A.M. Best Affirms Rating of Allianz

August 8, 2002

A.M. Best Co. has affirmed the financial strength rating of A++ (Superior) of Allianz AG Consolidated, Germany.

At the same time, A.M. Best has downgraded Allianz’s debt ratings to “aa+” from “aaa.” The outlook is stable.

The rating actions reflect Allianz’s superior capitalization, excellent financial flexibility and superior business position. Offsetting these factors are Allianz’s deteriorating consolidated operating performance as a result of high losses fully sustained in 2001 from the World Trade Center (WTC), lower investment returns in its life/health business and Dresdner Bank’s weak earnings. In addition, Allianz’s management will remain challenged by the integration of Dresdner into the group.

A.M. Best continues to regard Allianz’s consolidated risk-adjusted capitalization as superior. However, the acquisition of Dresdner has increased the group’s risk profile, diluting Allianz’s absolute capital base in 2001. Prospectively, A.M. Best expects a reduction of capital requirements for Allianz’s banking operations due to reduced lending volume resulting from exiting non-European markets. However, further capital support may be necessary for its U.S. subsidiaries, Fireman’s Funds—due to reserve strengthening—and Allianz Life, to finance further growth.

Financial flexibility remains excellent, reflecting Allianz’s access to capital markets and substantial off balance revaluation reserves. However, pressure could arise from further increases in consolidated financial leverage (currently at 15.1 percent).

The acquisition of Dresdner in April 2001 strengthened the group’s position as one of the leading global asset managers with EUR 1.1 billion (U.S. 1.08 billion) under management at year-end 2001. Although Dresdner was already a distributor of Allianz life products, productivity under Allianz’s ownership has increased significantly. The group is well positioned to benefit from the newly introduced pension reform (Riester-Reform), in particular, for corporate pension schemes. Dresdner’s concentration of its loan book in Germany partially offsets Allianz’s excellent business diversification.

Allianz’s profits after tax fell significantly to EUR 2.7 billion (U.S. 2.65 billion) in 2001 from EUR 4.7 billion (U.S. 4.61 billion) in 2000—before minorities—mainly as a consequence of the WTC-related claims, lower investment returns in life/ health business, losses in the asset management division and weak earnings from Dresdner. A.M. Best expects an improved operating performance in the non- life segment in 2002, where rate increases and stricter underwriting have led to a reduction of the combined ratio to 102 percent in the first six months of 2002. The level of overall profits will depend on the situation in the capital markets but will continue to be influenced by negative earnings from Dresdner Bank because of its exposure to credit risks in Latin America and high-profile insolvencies in Germany.

Allianz will remain challenged by the integration of Dresdner Bank into the group due to the structural problem of the German banking sector and the difficult market conditions in investment banking.

A.M. Best believes Allianz’s management has the resolve to improve Dresdner’s weak operating performance. The initiated cost-cutting measures have already reduced the bank’s cost base by approximately 10 percent in the first quarter of 2002.

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