S&P Affirms Allianz ‘AA’ Ratings, Stable Outlook Despite Investment Losses

November 11, 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 of the entities is stable.

“The affirmation reflects the relative resilience of AZSE’s consolidated group capital adequacy and continued sound underlying operating profitability when seen in the context of current adverse financial market and economic conditions,” explained credit analyst Karin Clemens.

S&P also indicated that the affirmation “reflects our expectation that AZSE will successfully complete the sale of Dresdner Bank AG (Dresdner; A/Negative/A-1) to Germany-based Commerzbank AG (Commerzbank; A/Negative/A-1) by the end of 2009.”

“AZSE’s very strong competitive position is a further supporting factor. Despite the likelihood of further material writedowns due to financial market conditions during the fourth quarter, we continue to expect AZSE to hold a surplus to our ‘AA’ level capital target for the financial year ended Dec. 31, 2008.

AZSE’s underlying operating performance remains sound when seen in the context of current financial market turbulence. The group announced that its continued operations posted a very respectable operating profit of €6.5 billion [$8.34 billion] for the first three quarters of 2008.”

Clemens added that the “stable outlook reflects our expectation that AZSE’s internal capital generation and strong risk management will continue to ensure very strong capitalization.”

Operating profits in 2008 and 2009 should benefit from continued strong results in property casualty insurance with a combined ratio of about 97 percent (based on a normalized level of positive reserve run-off and catastrophe losses) and return on revenue (ROR) in excess of 10 percent.

The challenging financial market and economic conditions will likely hinder any meaningful improvement in operating profits for life insurance and asset management during the fourth quarter of 2008 and for 2009. In addition, we expect the new-business margin for life and health insurance to stay between 2.5 percent and 3.0 percent. We further expect that AZSE will achieve its target of an operating profit of at least €9.0 billion ($11.46 billion) once financial markets have recovered again.

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

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