Best Affirms Allianz SE and Subsidiaries ‘A+’ Ratings

March 12, 2009

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit rating (ICR) of “aa” of Germany’s Allianz Societas Europaea (Allianz SE) and its main subsidiaries. The outlook for all of the ratings is stable.

“The ratings of Allianz SE reflect its very strong business position and strong capitalisation,” said Best. “Financial performance deteriorated significantly in 2008; however, underlying operating performance remained robust considering the prevailing market conditions.

“Allianz SE reported a significant decline in operating profit of approximately 28 percent to €7.4 billion ($ 9.3 billion) in 2008. Non-life business is likely to remain the main profit contributor to the company’s operating profit in 2009.”

Best also indicated that it “believes that Allianz SE’s combined ratio is likely to be in the range of 94 percent to 97 percent in 2009 as several of the personal lines markets experience stagnating demand, while the current economic environment will continue to depress the profitability of creditor business written by its specialist subsidiary, Euler Hermes.

“Similarly, life operating profits, which declined sharply in 2008, are unlikely to recover in 2009.” In Best’s analysis “life financial performance will be relatively stable in 2009, with the main drivers likely to be further losses in the U.S. variable annuities book, capital losses on the company’s equity portfolio and the potential for positive adjustments on its bond book.

“The remaining businesses of Allianz SE are likely to have reduced impact on the company’s financials in 2009. Pre-tax results are likely to return to profitability in 2009 following the significant loss recorded in 2008, which was due to the write-downs associated with the Dresdner sale.”

However, Best pointed out that these “losses posted by Allianz SE, combined with the sharp decline in value of in-force business (VIF) and the dividend payment of €1.6 billion [$2.04 billion], have resulted in significant reduction in economic capital.”

Nonetheless, Best said Allianz SE’s “risk-adjusted capitalisation remains in line with the current ratings following the disposal of Dresdner. Financial flexibility remains good, given that the sale is also de-leveraging the group (though the appetite of investors for providing additional capital or debt to insurers at the present moment remains uncertain). The current market conditions are likely to further depress VIF and the value of German bonus reserves, thus further reducing the level of economic capital.” However, Best added that it “believes that it is Allianz SE’s dividend policy and investment performance that are likely to be the main drivers of the company’s capitalisation during 2009.”

The rating agency characterized Allianz SE as having “a very strong business position, mainly in Continental Europe and especially in Germany, Italy and France. The decline in equity prices in 2008 resulted in significant decline in demand for unit-linked products; however, this was partly compensated by the increased demand for traditional life products and growth in some of the emerging markets.

“Non-life premiums remained relatively stable in 2008 as the decline in many mature markets was offset by increasing premiums in South America, Asia Pacific and New Europe. Assets under management have remained relatively stable at the company’s fixed income specialist (PIMCO). In A.M. Best’s opinion, reported life (IFRS) premiums are likely to continue growing in

“2009 due to continuing demand for products with embedded guarantees and healthcare covers. While some non-life business lines are likely to experience rate increases, A.M. Best believes that continuing depression in most economies is likely to result in a diminishing demand for insurance, mainly in industrial and commercial lines.”

The FSR of A+ (Superior) and ICRs of “aa” have been affirmed for the following main subsidiaries of Allianz SE:
Allianz Lebensversicherungs-AG
Allianz Versicherungs-AG
Allianz Private Krankenversicherungs-AG
Euler Hermes Kreditversicherungs-AG
Assurances Generales de France IART
Assurances Generales de France Vie
Allianz Insurance Plc
Allianz S.p.A.
Allianz Global Corporate & Specialty AG
Allianz Global Corporate & Specialty France
Allianz Global Risks US Insurance Company
Allianz Underwriters Insurance Company

Best also affirmed its ratings on the Group’s numerous bond issues and other debt instruments.

Source: A.M. Best –

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