Best Downgrades Allianz Canadian Subs

March 2, 2004

A.M. Best Co. announced that it has downgraded the financial strength rating to “A-” (Excellent) from “A” (Excellent) of Allianz Insurance Company of Canada and the financial strength rating to “B+” (Very Good) from “A” (Excellent) of its affiliated company, Trafalgar Insurance Company of Canada. Best also revised its outlook on the two companies from stable to negative.

Both companies are located in Ontario and are member companies of Allianz Canada, a division of Germany’s Allianz AG. “The downgrades of Allianz and Trafalgar reflect the slower than anticipated improvement in underwriting and operating results and their capital position relative to the industry and Allianz AG,” said Best. It noted that “while it continues to recognize Allianz as a strategic subsidiary, it now views Trafalgar in an ancillary role. Loss cost inflation in the Ontario and Alberta auto lines is the primary drag on the companies’ ability to improve results in a timelier fashion and the basis for their periodic reserve strengthening actions.” Best also expressed concerns “over the challenges and distractions facing Allianz AG to improve results in its banking and life operations. These issues could also pose constraints on the parent organization’s ability to explicitly support its subsidiaries going forward.”

Best indicated that “In recent years, the companies have undertaken corrective actions to counter adverse underwriting trends including rate strengthening, more conservative underwriting and claims management practices, as well as transitioning Allianz and Trafalgar into more focused and profitable lines of business. Consequently, both companies are experiencing improvements in underwriting and operating results. Furthermore, as subsidiaries of Allianz AG, the companies benefit from its strong international product branding and market prominence.”

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