Best Affirms Allianz (Italy) ‘A+’ Ratings

September 3, 2008

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa” of Allianz S.p.A. (Italy) with stable outlooks.

Best said its ratings “reflect the enhancement received from the implicit support of Allianz S.p.A.’s parent company, Allianz Societas Europaea (Allianz SE) (Germany). Other factors include Allianz S.p.A.’s excellent consolidated risk-adjusted capitalization and very good operating performance. An offsetting factor is the declining business position in the life sector and, to a lesser extent, in the non-life sector.”

As background, Best explained that “Allianz SE merged its main Italian operations into one entity (named Allianz S.p.A.) in October 2007 but combined the existing brands with the Allianz name—Allianz RAS, Allianz Lloyd Adriatico and Allianz Subalpina—for
the time being.”

As a result Best indicated that in its opinion “the new entity has significantly enhanced its business position in the Italian market, becoming the second-largest composite insurer.” “However, Best indicated that Allianz S.p.A. is “struggling in the life segment due not only to declining unit-linked sales linked to difficult equity markets, but also to disappointing sales from the Unicredit joint-venture and the loss of the Banca Antonveneta distribution channel.” Statutory life premiums for the first half of 2008 decreased by 40 percent to €3.25 billion ($4.68 billion). Best believes that this negative development is likely to continue throughout 2008.

“Allianz S.p.A.’s non-life portfolio is mainly concentrated in motor (approximately two-thirds of its overall business),” said Best, but the sector is “seeing increased competition and pressure on premiums.” As a result Best expects non-life premiums to decrease to between €4.9 billion and €5 billion ($7 to 7.2 billion) from €5.2 billion ($7.5 billion) in 2007.”

In addition Best said that, although there has been a “moderate deterioration” in the Company’s capital position from 2007, “due to declining market values in its investment portfolio,” it “”believes Allianz S.p.A. has an excellent level of risk-adjusted capitalization, benefiting from an overall less volatile non-life portfolio of private motor insurance and other personal lines.

“In addition, in life insurance, Allianz S.p.A. writes mainly unit-linked products where capital requirements are limited.” Best said it “expects Allianz S.p.A. to maintain its current level of capitalization despite relatively high dividend requirements by the parent company and the potential for further fair value adjustments from an increase in interest rates and impairments to its equity portfolio in 2008.”

In Best’s opinion, “Allianz S.p.A.’s non-life business is likely to continue to make an excellent contribution to the overall result in 2008, with a relatively stable combined ratio in the range of 92 percent-95 percent.”

Best also indicated that it “believes that the newly formed entity is likely to benefit from Lloyd Adriatico S.p.A.’s expertise in underwriting motor risk in Italy. This entity had consistently produced very strong underwriting results prior to the merger. For the life portfolio, A.M. Best expects absolute earnings to deteriorate due to decreasing life premiums. Overall earnings also will be impacted by lower investment income from declining market values.”

Source: A.M. Best –

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