S&P Affirms Allianz ‘AA-‘ IFS Ratings; ‘A-1+’ Debt

October 18, 2004

Standard & Poor’s Ratings Services announced that it has affirmed its ‘AA-‘ long-term insurer financial strength and counterparty credit ratings on Germany’s Allianz AG (AZAG) and various core operating entities. S&P also said it has affirmed its ‘A-1+’ short-term ratings on AZAG with a negative outlook, following its regular review of the Group.

“The ratings on AZAG, the holding company of the Allianz group reflect the strong progress Allianz has made in its restructuring process and in improving profitability,” said S&P credit analyst Karin Clemens. The group’s very strong competitive position further supports the rating.

“These strengths are partly offset by Allianz’ profitability in life insurance, which is still not representative of its market position, and because more efficient integration between banking and insurance activities is only just starting to emerge,” Clemens continued.

S&P also noted:”Management has yet to demonstrate that it can sustain earnings momentum throughout the cycle. The negative outlook reflects that Allianz has still to demonstrate its ability to fully leverage the vast diversity of its operations.” Clemens indicated that “further improvements in the earnings performance of its life, asset management, and banking operations as well as effective cycle management will be essential to compensate for the likely weakening in the non-life market.”

S&P said it “expects Allianz to achieve an operating ROE of 10 percent in 2004 and to get close to 15 percent in 2005. Non-life insurance will continue to demonstrate strong performance even in a less benign claims environment.”

The rating agency warned, however, that “the risk of further reserve additions to Allianz’ U.S. operations remains [See related article on Fireman’s Fund, Oct. 15]. Despite this, Allianz is expected to achieve a combined ratio of at least 97 percent in 2004 and of at least 98 percent in 2005, with a view that the ratio will remain below 100 percent across the cycle. Profitability in life insurance will increase further. In addition, Dresdner Bank AG (A/Negative/A-1) will probably meet its target of a break-even net income (before restructuring expense) in 2004 and a ROE after tax of 8 percent in 2005. Allianz management is expected to remain committed to further strengthening its capital base through a mix of retained earnings, long-term funding, divestments, and capital reallocation.”

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