Standard & Poor’s Ratings Services announced that it has lowered its counterparty credit and financial strength ratings on Allianz Insurance Co of Canada and Trafalgar Insurance Co. of Canada (collectively referred to as AZ Canada) to ‘BBB+’ from ‘A+’. It also said it has removed the ratings from CreditWatch where they were placed on Sept. 4, 2003, and has assigned them a negative outlook.
“The ratings on AZ Canada were lowered due to continued relatively weak (although improving) operating performance and concerns regarding the insurer’s long-term strategic importance to parent company, Allianz AG,” stated S&P credit analyst Michael Gross. “Although the insurer maintains a good business profile and is expected to be profitable in 2003, AZ Canada still has underwriting progress to achieve and faces operating challenges in a fragmented and competitive Canadian property/casualty (P/C) operating environment.”
The bulletin noted that “AZ Canada ranks 12th among P/C writers in Canada based on 2002 direct premium written (DPW). AZ Canada, with C$300 million [U.S. $231 million] in equity, maintains strong capital strength as measured by a Standard & Poor’s 2002 capital adequacy ratio of 137 percent. It’s financial strength ratings “are based upon the insurer’s good standalone franchise profile and financial characteristics complemented by some financial flexibility inherent in being a member of Germany-based insurance group Allianz AG.”
S&P explained that the negative outlook is “due to relatively weak operating performance. Although operating results have improved in 2002 and 2003 year-to-date.” The rating agency said it “would like to see continued improvement and evidence of sustainability before considering a stable outlook,” and added that “excluding any late 2003 large loss events or unexpected reserve strengthening,” it “believes that the insurer will post improved underwriting and net earnings results relative to 2002 with a combined ratio of 102 percent-105 percent and positive net income.”
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