Munich Re is preparing its second big capital-raising of the year - a move which could see the world's largest reinsurer seek €4 billion to bolster its balance sheet and preserve its credit rating, according to people close to the group.

It might signal the plans - expected to involve a combination of equity and hybrid debt - as early as Thursday, when it reports second-quarter results.

The group is working to a deadline of October when its "AA" credit rating will come under pressure from rating agencies at annual reviews.

Munich Re raised €3.4 billion from euro and sterling subordinated bond issues in April, but analysts believe its balance sheet remains vulnerable after the battering its equity holdings took last year. The group wrote down the value of its investments by €5.7 billion in 2002.

Despite the bond issues, Standard & Poor's (S&P) and Moody's downgraded Munich Re by two notches following its 2002 results. Analysts believe Munich Re would risk a dramatic downgrade to the "A" range if it failed to raise fresh capital.

S&P, which is holding intensive talks with the reinsurer, is said to be convinced Munich Re is an AA-range reinsurer, but would feel compelled to downgrade if there was no sign soon of its readiness to raise capital.

Munich Re has insisted it needs no additional capital, pointing to sophisticated internal capitalisation models that, it says, back its case. But last night it signalled a shift of stance, declaring: "According to our calculations, our capital position is fundamentally strong. But we are professional enough to raise fresh capital if and when we need to." - (Financial Times Service)