Best Upgrades Allianz Global Specialty, Allianz France

September 15, 2008

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A+’ (Superior) from ‘A’ (Excellent) and the issuer credit rating (ICR) to “aa” from “a+” of Allianz Global Corporate & Specialty AG (AGCS), and has also upgraded the FSR to ‘A+’ (Superior) from ‘A-‘ (Excellent) and the ICR to “aa” from “a-” for Allianz Global Corporate & Specialty (France). The outlook on the ratings is stable.

Best said the rating actions reflect its view that AGCS and AGCS France are an integral part of their parent company’s (Allianz Societas Europaea [Allianz SE]) strategy. Allianz SE provides implicit support to AGCS in the form of a profit and loss absorption agreement. Other rating factors include AGCS’ excellent business profile and the adequate risk-adjusted capitalization paired with a strong operating performance.

In addition Best noted the “comprehensive restructuring and integration activities, which Allianz has undertaken “over the last several years.” The result is a “common platform for most of the industrial and specialty lines business of Allianz SE.”

Best said it “expects that further entities and portfolios of Allianz SE will be integrated into this platform in an effort to transform AGCS into Allianz SE’s single primary risk carrier for corporate and specialty risks. At the same time, AGCS further improved its systems and controls and is benefiting from the wider group’s risk management expertise. AGCS is now an integral part of the market positioning of Allianz SE, contributing a significant share of the group’s property/casualty business.”

The rating agency described AGCS’ business profile as “excellent as one of the leaders in the global industrial line and specialty line markets.” However, Best also indicated that it expects AGCS’ gross premium income to decrease by 10 to 11 percent to approximately €2.0 billion [$2.835 billion], “primarily due to a drop in indirect written business in North America and the impact of a softening market.

“AGCS’ risk-adjusted capitalization is likely to remain adequate in 2008, benefiting from higher equalization reserves and a quota share agreement with Allianz Risk Transfer. AGCS gains from a profit and loss absorption agreement, which protects the company’s balance sheet, as it requires Allianz SE to close out AGCS’ German GAAP net losses. However, in return, this agreement requires AGCS to upstream all net income to the
parent company.”

Best said it “expects AGCS’ income before tax and before equalization reserves to decline into the range of EUR 270 million to €272 million [$385.5 million] in 2008 from a net income of €292 million [$413.8 million] in 2007, with the difference driven by higher investment income in 2007. A.M. Best expects a stable combined ratio in the range of 90 percent to 91 percent in 2008, with a loss ratio between 64 percent and 66 percent impacted by softening markets, and an expense ratio between 25 percent and 26 percent, benefiting from AGCS’ cost saving efforts. The net income translates into a return on premium in the range of 23 percent to 25 percent in 2008.”

“The ratings of AGCS France reflect its operational integration into
AGCS’s global processes and management’s plans to legally integrate the entity into AGCS in the medium term,” Best explained.

Source; A.M. Best –

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