insurance reserves outstanding with Munich Re and its affiliated companies were $600.6 and $493.2 at December 31, 2000 and 1999, 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 $3.6, $2.6, and $2.1 for the years ended December 31, 2000, 1999, and 1998, 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 $16.6, $22.8, and $20.3, for the years ended December 31, 2000, 1999, and 1998. Future net minimum payments under non-cancelable leases at December 31, 1999, were estimated to be as follows:

D. ASBESTOS, ENVIRONMENTAL-RELATED AND OTHER LATENT LIABILITY CLAIMS 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"). Reserves established by American Re for latent liability exposures necessarily have reflected the uncertainty inherent in estimating the ultimate future claim amounts arising from these types of exposures and the lack of credible actuarial methods to measure and quantify these exposures. The Company's difficulty in accurately quantifying these exposures was attributable to the need for latent liability exposures to be first quantified by the insured party and then the primary insurer before the information was made available to the reinsurer. 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 F-28 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) 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:

Loss reserves for latent liability exposures at December 31, 2000, and 1999, represent best estimates drawn from a range of possible outcomes based on currently known facts, projected forward using assumptions and methodologies considered reasonable. Notwithstanding these loss reserves, there can be no assurance that future losses resulting from these exposures will not materially adversely affect future earnings. E. LITIGATION The Company is involved in 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. 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. HOLOCAUST VICTIMS INSURANCE LAWS. Several states (including California, Maryland, Minnesota, New York, and Washington) 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 (including New Jersey). Insurance regulators in some of 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 F-29 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) 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. While the hearing and examination are pending, there are no regulatory actions currently in progress against any of the Company's licensed insurers or Munich Re. 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. In June, 2000, the U.S. District Court for the Eastern District of California issued a preliminary injunction against the CID from enforcing the California Registry Law. Upon appeal by the CID of that decision, the United States Court of Appeals for the Ninth Circuit, in February, 2001, affirmed the preliminary injunction, but rejected the constitutional basis presented in support of the injunction and remanded the case to the District Court for consideration of the constitutional issue of due process as the basis for injunction. 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 AAIC 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, AAIC, and approximately 40 other insurance companies seeking policyholder information in connection with the Florida Holocaust Law. In November 1999, an unaffiliated company initiated litigation against the Florida Insurance Department challenging the validity of the subpoenas and the constitutionality of the Florida Holocaust Law. In November 2000, the U.S. District Court for the Northern District of Florida held that Florida has no jurisdiction over the matters pertaining to Holocaust era insurance policies issued in Europe, and the Court enjoined Florida from enforcing the Florida Holocaust Law. Florida has appealed the District Court ruling. That appeal is pending. NEW YORK. New York has enacted a statute ("New York Holocaust Law") similar to the Florida Holocaust Law. American Re-Insurance and AAIC 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, and American Re promptly forwarded these F-30 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 16. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) requests to the European insurers which responded directly to the Department. Notwithstanding this, in March, 2000 the Department 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, and in April, 2000 American Re-Insurance received a letter from the Department's Disciplinary Unit that disciplinary action against American Re-Insurance and/or its officers is being considered. However, no formal action has been taken by the Department to date. WASHINGTON. Washington has enacted a statute similar to the California Registry Law. American Re-Insurance and AAIC 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 or in the alternative, that such statutes are unconstitutional. However, there can be no assurance that insurance regulators will not initiate administrative or other actions against American Re under these laws or that such statutes shall ultimately be found to be unconstitutional. 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. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments at December 31, 2000, and 1999, were as follows:

F-31 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 17. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) 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. 18. 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. American Re HealthCare ("HealthCare") integrates risk transfer products and specialized services to help insurance companies and self-insureds predict, prevent, and manage catastrophic medical events. American Re Financial Products ("ARFP") provides clients with an array of highly customized financial risk management products and services, including credit enhancement and integrated risk management. 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, rent-a-captive facilities, and reinsurance and insurance brokerage. The financial results of these subsidiaries have been aggregated along with holding company operations for presentation of segment results. Segment information for the year ended December 31, 1999, has been restated to reflect management's increased focus on the Company's ARFP and HealthCare segments during that period. Segment information has not been restated for the year ended December 31, 1998, as the operations of Healthcare and ARFP were not segregated during that period and it is considered by management to be impracticable to do so. F-32 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 18. SEGMENT REPORTING (CONTINUED)

F-33 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 18. SEGMENT REPORTING (CONTINUED)

F-34 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 18. SEGMENT REPORTING (CONTINUED)

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-35 AMERICAN RE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) 19. UNAUDITED QUARTERLY FINANCIAL DATA Summarized quarterly financial data were as follows:

F-36 SCHEDULE I AMERICAN RE CORPORATION SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 2000 (DOLLARS IN MILLIONS)

S-1 SCHEDULE II AMERICAN RE CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) CONDENSED BALANCE SHEET (DOLLARS IN MILLIONS)

S-2 SCHEDULE II AMERICAN RE CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) CONDENSED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DOLLARS IN MILLIONS)

S-3 SCHEDULE II AMERICAN RE CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) CONDENSED STATEMENT OF CASH FLOWS (DOLLARS IN MILLIONS)

S-4 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, 2000, 1999, and 1998, 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 SCHEDULE III AMERICAN RE CORPORATION SUPPLEMENTAL INSURANCE INFORMATION (DOLLARS IN MILLIONS)

------------------------------ (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 SCHEDULE IV AMERICAN RE CORPORATION AND SUBSIDIARIES REINSURANCE (DOLLARS IN MILLIONS, EXCEPT PERCENTAGES)

S-7 SCHEDULE VI AMERICAN RE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION (FOR PROPERTY-CASUALTY INSURANCE UNDERWRITERS) (DOLLARS IN MILLIONS)

------------------------------ (1) Workers' compensation reserves are discounted at 4.5%. The estimated amount of discount is $832.6, $670.4, and $645.0 as of December 31, 2000, 1999, and 1998, respectively. S-8 INDEX TO EXHIBITS

------------------------ * Filed herewith + Management contract or compensation plan or arrangement

AMERICAN RE CORP 10-K