Best Affirms AGF’s ‘A+’ Rating

A.M. Best Co. announced that it has affirmed the financial strength rating of A+ (Superior) of Assurances Generales de France (AGF) and its core subsidiaries, with a negative outlook.

“The rating reflects AGF’s core status to its ultimate parent, Allianz AG, its excellent business profile and improving operating performance,” said Best. “An offsetting factor is the decline in risk-adjusted capitalisation.”

The announcement said, “AGF has a leading domestic position. In the non-life sector, AGF is the third-largest player with strong premium growth largely due to rate increases and the high retention rate. The company is also increasing its involvement in credit insurance, where it has a leading position (37% of the credit market share) since the merger of Euler Group and Hermes Kreditversicherungs-AG in 2002.”

It noted, however that the company has been losing market share in the life sector, “due in part to failure to renew two large single group policies originally written in 2001.” It is currently France’s eighth largest life company.

“AGF’s consolidated risk-adjusted capitalisation remains commensurate with the current rating level after a EUR 700 million (USD 838 million) injection from Allianz AG to offset the significant deterioration in 2002 due to considerable unrealised losses in its equity portfolio and fall in life bonus reserves,” said Best. “The sale of the stake in Credit Lyonnais and the disposals of Banque Entenial and AGF Belgium are also likely to have a positive impact on the consolidated risk-adjusted capital for 2003.”

Best also noted AGF’s “improving operating performance,” but indicated that “overall earnings deteriorated due to significantly lower investment income and declining profit margins from the French life business in 2002.”

The rating agency said it “expects higher earnings in 2003 from further improvements in underwriting performance and increased investment income in part as a result of the EUR 904 million (USD 1 billion) realized capital gains from the sale of the stake in Credit Lyonnais. In the first half of 2003, AGF already increased its profit to EUR 491 million (USD 578 million), a 17% increase from 2002.”

It also said it “expects AGF to continue its selective underwriting strategy in the non-life business and to improve its earnings to meet the profitability targets set by Allianz. AGF’s risk-adjusted capitalisation is to remain commensurate with the current rating level. Failure to meet these expectations could result in the review of AGF’s core status.”