S&P Affirms Allianz ‘AA’ Ratings

July 30, 2008

Standard & Poor’s Ratings Services has affirmed its ‘AA’ long-term counterparty credit and insurer financial strength ratings on Germany’s Allianz SE (AZSE) and various core operating entities. S&P also affirmed its ‘A-1+’ short-term ratings on AZSE and various core operating subsidiaries. The outlook on all entities is stable.

“The affirmation reflects the Allianz group’s global franchise, with leading positions in major markets, very strong operating performance in its insurance and asset-management activities, and very strong financial flexibility,” stated credit analyst Karin Clemens.

S&P noted, however, that the “repeated setbacks at Allianz’s banking subsidiary, Dresdner Bank AG (Dresdner; A/Negative/A-1), the bank’s significantly weakened earnings prospects, and the resulting pressure to reduce the group’s banking exposure, are offsetting factors.”

“AZSE boasts a highly diversified portfolio both by geography and segment, with market-shaping positions in major European markets and business lines,” the bulletin continued. “Revenue growth, however, has been disappointing, particularly in the group’s U.S. life operations in recent years. Our expectation of a return to stronger profitable revenue momentum in the medium term underpins the ratings.”

S&P described 2007 as “another year of stellar operating performance, despite the poor results of the group’s banking activities. Consolidated net income reached a record high of €8.0 billion [$12.48 billion], yielding a return on reported equity of 16 percent.

“Operating profit reached €10.9 billion [$17 billion], a 5.1 percent increase from the previous year. Performance is gradually becoming more broadly based and the quality of earnings is very strong. Ongoing restructuring programs should allow Allianz to further exploit its internal earnings capacity, leading to continued very strong profitability.

“Repeated financial setbacks at Dresdner and its moderate competitive positioning partly overshadow the impressive progress Allianz has made in improving the business fundamentals of its insurance and asset-management operations. As a result, management is under pressure to find a logical strategic solution for the group’s banking activities that will limit the risk of any further setbacks to the group’s financial profile.”

Clemens added that S&P “expects Allianz to be able to handle the credit market crisis and its secondary effects, with limited impact on the profitability of its insurance and asset-management operations. We also expect internal capital generation, combined with Allianz’s strong risk-management capabilities, to ensure at least strong capitalization and that management will be able to successfully handle the sizable operational and execution risks involved in implementing Dresdner’s new legal structure in the currently fragile market environment.”

Source: Standard & Poor’s – www.standardandpoors.com

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