MUNICH RE AMERICA CORPORATION

Annual Report For The Fiscal Year Ended December 31, 2008 (Pursuant to Section 4.04 of the

Indenture between the Company and the holders of the Company’s 7.45% Senior Notes*)

555 College Road East PRINCETON, NEW JERSEY 08543

(609) 243-4200

*In March 2002 the Company deregistered the Notes in accordance with the rules and regulations of the Securities and Exchange Act of 1934. This Financial Report is not filed with the Securities and Exchange Commission.

March 30, 2009

MUNICH RE AMERICA CORPORATION

TABLE OF CONTENTS Page Business ...............................................................................................................................................1

Selected Financial Information of the Company .................................................................................8

Management’s Discussion and Analysis of the Company’s Results of Operations and

Financial Condition .............................................................................................................................8

Financial Statements and Supplementary Data ...................................................................................F-1

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Unless indicated otherwise, all financial data presented herein are derived from or based on Munich Re America Corporation’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 Munich Reinsurance America Inc., American Alternative Insurance Corporation (“AAIC”), and The Princeton Excess and Surplus Lines Insurance Company (“Princeton E&S”). (These companies together are the “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. Business

The Company and Munich Reinsurance America Munich Re America Corporation (the “Company” or “Munich Re America”), is the holding company for various reinsurance and insurance entities which provide reinsurance, insurance and related services to insurance companies, commercial businesses, government agencies, and self-insurers in the United States. The Company’s principal subsidiary, Munich Reinsurance America Inc. (“Munich Reinsurance America”), a Delaware insurance company founded in 1917, primarily underwrites property and casualty reinsurance. The Company is one of the largest property and casualty reinsurers in the United States according to the Reinsurance Association of America, based on combined statutory gross premiums written by the insurance subsidiaries of $3,310.9 million in 2008. Other subsidiaries of the Company are American Alternative Insurance Corporation, which writes primary insurance business on an admitted basis (“AAIC”) and The Princeton Excess and Surplus Lines Insurance Company, which writes insurance coverage on a non-admitted basis (“Princeton E & S”). The Company had total assets of $27,900.9 million and stockholder’s equity of $2,010.6 million at December 31, 2008. The Company and its subsidiaries employed 1,256 persons as of December 31, 2008. Munich Re America is a wholly-owned subsidiary of Munich-American Holding Corporation, a Delaware holding company (“MAHC”), which in turn is wholly-owned by Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (“Munich Re Munich”), a company organized under the laws of Germany. Munich Re Munich is the world’s largest reinsurance company, based on 2007 net premiums written, according to Standard & Poor’s. The Munich Re Group, led by Munich Re Munich, includes primary insurance operations under the ERGO Insurance Group, reinsurance subsidiaries, branches, service companies and liaison offices in over 50 locations worldwide serving corporate clients in over 160 countries.

Munich Re America’s Strategy

Munich Re America’s strategy is to achieve the full potential of the U.S. property-casualty market through underwriting excellence and sustainable profitable growth over the course of the market cycle. The strategy seeks to increase its profitability through direct and broker reinsurance as well as primary insurance by:

• employing a client-centric approach to develop client strategies and reinsurance solutions that leverage the Munich Re Group’s expertise and risk appetite;

• developing closer broker relationships to support clients’ needs;

• building a dominant presence in niche primary insurance segments.

Munich Re America’s U.S. business model consists of four divisions aligned by client type. National Clients manages business placed by ceding companies through both direct production channels as well as through reinsurance intermediaries. Regional Clients manages business placed by regional insurance companies through a direct production channel. Specialty Markets focuses on alternative market clients including large commercial insurance buyers, captives, governmental entities and self insureds. Broker Market focuses its marketing efforts primarily on the top five reinsurance intermediaries (who control 90-95% of total domestic brokered reinsurance premium), but also markets to the smaller, more specialized and boutique brokers. Each U.S. property-casualty reinsurance client has a single client manager to ensure a consistent approach across business units and channels (direct and broker). The client manager serves a client’s needs throughout the reinsurance life cycle, including reinsurance placement structuring, underwriting, actuarial, claims and other services for that client. This allows the Company to develop client strategies and reinsurance solutions that leverage the Munich Re Group’s expertise and risk appetite.

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The second part of the strategy is to develop closer broker relationships to support clients’ needs. Munich Re America’s strong partnerships with clients and brokers allows it to gain a deeper insight and understanding of the risks presented to it. In addition, the expert knowledge of risk that the Company provides its clients enhances their ability to manage their underlying risks, making these relationships more valuable to both the Company and its clients.

As part of the strategy to build a dominant presence in niche primary insurance segments, In April 2008,

MAHC completed the acquisition of The Midland Company, a highly focused provider of specialty insurance products and services through its American Modern Insurance Group, Inc (“American Modern”). American Modern controls eight property and casualty insurance companies, seven credit life insurance companies, three licensed insurance agencies and three service companies. American Modern is licensed, through its subsidiaries, to write insurance premiums in all 50 states and the District of Columbia.

Also, in December 2008, MAHC entered into an agreement to acquire the HSB Group, Inc. a Connecticut

corporation (“HSB”) from American International Group, Inc. HSB is the parent company of Hartford Steam Boiler Inspection and Insurance Company, a leading global provider of specialty insurances and inspections for commercial and industrial companies and institutions. The transaction is subject to regulatory approval and other customary closing conditions. The transaction is expected to be completed in early 2009, but no assurances can be made in this regard.

Munich Re America’s Products and Services in addition to Reinsurance

The Company offers a full range of property and casualty insurance coverage, including workers’ compensation, auto liability and physical damage, surety, marine, construction, errors and omissions, homeowners and commercial multi peril through its subsidiaries AAIC and Princeton E & S. In addition, Munich Re America HealthCare, which is closely aligned with Munich Re Munich’s global health business, provides risk management services and innovative health care solutions that use reinsurance and other risk related products and services in the health care marketplace. Munich Re America HealthCare has also established business relationships with a select group of health care management providers that offer catastrophic care and health care management services to Munich Reinsurance America’s clients.

Risks

In the course of conducting its business operations, the Company could be exposed to a variety of risks. Some of the significant risks that could affect the Company’s business, financial condition or results of operations are as follows:

Execution Risk. There are a number of risks and uncertainties that could cause actual results to differ materially from the Company’s plans with respect to its new profitable growth strategy. For example, Our future results of operations will depend in significant part on the extent to which we can implement our business strategies successfully, including our ability to realize the anticipated growth opportunities in niche markets and expanded market presence. The goals of the strategy may not be achieved as a result of (1) an inability or a delay in the integration of the company’s operations; (3) the strategy does not result in significantly improved synergies in serving the Company’s clients and brokers and (4) the Company may be adversely affected by other economic, business, and/or competitive factors.

Cyclical Market. As new capital has entered the market over the last several years during the hard market,

competition has increased, pressuring the Company’s margins and business volume. These factors have also created pressure to reduce rates in order to retain business. This is particularly difficult for facultative reinsurance, which generally benefits from companies having difficulty obtaining treaty reinsurance.

Adequacy of loss reserves. The Company regularly establishes reserves to cover its estimated liabilities for

losses and loss adjustment expenses for both reported and unreported claims. These reserves do not represent an exact calculation of liabilities. Rather, these reserves are management’s estimates of the cost to settle and administer claims. These expectations are based on facts and circumstances known at the time, predictions of future events, estimates of future trends in the severity and frequency of claims and judicial theories of liability and inflation. The establishment of appropriate reserves is an inherently uncertain process, and the Company cannot be sure that ultimate losses and related expenses will not materially exceed the Company’s reserves. To the extent that reserves prove to be inadequate in the future, the Company would have to increase its reserves and incur a charge to earnings

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in the period such reserves are increased, which could have a material and adverse impact on our financial condition and results.

Market Volatility and Changes in Interest Rates. The Company’s investment portfolio primarily consists of fixed income securities (such as corporate debt securities and U.S. government securities). The fair value of securities in the investment portfolio may fluctuate depending on general economic and market conditions or events related to a particular issuer of securities. In addition, the Company’s fixed income investments are subject to risks of loss upon default and price volatility in reaction to changes in interest rates. Current market conditions and the instability in the global credit markets present additional risks and uncertainties for our business. In particular, continued deterioration in the credit markets could lead to additional investment losses. The severe downturn in the credit markets, reflecting uncertainties associated with the mortgage crisis, worsening economic conditions, widening of credit spreads, bankruptcies and government intervention in large financial institutions, has resulted in significant losses in our investment portfolio. Changes in the fair value of securities in the Company’s investment portfolio are reflected in the consolidated financial statements and, therefore, could affect the Company’s financial condition or results.

Collateralization Requirements. Ceding companies are increasing their demands on reinsurers to collateralize

their obligations. The Company’s policy against generally providing collateral to support its reinsurance transactions could detract from the Company’s ability to compete for some clients’ business.

Competition. Munich Reinsurance America competes in the United States reinsurance market. The property and casualty reinsurance business is highly competitive with no single competitor dominating any of the principal markets in which Munich Re America operates. Competition in the types of reinsurance in which Munich Reinsurance America is engaged is based on many factors, including the perceived overall financial strength of the reinsurer, premiums charged, contract terms and conditions, services offered, speed of claims payment and reputation and experience.

Munich Reinsurance America's competitors include independent reinsurance companies, subsidiaries or

affiliates of established worldwide insurance companies, some of which have greater financial resources than Munich Reinsurance America. Competitors write reinsurance on both a direct basis and through reinsurance brokers.

Regulation of Insurers and Reinsurers. 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. Generally, state insurance departments closely regulate the rates and policy terms of primary insurance policies and agreements. Unlike many primary insurance policies, the terms and conditions of reinsurance agreements generally are not subject to regulation by any governmental authority with respect to rates or policy terms. As a practical matter, however, the rates charged by primary insurers do have an effect on the rates that can be charged by reinsurers. The regulation and supervision to which Munich Re America is subject relates primarily to licensing requirements, the standards of solvency that must be met and maintained, the nature of and limitations on investments, restrictions on the size of risks which may be insured, deposits of securities for the benefit of ceding companies, methods of accounting, periodic examinations of the financial condition and affairs of the insurance subsidiaries, and the form and content of financial statements required to be filed with state insurance regulators. In general, such regulation is for the protection of the ceding companies and, ultimately, their policyholders, rather than security holders. A primary insurer will ordinarily only enter into reinsurance agreements if the primary insurer can obtain credit for the reinsurance on its statutory financial statements. Credit is allowed when the reinsurer is licensed or accredited in a state where the primary insurer is domiciled. In addition, many states allow credit for reinsurance ceded to a reinsurer that is licensed in another state and which meets certain financial requirements, provided in some instances that the state has substantially similar reinsurance credit law requirements or the primary insurer is provided with collateral to secure the reinsurer's obligations. As writers of direct insurance, the Company’s insurance subsidiaries (AAIC and Princeton E&S) are also subject to substantial laws and regulations with respect to their coverages and operations. Management believes that Munich Reinsurance America, AAIC and Princeton E & S are in material compliance with all applicable laws and regulations pertaining to their business and operations. Munich Reinsurance America is domiciled in Delaware and licensed to transact insurance or reinsurance business in all fifty states and the District of Columbia. AAIC is also domiciled in Delaware and is licensed to transact insurance or reinsurance business in all fifty states and the District of Columbia. Princeton E&S is licensed as an admitted insurer in its state of domicile, Delaware, and is eligible to write insurance on a non-admitted basis in all other states.

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Investment Limitations. The Delaware Code contains rules governing the types and amounts of investments that are permissible for a Delaware insurer, including the insurance subsidiaries. These rules are designed to ensure the safety and liquidity of the insurer's investment portfolio. Subject to these rules, the insurance subsidiaries may only invest in certain types of investments, including certain U.S., state and municipal government obligations, foreign securities, secured and unsecured debt instruments and preferred and common stocks of solvent U.S. and Canadian corporations, limited partnership interests, insured savings accounts, collateralized mortgage obligations, and real estate. In addition to specifically permitted types of investments, the insurance subsidiaries may make other loans or investments in an aggregate amount not exceeding 10% of its assets, provided that such loan or investment complies with the general restrictions described above, is not expressly prohibited under the Delaware Code and otherwise qualifies as a sound investment. Except for certain permitted investments in controlled insurance corporations and subsidiaries, Munich Reinsurance America is prohibited from investing in securities issued by any corporation or enterprise the controlling interest of which is, or after such investment will be, held directly or indirectly by Munich Reinsurance America or any combination of Munich Reinsurance America and its directors, officers, subsidiaries or controlling stockholder (other than the Company) and the spouses and children of the foregoing individuals. For purposes of the Delaware Code, any person directly or indirectly owning 10% or more of the voting securities of a company is presumed to have control of such company. Risk Based Capital. The Insurance Department of the State of Delaware (the “Insurance Department”) has 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, 2008, Munich Reinsurance America’s RBC ratio was 447.4%, compared to 572.7% at December 31, 2007. An RBC ratio in excess of 200% generally requires no regulatory action. AAIC’s and Princeton E&S’s RBC ratios are also in excess of 200% at December 31, 2008 and 2007. Dividends. Because the operations of the Company are conducted primarily through its insurance subsidiaries, the Company is dependent upon management service agreements, dividends and tax allocation payments, primarily from Munich Reinsurance America, to meet its debt service obligations. The payment of dividends to the Company by the insurance subsidiaries is subject to limitations imposed by the Insurance Department. Under the Delaware Insurance Code, no Delaware insurer may pay any (i) dividend or distribution without 10 days' prior notice to the 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. Dividends must be paid from available unassigned funds, as set forth in the most recent annual statement of the insurer. Based on these restrictions, Munich Reinsurance America cannot pay dividends in 2009 without the prior approval of the Insurance Department. Statutory Financial Condition Examinations. As part of its general regulatory oversight process, the Insurance Department usually conducts financial condition examinations of domiciled insurers and reinsurers every three to five years, or at such other times as is deemed appropriate by the Insurance Commissioner. In 2009 the Insurance Department will begin a financial condition examination of the Company’s insurance subsidiaries for the triennial period 2006 through 2008. Insurance Regulatory Information System Ratios. The NAIC annually calculates thirteen financial ratios to assist state insurance departments in monitoring the financial condition of insurance companies. Results are compared against a “usual range” of results for each ratio, established by the NAIC. In 2008, Munich Reinsurance America had one ratio outside of the usual range: the gross change in policyholders’ surplus ratio was negative 18% compared to the usual range of negative 10% to positive 50%. The gross change in policyholders’ surplus ratio fell outside the usual range, primarily as a result of a $500.0 million return of capital from Munich Reinsurance America to the Company. Management believes the results of this ratio are not an indication of financial concern.

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Legal Proceedings

The Company is involved in non-claim litigation incidental to its business principally related to insurance company insolvencies or liquidation proceedings in the ordinary course of business. Also, in the ordinary course of business, the Company is sometimes involved in adversarial proceedings incidental to its insurance and reinsurance business. The amounts at risk in these proceedings are taken into account in setting loss reserves.

The Company is cooperating with various federal and state governmental investigations as more fully described

below. Also, the Company is a defendant in a number of adversarial proceedings described below involving activities incidental to the investigations.

Based upon its familiarity with or review and analysis of such matters, the Company believes that none of the

pending litigation matters will have a material adverse effect on the consolidated financial statements of the Company. However, no assurance can be given as to the ultimate outcome of any such litigation matters.

Investigations with Respect to Broker Compensation and Certain Loss Mitigation Insurance Products. In October, 2004, the Attorney General of the State of New York filed a civil lawsuit against Marsh & McLennan Companies, Inc. and Marsh Inc. for alleged fraud and anti-competitive practices in the insurance industry. The lawsuit, an outgrowth of the Attorney General's investigation into broker compensation practices, specifically, agreements known as "placement service agreements" or "contingent commission arrangements", was settled in 2005. Munich Reinsurance America, including Specialty Markets, formerly known as Munich-American RiskPartners, a division of Munich Reinsurance America, was referenced in the Attorney General’s complaint and received subpoenas with respect to the Attorney General’s investigation. Subpoenas from other state Attorneys General and inquiries from several state insurance departments have also been received. Although settlement discussions have not been pursued by the various Attorneys General, management believes that settlement discussions may be continued at any time upon little or no notice with these regulators. On November 25, 2008 Munich Reinsurance America, Inc., (and its insurer affiliates American Alternative Insurance Corporation, and The Princeton Excess and Surplus Lines Insurance Company) entered into a settlement and cooperation agreement with the Attorney General of the State of Ohio and the Ohio Department of Insurance whereby the State of Ohio agreed to terminate its inquiries with respect to the Company and to fully release the Company from all claims, relating thereto, and Munich Reinsurance America, Inc and its insurer affiliates agreed to continue to cooperate in any ongoing investigations. No monetary payment was associated with this agreement with the Ohio authorities.

The U.S. Securities and Exchange Commission (“SEC”), the New York Attorney General, the Department of

Justice (U.S. Attorney’s Office for the Southern District of NY) and the States of Georgia and Delaware have made inquiries with respect to "certain loss mitigation insurance products". Munich Reinsurance America has responded to all such requests for information and will continue to cooperate fully with such inquiries.

Management has established a reserve of $5.0 million in connection with certain of the above referenced

proceedings. In view of the uncertainties discussed above, the Company could incur charges in excess of the currently established accrual and, to the extent available, any third party recoveries. In the opinion of management, any such future charges, individually or in the aggregate, would not have a material adverse effect on the consolidated financial statements of the Company.

Class Action Lawsuits. Munich Reinsurance America and certain of its affiliates have been named as defendants

in ten class actions brought in various state and U.S. federal courts, all of which have been transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the District of New Jersey and consolidated in the action entitled In Re Insurance Brokerage Antitrust Litigation (“In Re Insurance Brokerage”).

All ten actions are essentially similar as each relies heavily on the information stated in the New York Attorney

General’s complaint against Marsh discussed above which has now been settled by Marsh. The complaints, in summary, allege that the broker defendants failed to adequately disclose contingent fee arrangements or placement services agreements and in so doing breached their fiduciary duty as brokers to the insureds. In addition, these complaints allege that the insurer defendants, including Munich Reinsurance America and certain of its affiliates, violated the Federal Racketeer Influenced and Corrupt Organization Act and that collectively, the defendants entered into a conspiracy and a pattern of “racketeering activity” by engaging in a common course of conduct to steer insurance business to certain carriers, to manipulate the bidding process for insurance placements, and thereby engaged in a “broker/insurer enterprise” with the resulting unlawful effect of manipulating the market for insurance. Other allegations include violations of the federal and state anti-trust laws, the duty of fiduciary care, breach of

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contract, misrepresentation, and other states’ anti-trust and unfair and deceptive practices laws. The relief asked for includes certification of the respective class, treble damages, an accounting with respect to contingent fees by each defendant, and other relief, including costs and fees. An amended complaint in In Re Insurance Brokerage was filed on August 15, 2005. On April 5, 2007, the Court granted the defendants' motion to dismiss the complaint, ruling that plaintiffs did not meet their burden to sufficiently allege a “conspiracy” to violate the Sherman Antitrust act nor to sufficiently allege violations of the RICO statute and other laws.

The Court permitted the plaintiffs to amend their complaint within thirty days which plaintiffs did on May 22,

2007. The Defendants then made motions to dismiss the newly-amended complaint on June 21, 2007 and the Plaintiffs responded in July 2007. The Court granted the Defendant's motion to dismiss the Antitrust and RICO claims in August and September 2007. The Plaintiffs filed an appeal in October 2007. All further discovery has been stayed pending the appeal. Munich Reinsurance America will continue to aggressively defend these matters.

Operating Controls

Forecasting and Results Monitoring. To establish appropriate accident year loss ratios for future periods, the Company first quantifies the condition of the current portfolio. Then the Company considers the impact of market conditions to establish prudent loss ratios for the prospective period. The intent is to establish loss reserves for the accident year, which are sufficient in aggregate to fund future claim payments, and to avoid the need for future reserve increases after the end of the accident period.

Once the planning process is complete, the Company begins a rigorous results monitoring process to ensure that assumptions employed in building plan figures hold true. The key metrics that are monitored over the course of the year include: effective rate change on primary and reinsurance renewals; adherence to pricing guidelines; mix of business (including concentration levels in special risk areas); commission levels; and premium production. In addition, the Company reviews it’s largest client groups to ensure that the relationships are yielding results that are consistent with the Company’s strategy. The focus is on solid profitability.

To ensure that prior year reserves are adequate, the Company frequently monitors the emergence of actual reported and paid losses as compared to projected amounts. If actual paid and reported figures are higher than the amounts expected, then this information may be an indicator that loss reserves need to be increased. This information is used to supplement the formal reserve reviews conducted by the Company’s actuarial staff. The objective is to continuously have an adequate reserve position and integrity in the balance sheet at the close of each financial period.

The Company believes the planning and results monitoring process addresses many of the inherent risks associated with the casualty reinsurance product. Specifically, the reinsurance product is priced and sold using estimates of the ultimate costs to be incurred by the reinsurance company. The final costs are only known in hindsight. To ensure that financial statements are appropriately stated, the Company must continually re-examine the assumptions and data leading to the estimates of these ultimate costs. This estimation process is particularly difficult for casualty reinsurance providers given the complexity of many factors involved including: lengthy reporting and settlement lags associated with liability cases; and evolving judicial decisions, which can expand liability for reinsurers.

Aggregate Controls. Munich Re America closely manages and monitors its aggregations. Risk management

aggregation budgets have been established for natural catastrophe, terrorism, professional liability, political risk, worker's compensation losses resulting from natural perils and trade credit. Additional risk concentration exposures are continually being evaluated. The Company works closely with the Corporate Underwriting unit of Munich Re Munich to establish global aggregation budgets, and usage is monitored on a quarterly basis. The Company also uses group expertise in addition to a natural catastrophe-modeling tool to price and model the Company's natural peril exposures. Munich Re America uses a terrorism modeling tool in addition to the Company's own probable maximum loss estimation procedures to track terrorism exposure.

Strong Underwriting Audit Process. The Company has an extensive internal underwriting audit process and works closely with the Corporate Underwriting unit of Munich Re Munich in order to monitor adherence to underwriting guidelines and maintain best practices. Supplementing the on-site audit process is an individual account review of hand-selected programs as needed.

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Integrated Risk Management (“IRM”). The IRM division’s role is to coordinate decentralized risk management processes into an enterprise risk governance process through the Risk Management Committee of Munich Reinsurance America. The functions of this Board Committee are closely aligned with the Munich Re Group Underwriting and Risk Committee. IRM is also responsible for risk modeling and support for the introduction of Munich Re Group risk management applications at the business unit level. In addition to the underwriting risk management activities listed above, Munich Reinsurance America closely manages and monitors its investment risks within tolerances and limits established at the Munich Re Group level.

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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. For additional information, see the Consolidated Financial Statements of the Company, and the related notes thereto included elsewhere in this report.

2008 2007 2006 2005 2004 (Dollars in millions)

Operating Data: Net premiums written $ 2,378.6 $ 2,362.4 $ 2,569.7 $ 1,252.5 $ 1,850.2 Net premiums earned 2,226.2 2,396.6 2,570.9 1,219.3 1,803.2 Losses and LAE (1) 2,055.5 1,991.0 2,810.6 2,327.7 1,714.9 Underwriting expenses 813.3 712.6 644.7 299.1 522.1 Underwriting loss (2) (642.6) (307.0) (884.4) (1,407.5) (433.8) Net investment income 893.9 710.1 717.1 543.8 500.1 Net realized capital gains (losses) (565.0) 81.6 62.3 (17.8) 304.8 Interest expense 51.9 53.3 53.3 58.0 60.0 Income (loss) before income taxes (528.5) 141.6 (455.4) (1,294.9) 76.2 Income taxes (benefit) (15.0) 92.0 629.1 263.9 (26.9) Net income (loss) (513.5) 49.6 (1,084.5) (1,558.8) 103.1 Other GAAP Operating Data (3): Loss and LAE ratio 92.3% 83.1% 109.3% 190.9% 95.1% Underwriting expense ratio 36.5 29.7 25.1 24.5 29.0

Combined ratio 128.8% 112.8% 134.4% 215.4% 124.1% Balance Sheet Data (at end of period): Total investments and cash $14,363.3 $15,035.2 $15,174.3 $16,534.9 $14,571.3 Total assets 27,900.9 30,517.8 31,069.4 34,854.8 26,386.0 Loss and LAE reserves 14,014.5 14,574.5 15,312.3 15,422.0 13,410.1 Deferred underwriting revenue 1,733.9 1,398.0 1,043.3 13.9 — Loan from parent — — — — 247.4 Bank debt 250.0 250.0 250.0 250.0 250.0 Senior notes 420.3 498.7 498.6 498.6 498.6 Stockholder’s equity $ 2,010.6 $ 2,779.5 $ 2,561.5 $ 3,693.8 $ 4,005.8 (1) “LAE” means loss adjustment expenses. (2) A company’s underwriting gain or loss is measured by its premiums earned, net of losses and LAE incurred and underwriting expenses. (3) GAAP loss and LAE ratio represents the sum of losses and LAE as a percentage of net premiums earned. GAAP underwriting expense

ratio represents underwriting expenses as a percentage of net premiums earned. GAAP combined ratio represents the sum of the GAAP loss and LAE ratio and GAAP underwriting expense ratio. See “Management’s Discussion and Analysis of the Company’s Results of Operations and Financial Condition.”

Management’s Discussion and Analysis of the Company’s Results of Operations and Financial Condition

Executive Overview

Munich Re America Corporation (the “Company” or “Munich Re America”), is the holding company for various reinsurance and insurance entities that provide reinsurance, insurance and related services to insurance companies, other large businesses, government agencies, and other self-insurers in the United States. The Company’s principal subsidiary, Munich Reinsurance America, Inc. (“Munich Reinsurance America”), a Delaware insurance company, primarily underwrites property and casualty reinsurance. The Company is one of the largest property and casualty reinsurers in the United States according to the Reinsurance Association of America, based on combined statutory gross premiums written by the insurance subsidiaries of $3,310.9 million in 2008. The Company had total assets of $27,900.9 million and stockholder’s equity of $2,010.6 million at December 31, 2008. Munich Re America’s strategy is to achieve the full potential of the U.S. property-casualty market through underwriting excellence and sustainable profitable growth over the course of the market cycle. Munich Re America’s U.S. business model consists of four divisions aligned by client type. The divisions are: National Clients, Regional Clients, Specialty Markets, and Broker Market. Management’s review of financial results focuses on its property and casualty (“P&C”) business segments, comprised of its reinsurance divisions as a group and its insurance division.

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Revenues Revenues are derived principally from the following:

• net premiums earned, which are gross premiums assumed from clients, earned during the accounting period, net of premiums ceded to retrocessionaires;

• net investment income earned on invested assets;

• realized capital gains on the sale of investments, and

• other income, which includes interest income on underwriting balances and margin income on underwriting

deposit balances. Expenses Expenses consist predominately of the following:

• losses and loss adjustment expenses, including estimates for losses and loss adjustment expenses incurred during the period and changes in estimates from prior periods, net of those insurance losses and loss adjustment expenses ceded to retrocessionnaires;

• commissions and other underwriting expenses, which consist of commissions paid to clients, in addition to

operating expenses related to the production and underwriting of reinsurance, less ceding commissions received under the Company’s retrocessional contracts;

• interest expense on debt obligations,

• interest on ceded funds held balances, predominantly on retrocessional programs with Munich Re Munich,

and

• other expenses, which include benefit plan costs, allowance for doubtful accounts, foreign exchange gains and losses on foreign-denominated assets and liabilities other than investments, and other expenses.

Results of Operations Year Ended December 31, 2008, Compared with Year Ended December 31, 2007 Underwriting Results and Combined Ratio A key measure of the financial success of a reinsurance company is a positive underwriting result, or an underwriting profit. A major goal of a successful reinsurance company is to produce an underwriting profit, exclusive of investment income. A company’s underwriting result is measured by its premiums earned, net of losses and LAE incurred and underwriting expenses. If underwriting is not profitable, investment income must be used to cover underwriting losses. Combined ratio is also an industry-wide measure of a reinsurance company’s profitability. Combined ratio is the sum of the loss ratio and the underwriting expense ratio. The combined ratio is calculated, on a GAAP basis, as the sum of the losses and loss adjustment expenses incurred and underwriting expenses, divided by net premiums earned. These ratios are relative measurements that describe the cost of losses and expenses for every $100 of net premiums earned. The combined ratio presents the total cost per $100 of premium production. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting loss. In addition to reviewing the overall underwriting results and ratios of the Company at a corporate, or consolidated financial statement level, management focuses on “property and casualty underwriting results” in evaluating the underwriting performance of the Company. The property and casualty (“P&C”) underwriting results represent the aggregated results of the P&C business segments. The underwriting results of business segments in

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run-off, retrocessional programs designed to protect the overall surplus of Munich Reinsurance America, and health care business, are not included in these P&C underwriting results. The underwriting results and combined ratios for the Company and its P&C business segments for the years ended December 31, 2008 and 2007, are as follows:

2008 2007

P&C Segments

Total

Consolidated

P&C

Segments

Total

Consolidated (Dollars in millions)

Premiums earned $2,411.4 $2,226.2 $2,526.6 $2,396.6

Less: Losses and LAE 1,919.7 2,055.5 1,649.6 1,991.0 Commission expense 484.1 484.8 458.6 390.8 Operating expense 312.4 328.5 302.8 321.8 Underwriting gain (loss) $(304.8) $(642.6) $115.6 $(307.0) Loss ratio 79.6% 92.3% 65.3% 83.1% Expense ratio 33.0 36.5 30.1 29.7 Combined ratio 112.6% 128.8% 95.4% 112.8% In both 2008 and 2007, the Company reported underwriting losses for the year predominantly resulting from adverse development of prior accident year losses and loss adjustment expenses incurred of $316.5 million and $213.0, respectively. Both years were also impacted by the reduction of prior accident year losses ceded to corporate retrocessional programs with Munich Re Munich, and the deferral of loss benefit from a loss portfolio transfer agreement, also with Munich Re Munich. These corporate retrocessional programs are not included in the underwriting results of the Company’s property and casualty business segments. Furthermore, 2008 was also impacted by property catastrophe losses of $197.3 million compared to $36.4 million in 2007. Financial Statement Results The Company’s net loss to its common stockholder was $513.5 million for the year ended December 31, 2008, compared to net income of $49.6 million for the same period in 2007. The 2008 decline is primarily the result of the decline in underwriting result, coupled with an increase of $504.7 million in investment write-downs reflecting current financial market conditions. Revenues Premiums. Gross premiums written for the year ended December 31, 2008 decreased 7.1% to $3,316.3 million from $3,570.7 million for 2007. Net premiums written by the Company’s P&C business segments, which exclude certain corporate retrocessional programs, decreased 4.5% to $2,369.0 million for the year ended December 31, 2008, from $2,481.7 million for the same period in 2007. The Reinsurance segment experienced a 7.0% decrease in net premiums written to $1,875.2 million for the year ended December 31, 2008, from $2,015.9 million for the same period in 2007. This decrease was generally due to more difficult conditions in the U.S property and casualty insurance market. The Insurance segment experienced a 6.0% increase in net premiums written to $493.8 million for the year ended December 31, 2008, from $465.8 million for the same period in 2007. This increase is primarily the result of new property programs written by the Insurance segment. The overall decrease in premiums written by the P&C segments was offset by a decrease in premiums ceded for corporate retrocessional programs, resulting in a 0.7% increase in consolidated net premiums written to $2,378.6 million for the year ended December 31, 2008, from $2,362.4 million for the same period in 2007. The Company’s net premiums earned decreased 7.1% to $2,226.2 million for the year ended December 31, 2008, from $2,396.6 million for the same period in 2007. The decrease in premiums earned was primarily attributable to the decline in gross premiums written.

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Investment Income. Net investment income increased 25.9% to $893.9 million for the year ended December 31, 2008, from $710.1 million for the same period in 2007. This increase is primarily due to increases in net income from fixed income and equity futures contracts and foreign exchange forward contracts, partially offset by lower book yields on the investment portfolio. The Company realized net capital losses of $565.0 million for the year ended December 31, 2008, compared to net capital gains of $81.6 million for the same period in 2007. The 2008 period included net capital gains of $26.1 million recognized on the sale of common equities, fixed income securities and other available-for-sale investments, offset by write-downs of $591.0 million of fixed income, common equities and other available-for-sale investments, as the decline in the fair value of these securities was considered to be “other than temporary.” These declines were due in part to changing spreads, yields, and the current illiquidity in the market. Management believed that it did not have the intent to hold these securities until such time as they recovered in value or until their scheduled maturity. The 2007 period included net capital gains of $167.9 million recognized on the sale of common equities, fixed income securities and other available-for-sale investments, offset by write-downs of $86.3 million of fixed income, common equities and other available-for-sale investments. Other Income. Other income increased to $143.2 million for the year ended December 31, 2008, from $22.4 million for the same period in 2007. This increase is primarily related to unrealized foreign exchange gains of $103.3 million on loss reserves and other foreign-denominated assets and liabilities other than investments, and income related to the Company’s ceded reinsurance contracts accounted for as deposits. Expenses Losses and Loss Adjustment Expenses. Losses and LAE incurred increased 3.2% to $2,055.5 million for the year ended December 31, 2008, from $1,991.0 million for the same period in 2007. This increase is primarily attributable to losses and LAE related to prior accident years of $316.5 million in 2008, compared to $213.0 million in 2007. The Company incurred net catastrophe losses of $197.3 million for the year ended December 31, 2008, compared to catastrophe losses of $36.4 million for the 2007 period. The 2008 losses were predominantly related to Hurricanes Ike and Gustav and Midwest Windstorms. Reflecting the indications of the Company’s ongoing monitoring of loss reserves and its in-depth annual reserve review, in 2008 the Company increased loss and LAE reserves by $155.2 million, excluding the impact of certain corporate retrocessional programs with Munich Re Munich. This overall reserve increase was attributable to an increase of $409.2 million for accident years 2001 and prior, primarily attributable to excess workers compensation and asbestos liability, partially offset by an aggregate decrease of $254.0 million for accident years 2002 and subsequent, primarily attributable to property and automobile liability lines. The decreased losses for accident years 2002 and subsequent were partially offset by reductions in losses ceded to various corporate retrocessional programs with Munich Re Munich. The increased losses for accident year 2001 and prior, were primarily ceded to a loss portfolio transfer agreement, also with Munich Re Munich; however, because this agreement is accounted for as retroactive reinsurance, the majority of these recoveries were deferred and will be recognized in income over the settlement period of the underlying claims. The reduced cessions, coupled with the deferral of the benefit from the LPT program, increased the impact of the prior accident year losses to $316.5 million on a net basis for the year ended December 31, 2008. Similar to 2008, the 2007 period was also impacted by increased loss and LAE reserves for accident years 2001 and prior, and decreased loss and LAE reserves for accident years 2002 and subsequent. (See Year Ended December 31, 2007, Compared with Year Ended December 31, 2006 – Losses and Loss Adjustment Expenses.) Underwriting Expense. Underwriting expense, consisting of commission expense plus operating expense, increased 14.1% to $813.3 million for the year ended December 31, 2008, from $712.6 million for the same period in 2007. This increase was due to a 24.1% increase in net commission expense to $484.8 million for the year ended December 31, 2008, from $390.8 million for the same period in 2007. The increase in commission expense is primarily attributable to a lower level of commission benefit from the corporate retrocessional programs and commission adjustments related to a retrocessional program in the 2008 period, compared to commission benefits in the Insurance segment in the 2007 period. Operating expenses increased 2.1% to $328.5 million for the year ended December 31, 2008 from $321.8 million for the year ended December 31, 2007. This increase was primarily due to increased compensation expenses for the 2008 period.

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Interest Expense on Ceded Funds Held Balances. Interest expense on funds held under reinsurance treaties decreased 12.5% to $223.3 million for the year ended December 31, 2008, from $255.2 million for the same period in 2007. This decrease was the result of a decrease in the fund balances for the loss portfolio transfer program with Munich Re Munich. Other Expenses. Other expenses increased 45.4% to $82.8 million for the year ended December 31, 2008, from $57.0 million for the same period in 2007. This increase is the result of a $37.6 million increase in expenses related to the Company’s reinsurance contracts accounted for as deposits, a $22.1 million increase in the Company’s provision for uncollectible underwriting balances, and a $5.2 million increase in expenses related to arranging insurance contracts for third parties. These increases were partially offset by $46.1 million of net foreign exchange losses on foreign-denominated assets and liabilities other than investments in the 2007 period; foreign exchange gains were included in other income in 2008. Federal and foreign income taxes. A federal and foreign income tax benefit of $15.0 million was recognized for the year ended December 31, 2008, compared to expense of $92.0 million for the year ended December 31, 2007. The Company recognized a tax valuation allowance of $155.3 million for the year ended December 31, 2008, compared to a valuation allowance of $17.3 million for the 2007 period. The 2008 valuation allowance was provided as a result of impaired securities and capital loss carry-forwards that the Company will be unable to utilize prior to expiration due to insufficient capital gain income. Absent these valuation allowances, the $107.0 million decrease in tax expense is the result of pretax loss of $528.5 million in the 2008 period compared with pretax income of $141.6 for the same period in 2007. Year Ended December 31, 2007, Compared with Year Ended December 31, 2006 Underwriting Results and Combined Ratio Certain financial information for the years ended December 31, 2007 and 2006 has been restated to reflect the Company’s new P&C operating structure, in addition to the reclassification of certain expenses previously included in Other Expense, now in Underwriting Expense. The underwriting results and combined ratios for the Company and its P&C business segments for the years ended December 31, 2007 and 2006, are as follows:

2007 2006

P&C Segments

Total

Consolidated

P&C

Segments

Total

Consolidated (Dollars in millions)

Premiums earned $2,526.6 $2,396.6 $2,573.4 $2,570.9

Less: Losses and LAE 1,649.6 1,991.0 1,582.9 2,810.6 Commission expense 458.6 390.8 488.9 329.4 Operating expense 302.8 321.8 247.1 315.3 Underwriting gain (loss) $115.6 $(307.0) $254.5 $(884.4) Loss ratio 65.3% 83.1% 61.5% 109.3%Expense ratio 30.1 29.7 28.6 25.1 Combined ratio 95.4% 112.8% 90.1% 134.4% In both 2007 and 2006, the Company reported underwriting losses for the year resulting predominantly from loss and loss adjustment expense reserve review charges of $370.0 million and $953.0, respectively. These reserve review charges were part of total prior accident year losses of $213.0 million in 2007, and $1,045.1 in 2006. Both years’ charges were impacted by the reduction of losses ceded to corporate retrocessional programs with Munich Re Munich, and the deferral of loss benefit from a loss portfolio transfer agreement, also with Munich Re Munich. These corporate retrocessional programs are not included in the underwriting results of the Company’s property and casualty business segments.

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Financial Statement Results The Company’s net income to its common stockholder was $49.6 million for the year ended December 31, 2007, compared to a net loss of $1,084.5 million for the same period in 2006. In 2006, the Company incurred a net charge of $953.0 million to losses and LAE (the “2006 reserve charge”) and a $750.0 million valuation adjustment for deferred federal income taxes, related to the recoverability of net deferred tax assets. Revenues Premiums. Gross premiums written for the year ended December 31, 2007 decreased 5.0% to $3,570.7 million from $3,758.9 million for 2006. Net premiums written by the Company’s P&C business segments, which exclude certain corporate retrocessional programs, decreased 3.6% to $2,481.7 million for the year ended December 31, 2007, from $2,574.3 million for the same period in 2006. The Reinsurance segment experienced a 3.0% decrease in net premiums written to $2,015.9 million for the year ended December 31, 2007, from $2,077.9 million for the same period in 2006. This decrease primarily reflects a continuing increase in clients’ risk retention levels and strict adherence to the Company’s pricing policies, in addition to the cancellation of a large workers’ compensation treaty in December 2006. The Insurance segment experienced a 6.2% decrease in net premiums written to $465.8 million for the year ended December 31, 2007, from $496.4 million for the same period in 2006, resulting in part from the cancellation of a large program in the 2007 period. The overall decrease in premiums written by the P&C business segments, coupled with a decrease in premiums written for health care business and increased premiums ceded for corporate retrocessional programs, resulted in a decrease in consolidated net premiums written to $2,362.4 million for the year ended December 31, 2007, from $2,569.7 million for the same period in 2006. The Company’s net premiums earned decreased 6.8% to $2,396.6 million for the year ended December 31, 2007, from $2,570.9 million for the same period in 2006. The decrease in premiums earned was consistent with the decrease in net premiums written. Investment Income. Net investment income decreased slightly to $710.1 million for the year ended December 31, 2007, from $717.1 million for the same period in 2006. This decrease is primarily due to foreign exchange losses of $38.9 million for the year ended December 31, 2007, compared to gains of $26.0 million for the same period in 2006. These foreign exchange losses were partially offset by increased book yields on the Company’s fixed income portfolio and income from equity futures. The Company realized net capital gains of $81.6 million for the year ended December 31, 2007, compared to net capital gains of $62.3 million for the same period in 2006. The 2007 period included net capital gains of $167.9 million recognized on the sale of common equities, fixed income securities and other available-for-sale investments, offset by write-downs of $86.3 million of fixed income, common equities and other available-for-sale investments, as the decline in the fair value of these securities was considered to be “other than temporary.” The 2006 period included net capital gains of $131.7 million recognized on the sale of common equities and other available-for-sale investments, offset by net capital losses of $46.4 million recognized on the sale of fixed income securities and the write-downs of $23.0 million of investments. Other Income. Other income decreased 79.0% to $22.4 million for the year ended December 31, 2007, from $106.6 million for the same period in 2006. This decrease is primarily the result of an $77.5 million decrease in income related to the Company’s ceded reinsurance contracts accounted for as deposit. Expenses Losses and Loss Adjustment Expenses. Losses and LAE incurred decreased 29.2% to $1,991.0 million for the year ended December 31, 2007, from $2,810.6 million for the same period in 2006. This decrease is predominantly attributable to losses and LAE related to prior accident years of $213.0 million in 2007, compared to $1,045.1 in 2006. While the adequacy of loss and LAE reserves is closely monitored throughout the year, the majority of prior accident year losses are recognized as a result of the Company’s annual reserve review process. In 2007, the Company recorded a net charge of $370.0 million resulting from its reserve review, compared to $953.0 million in 2006. In the fourth quarter of 2007, the Company completed its loss reserve review based upon data evaluated as of September 30, 2007. Reflecting the indications of the review, the Company decreased loss and LAE reserves by

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$18.4 million, excluding the impact of certain corporate retrocessional programs with Munich Re Munich. This overall reserve decrease was comprised of a decrease of $511.1 million for accident years 2002 and subsequent accident years, the largest portion of which was derived from several lines of business; offset by an increase of $492.7 million for accident years 2001 and prior, primarily attributable to excess workers compensation and latent exposures other than asbestos and environmental. The decreased losses for accident years 2002 and subsequent were partially offset by reductions in losses ceded to the variable quota share and accident year stop loss programs with Munich Re Munich. The increased losses for accident year 2001 and prior, were primarily ceded to a loss portfolio transfer agreement, also with Munich Re Munich; however, because this agreement is accounted for as retroactive reinsurance, the majority of these recoveries were deferred and will be recognized in income over the settlement period of the underlying claims. The reduced cessions, coupled with the deferral of the benefit from the LPT program, resulted in a reserve review charge of $370.0 million on a net basis. Underwriting Expense. Underwriting expense, consisting of commission expense plus operating expense, increased 10.5% to $712.6 million for the year ended December 31, 2007, from $644.7 million for the same period in 2006. This increase was primarily due to an 18.6% increase in net commission expense to $390.8 million for the year ended December 31, 2007, from $329.4 million for the same period in 2006. The increase in commission expense is primarily the result of decreased commission income on the corporate retrocessional programs, primarily the variable quota share program. Operating expenses increased 2.1% to $321.8 million for the year ended December 31, 2007, from $315.3 million for the year ended December 31, 2006. This increase was primarily due to increased compensation expenses for the 2007 period. Interest Expense on Ceded Funds Held Balances. Interest expense on funds held under reinsurance treaties increased 61.5% to $255.2 million for the year ended December 31, 2007, from $158.0 million for the same period in 2006. This increase was primarily the result of the loss sensitive features of the variable quota share program with Munich Re Munich which decreased this expense in 2006. Other Expenses. Other expenses decreased 76.8% to $57.0 million for the year ended December 31, 2007, from $245.7 million for the same period in 2006. This decrease is primarily the result of an $88.5 million decrease in expense related to the Company’s reinsurance contracts accounted for as deposit, a $57.5 million decrease in the Company’s provision for uncollectible underwriting balances, and a $46.1 million decrease in net foreign exchange losses on foreign-denominated assets and liabilities other than investments. Federal and foreign income taxes. Federal and foreign income tax expense of $92.0 million was recognized for the year ended December 31, 2007, compared to $629.1 million for the year ended December 31, 2006. In 2006, a valuation allowance of $750.0 million, was provided as a result of the increased strain loss reserve charges had placed on the Company’s ability to generate sufficient future taxable income before the expiration of its net tax operating loss carry-forwards. Absent this valuation allowance the $212.9 million increase in tax expense is the result of higher pretax income in the 2007 period. Critical Accounting Policies and Estimates The accounting policies discussed in this section are those that management considers to be the most critical to understanding the Company’s financial statements. Certain accounting policies require management to make estimates that affect the amounts of assets and liabilities reported at the date of the financial statements and the amounts of revenues and expenses reported during the period. These estimates are necessarily based on numerous assumptions involving varying and potentially significant degrees of judgment and uncertainty. As such, actual results will likely differ from those estimates. Premiums and Unearned Premiums. Premiums are earned over the terms of the related insurance policies and reinsurance contracts. Unearned premiums reserves are computed for the remaining period of coverage using pro rata methods. Assumed reinsurance premiums are based on information provided by ceding companies. Written and earned premiums, and their related cost, which have not yet been reported to the Company are estimated and accrued. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. On retrospectively rated contracts, estimated additional or return premiums are accrued.

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Assumed reinsurance and ceded retrocessional contracts that do not both transfer significant insurance risk and result in the reasonable possibility that the Company or its retrocessionnaires 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. Loss and Loss Adjustment Expense Reserves. The Company is required to maintain reserves to cover its estimated ultimate liability for losses and LAE with respect to reported and unreported claims incurred as of the end of each accounting period modified for current trends and estimates of expenses for investigating and settling claims (net of estimated related salvage and subrogation claims of Munich Re America). Generally, it is the Company’s policy to discount all workers’ compensation claims on reported and unreported losses at the rate permitted by the Commissioner of Insurance of the State of Delaware. Claims related to accident years prior to 2007 are discounted using an interest rate of 4.5%. Claims related to accident years 2007 and subsequent are discounted using an interest rate of 3.0%. The reserve for losses and LAE is based upon reports received from reinsureds supplemented with the Company’s own case reserve estimates provided by the Company’s Claims Division. These reserves are estimates involving actuarial and statistical projections at a given time of what management expects the ultimate settlement and administration of claims to cost based on facts and circumstances then known, predictions of future events, estimates of future trends in claims severity and other variable factors such as inflation and new concepts of liability. For certain types of claims, most significantly asbestos-related and environmental liability claims, the effects of evolving scientific, legal and social issues are potentially so significant that the Company’s reserve estimate is subject to significant revision as these issues are resolved over time. For example, asbestos, once regarded as a state-of-the-art construction material, was ultimately determined to be carcinogenic. Still more time passed before courts determined that various types of losses arising from the manufacture and use of asbestos (such as product liability, workers' compensation and the cost of removal) were covered by insurance companies, thereby requiring revisions in such estimates. For asbestos and environmental liabilities, considerable judgment has been exercised in formulating the Company’s estimates. However, these estimates will be revised as legal, judicial and factual information develops and/or is clarified. The amounts ultimately paid by the Company for these exposures likely will differ, perhaps significantly, from the Company’s currently recorded reserves. The inherent uncertainties of estimating loss reserves are exacerbated for reinsurers by the significant periods of time that often elapse between the occurrence of an insured loss, the reporting of the loss to the primary insurer and, ultimately, to the reinsurer, and the primary insurer's payment of that loss and subsequent indemnification by the reinsurer (the "tail"). As a consequence, actual losses and LAE paid may deviate, perhaps substantially, from estimates reflected in the Company’s reserves in its financial statements. Any adjustments of these estimates or differences between estimates and amounts subsequently paid or collected are reflected in income. Deferred Underwriting Revenue. The loss portfolio transfer agreement with Munich Re Munich is a retroactive reinsurance contract. As such, adverse loss development subsequent to the inception of the contract is generally deferred and recognized in income using the interest method over the settlement period of the underlying claims. Changes in the expected timing and estimated amounts of the underlying claims produce changes in the periodic income recognized. These changes in estimates are determined retrospectively and included in income in the period of the change and subsequent periods.

Reinsurance Recoverables on Unpaid Losses. Reinsurance recoverables are 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. Loss reserves ceded to unauthorized companies are collateralized by letters of credit, pledged trusts, or cash. The Company has provided for amounts deemed to be uncollectible. Management believes such provision is sufficient to reduce reinsurance recoverables to their collectible amounts. Investments. Debt and equity securities classified as available for sale are reported at fair value, with unrealized gains and losses excluded from earnings and reflected in stockholder’s equity as a component of accumulated other comprehensive income, net of related income taxes. Other investments classified as available for sale are comprised of the Company’s investment in equity-based and fixed income hedge funds for which the Company owns less than 3% of the fund’s total net assets. These funds are reported at fair value with unrealized gains and losses reflected in stockholder’s equity as a component of accumulated other comprehensive income.

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Debt and equity investments classified as trading are reported at fair value, with gains and losses, both realized and unrealized, included in net investment income. Realized gains and losses on the sale of investments are determined on a first-in, first-out basis and are included in net income. Investment income is recognized as earned and includes the accretion of discounts and amortization of premiums related to fixed maturity securities. Purchases and sales are recorded on a trade date basis. Other invested assets includes the Company’s investment in foreign exchange forward contracts. These derivative instruments were purchased to reduce the foreign currency exchange risk associated with certain foreign currency denominated investments. Other invested assets also includes the Company’s investment in equity futures. These futures were purchased to minimize the down-side risk of the Company’s equity holdings. Derivative instruments are reported at fair value, with gains and losses, both realized and unrealized, included in net investment income. The value of these derivative instruments can change, sometimes significantly, based on varying factors such as changes in equity market values and foreign exchange rates. The Company continually monitors its investment portfolio, considering market conditions, industry characteristics and the fundamental operating results of an issuer, to determine if declines in value are due to changes relating to a decline in credit quality or market valuation, or other issues affecting the investment. Based on this analysis, 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 due to credit considerations, or if management believes it does not have the intent and ability to hold a security until such time that it has recovered in value or its scheduled maturity, the investment is reduced to its fair value and the reduction is accounted for as a realized investment loss. Income Taxes. The Company uses the liability method of accounting for income taxes, whereby deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws. The Company establishes a “valuation allowance” for any portion of the deferred tax asset that management does not believe is more likely than not realizable. The Company recognizes the tax impact from an uncertain tax position taken, or expected to be taken, in income tax returns only if it is more likely than not that the tax position will be sustained upon examination by tax authorities, based on the technical merits of the position. Tax positions that meet the “more likely than not” threshold are then measured using a probability-weighted approach, whereby the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement is recognized. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Financial Condition The Company is a holding company, which includes its principal subsidiary, Munich Reinsurance America. Based on combined statutory gross premiums written by the insurance subsidiaries of $3,310.9 million in 2008, the Company is one of the largest property and casualty reinsurers in the U.S., according to Reinsurance Association of America statistics. Total consolidated assets decreased by 8.6% to $27,900.9 million at December 31, 2008, from $30,517.8 million at December 31, 2007. This decrease was primarily due to decreases of $1,195.8 million in reinsurance recoverables, mainly related to paid loss activity on retrocessional programs with Munich Re Munich and the decline in the market value of the Company’s investment portfolio. Total consolidated liabilities decreased by 6.7% to $25,890.3 million at December 31, 2008, from $27,738.3 million at December 31, 2007. The decrease was primarily due to decreases of $1,194.7 million on funds held under reinsurance treaties mainly related to paid loss activity on retrocessional programs with Munich Re Munich, and $560.0 million on loss and LAE reserves. Total assets and liabilities were also impacted by the 2008 settlement of December 31, 2007 open accounts payable and receivable balances on investment purchases and sales occurring near the end of the period. The Company did not have an equivalent level of unsettled investment transactions at the end of the 2008 period. In July 2008, the Company commenced a cash tender offer (the “Tender Offer”) for all of the Notes, of which $500.0 million aggregate principal were outstanding at the time. Concurrent with the Tender Offer, the Company also solicited consents from at least a majority of the holders of the Notes (the "Consent Solicitation," and together with the Tender Offer, the "Offer") to amend the indenture under which the Notes were issued (the “Indenture”) to allow holders to receive certain statutory financial reports rather than the financial reports presently required to be provided to holders in the Indenture (the "Proposed Amendment"). The Company received tenders with respect to $78.6 million in aggregate principal amount of the Notes pursuant to the Company’s Offer and accepted for payment all amounts tendered. The Company did not receive the requisite consents to the Proposed Amendment to the

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Indenture. The Company recognized a loss of $4.1 million on this transaction, which was settled in the third quarter of 2008. The Company may leave the remaining Notes outstanding, or from time to time, redeem all or a part of the Notes pursuant to the terms of the Indenture, or purchase them in privately negotiated transactions, tender offers or otherwise. The Indenture contains certain covenants, including, but not limited to, covenants imposing limitations on liens, and restrictions on mergers and sale of assets. In January 2009, the Company assigned to Munich Re Munich its outstanding $250.0 million loan with HSH Nordbank AG, formerly known as Landesbank Schleswig-Holstein Girozentrale, as lender and agent for a number of other banks (the “Loan”). The Loan had a term of three years remaining and bore interest at a fixed rate of 6.27%. The Loan was assigned for consideration of $243.3 million plus accrued interest. The assignment discharged the Company from all obligations under the Loan. Common stockholder’s equity decreased 27.7% to $2,010.6 million at December 31, 2008, from $2,779.5 million at December 31, 2007. This decrease was the result of the Company’s 2008 net loss of $513.5 million, $47.4 million of dividends paid to MAHC, and a decrease of $208.0 million in accumulated other comprehensive income, net of tax, primarily related to the decrease in unrealized appreciation of investments, and the change in the defined benefit adjustment, primarily resulting from the decline in the market value of the assets held in the pension trust. The Company’s insurance subsidiaries’ statutory surplus decreased to $3,648.9 million at December 31, 2008, from $4,415.7 million at December 31, 2007. The decrease was primarily a result of a $500.0 million return of capital from Munich Reinsurance America to the Company, $93.8 million of net unrealized investment losses, and an increase in non-admitted assets of $125.7 million for the year ended December 31, 2008. These decreases were slightly offset by combined statutory net income of $28.3 million for the year This statutory net income is different from the net loss reported in these financial statements, primarily due to differing accounting treatments for the LPT agreement with Munich Re Munich and investment write-downs. The Insurance Department of the State of Delaware (the “Insurance Department”) has 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, 2008, Munich Reinsurance America’s RBC ratio is 447.4%, compared to 572.7% at December 31, 2007. An RBC ratio in excess of 200% generally requires no regulatory action. Investments The total financial statement value of investments and cash decreased 4.5% to $14,363.3 million at December 31, 2008, from $15,035.2 million at December 31, 2007, primarily resulting from net realized capital losses of $565.0 million, market valuation adjustments and unrealized foreign exchange adjustments of $204.3 million, the partial extinguishment of the Company’s senior notes of $82.9 million, and a dividend of $47.4 million paid to MAHC. These decreases were partially offset by positive net cash flow from operating activities as well as $167.5 million from the change in net security receivables and payables The financial statement value of the investment portfolio at December 31, 2008, included a net increase from amortized cost to fair value of $133.8 million for investments available for sale, compared to a net increase of $258.4 million at December 31, 2007. At December 31, 2008, the Company recognized a cumulative unrealized gain of $87.0 million due to the net adjustment to fair value on investments, after applicable income tax effects, which was reflected as a component of accumulated other comprehensive income. This represents a net decrease to stockholder’s equity of $80.9 million from the cumulative unrealized gain on investments of $167.9 million recognized at December 31, 2007. The Company holds foreign currency denominated securities in portfolios related to the Company’s international branch run-off operations. These portfolios are classified as “trading”, as it is the Company’s intent to actively trade these securities. These trading securities are reported at fair value with gains and losses, both realized and unrealized, included in net investment income. The Company follows an investment strategy that emphasizes maintaining a high-quality investment portfolio while maximizing total return. The composition of the Company’s investment portfolio, on a fair value basis, for the periods ending December 31, was as follows:

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2008 2007

Amount Percent Amount Percent (Dollars in millions) Fixed income securities, available for sale: U.S. Government and government agency bonds $4,549.8 31.7% $2,497.7 16.6% Foreign governments 627.6 4.4 369.7 2.5 State and municipal bonds 99.7 0.7 484.2 3.2 Mortgage-backed securities 3,766.1 26.2 4,216.5 28.0 Domestic corporate bonds 3,299.7 23.0 3,639.5 24.2 Foreign bonds 791.6 5.5 851.1 5.7 Redeemable preferred stock 13.3 0.1 89.2 0.6 Equity securities, available for sale 16.6 0.1 1,116.8 7.4 Other investments, available for sale 0.1 — 13.9 0.1 Fixed income, trading 288.0 2.0 531.5 3.5 Equity, trading 27.2 0.2 11.3 0.1 Other invested assets 136.4 0.9 143.1 1.0 Short term investments 601.5 4.2 744.0 4.9 Cash and cash equivalents 145.7 1.0 326.7 2.2 Total fair value $14,363.3 100.0% $15,035.2 100.0%

Beginning in 2007, the Company implemented an investment strategy that involved a planned shift from investments in equity securities to fixed income securities. This decision was premised on the equity market environment, in addition to tax planning strategies within the Munich Re Group. At that time the Company invested in equity futures contracts to minimize the down-side risk of the equity portfolio. The hedges remained in place until the equity positions were sold in 2008. The Company’s investment in equity securities was $16.6 million and $1,116.8 million at December 31, 2008 and 2007, respectively. The following table indicates the composition of the Company’s fixed income securities available for sale, on a fair value basis, by rating as assigned by Standard & Poor’s at December 31:

2008 2007 Amount Percent Amount Percent

(Dollars in millions) AAA $9,847.5 74.9% $8,982.5 74.0% AA 530.1 4.0 991.1 8.2 A 1,627.5 12.4 1,049.3 8.6 BBB 1,095.9 8.3 863.8 7.1 BB and below and not rated 33.5 0.3 172.0 1.4 Preferred securities, not rated 13.3 0.1 89.2 0.7 Total fair value $13,147.8 100.0% $12,147.9 100.0%

The Company continues to seek opportunities to enhance investment yield primarily through a fixed maturity investment strategy. The Company also monitors investment and liability duration for each of its insurance subsidiaries to ensure optimal investment performance. The Company seeks to control its need for liquidity through prudent cash management steps, which include frequent and regular communication with its primary investment manager. The effective duration of the Company’s bond portfolio was 3.65 and 4.08 years at December 31, 2008, and 2007, respectively. The Company believes that mortgage-backed and asset-backed securities add diversification, liquidity, credit quality and additional yield to its investment portfolio. When purchasing mortgage-backed or asset-backed securities, the Company evaluates the quality of the underlying collateral, the structure of other transactions which dictate how losses in the underlying collateral will be distributed, and prepayment risks. Management’s objective with respect to these investments is to provide reasonable cash flow stability and increased yield. Commercial Mortgage-Backed Securities (“CMBS”) are bonds that are collateralized and supported by commercial properties. These bonds are subject to default risk if the properties do not produce the anticipated

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income. Additionally, there is the risk of default at maturity if re-financing cannot be obtained, a situation in which the maturity of the bond would normally be extended. Alt-A collateral mortgages are those whose underwriting standards do not qualify the mortgage for regular conforming or jumbo loan programs. Typical underwriting characteristics that cause a mortgage to fall into the Alt-A classification may include, but are not limited to, inadequate loan documentation of a borrower’s financial information, debt-to-income ratios above normal lending limits, loan-to-value ratios above normal lending limits that do not have primary mortgage insurance, a borrower who is a temporary resident, and loans securing non-conforming types of real estate. Sub-prime collateral mortgages are first-lien mortgage loans issued to sub-prime borrowers as demonstrated by recent delinquent rent or housing payments or substandard Fair Isaac Credit Organization scores. Second-lien mortgage loans are also considered to be sub-prime. Investments in Alt-A and sub-prime mortgages and commercial mortgage-backed securities, and their unrealized changes in market value at December 31, were as follows:

2008 2007

Fair valueUnrealized gain (loss)

Fair value

Unrealized gain (loss)

(Dollars in millions) Alt-A collateral mortgages $189.6 $(5.8) $485.2 $(24.6) Sub-prime collateral mortgages 85.2 (6.9) 303.2 (27.9) Commercial mortgage-backed securities 229.0 — 732.1 3.9

At December 31, 2008, the majority of the Company’s holdings in Alt-A, sub-prime and CMBS securities were written down to their fair value, as management believed that the Company did not have the intent to hold such securities until such time as they recovered in value or until their scheduled maturity. Write downs of these securities totaled $192.1 million for the year ended December 31, 2008. The Company has received all scheduled interest payments and principal repayments on such securities to date. The delinquency rates of the underlying mortgages for the Alt-A and sub-prime securities ranged from 0.1% to 16.3% at December 31, 2008. Delinquency rates are not the same as severity rates, or actual loss, but are an indication of the potential for losses of some degree in future periods. The majority of the CMBS securities were sold in the first quarter of 2009. Munich Reinsurance America is a party to a securities lending agreement with State Street Bank and Trust Company, involving predominately U.S. Treasury and Federal National Mortgage Association (“FNMA”) securities. There were no securities on loan under this agreement at December 31, 2008; securities with a fair value of $1,582.7 million were on loan at December 31, 2007. Under this agreement, collateral must be maintained at 102% of the loaned securities market value and must have weighted average credit rating of at least AA- by Standard and Poor’s Corporation (“S&P”) or Aa3 by Moody’s Investor Services (“Moody’s”). In March 2008, a securities lending agreement with Merrill Lynch, which was comprised predominantly of tax-exempt municipal securities, with a fair value of $384.1 million at December 31, 2007, was terminated. Income from securities lending totaled $2.0 million, $7.7 million, and $6.3 million for the years ended December 31, 2008, 2007, and 2006, respectively. Liquidity and Capital Resources The Company is an insurance holding company whose only material investment is in the capital stock of Munich Reinsurance America. The Company has been dependent on management service agreements, dividends and tax allocation payments, primarily from Munich Reinsurance America, in order to meet its short and long term liquidity requirements, including its debt service obligations. The payment of dividends to the Company by Munich Reinsurance America is subject to limitations imposed by the Delaware Insurance Code. Based on these restrictions, Munich Reinsurance America cannot pay dividends in 2009 without the prior approval of the Insurance Department. In the future, the Company believes that its long-term debt service obligations will be provided for by available cash of the Company, dividends and/or tax allocation payments from its subsidiaries, and/or through other forms of financing.

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The following table represents the Company’s contractual obligations and the future periods in which they are expected to be due, at December 31, 2008: (Dollars in millions) Less than 1

year 1-3 years

4-5 years

More than 5 years

Total Loss and LAE reserves $3,016.9 $4,734.9 $1,618.4 $6,951.8 $16,322.0Loss balances payable 324.3 — — — 324.3Funds held under reinsurance treaties 1,343.5 2,359.8 940.0 4,315.8 8,959.1Long term debt obligations 289.1 94.2 62.8 798.1 1,244.2Payable for securities purchased 125.2 — — — 125.2Operating lease obligations 5.2 15.2 8.6 1.1 30.1 Total contractual obligations $5,104.2 $7,204.1 $2,629.8 $12,066.8 $27,004.9 The payment of loss and LAE reserves included above represents the Company’s estimated settlement of its undiscounted reserves based on projected payout patterns. These payout patterns are developed based on historical loss payment data and trends by type and line of business. The timing and amount of such payments is contingent upon the ultimate outcome of claim settlements that will occur over many years. Certain incurred losses and LAE are recoverable under retrocessional contracts. Such recoverables are not reflected in this table. The payment of funds held under reinsurance treaties is based on the projected payout pattern of the associated retrocessional loss reserves. Long term debt obligations include the cumulative interest and principal to be paid related to the Company’s senior notes through their respective maturity date. Also included is the January 2009 assignment of the Company’s $250 million loan with HSH Nordbank AG to Munich Re Munich. The loan was assigned for consideration of $243.3 million plus accrued interest. The assignment discharged the Company from all obligations under the loan. The Company’s cash flow from operations may be influenced by a variety of factors, including cyclical changes in the property and casualty reinsurance market, insurance regulatory initiatives, and changes in general economic conditions. Liquidity requirements are met on both a short- and long-term basis by funds provided by operations and from the maturity and sale of investments. Cash provided by operations primarily consists of premiums collected, investment income, and reinsurance recoverable balances collected, less paid claims, retrocessional payments, underwriting and interest expenses, and income tax payments. Cash flows provided by operations were $267.7 million and $1.3 million for the years ended December 31, 2008 and 2007, respectively. Cash flows used in operations were $151.2 million for the year ended December 31, 2006. In 2008 cash flows were impacted by net gains from the Company’s equity futures which are settled in cash on a daily basis. In 2007 operating cash flows were impacted by a high level of commutations on older reinsurance business. In 2006 operating cash flows were impacted by paid losses on 2005 and 2004 catastrophe events, in addition to paid losses related to older accident years which are generally recovered under various corporate retrocessional programs on a funds held basis. Cash flows used in investing activities were $323.0 million and $506.7 million for the years ended December 31, 2008 and 2007, compared to cash flows provided by investing activities of $883.5 million for the year ended December 31, 2006. The negative cash flows from investing activities in 2008 is the result of the reinvestment of cash flows provided by operating activities. The negative cash flows from investing activities in 2007 reflect the reinvestment of cash proceeds received at the end of 2006 from the liquidation of a foreign investment portfolio. The positive investing cash flows in 2006 reflect the settlement of the December 31, 2005 open investment receivable and payable balances of net $659.8 million. Cash and cash equivalents were $145.7 million, $326.7 million, and $830.0 million, at December 31, 2008, 2007, and 2006, respectively. The decrease in 2008 cash and cash equivalents was in part due to dividends paid to MAHC of $47.4 million and the partial extinguishment of the Company’s senior notes for consideration of $82.9 million. The decrease in 2007 cash and cash equivalents is partially the result of an increase in the net receivable for securities sold at December 31, which was settled in January 2008. The increase in 2006 cash and cash equivalents is partially the result of the year-end liquidation of a foreign investment portfolio, the proceeds from which had not yet been reinvested, in addition to funds made available to settle the net payable on open investment transactions in early 2007. Cash and cash equivalents are maintained for liquidity purposes and represented 1.0%, 2.2% and 5.5%, respectively, of total financial statement investments and cash on such dates.

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Credit Ratings

The Company and its subsidiaries are assigned financial strength and debt ratings from internationally recognized ratings agencies. Financial strength ratings represent the rating agency’s opinion on the financial strength of a company and its capacity to meet the obligations of insurance policies. These independent ratings are one of the important factors that contribute to the Company’s competitive position in the insurance market. Debt ratings are assessments of the likelihood that a company will make timely payments on principle and interest on short-and long-term debt.

A.M. Best. On September 25, 2008, A.M. Best affirmed its “A+” (Superior) financial strength rating and its “aa-” (Superior) issuer credit rating of Munich Re Munich and its subsidiaries. The outlook for these ratings is “stable”. A.M. Best has also affirmed the “bbb+” (Adequate) issuer credit rating and senior debt rating of the Company. The outlook for the debt is “positive” and the outlook for the issuer credit rating was revised to “positive” from “stable”. A.M. Best’s announcement stated that the ratings reflect Munich Re Munich’s strong risk adjusted capitalization, excellent underwriting and performance and superior business profile. Fitch Ratings. On July 4, 2008, Fitch Ratings (“Fitch”) announced that it had affirmed the “AA-” (Very Strong) insurer financial strength rating on the Munich Re Group, including Munich Reinsurance America. Fitch also affirmed the senior debt rating of “A+” (Strong) of the Company. The outlook on these ratings is “stable”. Fitch's rating on Munich Reinsurance America reflected its view that the Company is a core subsidiary of Munich Re Munich. As a result, Fitch used a group rating methodology under which Munich Reinsurance America’s rating benefits from financial and operational links with Munich Re Munich. Fitch’s rating announcement recognized Munich Re Munich’s strong operating performance in 2007, its high quality investment portfolio and strong business position in virtually all of the major insurance markets and the high degree of diversification. Fitch recognized Munich Re Munich for its advanced risk management practices, which offer a degree of protection against catastrophic losses and investment market downturns. Standard & Poor’s. On December 12, 2007, Standard & Poor's Ratings Services (“S&P”) affirmed its “AA-” (Very Strong) insurer financial strength ratings on Munich Re Munich and its core operating entities, which includes the Company and it subsidiaries. S&P also affirmed its “A-” (Strong) counterparty credit rating and unsecured debt rating on the Company . All ratings outlooks remain “stable”. S&P’s announcement stated that the ratings reflect Munich Re Munich’s very strong competitive position, very strong capitalization, very strong financial flexibility, and strong enterprise risk management. Moody’s. On October 23, 2007, Moody’s Investors Service announced that it had affirmed the “Aa3”(Excellent) insurance financial strength rating of Munich Reinsurance America and the “A2” (Upper Medium Grade) senior debt rating of the Company following the announcement by Munich Re Munich that it had agreed to acquire The Midland Company, a U.S. specialty insurer based in Cincinnati, Ohio. The outlook on these ratings is “stable”. Munich Reinsurance America’s insurance financial strength rating reflects explicit and implicit support from Munich Re Munich and the strategic importance of the U.S operations to the overall group. There can be no assurance that the Company or its subsidiaries will maintain their current 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 equity prices. The major components of market risk affecting the Company are interest rate, foreign currency and equity risk. In evaluating its Alt-A and sub-prime exposed securities, the Company considers the vintage of the underlying mortgages, the prevailing default rates, and the seniority of claims within any structured investment. Multiple pricing sources are used to evaluate the price for each of these holdings. The Company has both fixed and variable income investments with a value of $14,037.3 million at December 31, 2008 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 and other invested assets of $43.8 million at December 31, 2008 is subject to changes in value based on changes in equity prices, predominately in the United States. The Company also has senior notes of $420.3 million and bank debt of $250.0 million outstanding at December 31, 2008; both are fixed rate instruments.

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Recent conditions in the securities markets, including illiquidity as well as the movement of credit spreads and interest rates, have resulted in declines in the valuation of investment securities. As a result of the illiquidity and turmoil in the U.S. fixed income markets there may be future market declines which may impact the amounts reported in the Company’s financial statements in the near-term, which today cannot be anticipated or predicted by the Company’s management. It is possible that markets will continue to reflect dislocation; therefore valuations will require even greater estimation and judgment. Management will continue to evaluate its securities’ valuations and assess its holdings for other than temporary impairments. Foreign currency rate risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Although the majority of the Company’s international operations are now in run-off, the Company generally maintains investments in local currencies to meet its foreign obligations. The Company’s primary foreign currency exposures are the Euro, Australian Dollar, and Canadian Dollar. The Company seeks to minimize its foreign exchange rate exposure by matching the currency and duration of its foreign investments with the corresponding loss reserves. Where such a match cannot be achieved, foreign currency forward contracts may be used. The following table illustrates the potential impact on total investments and cash of an incremental change in overall foreign exchange rates against the U.S. dollar at December 31, 2008:

Percent Change in Exchange Rates

Total Investments

and Cash

Hypothetical

Change

Percentage Hypothetical

Change (Dollars in millions) 20% rise $14,472.5 $109.2 0.8% 10% rise 14,417.9 54.6 0.4 Base Scenario 14,363.3 — — 10% decline 14,308.7 (54.6) (0.4) 20% decline 14,254.1 (109.2) (0.8)

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 in market risk sensitive instruments in the event of a sudden and sustained 100 to 200 basis point increase or decrease in market interest rates. The following table presents the Company’s projected change in fair value of the Company’s financial instruments at December 31, 2008. All market sensitive instruments presented in this table are either available for sale or trading. The calculation of fair value is based on quoted market prices, where available. If market prices are not available from a public exchange, fair values are based on quoted market prices of comparable instruments or determined based on quotes from various brokers.

Percent Change in Interest Rates

Fair Value of Total Investments, excluding

Common Equities

Hypothetical

Change

Percentage Hypothetical

Change (Dollars in millions) 200 basis point rise $13,175.4 $(1,144.1) (8.0)% 100 basis point rise 13,747.6 (571.9) (4.0) Base Scenario 14,319.5 — — 100 basis point decline 14,859.4 539.9 3.8 200 basis point decline 15,303.1 983.6 6.9

Percent Change in Interest Rates

Fair Value of Senior Notes and Bank Debt

Hypothetical

Change

Percentage Hypothetical

Change (Dollars in millions) 200 basis point rise $594.1 $(90.2) (13.2)% 100 basis point rise 636.6 (47.7 (7.0) Base Scenario 684.3 — — 100 basis point decline 738.5 54.2 7.9 200 basis point decline 800.1 115.8 16.9

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The preceding tables indicate that at December 31, 2008, 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. Reserves for Unpaid Losses and Loss Adjustment Expenses General. The Company is required to maintain reserves to cover its estimated ultimate liability for losses and LAE with respect to reported and unreported claims incurred as of the end of each accounting period modified for current trends and estimates of expenses for investigating and settling claims (net of estimated related salvage and subrogation claims). Generally, it is the Company’s policy to discount all workers’ compensation claims on reported and unreported losses at the rate permitted by the Commissioner of Insurance of the State of Delaware. Claims related to accident years prior to 2007 are discounted using an interest rate of 4.5%. Claims related to accident year 2007 and subsequent are discounted using an interest rate of 3.0%. The reserve for losses and LAE is based upon reports received from reinsureds supplemented with the Company’s own case reserve estimates provided by the Company’s Claims Division. These reserves are estimates involving actuarial and statistical projections at a given time of what management expects the ultimate settlement and administration of claims to cost based on facts and circumstances then known, predictions of future events, estimates of future trends in claims severity and other variable factors such as inflation and new concepts of liability. For certain types of claims, most significantly asbestos-related and environmental liability claims, the effects of evolving scientific, legal and social issues are potentially so significant that the Company’s reserve estimate is subject to significant revision as these issues are resolved over time. For example, asbestos, once regarded as a state-of-the-art construction material, was ultimately determined to be carcinogenic. Still more time passed before courts determined that various types of losses arising from the manufacture and use of asbestos (such as product liability, workers' compensation and the cost of removal) were covered by insurance companies, thereby requiring revisions in such estimates. For asbestos and environmental liabilities, considerable judgment has been exercised by the Company in formulating its estimates. However, the Company’s estimates will be revised as legal, judicial and factual information develops and/or is clarified. The amounts ultimately paid by the Company for these exposures likely will differ, perhaps significantly, from the Company’s currently recorded reserves. The inherent uncertainties of estimating loss reserves are exacerbated for reinsurers by the significant periods of time that often elapse between the occurrence of an insured loss, the reporting of the loss to the primary insurer and, ultimately, to the reinsurer, and the primary insurer's payment of that loss and subsequent indemnification by the reinsurer (the "tail"). As a consequence, actual losses and LAE paid may deviate, perhaps substantially, from estimates reflected in the Company’s reserves in its financial statements. Any adjustments of these estimates or differences between estimates and amounts subsequently paid or collected are reflected in income as they occur. 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 Company’s Claims Division, taking into consideration coverage, liability, severity of injury or damage, jurisdiction, Munich Re America's 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.

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The Company maintains loss reserves for claims incurred but not reported (“IBNR”). Such reserves are established to provide for future case reserves and loss payments on incurred claims that have not yet been reported to an insurer or reinsurer. In calculating its IBNR reserves, the Company uses 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 of the Company 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 mix of business, claims processing and inflation 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 1998 through 2008, and the subsequent changes in those reserves, presented on a combined basis for the insurance subsidiaries. The following data is not accident year data, but a display of 1998 through 2008 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 1998 reserves have developed a $4.5 billion deficiency through December 31, 2008.

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Changes in Historical Reserves for Unpaid Losses and LAE

For the Last Ten Years—GAAP Basis as of December 31, 2008

December 31, 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Net liability for unpaid losses and LAE $5,065 $5,480 $5,811 $6,945 $7,323 $6,364 $6,125 $1,877 $2,731 $3,203 $3,854 Paid (cumulative) as of: One year later 1,766 1,871 1,960 2,414 2,193 1,806 812 566 696 653 Two years later 2,981 3,234 3,713 4,362 3,836 2,212 2,099 930 988 Three years later 3,792 4,496 4,857 5,936 4,212 3,357 3,233 1,029 Four years later 4,443 5,185 6,333 6,542 5,293 4,358 4,264 Five years later 4,918 6,407 6,812 7,627 6,118 5,327 Six years later 5,901 6,552 7,455 8,450 7,123 Seven years later 5,910 6,954 7,989 9,500 Eight years later 6,137 7,358 8,844 Nine years later 6,411 8,007 Ten years later 6,900 Net liability re-estimated as of: End of year $5,065 $5,480 $5,811 $6,945 $7,323 $6,364 $6,125 $1,877 $2,731 $3,203 $3,854 One year later 5,226 5,917 6,751 9,026 7,831 6,945 7,633 1,902 2,605 3,105 Two years later 5,429 6,397 8,400 9,679 8,402 8,450 8,814 1,828 2,640 Three years later 5,680 7,780 8,936 10,286 9,939 9,611 9,229 1,905 Four years later 6,714 8,077 9,470 12,023 11,135 10,088 9,730 Five years later 6,868 8,520 10,856 13,338 11,623 10,588 Six years later 7,324 9,563 11,925 13,822 12,088 Seven years later 8,124 10,469 12,411 14,261 Eight years later 8,896 10,910 12,824 Nine years later 9,304 11,258 Ten years later 9,601 Deficiency including FX (4,536) (5,778) (7,013) (7,316) (4,765) (4,224) (3,605) (28) 91 98 Foreign exchange (“FX”) — — — 58 58 89 89 89 89 94 Deficiency excluding FX (4,536) (5,778) (7,013) (7,374) (4,823) (4,313) (3,694) (117) 2 4

2004 2005 2006 2007 2008 Gross liability - end of year $13,410 $15,422 $15,312 $14,575 $14,014 Reinsurance recoverables on unpaid losses 7,285 13,545 12,581 11,372 10,160 Net liability - end of year 6,125 1,877 2,731 3,203 3,854 Gross re-estimated liability – latest $17,020 $16,822 $15,749 $14,852 Re-estimated reinsurance recoverables on latest unpaid losses 7,290 14,917 13,109 11,747 Net re-estimated liability – latest 9,730 1,905 2,640 3,105 Gross cumulative deficiency including FX(1) (3,610) (1,400) (437) (277) Foreign exchange 89 89 89 94 Gross cumulative deficiency excluding FX(1) (3,699) (1,489) (526) (371) (1) For a given calendar year, gross cumulative deficiency is calculated as the difference between the original gross liability - end of year, and

the gross re-estimated liability at December 31, 2008.

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The reconciliation between statutory basis and GAAP basis reserves for each of the three years in the period ended December 31, 2008, is shown below:

Reconciliation of Reserves for Unpaid Losses and LAE From Statutory Basis to GAAP Basis

December 31, 2008 2007 2006 (Dollars in millions) Statutory reserves $ 3,886.4 $ 3,223.6 $ 2,743.3 Adjustments to a GAAP basis(1) (32.3) (20.9) (12.3) Reinsurance recoverables on unpaid losses 10,160.4 11,371.8 12,581.3 Reserves on a GAAP basis $14,014.5 $14,574.5 $15,312.3

(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”.

Reconciliation of Reserves for Unpaid Losses and LAE

(GAAP Basis)

Year ended December 31, 2008 2007 2006

(Dollars in millions) Reserves at beginning of period $14,574.5 $15,312.3 $15,422.0 Reinsurance recoverable on unpaid losses (11,371.8) (12,581.3) (13,544.7) Net reserves at beginning of period 3,202.7 2,731.0 1,877.3 Net incurred related to: Current period 1,723.2 1,762.2 1,742.3 Prior periods 332.3 228.8 1,068.3 Total net incurred 2,055.5 1,991.0 2,810.6 Net paid related to: Current period (310.2) (489.3) (413.5) Prior periods (653.0) (696.3) (565.7) Total net paid (963.2) (1,185.6) (979.2) Loss portfolio transfer (335.9) (354.7) (1,043.3) Foreign exchange increase (decrease) in reserves (105.0) 21.0 65.6 Net reserves at end of period 3,854.1 3,202.7 2,731.0 Reinsurance recoverables on unpaid losses 10,160.4 11,371.8 12,581.3 Reserves at end of year $14,014.5 $14,574.5 $15,312.3 As a result of total changes in estimates of insured events in prior years, the losses and LAE incurred increased by $332.3 million in 2008, $228.8 million in 2007, and $1,068.3 million in 2006. Prior accident year losses incurred, totaled $316.5 million, $213.0 million, and $1,045.1 million for the years ended December 31, 2008, 2007, and 2006, respectively. This adverse loss development excludes certain other prior period developments totaling $15.8, $15.8, and $23.3 for 2008, 2007, and 2006 respectively, predominantly related to accretion of workers’ compensation discount. The Company monitors its loss activity throughout the course of the year and conducts an in-depth reserve review on an annual basis. In recent years, reported losses for accident years 2001 and prior for certain lines of business were higher than had been expected the period before. In 2008 the Company incurred $316.5 million of prior year losses and LAE driven by reserve increases for accident years 2001 and prior, primarily for excess workers’ compensation and asbestos liabilities. For excess workers compensation, the increase was in recognition of continued higher than expected reported loss emergence, which has been a trend since 2006. For asbestos, the

27

increase reflects a somewhat tempered view of the impacts of recent favorable legislative and judicial trends, which are emerging somewhat slower than originally expected. The Company also recognized aggregate reserve decreases for accident years 2002 and subsequent which were largely offset by reductions in loss cessions to the variable quota share and accident year stop loss programs with Munich Re Munich. In 2007, the Company recognized prior accident year losses of $213.0 million, primarily attributable to excess workers compensation and latent liabilities other than asbestos and environmental. In 2006 the Company noted higher than expected reported losses for asbestos liabilities and shifts in reporting patterns for workers’ compensation losses, resulting in a charge of $1,045.1 million. In 2005, Munich Re Munich extended its retrocessional support to accident years 2001 and prior by means of a loss portfolio transfer agreement (“LPT”). Under the LPT, $5,958.3 million of loss reserves were ceded to Munich Re Munich on a funds withheld basis. The initial LPT transaction increased both reinsurance recoverables on paid and unpaid losses and funds held under reinsurance treaties; neither premiums written nor losses incurred were impacted by this transaction. The LPT is a retroactive reinsurance contract and, as such, adverse loss development subsequent to its inception is generally deferred and will be recognized in income over the settlement period of the underlying claims. This transaction does not relieve the Company of its obligation to its reinsureds for the periods covered.

The reserves for losses and LAE represent management’s best estimate of the ultimate gross cost of losses and LAE incurred through December 31, 2008. Management will continue to closely evaluate future emerging paid and reported claims activity for its estimation of ultimate loss and LAE reserves, and appropriate loss reserve changes will be recognized as a result of changes in the loss trend assumptions indicated. Asbestos and Environmental-Related Claims. Munich Reinsurance America’s underwriting results have been adversely affected by claims developing from asbestos and environmental-related coverage exposures (“A&E”). Reserves established by Munich Reinsurance America for A&E exposures necessarily have reflected the uncertainty inherent in estimating the ultimate future claim amounts arising from these types of exposures. Given the latent nature of A&E exposures, evolving court decisions, wide variations in coverage terms offered over multiple policy periods, and the indefinite nature of any future tort reform, A&E liabilities are subject to significant variation. These factors are particularly challenging for casualty excess-of-loss reinsurers since primary exposure information is not consistently available. Management counterbalances these risks by monitoring claims activity on a quarterly basis and diligently following judicial and legislative decisions which may impact the Company’s ultimate liabilities for these unique claims. As part of the Company’s ongoing results monitoring process, the Company reviews all reported and paid claims activity on its asbestos and environmental liabilities on a quarterly basis. In recent years there have been a large amount of newly reported claims for asbestos-related losses. One trend the Company identified was that bankruptcy filings by the remaining target asbestos defendants had been increasing in recent periods. This resulted in an increase in reported asbestos claims as the liability shifted to a new class of defendants, other manufacturers and producers, which were previously viewed as less prominent. The validity, magnitude, and timing of these new claims are not as well established as that for the more traditional defendants. Reported losses for asbestos liability returned to elevated levels in 2006 after experiencing a short decline. This higher reporting level eroded established IBNR reserves more quickly than anticipated. In addition to the trends noted above, recent years have seen an increase in the number of non-impaired claimants, which may also drive the higher reporting activity. Conversely, the industry has recently seen some favorable legislative changes and judicial decisions, which should serve to mitigate these trends. In order to assess the impacts of these various trends on reserve levels, the Company again performed an in-depth analysis of its asbestos reserves. Based upon the analysis, management increased the Company’s asbestos reserves by $600.0 million at December 31, 2006. In 2007, the Company’s actuarial staff reviewed A&E claims using consistent actuarial methodologies. Reported loss activity for both asbestos and environmental liabilities had remained stable over the period since the 2006 review, therefore, no reserve action was taken for these liabilities in 2007. During 2008 the Company again reviewed its A&E liabilities, considering the assumptions imbedded in the 2006 reserve analysis. The 2006 analysis assumed that emerging legislative and judicial trends would favorably impact asbestos settlement activity, but that the favorable impacts would manifest themselves within the Company’s reported loss emergence over a period of time. While these favorable trends still appear to be developing, based upon current internal and external information, it is believed that the associated favorable impacts will take longer

28

than originally anticipated to fully manifest themselves within the Company’s results. Based upon this assessment, management increased the Company’s asbestos reserves by $200.0 million at December 31, 2008. The Company had loss reserves for asbestos and environmental liability exposures at December 31, as follows:

2008 2007 Gross Net Gross Net

(Dollars in millions) Asbestos $1,709.1 $1,205.3 $1,535.1 $1,070.9 Environmental-related liability 310.7 238.8 337.5 263.2 Total $2,019.8 $1,444.1 $1,872.6 $1,334.1 Net loss reserves reflect specific reinsurance contracts, prior to the application of adverse loss development retrocessional agreements, including the LPT. Net loss reserves would effectively be zero after the application of these corporate retrocessional agreements. Loss reserves for A&E exposures at December 31, 2008 and 2007, 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 have a material adverse effect on future earnings. The following table presents three calendar years of development of losses and LAE reserves associated with A&E 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, prior to the application of existing adverse loss retrocessional agreements, including the LPT.

Three Year Development Asbestos Liabilities

Year ended December 31, 2008 2007 2006 (Dollars in millions) Gross Basis: Beginning reserve balance $1,535.1 $1,698.9 $1,083.8 Incurred loss and LAE 273.6 — 730.5 Loss and LAE paid 99.6 163.8 115.4 Ending reserve balance $1,709.1 $1,535.1 $1,698.9 Net Basis: Beginning reserve balance $1,070.9 $1,188.5 $691.2 Incurred loss and LAE 200.0 — 583.4 Loss and LAE paid 65.6 117.6 86.1 Ending reserve balance $1,205.3 $1,070.9 $1,188.5

Environmental-Related Liabilities Year ended December 31, 2008 2007 2006 (Dollars in millions) Gross Basis: Beginning reserve balance $337.5 $388.1 $445.8 Incurred loss and LAE — — (27.6) Loss and LAE paid 26.8 50.6 30.1 Ending reserve balance $310.7 $337.5 $388.1 Net Basis: Beginning reserve balance $263.2 $305.7 $345.8 Incurred loss and LAE — — (12.6) Loss and LAE paid 24.4 42.5 27.5 Ending reserve balance $238.8 $263.2 $305.7

29

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 Munich Re America, 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.

F-1

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Independent Auditors’ Report ............................................................................................................ F-2 Consolidated Balance Sheets—December 31, 2008 and 2007 ........................................................... F-3 Consolidated Statements of Operations—Years ended December 31, 2008, 2007, and 2006 ........... F-4 Consolidated Statements of Stockholder’s Equity—Years ended December 31, 2008, 2007, and 2006 ............................................................................................................................ F-5 Consolidated Statements of Cash Flows—Years ended December 31, 2008, 2007, and 2006 .......... F-6 Notes to Consolidated Financial Statements....................................................................................... F-7

INDEX TO FINANCIAL STATEMENT SCHEDULES Summary of Investments Other Than Investments in Related Parties—December 31, 2008 ............. S-1 Condensed Financial Information of Munich Re America Corporation: Condensed Balance Sheets—December 31, 2008 and 2007 ....................................................... S-2 Condensed Statements of Operations and Retained Earnings (Accumulated Deficit)— Years ended December 31, 2008, 2007, and 2006 ............................................................... S-3 Condensed Statements of Cash Flows—Years ended December 31, 2008, 2007, and 2006 ...... S-4 Notes to Condensed Financial Information ................................................................................. S-5 Supplemental Insurance Information—Years ended December 31, 2008, 2007, and 2006 ............... S-6 Reinsurance—Years ended December 31, 2008, 2007, and 2006 ...................................................... S-7 Supplemental Information (for Property-Casualty Insurance Underwriters)—Years ended December 31, 2008, 2007, and 2006 ........................................................................................... S-8

F-2

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholder of Munich Re America Corporation: We have audited the accompanying consolidated balance sheets of Munich Re America Corporation and subsidiaries (“the Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholder’s equity and cash flows for each of the years in the three-year period ended December 31, 2008. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Munich Re America Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, 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. /s/ KPMG LLP New York, New York March 30, 2009

F-3

MUNICH RE AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

December 31, 2008 and 2007 (Dollars in millions, except share amounts)

December 31, December 31, 2008 2007 Assets Investments Available for sale Fixed income securities, at fair value (amortized cost: December 31, 2008 and 2007 — $13,014.9 and $12,031.6, respectively)

$13,147.8

$12,147.9

Equity securities, at fair value (cost: December 31, 2008 and 2007 — $15.1 and $974.4, respectively)

16.6

1,116.8

Other investments, at fair value (amortized cost: December 31, 2008 and 2007 — $0.1 and $13.9, respectively)

0.1

13.9

Trading Fixed income securities, at fair value 288.0 531.5 Equity securities, at fair value 27.2 11.3 Other invested assets 136.4 143.1 Short term investments 601.5 744.0 Cash and cash equivalents 145.7 326.7 Total investments and cash 14,363.3 15,035.2 Accrued investment income 128.6 112.9 Premiums and other receivables 1,427.6 1,159.2 Deferred policy acquisition costs 196.6 166.0 Reinsurance recoverables on paid and unpaid losses 10,185.0 11,380.8 Funds held by ceding companies 206.8 295.4 Prepaid reinsurance premiums 135.0 336.3 Goodwill 253.0 253.0 Deferred federal income taxes 484.6 355.3 Receivable for securities sold 10.4 858.4 Other assets 510.0 565.3 Total assets $27,900.9 $30,517.8 Liabilities Loss and loss adjustment expense reserves $14,014.5 $14,574.5 Unearned premium reserve 937.5 986.0 Total insurance reserves 14,952.0 15,560.5 Loss balances payable 324.3 248.5 Funds held under reinsurance treaties 7,113.0 8,307.7 Deferred underwriting revenue 1,733.9 1,398.0 Bank debt 250.0 250.0 Senior notes 420.3 498.7 Payable for securities purchased 125.2 805.7 Other liabilities 971.6 669.2 Total liabilities 25,890.3 27,738.3 Commitments and contingent liabilities (Note 12) Stockholder’s equity Common stock, par value: $0.01 per share; authorized: 1,000 shares; issued and outstanding: 149.49712 shares at December 31, 2008 and 2007

—

—

Additional paid-in capital 5,649.1 5,649.1 Accumulated deficit (3,567.4) (3,006.5) Accumulated other comprehensive income (loss) (71.1) 136.9 Total stockholder’s equity 2,010.6 2,779.5 Total liabilities and stockholder’s equity $27,900.9 $30,517.8

See accompanying notes to consolidated financial statements.

F-4

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2008, 2007, and 2006 (Dollars in millions)

Year ended December 31, 2008 2007 2006 Revenue Premiums written $2,378.6 $2,362.4 $2,569.7 Change in unearned premium reserve (152.4) 34.2 1.2 Premiums earned 2,226.2 2,396.6 2,570.9 Net investment income 893.9 710.1 717.1 Net realized capital gains (losses) (565.0) 81.6 62.3 Other income 143.2 22.4 106.6 Total revenue 2,698.3 3,210.7 3,456.9 Losses and Expenses Losses and loss adjustment expenses 2,055.5 1,991.0 2,810.6 Commission expense 484.8 390.8 329.4 Operating expense 328.5 321.8 315.3 Interest expense 51.9 53.3 53.3 Interest on ceded funds held balances 223.3 255.2 158.0 Other expenses 82.8 57.0 245.7 Total losses and expenses 3,226.8 3,069.1 3,912.3 Income (loss) before income taxes (528.5) 141.6 (455.4) Federal and foreign income taxes (15.0) 92.0 629.1 Net income (loss) $ (513.5) $ 49.6 $(1,084.5) See accompanying notes to consolidated financial statements.

F-5

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

Years Ended December 31, 2008, 2007, and 2006 (Dollars in millions)

Accumulated Additional other Common paid in Accumulated comprehensive stock capital deficit income (loss) To

Balance at January 1, 2006 $ — $5,661.0 $(1,971.6) $4.4 $3,693.8Comprehensive income (loss): Net loss (1,084.5) Net change in unrealized loss on foreign exchange

13.4

Net change in unrealized appreciation of investments

(3.3)

Net change in defined benefit plan adjustment

7.2

Total comprehensive loss (1,067.2)Adjustment for initial application of FAS 158, net of tax

(65.1)

(65.1)

Balance at December 31, 2006 — 5,661.0 (3,056.1) (43.4) 2,561.5 Comprehensive income (loss): Net income 49.6 Net change in unrealized foreign exchange

49.8

Net change in unrealized appreciation of investments

101.6

Net change in defined benefit plan adjustment

31.6

Total comprehensive income 232.6Dividend of subsidiary companies to MAHC (11.9) (2.7) (14.6)Balance at December 31, 2007 — 5,649.1 (3,006.5) 136.9 2,779.5 Comprehensive income (loss): Net loss (513.5) Net change in unrealized foreign exchange

(35.0)

Net change in unrealized appreciation of investments

(80.9)

Net change in defined benefit plan adjustment

(92.1)

Total comprehensive loss (721.5)Dividend paid to parent company (47.4) (47.4)Balance at December 31, 2008 $ — $5,649.1 $(3,567.4) $(71.1) $2,010.6

See accompanying notes to consolidated financial statements.

F-6

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2008, 2007, and 2006 (Dollars in millions)

Year ended December 31, Cash Flows From Operating Activities: 2008 2007 2006 Net income (loss) $(513.5) $49.6 $(1,084.5) Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Accrued investment income (15.7) 10.4 (5.6) Trading securities 227.6 78.4 42.1 Premiums and other receivables (268.4) (84.8) (211.4) Deferred policy acquisition costs (30.6) 2.0 (4.6) Reinsurance recoverable on paid and unpaid losses 1,195.8 1,242.4 930.6 Funds held, net (1,106.1) (770.9) (1,312.4) Insurance reserves (608.5) (798.5) (126.1) Increase in deferred revenue 335.9 354.7 1,029.4 Current and deferred federal and foreign income taxes, net (53.7) 114.7 600.6 Other assets and liabilities, net 512.6 (121.6) 32.9 Depreciation expense on property and equipment 18.2 18.1 18.7 Net realized capital losses (gains) 565.0 (81.6) (62.3) Equity in loss (income) of investees 1.9 8.8 (2.9) Other, net 7.2 (20.4) 4.3 Net cash provided by (used in) operating activities 267.7 1.3 (151.2) Cash Flows From Investing Activities: Fixed maturities available for sale Purchases (15,948.1) (5,263.5) (8,451.8) Maturities 364.7 941.5 973.9 Sales 14,188.6 4,181.0 7,497.0 Equity securities available for sale Purchases (427.1) (1,306.6) (1,768.2) Sales 1,358.4 1,551.7 1,359.1 Other invested assets Purchases (4.1) (52.8) (15.0) Sales 14.8 93.5 27.3 Net purchases and sales of short term investments 143.7 (630.5) 1,274.7 Costs of additions to property and equipment (13.9) (21.0) (13.5) Net cash provided by (used in) investing activities (323.0) (506.7) 883.5 Cash Flows From Financing Activities: Partial extinguishment of Senior Notes (82.9) — — Dividends paid to parent company (47.4) — — Net cash used in financing activities (130.3) — — Effect of exchange rate changes on cash and cash equivalents 4.6 2.1 12.5 Net increase (decrease) in cash and cash equivalents (181.0) (503.3) 744.8 Cash and cash equivalents, beginning of period 326.7 830.0 85.2 Cash and cash equivalents, end of period 145.7 326.7 $ 830.0 Supplemental Cash Flow Information: Income taxes paid, net $ (10.5) $ (13.8) $ (7.1) Interest paid $ (51.2) $ (53.1) $ (53.1) Supplemental Schedule of Noncash Financing Activities Dividend of subsidiary companies to MAHC $ — $ (14.6) $ — See accompanying notes to consolidated financial statements.

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

1. NATURE OF OPERATIONS Munich Re America Corporation (the “Company” or “Munich Re America”) primarily acts as the holding company for three insurance subsidiaries. Munich Reinsurance America, Inc. (“Munich Reinsurance America”) underwrites property and casualty reinsurance. American Alternative Insurance Corporation (“AAIC”), is a Delaware domiciled insurance company which writes primary insurance business primarily for the alternative market. The Princeton Excess and Surplus Lines Insurance Company (“Princeton E&S”), also 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 state of domicile, Delaware, and is authorized as eligible to write insurance in all states on a non-admitted basis. (Munich Reinsurance America, AAIC, and Princeton E&S together are the “insurance subsidiaries.”) The Company is a wholly-owned subsidiary of Munich-American Holding Corporation, a Delaware holding company (“MAHC”), which in turn is wholly-owned by Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (“Munich Re Munich”), a company organized under the laws of Germany. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Presentation The Company’s primary business is reinsuring property-casualty risks of domestic and foreign insurance organizations under excess of loss and pro rata reinsurance contracts and providing risk management solutions to alternative market clients. The Company and its subsidiaries 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. Inter-company accounts and transactions have been eliminated. Investees which represent the Company’s investment in voting interests of 20% to 50% generally are recorded using the equity method. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. Application of New Accounting Standards FAS 157 and FSP FAS 157-3 In September 2006 the FASB released Financial Accounting Standard No. 157, “Fair Value Measurements” (“FAS 157”), which establishes a framework for reporting fair value and expands disclosures about fair value measurements. FAS 157 applies whenever other standards require or permit assets and liabilities to be measured at fair value; it does not expand the use of fair value in any new circumstance. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. See Note 3 for the disclosures related to investments required by FAS 157. In October 2008 the FASB issued FASB Staff Position (“FSP”) FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”), which clarifies the application of FAS 157 in a market that is not active. FSP FAS 157-3 allows for the use of management’s internal assumptions about future cash flows with appropriately risk-adjusted discount rates when relevant observable market data does not exist. FSP FAS 157-3 was effective upon issuance. The adoption of FSP FAS 157-3 did not have an impact on these consolidated financial statements.

F-7

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

FAS 159 In February 2007 the Financial Accounting Standards Board (“FASB”) released Financial Accounting Standard No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which provides companies with an option to report selected financial assets and liabilities at fair value. This affords companies the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. FAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company adopted this guidance prospectively effective January 1, 2008, with no impact to these consolidated financial statements. FSP EITF 99-20-1 In January 2009 the FASB issued FSP Emerging Issues Task Force (“EITF”) 99-20-1, “Amendments to the Guidance of EITF Issue No. 99-20” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 amends EITF 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets” (“EITF 99-20”) to align the impairment guidance of EITF 99-20 with the impairment guidance of FAS 115, “Accounting for Certain Investments in Debt and Equity Securities”. FSP EITF 99-20-1 also amends the cash flows model used to analyze an other-than-temporary impairment under EITF 99-20 by replacing the market participant view with management’s assumption of whether it is probable that there is an adverse change in the estimated cash flows. FSP EITF 99-20-1 is effective for annual periods ending after December 15, 2008. The adoption of FSP EITF 99-20-1 did not have a material impact on these consolidated financial statements. C. Future Application of Accounting Standards FAS 141(R) In December 2007 the FASB released Financial Accounting Standard No. 141(Revised), “Business Combinations” (“FAS 141(R)”). FAS141(R) establishes principles and requirements for business combinations regarding how an entity recognizes and measures the identifiable assets acquired, liabilities assumed, non-controlling interest, and goodwill in an acquired company. FAS141(R) broadens the application of the acquisition method to all business combinations where one entity obtains control over another business. FAS141(R) is effective for fiscal years beginning on or after December 15, 2008, and business combinations occurring after the effective date. The Company does not expect the adoption of FAS 141(R) to have a material impact on its consolidated financial statements. FAS 161 In March 2008 the FASB issued Statement of Financial Accounting Standard No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“FAS 161”). FAS 161 amends and expands the disclosure requirements of FAS 133 with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about derivative instrument fair values and related gains and losses, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the new disclosures required by FAS 161. FAS 163 In May 2008 the FASB issued Statement of Financial Accounting Standard No. 163, “Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60” (“FAS 163”). FAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence

F-8

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

that credit deterioration has occurred in an insured financial obligation. FAS 163 also clarifies how FAS 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. FAS 163 requires expanded disclosures about financial guarantee insurance contracts. FAS 163 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company does not expect the adoption of FAS 163 to have a material impact on its consolidated financial statements. See Note 12A – Financial Guarantee Contracts, for the disclosures required by FAS 163. EITF 08-6 In November 2008, the FASB ratified EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations” (“EITF 08-6”). EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company does not expect the adoption of EITF 08-6 to have a material impact on its consolidated financial statements. D. Financial Statement Presentation Certain 2007 and 2006 financial statement presentations have been reclassified to conform with the 2008 presentation, including the reclassification of certain expenses to operating expense, previously included in other expense. E. Investments Debt and equity securities classified as available for sale are reported at fair value, with unrealized gains and losses excluded from earnings and reflected in stockholder’s equity as a component of accumulated other comprehensive income (loss), net of related income taxes. Other investments classified as available for sale are comprised of the Company’s investment in equity-based and fixed income hedge funds for which the Company owns less than 3% of the fund’s total assets. These funds are reported at fair value with unrealized gains and losses reflected in stockholder’s equity as a component of accumulated other comprehensive income. The Company holds foreign currency denominated securities in portfolios related to the Company’s international branch run-off operations. These portfolios are classified as “trading”, as it is the Company’s intent to actively trade these securities. These trading securities are reported at fair value with gains and losses, both realized and unrealized, included in net investment income. Other invested assets are comprised of the Company’s investment in a real estate limited partnership and equity-based and fixed income hedge funds for which the Company owns greater than 3% of the fund’s total assets. These investments are accounted for under the equity method. Investments accounted for on the equity method represent the Company’s ownership portion of respective securities’ stockholder’s equity. Other invested assets also includes the Company’s investment in foreign exchange forward contracts purchased to reduce the foreign currency exchange risk associated with certain foreign currency denominated investments. These contracts are with various financial institutions and are not collateralized. In 2007, other invested assets also included the Company’s investment in equity futures contracts purchased to minimize the down-side risk of the Company’s equity holdings. These futures are traded on various exchanges and margin requirements are settled on a daily basis. These derivatives are not designated as accounting hedges. Derivative instruments are reported at fair value, with gains and losses, both realized and unrealized, included in net investment income. The value of these derivative instruments can change, sometimes significantly, based on varying factors such as changes in equity market values and foreign exchange rates. Short term investments are predominantly debt securities purchased with a maturity of greater than ninety days and less than one year when purchased. These investments are carried at amortized cost which, because of their short term, approximates fair value.

F-9

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Realized gains and losses on the sale of investments are determined on a first-in, first-out basis and are included in net income. Investment income is recognized as earned and includes the accretion of discounts and amortization of premiums related to fixed maturity securities. Purchases and sales are recorded on a trade date basis. Investments classified as available for sale are subject to regular reviews to determine if a decline in value is other than temporary. Factors considered are: the reasons for the decline in value, the extent and durations of the decline, the Company’s intent and ability to hold the investment for a period of time that will allow for a recovery of value, and the financial condition and near-term prospects of the issuer. 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 due to credit considerations, or if management believes it does not have the intent and ability to hold a security until such time that it has recovered in value or its scheduled maturity, the investment is reduced to its fair value and the reduction is accounted for as a realized investment loss. The amortized cost for fixed maturity securities is adjusted for unamortized premiums and discounts, which are amortized or accreted using the interest-rate method over the estimated remaining term of the securities. Mortgage-backed securities are further adjusted for anticipated prepayments. F. 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. G. 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 loss and loss adjustment expenses, and anticipated investment income. These costs are amortized ratably over the terms of the related contracts, which are generally a year in duration. The amortization of deferred policy acquisition costs was $166.0, $168.0, and $163.4 for the years ended December 31, 2008, 2007, and 2006, respectively. Periodically deferred policy acquisition costs are reviewed for recoverability; anticipated investment income is considered in making these evaluations. H. Deferred Financing Fees Financing, underwriting, attorneys and accountants fees related to the issuance of the Senior Notes (see Note 10A) have been deferred. Such costs are being amortized over the life of the Senior Notes, using the interest-rate method. Deferred financing fees of $3.2 and $3.9 are included in other assets at December 31, 2008 and 2007, respectively. The amortization of deferred financing fees was $0.7, $0.1, and $0.1 for the years ended December 31, 2008, 2007, and 2006, respectively. I. Property and Equipment Property and equipment are carried at cost less accumulated depreciation and are included in other assets on the consolidated balance sheets. The Company uses straight-line depreciation for all of its depreciable assets, with the useful lives ranging from three to forty years depending on the type of asset. The cost of depreciable assets was $276.5 and $270.4 at December 31, 2008, and 2007, respectively. Accumulated depreciation was $169.9 and $156.2 at December 31, 2008, and 2007, respectively.

F-10

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

J. Goodwill Goodwill represents the cost in excess of net assets acquired in the acquisitions of Munich Reinsurance America in 1992 and Cairnstone, Inc. in 2007, and the minority interests in Munich American Reinsurance Company in 1997. The Company evaluates the recoverability of goodwill annually. The carrying value of goodwill would be reduced to its implied fair value, through a direct write-off, if it were determined through evaluation that the goodwill was impaired. The Company did not record the goodwill associated with its acquisition by Munich Re Munich in November 1996. Accordingly, any impairments of the related goodwill are not reflected in these consolidated financial statements. K. Loss and Loss Adjustment Expense Reserves The Company is required to maintain reserves to cover its estimated ultimate liability for losses and loss adjustment expenses (“LAE”) with respect to reported and unreported claims incurred as of the end of each accounting period modified for current trends and estimates of expenses for investigating and settling claims (net of estimated related salvage and subrogation claims of Munich Re America). Generally, it is the Company’s policy to discount all workers’ compensation claims on reported and unreported losses at the rate permitted by the Commissioner of Insurance of the State of Delaware. Claims related to accident years 2006 and prior are discounted using an interest rate of 4.5%. Claims related to accident years 2007 and subsequent are discounted using an interest rate of 3.0%. Such discount resulted in a reduction in gross loss reserves of approximately $2,307.6 and $2,047.2, and net loss reserves of approximately $220.0 and $252.3, at December 31, 2008, and 2007, respectively. The reserve for losses and LAE is based upon reports of paid losses and reserve activity received from ceding companies, supplemented with the Company’s own case reserve estimates provided by the Company’s Claims Division. A natural lag period occurs between the time the ceding company records and pays its losses and the time that activity is reported to the Company. The Company estimates its paid losses related to the lag period, segregates those losses from its estimate of IBNR, and records them as loss balances payable. Loss and LAE reserves are estimates involving actuarial and statistical projections at a given time of what Munich Re America expects the ultimate settlement and administration of claims to cost based on facts and circumstances then known, predictions of future events, estimates of future trends in claims severity and other variable factors such as inflation and new concepts of liability. For certain types of claims, most significantly asbestos-related and environmental liability claims, the effects of evolving scientific, legal and social issues are potentially so significant that the Company’s reserve estimate is subject to significant revision as these issues are resolved over time. For example, asbestos, once regarded as a state-of-the-art construction material, was ultimately determined to be carcinogenic. Still more time passed before courts determined that various types of losses arising from the manufacture and use of asbestos (such as product liability, workers' compensation and the cost of removal) were covered by insurance companies, thereby requiring revisions in such estimates. For asbestos and environmental liabilities, considerable judgment has been exercised in formulating the Company’s estimates. However, these estimates will be revised as legal, judicial and factual information develops and/or is clarified. The amounts ultimately paid by the Company for these exposures likely will differ, perhaps significantly, from the Company’s currently recorded reserves. The inherent uncertainties of estimating loss reserves are exacerbated for reinsurers by the significant periods of time that often elapse between the occurrence of an insured loss, the reporting of the loss to the primary insurer and, ultimately, to the reinsurer, and the primary insurer's payment of that loss and subsequent indemnification by the reinsurer (the "tail"). As a consequence, actual losses and LAE paid may deviate, perhaps substantially, from estimates reflected in the Company’s reserves in its financial statements. Any adjustments of these estimates or differences between estimates and amounts subsequently paid or collected are reflected in income as they occur. Management believes that the reserves for losses and LAE as of December 31, 2008, are adequate to cover the ultimate gross cost of losses and LAE incurred through December 31, 2008.

F-11

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

L. Deferred Underwriting Revenue The loss portfolio transfer agreement with Munich Re Munich is a retroactive reinsurance contract. As such, adverse loss development subsequent to the inception of the contract is generally deferred and recognized in income using the interest method over the expected settlement period of the underlying claims. Changes in the expected timing and estimated amounts of the underlying claims produce changes in the periodic income recognized. These changes in estimates are determined retrospectively and included in income in the period of the change and subsequent periods. M. Reinsurance Recoverables on Unpaid Losses Reinsurance recoverables on unpaid losses were $10,160.4 and $11,371.8 at December 31, 2008, and 2007, 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. The Company maintains an allowance for doubtful accounts for amounts due from reinsurers in receivership or believed to be in financial difficulty. The total allowance reflected in reinsurance recoverables on paid and unpaid losses was $259.8 and $246.2 at December 31, 2008 and 2007, respectively. Management believes such provision is sufficient to reduce reinsurance recoverables to their collectible amounts. There can be no assurance future charges for uncollectible reinsurance will not have a material adverse effect on results of operations in any future period, although management believes any such charges would not be expected to have a material adverse effect on the Company’s liquidity or financial condition. N. Income Taxes Pursuant to a tax sharing agreement between MAHC and the Company and its subsidiaries, a consolidated U.S. Federal income tax return is filed. Each company’s annual federal income tax liability is calculated on a standalone basis. The Company also files separate foreign income tax returns as required. The Company uses the liability method of accounting for income taxes, whereby deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws. The Company establishes a “valuation allowance” for any portion of the deferred tax asset that management does not believe is more likely than not realizable. The Company recognizes the tax impact from an uncertain tax position taken, or expected to be taken, in income tax returns only if it is more likely than not that the tax position will be sustained upon examination by tax authorities, based on the technical merits of the position. Tax positions that meet the “more likely than not” threshold are then measured using a probability-weighted approach, whereby the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement is recognized. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. O. 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 of foreign currency denominated investment holdings available for sale are recorded in accumulated other comprehensive income, net of tax. Transactional gains and losses on sales of investments are included in net realized capital gains. Translation gains and losses on loss reserve balances and all other transactional and translational gains and losses are included in other expenses.

F-12

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

P. Premiums and Unearned Premiums Premiums are earned over the terms of the related insurance policies and reinsurance contracts. Unearned premium reserves are computed for the remaining period of coverage using pro rata methods. Assumed reinsurance premiums are based on information provided by ceding companies. Written and earned premiums, and their related cost, which have not yet been reported to the Company are estimated and accrued. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. On retrospectively rated contracts, estimated additional or return premiums are accrued. Assumed reinsurance and ceded retrocessional contracts that do not both transfer significant insurance risk and result in the reasonable possibility that the Company or its retrocessionnaires 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 included in other income and credited or charged to the contract deposits. The Company maintains an allowance for doubtful accounts for amounts due from clients in receivership or believed to be in financial difficulty. The total allowance reflected in premiums and other receivables was $20.2 and $18.8 at December 31, 2008 and 2007, respectively. There can be no assurance future charges for uncollectible premiums and other receivables will not materially adversely affect results of operations in any future period, although management believes any such charges would not be expected to have a material adverse effect on the Company’s liquidity or financial condition. Q. 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 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, 2008 and 2007. 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 13—Fair Value of Financial Instruments): Fixed income securities. Fair values for bonds and certain preferred securities were based on quoted market prices, where available. If market prices were not available from a public exchange, fair values were based on quoted market prices of comparable instruments or determined based on quotes from various brokers. Equity securities. The fair values of these securities were based on quoted market prices, where available. Other investments. Other investments are comprised of the Company’s investment in equity-based and fixed income hedge funds. Management determines the value of these holdings based on the fair values of the underlying investments in the fund, as provided by the general partner or manager of the fund. Other invested assets. The fair value for equity futures is based on quoted market prices. The fair value of foreign exchange forwards is determined based on the end of period exchange rate and the forward rate of the contract. The value of these derivative instruments can change, sometimes significantly, based on varying factors such as changes in equity market values and foreign exchange rates.

F-13

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Cash and cash equivalents, short term securities, and premiums and other receivables. The carrying amounts of these financial instruments approximate their fair value because of their short-term nature. Bank debt. The fair value of this obligation was determined by a third-party financial institution using a present value methodology. Senior notes. The fair value of this obligation was determined as the median value in a range of prices received from brokers and a third-party pricing service. 3. INVESTMENTS Investments available for sale at December 31, were as follows:

2008 Gross Gross Amortized unrealized unrealized Fair cost gains losses value Fixed income securities: U.S. Treasury securities and obligations of U.S. government agencies and corporations

$4,405.9

$157.7

$13.8

$4,549.8 Obligations of states and political subdivisions

103.1

0.5

3.9

99.7

Foreign government securities 595.1 33.2 0.7 627.6 Corporate securities 4,181.9 87.4 178.0 4,091.3 Mortgage-backed securities 3,717.2 91.8 42.9 3,766.1 Preferred stock 11.7 1.6 — 13.3 Total fixed income securities 13,014.9 372.2 239.3 13,147.8 Common stock 15.1 1.9 0.4 16.6 Other investments 0.1 — — 0.1 Total investments available for sale $13,030.1 $374.1 $239.7 $13,164.5

2007 Gross Gross Amortized unrealized unrealized Fair cost gains losses value Fixed income securities: U.S. Treasury securities and obligations of U.S. government agencies and corporations

$2,430.0

$68.1

$0.4

$2,497.7 Obligations of states and political subdivisions

477.3

9.0

2.1

484.2

Foreign government securities 354.9 15.9 1.1 369.7 Corporate securities 4,489.4 66.3 65.1 4,490.6 Mortgage-backed securities 4,221.4 35.6 40.5 4,216.5 Preferred stock 58.6 32.8 2.2 89.2 Total fixed income securities 12,031.6 227.7 111.4 12,147.9 Common stock 974.4 142.5 0.1 1,116.8 Other investments 13.9 — — 13.9 Total investments available for sale $13,019.9 $370.2 $111.5 $13,278.6

F-14

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

The fair value hierarchy established by FAS 157, prioritizes valuation technique inputs to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The Company categorizes investments recorded at fair value as follows:

Level 1 – Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities utilizing Level 1 valuations include equity securities listed in active markets and investments in publicly traded mutual funds with quoted market prices. Level 2 – Unadjusted quoted prices for similar assets or liabilities in active markets or inputs, other than quoted prices, that are observable or that are derived principally from, or corroborated by, observable market data through correlation or other means. The types of assets and liabilities utilizing Level 2 valuations generally include U.S. Government securities, municipal bonds, structured notes and mortgage-backed and asset-backed securities, corporate debt, and certain derivatives. These generally provide the most reliable evidence and are used to measure fair value whenever available. Valuations are generally obtained from third party pricing services for identical or comparable assets or determined through the use of valuation methodologies using observable inputs.

Level 3 – Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate about the assumptions market participants would use at the measurement date in pricing the asset. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs. The Company utilizes Level 3 valuation techniques to measure the fair value of its investment in hedge funds, derivatives, and certain broker-dealer priced securities, primarily asset-backed and mortgage-backed holdings.

Investments measured at fair value on a recurring basis as of December 31, 2008, are as follows:

Level 1 Level 2 Level 3 Total Available for sale investments Fixed income securities, available for sale $ — $12,731.1 $416.7 $13,147.8 Equity securities, available for sale — 16.1 0.5 16.6 Other investments, available for sale — — 0.1 0.1 Trading investments Fixed income, trading — 288.0 — 288.0 Equity, trading — 27.2 — 27.2 Other invested assets — (2.4) (2.4) Total investments measured at fair value $ — $13,060.0 $417.3 $13,477.3

The following table summarizes financial instruments for which the Company used significant Level 3 inputs to determine fair value measurements for the year ended December 31, 2008:

Net investment

gains (losses) Balance Change in

earnings

Balance at

Jan. 1, 2008 In earnings1

In other comprehensive

income 2

Purchases, sales, and

settlements

Transfers in (out) Level 3

at Dec. 31,

2008

due to assets still

held Fixed income securities, AFS $ — $ — $ — $ — $ 416.7 $ 416.7 $ (175.2) Equity securities, AFS — — — — 0.5 0.5 — Other investments, AFS 13.9 (3.6) — (10.2) — 0.1 (3.6) Total $13.9 $ (3.6) $ — $ (10.2) $ 417.2 $ 417.3 $ (178.8)

(1) Includes gains and losses on sales of financial instruments, changes in market value of investments designated as “trading”, and other-than-

temporary impairments. (2) Includes changes in market value of investments designated as “available for sale” (“AFS”).

F-15

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

The Company reviews its fair value hierarchy classifications quarterly. Changes in observability of significant valuation inputs identified during these reviews may trigger reclassification of fair value hierarchy levels of financial assets and liabilities. These reclassifications will be reported as transfers in/(out) of Level 3 in the beginning of the period in which the change occurs. Generally it is the Company’s strategy to invest in high quality securities, while maintaining diversification to avoid significant exposure to concentrations by issuer, industry, or country. In addition to U.S. Treasury securities, the Company’s investment in the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), and Federal Home Loan Bank (“FHLB”) exceeded 10% of stockholder’s equity. The majority of these holdings are comprised of mortgage-backed securities. The fair value of these securities at December 31, were as follows:

2008 2007FNMA $2,278.2 $1,787.9 FHLMC 1,471.0 1,457.5 FHLB 294.9 243.0

The amortized cost and fair value of fixed income securities available for sale at December 31, 2008, 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.

2008Amortized cost Fair value

Due to mature: One year or less $ 300.5 $ 258.5 After one year through five years 4,251.0 4,273.3 After five years through ten years 2,927.8 2,926.9 After ten years 1,818.4 1,923.0 Mortgage-backed securities 3,717.2 3,766.1 Total fixed income securities $13,014.9 $13,147.8

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

Year ended December 31, 2008 2007 2006 Proceeds from sales $15,557.2 $5,732.7 $8,856.1 Gross gains realized 386.9 275.7 201.4 Gross losses realized 360.8 107.8 116.1

The Company holds certain foreign currency denominated securities in portfolios classified as “trading”, and as a result, proceeds from any sales of these securities are not included in cash flows from investing activities.

F-16

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Net unrealized appreciation (depreciation) on investments included within accumulated other comprehensive income was as follows: Year ended December 31, 2008 2007 2006 Change in unrealized appreciation (depreciation) Fixed income securities $ 16.6 $157.1 $(39.3) Equity securities (140.9) 2.1 35.7 Other investments (0.3) (2.9) (1.5) Subtotal (124.6) 156.3 (5.1) Income tax effect (43.7) 54.7 (1.8) Net change in unrealized appreciation (depreciation) (80.9) 101.6 (3.3) Balance, beginning of year 167.9 66.3 69.6 Balance, end of year $ 87.0 $167.9 $66.3 Investments with unrealized losses at December 31, 2008 and 2007, and the period of time for which they have been in a continuous loss position, are as follows:

December 31, 2008 Less than 12 months 12 months or longer Total

Fair value

Unrealized

losses

Fair

value

Unrealized

losses

Fair

value

Unrealized

losses Fixed income securities: U.S. Treasury securities and obligations of U.S. government agencies and corporations

$2162.0

$13.8

$—

$—

$2,162.0

$13.8 Obligations of states and political subdivisions

46.3

3.3

14.0

0.6

60.3

3.9 Foreign government securities

11.3

0.7

—

—

11.3

0.7 Corporate securities 1,644.7 126.8 258.7 51.2 1,903.4 178.0 Mortgage-backed securities 354.2 31.0 196.9 11.9 551.1 42.9 Total fixed income securities

4,218.5

175.6

469.6

63.7

4,688.1

239.3 Common stock 2.0 0.2 0.2 0.2 2.2 0.4 Total temporarily impaired investments

$4,220.5

$175.8

$469.8

$63.9

$4,690.3

$239.7

F-17

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

December 31, 2007

Less than 12 months 12 months or longer Total

Fair value

Unrealized

losses

Fair

value

Unrealized

losses

Fair

value

Unrealized

losses Fixed income securities: U.S. Treasury securities and obligations of U.S. government agencies and corporations

$614.0

$0.2

$54.1

$0.2

$668.1

$0.4 Obligations of states and political subdivisions

1.3

—

69.2

2.1

70.5

2.1 Foreign government securities

51.8

1.0

4.7

0.1

56.5

1.1 Corporate securities 1,290.6 47.0 600.9 18.1 1,891.5 65.1 Mortgage-backed securities 561.8 21.6 1,184.0 18.9 1,745.8 40.5 Preferred stock 8.8 2.2 — — 8.8 2.2 Total fixed income securities

2,528.3

72.0

1,912.9

39.4

4,441.2

111.4 Common stock 6.9 0.1 — — 6.9 0.1 Total temporarily impaired investments

$2,535.2

$72.1

$1,912.9

$39.4

$4,448.1

$111.5 Investments classified as available for sale are subject to regular reviews to determine if a decline in value is other than temporary. For fixed income securities, the Company individually analyzes all positions with greater emphasis on those that have, in management’s opinion, declined significantly below cost. The Company considers market conditions, industry characteristics and the fundamental operating results of the issuer to determine if declines in value are due to changes in interest rates, changes relating to a decline in credit quality, or other issues affecting the investment. The Company has the intent and ability to hold its temporarily impaired investments for a period of time to allow for a recovery of value. At December 31, 2008, fixed income securities that have been in an unrealized loss position for twelve months or longer are comprised of 62 securities with an amortized cost of $533.3 and a gross unrealized loss of $63.7. These fixed maturities mature as follows: 8% due in one to five years; 20% due in five to ten years; and 72% due in greater than ten years (calculated as a percentage of amortized cost). At December 31, 2007, fixed maturity securities that were in an unrealized loss position for twelve months or longer were comprised of 150 securities with an amortized cost of $1,952.3 and a gross unrealized loss of $39.4. These fixed maturities mature were as follows: 1% due in less than one year; 3% due in one to five years; 18% due in five to ten years; and 78% due in greater than ten years. Management believes these unrealized losses are temporary and the result of changes in market conditions, including interest rates and sector spreads. In evaluating its Alt-A and sub-prime exposed securities, the Company considers the vintage of the underlying mortgages, the prevailing default rates, and the seniority of claims within any structured investment. Multiple pricing sources are used to evaluate the price for each of these holdings. These holdings were all AA or AAA rated asset-backed securities.

F-18

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Investments in Alt-A and sub-prime mortgages and commercial mortgage-backed securities, and their unrealized changes in market value at December 31, were as follows:

2008 2007

Fair valueUnrealized gain (loss)

Fair value

Unrealized gain (loss)

Alt-A collateral mortgages $189.6 $(5.8) $485.2 $(24.6) Sub-prime collateral mortgages 85.2 (6.9) 303.2 (27.9) Commercial mortgage-backed securities 229.0 — 732.1 3.9

At December 31, 2008, the majority of the Company’s holdings in Alt-A, sub-prime and CMBS securities were written down to their fair value, as management believed that it did not have the intent to hold such securities until such time as they recovered in value or until their scheduled maturity. Write downs of these securities totaled $192.1for the year ended December 31, 2008. The Company has received all scheduled interest payments and principal repayments on such securities to date. The delinquency rates of the underlying mortgages for the Alt-A and sub-prime securities ranged from 0.1% to 16.3% at December 31, 2008. Delinquency rates are not the same as severity rates, or actual loss, but are an indication of the potential for losses of some degree in future periods. The majority of the CMBS securities were sold in the first quarter of 2009. At December 31, 2008, and 2007, the Company’s investments in fixed income securities investments available for sale were $13,147.8 or 91.5% and $12,147.9 or 80.8%, respectively, of total investments and cash. The bond portfolio is diversified within various industry segments. Fixed income security investments available for sale by market sector at December 31, were as follows:

2008 2007 Amortized Fair Amortized Fair cost Value cost value U.S. government $4,405.9 $4,549.8 $2,430.0 $2,497.7 Foreign government 595.1 627.6 354.9 369.7 State and municipal 103.1 99.7 477.3 484.2 Mortgage-backed securities 3,717.2 3,766.1 4,221.4 4,216.5 Financial 735.3 714.8 785.8 770.5 Utilities 599.3 585.0 264.3 264.3 Transportation 82.2 82.7 29.9 30.1 Health care 40.8 41.1 65.7 66.4 Natural resources 306.1 294.9 154.5 157.2 Other corporate securities 2,418.2 2,372.8 3,189.2 3,202.1 Preferred 11.7 13.3 58.6 89.2 Total $13,014.9 $13,147.8 $12,031.6 $12,147.9

Sources of net investment income were as follows:

Year ended December 31, 2008 2007 2006 Fixed income securities $591.8 $718.5 $692.9 Equity securities 8.1 31.0 25.7 Short-term investments 13.5 42.9 41.2 Other 311.1 (48.0) (9.2) Gross investment income 924.5 744.4 750.6 Investment expenses (30.6) (34.3) (33.5) Net investment income $893.9 $710.1 $717.1

Included in the category “Other” above are net realized and unrealized gains recognized on foreign exchange forward contracts of $90.2 for the year ended December 31, 2008 and net losses of $83.8 and $43.8, both realized

F-19

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

and unrealized, for the years ended December 31, 2007 and 2006, respectively. Also included in this category, are net gains of $207.0 and $19.2 on equity futures contracts for the years ended December 31, 2008 and 2007, respectively. Net realized capital investment gains (losses) were as follows:

Year ended December 31, 2008 2007 2006 Fixed income securities $ (554.2) $ 0.5 $ (56.6) Equity securities (8.0) 81.3 115.3 Other (2.8) (0.2) 3.6 Net capital gains (losses) $ (565.0) $ 81.6 $ 62.3

The net realized gains (losses) for the years ended December 31, 2008, 2007, and 2006 included write-downs of $591.0, $86.3, and $23.0, respectively, of investments available for sale, as the decline in the fair value of these securities was considered to be other than temporary. The 2008 write-downs were predominantly the result of management’s determination that it did not have the intent to hold these securities until such time as they recovered in value or until their scheduled maturity, and not the result of credit considerations. At December 31, 2008, Munich Reinsurance America held investments in two hedge funds: Blackstone Partners Investment Fund, Limited Partnership (“Blackstone”), and Sailfish MultiStrategy Fund (“Sailfish”). Blackstone is an investment partnership in which investors’ capital contributions are managed by a number of independent investment managers. Each fund manager receives a management fee in addition to a percentage of the respective fund’s investments market appreciation and profit. A net investment loss of $3.6 and $7.9 was recognized on hedge funds for the year ended December 31, 2008, and 2007, respectively. Net investment income of $2.2 was recognized on these holdings in the period ended December 31, 2006. The Company holds foreign currency denominated securities in a portfolio related to the Company’s international branch run-off operations. In 2007 the Company also invested in foreign currency denominated fixed income securities for strategic purposes. These portfolios are classified as “trading”, as it is the Company’s intent to actively trade these securities. Net losses on trading securities, both realized and unrealized, of $37.2, and $47.8 were included in net investment income for the years ended December 31, 2008, and 2007, respectively. Net gains on trading securities, both realized and unrealized, of $8.1 were included in net investment income for the year ended December 31, 2006. Munich Reinsurance America is a party to a securities lending agreement with State Street Bank and Trust Company, involving predominately U.S. Treasury and Federal National Mortgage Association (“FNMA”) securities. There were no securities on loan under this agreement at December 31, 2008; securities with a fair value of $1,582.7 million were on loan at December 31, 2007. Under this agreement, collateral must be maintained at 102% of the loaned securities market value and must have weighted average credit rating of at least AA- by Standard and Poor’s Corporation (“S&P”) or Aa3 by Moody’s Investor Services (“Moody’s”). In March 2008, a securities lending agreement with Merrill Lynch, which was comprised predominantly of tax-exempt municipal securities, with a fair value of $384.1 million at December 31, 2007, was terminated. Income from securities lending totaled $2.0 million, $7.7 million, and $6.3 million for the years ended December 31, 2008, 2007, and 2006, respectively. At December 31, 2008 and 2007, securities with a fair value of $755.2 and $747.7, respectively, were on deposit with governmental authorities as required by law. At December 31, 2008 and 2007, securities with a fair value of $618.0 and $865.7, respectively, were held in trust for the benefit of insureds under reinsurance agreements, which are ceded or retroceded to Munich Reinsurance America. Recent conditions in the securities markets, including illiquidity as well as the movement of credit spreads and interest rates, have resulted in declines in the valuation of investment securities. As a result of the illiquidity and turmoil in the U.S. fixed income markets there may be future market declines which may impact the amounts reported in the Company’s financial statements in the near-term, which today cannot be anticipated or predicted by the Company’s management. It is possible that markets will continue to reflect dislocation; therefore valuations will

F-20

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

require even greater estimation and judgment. Management will continue to evaluate its securities’ valuations and assess its holdings for other than temporary impairments. 4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The components of comprehensive income (loss) are as follows:

Year ended December 31, 2008 2007 2006 Net income (loss) $ (513.5) $ 49.6 $ (1,084.5) Net change in unrealized loss on foreign exchange

(35.0)

49.8

13.4

Net change in unrealized appreciation of investments

(80.9)

101.6

(3.3)

Net change in defined benefit plan adjustment

(92.1)

31.6

7.2

Comprehensive income (loss) $ (721.5) $ 232.6 $ (1,067.2) The components of accumulated other comprehensive income (loss) are as follows:

Net unrealized appreciation

(depreciation) of investments

Net unrealized loss on foreign

exchange

Defined

benefit plan adjustment

Total Balance at January 1, 2006 $ 69.6 $ (58.0) $ (7.2) $ 4.4 Adjustment for initial application of FAS 158, net of tax

—

—

(65.1)

(65.1)

Period change 37.0 40.9 11.1 89.0 Tax effect (12.9) (14.3) (3.9) (31.1) Reclassification adjustment for losses (gains) included in operations

(42.1)

(20.2)

—

(62.3) Tax effect 14.7 7.0 — 21.7 Balance at December 31, 2006 66.3 (44.6) (65.1) (43.4) Dividend of subsidiary companies to MAHC, net of tax

—

(2.7)

—

(2.7)

Period change 214.0 100.4 45.9 360.3 Tax effect (74.9) (35.1) (16.1) (126.1) Reclassification adjustment for losses (gains) included in operations

(57.7)

(23.9)

2.7

(78.9) Tax effect 20.2 8.4 (0.9) 27.7 Balance at December 31, 2007 167.9 2.5 (33.5) 136.9 Period change (718.1) (25.2) (142.5) (885.8) Tax effect 251.3 8.8 49.9 310.0 Reclassification adjustment for losses (gains) included in operations

593.7

(28.7)

0.8

565.8 Tax effect (207.8) 10.1 (0.3) (198.0) Balance at December 31, 2008 $ 87.0 $ (32.5) $ (125.6) $ (71.1)

F-21

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

5. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES The reconciliation of loss and loss adjustment expense reserves for the years ended December 31, 2008, 2007, and 2006 is shown below:

Year ended December 31, 2008 2007 2006 Loss and LAE reserves at beginning of period $14,574.5 $15,312.3 $15,422.0 Reinsurance recoverables on unpaid losses (11,371.8) (12,581.3) (13,544.7) Net reserves at beginning of period 3,202.7 2,731.0 1,877.3 Net incurred related to: Current period 1,723.2 1,762.2 1,742.3 Prior periods 332.3 228.8 1,068.3 Total net incurred 2,055.5 1,991.0 2,810.6 Net paid related to: Current period (310.2) (489.3) (413.5) Prior periods (653.0) (696.3) (565.7) Total net paid (963.2) (1,185.6) (979.2) Loss portfolio transfer (335.9) (354.7) (1,043.3) Foreign exchange increase (decrease) in reserves (105.0) 21.0 65.6 Net reserves at end of period 3,854.1 3,202.7 2,731.0 Reinsurance recoverables on unpaid losses 10,160.4 11,371.8 12,581.3 Loss and LAE reserves at end of period $14,014.5 $14,574.5 $15,312.3

As a result of total changes in estimates of insured events in prior years, the losses and LAE incurred increased by $332.3 in 2008, $228.8 in 2007, and $1,068.3 in 2006. Prior accident year losses incurred, totaled $316.5, $213.0, and $1,045.1 for the years ended December 31, 2008, 2007, and 2006 respectively. This adverse loss development excludes certain other prior period developments totaling $15.8, $15.8, and $23.3 for 2008, 2007, and 2006 respectively, predominantly related to accretion of workers’ compensation discount. The Company monitors its loss activity throughout the course of the year and conducts an in-depth reserve review on an annual basis. In recent years, reported losses for accident years 2001 and prior for certain lines of business were higher than had been expected the period before. In 2008 the Company incurred $316.5 of prior year losses and LAE driven by reserve increases for accident years 2001 and prior, primarily for excess workers’ compensation and asbestos liabilities. For excess workers compensation, the increase was in recognition of continued higher than expected reported loss emergence, which has been a trend since 2006. For asbestos, the increase reflects a somewhat tempered view of the impacts of recent favorable legislative and judicial trends, which are emerging somewhat slower than originally expected. The Company also recognized aggregate reserve decreases for accident years 2002 and subsequent, which were largely offset by reductions in loss cessions to various retrocessional programs with Munich Re Munich. In 2007, the Company recognized prior accident year losses of $213.0, primarily attributable to excess workers compensation and latent liabilities other than asbestos and environmental. In 2006 the Company noted higher than expected reported losses for asbestos liabilities and shifts in reporting patterns for workers’ compensation losses, resulting in a charge of $1,045.1. In 2005, Munich Re Munich extended its retrocessional support to accident years 2001 and prior by means of a loss portfolio transfer agreement (“LPT”). Under the LPT, $5,958.3 of loss reserves were ceded to Munich Re Munich on a funds withheld basis. The initial LPT transaction increased both reinsurance recoverables on paid and

F-22

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

unpaid losses and funds held under reinsurance treaties; neither premiums written nor losses incurred were impacted by this transaction. The LPT is a retroactive reinsurance contract and, as such, adverse loss development subsequent to its inception is generally deferred and will be recognized in income over the settlement period of the underlying claims. 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. Changing domestic and international reinsurance markets impact the retrocessional capacity available to all companies. As a member of the Munich Re Group, core retrocessional programs are placed with Munich Re Munich (see Note 12B – Related Party Transaction). The retrocessional coverages purchased by the Company include (i) routine coverage for its property and casualty business, (ii) catastrophe retrocessions for its property business, (iii) quota share treaties that enhance underwriting capacity, and (iv) stop loss protection (excess of loss reinsurance that indemnifies the Company against losses that exceed a specific retention). In addition, the aforementioned LPT agreement protects the Company from adverse development related to accident years 2001 and prior. The Company believes that it has minimized the credit risk with respect to its retrocessions to companies other than Munich Re Munich by monitoring its retrocessionnaires, diversifying its retrocessions and collateralizing obligations from foreign retrocessionnaires. 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. 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. Munich Re Munich (which had an A.M. Best rating of “A+” at December 31, 2008) accounted for approximately 83.8%, 84.6%, and 86.8% of the reinsurance recoverables on paid and unpaid losses at December 31, 2008, 2007, and 2006, respectively. Munich Re Munich is the only reinsurer for which the recorded recoveries are in excess of 3.0% of the reinsurance recoverable balance of $10,185.0 at December 31, 2008. 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:

Year ended December 31, 2008 2007 2006 Premiums written Direct $ 791.2 $ 729.6 $745.9 Assumed 2,525.1 2,841.1 3,013.0 Ceded (937.7) (1,208.3) (1,189.2) Net $2,378.6 $2,362.4 $2,569.7

F-23

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Year ended December 31, Premiums earned 2008 2007 2006 Direct $ 781.8 $ 746.0 $ 794.7 Assumed 2,584.1 2,883.1 2,980.6 Ceded (1,139.7) (1,232.5) (1,204.4) Net 2,226.2 2,396.6 2,570.9 Losses incurred Direct 389.8 334.7 608.2 Assumed 2,402.5 2,185.3 2,562.6 Ceded (736.8) (529.0) (360.2) Net $2,055.5 $1,991.0 $2,810.6

Ceded premiums and losses were impacted by a variable quota share program with Munich Re Munich, which

covers the majority of the business written by the Company (see Note 12B – Related Party Transactions). A ceding percentage of 25% was applicable on the variable quota share program for 2008, 2007, and 2006. Written premiums of $357.8, $568.7 and $594.7 were ceded to this program for the years ended December 31, 2008, 2007, and 2006, respectively. The 2008 written premiums were impacted by the termination of the variable quota share program at December 31, 2008, which resulted in a return of $214.6 of unearned premium. Earned premiums of $550.6, $580.8 and $612.9 were ceded to this program for the years ended December 31, 2008, 2007, and 2006, respectively. Losses of $347.2, $156.7, and $76.1 were ceded to this program for the years ended December 31, 2008, 2007, and 2006, 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 $332.1 and $328.0 at December 31, 2008 and 2007, respectively, was primarily comprised of adverse loss development covers and certain retroactive reinsurance agreements, which do not meet risk transfer guidelines. Interest accretion on the deposit asset balance was $23.4, $25.1, and $82.6 for the years ended December 31, 2008, 2007, and 2006, respectively. The majority of the increase in 2006 was due to the re-estimation of projected ultimate losses on one deposit contract, which was ceded in its entirety. The deposit liability of $154.2 and $154.8 at December 31, 2008 and 2007, respectively, was primarily comprised of adverse loss development covers and certain retroactive reinsurance agreements, which do not meet risk transfer guidelines. Interest accretion on the deposit liability balance was $39.8, $7.1, and $82.3 for the years ended December 31, 2008, 2007, and 2006, respectively. The majority of the increase in 2006, was due to the re-estimation of projected ultimate losses on one deposit contract.

F-24

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

8. FEDERAL AND FOREIGN INCOME TAXES The net deferred federal income taxes at December 31, 2008 and 2007 represent the net temporary differences between the tax bases of assets and liabilities and their amounts for financial reporting. The components of the net deferred federal income taxes, based on a tax rate of 35% at December 31, were as follows:

2008 2007 Net operating loss carry-forwards $1,429.5 $1,393.7 Loss reserves 205.5 309.4 Deferred compensation 175.7 113.1 Investment impairment 126.0 76.6 Alternative minimum and foreign tax credit carry-forwards 81.5 77.1 Unearned premiums 55.8 45.2 Capital loss carry-forward 52.6 — Other deferred tax assets 16.4 13.9 Gross deferred tax assets 2,143.0 2,029.0 Valuation allowance (1,535.1) (1,480.5) Total deferred tax assets 607.9 548.5 Deferred policy acquisition costs 68.8 58.1 Unrealized investment gains 46.4 89.4 Other deferred liabilities 8.1 45.7 Total deferred tax liabilities 123.3 193.2 Net deferred federal income taxes $484.6 $355.3

At December 31, 2008, the Company has net operating loss (“NOL”) carry-forwards for federal income tax return purposes of $4,062.0, which are available to offset future taxable income and expire over the period 2021 through 2028. The Company generated $65.4 of net operating loss carry-forwards during the year ended December 31, 2008. The Company utilized $566.3 of net operating loss carry-forwards during the year ended December 31, 2007. The Company generated $210.8 of net operating loss carry-forwards in 2006. The Company has foreign tax credit carry-forwards of $52.8 for federal income tax purposes, which are available to offset future taxable income and expire over the period 2009 through 2018. The Company has alternative minimum tax credit carry-forwards of $28.7, which are available to offset future federal regular income taxes over an indefinite period. The Company reduced alternative minimum tax credits of $6.2 in 2008 and generated additional alternative minimum tax credits of $15.0 in 2007. The Company did not generate any alternative minimum tax credits in 2006. The Company has several reinsurance contracts with Munich Re Munich. Munich Re Munich treats the net transaction amounts as non-deductible capital contributions for tax purposes. In order to avoid double taxation on a world-wide basis, the Company excludes the net amount received on these contracts from taxable income. The Company has established a contingent deferred tax liability in the event the Internal Revenue Service (“IRS”), upon audit, includes these amounts in taxable income. The following table provides a reconciliation of the changes in uncertain tax positions related to these transactions for the year ended December 31,

2008Balance at January 1 $ 148.2 Reductions for tax positions of prior years (54.5) Balance at December 31 $ 93.7

Due to the Company’s net operating loss carry-forward position, the uncertain tax positions are recorded as a contingent deferred liability. If recognized in a future period, the entire balance of the uncertain tax positions would affect the effective tax rate of the Company.

F-25

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

The Company classifies net interest expense on uncertain tax positions and any applicable penalties as a component of current tax expense. Accrued interest expense and penalties were $0.8 and $0.6 at December 31, 2008 and 2007, respectively. Although management does not expect a significant change in the level of uncertain tax positions over the next twelve months, these positions are impacted by the inherent uncertainties of the loss reserve estimation process, and therefore cannot be assured. For IRS audit purposes, all tax years prior to 2001 are closed. The deferred tax liability accrued related to the previously discussed reinsurance contracts with Munich Re Munich is $93.7 and $148.2 at December 31, 2008 and 2007, respectively. The 2008 deferred tax liability of $93.7 is applied against the following deferred tax assets: $7.8 increase in net operating loss carry-forwards, and $101.5 decrease in loss reserves. The 2007 deferred tax liability of $148.2 is applied against the following deferred tax assets: $5.2 increase in net operating loss carry-forwards, $129.5 increase in loss reserves, and $13.5 increase in unearned premiums. Management believes that the net deferred tax asset at December 31, 2008 is more likely than not to be realized. The Company establishes a “valuation allowance” for any portion of the deferred tax asset that management does not believe is more likely than not realizable. At December 31, 2008, the valuation allowance of $1,535.1 was comprised of $52.8 of foreign tax credits, $47.7 of impaired securities, and $1,434.6 of other net deferred tax assets. At December 31, 2007, the valuation allowance of $1,480.5 was comprised of $42.2 of foreign tax credits and $1,438.3 of other net deferred tax assets. The net change in the valuation allowance for the years ended December 31 was comprised of the following: 2008 2007 2006Foreign tax credits $10.6 $ 9.8 $ 1.2 Impaired securities 47.7 — — Other net deferred tax assets (3.7) 14.5 730.3 Total change in valuation allowance $54.6 $24.3 $731.5 In 2006, loss reserve charges placed a strain on the Company’s ability to generate future taxable income and realize the full benefit of its deferred tax assets. Management believes that it is more likely than not that the Company’s tax benefit stemming from the reserve charges will not be realizable. As a result, a valuation allowance of $750.0 for the year ended December 31, 2006 was established to offset the deferred tax assets. This valuation allowance was increased by $104.6 in 2008. In 2003, Munich Reinsurance America transferred a majority of the business of its United Kingdom (“U.K.”) branch to Munich Re Munich’s U.K. branch in a novation agreement. As part of the transaction, $300.0 of tax net operating losses were transferred to Munich Re Munich to be utilized by Munich Re Munich’s U.K. branch. The tax net operating losses transferred are considered “dual consolidated losses” for U.S. tax purposes and are treated as separate return limitation year (“SRLY”) losses. A valuation allowance was established, as management believed it more likely than not that the tax benefit related to the SRLY losses transferred would not be realizable. In December 2008 the remainder of the business of the Company’s U.K. branch was transferred to Great Lakes Reinsurance (U.K.) PLC. As a result of the transfer, the NOL deferred tax asset and corresponding valuation allowance of $113.5 were both reversed. In 2002, Munich Re Munich contributed a common stock holding and a limited partnership interest to the Company. When contributed these investment securities had fair values of approximately $400.0 and $140.0, respectively. On the date of transfer, there was a net difference between the aggregate book and tax bases of the contributions which created a potential future tax benefit of approximately $88.0 and potential future tax liability of approximately $20.0, respectively. A deferred tax asset and deferred tax liability were not recorded at the time of contribution since Munich Re Munich, not the Company, maintained discretion as to the ultimate disposition of the common stock and limited partnership interest, and thus the ability to trigger recognition of the federal income tax benefit and liability. In 2004, the Company sold the contributed stock back to Munich Re Munich. Munich Re Munich subsequently sold 50% of the contributed stock to an outside party which triggered $68.0 of deferred tax benefit for federal income tax purposes. Since no cash tax benefit was received by the Company, under the existing

F-26

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

tax sharing agreement between MAHC and its subsidiaries, no federal tax benefit could be recorded. As a result, a valuation allowance of $68.0 was established in the same period as the deferred tax asset, and will be maintained until such time as the cash benefit is recognizable for federal income tax purposes. At that time the tax benefit will be recorded as a contribution to capital. In 2007, Munich Re Munich sold an additional 17.8% of the contributed stock to an outside party which triggered an additional $7.0 of deferred tax benefit for Federal income tax purposes. Since no cash tax benefit was received by the Company, an additional valuation allowance of $7.0 was established. In 2008, Munich Re Munich sold the remaining 32.2% of contributed stock to an outside party which triggered an additional $12.7 of deferred tax benefit for Federal income tax purposes. Since no cash tax benefit was received by the Company, an additional valuation allowance of $12.7 was established. A consolidated U.S. Federal income tax return is filed pursuant to a tax sharing agreement between MAHC and the Company and its subsidiaries. Each company’s annual federal income tax liability is calculated on a standalone basis. Taxes on foreign income have been provided at the U.S. statutory federal income tax rate of 35%. The difference between the U.S. and foreign tax rates is provided to account for U.S. taxation (net of applicable foreign tax credits) on the future repatriation of these foreign earnings. Income tax expense (benefit) was as follows: Year ended December 31, 2008 Current Deferred Total Income-federal and foreign tax expense (benefit) $(2.9) $(17.7) $(20.6)Federal tax expense (benefit) on net realized capital gains 5.6 — 5.6 Total federal and foreign income tax expense $ 2.7 $(17.7) $(15.0) Year ended December 31, 2007 Current Deferred Total Income-federal and foreign tax expense (benefit) $(20.7) $95.7 $75.0 Federal tax expense (benefit) on net realized capital gains 45.0 (28.0) 17.0 Total federal and foreign income tax expense $ 24.3 $67.7 $92.0 Year ended December 31, 2006 Current Deferred Total Income-federal and foreign tax expense (benefit) $(6.3) $623.0 $616.7 Federal tax expense on net realized capital gains 8.3 4.1 12.4 Total federal and foreign income tax expense $ 2.0 $627.1 $629.1 Reconciliations of the differences between income taxes computed at the federal statutory tax rate and consolidated provisions for income taxes were as follows:

Year ended December 31, 2008 2007 2006 Income (loss) before taxes $(528.5) $141.6 $(455.4) Income tax rate 35% 35% 35% Tax expense (benefit) at federal statutory income tax rate (185.0) 49.6 (159.4) Tax effect of: Valuation allowance on deferred tax asset 155.4 17.3 731.5 Affiliate reinsurance tax expense 18.9 27.3 59.3 Non taxable dividend income (4.9) (5.0) (5.4) Other, net 0.6 2.8 3.1 Federal and foreign income tax expense $ (15.0) $ 92.0 $ 629.1

F-27

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

9. BENEFIT PLANS The Company provides retirement benefits for substantially all employees under a qualified non-contributory defined benefit pension plan. It provides additional benefits to certain employees whose retirement benefits exceed maximum amounts permitted by current tax law under an unfunded, nonqualified pension plan. Benefits under both plans are based on years of service and the average of the employee’s highest consecutive five years of ompensation. 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. Under IRS minimum funding regulation there was no required minimum contribution to the qualified pension plan in 2008 for the 2007 plan year. However, the Company made a discretionary contribution to the plan in the amount of $3.8 million. A minimum funding contribution of $16.8 is required to be made prior to September 15, 2009, for the 2008 plan year. Effective January 1, 2006, the Company closed its qualified and nonqualified defined benefit pension plans to newly hired employees. All new hires commencing employment after January 1, 2006, participate in a new retirement savings plan, under which the Company makes contributions to the employee’s retirement savings account. The amount of contribution is age-weighted ranging from 2.0% to 8.0% of eligible compensation. No contributions are required by employees under this new plan. Employees hired prior to January 1, 2006 and current retirees are not affected by these changes. Contributions of $0.7, $0.4 and $0.1 were made for the retirement savings plan for the years ended December 31, 2008, 2007 and 2006, respectively. 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 employees covered under the new retirement savings plan who are over the age of 55 and have ten years of service at retirement. To be eligible for the post retirement health care benefits an employee must also be covered under a Company medical insurance plan at retirement. The Company funds its obligation currently and no contributions are required by retirees over age 65. 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, 2008 and 2007, and the funded status at December 31: Other Post- Pension Benefits Retirement Benefits 2008 2007 2008 2007 Reconciliation of projected benefit obligation Obligation at January 1 $408.0 $410.3 $85.1 $94.3 Service cost 19.8 21.6 4.0 4.4 Interest cost 26.5 23.1 5.2 4.7 Plan participants’ contributions — — 0.4 0.4 Actuarial loss (gain) 38.7 (34.9) 10.0 (16.1) Benefit payments and lump sums (12.3) (12.1) (3.4) (2.6) Amendments 5.1 — — — Obligation at December 31 $485.8 $408.0 $101.3 $85.1 Reconciliation of fair value of plan assets Fair value of plan assets at January 1 $281.2 $259.3 $ — $ — Actual return on plan assets (66.2) 15.8 — — Employer contributions 5.4 18.2 3.0 2.2 Plan participants’ contributions — — 0.4 0.4 Benefit payments and lump sums (12.3) (12.1) (3.4) (2.6)Fair value of plan assets at December 31 $208.1 $281.2 $ — $ — Funded status at December 31 $(277.7) $(126.8) $(101.3) $(85.1)

F-28

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

The amounts recognized in the consolidated balance sheets at December 31, are as follows: Pension Benefits Other Benefits 2008 2007 2008 2007 Accrued benefit liability $277.7 $126.8 $101.3 $85.1 Accumulated other comprehensive income (loss), pretax

Net loss (177.7) (51.2) (13.0) (3.0) Prior service cost (5.9) (1.3) 3.4 3.9 The accumulated benefit obligation of the Company’s qualified pension plan was $318.4 at December 31, 2008, and exceeded the plan assets of $208.1 at that date. The accumulated benefit obligation of the Company’s qualified pension plan was $269.6 at December 31, 2007, and did not exceed the plan assets of $281.2 at that date. The accumulated benefit obligation of the Company’s nonqualified pension plan was $47.5 and $35.1 at December 31, 2008 and 2007, respectively. There are no plan assets in the nonqualified plan due to the nature of the plan. The following information is provided for pension plans with accumulated benefit obligations in excess of plan assets at December 31: 2008 2007 Projected benefit obligation $485.8 $49.0 Accumulated benefit obligation 365.8 35.1 Fair value of plan assets 208.1 — The weighted average assumptions used in the measurement of the Company’s benefit obligation at December 31, 2008 and 2007, are shown in the following table: Pension Benefits Other Benefits 2008 2007 2008 2007 Discount rate 6.00% 6.50% 6.00% 6.50% Rate of compensation increase 5.50% 5.50% N/A N/A The weighted average asset allocations for the qualified pension plan at December 31, 2008 and 2007 are as follows: 2008 2007 Equity securities 68.5% 69.2% Fixed income securities 31.2 30.6 Cash and short term money funds 0.3 0.2 Total plan assets 100.0% 100.0% The overall objective of the qualified pension plan is to provide for full and timely payment of retirement benefits utilizing investment policies designed to maintain adequate funding for the plan’s liability over time. The plan seeks to produce a long-term return on investment, which is based on levels of liquidity and investment risk that are prudent and reasonable, given prevailing market conditions, and recognizing the importance of the preservation of capital. The plan assets are managed as a balanced portfolio comprised of two major components: equities and fixed income securities. The goal of the equity investments is to maximize the long term growth of the plan assets, while the goal of the fixed income investments is to generate current income, provide stable periodic returns, and provide a level of protection against the possibility of a prolonged decline in the market value on the equity investments. Given the plan’s long-term objectives and short-term constraints the target allocations of the plan assets are 70% equities and 30% fixed income securities. International equity investments and below-grade fixed income securities are excluded from the asset allocation.

F-29

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

The following table provides the components of net periodic benefit cost for the years ended December 31, 2008, 2007, and 2006. Pension Benefits Other Benefits 2008 2007 2006 2008 2007 2006 Service cost $19.8 $21.6 $23.4 $4.0 $4.4 $ 5.6 Interest cost 26.5 23.1 21.6 5.2 4.7 5.2 Expected return on plan assets (22.3) (20.9) (17.4) — — — Amortization of net loss 0.8 2.9 5.8 — — 1.0 Amortization of prior service cost 0.5 0.2 0.1 (0.5) (0.4) 0.1 Net periodic benefit cost $25.3 $26.9 $33.5 $8.7 $8.7 $11.9 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 following table provides other pre-tax changes in plan assets and liabilities recognized in other comprehensive income for the years ended December 31, 2008, 2007, and 2006. Pension Benefits Other Benefits 2008 2007 2006 2008 2007 2006 Net gain (loss) for period $(127.3) $29.8 $(84.0) $(10.0) $16.1 $(19.1) Amortization of net loss 0.8 2.9 — — — — New prior service cost for period (5.1) — — — — — Amortization of prior service cost 0.5 0.2 (1.5) (0.5) (0.4) 4.4 Change in additional minimum liability — — 11.1 — — — Total recognized in other comprehensive income (loss)

$(131.1)

$32.9

$(74.4)

$(10.5)

$15.7

$(14.7)

The estimated net loss and prior service cost for the defined benefit pension plans that is expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $10.2 and $0.6, respectively. The estimated net loss and prior service cost for the post retirement health care plan that is expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $0.2 and income of $0.5, respectively The weighted average assumptions used to determine the net periodic benefit cost for the years ended December 31, are shown in the following table: Pension Benefits Other Benefits 2008 2007 2006 2008 2007 2006 Discount rate 6.50% 5.75% 5.50% 6.50% 5.75% 5.50% Expected return on plan assets 8.00% 8.00% 8.00% N/A N/A N/A Rate of compensation increase 5.50% 5.50% 5.50% N/A N/A N/A The Company determines the overall expected long-term rate of return on plan assets based on the assumption that the long-term historical performance of well-recognized indices, which are representative of long-term plan asset allocations, are reasonable indicators of future investment performance. Historical average annual returns for asset classes are adjusted to reflect the impact of current and forecasted interest rate environments. For measurement purposes, a 8.50% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2009. The rate was assumed to decrease gradually over 20 years, to a rate of 4.50% and remain at that level thereafter.

F-30

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

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: 1% Increase 1% Decrease Effect on total of service and interest cost components of net periodic postretirement health care benefit cost $ 2.1 $ (1.6) Effect on the health care component of the accumulated postretirement benefit obligation $18.3 $(14.6) Expected future benefit payments for each of the plans are as follows:

2009

2010

2011

2012

2013 2014–

2018 Pension Benefits $10.2 $11.7 $11.8 $14.0 $17.0 $133.9 Other Benefits $2.9 $3.0 $3.3 $3.5 $3.7 $23.9

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 $6.2, $6.0, and $5.6 for the years ended December 31, 2008, 2007, and 2006, respectively. Key employees are eligible for plans that provide compensation incentives based upon operating results and that reward specific individuals for performance and contribution to the success of the Company. Charges to operations for such incentives were $60.0, $42.7, and $44.6 for the years ended December 31, 2008, 2007, and 2006, respectively. 10. LONG TERM DEBT A. Senior Notes The Company has outstanding $421.4 aggregate principal amount of 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. Interest expense of $35.8 was recognized on this obligation for the year ended December 31, 2008, and $37.3 in each of the years ended December 31, 2007 and 2006. In July 2008, the Company commenced a cash tender offer (the “Tender Offer”) for all of the Notes, of which $500.0 aggregate principal were outstanding at the time. Concurrent with the Tender Offer, the Company also solicited consents from at least a majority of the holders of the Notes (the "Consent Solicitation," and together with the Tender Offer, the "Offer") to amend the indenture under which the Notes were issued (the “Indenture”) to allow holders to receive certain statutory financial reports rather than the financial reports presently required to be provided to holders in the Indenture (the "Proposed Amendment"). The Company received tenders with respect to $78.6 in aggregate principal amount of the Notes pursuant to the Company’s Offer and accepted for payment all amounts tendered. The Company did not receive the requisite consents to the Proposed Amendment to the Indenture. The Company recognized a loss of $4.1 on this transaction, which was settled in the third quarter of 2008. The Company may leave the remaining Notes outstanding, or from time to time, redeem all or a part of the Notes pursuant to the terms of the Indenture, or purchase them in privately negotiated transactions, tender offers or otherwise. The Indenture contains certain covenants, including, but not limited to, covenants imposing limitations on liens, and restrictions on mergers and sale of assets.

F-31

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

B. Bank Debt Since 2002, the Company has had outstanding a $250.0 loan with HSH Nordbank AG, formerly known as Landesbank Schleswig-Holstein Girozentrale, as lender and agent for a number of other banks (the “Loan”). The Loan had a term of three years remaining and bore interest at a fixed rate of 6.27%. Interest expense of $15.9 was recognized on this obligation in each of the years ended December 31, 2008, 2007, and 2006. In January 2009, the Company assigned the Loan to Munich Re Munich for consideration of $243.3 plus accrued interest. The assignment discharged the Company from all obligations under the Loan. 11. REGULATORY MATTERS A. Surplus and Stockholder Dividend Restrictions Statutory surplus for the insurance subsidiaries on a combined basis at December 31, 2008 and 2007, was $3,648.9 (unaudited) and $4,415.7, respectively. This decrease was primarily the result of a $500.0 million return of capital from Munich Reinsurance America to the Company, $93.8 million of net unrealized investment losses, and an increase in non-admitted assets of $125.7 for the year ended December 31, 2008. These decreases were slightly offset by combined statutory net income of $28.3 (unaudited) for the year. This statutory net income is different from the net loss reported in these financial statements, primarily due to differing accounting treatments for the LPT agreement with Munich Re Munich and deferred federal income taxes. The insurance subsidiaries had statutory net income of $493.1 (unaudited) and $617.5 for the years ended December 31, 2007, and 2006, respectively. In 2008, dividends declared and paid to the Company were $15.5 by AAIC and $5.9 by Princeton E&S. In 2007, dividends declared and paid to the Company were $13.9 by AAIC and $5.9 by Princeton E&S. In 2006, dividends declared and paid to the Company were $12.0 by AAIC and $5.0 by Princeton E&S. The Company has been dependent on management service agreements, dividends and tax allocation payments primarily from Munich Reinsurance America in order to meet its short and long term liquidity requirements, including its debt service obligations. The payment of dividends to the Company by the insurance subsidiaries is subject to limitations imposed by the Delaware Insurance Department, including the requirement that dividends be paid from available unassigned funds, as set forth in the most recent annual statement of the insurer. Based on these restrictions, Munich Reinsurance America cannot pay dividends in 2009 without the approval of the Insurance Department. B. Risk Based Capital The Insurance Department of the State of Delaware (the “Insurance Department”) has 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, 2008, Munich Reinsurance America’s RBC ratio was 447.4%, compared to 572.7% at December 31, 2007. An RBC ratio in excess of 200% generally requires no regulatory action. AAIC’s and Princeton E&S’s RBC ratios were also in excess of 200% at December 31, 2008 and 2007. C. Statutory Financial Condition Examinations As part of its general regulatory oversight process, the Insurance Department usually conducts financial condition examinations of domiciled insurers and reinsurers every three to five years, or at such other times as is deemed appropriate by the Insurance Commissioner. In 2009 the Insurance Department will begin a financial condition examination of the Company’s insurance subsidiaries for the triennial period 2006 through 2008.

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MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

D. Permitted Statutory Accounting Practices The financial statements of the insurance companies are prepared in accordance with accounting practices prescribed or permitted by the Insurance Department. Insurance companies domiciled in the State of Delaware are required to prepare their statutory basis financial statements in accordance with the National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures manual, subject to any difference prescribed or permitted by the State of Delaware or its insurance commissioner. Munich Reinsurance America received permission from the Commissioner of Insurance of the State of Delaware to discount its workers’ compensation tabular loss reserves using a rate of 4.5% for accident years prior to 2007, and a rate of 3.0% for accident years 2007 and subsequent. The NAIC does not allow discounting of non-tabular reserves, however Munich Reinsurance America received permission to discount its non-tabular loss reserves, at a rate consistent with its tabular reserves, for statutory accounting purposes. The permitted practice of discounting non-tabular reserves resulted in a reduction in statutory net loss reserves and an increase in statutory surplus of approximately $166.4 and $143.8 at December 31, 2007 and 2006, respectively. 12. COMMITMENTS AND CONTINGENT LIABILITIES A. Financial Guarantee Contracts In 2003, the Company exited the credit enhancement business, its primary source of financial guarantee reinsurance. The Company has two remaining assumed financial guarantee reinsurance treaties which are both in run-off status. The unearned premium reserves associated with this business were $0.9 and $8.8 at December 31, 2008 and 2007, respectively. The aggregate principal and interest amounts of financial guarantees outstanding were $116.0 and $3,042.7 at December 31, 2008 and 2007, respectively. The financial guarantee treaties are monitored for credit deterioration primarily based upon the information reported by the underlying insurer. Only one of the two treaties is currently reporting underlying obligations with credit deterioration. The surveillance categories described below are used by management to monitor, track and evaluate changes to that underlying exposure. Caution List-Low. Includes issuers where debt service protection is adequate under current and anticipated circumstances. However, debt service protection and other measures of credit support and stability may have declined since the transaction was underwritten and the issuer is less able to withstand further adverse events. Transactions in this category generally require more frequent monitoring than transactions that do not appear within a surveillance category. The underlying insurer subjects issuers in this category to high scrutiny. The Company receives regular surveillance updates from the insurer and engages in direct discussions with the insurer in the case of further significant deterioration. Caution List-Medium. Includes issuers where debt service protection is adequate under current and anticipated circumstances, although adverse trends have developed and are more pronounced than for Caution List-Low. Issuers in this category may have breached one or more covenants or triggers. These issuers are more closely monitored by the underlying insurer but take remedial action on their own. The Company receives regular surveillance updates from the insurer and engages in direct discussions with the insurer in the case of further significant deterioration. Caution List-High. Includes issuers where more proactive remedial action is needed but where no defaults on debts service payments are expected. Issuers in this category exhibit more significant weaknesses, such as low debt service coverage, reduced or insufficient collateral protection or inadequate liquidity, which could lead to debt service defaults in the future. Issuers in this category have broken one or more covenants or triggers, have not taken conclusive remedial action, and the underlying issuer adopts a remedial plan and takes more proactive remedial actions. The Company is in regular contact with the insurer regarding these policies and receives quarterly updates regarding losses, changes in case reserves and salvage potential.

F-33

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Classified List. Includes all insured obligations where the underlying insurer has paid a claim and where claim payment is probable and estimable. Generally, the underlying insurer is actively remediating these credits where possible, including restructuring through legal proceedings, usually with the assistance of a specialist counsel and advisors. The Company is in regular contact with the insurer regarding these policies and receives quarterly updates regarding losses, changes in case reserves and salvage potential. The following table provides the Company’s reinsured financial obligations with credit deterioration at December 31, 2008:

Surveillance Categories Caution

Low Caution Medium

Caution High Classified Total

Number of reinsurance contracts: 1 Number of underlying policies (with credit deterioration) 6

5

3

15 29

Remaining average contract period (in years) 12.2 4.4 11.7 3.0 Reinsured contractual payments outstanding:

Principal $ 7.5 $ 18.2 $ 2.8 $ 13.6 $ 42.1 Interest 6.6 3.6 2.0 2.6 14.8 Total $ 14.1 $ 21.8 $ 4.8 $ 16.2 $ 56.9 Gross claim liability (1) $ 8.6 $ 13.3 $ 3.0 $ 9.9 $ 34.8 Unearned premium reserve $ 0.1 $ 0.1 — — $ 0.2 Reinsurance recoverable $ 4.1 $ 6.2 $ 1.4 $ 4.7 $ 16.4

(1) The Company does not discount financial guarantee obligations. B. Related Party Transactions Munich Re Munich participates on the majority of the Company’s existing retrocessional programs. The following are the major retrocessional programs with Munich Re Munich: In 2005, Munich Re Munich extended its retrocessional support to accident years 2001 and prior by means of a loss portfolio transfer agreement (“LPT”). The purpose of the LPT is to further support the Company’s capital position and effectively mitigate the economic risk associated with potential development that may result from these accident years. This transaction does not relieve the Company of its obligation to its reinsureds for the periods covered. Under the LPT, $5,958.3 of loss reserves, net of $1,124.1 of discount on workers’ compensation reserves, were ceded to Munich Re Munich on a funds withheld basis. Similar to certain other retrocessional programs with Munich Re Munich, as the Company pays losses on policies and reinsurance contracts subject to the LPT, the funds withheld balance is drawn down. Interest accretes on the funds withheld balance at a rate of 3.94% per annum. The aggregate limit on the LPT cover is $10.1 billion. There was no impact on net income at the inception of this contract. Loss recoveries of $425.8, $475.5, and $1,164.3 were ceded to this cover, for the years ended December 31, 2008, 2007, and 2006, respectively. Of the loss recoveries ceded, $335.9, $354.7, and $1,029.3 were deferred in 2008, 2007, and 2006, respectively, and will be recognized in income over the settlement period of the underlying claims. Reinsurance recoverable of $4,868.8 and $5,478.5 was outstanding on the LPT at December 31, 2008 and 2007, respectively. The unamortized deferred gain related to changes in the amounts recoverable on this program was $1,733.9 and $1,398.0 at December 31, 2008 and 2007, respectively. The funds held balance for this program was $3,394.1 and $4,285.7 at December 31, 2008 and 2007, respectively. Interest expense on funds held was $144.0, $176.7, and $200.6 for the years ended December 31, 2008, 2007, and 2006, respectively. The Company has accident year stop loss covers with Munich Re Munich for the 2002 through 2008 accident years, where protection is available up to $500.0 for the 2008, 2007, and 2006 accident years, $450.0 for the 2005,

F-34

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

2003, and 2002 accident years, and $410.0 for the 2004 accident year. Coverage provided under the 2006 through 2008 accident year stop loss programs includes all business written by the Company's property and casualty business segments, with the exception of business classified as non-traditional. Coverage provided under the 2002 through 2005 accident year stop loss programs includes all business written by the Company, with the exception of business classified as non-traditional and workers’ compensation. The reinsurance agreement attaches below expected loss ratios for the 2005 and 2004 accident years, and above the expected combined ratios for the 2008, 2007 and 2006 accident years; related reinsurance recoveries are recorded on an undiscounted basis; with the exception of workers’ compensation. Premiums of $42.0, $83.4, and $70.0 were ceded to these covers for the years ended December 31, 2008, 2007, and 2006, respectively. Loss recoveries for prior accident years were reduced by $67.3 and $154.9 for the years ended December 31, 2008 and 2007, respectively. No loss recoveries were recorded for the 2008, 2007, or 2006 accident years. The funds held balance for these covers was $262.2 and $266.7 at December 31, 2008 and 2007, respectively. Interest expense on funds held was $12.4, $13.9, and $15.6 for the years ended December 31, 2008, 2007, and 2006, respectively. The accident year stop loss cover was not renewed for the 2009 accident year. The Company has a variable quota share retrocessional program covering the majority of business written by the Company, net of inuring reinsurance. The Company maintains the option to vary the quota share percentage during the term of the agreement. A ceding percentage of 25% was applicable on this program for 2008, 2007 and 2006. Premiums ceded to the program were $357.8, $568.7, and $594.7 for the years ended December 31, 2008, 2007, and 2006, respectively. Losses ceded to the program were $347.2, $156.7, and $76.1 for the years ended December 31, 2008, 2007, and 2006, respectively. Ceding commissions of $185.1, $208.4, and $350.3 were earned on this program in the years ended December 31, 2008, 2007, and 2006, respectively. The funds held balances for this program were $3,327.6 and $3,515.1 at December 31, 2008 and 2007, respectively. Interest expense on funds held of $50.2 and $51.9 was recognized on this program for the year ended December 31, 2008 and 2007, respectively. Net interest income of $72.5 was recognized on this program for the year ended December 31, 2006, resulting from decreases in ultimate loss reserves for prior contract years, and the loss sensitive features of the agreement. The variable quota share program was terminated effective December 31, 2008, which resulted in a return of $214.7 of unearned premium. The Company has entered into agreements to be the policy issuing company for Munich Re Munich’s aviation business written in the U.S. for underwriting years 2003 - 2008. Premiums written of $75.9, $101.1, and $122.4, and losses incurred of $53.4, $89.6, and $68.6 for the years ended December 31, 2008, 2007, and 2006, respectively, were 100% ceded to Munich Re Munich under this agreement. The Company earned a net commission of 3% of premium written, or $2.3, $3.0, and $3.7, for the years ended December 31, 2008, 2007, and 2006, respectively, for this agreement. The Company has an accident year stop loss program covering its health care business. Premiums written of $10.0, $11.5 and $10.0 were ceded to this program for the years ended December 31, 2008, 2007, and 2006, respectively. Losses of $14.9 and $40.3 were ceded to this program for the years ended December 31, 2008 and 2007, respectively. No losses were ceded to this program in 2006. Prior to 2006 the Company had a quota share reinsurance program covering 90% of its health care business, net of inuring reinsurance. Loss recoveries from this program were reduced by $2.0 and $4.3 for the year ended December 31, 2008 and December 31, 2007, respectively. Losses incurred of $7.1 were ceded to this agreement for the year ended December 31, 2006. This treaty was commuted in the third quarter of 2008; as a result there was no funds held balance at December 31, 2008. The funds held balance for this program was $56.5 at December 31, 2007. Interest expense on funds held was $2.3, $2.9 and $7.0 for the years ended December 31, 2008, 2007, and 2006, respectively. The Company has in place $1.0 billion of aggregate excess of loss protection for adverse development on the terrorist attacks of September 11, 2001. The reinsurance agreement affords the Company coverage in excess of the gross loss reserves of $1,218.6 established for the September 11, 2001 events. There were no additional losses ceded to this cover in 2008. Ultimate losses ceded to this cover decreased by $21.8 and $10.2 in the years ended December 31, 2007 and 2006, respectively. Total premiums ceded to Munich Re Munich and its affiliated companies were $650.9, $922.7, and $921.6 for the years ended December 31, 2008, 2007, and 2006, respectively. Total losses and LAE ceded to Munich Re

F-35

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Munich and its affiliated companies were $452.2, $321.9, and $121.6 for the years ending December 31, 2008, 2007, and 2006, respectively. Total ceding commissions of $211.1, $234.0, and $378.9 were earned on programs with Munich Re Munich and its affiliated companies in the years ended December 31, 2008, 2007, and 2006. Total insurance reserves outstanding with Munich Re Munich and its affiliated companies were $8,503.2 and $9,825.1 at December 31, 2008 and 2007, respectively. Gross premiums assumed from Munich Re Munich and its affiliated companies were $84.8, $81.9, and $88.2 for the years ended December 31, 2008, 2007, and 2006, respectively. Effective December 2008, Munich Reinsurance America entered into a novation agreement with Great Lakes Reinsurance (U.K.) PLC (“Great Lakes”), a subsidiary of Munich Re Munich, to transfer the remaining insurance and reinsurance contracts of its United Kingdom branch to Great Lakes. The novation was approved by the Insurance Department and was effected by court order of the U.K High Court of Justice. The novation was recorded as a prospective transaction and allowed the Company to completely extinguish the subject liabilities from its books. The Company recorded paid losses of $140.9 and released a like amount of loss reserves. Cash of $122.2 was transferred to Great Lakes in December 2008 to effect this transaction. The remainder of the transaction was settled in the first quarter of 2009. Munich ERGO Asset Group (“MEAG”) and MEAG New York are affiliated investment advisors, and are responsible for the management of the majority of the Company’s investment portfolio. Fees paid to MEAG were $0.6, $0.9, and $0.9 for the years ended December 31, 2008, 2007, and 2006, respectively. Fees paid to MEAG New York were $9.3, $9.7, and $9.1 for the years ended December 31, 2008, 2007, and 2006, respectively. In April 2008, Munich Reinsurance America entered into a five-year revolving credit agreement with MAHC (“MAHC Credit Agreement”), which allows MAHC to borrow up to $50 from Munich Reinsurance America. Outstanding amounts under the MAHC Credit Agreement bear interest annually at a rate equal to the 90 Day London Interbank Offered Rate (“LIBOR”) plus 25 basis points. At December 31, 2008, $15.0 was outstanding under the MAHC Credit Agreement. This amount was repaid in full plus accrued interest in February 2009. 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 $5.9, $7.8, and $9.0, for the years ended December 31, 2008, 2007, and 2006, respectively. Future net minimum payments under non-cancelable leases at December 31, 2008, were estimated to be as follows:

2009

2010

2011

2012

2013 2014 and

thereafter $5.2 $5.0 $5.1 $5.1 $4.7 $5.0

D. Asbestos and Environmental-Related Claims Munich Reinsurance America’s underwriting results have been adversely affected by claims developing from asbestos and environmental-related coverage exposures (“A&E”). Reserves established by Munich Reinsurance America for A&E exposures necessarily have reflected the uncertainty inherent in estimating the ultimate future claim amounts arising from these types of exposures. Given the latent nature of A&E exposures, evolving court decisions, wide variations in coverage terms offered over multiple policy periods, and the indefinite nature of any future tort reform, A&E liabilities are subject to significant variation. These factors are particularly challenging for casualty excess-of-loss reinsurers since primary exposure information is not consistently available. Management counterbalances these risks by monitoring claims activity on a quarterly basis and diligently following judicial and legislative decisions which may impact the Company’s ultimate liabilities for these unique claims. As part of the Company’s ongoing results monitoring process, the Company reviews all reported and paid claims activity on its asbestos and environmental liabilities on a quarterly basis. In recent years there have been a large amount of newly reported claims for asbestos-related losses. One trend the Company identified was that

F-36

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

bankruptcy filings by the remaining target asbestos defendants had been increasing in recent periods. This resulted in an increase in reported asbestos claims as the liability shifted to a new class of defendants, other manufacturers and producers, which were previously viewed as less prominent. The validity, magnitude, and timing of these new claims are not as well established as that for the more traditional defendants. Reported losses for asbestos liability returned to elevated levels in 2006 after experiencing a short decline. This higher reporting level eroded established IBNR reserves more quickly than anticipated. In addition to the trends noted above, recent years have seen an increase in the number of non-impaired claimants, which may also drive the higher reporting activity. Conversely, the industry has recently seen some favorable legislative changes and judicial decisions, which should serve to mitigate these trends. In order to assess the impacts of these various trends on reserve levels, the Company again performed an in-depth analysis of its asbestos reserves. Based upon this analysis, management increased the Company’s asbestos reserves by $600.0 at December 31, 2006. In 2007, the Company’s actuarial staff reviewed A&E claims using consistent actuarial methodologies. Reported loss activity for both asbestos and environmental liabilities had remained stable over the period since the 2006 review, therefore, no reserve action was taken for theses liabilities in 2007. During 2008 the Company again reviewed its A&E liabilities, considering the assumptions imbedded in the 2006 reserve analysis. The 2006 analysis assumed that emerging legislative and judicial trends would favorably impact asbestos settlement activity, but that the favorable impacts would manifest themselves within the Company’s reported loss emergence over a period of time. While these favorable trends still appear to be developing, based upon current internal and external information, it is believed that the associated favorable impacts will take longer than originally anticipated to fully manifest themselves within the Company’s results. Based upon this assessment, management increased the Company’s asbestos reserves by $200. 0 at December 31, 2008. The Company had A&E exposure loss reserves, at December 31, as follows:

2008 2007 Gross Net Gross Net Asbestos $1,709.1 $1,205.3 $1,535.1 $1,070.9 Environmental-related liability 310.7 238.8 337.5 263.2 Total $2,019.8 $1,444.1 $1,872.6 $1,334.1

Net loss reserves reflect specific reinsurance contracts, prior to the application of adverse loss development retrocessional agreements, including the LPT. Net loss reserves would effectively be zero after the application of these corporate retrocessional agreements. Loss reserves for A&E exposures at December 31, 2008 and 2007, represent best estimates drawn from a range of possible outcomes based on currently known facts, projected forward using assumptions and methodologies considered reasonable. There can be no assurance that future losses resulting from these exposures will not have a material adverse effect on future earnings. E. Litigation

The Company is involved in non-claim litigation incidental to its business principally related to insurance company insolvencies or liquidation proceedings in the ordinary course of business. Also, in the ordinary course of business, the Company is sometimes involved in adversarial proceedings incidental to its insurance and reinsurance business. The amounts at risk in these proceedings are taken into account in setting loss reserves.

The Company is cooperating with various federal and state governmental investigations as more fully described

below. Also, the Company is a defendant in a number of adversarial proceedings described below involving activities incidental to the investigations.

Based upon its familiarity with or review and analysis of such matters, the Company believes that none of the

pending litigation matters will have a material adverse effect on the consolidated financial statements of the Company. However, no assurance can be given as to the ultimate outcome of any such litigation matters.

Investigations with Respect to Broker Compensation and Certain Loss Mitigation Insurance Products. In

October, 2004, the Attorney General of the State of New York filed a civil lawsuit against Marsh & McLennan

F-37

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Companies, Inc. and Marsh Inc. for alleged fraud and anti-competitive practices in the insurance industry. The lawsuit, an outgrowth of the Attorney General's investigation into broker compensation practices, specifically, agreements known as "placement service agreements" or "contingent commission arrangements", was settled in 2005. Munich Reinsurance America, including Specialty Markets, formerly known as Munich-American RiskPartners, a division of Munich Reinsurance America, was referenced in the Attorney General’s complaint and received subpoenas with respect to the Attorney General’s investigation. Subpoenas from other state Attorneys General and inquiries from several state insurance departments have also been received. Although settlement discussions have not been pursued by the various Attorneys General, management believes that settlement discussions may be continued at any time upon little or no notice with these regulators. On November 25, 2008 Munich Reinsurance America, Inc., (and its insurer affiliates American Alternative Insurance Corporation, and The Princeton Excess and Surplus Lines Insurance Company) entered into a settlement and cooperation agreement with the Attorney General of the State of Ohio and the Ohio Department of Insurance whereby the State of Ohio agreed to terminate its inquiries with respect to the Company and to fully release the Company from all claims, relating thereto, and Munich Reinsurance America, Inc and its insurer affiliates agreed to continue to cooperate in any ongoing investigations. No monetary payment was associated with this agreement with the Ohio authorities.

The U.S. Securities and Exchange Commission (“SEC”), the New York Attorney General, the Department of

Justice (U.S. Attorney’s Office for the Southern District of NY) and the States of Georgia and Delaware have made inquiries with respect to "certain loss mitigation insurance products". Munich Reinsurance America has responded to all such requests for information and will continue to cooperate fully with such inquiries.

Management has established a reserve of $5.0 in connection with certain of the above referenced proceedings.

In view of the uncertainties discussed above, the Company could incur charges in excess of the currently established accrual and, to the extent available, any third party recoveries. In the opinion of management, any such future charges, individually or in the aggregate, would not have a material adverse effect on the consolidated financial statements of the Company.

Class Action Lawsuits. Munich Reinsurance America and certain of its affiliates have been named as defendants

in ten class actions brought in various state and U.S. federal courts, all of which have been transferred by the Judicial Panel on Multidistrict Litigation to the U.S. District Court for the District of New Jersey and consolidated in the action entitled In Re Insurance Brokerage Antitrust Litigation (“In Re Insurance Brokerage”).

All ten actions are essentially similar as each relies heavily on the information stated in the New York Attorney

General’s complaint against Marsh discussed above which has now been settled by Marsh. The complaints, in summary, allege that the broker defendants failed to adequately disclose contingent fee arrangements or placement services agreements and in so doing breached their fiduciary duty as brokers to the insureds. In addition, these complaints allege that the insurer defendants, including Munich Reinsurance America and certain of its affiliates, violated the Federal Racketeer Influenced and Corrupt Organization Act and that collectively, the defendants entered into a conspiracy and a pattern of “racketeering activity” by engaging in a common course of conduct to steer insurance business to certain carriers, to manipulate the bidding process for insurance placements, and thereby engaged in a “broker/insurer enterprise” with the resulting unlawful effect of manipulating the market for insurance. Other allegations include violations of the federal and state anti-trust laws, the duty of fiduciary care, breach of contract, misrepresentation, and other states’ anti-trust and unfair and deceptive practices laws. The relief asked for includes certification of the respective class, treble damages, an accounting with respect to contingent fees by each defendant, and other relief, including costs and fees. An amended complaint in In Re Insurance Brokerage was filed on August 15, 2005. On April 5, 2007, the Court granted the defendants' motion to dismiss the complaint, ruling that plaintiffs did not meet their burden to sufficiently allege a “conspiracy” to violate the Sherman Antitrust act nor to sufficiently allege violations of the RICO statute and other laws.

The Court permitted the plaintiffs to amend their complaint within thirty days which plaintiffs did on May 22,

2007. The Defendants then made motions to dismiss the newly-amended complaint on June 21, 2007 and the Plaintiffs responded in July 2007. The Court granted the Defendant's motion to dismiss the Antitrust and RICO claims in August and September 2007. The Plaintiffs filed an appeal in October 2007. All further discovery has been stayed pending the appeal. Munich Reinsurance America will continue to aggressively defend these matters.

F-38

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

F-39

13. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments at December 31, 2008 and 2007, were as follows:

2008 2007 Carrying Fair Carrying Fair value value value Value Assets: Available for sale Fixed income securities $13,147.8 $13,147.8 $12,147.9 $12,147.9 Equity securities 16.6 16.6 1,116.8 1,116.8 Other investments 0.1 0.1 13.9 13.9 Trading Fixed income securities 288.0 288.0 531.5 531.5 Equity securities 27.2 27.2 11.3 11.3 Other invested assets 136.4 136.4 143.1 143.1 Short term investments 601.5 601.5 744.0 744.0 Total investments 14,217.6 14,217.6 14,708.5 14,708.5 Cash and cash equivalents 145.7 145.7 326.7 326.7 Premiums and other receivables 1,427.6 1,427.6 1,159.2 1,159.2

Liabilities: Bank debt 250.0 243.3 250.0 253.7 Senior notes 420.3 441.0 498.7 537.9

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. 14. SEGMENT REPORTING In 2007 the Munich Re Group and Munich Re America announced a new strategy to achieve the full potential of the U.S. property-casualty market through underwriting excellence and sustainable profitable growth over the course of the market cycle. As part of this strategy, beginning in 2008, the Company has a new operating structure aligned by client type. The new underwriting divisions are: National Clients, Regional Clients, Specialty Markets, and Broker Market. In 2008, management’s review of financial results again focuses on its property and casualty (“P&C”) business segments, comprised of its reinsurance divisions as a group and its insurance division. Segment information for the years ended December 31, 2007 and 2006, has been restated to reflect the Company’s new operating structure. The underwriting results of the P&C segments are management’s key focus in evaluating the underwriting performance of the Company. These results are reviewed on a “gross less specific retrocessions” basis. Specific retrocessions are those underwritten within the business segment and generally designed to reduce the net liability on individual risks. Other retrocessional programs underwritten on a corporate basis and designed to protect the overall surplus of the insurance subsidiaries are not included in the property and casualty underwriting results. These retrocessions, in addition to the underwriting results of health care business and other business segments in run-off, are aggregated to reconcile the P&C segments underwriting results to the consolidated statements of operations. Elements of underwriting results 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.

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Year ended December 31, 2008

Reinsurance

Insurance

Total P&C

Total

Corporate & Other

Total Revenues Gross premiums written $1,880.8 $666.7 $2,547.5 $768.8 $3,316.3 Net premiums written 1,875.2 493.8 2,369.0 9.6 2,378.6 Premiums earned 1,909.7 501.7 2,411.4 (185.2) 2,226.2 Net investment income 893.9 Net realized capital losses (565.0) Other income 143.2 Total revenue 2,698.3 Losses and Expenses Losses and LAE 1,480.8 438.9 1,919.7 135.8 2,055.5 Underwriting expense 621.2 175.3 796.5 16.8 813.3 Interest expense 51.9 Interest on ceded funds held 223.3 Other expense 82.8 Total losses and expenses 3,226.8 Income before income taxes (528.5) Underwriting gain (loss) $(192.3) $(112.5) $(304.8) $(337.8) $(642.6)

Loss and LAE Ratio 77.5% 87.5% 79.6% N/M 92.3% Underwriting Expense Ratio 32.5% 34.9% 33.0% N/M 36.5% Combined Ratio 110.0% 122.4% 112.6% N/M 128.8%

F-40

N/M = not meaningful

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Year ended December 31, 2007

Reinsurance

Insurance

Total P&C

Total

Corporate & Other

Total Revenues Gross premiums written $2,021.9 $680.5 $2,702.4 $868.3 $3,570.7 Net premiums written 2,015.9 465.8 2,481.7 (119.3) 2,362.4 Premiums earned 2,028.9 497.7 2,526.6 (130.0) 2,396.6 Net investment income 710.1 Net realized capital losses 81.6 Other income 22.4 Total revenue 3,210.7 Losses and Expenses Losses and LAE 1,220.4 429.2 1,649.6 341.4 1,991.0 Underwriting expense 617.6 143.8 761.4 (48.8) 712.6 Interest expense 53.3 Interest on ceded funds held 255.2 Other expense 57.0 Total losses and expenses 3,069.1 Income before income taxes 141.6 Underwriting gain (loss) $190.9 $(75.3) $115.6 $(422.6) $(307.0)

Loss and LAE Ratio 60.2% 86.2% 65.3% N/M 83.1% Underwriting Expense Ratio 30.4% 28.9% 30.1% N/M 29.7% Combined Ratio 90.6% 115.1% 95.4% N/M 112.8%

F-41

N/M = not meaningful

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

Reinsurance

Insurance

Total P&C

Total

Corporate & Other

Total Revenues Gross premiums written $2,078.5 $721.5 $2,800.0 $958.9 $3,758.9 Net premiums written 2,077.9 496.4 2,574.3 (4.6) 2,569.7 Premiums earned 2,099.4 474.0 2,573.4 (2.5) 2,570.9 Net investment income 717.1 Net realized capital losses 62.3 Other income 106.6 Total revenue 3,456.9 Losses and Expenses Losses and LAE 1,019.0 563.9 1,582.9 1,227.7 2,810.6 Underwriting expense 599.4 136.6 736.0 (91.3) 644.7 Interest expense 53.3 Interest on ceded funds held 158.0 Other expense 245.7 Total losses and expenses 3,912.3 Income before income taxes (455.4) Underwriting gain (loss) $481.0 $(226.5) $254.5 $(1,138.9) $(884.4)

Loss and LAE Ratio 48.5% 119.0% 61.5% N/M 109.3% Underwriting Expense Ratio 28.6% 28.8% 28.6% N/M 25.1% Combined Ratio 77.1% 147.8% 90.1% N/M 134.4%

Year ended December 31, 2006

N/M = not meaningful

F-42

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions)

F-43

15. UNAUDITED QUARTERLY FINANCIAL DATA The following summarized quarterly financial data is unreviewed and unaudited by the Company’s independent auditors.

2008 First Second Third Fourth

Operating Data Premiums written $515.6 $576.1 $636.9 $650.0 Premiums earned 546.3 555.4 596.5 528.0 Losses and LAE 378.8 387.6 554.3 734.8 Underwriting expenses 188.2 194.6 195.8 234.7 Underwriting gain (loss) (20.7) (26.8) (153.6) (441.5) Net investment income 281.6 188.1 235.2 189.0 Interest expense 13.3 13.3 12.9 12.4 Net income (loss) to common stockholder 180.4 (3.9) (90.9) (599.1) Comprehensive income (loss) 62.7 (119.6) (224.1) (440.5)

2007 First Second Third Fourth

Operating Data Premiums written $603.8 $503.4 $707.5 $547.7 Premiums earned 611.8 583.4 617.6 583.8 Losses and LAE 421.0 409.5 393.4 767.1 Underwriting expenses 170.0 179.7 166.0 196.9 Underwriting gain (loss) 20.8 (5.8) 58.2 (380.2) Net investment income 175.3 182.7 143.4 208.7 Interest expense 13.3 13.3 13.3 13.4 Net income (loss) to common stockholder 96.9 53.0 59.5 (159.8) Comprehensive income (loss) 98.6 (38.3) 178.2 (5.9)

SCHEDULE I

MUINICH RE AMERICA CORPORATION SUMMARY OF INVESTMENTS

OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 2008 (Dollars in millions)

Amount at

which Amortized Fair shown in the Type of Investment cost value balance sheet Fixed income securities: Fixed income securities available for sale: U.S. Government and government agencies ................... $4,405.9 $4,549.8 $4,549.8 States, municipalities and political subdivisions ........... 103.1 99.7 99.7 Mortgage-backed securities ............................................ 3,717.2 3,766.1 3,766.1 Foreign governments... ................................................... 595.1 627.6 627.6 Public utilities... .............................................................. 599.3 585.0 585.0 Corporate bonds.............................................................. 3,582.6 3,506.3 3,506.3 Preferred securities ......................................................... 11.7 13.3 13.3 Total fixed income securities available for sale 13,014.9 13,147.8 13,147.8 Fixed income securities trading.......................................... 288.0 288.0 288.0 Total fixed income securities ................................... 13,302.9 13,435.8 13,435.8 Equity securities: Common stock available for sale: Banks, trust and insurance companies ............................ 0.5 0.5 0.5 Industrial and miscellaneous and all other ...................... 14.6 16.1 16.1 Total equity securities available for sale ................. 15.1 16.6 16.6 Equity securities trading ..................................................... 27.2 27.2 27.2 Total equity securities ............................................. 42.3 43.8 43.8 Other investments available for sale ........................................ 0.1 0.1 0.1 Short term investments ............................................................ 601.5 601.5 601.5 Other invested assets ............................................................... 136.4 136.4 136.4 Total investments .................................................... $14,083.2 $14,217.6 $14,217.6

S-1

SCHEDULE II

MUNICH RE AMERICA CORPORATION CONDENSED FINANCIAL INFORMATION

CONDENSED BALANCE SHEETS December 31, 2008 and 2007

(Dollars in millions)

December 31, 2008 December 31, 2007 Assets Investment in subsidiaries $2,161.0 $3,426.8 Bonds available for sale, at fair value (amortized cost: December 31, 2008 and 2007 — $458.5 and $39.0 respectively)

501.4

40.4 Short term investments 6.8 21.9 Cash 8.8 0.1 Accrued investment income 6.2 0.5 Goodwill 12.9 12.9 Deferred financing fees 3.2 3.9 Deferred federal income taxes 9.2 48.3 Other assets 0.1 3.9 Total assets $2,709.6 $3,558.7 Liabilities Interest payable $ 15.1 $ 14.5 Current federal income taxes payable 5.1 6.6 Senior notes 420.3 498.7 Bank debt 250.0 250.0 Other liabilities 8.5 9.4 Total liabilities 699.0 779.2 Stockholder’s Equity Common stock — — Additional paid in capital 5,649.1 5,649.1 Accumulated deficit (3,567.4) (3,006.5) Accumulated other comprehensive income (loss) (71.1) 136.9 Total stockholder’s equity 2,010.6 2,779.5 Total liabilities and stockholder’s equity $2,709.6 $3,558.7

S-2

SCHEDULE II

MUNICH RE AMERICA CORPORATION CONDENSED FINANCIAL INFORMATION

CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)

Years Ended December 31, 2008, 2007, and 2006 (Dollars in millions)

Year ended December 31, 2008 2007 2006 Revenue Net investment income $ 9.2 $ 2.1 $ 1.6 Net realized capital gains (losses) 3.6 — (0.3) Other income 42.3 35.8 30.7 Total 55.1 37.9 32.0 Expenses Interest expense 51.9 53.3 53.3 Operating expenses 7.2 1.6 0.8 Total expenses 59.1 54.9 54.1 Operating income (loss) before federal income taxes

(4.0)

(17.0)

(22.1)

Federal income taxes — (6.4) (5.0) Income (loss) before equity in undistributed net income of subsidiaries

(4.0)

(10.6)

(17.1) Equity in undistributed net income (loss) of subsidiaries

(509.5)

60.2

(1,067.4)

Net income (loss) to common stockholder (513.5 49.6 (1,084.5) Accumulated deficit at beginning of period (3,006.5) (3,056.1) (1,971.6) (3,520.0) (3,006.5) (3,056.1) Dividends paid to parent company (47.4) — — Accumulated deficit at end of period $(3,567.4) $(3,006.5) $(3,056.1)

S-3

SCHEDULE II

MUNICH RE AMERICA CORPORATION CONDENSED FINANCIAL INFORMATION

CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31, 2008, 2007, and 2006

(Dollars in millions)

Year ended December 31, 2008 2007 2006

Cash Flows From Operating Activities: Net income (loss) to common stockholder $(513.5) $ 49.6 $(1,084.5) Adjustments to reconcile net income to cash provided by operating activities:

Equity in undistributed net loss (income) of subsidiaries

509.5

(60.2)

1,067.4

Increase in accrued investment income (5.7) — — Increase (decrease) interest payable 0.6 — — Change in net inter-company balances 4.6 (1.9) (0.2) Decrease (increase) in current and deferred federal income tax asset

22.5

11.3

(1.9)

Net realized capital (gains) losses (3.6) — 0.3 Change in other, net 4.8 1.6 (2.6)

Net cash provided by (used in) operating activities

19.2

0.4

(21.5)

Cash Flows From Investing Activities: Investments available for sale Purchases (712.7) (65.4) (24.9) Maturities — 1.3 — Sales 296.0 47.7 39.7 Dividends received from subsidiaries 21.4 19.8 17.0 Return of capital from subsidiary 500.0 — — Net purchases and sales in short term investments 15.1 (3.8) (14.7) Net cash provided by (used in) investing activities

119.8

(0.4)

17.1

Cash Flows From Financing Activities: Partial extinguishment of Senior Notes (82.9) — — Dividends paid to shareholders (47.4) — — Net cash used in financing activities

(130.3)

—

—

Net increase (decrease) in cash 8.7 — (4.4) Cash and cash equivalents, beginning of period 0.1 0.1 4.5

Cash and cash equivalents, end of period $ 8.8 $ 0.1 $ 0.1

Supplemental Cash Flow Information: Income taxes paid $ (10.5) $ (13.8) $ 7.1 Interest paid $ (51.2) $ (53.1) $ (53.1) Supplemental Schedule of Noncash Financing Activities

Dividend of subsidiary companies to MAHC $ — $ (14.6) $ —

S-4

S-5

SCHEDULE II—CONDENSED FINANCIAL INFORMATION MUNICH RE AMERICA CORPORATION

NOTES TO CONDENSED FINANCIAL INFORMATION

The condensed financial information of Munich Re America Corporation for the years ended December 31, 2008, 2007, and 2006, should be read in conjunction with the consolidated financial statements of Munich Re America Corporation and subsidiaries and the notes thereto. Certain 2007 and 2006 financial statement presentations have been reclassified to conform with the 2008 presentation. Investment in subsidiaries is recorded using the equity method of accounting.

SCHEDULE III MUNICH RE AMERICA CORPORATION

SUPPLEMENTAL INSURANCE INFORMATION (Dollars in millions)

Deferred Net unpaid Claims policy

acquisition benefits, losses, claims and loss

Unearned

Earned

Net investment

and claim adjustment

Amortization of deferred policy

Underwriting Premiums

Segment costs expenses premiums premiums income (1) expense acquisition costs expenses written Year ended December 31, 2008 Reinsurance $159.7 $9,508.5 $580.4 $1,909.7 — $1,480.8 $188.2 $621.2 $1,875.2 Insurance 32.0 3,064.9 282.3 501.7 — 438.9 36.3 175.3 493.8 Other 4.9 (8,719.3) 74.8 (185.2) — 135.8 (58.5) 16.8 9.6 Total $196.6 $3,854.1 $937.5 $2,226.2 — $2,055.5 $166.0 $813.3 $2,378.6 Year ended December 31, 2007 Reinsurance $188.2 $8,987.6 $621.9 $2,028.9 — $1,220.4 $184.1 $617.6 $2,015.9 Insurance 36.3 3,379.7 281.2 497.7 — 429.2 45.8 143.8 465.8 Other (58.5) (9,164.6) 82.9 (130.0) — 341.4 (61.9) (48.8) (119.3) Total $166.0 $3,202.7 $986.0 $2,396.6 — $1,991.0 $168.0 $712.6 $2,362.4 Year ended December 31, 2006 Reinsurance $184.0 $7,739.8 $618.6 $2,099.4 — $1,019.0 $183.8 $599.4 $2,077.9 Insurance 41.5 3,528.2 396.0 474.0 — 563.9 36.8 136.6 496.4 Other (57.5) (8,537.0) 32.1 (2.5) — 1,227.7 (57.2) (91.3) (4.6) Total $168.0 $2,731.0 $1,046.7 $2,570.9 — $2,810.6 $163.4 $644.7 $2,569.7

S-6

(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.

SCHEDULE IV

MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES REINSURANCE

(Dollars in millions, except percentages) Ceded to Assumed Percentage Gross other from other Net of amount amount companies companies amount assumed to net Year ended December 31, 2008: Life insurance in force $— $— $— $— Premiums: Life insurance $— $— $— $— —% Accident and health insurance 30.1 54.0 640.8 616.9 103.9 Property-liability insurance 751.7 1,085.7 1,943.3 1,609.3 120.8 Title insurance — — — — — Total Premiums $781.8 $1,139.7 $2,584.1 $2,226.2 116.1% Ceded to Assumed Percentage Gross other from other Net of amount amount companies companies amount assumed to net Year ended December 31, 2007: Life insurance in force $— $— $— $— Premiums: Life insurance $— $— $— $— —% Accident and health insurance — 78.4 820.0 741.6 110.6 Property-liability insurance 746.0 1,154.1 2,063.1 1,655.0 124.7 Title insurance — — — — — Total Premiums $746.0 $1,232.5 $2,883.1 $2,396.6 120.3% Ceded to Assumed Percentage Gross other from other Net of amount amount companies companies amount assumed to net Year ended December 31, 2006: Life insurance in force $— $— $— $— Premiums: Life insurance $— $— $— $— —% Accident and health insurance — 111.9 1,026.5 914.6 112.2 Property-liability insurance 794.7 1,092.5 1,954.1 1,656.3 118.0 Title insurance — — — — — Total Premiums $794.7 $1,204.4 $2,980.6 $2,570.9 115.9%

S-7

SCHEDULE VI MUNICH RE AMERICA CORPORATION AND SUBSIDIARIES

Supplemental Information (For Property-Casualty Insurance Underwriters) (Dollars in millions)

Reserves for

Discount, Claims and claim adjustment expenses

Amortization

Deferred policy

unpaid claims and claims

if any deducted

Net incurred

related to: of deferred

policy Paid claims and claims

acquisition costs

adjustment expenses

in previous column

Unearned premiums

Earned premiums

investment income

current year

prior year

acquisition costs

adjustment expenses

Premiums written

Year Ended December 31, 2008 (a) Consolidated property-casualty insurance entities

$196.6

$14,014.5

Note (1)

$937.5

$2,226.2

$893.9

$1,723.2

$332.3

$166.0

$963.2

$2,378.6

(b)Unconsolidated property-casualty insurance entities

____

________

________

________

_______

_______

______ ______

________

________

________

Year Ended December 31, 2007 (a) Consolidated property-casualty insurance entities

$166.0

$14,574.5

Note (1)

$986.0

$2,396.6

$710.1

$1,762.2

$228.8

$168.0

$1,185.6

$2,362.4

(b)Unconsolidated property-casualty insurance entities

________

________

________

________

_______

_______

______ ______

________

________

________

Year Ended December 31, 2006 (a) Consolidated property-casualty insurance entities

$168.0

$15,312.3

Note (1)

$1,046.7

$2,570.9

$717.1

$1,742.3

$1,068.3

$163.4

$979.2

$2,569.7

(b)Unconsolidated property-casualty insurance entities

________

________

________

________

_______

______

______ ______

________

________

________

S-8

(1) Workers’ compensation reserves are discounted at a rate of 4.5% for accident years prior to2007 and a rate of 3.0% for accident years 2007 and subsequent. The estimated amount of discount is $2,307.6, $2,047.2, and $1,898.7 as of December 31, 2008, 2007, and 2006, respectively.