S&P Affirms Allianz Mexico Ratings; Outlook Stable

December 8, 2008

Standard & Poor’s Ratings Services affirmed its ‘A-‘ global financial strength rating and its ‘mxAAA’ national scale rating on Mexico-based Allianz Mexico Compañía de Seguros S.A. (AZMX), both with stable outlooks.

“The ratings AZMX benefit from the strategic importance of the insurer to its holding company, Allianz of America (AZOA – not rated), and its ultimate parent company, Allianz SE (AA/Stable/A-1+),” S&P explained.

“The ratings consider the implied support from the group, reflecting AZMX’s operational integration with the parent and its parental support for key strategic decisions,” stated credit analyst Laurence Wattraint. “The ratings also reflect the company’s extensive experience in underwriting large industrial risks, the diversification of new business relationships within its portfolio, and its good financial performance and capitalization. These positive factors are partially offset by the more difficult economic environment in Mexico and challenges to entry into the small and midsize enterprise market.”

S&P added that the Company’s “strategic importance to the parent is based on a number of factors. AZMX successfully operates business lines as part of its parent group’s overall insurance strategy. The Allianz brand has been completely integrated into AZMX, leveraging the parent’s strong, globally recognized brand name. Reporting is fully integrated into Allianz SE’s IT systems. Furthermore AZMX follows the parent’s guidelines by incorporating the group’s policies in each of its business segments.

“AZMX concentrates its Mexican business on large industrial corporations with which Allianz already has global relationships, and it has acquired a growing share of life insurance sold within the country. During 2008, AZMX acquired part of a fund distributor, Fondika, to expand its wealth businesses resulting in life insurance portfolio growth.

“The company’s capitalization is satisfactory for its risk profile. Capitalization levels remain good according to our capital model. Even though these levels are lower than in previous years (mainly as a result of the successful growth in its life insurance business), we expect AZMX to maintain good levels of capital in order to support its growth targets.

Expansion during 2009 is expected to be difficult due to the more volatile economic environment in Mexico. This will present a challenge for AZMX as it expands its SME market. That segment is already dominated by large, well-known competitors–an area of opportunity for AZMX.”

Wattraint explained that the stable outlook is based on S&P’s expectation that AZMX will “maintain a strong presence among second-tier insurers (in terms of size), especially because of its ability to underwrite large corporate risks. We also expect AZMX to sustain its good capitalization levels despite the expansion of its life insurance business,” she added. “Downward pressure may occur if capitalization or operating performance deteriorates in a manner not commensurate with the rating category.”

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

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